<PAGE>
As filed with the Securities and Exchange Commission on____ __, 1999.
Registration No.__________
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, President & Treasurer
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.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Proposed Maximum Proposed Maximum
Title of Securities Being Amount Being Offering Price Aggregate Offering Amount of
Registered Registered per Share (2) Price (2) Registration Fee
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 1,650,000 $10.00 $16,500,000 $5,000.00
Shares(1)
- --------------------------------------------------------------------------------------------------------------------
</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 AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL 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>
Item Number and Caption in Form S-11 Heading in Prospectus
------------------------------------ ---------------------
<S> <C> <C>
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 of Front Cover Page; Prospectus Summary; Risk Factors
Earnings to Fixed Charges
4. Determination of Offering Price Risk Factors--Price of Shares
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 Financial Management's Discussion and Analysis of Financial
Condition and Results of Operations 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
15. Operating Data Not Applicable
2
<PAGE>
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
Consequences
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 Owners Security Ownership of Management and Others
and Management
21. Directors and Executive Officers Management; The Advisor and the Advisory Agreement
22. Executive Compensation Compensation to Advisor and Affiliates; Management
23. Certain Relationships and Related Transactions Risk Factors--Risks Relating to Management; 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 Registrant's Risk Factors; Use of Proceeds; Conflicts of Interest;
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
27. Financial Statements and Information Financial Statements
28. Interests of Named Experts and Counsel Legal Matters; Experts
29. Disclosure of Commission Position on Commission Position on Indemnification of Securities
Indemnification of Securities Act Liabilities Act Liabilities
30. Quantitative and Qualitative Disclosures About Risk Factors--Risks Related to Mortgage Lending;--Risks
Market Risk Related to Mortgage Lending to Churches;--Risks Related
to Federal Income Taxation; Distributions; Business of
the Company; Federal Income Tax Consequences
</TABLE>
3
<PAGE>
PROSPECTUS
1,500,000 SHARES
[LOGO] American Church Mortgage Company
COMMON STOCK
$10.00 PER SHARE
American Church Mortgage Company is a real estate investment trust, or
"REIT." The Company makes mortgage loans to churches and other non-profit
religious organizations. The Company also purchases debt obligations issued by
such organizations. The loans made by the Company and debt obligations purchased
by the Company are funded for the most part from net proceeds from the Company's
sales of its Common Stock. Interest earned on loans and obligations held by the
Company, together with other income generated through the Company's lending
business, are distributed to the Company's Shareholders in the form of dividends
which are paid quarter-annually.
The Company's investment objectives are to provide its investors:
- preservation of their investment capital through diversification
(loaning funds to many different borrowers and purchasing bonds
issued by many different issuers);
- greater security through investment in only mortgage-backed loans
and securities (providing collateral in the event of a default); and
- a higher level of distributable income than available in guaranteed
or government-backed fixed-income investments.
This is the Company's third public offering of Common Shares. As of
March 31, 1999 the Company had 1,183,879 shares outstanding. There is no public
market for the Shares. Shareholders may have difficulty selling their Shares
when they want to. Shareholders may have difficulty reselling Shares at the
price at which they were purchased.
INVESTMENT IN THE SHARES INVOLVES RISKS AND CONFLICTS OF INTEREST. SEE
"RISK FACTORS" AND "CONFLICTS OF INTEREST."
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED THESE SECURITIES OR DETERMINED
THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Price to Public Selling Commission Proceeds to Company
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share..................... $10.00 $.595 $9.405
- ---------------------------------------------------------------------------------------------
Total......................... $15,000,000 $892,500 $14,107,500
- ---------------------------------------------------------------------------------------------
</TABLE>
AMERICAN INVESTORS GROUP, INC.
Minneapolis, Minnesota
The date of this Prospectus is _____ __, 1999.
<PAGE>
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 who
participate in the Company's dividend reinvestment plan. The Shares offered
hereby will be sold by securities broker-dealers who are members of the National
Association of Securities Dealers, Inc. ("NASD"). American Investors Group,
Inc., an affiliate of the Advisor, serves as Underwriter of the Offering. This
Offering will be conducted on a continuous basis pursuant to applicable rules of
the Securities and Exchange Commission and will terminate not later than
____________, ______ (two years from the date hereof), subject to extension by
mutual agreement of the Company and the Underwriter, for an additional 60 days,
or until completion of the sale of the Shares, whichever first occurs. The
Company began active business operations April 15, 1996 and as of March 31, 1999
had Average Invested Assets of $8,954,750, having sold 335,481 Shares in its
initial public offering which concluded November 8, 1996 and 799,759 Shares in
its second public offering which concluded January 22, 1999. The Company intends
to continue to deploy net proceeds from the sale of Shares in this Offering as
they are sold pursuant to its investment and operating strategy. See "PLAN OF
DISTRIBUTION."
SUITABILITY: INVESTORS MUST HAVE (i) A MINIMUM ANNUAL GROSS INCOME OF
AT LEAST $45,000 AND A NET WORTH (EXCLUSIVE OF HOME, HOME FURNISHINGS AND
AUTOMOBILES) OF $45,000 OR (ii) A NET WORTH OF $150,000 WITHOUT REFERENCE TO
SUCH EXCLUSIONS. SUITABILITY STANDARDS MAY BE HIGHER IN SOME STATES. SEE "WHO
MAY INVEST."
The use of forecasts or predictions in connection with the offer of the
Shares 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 purchasing the Shares is prohibited.
THE SHARES DESCRIBED IN THIS PROSPECTUS ARE OFFERED BY THE UNDERWRITER
AND ANY SOLICITING DEALERS ON BEHALF OF THE COMPANY SUBJECT TO PRIOR SALE,
WITHDRAWAL, CANCELLATION OR MODIFICATION OF THE OFFERING BY THE COMPANY AND THE
UNDERWRITER 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 UNDERWRITER AND ANY 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 CERTIFICATES REPRESENTING THE
SHARES, 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 SHARES 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.
Investors must properly complete a Subscription Agreement and
Suitability Certificate. Subscriptions may be rejected for any reason. If your
subscription is rejected, the Company will promptly refund your money without
deduction or interest.
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 ---
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PROSPECTUS SUMMARY..................................... 4 Property (Portfolio) of the Company............ 27
The Company........................................ 4 Mortgage Loan Processing and Underwriting...... 29
Capital Stock...................................... 4 Loan Commitments............................... 30
The Offering....................................... 4 Loan Portfolio Management...................... 30
Risk Factors....................................... 5 Loan Funding and Bank Borrowing................ 30
Conflicts of Interest.............................. 5 Financing Policies............................. 31
Business Objectives and Policies................... 5 Prohibited Investments and Activities.......... 32
Dividends and Distributions........................ 6 Policy Changes................................. 33
Tax Status of the Company.......................... 7 Competition.................................... 33
Who May Invest..................................... 7 Employees...................................... 33
Summary Financial Information...................... 8 Operations..................................... 33
RISK FACTORS........................................... 9 MANAGEMENT......................................... 34
Risks Related to the Offering...................... 9 General........................................ 34
Best Efforts Offering............................ 9 Executive Compensation......................... 36
No Minimum Offering.............................. 9 Fiduciary Responsibility of Board of Directors;
Risks Related to the Company....................... 9 Indemnification............................... 36
Qualification as a Real Estate Investment Trust.. 9 Warrants and Options........................... 36
Conflicts of Interest............................ 9 SECURITY OWNERSHIP OF MANAGEMENT AND
Expenses of Offering............................. 9 OTHERS............................................ 37
Price of Shares.................................. 9 CERTAIN RELATIONSHIPS AND TRANSACTIONS
Lack of Liquidity and Absence of Public Market WITH MANAGEMENT................................... 38
Price........................................... 10 THE ADVISOR AND THE ADVISORY AGREEMENT............. 39
Certain Restrictions on Transfer of Shares....... 10 Church Loan Advisors, Inc...................... 39
Risks Related to Management........................ 10 The Advisory Agreement......................... 40
Limited Operating History........................ 10 Prior Performance of Advisor and Affiliates.... 41
Dependence Upon Advisor.......................... 10 FEDERAL INCOME TAX CONSEQUENCES.................... 41
Conflicts of Interest............................ 10 Qualification as a Real Estate Investment
Risks Related to Loan Valuation and Advisor Trust......................................... 41
Expenses........................................ 11 Failure of the Company to Qualify as a
Potential Adverse Effect of Borrowing on Cash Real Estate Investment Trust.................. 45
Flow............................................ 11 Taxation of Company's Shareholders............. 45
Dividends Dependent upon Business Operations..... 11 Taxation of Tax-Exempt Shareholders............ 45
Risks Related to Mortgage Lending.................. 11 Tax Consequences for Foreign Investors......... 45
In General....................................... 11 Backup Withholding............................. 46
Risk of Second Mortgage Loans.................... 11 State and Local Taxes.......................... 46
Risks of Fixed-Rate Debt......................... 11 Other Tax Consequences......................... 46
Competition...................................... 11 ERISA CONSEQUENCES................................. 46
Interest Rate Fluctuations....................... 12 Fiduciary Consequences......................... 46
Government Regulation............................ 12 Plan Assets Issue.............................. 47
Risks Related to Mortgage Lending to Churches...... 12 DESCRIPTION OF CAPITAL STOCK....................... 47
Source of Church Revenues........................ 12 General........................................ 47
Dependence Upon Pastor........................... 12 Warrants and Options........................... 48
Value of Mortgage Collateral- Repurchase of Shares and Restrictions on
Limited/Restricted/Single Use................... 12 Transfer...................................... 48
Expenses of Foreclosure.......................... 12 Dividend Reinvestment Program.................. 48
Potential Liability Under Environmental Laws....... 12 Repurchase of Shares by Company................ 49
Risks Related to Federal Income Taxation........... 13 Transfer Agent and Registrar................... 49
Effect of Future Changes in Tax Laws............... 13 SUMMARY OF THE ORGANIZATIONAL DOCUMENTS............ 49
WHO MAY INVEST......................................... 13 Certain Article and Bylaw Provisions........... 50
USE OF PROCEEDS........................................ 14 Board of Directors............................. 50
COMPENSATION TO ADVISOR AND Limitations on Director Actions................ 50
AFFILIATES............................................ 15 Minnesota Anti-Takeover Law.................... 50
CONFLICTS OF INTEREST.................................. 17 Restrictions on Roll-Ups....................... 50
Transactions with Affiliates and Related Parties... 17 Limitation on Total Operating Expenses......... 51
Compensation to the Advisor and Conflicts Transactions with Affiliates................... 51
of Interest....................................... 17 Restrictions on Investments.................... 52
Competition by the Company with Affiliates......... 17 PLAN OF DISTRIBUTION............................... 52
Non Arm's-Length Agreements........................ 18 General........................................ 52
Lack of Separate Representation.................... 18 Compensation................................... 52
Shared Operations Facilities....................... 18 Subscription Process........................... 53
DISTRIBUTIONS.......................................... 18 Determination of Investor Suitability.......... 53
CAPITALIZATION......................................... 20 Suitability of the Investment.................. 54
SELECTED FINANCIAL DATA................................ 21 COMMISSION POSITION ON INDEMNIFICATION FOR
MANAGEMENT'S DISCUSSION AND ANALYSIS OF SECURITIES ACT LIABILITIES........................ 54
FINANCIAL CONDITION AND RESULTS OF LEGAL MATTERS...................................... 54
OPERATIONS............................................ 22 EXPERTS............................................ 54
Plan of Operation.................................. 22 REPORTS TO SHAREHOLDERS, AND RIGHTS OF
Results of Operation............................... 22 EXAMINATION....................................... 55
Liquidity and Capital Resources.................... 24 ADDITIONAL INFORMATION............................. 56
BUSINESS OF THE COMPANY................................ 24 GLOSSARY........................................... 56
General............................................ 24 FINANCIAL STATEMENTS...............................F-1
The Company's Business Activities.................. 25 APPENDIX I.........................................A-1
Financing Business................................. 25
Current First Mortgage Loan Terms.................. 25
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
PROSPECTUS SUMMARY
THE FOLLOWING IS A SUMMARY. PROSPECTIVE INVESTORS SHOULD READ THE ENTIRE PROSPECTUS. THIS SUMMARY IS QUALIFIED IN ITS
ENTIRETY BY THE DETAILED INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO CONTAINED ELSEWHERE IN THIS PROSPECTUS. CERTAIN
TERMS USED IN THIS PROSPECTUS ARE DEFINED IN THE GLOSSARY BEGINNING AT PAGE 57.
THE COMPANY
American Church Mortgage Company is a Real Estate Investment Trust, or REIT. The Company makes mortgage-backed loans
from $100,000 to $1,000,000 to churches and other non-profit religious organizations for the purchase, construction or
refinancing of real estate and improvements. The Company commenced active business operations on April 15, 1996. The Company
concluded its initial public offering on November 8, 1996 and its second public offering on January 22, 1999. As of March 31,
1999 the Company had funded twenty-eight mortgage loans in the aggregate principal amount of $8,489,750, and had purchased for
$1,825,443 church bonds having a face value of $1,840,300. Five loans aggregating $1,442,000 have been repaid early by the
borrowers. The Company intends to lend funds pursuant to its business plan as funds from the sale of the Shares become available.
See "BUSINESS OF THE COMPANY."
The business of the Company is managed by Church Loan Advisors, Inc. (the "Advisor"), subject to the supervision of the
Company's Board of Directors. The Advisor is owned by V. James Davis, David G. Reinhart and Philip J. Myers. Messrs. Davis,
Reinhart and Myers have 14, 16 and 10 years of experience, respectively in the area of mortgage-backed lending to churches
through their current and former associations with the Underwriter (American Investors Group, Inc.). Mr. Myers is President and
Director, and Mr. Reinhart is Chairman of the Board of Directors of the Underwriter. Messrs. Davis and Reinhart are officers and
directors of the Company and Directors of the Advisor. Pursuant to the Advisory Agreement between the Company and the Advisor,
the Company must pay the Advisor advisory fees and certain expenses. The Company also pays the Advisor one-half of any
origination fees collected by the Company. See "THE ADVISOR AND THE ADVISORY AGREEMENT," "COMPENSATION TO THE ADVISOR AND
AFFILIATES" and "DISTRIBUTIONS."
The Company was incorporated in the State of Minnesota on May 27, 1994. The executive offices of the Company and the
Advisor are located at 10237 Yellow Circle Drive, Minnetonka (Minneapolis), Minnesota 55343.
Their telephone number is (612) 945-9455.
CAPITAL STOCK
The capital stock of the Company consists of 50,000,000 undesignated shares, of which the Board of Directors has
established 30,000,000 shares of Common Stock, par value $.01 per share. In order to avoid inadvertent loss of REIT status, the
Company's Articles of Incorporation impose limits on the number or percentage of the Company's outstanding shares that can be
owned by an individual or group. See "DESCRIPTION OF CAPITAL STOCK."
THE OFFERING
<S> <C>
Common Stock Offered .................................... 1,500,000 Shares
Common Stock Outstanding Before Offering (1)................. 1,183,879 Shares
Common Stock Outstanding After Offering (2).................. 2,683,879 Shares
Percentage Owned by Non-Affiliates After Offering............ 99%
Net Proceeds of Offering, Before Expenses.................... $14,107,500
Use of Proceeds.............................................. Principally, to Make Mortgage-Backed Loans to
Churches and other non-profit religious
organizations. See "USE OF PROCEEDS."
- ------------------------------------------------------
(1) Excludes (i) 15,000 Shares which each Director and the President of the Advisor (7 individuals; 105,000 shares in the
aggregate) have an option to purchase at a price of $10.00 per share (See "MANAGEMENT--WARRANTS AND OPTIONS"); and (ii)
Shares which may be issued during this Offering to shareholders participating in the Company's Dividend Reinvestment Plan.
(2) Assumes sale of all Shares offered.
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 Shares. Some of the significant risks include:
- As a "best efforts" offering, all or a material amount of the Shares
may not be sold, and consequently, additional capital may not be
available to the Company.
- As a "no minimum" offering, there is no minimum number of Shares that
must be sold, and the Company will receive the proceeds from the sale
of Shares as they are sold.
- If the Company fails to maintain status as a REIT, it will be taxed as
a corporation, which would reduce funds available for distribution to
Shareholders.
- Potential conflicts of interest and mutual benefits to affiliates of
the Company, the Underwriter and the Advisor in connection with the
formation of the Company, offering of the Shares, and on-going business
operations of the Company could affect decisions made by the Advisor on
behalf of the Company.
- There is no public trading market for the Shares, and a market may not
develop after the Offering. The lack of a market may adversely effect
the ability of a Shareholder to dispose of the Shares.
- No single Shareholder may own in excess of 9.8% of the outstanding
shares of the Company. This limitation could reduce liquidity or the
ability to sell the Company, and lower market activity and the
resulting opportunity for Shareholders to receive a premium for their
Shares.
- Fluctuations in interest rates or default in repayment of loans by
borrowers could adversely affect the Company's distributions to its
Shareholders.
CONFLICTS OF INTEREST
A number of potential conflicts exist between the Company and the Advisor
and its principals. These conflicts include:
- ownership by affiliates of the Company of both the Advisor and the
Underwriter
- non-arms-length negotiation of agreements between the Company and the
Advisor and the Underwriter
- common business interests of the Company and the Underwriter
- non-arm's length negotiations between the Advisor and the Company
during the organization and structuring of the Company's operations
- non-arms length negotiations of the Advisory Agreement
- shared operations facilities of the Company, Advisor and Underwriter
The Advisor and its affiliates may engage in businesses of the type
conducted by the Company. The Advisor and its affiliates receive compensation
from the Company for services rendered and an Advisory Fee equal to 1.25% of
Average Invested Assets. See "CONFLICTS OF INTEREST--FINANCING POLICIES."
BUSINESS OBJECTIVES AND POLICIES
The Company seeks to provide cash distributions of current income to its
Shareholders through the implementation of its investment and operating
strategy. The Company makes 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:
- emphasizing shorter-term (0-5 years) and mid-term (5-15 years) loans
and construction loans
- seeking origination fees (i.e. "points") from the borrower at the
outset of a loan and upon any renewal of a loan
- making a limited amount of higher-interest rate second mortgage loans
to qualified borrowers
- purchasing a limited amount of mortgage-secured debt securities issued
by churches and other non-profit religious organizations
- -------------------------------------------------------------------------------
5
<PAGE>
- -------------------------------------------------------------------------------
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) in
favor of the Company. The Company may 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--FINANCING POLICIES."
The Company's seeks 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 evaluating the credit worthiness of potential borrowers.
These criteria include:
- Loans made by the Company will be secured by mortgages with
loan-to-value ratios not to exceed 75% of valuation of the real
property and improvements serving as collateral.
- The Company may not loan more than $1,000,000 to a single borrower.
- Real property valuation will be determined based on a written appraisal
acceptable to the Advisor. On loans over $500,000, the Company will
require a written appraisal issued by a member of the Appraisal
Institute ("MAI"), or a state-certified appraiser.
- An American Land Title Association or equivalent Mortgagee Title Policy
must be furnished to the Company by the borrower. The Mortgagee Title
Policy insures the mortgage interest of the Company.
- The borrower's total long-term debt (including the proposed loan) as of
the date of the mortgage loan may not exceed four (4) times the
borrower's gross income for its most recent twelve (12) months.
- The borrower must furnish the Company with its financial statements 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, an independent accounting firm must review the
financial statements for the prior fiscal year. On loans in excess of
$500,000, an independent auditor must audit the last complete fiscal
year statements.
- 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.
- The Advisor may require automatic electronic or drafting of monthly
payments to the Company.
- 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; or (iii) other security enhancements for the
benefit of the Company.
- The borrower must agree to provide the Company with annual reports
(including financial statements) within 120 days of the end of each
fiscal year.
See "BUSINESS OF THE COMPANY--FINANCING POLICIES."
DIVIDENDS AND DISTRIBUTIONS
The Company intends to make quarterly distributions to its Shareholders. In
order to qualify for the beneficial tax treatment afforded REITs by the Internal
Revenue Code, the Company must pay dividends to Shareholders in annual amounts
equal to at least 95% of the Company's REIT taxable income. THE COMPANY MAY NOT
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 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. The Company will hold the proceeds from the sale of the Shares in
relatively low-yield secure investments pending application to fund loans. The
relative yield generated by such investments, and, thus, dividends (if any) to
Shareholders, could be less than paid to date.
- -------------------------------------------------------------------------------
6
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<TABLE>
<CAPTION>
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As of March 31, 1999, the Company had deployed $10,315,193 in net proceeds
from the sale of Shares in its first two public offerings, pre-existing capital
and reinvested dividends in accordance with its investment and operating
strategy. Dividends paid by the Company to its Shareholders since commencement
of active business are as follows:
- -------------------------- -------------------------- --------------------------- --------------------
Dollar Amount Annualized Yield
For Quarter Ended: Distribution Distributed Per Share
Date: Per Share(2): Represented:
<S> <C> <C> <C>
- -------------------------- -------------------------- --------------------------- --------------------
June 30, 1996 July 30, 1996 $.1927(1) 9.250%
- -------------------------- -------------------------- --------------------------- --------------------
September 30, 1996 October 30, 1996 .23125 9.250%
- -------------------------- -------------------------- --------------------------- --------------------
December 31, 1996 January 30, 1997 .240625 9.625%
- -------------------------- -------------------------- --------------------------- --------------------
March 31, 1997 April 30, 1997 .225 9.000%
- -------------------------- -------------------------- --------------------------- --------------------
June 30, 1997 July 30, 1997 .22875 9.150%
- -------------------------- -------------------------- --------------------------- --------------------
September 30, 1997 October 30, 1997 .2375 9.500%
- -------------------------- -------------------------- --------------------------- --------------------
December 31, 1997 January 30, 1998 .25625 10.250%
- -------------------------- -------------------------- --------------------------- --------------------
March 31, 1998 April 30, 1998 .23125 9.250%
- -------------------------- -------------------------- --------------------------- --------------------
June 30, 1998 July 30, 1998 .23125 9.250%
- -------------------------- -------------------------- --------------------------- --------------------
September 30, 1998 October 30, 1998 .2125 8.500%
- -------------------------- -------------------------- --------------------------- --------------------
December 31, 1998 January 30, 1999 .225 9.000%
- -------------------------- -------------------------- --------------------------- --------------------
March 31, 1999 April 30, 1999 .1875 7.500%
- -------------------------- -------------------------- --------------------------- --------------------
</TABLE>
(1) Represents a 75 day operating quarter (April 15 to June 30, 1996)
(2) Distributions for the first three quarters of a year may exceed accumulated
earnings and profits at such date. However, the annual cumulative dividends
for each year are not intended to exceed annual earnings and profits.
TAX STATUS OF THE COMPANY
The Company has elected to be taxed as a REIT for its taxable year ended
December 31, 1996 and subsequent taxable years. In the opinion of counsel to the
Company, Maun & Simon, PLC, the Company was formed in conformity with the
requirements for qualification as a REIT and the Company's method of operations
meet the requirements for qualification and taxation as a REIT. 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
CONSEQUENCES." Even if the Company qualifies for taxation as a REIT, the Company
may be subject to state and local taxes on its income and property.
WHO MAY INVEST
The section of this Prospectus entitled "WHO MAY INVEST" explains the
suitability requirements 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>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
SUMMARY FINANCIAL INFORMATION
The summary financial data presented below is derived from the Company's
audited financial statements at and for the years ended December 31, 1994, 1995,
1996, 1997 and 1998, and from the Company's interim unaudited financial
statements for the three-month periods ended March 31, 1998 and 1999. 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.
Period From Year Ended December 31 Three Months Ended
May 27, 1994 -------------------------------------------- --------------------------
to December March 31, March 31,
31,
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total Revenues............... 731 4,436 217,390 384,118 782,013 145,640 217,298
Total Operating Expenses..... 5,253 5,759 72,004 36,304 76,648 18,162 28,904
Provision for (Benefit From)
Income Taxes............... (20,000) (13,000) (7,000) -0- -0-
Net Income (loss)............ $ (4,522) $ (1,323) $ 165,386 $ 360,814 $ 712,365 $ 127,478 $ 188,394
========== ========== ========== ========== ========== ========== ==========
Income (loss) per Common
Share ..................... $ (.23) $ (.07) $ .79 $ .91 $ .86 $ .22 $ .16
Share Weighted Average
Shares Outstanding (1)..... 20,000 20,000 209,072 398,160 825,176 591,640 1,160,225
Dividends Declared .......... $ -0- $ -0- $ 80,424 $ 127,899 $ 233,004 $ 142,743 $ 217,828
Dividends Declared per Share. $ -0- $ -0- $ .240625 $ .25625 $ .225 $ .23125 $ .1875
<CAPTION>
December 31
------------------------------------------------------------- March 31, March 31,
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total Assets:................ $ 210,278 $ 243,648 $3,414,977 $5,363,396 $10,266,327 $6,728,390 $11,172,758
========== ========= ========== ========== =========== ========== ===========
Liabilities and Shareholder's
Equity:
Accounts Payable........... $ 14,800 $ 49,493 $ 8,482 $ 15,490 $ 12,759 $ 248,425 48,679
Deferred Income............ -0- -0- 45,930 78,428 114,180 69,473 22,963
Dividends Payable.......... -0- -0- 80,424 127,899 233,004 142,743 217,828
Shareholder's Equity (net of
deficit accumulated during
development stage)....... 195,478 194,155 3,280,141 5,141,579 9,906,384 6,251,276 10,779,095
---------- --------- ---------- ---------- ----------- ---------- -----------
$ 210,278 $ 243,648 $3,414,977 $5,363,396 $10,266,327 $6,728,390 $11,172,758
========== ========= ========== ========== =========== ========== ===========
</TABLE>
- -------------------------------------------------------
(1) Excludes 15,000 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 (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 THE
OTHER INFORMATION SET FORTH IN THE PROSPECTUS, INVESTORS SHOULD CONSIDER THE
FOLLOWING FACTORS BEFORE MAKING A DECISION TO PURCHASE THE SHARES.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING INFORMATION. FORWARD-LOOKING
INFORMATION MAY BE INDICATED BY WORDS SUCH AS "WILL," "MAY BE," "EXPECTS" OR
"ANTICIPATES." ACTUAL RESULTS COULD DIFFER SIGNIFICANTLY FROM THOSE DESCRIBED
IN THE FORWARD-LOOKING STATEMENTS AS A RESULT, IN PART, OF THE RISK FACTORS
SET FORTH BELOW. PROSPECTIVE INVESTORS SHOULD BE AWARE OF THE FOLLOWING RISK
FACTORS AND SHOULD CAREFULLY REVIEW THE INFORMATION AND FINANCIAL STATEMENTS
AND NOTES THERETO CONTAINED ELSEWHERE IN THIS PROSPECTUS.
RISKS RELATED TO THE OFFERING
BEST EFFORTS OFFERING. The Underwriter's obligation to sell the Shares
requires only its best efforts to locate purchasers of the Shares on behalf
of the Company. The Underwriting Agreement does not obligate the Underwriter
to purchase any Shares. If less than all the Shares are sold during the
Offering Period, then the Company will not have as much cash to lend to
churches and other religious organizations. If less than all of the Shares
are sold, then the Company's fixed operating expenses, as a percentage of
gross income, would be higher with fewer assets in the Company's portfolio.
Taxable income distributable to Shareholders would therefore be lower. In
addition, the Company's assets invested would be less diversified which would
increase the risk that an investor may not recoup his or her investment if
the Company were liquidated.
NO MINIMUM OFFERING. The Underwriting Agreement does not require that a
minimum number of Shares be sold prior to the Company receiving proceeds from
the sale of Shares. The Company will receive proceeds from the sale of Shares
when and if they are sold.
RISKS RELATED TO THE COMPANY
QUALIFICATION AS A REAL ESTATE INVESTMENT TRUST. The Company operates as a
real estate investment trust under the Internal Revenue Code of 1986, as
amended. Qualification as a REIT involves the application of highly technical
and complex Code provisions for which there are only limited judicial or
administrative interpretations. Facts and circumstances not entirely within
the Company's control may affect its ability to qualify as a REIT. If in any
taxable year the Company failed to qualify as a REIT, then the Company would
not be allowed a deduction for distributions to Shareholders in computing its
taxable income. The Company would be subject to federal income tax on its
taxable income at regular corporate rates. The Company 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. The Company intends to operate in a manner designed to
qualify as a REIT. However, future economic, market, legal, tax or other
consequences may cause the Company's Board of Directors to revoke the REIT
election. See "FEDERAL INCOME TAX CONSEQUENCES."
CONFLICTS OF INTEREST. The terms of certain 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. The transactions were not negotiated at arm's
length. These individuals own the Advisor and the Underwriter. These persons
may have conflicts of interest in enforcing agreements between the Advisor or
Underwriter and the Company. Fees will be paid to these companies pursuant to
the terms of such agreements. 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."
EXPENSES OF OFFERING. Expenses incurred by the Company in connection with
this Offering will reduce the assets of the Company that will be available
for investment. The value of the Company's assets will have to appreciate
significantly in order to offset these expenses.
PRICE OF SHARES. The Underwriter and the Company determined the offering
price of the Shares. The initial price is the same price paid by purchasers
of the shares in the Company's two prior public offerings and by DRM
Holdings, Inc., which purchased 20,000 Shares prior to the Company's initial
public offering. The public offering price should not be considered an
indication of the actual value of the Shares. See "PLAN OF DISTRIBUTION."
9
<PAGE>
LACK OF LIQUIDITY AND ABSENCE OF PUBLIC MARKET PRICE. There is no market
for the Shares. It is unlikely that a market will develop. In addition, the
market for REIT securities historically has been less liquid than other types
of publicly-traded equity securities. The market value of the Shares at any
given time may not be the same or higher than the public offering price. 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 will not be qualified for quotation on
NASDAQ. The Shares may be presented to the Company for redemption
(repurchase), but the Company is not required to purchase any Shares. See
"DESCRIPTION OF CAPITAL STOCK-REPURCHASE BY THE COMPANY."
CERTAIN RESTRICTIONS ON TRANSFER OF SHARES. The Articles of Incorporation
and Bylaws of the Company prohibit 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 and allow the Company to redeem Shares held
by any person in excess of 9.8% of the outstanding capital stock. These
provisions may reduce market activity for the Shares and the opportunity for
Shareholders to receive a premium for their shares from an investor
attempting to purchase Shares in excess of 9.8% of the outstanding capital
stock. See "DESCRIPTION OF CAPITAL STOCK."
RISKS RELATED TO MANAGEMENT
LIMITED OPERATING HISTORY. The Company was established in 1994 and has a
limited history of operating revenues. As a result, an investment in the
Company carries with it those risks normally attendant to a new enterprise.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION" and "BUSINESS OF THE COMPANY."
DEPENDENCE UPON ADVISOR. The Advisor manages the Company and selects its
investments subject to general supervision by the Board of Directors and
substantial compliance with the Company's lending policies. The Company is
dependent upon the Advisor for most aspects of its business operations. The
Company's success depends on the success of the Advisor in locating and
negotiating the Company's loans. The loss of the services of the Advisor
would likely have a material adverse effect upon its business operations.
Among others, the Advisor performs the following services for the Company:
<TABLE>
<S> <C>
- mortgage loan underwriting and servicing - corporate management
- marketing and advertising - bookkeeping
- generation and follow-up of business leads - filing reports with state, federal,
- maintaining business relationships tax and other regulatory authorities
- maintaining "goodwill" - reports to Shareholders
</TABLE>
Shareholders' right to participate in management of the Company is generally
limited to the right to elect Directors. No person should purchase Shares
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."
CONFLICTS OF INTEREST. Affiliations and conflicts of interests exist among
the Officers and Directors of the Company and Officers and Directors of the
Advisor and the Underwriter. The Advisor and the Underwriter are affiliated
by virtue of their common ownership. An Officer and Director of the Company
and some of the Officers and Directors of the Advisor are involved in the
church financing business through their affiliations with the Underwriter.
The Underwriter underwrites first mortgage bonds for churches. If the Company
diversifies its portfolio through the purchase of first mortgage bonds issued
by churches, it likely will purchase the bonds through the Underwriter in its
capacity as underwriter for the issuing church, or as broker or dealer on the
secondary market. In such event, the Underwriter would receive commissions
(paid by the issuing church) on original issue bonds, or "mark-ups" in
connection with any secondary transactions. If the Company sells church bonds
in its portfolio, the bonds will be sold through the Underwriter, and the
Underwriter would realize income in connection with such transaction.
The Company's Bylaws limit the amount of all commissions, mark-downs or
mark-ups paid to the Underwriter. Business dealings between the Company and
the Advisor and its affiliates also must be approved by a majority of the
Board of Directors, including a majority of the Company's Independent
Directors. Principals of the Company and the Advisor may receive a benefit in
connection with transactions involving the Company due to their affiliation
with the Underwriter. See "CONFLICTS OF INTEREST."
10
<PAGE>
RISKS RELATED TO LOAN VALUATION AND ADVISOR EXPENSES. Appreciation or
depreciation of the value of mortgage loans or first mortgage bonds is beyond
the control of the Company and the Advisor. A direct investment by a
potential investor in mortgage loans or first mortgage bonds may avoid costs
incurred by the Company. Until a market develops for the Company's securities
it may be impossible for an investor to recoup his or her investment. See
"USE OF PROCEEDS" AND "PLAN OF DISTRIBUTION."
POTENTIAL ADVERSE EFFECT OF BORROWING ON CASH FLOW. The Company may borrow
funds to assure its capacity to make loans on a continual basis. Lending
borrowed funds is subject to greater risks than in unleveraged lending,
although it offers the potential of greater returns on investment. The
financing costs associated with lending borrowed funds would impact the
Company's cash flow, including its ability to pay dividends. Financing costs
must be paid regardless of whether the Company has sufficient revenue from
operations. The Company's assets (primarily its mortgage loan portfolio)
would be assigned to a bank as collateral for any such loan. The Company does
not currently intend to borrow against cash flow, and the Company's Bylaws
prohibit the Company from borrowing more than 50% of the value of its Average
Invested Assets. See "BUSINESS OF THE COMPANY - FINANCING POLICIES."
DIVIDENDS DEPENDENT UPON BUSINESS OPERATIONS. Payment of dividends will be
affected by cash available for distribution, results of operations, economic
conditions, applicable state law, advisory fees, and other facts and
circumstances. The Company intends to deploy proceeds from Share sales during
the Offering as rapidly yet prudently as possible, in order to generate the
best possible yields to Shareholders. 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 yield generated by such
capital, and, thus, dividends (if any) to Shareholders could be less than may
be expected once the Company invests funds raised in this offering. The
Company cannot assure that it will be able to make distributions or the
amount of any distribution if made. See "DISTRIBUTIONS."
RISKS RELATED TO MORTGAGE LENDING
IN GENERAL. Mortgage lending and demand for the Company's services
involves various risks, many of which are unpredictable and beyond the
control and foresight of management of the Company and the Advisor. It is not
possible to identify all potential risks associated with mortgage lending.
Some of the more common risks encountered can be summarized as follows:
<TABLE>
<S> <C>
- low demand for mortgage loans - availability of financing and competitive
- changes in the level of consumer confidence conditions
- availability of credit-worthy borrowers - general and local economic conditions
- national and local economic conditions - factors affecting specific borrowers
- demographic and population patterns - interest rate fluctuations
- zoning regulations - losses associated with default, foreclosure of a
- taxes mortgage, and sale of the mortgaged property
- interest rate fluctuations - state and federal laws and regulations
- bankruptcy or insolvency of a borrower
</TABLE>
RISK OF SECOND MORTGAGE LOANS. The Company's financing policies allow it
to fund second mortgage loans. The principal amount of such loans may not
exceed 20% of the Company's Average Invested Assets. Second mortgage loans
entail more risk than first mortgage loans, as foreclosure of senior
indebtedness or liens could extinguish the Company's mortgage.
RISK OF FIXED-RATE DEBT. Fixed-rate debt obligations carry certain risks.
A general rise in interest rates could make the yield to the Company on a
particular mortgage loan lower than prevailing rates. This could negatively
affect the value of the Company and consequently the Shares. Neither the
Company nor the Advisor can predict changes in interest rates. They 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 is highly competitive. The
Company competes 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. Many competitors have greater financial resources,
11
<PAGE>
larger staffs and longer operating histories than the Company, and thus may
be a more attractive lender to potential borrowers. The Company intends to
compete 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 non-profit
religious organizations.
INTEREST RATE FLUCTUATIONS. Prevailing market interest rates impact
borrower decisions to obtain new loans or to refinance existing loans,
possibly having a negative effect upon the Company's ability to originate
mortgage loans. Fluctuations in interest rates may cause the value of the
Shares to fluctuate unpredictably. If interest rates decrease and the
economic advantages of refinancing mortgage loans increase, then prepayments
of higher interest mortgage loans in the Company's portfolio would likely
reduce the portfolio's overall rate of return (yield).
GOVERNMENT REGULATION. The Company believes it is not subject to any
specific government regulations affecting its business. However, there can be
no assurance that this is the case. The Company may be required, or
determine, to register, become licensed, or otherwise qualify to do business
in various states. Compliance with government regulation could increase the
Company's cost of doing business and reduce its overall profitability.
RISKS RELATED TO MORTGAGE LENDING TO CHURCHES
SOURCE OF CHURCH REVENUES. Churches rely on member contributions for their
primary source of income. Member contributions are used to repay loans made
by the Company. The membership of a church or the per capita contributions of
its members may not 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.
DEPENDENCE UPON PASTOR. A church's senior pastor often plays an important
role in the management, spiritual leadership and continued viability of that
church. 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 obligations to the Company. The Advisor
may require a borrower to maintain Key-Man life insurance policies on its
senior pastor and 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 will be secured principally by first mortgages upon the real
estate and improvements owned or to be owned by churches and other religious
and non-profit organizations. Although the Company will require an appraisal
of the premises as a pre-condition to making a loan, the appraised value of
the premises cannot be relied upon as being the actual amount which might be
obtained in the event of a default by the borrower. 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, rehabilitation or renovation to
prospective buyers; and (iv) the length of time the seller is willing to hold
the property on the market.
EXPENSES OF FORECLOSURE. If the Company forecloses its mortgage and takes
legal title to the real estate, real estate taxes could be levied and
assessed against the property. The property may also incur operating
expenses. These expenses 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.
POTENTIAL LIABILITY UNDER ENVIRONMENTAL LAWS
Under federal, state and local laws and regulations, an owner of real
property or a secured lender (such as the Company) may be liable for the
costs of removal or remediation of certain hazardous or toxic substances and
other costs (including government fines and injuries to persons and adjacent
property). Liability may be imposed whether or not the owner or lender knew
of, or was responsible for, the presence of hazardous or toxic substances.
The costs of remediation or removal of hazardous or toxic substances, or of
fines for personal or property damages, may be substantial and material to
the Company's business operations. The presence of hazardous or toxic
substances, or the failure to promptly remediate such substances, may
adversely affect the Company's ability to resell real estate collateral after
foreclosure or could cause the Company to forego foreclosure. This is a
changing area of the law. The courts have found both in favor and against
lender liability in this area under various factual scenarios.
12
<PAGE>
RISKS RELATED TO FEDERAL INCOME TAXATION
The Company operates as a real estate investment trust under the Internal
Revenue Code. 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 REIT. The Company may not continue to qualify as a REIT. As a REIT, the
Company is allowed a deduction for dividends paid to its Shareholders in
computing its taxable income. This treatment substantially eliminates the
"double taxation" of earnings.
To qualify as a REIT, the Company must meet certain share ownership,
income, asset and distribution tests. In order to maintain its status as a
REIT, the Company must satisfy Code requirements on a continuing basis. No
assurance can be given that the Company will at all times satisfy these
tests. Further, the requirements for a REIT may substantially affect
day-to-day decision-making by the Advisor. 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 REIT status.
If the Company fails to qualify as a REIT in any taxable year, any
previous election by the Company to be taxed as a REIT would generally
terminate. The Company may be unable to elect to be taxed as a REIT until the
fifth year after the disqualification. Failure of the Company to meet the
qualification tests would cause the Company to be taxed as a regular
corporation. 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 REIT would reduce the funds
available for distribution to Shareholders or for investment. Shareholder
distributions made in anticipation of the Company's qualifying as a REIT
could force the Company to borrow funds or to liquidate loans or investments
in order to pay taxes. If the Company has significant charges to its cash
flow which are not deductible in determining its REIT taxable income, such as
principal payments on loans, it may be required to distribute amounts in
excess of its available cash in order to maintain its qualification as a
REIT. See "FEDERAL INCOME TAX CONSEQUENCES."
EFFECT OF FUTURE CHANGES IN TAX LAWS
The discussion in this Prospectus of the tax treatment of the Company as a
REIT and the tax effect on Shareholders is based on existing provisions of
the Internal Revenue Code, existing and proposed regulations, existing
administrative interpretations and existing court decisions. New legislation,
regulations, administrative interpretations or court decisions may
significantly change the tax laws. Therefore, treatment of a REIT or the
consequences of an investment in the Company may vary substantially from the
treatment described in this Prospectus. A change in tax laws may apply
retroactively.
WHO MAY INVEST
An investment in the Shares involves certain risks and is suitable only as
a long-term investment for persons of 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). 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.
By executing the Subscription Agreement relating to the Shares, 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.
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 compliance with
applicable laws requiring suitability of the Shares as an investment for the
subscriber. The Company will coordinate the processes and procedures utilized
by the Underwriter and Soliciting Dealers and, where necessary, implement
additional reviews and procedures deemed necessary to assure the adherence by
registered representatives to the suitability standards.
MASSACHUSETTS INVESTORS ONLY: The Company may not complete a sale of the
Shares until five days after the investor has received a Prospectus, and an
investor may receive a refund of his or her investment within five days after
subscribing if the investor received a Prospectus only at the time of
subscription.
13
<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 offered Shares.
<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
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 92.698%
=========== ======
</TABLE>
- ----------------------
(1) All of the Shares of Common Stock are being offered by the Company on a
"best efforts" basis through the Underwriter. There is no assurance that
any Shares will be sold. See "PLAN OF DISTRIBUTION."
(2) The Company will pay the Underwriter a selling commission equal to 5.95%
of the gross offering proceeds, 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 Underwriter a non-accountable expense allowance of
up to $133,000 (assuming all the Shares are sold). Of this, $35,000 is
payable upon the sale of 100,000 Shares, the balance of $98,000 is payable
ratably in the sum of $7,000 per 100,000 Shares sold in the offering. 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 have been or will be paid to independent professional and service
providers. See "PLAN OF DISTRIBUTION."
(5) 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. Pending application of the proceeds as outlined
above, the net proceeds of this Offering will be invested in Permitted
Temporary Investments. The Company may also use any existing current cash
resources to establish a working capital reserve. See "BUSINESS OF THE
COMPANY."
14
<PAGE>
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
cannot (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 the 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.
<TABLE>
<CAPTION>
ADVISOR COMPENSATION
--------------------
ITEM OF COMPENSATION RECIPIENT AMOUNT OR METHOD OF COMPENSATION
- -------------------- --------- --------------------------------
<S> <C> <C>
OFFERING AND
ORGANIZATIONAL
STAGE:
Warrants/ Advisor Options to President of Advisor to purchase 15,000 Shares at an exercise
Options (1) 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.
OPERATING STAGE:
Advisory Fee (2) Advisor 1.25% annually, paid monthly, of the Average Invested Assets of the Company.
The Advisor received Advisory Fees in the amount of $11,825 for the year
ended December 31, 1996, $17,545 for the year ended December 31, 1997 and
$52,944 for the year ended December 31, 1998. The Advisor received no
Advisory Fees prior to April 15, 1997. The Company cannot estimate the total
amount of Advisory Fees to be payable to the Advisor, but assuming all of the
Shares are sold and the Company's Average Invested Assets were $26,000,000,
the Advisory Fee would be $325,000 per year.
Acquisition Advisor In connection with mortgage loans made by the Company, borrowers may be
Fees/Expenses required to pay expenses to the Advisor for various closing and other
loan-related expenses, such as accounting fees and appraisal fees paid by the
Advisor to independent service providers, and other costs. Payments made by
the borrower in excess of costs may be retained by the Advisor, but 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 to the borrower.
Advisor Loan Advisor One-half of the origination fees collected from the borrower at closing in
Origination Fee connection with each mortgage loan made by the Company, payable when and only
if an origination fee is charged and collected. The Advisor received
origination fees in the amount of $52,855 for the year ended December 31,
1996, $43,980 for the year ended December 31, 1997, and $76,090 for the year
ended December 31, 1998. The Advisor received no origination fees prior to
April 15, 1997. The Company cannot estimate the total amount of Advisor Loan
origination fees that may be realized by the Advisor, but assuming all of the
Shares are sold and the Company invested in a one year period net proceeds of
$14,000,000 in mortgage loans with an average origination fee of 4%, the Loan
origination fees payable to the Advisor in such year would be $280,000. As
loans made by the Company mature or are otherwise repaid, the Company may
make new loans to borrowers. Loan origination fees would be payable to the
Advisor in connection with these loans.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
AFFILIATE COMPENSATION
----------------------
ITEM OF COMPENSATION RECIPIENT AMOUNT OR METHOD OF COMPENSATION
- -------------------- --------- --------------------------------
<S> <C> <C>
OFFERING AND
ORGANIZATIONAL
STAGE:
Commissions on the Sale Underwriter 5.95% of the gross proceeds from the sales of the Shares. The Underwriter
of Shares in this may re-allow all or a portion of this amount to other participating
Offering broker-dealers who are members of the National Association of Securities
Dealers, Inc. See "Plan of Distribution."
Non-Accountable Expense Underwriter The sum of $35,000 paid upon the sale of the first 100,000 Shares in
Allowance Relating this Offering, with an additional $98,000 payable ratably based on
to the sale of the number of Shares sold thereafter, to cover the Underwriter's costs
Shares in this and expenses relating to the sale of the Shares in this Offering.
Offering (3) See "Plan of Distribution."
Warrants/Options(1) Directors/ Options to purchase 105,000 (aggregate) Shares at an exercise price of $10.00
Advisor per share; annual options to Directors and President of the Advisor to
purchase 3,000 Shares at a purchase price equal to the fair market value on
the date of grant.
OPERATING STAGE:
Commissions and Expenses on Underwriter Customary mark-ups and mark-downs on first mortgage church bonds
First Mortgage Bonds purchased and sold by the Company through the Underwriter on the secondary
Purchased (4) market, and commissions earned by the Underwriter on church bonds purchased
by the Company in the primary market.
</TABLE>
- ----------------------------------------------------------
(1) The Company issued options to six directors of the Company and the
President of the Advisor to purchase up to 15,000 Shares each at an
exercise price of $10.00 per share. These options may be exercised
in limited amounts and expire ratably over five years beginning on
November 15, 1999. See "MANAGEMENT -- WARRANTS AND OPTIONS."
(2) 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 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.
(3) 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 Underwriter is affiliated with
the Advisor and a director and officer of the Company by virtue of the
common ownership of the Underwriter by DRM, Holdings, Inc., which is
owned by Messrs. Reinhart and Myers, who together with Mr. Davis, are
also shareholders of the Advisor. See "MANAGEMENT" and "CONFLICTS OF
INTEREST."
(4) The underwriting commission in respect of any bonds purchased by the
Company in an initial primary distribution of such bonds will be paid by
the issuer of the bonds and not by the Company. The Company may purchase
first mortgage bonds from the Underwriter on the secondary market, in
which event the Company will pay to the Underwriter customary mark-ups
on a basis no more or less favorable than charged by the Underwriter to
its other customers in arms-length transactions. Likewise, first
mortgage bonds owned by the Company may be sold by the Underwriter on
the Company's behalf, in which event the Underwriter will charge a
customary mark-down. Principals of the Company and the Advisor may
receive a benefit in connection with such transactions due to their
affiliation with the Underwriter. The 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."
16
<PAGE>
CONFLICTS OF INTEREST
The Company is 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 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. These individuals have been engaged in the business of church
financing for approximately 41 years collectively. 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. 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
any conflicts of interest arise 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 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 services. The Company's Board of Directors will have the
responsibility 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. The Underwriter may receive commissions from transactions by the
Company in church bonds 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 will receive an annual advisory fee equal to a 1.25% of the
Average Invested Assets of the Company. See "COMPENSATION TO ADVISOR AND
AFFILIATES." The fee is payable whether or not any mortgage loan is made or
held on a basis that is advantageous to the Company. The Advisor 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 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."
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 have an interest in an entity engaged to render advice or
services to the Company, and may receive compensation from such entity in
addition to compensation as director, officer or otherwise of the Company.
The 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 Underwriter were to
pursue and secure a lending
17
<PAGE>
opportunity otherwise available to the Company. However, the average size of
first mortgage bond financings undertaken by the Underwriter is approximately
$1.45 million, with $1,000,000 being its stated (but not required) minimum
financing. The Company focuses on financings ranging from $100,000 to
$1,000,000 in size. Although the Underwriter and the Advisor will share
employees, facilities and some marketing efforts, conflicts of interest
between them likely 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 $1,000,000 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, or if the prospective borrower
independently declines to accept the lending terms offered by the Company,
then the Underwriter or its affiliates will have the opportunity to provide
financing 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
their affiliates, including those relating to compensation, were not
negotiated at arm's-length. Such conflicts or potential conflicts will be
mitigated 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; (ii) the Advisor intends to structure its business
relationships so as to be competitive with other programs in the marketplace;
and (iii) the agreements and arrangements are subject to approval by a
majority of the Company's Independent Directors.
LACK OF SEPARATE REPRESENTATION
The Company, the Advisor and the principals of the Company and Advisor
are not represented by separate legal 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
Underwriter, American Investors Group, Inc., in Minnetonka (Minneapolis),
Minnesota. The Company expects to continue to be housed in these or similar
leased premises along with the Underwriter and its affiliates. The Company is
not separately charged for rent or related expenses. The Advisor includes
these expenses in the Advisory Fee. The office building is owned by the
Underwriter's affiliates.
DISTRIBUTIONS
The Company intends to distribute to Shareholders at least 95% of the
Company's "real estate investment trust taxable income." Annual distributions
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 from borrowers, but
will also include the following items:
- 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
- earnings on any Permitted Temporary Investments made by the Company
Payments during the first three quarters of each fiscal year may be comprised
in part of "deferred income." The total annual distribution will be comprised
only of "taxable income." In order to qualify for the beneficial tax
treatment afforded real estate investment trusts by the Internal Revenue
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." All dividends will be paid by the Company
at the discretion of the Board of Directors and will depend on the following
factors:
18
<PAGE>
- earnings and financial condition of the Company
- maintenance of real estate investment trust status
- funds available for distribution
- results of operations
- limitations imposed by applicable state laws
- economic conditions
- other factors the Board of Directors deems relevant
During the distribution of Shares in this Offering, dividends paid to
each investor 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. The
proceeds from the sale of the Shares will be held in money market funds, U.S.
government treasury obligations and similar Permitted Temporary Investments
pending application of such proceeds by the Company. The relative yield
generated by such capital during this period, 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 March 31, 1999, the Company had deployed approximately $10,315,193
in net proceeds from the sale of Shares in its first two public offerings,
pre-existing capital and reinvested dividends in accordance with its
investment and operating strategy into loans. 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 such distributions are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Dollar Amount Annualized Yield
For Quarter Ended: Distribution Distributed Per Share
Date: Per Share(2): Represented:
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
June 30, 1996 July 30, 1996 $.1927(1) 9.250%
- ---------------------------------------------------------------------------------------------------
September 30, 1996 October 30, 1996 .23125 9.250%
- ---------------------------------------------------------------------------------------------------
December 31, 1996 January 30, 1997 .240625 9.625%
- ---------------------------------------------------------------------------------------------------
March 31, 1997 April 30, 1997 .225 9.000%
- ---------------------------------------------------------------------------------------------------
June 30, 1997 July 30, 1997 .22875 9.150%
- ---------------------------------------------------------------------------------------------------
September 30, 1997 October 30, 1997 .2375 9.500%
- ---------------------------------------------------------------------------------------------------
December 31, 1997 January 30, 1998 .25625 10.250%
- ---------------------------------------------------------------------------------------------------
March 31, 1998 April 30, 1998 .23125 9.250%
- ---------------------------------------------------------------------------------------------------
June 30, 1998 July 30, 1998 .23125 9.250%
- ---------------------------------------------------------------------------------------------------
September 30, 1998 October 30, 1998 .2125 8.500%
- ---------------------------------------------------------------------------------------------------
December 31, 1998 January 30, 1999 .225 9.000%
- ---------------------------------------------------------------------------------------------------
March 31, 1999 April 30, 1999 .1875 7.500%
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents a 75 day operating quarter (April 15 to June 30, 1996)
(2) Distributions for the first three quarters of a year may exceed accumulated
earnings and profits at such date. However, the annual cumulative dividends
for each year are not intended to exceed annual earnings and profits.
19
<PAGE>
The Company intends to ameliorate 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 is paid directly to the Advisor as additional
compensation), and (ii) timing its lending activities to coincide as much as
possible with sales of the Shares. There can be no assurance that these
strategies will improve current yields to Shareholders. See "BUSINESS OF THE
COMPANY." 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
CONSEQUENCES--TAXATION Of THE COMPANY'S SHAREHOLDERS."
Funds available to the Company from the repayment of principal of loans
made by the Company, or from sale or other disposition of any properties or
other investments, may be reinvested by the Company, 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 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 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 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 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 dividend reinvestment
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, 1999. See "USE OF PROCEEDS" and "FINANCIAL STATEMENTS."
<TABLE>
<CAPTION>
March 31, 1999
--------------
<S> <C>
Long Term Debt.................................................... $ - 0 -
Shareholder's Equity(1)
Common Stock, $.01 par value per share; 30,000,000
shares authorized; issued and outstanding 1,183,879 shares.... 11,839
Additional Paid-In Capital ....................................... $10,874,383
Accumulated Deficit............................................... (107,127)
Total Shareholder's Equity........................................ $10,779,095
-----------
Total Capitalization............................................ $10,779,095
</TABLE>
- -------------------------------------------------------
(1) Excludes 15,000 Shares which each Director and the President of the Advisor
(7 individuals;105,000 in the aggregate) have an option to purchase at a
price of $10.00 per share, See "MANAGEMENT--WARRANTS AND OPTIONS,"
"SECURITY OWNERSHIP OF MANAGEMENT AND OTHERS," AND "PLAN OF DISTRIBUTION."
20
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below is derived from the
Company's audited financial statements at and for the years ended December
31, 1994, 1995, 1996, 1997 and 1998, and from the Company's interim unaudited
financial statements for the three-month periods ended March 31, 1998 and
1999. The financial statements are included elsewhere in this Prospectus.
Reference is made to the financial statements, and notes thereto, for a more
detailed presentation of financial information.
<TABLE>
<CAPTION>
Period From
May 27, 1994 Three Months Ended
to December Year Ended December 31 -----------------------
31, ------------------------------------------------- March 31, March 31,
1994 1995 1996 1997 1998 1998 1999
--------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues
Interest Income Loans......... $ -0- $ -0- $ 152,259 $ 343,695 $ 655,219 $ 131,755 $ 164,508
Interest Income Other......... 731 4,436 20,729 24,519 76,444 8,281 44,688
Capital Gains Realized........ -0- -0- -0- 4,298 9,138 1,194 1,460
Origination Income............ -0- -0- 6,925 11,482 40,338 4,383 6,536
Income Other Sources.......... -0- -0- -0- 124 874 27 106
Escrow Interest Income........ -0- -0- 37,477 -0- -0- -0- -0-
--------- ---------- ---------- ---------- ---------- ---------- ----------
Total Revenues 731 4,436 217,390 384,118 782,013 145,640 217,298
Operating Expenses
Professional Fees............. 1,404 -0- 8,411 8,065 8,988 838 2,331
Director Fees................. 2,000 -0- 1,600 2,400 3,200 800 800
Amortization.................. 177 303 303 303 303 76 76
Escrow Interest Expense....... -0- -0- 37,274 -0- -0- -0- -0-
Advisory Fees................. -0- -0- 11,825 17,545 52,944 14,130 22,384
Other......................... 1,672 5,456 12,591 7,991 11,213 2,318 3,313
--------- ---------- ---------- ---------- ---------- ---------- ----------
Total Expenses 5,253 5,759 72,004 36,304 76,648 18,162 28,904
Provision for (Benefit From)
Income Taxes.................. (20,000) (13,000) (7,000) -0- -0-
Net Income (loss)............... $ (4,522) $ (1,323) $ 165,386 $ 360,814 $ 712,365 $ 127,478 $ 188,394
========= ======== =========== ========== ========== ========== ==========
Income (loss) per Common Share.. $ (.23) $ (.07) $ .79 $ .91 $ .86 $ .22 $ .16
Weighted Average Common
Shares Outstanding (1)........ 20,000 20,000 209,072 398,160 825,176 591,640 1,160,225
Dividends Declared.............. $ -0- $ -0- $ 80,424 $ 127,899 $ 233,004 $ 142,743 $ 217,828
Dividends Declared per Share.... $ -0- $ -0- $ .240625 $ .25625 $ .225 $ .23125 $ .1875
<CAPTION>
December 31
-------------------------------------------------------------- March 31, March 31,
1994 1995 1996 1997 1998 1998 1999
---------- --------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Assets:
Cash and Cash Equivalents..... $ 149,023 $ 135,282 $ 612,744 $ 291,815 $ 2,941,531 $1,080,850 $ 2,410,735
Current Maturities of Loans
Receivable.................... -0- -0- 55,436 103,505 237,241 114,819 180,748
Loans Receivable, net of
current maturities........... -0- -0- 2,605,388 4,808,803 5,994,620 5,367,610 6,684,045
Bonds Receivable.............. -0- -0- 120,640 125,809 1,023,997 131,722 1,857,144
Account Receivable............ -0- -0- -0- -0- 28,777 -0- -0-
Prepaid Expense............... -0- -0- -0- -0- -0- -0- -0-
Deferred Offering Costs....... 59,916 107,295 -0- -0- -0- -0- -0-
Deferred Tax Asset............ -0- -0- 20,000 33,000 40,000 33,000 40,000
Organizational Expenses (net). 1,339 1,071 769 464 161 389 86
---------- --------- ---------- ---------- ---------- ---------- -----------
Total Assets: $ 210,278 $ 243,648 $3,414,977 $5,363,396 $10,266,327 $6,728,390 $11,172,758
========== ========= ========== ========== =========== ========== ===========
Liabilities and Shareholder's Equity:
Accounts Payable.............. $ 14,800 $ 49,493 $ 8,482 $ 15,490 $ 12,759 $ 248,425 $ 48,679
Deferred Income............... -0- -0- 45,930 78,428 114,180 69,473 22,963
Dividends Payable............. -0- -0- 80,424 127,899 233,004 142,743 217,828
Shareholder's Equity (net of
deficit accumulated during
development stage)........... 195,478 194,155 3,280,141 5,141,579 9,906,384 6,251,276 10,729,095
---------- --------- ---------- ---------- ---------- ---------- -----------
$ 210,278 $ 243,648 $3,414,977 $5,363,396 $10,266,327 $6,728,390 $11,172,758
========== ========= ========== ========== =========== ========== ===========
</TABLE>
- --------------------------
(1) Excludes 15,000 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 (See "MANAGEMENT--WARRANTS AND OPTIONS" AND "SECURITY OWNERSHIP
OF MANAGEMENT AND OTHERS").
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 initial
public offering. Consequently, for the years ended December 31, 1994 and
1995, the Company had no operating revenues. Expenses were limited to
organizational and offering-related costs.
Business operations from inception to completion of the Minimum Offering
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 Underwriter--American Investors Group, Inc. ("American"), an
affiliate of the Company. The Company concluded its initial public offering
on November 8, 1996. As of such date the Company had sold 335,481 shares at
$10.00 per share to approximately 281 individuals, not including 20,000
shares ($200,000) previously purchased by the Company's initial
shareholder--DRM Holdings, Inc., an affiliate of the Company.
On September 26, 1997, the Securities and Exchange Commission declared
effective the Company's second public offering of 1,500,000 common shares at
a price of $10.00 per share ($15,000,000). That offering was co-underwritten
by American Investors Group, Inc. and LaSalle St. Securities, Inc.
("LaSalle"). American acted in the capacity of the Managing Underwriter. The
second offering was also conducted on a "best-efforts" basis. The Company
concluded it second public offering on January 22, 1999. The Company sold
779,759 shares during its second public offering at $10.00 per share. As of
March 31, 1999 the Company had 1,183,879 shares outstanding and approximately
775 shareholders.
Between April 15, 1996 and March 31, 1999, the Company made 28 loans to
25 churches in the aggregate amount of $8,489,750, with the average size
being $303,205. Of the 28 loans made by the Company, five loans totaling
$1,442,000, have been repaid by the borrowing churches. The Company has
purchased in the secondary market for $1,825,443, first mortgage church bonds
in the face amount of $1,840,300 and purchased for $72,800 second mortgage
church bonds in the face amount of $100,000. Two of the first mortgage church
bonds in the face amount of $33,300 have been called for redemption by the
issuing organizations. The Company intends to fund additional first mortgage
loans as investable assets become available through (i) the sale of
additional shares in future public offerings; (ii) prepayment and repayment
at maturity of existing loans; (iv) borrowed funds; and (v) dividends
reinvested under the Company's Dividend Reinvestment Plan.
RESULTS OF OPERATION
In 1996, the Company made loans to seven churches in the aggregate
amount of $2,802,000, with an average loan size being $400,000. The Company
also purchased in the secondary market for $46,412 (which includes $407 in
accrued interest) first mortgage church bonds in the face amount of $50,000
and purchased for $72,800 second mortgage church bonds in the face amount of
$100,000. As the Company commenced active business operations on April 15,
1996, results of operations through December 31, 1996 are reflective of only
255 days of operations.
During the fiscal year ended December 31,1997, the Company funded an
additional five first mortgage loans and three second mortgage loans to
churches for an aggregate amount of $2,665,712 and purchased $2,000 principal
amount of first mortgage church bonds for a purchase price of $871.
During the fiscal year ended December 31, 1998, the Company funded an
additional six first mortgage loans and two second mortgage loans to churches
totaling $1,793,750 and $355,000 respectively. The Company also purchased
$925,300 principal amount of first mortgage church bonds for a purchase price
of $922,445. During the fiscal year ending December 31, 1998, two first
mortgage loans and one second mortgage loan in the amounts of $730,000 and
$350,000 respectively, were repaid by the borrowing churches in accordance
with the terms of each loan. The Company had two first mortgage church bonds
called for redemption by the issuing organizations. The two bonds paid all
principal and interest entitled to the Company. The face amount of the bonds
was $33,300. The Company paid a purchase price of $29,225 for both bonds.
FIRST QUARTER 1999 VERSUS FIRST QUARTER 1998. Net operating income for
the Company's three month period ended March 31, 1999 was $188,394 on total
revenues of $217,298. Interest income earned on the Company's portfolio of
loans was $164,508. Excluded from revenue for the three month period ended
March 31, 1999 is $19,479 of origination income, or "points," received by the
Company, recognition of which under generally accepted accounting principles
("GAAP") must be
22
<PAGE>
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 paid to Shareholders for the quarter
ended March 31, 1999 included origination income even though it is not
recognized in its entirety for the period under GAAP.
Total assets of the Company for the three month period ended March 31, 1998
increased $906,431 to $11,172,758 primarily as a result of the sale and issuance
of the Company's common stock pursuant to its current public offering, the
proceeds of which were deployed into three new mortgage loans, church bonds
purchased in the secondary market, and cash and cash equivalent money market
obligations. Shareholders' Equity rose $872,711 to $10,779,095 for the same
reason. Company liabilities at the end of the three month period ended March 31,
1999 are primarily comprised of a "Deferred Income," 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 March 31, 1999 but not yet paid.
FISCAL YEAR 1998 VERSUS FISCAL YEARS 1997 AND 1996. Net operating income for
the Company's fiscal year ended December 31, 1998 was $705,365 on total revenues
of $782,013 compared to $360,814 and $165,386 on total revenues of $384,118 and
$217,390 for the years ended December 31, 1997 and 1996 respectively. Interest
income earned on the Company's portfolio of loans was $655,219 for the year
ended December 31, 1998 compared to $343,695 and $152,259 for 1997 and 1996,
respectively. This increase is due to the fact that sixteen new loans were
originated in fiscal years ended December 31, 1998 and 1997. Excluded from
revenue for the year ended December 31, 1998 is $14,268 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 the distribution to shareholders of at least
95% of "Taxable Income," the dividends declared and paid to Shareholders for the
quarters ended March 31, 1998, June 30, 1998, September 30, 1998 and December
31, 1998 included origination income even though it was not recognized in its
entirety for the period under GAAP.
DIVIDENDS. The Company's Board of Directors declared quarterly dividends of
$.23125 for each share held of record on March 31, 1998, $.23125 for each share
held of record June 30, 1998, $.2125 for each share held of record September 30,
1998, and $.225 for each share held of record on December 31, 1998. Based on the
four quarters of operations for the quarters ended March 31, 1998, June 30,
1998, September 30, 1998, and December 31, 1998, the dividends paid represented
a 9.25%, 9.25%, 8.50% and 9.00% annualized yield to Shareholders respectively.
Total dividends paid in 1998 represented a 9.00% annual rate of return on each
share of common stock owned and purchased for $10 per share. Total dividends
paid by the Company for fiscal year 1997, its first full fiscal year of
operations, represented a 9.48% annual rate of return on each share of common
stock owned. The Company's Board of Directors declared a quarterly dividend of
$.1875 for each share held of record on March 31, 1999, representing a 7.50%
annualized yield to Shareholders.
The Company experienced its highest quarterly dividend payment for the
quarter ended December 31, 1997 and experienced it lowest quarterly dividend
payment for the quarter ended March 31, 1999. The quarterly dividend paid for
each share held of record on December 31, 1998 was $.25625 per share
representing an annualized yield of 10.25%. The quarterly dividend payment for
each share held of record on March 31, 1999 was $.1875 representing an
annualized yield of 7.50%. The dividend payment for December 31, 1998 was
significantly higher than the average dividend amount due to the large number of
loans funded during the quarter. Each loan funded during the quarter generated
origination income. Origination income is "Taxable Income" even though it is not
recognized in its entirety for the period under GAAP. The comparatively lower
dividend payment made to March 31, 1999 Shareholders of record was directly
related to large cash balances the Company received in its second stock offering
pending deployment in new loans to churches. Because interest earned in the
Company's money market account is substantially lower than interest earned on
its mortgage loans, interest income earned was lower than is anticipated to be
earned once the offering proceeds are deployed into new loans.
ASSETS OF THE COMPANY. Total assets of the Company increased from $3,414,977
as of December 31, 1996 to $5,363,396 as of December 31, 1997. As of December
31, 1998, assets increased to $10,259,327. The primary reason for the increase
in totals assets from December 31, 1996 through December 31, 1998 was a result
of the sale and issuance of the Company's common stock pursuant to its second
public offering. Shareholders' Equity rose from $3,280,141 at December 31, 1996
to $6,251,276 at December 31, 1997 and again to $9,899,384 at December 31, 1998
for the same reasons. Company liabilities for all periods after December 31,
1995 are primarily comprised of a "Deferred Income" item, reflecting the
practice of the Company of recognizing its origination income over the life of
each loan. Dividends declared but not yet paid are a material liability for all
periods after December 31, 1995.
23
<PAGE>
During the quarter ended March 31, 1999, total assets of the Company
increased by $906,431 due primarily to the continued public sale of the
Company's common stock. Total liabilities increased by $33,720 due to deferred
income and dividends declared but not yet paid as of March 31, 1999. The
Company's second public offering concluded January 22, 1999. A total of 779,759
shares were sold during the Company's second public Offering at $10.00 per
share. The Company had 1,183,879 shares outstanding as of March 31, 1999. During
the quarter ended March 31, 1999, the Company funded two additional first
mortgage loans totaling $755,000 and a second mortgage loan for $235,000. In
addition, the Company purchased $863,000 principal amount of first mortgage
church bonds for a purchase price of $855,720. All loans made by the Company
range in interest rate charged to the borrowers from 9.85% to 11.25%. As of
March 31, 1999, the average, principal-adjusted interest rate on the Company's
portfolio of loans was 10.83%. The Company's portfolio of bonds has an average
current yield of 9.39%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's revenue is derived principally from interest income, and
secondarily, from origination fees and renewal fees. The Company also earns
income through interest on funds that are invested pending their use in funding
mortgage loans or distributions as dividends to 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 are Advisory Fees, legal and accounting fees, shareholder
communications costs, 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 its business operations in
future years. Nevertheless, the Company believes that it may be desirable, if
not necessary, to sell additional shares of common stock in order to enhance its
capacity to make mortgage loans on a continuous basis. There can be no assurance
that the Company will be able to raise additional capital on favorable terms.
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 no
present intention of doing so, nor has it secured a source for such borrowing.
The Company does not believe that inflation at the national level has made a
material impact upon its operations since inception, nor does it believe that
currently anticipated levels of inflation in 1999 will have a material impact on
its business. Nevertheless, if the rate of inflation increased materially, the
Company would expect interest rates generally to increase, thus possibly making
the yield to investors in the Shares less attractive as compared to alternative
fixed-income investments. If the rate of inflation decreases materially, then
interest rates likely would decline or remain at current levels. A decline in
interest rates generally would require the Company to offer lower rates to
borrowers which, in turn, could result in lower yields to investors in the
Shares. During the Company's 1998 fiscal year, the Federal Reserve Board cut the
prime interest lending rate three times to a current prime interest rate of
7.75%. The reduction of the prime interest required the Company to reduce its
lending rates to levels that remained competitive with other lending
organizations to attract qualified potential borrowers. See "CURRENT FIRST
MORTGAGE LOAN TERMS."
BUSINESS OF THE COMPANY
GENERAL
The Company was incorporated in Minnesota on May 27, 1994 to become a REIT
for the purpose of engaging in the business of making mortgage loans to churches
and other non-profit religious organizations. As of March 31, 1999, the Company
has made 28 loans to 25 churches in the aggregate amount of $8,489,750 with the
average size being $303,205. Of the 28 loans made by the Company, five loans
totaling $1,442,000, have been repaid by the borrowing churches. The Company has
purchased in the secondary market for $1,825,443 (which includes $407 in accrued
interest) first mortgage church bonds in the face amount of $1,840,300 and
purchased for $72,800 second mortgage church bonds in the face amount of
$100,000. Two of the first mortgage church bonds in the face amount of $33,300
have been called for redemption by the issuing organizations. 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, and intends to lend funds and acquire mortgage secured
investments pursuant to its
24
<PAGE>
business plan as additional funds 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.
THE COMPANY'S BUSINESS ACTIVITIES
The Advisor's affiliate, American Investors Group, Inc. (the "Underwriter"
or "American") has underwritten first mortgage bonds since 1987 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 to the investing
public. Since its inception through March 31, 1999, American had underwritten
approximately 147 church bond financings, in which approximately $222,303,000 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 $1.5 million. See "APPENDIX I, TABLE III."
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 bond financing, the economic
feasibility of bond financing diminished for financings under $750,000. As a
result, the Company believed that many churches were 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 which were 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 issued by
churches and other non-profit religious organizations ("Church Bonds"). 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 by (i)
offering competitively attractive mid-term (5-15 years) loans and long-term
(20-year) loans (although there is no limit on the term of loans the Company may
make); (ii) seeking origination fees, or "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 Church Bonds. 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. As the
Company attempts to make mortgage loans that maximize interest income, 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 decisions, including determination of a
prospective borrower's or church bond issuer's financial credit worthiness, are
made for the Company by the Advisor. The Company has no employees. Employees and
agents of the Advisor conduct all aspects of the Company's business, including
(i) marketing and advertising; (ii) communication with prospective borrowers;
(iii) processing loan applications; (iv) closing the loans; (v) servicing the
loans; and (vi) administering the Company's day-to-day business. In
consideration of its services to the Company, the Advisor receives a fee equal
to 1.25% annually of the Company's Average Invested Assets and one-half of any
origination fee received 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, the U.S. Treasury 10-Year Notes, or another generally recognized reference
index, and having various terms to maturity, origination fees and other terms
and conditions. The terms of loans the Company offers may be changed by the
Advisor as a result of such factors as (i) the terms of loans 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
25
<PAGE>
national economic factors; and (v) actual experience in borrowers' demand for
the loans. Subject to change, the Company currently makes available the
following loan types:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
Loan Type Interest Rate(1) Origination Fee(2)
----------------------------------------------------------------------------------------------
<S> <C> <C>
15 Year Term(3) Fixed @ Prime + 2.00% 4.0%
----------------------------------------------------------------------------------------------
20 Year Term(3) Fixed @ Prime + 2.10% 4.0%
----------------------------------------------------------------------------------------------
20 Year Term(3) Variable Annually @ Prime + 1.25% 3.5%
----------------------------------------------------------------------------------------------
Renewable Term(4) Fixed @ Prime plus:
3 Year 1.50% 3.5%
5 Year 1.75% 3.5%
7 Year 2.00% 3.5%
----------------------------------------------------------------------------------------------
Construction 1 Year Term Fixed @ Prime + 3.25% 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 a specified
percentage "spread."
THIS TABLE DESCRIBES MATERIAL TERMS OF LOANS AVAILABLE FROM THE COMPANY.
THE TABLE DOES NOT PURPORT TO IDENTIFY ALL POSSIBLE TERMS, RATES, AND FEES THE
COMPANY MAY OFFER. THE COMPANY MAY MODIFY THE TERMS IDENTIFIED ABOVE AND/OR
OFFER LOAN TERMS DIFFERENT THAN THOSE IDENTIFIED ABOVE.
26
<PAGE>
PROPERTY (PORTFOLIO) OF THE COMPANY
As of March 31, 1999, the Company has eighteen first mortgage loans
aggregating $6,522,750 in principal amount, two second mortgage loans
aggregating $525,000 in principal amount, and purchased $1,907,000 principal
amount first mortgage bonds issued by churches. The table below identifies the
borrowing institutions, and certain key terms of the loans currently comprising
the Company's loan portfolio.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Borrowing Church Loan Loan Interest Collateral Funding Date
Amount Term Rate Appraised Value
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Landmark Apostolic Church $290,000 5 years 10.75% Fixed $ 650,000 4/25/96
- -------------------------------------------------------------------------------------------------------------------------------
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 (1) $600,000 15 years 11.25% Fixed $ 800,000 7/02/96
- -------------------------------------------------------------------------------------------------------------------------------
Chesapeake Christian Ctr. (2) $710,000 5 years 11.00% Fixed $ 850,000 10/30/96
- -------------------------------------------------------------------------------------------------------------------------------
Christ Community Evangelistic Church $310,000 15 years 11.25% Fixed $ 440,000 06/27/97
- -------------------------------------------------------------------------------------------------------------------------------
Evangel Temple $312,000 15 years 11.25% Fixed $ 560,000 11/13/97
- -------------------------------------------------------------------------------------------------------------------------------
Zion Dominion C.O.G.I.C. (3) $525,000 15 years 11.25% Fixed $ 774,000 10/15/97
- -------------------------------------------------------------------------------------------------------------------------------
St. Luke's Pentecostal $207,000 5 years 10.75% Fixed $ 277,000 12/04/97
- -------------------------------------------------------------------------------------------------------------------------------
Bethlehem Temple, Rialto $290,000 5 years (4) 12.00% Fixed $2,375,000 12/24/97
(Second Mortgage Loan)
- -------------------------------------------------------------------------------------------------------------------------------
Praise Tabernacle Baptist $245,000 5 years 10.75% Fixed $ 375,000 03/30/98
- -------------------------------------------------------------------------------------------------------------------------------
Agape Ministries $300,000 5 years 10.50% Fixed $ 400,000 05/07/98
- -------------------------------------------------------------------------------------------------------------------------------
Freewill Christian Center $390,000 3 years 10.25% Fixed $ 797,000 05/19/98
- -------------------------------------------------------------------------------------------------------------------------------
New Hope Baptist Church $220,000 5 years (4) 11.00% Fixed $3,000,000 06/23/98
(Second Mortgage Loan)
- -------------------------------------------------------------------------------------------------------------------------------
Pearly Gate Baptist Church $490,000 5 years 10.50% Fixed $1,000,000 06/26/98
- -------------------------------------------------------------------------------------------------------------------------------
Mt. Ararat Baptist Church $170,000 5 years 10.75% Fixed $1,000,000 09/24/98
- -------------------------------------------------------------------------------------------------------------------------------
Restoring America's Families Ministries $198,750 20 years 9.85% Fixed $ 265,000 12/09/98
- -------------------------------------------------------------------------------------------------------------------------------
United Baptist Church $235,000 20 years 10.50% Fixed $2,500,000 01/27/99
(Second Mortgage Loan)
- -------------------------------------------------------------------------------------------------------------------------------
Praise Chapel International $115,000 20 years 10.00% Fixed $ 175,000 03/02/99
- -------------------------------------------------------------------------------------------------------------------------------
Vineyard Christian Center $640,000 20 years 9.85% Fixed $ 950,000 03/17/99
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes an initial loan in the amount of $500,000 and an additional
supplemental loan of $100,000 funded in August 1997.
(2) Includes an initial loan in the amount of $490,000 and an additional
supplemental loan of $220,000 funded in December 1997.
(3) Includes an initial loan in the amount of $390,000 and an additional
supplemental loan of $135,000 funded in June 1998.
(4) Denotes a five year balloon loan. All principal is due and payable at the
end of the five year period.
27
<PAGE>
PROPERTY (PORTFOLIO) OF THE COMPANY (continued)
The following mortgage-secured bonds have been purchased by the Company:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------- -----------------------------
ISSUER PRINCIPAL COMPANY FACE YIELD YIELD TO CURRENT MATURITY ORIGINAL
AMOUNT PURCHASE OF BONDS MATURITY YIELD DATE ISSUE
PRICE DATE
- ---------------------------------------------------------------------------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Resurrection Life Ministries $ 100,000 $ 72,800 8.50% 16.79% 11.68% 05/15/01 05/15/94
- ---------------------------------------------------------------------------------------------- -----------------------------
Church of Jesus Christ $ 25,000 $ 23,000 9.55% 10.683% 10.38% 06/01/10 06/01/94
- ---------------------------------------------------------------------------------------------- -----------------------------
Palm Beach Cathedral $ 2,000 $ 871 7.75% 19.63% 17.80% 01/25/12 01/25/97
- ---------------------------------------------------------------------------------------------- -----------------------------
Sweetwater Church $ 5,000 $ 4,750 10.70% 15.355% 11.26% 06/01/99 12/01/86
of the Valley
- ---------------------------------------------------------------------------------------------- -----------------------------
Gospel Tabernacle Church $ 3,000 $ 3,000 9.50% 9.50% 9.50% 02/01/10 02/01/98
- ---------------------------------------------------------------------------------------------- -----------------------------
Gospel Tabernacle Church $ 1,000 $ 1,000 9.25% 9.25% 9.25% 08/01/08 02/01/98
- ---------------------------------------------------------------------------------------------- -----------------------------
Sharon Baptist $ 3,000 $ 2,970 10.00% 10.126% 10.10% 04/15/14 10/15/97
- ---------------------------------------------------------------------------------------------- -----------------------------
Apostolic Faith Church $ 5,000 $ 4,500 8.50% 13.277% 9.44% 06/15/01 12/15/93
- ---------------------------------------------------------------------------------------------- -----------------------------
Greater Open Door Church $ 900,000 $900,000 From 6.35% N/A 9.545% Serially to 12/17/98
to 9.80% 11/01/18
- ---------------------------------------------------------------------------------------------- -----------------------------
Church of the Great Commission $ 4,000 $ 4,000 10.50% 10.50% 10.50% 09/15/13 04/01/95
- ---------------------------------------------------------------------------------------------- -----------------------------
Pembroke Park C.O.G.I.C. $ 4,000 $ 3,920 10.00% 10.308% 10.20% 11/15/09 11/15/95
- ---------------------------------------------------------------------------------------------- -----------------------------
New Life Baptist Church $ 10,000 $ 9,800 10.05% 10.323% 10.26% 10/15/12 03/15/98
- ---------------------------------------------------------------------------------------------- -----------------------------
Southern California $ 500,000 $500,000 From 9.20% N/A 9.25% From 08/01/14 to 02/01/99
Word of Faith to 9.25% 02/01/19
- ---------------------------------------------------------------------------------------------- -----------------------------
Spiritual Life Ministries $ 255,000 $255,000 9.50% 9.50% 9.50% 02/15/14 02/15/99
- ---------------------------------------------------------------------------------------------- -----------------------------
New Generation Ministries $ 20,000 $ 20,000 9.70% 9.70% 9.70% 09/15/18 09/15/98
- ---------------------------------------------------------------------------------------------- -----------------------------
Gates of Heaven $ 10,000 $ 9,000 10.00% 11.393% 11.11% 05/15/14 11/15/94
- ---------------------------------------------------------------------------------------------- -----------------------------
Gates of Heaven $ 10,000 $ 9,000 10.20% 11.790% 11.33% 11/15/10 11/15/94
- ---------------------------------------------------------------------------------------------- -----------------------------
Gates of Heaven $ 10,000 $ 9,000 10.20% 11.826% 11.33% 05/15/10 11/15/94
- ---------------------------------------------------------------------------------------------- -----------------------------
Cornerstone Church Srs II $ 5,000 $ 4,500 9.95% 11.642% 11.06% 05/15/09 05/15/96
- ---------------------------------------------------------------------------------------------- -----------------------------
Korean Presbyterian Church $ 19,000 $ 17,100 10.00% 12.585% 10.00% 08/15/04 08/15/92
- ---------------------------------------------------------------------------------------------- -----------------------------
Christ Church of Kirkland $ 5,000 $ 4,500 10.10% 11.561% 11.22% 01/01/13 12/29/95
- ---------------------------------------------------------------------------------------------- -----------------------------
Morning Star Baptist Church $ 11,000 $ 9,900 9.65% 11.088% 10.72% 09/15/12 09/15/94
- ---------------------------------------------------------------------------------------------- -----------------------------
</TABLE>
The Resurrection Life Ministries bonds, which are secured by a second
mortgage, were purchased in May 1996 at a discount from one of the Company's
Independent Directors. Resurrection Life Ministries, Eden Prairie, Minnesota,
issuer of these bonds, has also issued and sold through the Underwriter $525,000
principal amount of its first mortgage bonds. Resurrection
28
<PAGE>
Life'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%. Resurrection
Life Ministries is current on it obligations with respect to the bonds
purchased by the Company. See "CERTAIN RELATIONSHIPS AND TRANSACTIONS WITH
MANAGEMENT."
The Palm Beach Cathedral and Sweetwater Church of the Valley bonds are
"restructured" bond issues. A "restructured" bond issue is one that experienced
an interruption in interest and/or principal payment to bondholders, but by
virtue of an agreement and/or court order has agreed to make payments on terms
which may differ from the terms of the original obligation. By restructuring
their first mortgage debt obligation, both churches were able to avoid
foreclosure on their church property of which bondholders have a first mortgage
upon the property--including security interest in all fixtures and furnishings.
The Palm Beach Cathedral and Sweetwater Church of the Valley have resumed their
mortgage debt obligations to the bondholders under an approved plan of
reorganization between the church and the trustee representing the interest of
bondholders. Bondholder's interests were represented by the Trustee who is
responsible for enforcement of the trust indenture which holds the First
Mortgage on the Church's property. The Trustee is responsible for distributing
both interest and principal to bondholders as defined in the mortgage trust
indenture. Both restructured issues are fully amortized debt obligations which
pay both principal and interest to bondholders semi-annually. The Palm Beach
Cathedral and Sweetwater Church of the Valley bonds mature on January 25, 2012
and June 1, 1999 respectively.
Greater Open Door Church of God in Christ issued $900,000 first mortgage
bonds in November 1998. The Company purchased the entire bond issue. The bonds
were underwritten by the Underwriter and are secured by a first mortgage on the
Church's real property appraised at $1,200,000. Gospel Tabernacle Church, issued
$3,550,000 first mortgage bonds in February 1998. The bonds were underwritten by
the Underwriter and are secured by a first mortgage on the Church's real
property appraised at $6,000,000.
The remaining bonds were purchased from or through the 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. Therefore, the Company intends to
retain them until maturity or redemption by the issuing Church.
The Company's policies (i) limit the aggregate amount of second mortgage
loans and second mortgage bonds to 20% of the Company's Average Invested Assets
on the date any second mortgage bond is purchased or second mortgage loan is
made; and (ii) limit the amount of mortgage-secured debt securities to 30% of
Average Invested Assets on the date of their purchase. As of March 31, 1999 the
percentage of Average Invested Assets in second mortgage loans and bonds, and
the percentage invested in mortgage-secured debt securities was 9.4% and
21.9% respectively.
MORTGAGE LOAN PROCESSING AND UNDERWRITING
The Advisor's personnel process and verify mortgage loan applications.
Verification procedures are designed to assure a borrower's qualification under
the Company's financing policies. Verification procedures include obtaining:
- written applications (and exhibits) signed and authenticated by the
prospective borrower
- financial statements of the prospective borrower
- corporate records and other organizational documents of the borrower
- preliminary title report or commitment for mortgagee title insurance
- a real estate appraisal in accordance with the Financing Policies
The Company requires that appraisals and financial statements 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 considered by the Company's underwriting committee,
comprised of the Advisor's President, the Advisor's Vice-President, the
Company's President, and the Director of Underwriting of the 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 "CURRENT FIRST MORTGAGE LOAN TERMS," "COMPENSATION TO ADVISOR AND
AFFILIATES," and "CONFLICTS OF INTEREST."
29
<PAGE>
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
loan commitment fee may be charged by the Company, but typically is not.
Commitments indicate the loan amount, origination fees, closing costs,
underwriting expenses (if any), funding conditions, approval expiration dates,
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 days from the
commitment to closing. Interest rate commitments beyond sixty days will not
normally be issued unless the Company receives a fee premium based upon the
assessment of the risk associated with a longer period.
LOAN PORTFOLIO MANAGEMENT
The Advisor manages and services the Company's portfolio of mortgage loans
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
- enforcing loan terms and other borrower's requirements
- periodic review of each mortgage loan file
- determination of its reserve classifications
- exercising the Company's remedies in connection with defaulted or
non-performing loans
Fees and costs of attorneys, insurance, bonds and other direct expenses incurred
in connection with the exercise of remedies in connection with a loan default
are the responsibility of the Company, although they may be recouped from the
borrower in the process of pursuing the Company's remedies. The Advisor will not
receive any additional compensation for services rendered in connection with
on-going loan portfolio management or exercising the Company's remedies in the
event of a loan default.
LOAN FUNDING AND BANK BORROWING
The Company's mortgage loans and purchases of Church Bonds are funded with
available cash resources and, at the discretion of the Advisor, may be funded
with borrowings under a line of credit with a commercial lender or bank. The
Company does not have a line of credit, and does not presently intend to obtain
one. The Company may borrow up to 50% of the value of its Average Invested
Assets to make loans. In obtaining such a line of credit, the Company may assign
one or more of its mortgages and/or mortgage-secured bonds as collateral.
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:
- principal repayments from borrowers on loans made by the Company
- dividends reinvested in the Company through the Dividend
Reinvestment Plan
- funds borrowed under any line of credit arrangement, if obtained
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<PAGE>
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 its
Financing Policy. The Financing Policy identifies the Company's general business
and the parameters of its lending business. These policies apply to all mortgage
loans made by the Company and 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:
- 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
and bonds funded by the Company is limited to 20% of Average
Invested Assets. All other loans will be first mortgage loans.
- 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.
- 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.
- 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.
- 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 of $500,000 or less, 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.
- The Advisor, on behalf of the Company, may require the borrower to
arrange for automatic electronic or drafting of monthly payments.
- 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.
- 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.
- 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).
The Company requires that a borrower maintain at all times during the loan a
general perils and liability coverage insurance policy naming the Company as a
co-insured in connection with damage or destruction to the property of the
borrower, which typically includes damage caused by fire, flood, vandalism and
theft. In its discretion, the Advisor may require the borrower to provide
earthquake and/or other special coverage.
These Financing Policies are in addition to the prohibited investments and
activities identified hereinafter and which are set forth in the Company's
Bylaws, which are discussed in the next section.
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<PAGE>
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:
- Investing more than 10% of its total assets in unimproved real property
or mortgage loans on unimproved real property;
- Investing in commodities or commodity futures contracts other than
"interest rate futures" contracts intended only for hedging purposes;
- 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;
- Investing in mortgage loans that are subordinate to any mortgage or
equity interest of the Advisor or the Directors or any of their
Affiliates;
- Investing in equity securities;
- Engaging in any short sales of securities or in trading, as
distinguished from investment activities;
- Issuing redeemable equity securities;
- Engaging in underwriting or the agency distribution of securities issued
by others;
- 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;
- 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;
- Investing in real estate contracts of sale unless such contracts are
in recordable form and are appropriately recorded in the chain of
title;
- 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;
- Acquiring property from any Advisor or Director, or any affiliate
thereof (other than church bonds from American Investors Group, Inc.
in the ordinary course of the Company's investing activities), 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;
- 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
- 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, to issue senior
securities or to make loans to other persons except in the ordinary course of
its business as described herein.
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<PAGE>
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 a current 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 is highly competitive. The Company
competes 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. Some
competitors have greater financial resources, larger staffs and longer
operating histories than those of the Company. The Company competes 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. 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. The Advisor 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. 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
documents to be utilized by the Advisor in connection with the Company's
business operations.
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. The Advisor employs two persons on a
part-time or other basis. The Company does not 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.
OPERATIONS
The Company's operations are located in the 8,400 square foot offices of
the Underwriter, American Investors Group, Inc., 10237 Yellow Circle Drive,
Minnetonka, Minnesota 55343. These facilities are owned by affiliates of the
Underwriter. 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. See "THE ADVISOR AND THE ADVISORY AGREEMENT" and
"CONFLICTS OF INTEREST." The Company believes that its current facilities
will be adequate for the foreseeable future.
33
<PAGE>
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. Annual Shareholder meetings are
typically held in May. 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>
David G. Reinhart 46 President, Treasurer and Director 1994
V. James Davis 54 Vice-President, Secretary and Director 1994
Kirbyjon H. Caldwell 46 Independent Director 1994
Robert O. Naegele, Jr. 58 Independent Director 1994
Dennis J. Doyle 47 Independent Director 1994
John M. Clarey 57 Independent Director 1994
</TABLE>
DAVID G. REINHART, has been a Director of the Company since its
inception, and has served as President and Treasurer of the Company since
January 1, 1999. He served as Vice-President and Secretary of the Company
from the Company's inception until January 1, 1999. He is also Chairman of
the Board of Directors of the Underwriter, American Investors Group, Inc., a
Director and Officer of the Advisor, Church Loan Advisors, Inc., and
President, director and shareholder of DRM Holdings, Inc. ("DRM"), the parent
corporation of American Investors Group. 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 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. He is also employed from time-to-time as Adjunct
Professor of Law, Hamline University School of Law, St. Paul, Minnesota. Mr.
Reinhart holds General Securities Representative and General Securities
Principal licenses with the National Association of Securities Dealers, Inc.
V. JAMES DAVIS, has been a Director of the Company since its inception,
and has served as the Vice-President and Secretary of the Company since
January 1,1999. He served as President and Treasurer of the Company from the
Company's inception until January 1, 1999. From November 1986 to October 1996
he served as President and a Director of the 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 General Securities Representative,
General Operations Principal and Financial Operations Principal licenses with
the National Association of Securities Dealers, Inc.
KIRBYJON H. CALDWELL, has served as an Independent Director of the
Company since September 1994. He currently is Senior Pastor of Windsor
Village United Methodist Church and St. John's United Methodist Church in
Houston, Texas, in which capacities he has served since January 1982 and
September 1992, respectively. Membership in both churches is approximately
7,500 combined and their ministries reach a broad segment of the Houston
region. Kirbyjon Caldwell received his B.A. degree in Economics from Carlton
College (1975), an M.B.A. in Finance from the University of Pennsylvania's
Wharton School (1977), and his Masters in Theology from Southern Methodist
University School of Theology (1981). He is a member of the Boards of
Directors of Texas Commerce Bank (Houston), Hermann Hospital (Houston),
Greater Houston Partnership, The United Way of The Texas Gulf Coast, and the
American Cancer Society. He is also the founder and member of several
foundations and other community development organizations.
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<PAGE>
ROBERT O. NAEGELE, JR., has served as an Independent Director of the
Company since September 1994. Mr. Naegele's professional background includes
advertising, real estate development, and consumer products, with a special
interest in entrepreneurial ventures and small developing companies. Most
recently, he led a group of investors to apply for, and receive an NHL
Expansion Franchise, the MINNESOTA WILD, to begin play in a new arena in St.
Paul, Minnesota, in the Fall of the year 2000. Mr. Naegele and his wife,
Ellis, lived in Minneapolis through 1993 and now reside in Naples, Florida.
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. The Company's officers
receive no compensation for their services, other than through their
interests in the Advisor and affiliates of the Company. See "COMPENSATION TO
ADVISOR AND AFFILIATES." 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 Underwriter.
The Directors are responsible for considering and approving the policies
of the Company. Directors 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.
Directors and officers are permitted to engage in other activities of the
type conducted by the Company, and neither the Company's Articles of
Incorporation or Bylaws nor any policy of the Company restricts officers or
Directors from conducting, for their own account or on behalf of others,
business activities of the type conducted by the Company. See "CONFLICTS OF
INTEREST."
Directors and officers are 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.
35
<PAGE>
EXECUTIVE COMPENSATION
The Company has officers and directors, but no employees as the
operations and business of the Company are conducted by the Advisor. Officers
of the Company are not compensated other than through their interest in the
Advisor and affiliates of the Company. See "COMPENSATION TO ADVISOR AND
AFFILIATES," "CERTAIN RELATIONSHIPS AND TRANSACTIONS WITH MANAGEMENT." AND
"THE ADVISOR AND THE ADVISORY AGREEMENT."
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. The Company reimburses directors for travel expenses incurred in
connection with their duties as Directors of the Company. In 1998, the
Independent Directors (four in number) were paid a total of $3,200 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."
FIDUCIARY RESPONSIBILITY OF BOARD OF DIRECTORS; INDEMNIFICATION
The Board of Directors and the Advisor are accountable to the Company and
its Shareholders as fiduciaries. Consequently, they must exercise good faith
and integrity in handling the Company's affairs. Similarly, the Advisor has
contractual obligations to the Company which it must discharge with the
utmost good faith and integrity. This is a rapidly developing and changing
area of the law. Shareholders who have questions concerning the duties of the
directors should consult with their own counsel.
The Company's Articles require the Company 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
willful 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. 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. Subject to the limitations
described above, the Company shall have the power to purchase and maintain
insurance on behalf of an indemnified party. The Company may procure
insurance covering its liability for indemnification. The indemnification
permitted by the Articles of the Company is more restrictive than permitted
under the Minnesota Business Corporation Act.
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 is the fair market value, as defined in the Option Plan, at the
time the option is granted. On November 15, 1994, 1995, 1996, 1997 and 1998,
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 105,000 shares) at a price of $10 per share. These options vested or vest
one year after their grant, and are thus exercisable beginning November 15,
1995 through 1999 and expire four years after their grant, and thus expire
beginning November 15, 1999 through 2003. Options to purchase 84,000 shares
are currently exercisable.
The Company may 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 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.
36
<PAGE>
The Company may refuse to allow the exercise of a warrant into Common
Stock if the effect of such exercise or conversion would, in the opinion of
counsel for the Company, disqualify or jeopardize the Company as a real
estate investment trust under the Code.
SECURITY OWNERSHIP OF MANAGEMENT AND OTHERS
The following table sets forth as of May 1, 1999, certain information
regarding beneficial ownership of the Company's Shares, as adjusted to give
effect to the issuance of the Shares offered hereby, by (i) each person known
by the Company to be the beneficial owner of 5% or more of the outstanding
Shares; (ii) each Director and Executive Officer of the Company; and (iii)
all Directors and Officers of the Company as a group. The percentage of
Shares outstanding before and after the Offering is calculated separately for
each person and excludes Shares issuable upon exercise of options. Unless
otherwise noted, each of the following persons has sole voting and investment
power with respect to the Shares set forth opposite their respective names.
<TABLE>
<CAPTION>
Percent of Shares
Outstanding
Number of Shares Before After
Name of Beneficial Owner (1) Beneficially Owned (2) Offering Offering (5)
---------------------------- ---------------------- -------- ------------
<S> <C> <C> <C>
Iron Workers Local #498....................... 107,295(3) 9.06% 4.00%
David G. Reinhart ............................ 10,000(4) .84 .37
Robert O. Naegele, Jr......................... 5,000 .42 .19
V. James Davis................................ 1,215 .10 .05
Kirbyjon H. Caldwell.......................... ---- ---- ----
Dennis J. Doyle............................... ---- ---- ----
John M. Clarey................................ ---- ---- ----
All Executive Officers and Directors
as a Group (six individuals)................ 16,215 1.37% .60%
</TABLE>
- -------------------------------------------------------
(1) The address for the Directors is 10237 Yellow Circle Drive, Minnetonka,
Minnesota 55343.
(2) Excludes 15,000 Shares (105,000 Shares in the aggregate) 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. Options
to purchase 84,000 Shares are currently exercisable. See "MANAGEMENT --
WARRANTS AND OPTIONS."
(3) As of March 31, 1999, the Iron Workers Local 498 Pension Plan and Iron
Workers Local 498 Health and Welfare Fund, 4749 W. Lincoln Drive, Suite
202, Matteson Illinois 60443, owns collectively 107,295 Shares. This
investor may purchase additional shares in this Offering. In such event,
its percentage of Shares outstanding after the Offering would be greater
than that indicated in the table above. No beneficial owner may own more
than 9.8% of the Shares outstanding at any time during or after the
Offering. See "REPURCHASE OF SHARES AND RESTRICTIONS ON TRANSFER."
(4) 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 President, Treasurer and a Director; and by Philip J. Myers, the
Advisor's President. Messrs. Reinhart and Myers are also directors of the
Advisor and of the 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 10,000
Shares (.84% before Offering and .37% after Offering). See "MANAGEMENT" and
"CONFLICTS OF INTEREST."
(5) Assumes sale of all 1,500,000 Shares offered hereby. Assumes named
beneficial owners do not purchase any Shares in this Offering.
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<PAGE>
CERTAIN RELATIONSHIPS AND TRANSACTIONS WITH MANAGEMENT
The Advisor manages the business of the Company subject to the
supervision of the Company's Board of Directors. The Advisor provides
investment advisory and administrative services to the Company. The Advisor
is owned by V. James Davis, David G. Reinhart and Philip J. Myers. Messrs.
Davis and Reinhart are officers and Directors of the Company. Messrs.
Reinhart and Myers are also shareholders, officers and directors of DRM
Holdings, Inc, which owns American Investors Group, Inc. (the "Underwriter").
Messrs. Reinhart and Myers together own all of the total outstanding common
stock of DRM Holdings, Inc. The Advisor employs two key persons on a
part-time basis, including Philip J. Myers, President and Scott J. Marquis,
Vice President. The Company and the Advisor regularly use the services of
personnel employed by American Investors Group, Inc. No direct cost is
incurred by the Company for such services, except for the Advisory Fee paid
to the Company's Advisor.
Pursuant to an Advisory Agreement, the Company pays the Advisor certain
Advisory Fees and expenses and remits one-half of any origination fee
collected from a borrower. For the year ended December 31, 1998, the Company
paid to the Advisor total Advisory Fees in the amount of $52,944 and the
Advisor received Advisor Loan Origination fee income of $49,000. In 1997, the
Company paid to the Advisor total Advisory Fees in the amount of $17,545, and
the Advisor received Advisor Loan Origination Fee income of $43,980. The
Advisor voluntarily waived $15,223 and $23,119 in Advisory fees in 1998 and
1997, respectively. Those Advisory Fees were waived by recommendation by the
Advisor to the Board of Directors because of offering and related expenses
incurred by the Company in its incipient period of operations and the
Advisor's desire to lessen the impact of such expenses on the Company's
operations, and because a material portion of the Company's assets had not
yet been invested in mortgage loans and/or church bonds, which reduced the
Advisor's day-to-day operational activities. The occasional waiver of fees by
the Advisor was voluntary and cannot be expected to occur in the future. The
Company believes that the terms of the Advisory Agreement are no less
favorable to the Company than if it had been entered into between the Company
and an independent third party as advisor. See "THE ADVISOR AND THE ADVISORY
AGREEMENT" below.
Pursuant to the Underwriting Agreement, the Company will pay the
Underwriter 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 Underwriter is an affiliate of the Advisor. The Company believes that the
terms of the Underwriting Agreement are no less favorable to the Company than
if it had been entered into between the Company and an independent third
party as underwriter. The following table sets forth the name and positions
of certain officers and all directors of the Underwriter:
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
Philip J. Myers President, Secretary and Director
Scott J. Marquis Vice President
David G. Reinhart Chairman of the Board of Directors
</TABLE>
In the course of its business, the Company may purchase church bonds
being underwritten and sold by American Investors Group, Inc. Although the
Company would not pay any commissions, American will benefit from such
purchases as a result of commissions paid to it by the issuer of the 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 will
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 Underwriter. It is the policy of the Company not
to invest in excess of 30% of its Average Invested Assets in church bonds.
All future transactions between the Company and its officers, directors and
affiliates will be approved, in advance, by a majority of the independent and
disinterested Directors.
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 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 they 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
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<PAGE>
Independent Directors, and was determined to be no less favorable to the
Company than if it had been with an independent third party.
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 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>
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 43, 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
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.
Mr. Myers holds General Securities Representative and General Securities
Principal licenses with the National Association of Securities Dealers, Inc.
SCOTT J. MARQUIS, age 41, 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 of the 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 Companies 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.
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<PAGE>
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. The Advisor
provides the following services to the Company:
- serves as the Company's mortgage loan underwriter and advisor in
connection with its primary business of making loans to churches
- advises and selects Church Bonds to be purchased and held for
investment by the Company
- provides marketing and advertising and generates loan leads directly
and through its Affiliates
- deals with borrowers, lenders, banks, consultants, accountants,
brokers, attorneys, appraisers, insurers and others
- supervises the preparation, filing and distribution of tax returns
and reports to governmental agencies, prepares reports to
Shareholders and acts on behalf of the Company in connection with
Shareholder relations
- provides office space and personnel
- reports to the Company on its performance of the foregoing services
- furnishes 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 Advisory Agreement expires annually. The agreement 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. The Company may continue
to use the word "church" in its name. See "COMPENSATION TO ADVISOR AND
AFFILIATES." The Company's Directors will determine that any successor
Advisor possesses 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." The Advisor is required to
pay all of the expenses it incurs in providing services to the Company,
including, personnel expenses, rental and other office expenses, expenses of
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 pays its other expenses,
including expenses of reporting to governmental agencies and Shareholders,
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 must 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.
The Company's Bylaws require the Independent Directors to determine at
least annually the reasonableness of the compensation paid by the Company to
the Advisor. The Company's Independent Directors originally approved the
Amended and Restated Advisory Agreement and the Amended and Restated Bylaws
on May 19, 1995 and approved on January 19, 1999, the renewal of the Restated
Advisory Agreement for another year. Factors 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.
40
<PAGE>
The Advisory Agreement requires the Company to indemnify 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 a summary of the material provisions 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 been
engaged in the underwriting of first mortgage bonds issued by churches since
1987. Messrs. Myers and Reinhart, together with American's Director of
Underwriting comprise American's "Underwriting Committee," which reviews and
approves 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 March 31, 1999, American has
underwritten approximately 147 church bond financings involving the sale of
approximately $222,303,000 in aggregate principal amount of first mortgage
bonds issued by churches. The average size of the financings is approximately
$1.5 million, and ranged 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 25
states and all regions of the United States. See "APPENDIX I, TABLE III."
Of the bond financings underwritten by American, approximately five have
been retired early. Three of the bond issues underwritten by American since
its inception have experienced an event of default, as described in APPENDIX
I attached hereto. Additional information with respect to the bond financings
conducted by the Advisor's affiliate and Underwriter, American Investors
Group, Inc. ("American") are set forth in the Appendices. See "APPENDIX I."
FEDERAL INCOME TAX CONSEQUENCES
THE DISCUSSION OF FEDERAL INCOME TAX TREATMENT OF REAL ESTATE INVESTMENT
TRUSTS AND THEIR SHAREHOLDERS SET FORTH BELOW IS A SUMMARY. IT DOES NOT
ADDRESS ALL POTENTIAL CONSEQUENCES OF WHETHER THE COMPANY QUALIFIES AS A
REIT. THIS SUMMARY DOES NOT ADDRESS THE SPECIFIC CONSEQUENCES TO EACH
PURCHASER OF AN INVESTMENT IN THE SHARES. EACH PURCHASER SHOULD CONSULT HIS
OR HER OWN TAX ADVISOR AS TO THE SPECIFIC CONSEQUENCES OF THE PURCHASE OF
SHARES, INCLUDING THE APPLICATION OF STATE AND LOCAL TAX LAWS AND OF ANY
POSSIBLE CHANGES IN THE TAX LAWS.
QUALIFICATION AS A REAL ESTATE INVESTMENT TRUST
GENERAL. The Company operates as a real estate investment trust under the
Internal Revenue Code (the "Code"). The ability of the Company to qualify as
a REIT depends, in part, on the timing and nature of the Company's
investments. There can be no assurance that the Company will qualify to be
taxed as a REIT. Qualification as a real estate investment trust is
dependent 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 the Company's method of operation permits it to
meet the requirements for qualification and taxation as a REIT. 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 business set forth in this Prospectus. 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 or
other legal counsel. 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 the REIT requirements. The anticipated income tax treatment
described in this Prospectus may be changed, perhaps retroactively, by
legislative, administrative or judicial action at any time.
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<PAGE>
The following is a general summary of the provisions that govern the
federal income tax treatment of a REIT 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. An entity that qualifies as a REIT generally is not 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.
Even if the Company qualifies as a REIT, the Company will be subject to
federal income tax as follows:
- 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.
- Under certain circumstances, the Company may be subject to the
"alternative minimum tax" on its items of tax preference.
- 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.
- 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.
- If the Company fails to satisfy the 75% gross income test or the 95%
gross income test (as discussed below), and has nonetheless
qualified as a REIT 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.
- If the Company fails 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.
- 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. Conditions (i) to (iv) must be met during the entire taxable
year. 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, the Company must elect or
previously have elected to be so treated and must meet other requirements,
certain of which are summarized below, including percentage tests relating to
the sources of its gross income, the nature and diversification of the
Company's assets and the distribution of its income to Shareholders.
ASSET TESTS. At the close of each quarter of its taxable year, the
Company must satisfy three tests relating to the nature and diversification
of its assets:
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<PAGE>
1. 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.
2. 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.
3. 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
43
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fraud with intent to evade tax. It is not possible, however, to state whether
in all circumstances the Company would be entitled to the benefit of these
relief provisions. If these relief provisions apply, a special 100% tax is
imposed (See "GENERAL").
The Company does not intend to hold any property "primarily for sale to
customers in the ordinary course of its trade or business" and intends to do
whatever is reasonably prudent to avoid so holding any property, consistent
with the investment objectives of the Company. However, whether property is
held as "dealer property" depends on the facts and circumstances in effect,
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). 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 the 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 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 uses the calendar year as its annual accounting period for
federal income tax purposes. The Company uses 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. The Company intends to meet these requirements. Absent a ruling from
the Internal Revenue Service, 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. While the Company expects to meet the distribution
requirement, the Company's ability to make the required distributions may be
impaired if the Company has insufficient cash flow or has excessive non-cash
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 arrange for short-term, or possibly long-term
borrowings in order to meet the 95% requirement. Any distributions reinvested
pursuant to the Dividend Reinvestment Plan will be treated as distributions
for purposes of determining compliance with the 95% distribution requirement.
Under certain circumstances, the Company may be able to rectify a failure
to meet the distribution requirement for a year by paying "deficiency
dividends" to Shareholders in a later year, which may be included in the
Company's deduction for
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dividends paid for the earlier year. 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
If the Company fails to qualify as a REIT in any taxable year and the
relief provisions described above do not apply, then 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. If the
Company fails to qualify as a REIT 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 will be treated by them as ordinary income
(which will not be eligible for the dividends received deduction for
corporations). Distributions 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. 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 a return of capital that 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.
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 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.
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
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 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 CONSEQUENCES FOR FOREIGN INVESTORS
The preceding discussion does not address the federal income tax
consequences 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, the impact of
the Foreign Investors
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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. 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. 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 CONSEQUENCES
In the event the Company enters into any joint venture transactions,
special tax risks might arise. Such risks include possible challenge by the
IRS of (i) allocations of income and expense items, which could affect the
computation of taxable income of the Company and (ii) the status of the joint
venture as a partnership (as opposed to a corporation). If a joint venture
were treated as a corporation, the joint venture would be treated as a
taxable entity and if the Company's ownership interest in the joint venture
exceeds 10%, the Company would cease to qualify as a REIT. Furthermore, in
such a situation even if the Company ownership does not exceed 10%,
distributions from the joint venture to the Company would be treated as
dividends, which are not taken into account in satisfying the 75% gross
income test described above and which could therefore make it more difficult
for the Company to qualify as a REIT for the taxable year in which such
distribution was received. An interest in the joint venture 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. On 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 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 CONSEQUENCES
The following is a summary of material consequences arising under ERISA
and the prohibited transaction provisions of Internal Revenue 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 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 CONSEQUENCES
Certain employee benefit plans and individual retirement accounts and
individual retirement annuities (collectively, "Plans"), are subject to
various provisions of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") and the Internal Revenue Code. Before investing in the
Shares, a Plan fiduciary should ensure that such investment is in accordance
with ERISA's fiduciary standards. 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
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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
a prohibited transaction.
PLAN ASSETS ISSUE
A prohibited transaction may occur if the assets of the Company are
deemed to be Plan assets. In certain circumstances where a Plan holds an
interest in an entity, the assets of the entity are deemed to be Plan assets
(the "look-through rule"). Under such circumstances, any person that
exercises authority or control with respect to the management or disposition
of such assets is a Plan fiduciary. Plan assets are not defined in ERISA or
the Code, but the United States Department of Labor has issued Regulations,
effective March 13, 1987 (the "Regulations"), that outline the circumstances
under which a Plan's interest in an entity will be subject to the
look-through rule.
The Regulations apply only to the purchase of a Plan of an "equity
interest" in an entity, such as common stock of a REIT. The term "equity
interest" means any interest in an entity other than an investment that is
treated as indebtedness under applicable local law and which has no
substantial equity features. However, the Regulations provide an exception to
the look-through rule for equity interests that are "publicly-offered
securities" and for equity interests in an "operating company."
Under the Regulations a "publicly-offered security" is a security that is
(1) freely transferable, (2) part of a class of securities that is
widely-held, and (3) part of a class of securities that is registered under
Section 12(b) or 12(g) of the Exchange Act or sold to a Plan as part of an
offering of securities to the public pursuant to an effective registration
statement under the Securities Act and the class of securities of which such
security is a part is registered under the Exchange Act within 120 days (or
such later time as may be allowed by the Securities and Exchange Commission)
after the end of the fiscal year of the issuer during which the offering of
such securities to the public occurred. Whether a security is considered
"freely-transferable" depends on the facts and circumstances of each case.
Generally, if the security is part of an offering in which the minimum
investment is $10,000 or less and any restriction on or prohibition against
any transfer or assignment of such security is for the purposes of preventing
a termination or reclassification of the entity for federal or state tax
purposes, the security will not be prevented from being considered freely
transferable. A class of securities is considered "widely-held" if it is a
class of securities that is owned by 100 or more investors independent of the
issuer and of one another.
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. 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 share of Common Stock 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.
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WARRANTS AND OPTIONS
The Company has issued to its Directors and the President of the Advisor
warrants to purchase 15,000 Shares each at a purchase price of $10.00 per
Share. See "MANAGEMENT--WARRANTS AND OPTIONS."
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 CONSEQUENCES."
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"). 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 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 Excess Shares is 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 Excess Shares will be paid on the redemption date fixed by the Board of
Directors and included in such notice. Excess Shares cease to be entitled to
any distribution and other benefits from and after the date fixed for
redemption, except 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. The Board of Directors is authorized to refuse to transfer Shares to a
person if, as a result of the transfer, that person would own Excess Shares.
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. 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. Purchases under the DRP are not subject to selling commissions or
other distribution-type fees and costs. 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. Only Shareholders are eligible to participate in the DRP.
Participants in the DRP may 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 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 to promptly notify the Company in writing
if, at any time prior to listing of the Shares
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on a national securities exchange or market, the Shareholder 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.
The Dividend Reinvestment Agent will vote all shares held in the
participant's account in the same way in which each participant votes shares
of the Company standing of record in the participant's name by the regular
proxy returned by participant to the Company. If the Dividend Reinvestment
Agent sent to the participant a separate proxy covering the shares credited
to participant's dividend reinvestment account, then such shares will be
voted as designated in such separate proxy. If the participant does not
direct the voting of shares by regular or separate proxy, then the shares
credited to the participant's dividend reinvestment account will not be
voted. Stock dividends or stock splits distributed by the Company on shares
held by the Dividend Reinvestment Agent for the participant will be credited
to the participant's account.
If the Company makes available to its Shareholders rights to purchase
additional shares or other securities of the Company, the Dividend
Reinvestment Agent will sell rights accruing to shares held by the Dividend
Reinvestment Agent for the participant and will combine the resultant funds
with the next regular dividend for reinvestment at that time. If a
participant desires to exercise such rights, the participant must request
that certificates be issued for full shares, as described below.
The reinvestment of dividends does not relieve the participant of income
tax payable on such dividends. The Dividend Reinvestment Agent will report
the amount of dividends credited to participants' accounts. Participants in
the DRP may not sell, pledge, hypothecate or otherwise assign or transfer
their account, any interest therein or any cash or shares credited to the
participant's account. No attempt at any such sale, pledge, hypothecation or
other assignment or transfer will be effective.
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. In the event
that a secondary market develops for the Shares, 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 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. Participants will also receive during
the year quarterly statements showing activity since the last statement and
current shares in their DRP account. The individualized statement to
Shareholders will include receipts and purchases relating to each
participant's participation in the DRP. The Dividend Reinvestment Agent will
hold the shares purchased until termination of participant's participation in
the DRP. At the participant's request, certificates for full shares held by
the Dividend Reinvestment Agent may be issued at any time or on a continuous
basis as they are credited to the participants DRP account. The servicing
agent for the Company's DRP program is Gemisys Corporation, 7103 South Revere
Parkway, Englewood, Colorado, 80112, telephone: (303) 705-6000.
REPURCHASE OF SHARES BY THE COMPANY
Although the Shares are not redeemable by the Company, the Company may at
its complete discretion, repurchase Shares offered to it by Shareholders. The
Company may pay whatever price the Advisor deems appropriate and reasonable,
and any such Shares repurchased will be re-designated as "unissued," will no
longer be entitled to distribution of dividends, and will cease to have
voting rights.
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 is 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.
This summary is qualified in its entirety by
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specific reference to the organizational documents filed as Exhibits to the
Registration Statement of which this Prospectus is a part.
CERTAIN ARTICLE AND BYLAW PROVISIONS
Shareholders' rights and related matters are governed by the Minnesota
Business Corporation Act, the Amended and Restated Articles and the Amended
and Restated 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 an 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 Board establishes the number of directors of
the Company 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 a 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's 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
"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 NASDAQ 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" means a partnership, real
estate investment trust, corporation, trust, or other entity created or
surviving after the completion of a Roll-up transaction.
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In connection with a proposed Roll-Up, an appraisal of all of the
Company's assets will be obtained from a competent independent expert. The
appraiser will evaluate all relevant information, indicate the value of the
assets as of a date immediately prior to the announcement of the Roll-Up and
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:
- result in the Shareholders having rights to meeting less frequently or
which are more restrictive to Shareholders than those provided in the
Bylaws;
- result in the Shareholders having voting rights that are less than those
provided in the Bylaws;
- result in the Shareholders having greater liability than as provided in
the Bylaws;
- result in the Shareholders having rights to receive reports that are
less than those provided in the Bylaws;
- result in the Shareholders having access to records that are more limited
than those provided in the Bylaws;
- 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);
- 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;
- 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
- place any of the costs of the transaction on the Company if the Roll-Up
is not approved by the Shareholders.
Nothing prevents the Company's participation in any proposed Roll-Up
resulting in Shareholders having rights and restrictions comparable to those
contained in the Bylaws, with the prior approval of a majority of the
Shareholders.
Shareholders voting against a proposed Roll-Up 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. The Company does not intend to participate in a Roll-Up transaction.
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 cannot exceed
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 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
must be recorded in the minutes of the meeting of Directors. The Company will
send a written disclosure to Shareholders 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. 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 must reimburse the Company for 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 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:
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(a) the transaction as contemplated is fair and reasonable to the Company
and its Shareholders and its terms and conditions are not less
favorable to the Company than those available from unaffiliated third
parties;
(b) if the transaction involves compensation to any Advisor or its
affiliates for services rendered in a capacity other than
contemplated by the advisory arrangements, such compensation is not
greater than the customary charges for comparable services generally
available from other competent unaffiliated persons and is not in
excess of compensation paid to any Advisor and its affiliates for
any comparable services;
(c) if the transaction involves the making of loans (other than in the
ordinary course of the Company's business) or the borrowing of
money, the transaction is fair, competitive, and commercially
reasonable and no less favorable to the Company than loans between
unaffiliated lenders and borrowers under the same circumstances; and
(d) if the transaction involves the investment in a joint venture, the
transaction is fair and reasonable and no less favorable to the
Company than to other joint venturers.
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 of the underlying property must be
obtained from an independent expert. The appraisal must be maintained in the
Company's records for at least five years and be available for inspection and
duplication by any Shareholder. Such loan is subject to all requirements of
the Company's Financing Policy.
The Company cannot 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 the
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.
The Company cannot make or invest in any mortgage loans 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 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. These guidelines and prohibitions are set forth at the section headed
"BUSINESS OF THE COMPANY--PROHIBITED INVESTMENTS AND ACTIVITIES."
PLAN OF DISTRIBUTION
GENERAL
The Underwriter is offering the Shares pursuant to the terms and
conditions of an Underwriting Agreement (a copy of which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part).
The Underwriter is offering hereby up to 1,500,000 Shares at a price of
$10.00 per Share on a "best efforts" basis. "Best efforts" means that the
Underwriter is not obligated to purchase any Shares. This is a "no minimum"
offering. As a "no minimum" offering, there is no minimum number of Shares
that must be sold, and the Company will receive the proceeds from the sale of
Shares as they are sold. There is 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 not later than _______ __, ___ (two years from the date
hereof), subject to extension by mutual agreement of the Company and the
Underwriter for an additional 60 days, or until completion of the sale of all
Shares, whichever first occurs (the "OFFERING PERIOD"). The Company may
terminate this Offering at any time.
COMPENSATION
The Company will pay to the Underwriter a commission of 5.95% of the
proceeds from the sale of the Shares sold (up to $892,500). The Company has
agreed to pay the Underwriter a non-accountable expense allowance of up to
$133,000 to reimburse the Underwriter for certain expenses incurred by it in
connection with the offer and sale of the Shares, $35,000 of which is payable
upon the sale of $1,000,000 in Shares, and the balance ($98,000) is payable
ratably based on the number of Shares sold thereafter.
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The Underwriter may award sales incentive items to Soliciting Dealers,
and persons associated with it as licensed registered representatives, in
connection with its sales activities. The value of each item will be less
than $50. The Underwriter 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 any commissions or other compensation
to any person engaged by a potential investor for investment advice to induce
such person to advise the investor to purchase Shares. This provision does
not prohibit the normal sales commission payable to a registered
broker-dealer or other properly licensed person for selling the Shares.
SUBSCRIPTION PROCESS
The Shares will be offered to the public through the Underwriter and
Soliciting Dealers. The Soliciting Dealer Agreement between the Underwriter
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 four business
days. If the subscription is accepted, a confirmation will be mailed within
two weeks of acceptance of the investor as a shareholder. If the subscription
is rejected, the funds will be returned to the Soliciting Dealer, without
interest. Initial subscriptions for less than 250 Shares will not be accepted
(200 Shares for IRA accounts).
The Underwriter may offer the Shares only through their own registered
representatives and broker-dealers who are members of the NASD ("Soliciting
Dealers"). The Underwriter may re-allow to Soliciting Dealers a portion of
their commissions, fees and reimbursable expenses payable to it under the
Underwriting Agreement. In no event will the compensation re-allowed by the
Underwriter to Soliciting Dealers exceed the total of compensation payable to
the Underwriter under the Underwriting Agreement. The Underwriter may 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 UNDERWRITER AND
MUST REMIT PAYMENT FOR THE PURCHASE OF SHARES DIRECTLY TO THE UNDERWRITER
PAYABLE TO "AMERICAN INVESTORS GROUP, INC."
A sale will be deemed to have been made on the date reflected in the
written confirmation. The confirmation will be sent to each purchaser by the
Underwriter on the first business day following the date upon which the
Company advises Underwriter in writing that a subscription has been accepted.
The Underwriter must receive payment of the purchase price must by the
Settlement Date 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.
The Underwriting Agreement provides for reciprocal indemnification
between the Company and the Underwriter against certain liabilities in
connection with this Offering, including liabilities under the Securities Act
of 1933. The Company's indemnification obligations 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.
There is no market for the Shares. The Company does 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
Underwriter 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 first two public offerings. The public offering price is not an
indication of the actual value of the Shares.
DETERMINATION OF INVESTOR SUITABILITY
The Company, the Underwriter and each Soliciting Dealer will make
reasonable efforts 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 must ascertain that the investor can
reasonably
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benefit from an investment in the Company. The following shall be relevant to
such determination: (i) the investor is capable of understanding the
fundamental aspects of the Company, which capacity may be evidenced by the
following: (a) 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 similar investments; (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. In addition to the foregoing,
the Company will coordinate the processes and procedures utilized by the
Underwriter and Soliciting Dealers and, where necessary, implement additional
reviews and procedures deemed necessary to determine that investors meet the
suitability standards set forth herein. The Underwriter and/or the Soliciting
Dealers must 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. 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) a net worth (excluding home, home furnishings and automobiles)
of at least $45,000 and estimated gross income during the current year
(without regard to investment in the Company) of at least $45,000; or (ii) 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. By acceptance of the
confirmation of purchase or delivery of the Shares, an investor represents
satisfaction of the applicable suitability standards.
Custodians or trustees of employee pension benefit plans or IRAs should
review the sections of this Prospectus headed "FEDERAL INCOME TAX
CONSEQUENCES--TAXATION OF TAX-EXEMPT STOCKHOLDERS" AND "ERISA CONSEQUENCES."
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 CONSEQUENCES" and "FEDERAL
INCOME TAX CONSEQUENCES," are being passed upon for the Company by Maun &
Simon, PLC, Minneapolis, Minnesota.
EXPERTS
The financial statements of the Company as of December 31, 1995, 1996,
1997 and 1998 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
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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, AND RIGHTS OF EXAMINATION
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 books of account, together
with a copy of the Company's Articles and any amendments thereto, will 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 have 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:
- audited financial statements
- the ratio of the costs of raising capital during the period to the
capital raised
- 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
- the Total Operating Expenses of the Company, stated as a percentage
of the Average Invested Assets and as a percentage of its Net
Income
- 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
- full disclosure of all material terms, factors and circumstances of
transactions involving the Company, Directors, Advisor and any
Affiliate thereof occurring in the year for which the annual report
is made. Independent Directors will examine and comment in the
report on the fairness of such transactions.
Unaudited quarterly reports 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 quarter during the Offering Period in
which the Company has closed a loan, a report will be submitted to each
Shareholder containing:
- the location and a description of the general characteristics of each
loan made during the quarter and the property securing the loan
- the material terms of the loan
- a statement that an appraisal and title insurance have been obtained
on the property
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; and (ii) involving
the use of 10% or more, on a cumulative basis, of the net proceeds of this
Offering.
The Company's regular accountants will prepare the Company's federal and
state tax returns. The Company will submit tax information to Shareholders
within 90 days following the end of each fiscal year. A specific
reconciliation between GAAP and income tax information will not be provided
to the Shareholders. Reconciling information will be available in the office
of the Company for inspection and review by any Shareholder. Concurrent with
the dissemination of tax information to Shareholders, the Company will
provide each Shareholder with a 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 statement will report purchases of Shares under the
Company's Dividend Reinvestment Plan. Shareholders requiring reports on a
more frequent basis may request them. The Company will make a reasonable
effort to supply more frequent reports, as requested. The Company 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.
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ADDITIONAL INFORMATION
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. In each instance reference is
made to the copy of such contract or document filed as an exhibit to the
Registration Statement, each 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.
The Company is subject to the information requirements of the Exchange
Act, and in accordance therewith files reports and other information with the
Commission. Reports and other information filed by the Company with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth St. N.W., Washington, DC 20549, and
at the Commission's regional offices at Northwestern Atrium Center, 500 West
Madison, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite
1300, New York, New York 10048. Copies of such material may be obtained at
prescribed rates from the Commission's Public Reference Section at 450 Fifth
Street, N.W., Washington, DC 20549. The Commission maintains a Web site that
contains reports, proxy and information statements and other materials that
are filed through the Commission's Electronic Data Gathering, Analysis and
Retrieval system. This Web site can be accessed at http://www.sec.gov. In
addition, material filed by the Company can be inspected at the offices of
the National Association of Securities Dealers, Inc., at 1735 K Street, N.W.,
Washington, D.C. 20006.
GLOSSARY
Definitions of certain terms used in the Prospectus are set forth below:
"ADVISOR" means, 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.
"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.
"BEST EFFORTS" means a method of underwriting whereby the Underwriter is
committed to use its best efforts to sell the Shares on behalf of the
Company, but is not required to purchase the Shares or otherwise guarantee
their sale.
"CODE" means the Internal Revenue Code of 1986, as amended, or
corresponding provisions of subsequent revenue laws.
"COMMISSION" means the Securities and Exchange Commission.
"DIVIDEND REINVESTMENT PLAN" means the Company's dividend reinvestment
plan for Shareholders pursuant to which any quarterly dividends otherwise
payable in cash are instead applied toward the purchase of additional Shares
for the participant.
"DRM HOLDINGS, INC." Means DRM Holdings, Inc., a Minnesota corporation
which is the parent (100% owner) of the Underwriter and an affiliate of the
Advisor.
"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:
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(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.
"LEVERAGE" means the aggregate amount of indebtedness of the Company for
money borrowed (including purchase money mortgage loans) outstanding at any
time, both secured and unsecured.
"PERMITTED TEMPORARY INVESTMENTS" means money market funds, U.S.
government treasury obligations, 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 REIT.
"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 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
Internal Revenue Code.
57
<PAGE>
[LETTERHEAD]
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, 1998, 1997, 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, 1998, 1997, 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.
/s/ BOULAY, HEUTMAKER, ZIBELL & CO. P.L.L.P.
----------------------------------------
Boulay, Heutmaker, Zibell & Co. P.L.L.P.
Certified Public Accountants
Minneapolis, Minnesota
February 17, 1999
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Balance Sheet
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
March 31
ASSETS 1999 1998
- --------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents $ 2,410,735 $1,080,850
Current maturities of loans receivable 156,748 114,819
Current maturities of bonds receivable 24,000
---------- ---------
Total current assets 2,591,483 1,195,669
LOANS RECEIVABLE, net of current maturities 6,684,045 5,367,610
BONDS RECEIVABLE, net of current maturities 1,857,144 131,722
DEFERRED TAX ASSET 40,000 33,000
ORGANIZATION EXPENSES, net 86 389
---------- ---------
TOTAL ASSETS $11,172,758 $6,728,390
---------- ---------
---------- ---------
</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 1999 1998
- ------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 48,679 $ 20,494
Due to loan escrow account 227,931
Deferred income 22,963 16,473
Dividends payable 217,828 142,743
----------- ----------
Total current liabilities 289,470 407,641
DEFERRED INCOME 104,193 69,473
STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share
Authorized, 30,000,000 shares
Issued and outstanding, 1,183,879 as of
March 31, 1999, and 692,092 as of March 31, 1998 11,839 6,921
Additional paid-in capital 10,874,383 6,308,639
Accumulated deficit (107,127) (64,284)
----------- ----------
Total stockholders' equity 10,779,095 6,251,276
----------- ----------
TOTAL LIABILITIES AND EQUITY $ 11,172,758 $ 6,728,390
----------- ----------
----------- ----------
</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 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and equivalents $ 2,941,530 $ 291,815 $ 612,744 $135,282
Accounts receivable 28,777
Current maturities of loans receivable 237,242 103,505 55,436
Current maturities of bond portfolio 12,000
----------- ---------- ---------- --------
Total current assets 3,219,549 395,320 668,180 135,282
LOANS RECEIVABLE, net of current maturities 5,994,620 4,808,803 2,605,388
BONDS RECEIVABLE, net of current maturities 1,011,997 125,809 120,640
DEFERRED OFFERING COSTS 107,295
DEFERRED TAX ASSET 40,000 33,000 20,000
ORGANIZATION EXPENSES, net 161 464 769 1,071
----------- ---------- ---------- --------
TOTAL ASSETS $10,266,327 $5,363,396 $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 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 12,759 $ 15,490 $ 8,482 $ 49,493
Deferred income 21,772 17,301 10,383
Dividends payable 233,004 127,899 80,424
----------- ---------- ---------- --------
Total current liabilities 267,535 160,690 99,289 49,493
DEFERRED INCOME 92,408 61,127 35,547
STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share
Authorized, 30,000,000 shares
Issued and outstanding, 1,087,646
at December 31, 1998, 571,615 at
December 31, 1997, 359,791 at
December 31, 1996 and 20,000 shares at
December 31, 1995 10,876 5,716 3,598 200
Additional paid-in capital 9,973,200 5,184,882 3,306,437 199,800
Accumulated deficit (77,692) (49,019) (29,894) (5,845)
----------- ---------- ---------- --------
Total stockholders' equity 9,906,384 5,141,579 3,280,141 194,155
---------- --------- --------- -------
TOTAL LIABILITIES AND EQUITY $10,266,327 $5,363,396 $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
1999 1998
- -------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
INTEREST INCOME $217,298 $145,640
OPERATING EXPENSES 28,904 18,162
------- -------
OPERATING INCOME (LOSS) 188,394 127,478
PROVISION FOR (BENEFIT FROM)
INCOME TAXES - -
------- -------
NET INCOME (LOSS) $188,394 $127,478
------- -------
------- -------
BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE $ .16 $ .22
------- -------
------- -------
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 1,160,225 591,640
--------- -------
--------- -------
</TABLE>
Notes to Financial Statements are an integral part of this Statement.
F-6
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Statement of Operations
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Years Ended December 31
1998 1997 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
$782,013 $384,118 $217,390 $ 4,436
76,648 36,304 72,004 5,759
------- ------- ------- -------
705,365 347,814 145,386 (1,323)
(7,000) (13,000) (20,000) -
------- ------- ------- -------
$712,365 $360,814 $165,386 ($1,323)
------- ------- ------- -----
------- ------- ------- -----
$ .86 $ .91 $ .79 ($ .07)
------- ------- ------ -----
------- ------- ------ -----
825,176 398,160 209,072 20,000
------- ------- ------- ------
------- ------- ------- ------
</TABLE>
Notes to Financial Statements are an integral part of this Statement.
F-7
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Statement of Stockholders' Equity
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Common Stock Additional
------------ 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 211,824 shares of
common stock, net of
offering costs 211,824 2,118 1,878,445
Net income 360,814
Dividends declared (379,939)
------- ------- ---------- ---------
BALANCE, DECEMBER 31, 1997 571,615 5,716 5,184,882 (49,019)
Issuance of 516,031 shares of
common stock, net of
offering costs 516,031 5,160 4,788,318
Net income 712,365
Dividends declared (741,038)
--------- ------ ---------- -------
BALANCE, DECEMBER 31, 1998 1,087,646 10,876 9,973,200 (77,692)
Issuance of 963 shares of
common stock, net of
offering costs 96,233 963 901,183
Net income 188,394
Dividends declared (217,829)
--------- ------ ---------- -------
BALANCE, MARCH 31, 1999 (unaudited) $1,183,879 $11,839 $10,874,383 ($107,127)
--------- ------ ---------- -------
--------- ------ ---------- -------
</TABLE>
Notes to Financial Statements are an integral part of this Statement.
F-8
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Statement of Cash Flows
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Three Months Ended March 31
1999 1998
- --------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 188,394 $ 127,478
Adjustments to reconcile net income to
net cash from operating activities:
Amortization 76 76
Change in assets and liabilities
Accounts receivable 28,777
Accounts payable 35,920 232,935
Deferred income 12,976 7,517
--------- ---------
Net cash from operating activities 266,143 368,006
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in mortgage loans (990,000) (595,000)
Collections on mortgage loans 381,067 24,879
Investment in bonds (857,147) (5,913)
--------- ---------
Net cash used for investing activities (1,466,080) (576,034)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from stock offering 902,146 1,124,962
Dividends paid (233,004) (127,899)
--------- ---------
Net cash from financing activities 669,142 997,063
--------- ---------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (530,795) 789,035
CASH AND EQUIVALENTS - Beginning of Period 2,941,530 291,815
--------- ---------
CASH AND EQUIVALENTS - End of Period $2,410,735 $1,080,850
--------- ---------
--------- ---------
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING
AND INVESTING ACTIVITIES
Dividends declared but not paid $ 217,829 $ 142,743
</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
1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 712,365 $ 360,814 $ 165,386 ($ 1,323)
Adjustments to reconcile net income (loss) to
net cash from (used for) operating activities:
Deferred income taxes (7,000) (13,000) (20,000)
Amortization 303 303 303 303
Change in assets and liabilities
Accounts receivable (28,777)
Accounts payable (2,731) 7,009 (41,012)
Deferred income 35,752 32,498 45,930
---------- --------- --------- --------
Net cash from (used for) operating
activities 709,912 387,624 150,607 (1,020)
CASH FLOWS FROM INVESTING ACTIVITIES
Organization expenses paid (35)
Investment in mortgage loans (2,498,750) (2,315,712) (2,685,288)
Collections on mortgage loans 1,179,196 64,228 24,464
Investment in bonds (931,188) (5,169) (120,640)
Proceeds from bonds called 33,000
---------- --------- --------- --------
Net cash used for investing activities (2,217,742) (2,256,653) (2,781,464) (35)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from stock offering 4,793,478 1,880,563 3,217,330
Dividends paid (635,933) (332,463) (109,011)
Payment of deferred offering costs (12,686)
---------- --------- --------- --------
Net cash from (used for) financing
activities 4,157,545 1,548,100 3,108,319 (12,686)
---------- --------- --------- --------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 2,649,715 (320,929) 477,462 (13,741)
CASH AND EQUIVALENTS - Beginning of Year 291,815 612,744 135,282 149,023
---------- --------- --------- --------
CASH AND EQUIVALENTS - End of Year $ 2,941,530 $ 291,815 $ 612,744 $135,282
---------- --------- --------- --------
---------- --------- --------- --------
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 $ 71,751 $ 118,106 $ 107,295
--------- --------- ---------
--------- --------- ---------
Dividends declared but not paid $ 233,004 $ 127,899 $ 80,424
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for
Interest $ 59 $ - $ - $ -
Income taxes $ - $ - $ - $ -
</TABLE>
Notes to Financial Statements are an integral part of this Statement
F-10
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements
March 31, 1999 and 1998 (Unaudited)
and December 31, 1998, 1997, 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. Loans have been made to
churches located in eleven states as of March 31, 1999. The Company concluded a
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. At March 31, 1999 and
December 31, 1998, approximately $2,200,000 and $2,700,000, respectively, of
cash equivalents consisted of investments in money market funds.
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-11
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements
March 31, 1999 and 1998 (Unaudited)
and December 31, 1998, 1997, 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, 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.
Beginning in 1996, the Company elected 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.
F-12
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements
March 31, 1999 and 1998 (Unaudited)
and December 31, 1998, 1997, 1996 and 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
INCOME (LOSS) PER COMMON SHARE
No adjustments were made to income for the purpose of calculating earnings per
share. Stock options had no effect on the weighted average number of shares
outstanding.
The adoption of Statement of Financial Accounting Standards Board No. 128,
"Earnings Per Share" had no effect on previously reported earnings per share.
INTERIM FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been prepared in accordance
with the instructions for interim statements and, therefore, do not include all
information and disclosures necessary for a fair presentation of results of
operations, financial position, and changes in cash flow in conformity with
generally accepted accounting principles. However, in the opinion of management,
such statements reflect all adjustments (which include only normal recurring
adjustments) necessary for a fair presentation of the financial position,
results of operations, and cash flows for the period presented.
The unaudited financial statements of the Company should be read in conjunction
with its December 31, 1998 audited financial statements included in the
Company's Annual Report on Form 10-KSB, as filed with the Securities and
Exchange Commission for the year ended December 31, 1998.
2. MORTGAGE LOANS AND BONDS PORTFOLIO
At March 31, 1999 and December 31, 1998 the Company had mortgage loans
receivable totaling $6,840,793 and $6,231,862, respectively. The loans bear
interest ranging from 9.75% to 15.00%.
The Company also has a portfolio of 64 church bonds, which are carried at cost
plus amortized interest income. At March 31, 1999 and December 31, 1998 the
Company had combined principal of $1,881,144 and 1,023,997, respectively.
Principal amounts are due at various maturity dates between June 1, 1999 and
February 1, 2019. The bonds pay quarterly interest ranging from 6.35% to 10.70%.
One bond issue comprised of 48% of the total bond portfolio at March 31, 1999.
F-13
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements
March 31, 1999 and 1998 (Unaudited)
and December 31, 1998, 1997, 1996 and 1995
2. MORTGAGE LOANS AND BONDS PORTFOLIO - Continued
The maturity schedule for mortgage loans and bonds receivable as of March 31,
1999 and December 31, 1998 is as follows:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
---------------------------------- -----------------------------------
Mortgage Loans Bond Portfolio Mortgage Loans Bond Portfolio
-------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
1999 $ 112,512 $ 12,000 $ 237,242 $ 12,000
2000 169,681 17,000 350,554 17,000
2001 189,179 125,000 172,924 125,000
2002 217,075 21,000 192,953 21,000
2003 235,295 23,000 215,305 23,000
Thereafter 5,917,051 1,709,000 5,062,884 846,000
--------- --------- --------- --------
1,907,000 1,044,000
Less discounts
from par (25,856) (20,003)
--------- --------- --------- --------
Totals $6,840,793 $1,881,144 $6,231,862 $1,023,997
--------- --------- --------- --------
--------- --------- --------- --------
</TABLE>
3. STOCK OPTION PLAN
The Company has adopted a Stock Option Plan granting each member of the Board of
Directors and the president of the Advisor (Note 4) an option to purchase 3,000
shares of common stock annually upon their re-election. The purchase price of
the stock will be the fair market value at the grant date. On November 15, 1994,
the Company began the annual grant of 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, 1999.
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.
F-14
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements
March 31, 1999 and 1998 (Unaudited)
and December 31, 1998, 1997, 1996 and 1995
4. TRANSACTIONS WITH AFFILIATES
The Company has an Advisory Agreement with Church Loan Advisors, Inc.,
Minnetonka, Minnesota (Advisor). The Advisor is responsible for the day-to-day
operations of the Company and provides administrative services and personnel.
Upon non-renewal or termination of the Advisory Agreement, the Company is
required to pay the Advisor a termination fee equal to two percent of the value
of the average invested assets of the Company as of the date of termination,
subject to limitations set forth in the Advisory Agreement.
The Company pays the Advisor an annual base management fee of 1.25 percent of
average invested assets (generally defined as the average of the aggregate book
value of the assets invested in securities and equity interests in and loans
secured by real estate), which is payable on a monthly basis. The Advisor will
also receive one-half of the origination fees paid by a mortgage loan borrower,
in connection with a mortgage loan made or renewed by the Company. The Advisor
and the Company are related through common ownership and common management. See
Note 6.
<TABLE>
<CAPTION>
Advisory and Advisory and
origination origination
fees paid fees waived
------------ -------------
<S> <C> <C>
January 1, 1999 through March 31, 1999 (unaudited) $22,384 $ -
January 1, 1998 through March 31, 1998 (unaudited) 26,030 -
1998 101,944 15,223
1997 61,525 23,119
1996 64,680 6,662
1995 - -
</TABLE>
F-15
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements
March 31, 1999 and 1998 (Unaudited)
and December 31, 1998, 1997, 1996 and 1995
5. INCOME TAXES
The income tax expense (benefit) consists of the following components:
<TABLE>
<CAPTION>
March 31 December 31
-------------- --------------------------------------------------
1999 1998 1998 1997 1996 1995
---- ---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Current $ - $ - $ - $ - $ - $-
Deferred - - (7,000) (13,000) (20,000)
--- --- ------ ------ ------ --
Total tax expense
(benefit) $ - $ - ($7,000) ($13,000) ($20,000) $-
--- --- ----- ------ ------ --
--- --- ----- ------ ------ --
</TABLE>
As discussed in Note 1, a REIT is subject to taxation to the extent that taxable
income exceeds dividends distributions to its shareholders. In order to maintain
its status as a REIT, the Company is required to distribute at least 95% of its
taxable income.
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
------------------------- -------------------------------------------------------------
1999 1998 1998 1997 1996 1995
---- ---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Expected tax expense
(benefit) $ 64,054 $ 35,529 $ 241,524 $ 118,257 $ 45,700 ($300)
Increase (decrease) in
valuation allowance (1,300) 300
Benefit of REIT
distributions (64,054) (35,529) (248,524) (131,257) (64,400)
-------- -------- ------- ------- ------- ---
Totals $ - $ - ($ 7,000) ($ 13,000) ($ 20,000) $ -
-------- -------- ------- ------- ------- ---
-------- -------- ------- ------- ------- ---
</TABLE>
F-16
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements
March 31, 1999 and 1998 (Unaudited)
and December 31, 1998, 1997, 1996 and 1995
5. INCOME TAXES - Continued
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
March 31 December 31
------------------ ----------------------------------------------
1999 1998 1998 1997 1996 1995
---- ---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Deferred tax assets:
Temporary differences
(loan origination fees) $40,000 $33,000 $40,000 $33,000 $20,000
Net operating loss
carryforward $ 1,300
Valuation allowance - - - - - (1,300)
------ ------ ------ ------ ------ ------
Net deferred tax asset $40,000 $33,000 $40,000 $33,000 $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.
6. PUBLIC OFFERING OF THE COMPANY'S COMMON STOCK
The Company intends to file a Registration Statement with the Securities and
Exchange Commission for a third public offering of 1,500,000 shares of common
stock at $10 per share in June 1999.
The Company filed a Registration Statement with the Securities and Exchange
Commission for a public offering of its common stock in 1997. The Company
offered to sell 1,500,000 shares of its common stock at a price of $10 per
share. The offering was underwritten by managing underwriter (an affiliate of
the Advisor) and a co-underwriter on a "best efforts" basis, and no minimum sale
of stock was required. The stock sale commenced on September 26, 1997 and
concluded January 22, 1999. A total of 799,759 shares were sold in the Company's
public offering.
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.
F-17
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements
March 31, 1999 and 1998 (Unaudited)
and December 31, 1998, 1997, 1996 and 1995
6. PUBLIC OFFERING OF THE COMPANY'S COMMON STOCK - Continued
Pursuant to the terms of the Underwriting Agreement, the Company paid the
affiliated broker-dealer referred to above commissions and non-reimbursable
expenses of approximately $331,000, $162,600 and $144,000 during 1998, 1997 and
1996, respectively. The Company paid no commissions or non-reimbursable expenses
during 1995.
7. 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, 1999 and 1998 and
December 31, 1998, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
March 31
(Unaudited)
1999 1998
-------------------------- ---------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Cash and equivalents $2,410,735 $2,410,735 $1,080,850 $1,080,850
Loans receivable 6,840,793 6,840,793 5,482,429 5,482,429
Bonds receivable 1,881,144 1,881,144 131,722 131,722
</TABLE>
<TABLE>
<CAPTION>
December 31
1998 1997
-------------------------- ---------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Cash and equivalents $2,941,530 $2,941,530 $ 291,815 $ 291,815
Loans receivable 6,231,862 6,231,862 4,912,308 4,912,308
Bonds receivable 1,023,997 1,023,997 125,809 125,809
</TABLE>
F-18
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
Notes to Financial Statements
March 31, 1999 and 1998 (Unaudited)
and December 31, 1998, 1997, 1996 and 1995
7. FAIR VALUE OF FINANCIAL INSTRUMENTS - Continued
<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.
F-19
<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 Managing Underwriter, 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
allow prospective investors a basis upon which 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 (Managing Underwriter and Affiliates)
Table IIB--Location of Prior First Mortgage Bond Financings Underwritten
by the Managing Underwriter
Table III---Mortgage Bond Financings by Managing Underwriter
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 New Life Triumph New
Missionary Christian Testament Church
Baptist Church Ministry
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOLLAR AMOUNT OFFERED $ 3,700,000 $ 715,000 $ 850,000
- --------------------------------------------------------------------------------------------------
DOLLAR AMOUNT RAISED $ 3,700,000 $ 715,000 $ 850,000
- --------------------------------------------------------------------------------------------------
PERCENTAGE OF FUNDS RAISED 100% 100% 100%
- --------------------------------------------------------------------------------------------------
LESS OFFERING EXPENSES:
Selling Commissions &
Discounts Retained by Affiliates $ 259,000 (7%) $ 50,050 (7%) $ 59,500 (7%)
Organizational Expenses --- --- ---
Other Underwriting Expenses $ 46,425 (1.25%) $ 20,000 (2.8%) $ 21,250 (2.5%)
Percent Available to Issuer 91.75% 90.02% 90.05%
- --------------------------------------------------------------------------------------------------
TOTAL ACQUISITION COST --- --- ---
- --------------------------------------------------------------------------------------------------
PERCENT LEVERAGE (mortgage --- --- ---
financing divided by total
acquisition cost)
- --------------------------------------------------------------------------------------------------
DATE OFFERING BEGAN 1/15/91 3/1/91 3/15/91
- --------------------------------------------------------------------------------------------------
LENGTH OF OFFERING (mos.) 12 2 3
- --------------------------------------------------------------------------------------------------
MONTHS TO INVEST 90% OF
AMOUNT AVAILABLE FOR --- --- ---
INVESTMENT (measured from
beginning of offering)
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Mt. Moriah Lake Baptist Temple Baptist
African Church Church
Methodist
Episcopal Church
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOLLAR AMOUNT OFFERED $ 1,290,000 $ 1,800,000 $ 1,850,000
- -----------------------------------------------------------------------------------------------------
DOLLAR AMOUNT RAISED $ 1,290,000 $ 1,800,000 $ 1,850,000
- -----------------------------------------------------------------------------------------------------
PERCENTAGE OF FUNDS RAISED 100% 100% 100%
- -----------------------------------------------------------------------------------------------------
LESS OFFERING EXPENSES:
Selling Commissions &
Discounts Retained by Affiliates $ 90,300 (7%) $ 108,000 (6%) $ 129,500 (7%)
Organizational Expenses --- --- ---
Other Underwriting Expenses $ 24,000 (1.9%) $ 22,500 (1.25%) $ 35,000 (1.9%)
Percent Available to Issuer 91.01% 92.75% 91.1%
- -----------------------------------------------------------------------------------------------------
TOTAL ACQUISITION COST --- --- ---
- -----------------------------------------------------------------------------------------------------
PERCENT LEVERAGE (mortgage --- --- ---
financing divided by total
acquisition cost)
- -----------------------------------------------------------------------------------------------------
DATE OFFERING BEGAN 5/15/91 8/1/91 8/1/91
- -----------------------------------------------------------------------------------------------------
LENGTH OF OFFERING (mos.) 1 3 2
- -----------------------------------------------------------------------------------------------------
MONTHS TO INVEST 90% OF
AMOUNT AVAILABLE FOR --- --- ---
INVESTMENT (measured from
beginning of offering)
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (CONTINUED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
North Stelton Shorter African New Life
African Methodist Christian
Methodist Episcopal Church Ministry, Inc.
Episcopal Church
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOLLAR AMOUNT OFFERED $ 725,000 $ 1,860,000 $ 110,000
- ------------------------------------------------------------------------------------------------
DOLLAR AMOUNT RAISED $ 725,000 $ 1,860,000 $ 110,000
- ------------------------------------------------------------------------------------------------
PERCENTAGE OF FUNDS RAISED 100% 100% 100%
- ------------------------------------------------------------------------------------------------
LESS OFFERING EXPENSES:
Selling Commissions &
Discounts Retained by Affiliates $ 50,750 (7%) $ 130,200 (7%) $ 8,250 (7.5%)
Organizational Expenses --- --- ---
Other Underwriting Expenses $ 17,000 (2.3%) $ 34,800 (1.9%) $ 8,000 (7.2%)
Percent Available to Issuer 90.7% 91.1% 85.3%
- ------------------------------------------------------------------------------------------------
TOTAL ACQUISITION COST --- --- ---
- ------------------------------------------------------------------------------------------------
PERCENT LEVERAGE (mortgage --- --- ---
financing divided by total
acquisition cost)
- ------------------------------------------------------------------------------------------------
DATE OFFERING BEGAN 10/15/91 11/1/91 12/1/91
- ------------------------------------------------------------------------------------------------
LENGTH OF OFFERING (mos.) 1 1 1
- ------------------------------------------------------------------------------------------------
MONTHS TO INVEST 90% OF
AMOUNT AVAILABLE FOR --- --- ---
INVESTMENT (measured from
beginning of offering)
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Mt. Vernon Macedonia First Baptist
Baptist Church Missionary Church
Baptist Church
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOLLAR AMOUNT OFFERED $ 1,350,000 $ 1,195,000 $ 1,040,000
- ------------------------------------------------------------------------------------------------------
DOLLAR AMOUNT RAISED $ 1,350,000 $ 1,195,000 $ 1,040,000
- ------------------------------------------------------------------------------------------------------
PERCENTAGE OF FUNDS RAISED 100% 100% 100%
- ------------------------------------------------------------------------------------------------------
LESS OFFERING EXPENSES:
Selling Commissions &
Discounts Retained by Affiliates $ 94,500 (7%) $ 83,650 (7%) $ 72,800 (7%)
Organizational Expenses --- --- ---
Other Underwriting Expenses $ 27,500 (2.0%) $ 12,100 (1.0%) $ 22,200 (2.1%)
Percent Available to Issuer 91.0% 92.0% 90.90%
- ------------------------------------------------------------------------------------------------------
TOTAL ACQUISITION COST --- --- ---
- ------------------------------------------------------------------------------------------------------
PERCENT LEVERAGE (mortgage --- --- ---
financing divided by total
acquisition cost)
- ------------------------------------------------------------------------------------------------------
DATE OFFERING BEGAN 12/15/91 2/15/92 3/1/92
- ------------------------------------------------------------------------------------------------------
LENGTH OF OFFERING (mos.) 1 1 1
- ------------------------------------------------------------------------------------------------------
MONTHS TO INVEST 90% OF
AMOUNT AVAILABLE FOR --- --- ---
INVESTMENT (measured from
beginning of offering)
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
A-2
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (CONTINUED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
World Missions By His Word Metropolitan
Assembly Christian Center Baptist Church
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOLLAR AMOUNT OFFERED $ 720,000 $ 1,215,000 $ 475,000
- ----------------------------------------------------------------------------------------------------
DOLLAR AMOUNT RAISED $ 720,000 $ 1,215,000 $ 475,000
- ----------------------------------------------------------------------------------------------------
PERCENTAGE OF FUNDS RAISED 100% 100% 100%
- ----------------------------------------------------------------------------------------------------
LESS OFFERING EXPENSES:
Selling Commissions &
Discounts Retained by Affiliates $ 50,400 (7%) $ 85,050 (7%) $ 33,250 (7%)
Organizational Expenses --- --- ---
Other Underwriting Expenses $ 15,100 (2.1%) $ 18,500 (1.5%) $ 13,750 (2.9%)
Percent Available to Issuer 90.9% 91.5% 90.1%
- ----------------------------------------------------------------------------------------------------
TOTAL ACQUISITION COST --- --- ---
- ----------------------------------------------------------------------------------------------------
PERCENT LEVERAGE (mortgage --- --- ---
financing divided by total acquisition
cost)
- ----------------------------------------------------------------------------------------------------
DATE OFFERING BEGAN 3/15/92 4/1/92 4/1/92
- ----------------------------------------------------------------------------------------------------
LENGTH OF OFFERING (mos.) 2 1 1
- ----------------------------------------------------------------------------------------------------
MONTHS TO INVEST 90% OF
AMOUNT AVAILABLE FOR --- --- ---
INVESTMENT (measured from
beginning of offering)
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Christian Hope Bible Missionary Central Holiness
Center Baptist Church Church
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOLLAR AMOUNT OFFERED $ 506,000 $ 1,300,000 $ 250,000
- -----------------------------------------------------------------------------------------------------
DOLLAR AMOUNT RAISED $ 506,000 $ 1,300,000 $ 250,000
- -----------------------------------------------------------------------------------------------------
PERCENTAGE OF FUNDS RAISED 100% 100% 100%
- -----------------------------------------------------------------------------------------------------
LESS OFFERING EXPENSES:
Selling Commissions &
Discounts Retained by Affiliates $ 35,420 (7%) $ 91,000 (7%) $ 17,500 (7%)
Organizational Expenses --- --- ---
Other Underwriting Expenses $ 11,500 (2.3%) $ 32,250 (2.5%) $ 10,000 (4.0%)
Percent Available to Issuer 90.7% 90.5% 89.0%
- -----------------------------------------------------------------------------------------------------
TOTAL ACQUISITION COST --- --- ---
- -----------------------------------------------------------------------------------------------------
PERCENT LEVERAGE (mortgage --- --- ---
financing divided by total acquisition
cost)
- -----------------------------------------------------------------------------------------------------
DATE OFFERING BEGAN 5/1/92 5/15/92 6/15/92
- -----------------------------------------------------------------------------------------------------
LENGTH OF OFFERING (mos.) 1 1 1
- -----------------------------------------------------------------------------------------------------
MONTHS TO INVEST 90% OF
AMOUNT AVAILABLE FOR --- --- ---
INVESTMENT (measured from
beginning of offering)
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
A-3
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (CONTINUED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
St. James Church of Jesus Temple Baptist
Episcopal Church Christ Church
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOLLAR AMOUNT OFFERED $ 1,430,000 $ 1,280,000 $ 380,000
- ----------------------------------------------------------------------------------------------------
DOLLAR AMOUNT RAISED $ 1,430,000 $ 1,280,000 $ 380,000
- ----------------------------------------------------------------------------------------------------
PERCENTAGE OF FUNDS RAISED 100% 100% 100%
- ----------------------------------------------------------------------------------------------------
LESS OFFERING EXPENSES:
Selling Commissions &
Discounts Retained by Affiliates $ 85,085 (5.95%) $ 89,600 (7%) $ 26,700 (7%)
Organizational Expenses --- --- ---
Other Underwriting Expenses $ 12,215 (.8%) $ 17,000 (1.3%) $ 11,900 (3.1%)
Percent Available to Issuer 93.2% 91.7% 89.9%
- ----------------------------------------------------------------------------------------------------
TOTAL ACQUISITION COST --- --- ---
- ----------------------------------------------------------------------------------------------------
PERCENT LEVERAGE (mortgage --- --- ---
financing divided by total
acquisition cost)
- ----------------------------------------------------------------------------------------------------
DATE OFFERING BEGAN 6/24/92 7/1/92 8/1/92
- ----------------------------------------------------------------------------------------------------
LENGTH OF OFFERING (mos.) 2 1 1
- ----------------------------------------------------------------------------------------------------
MONTHS TO INVEST 90% OF
AMOUNT AVAILABLE FOR --- --- ---
INVESTMENT (measured from
beginning of offering)
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Mt. Zion African Calvary Temple of Bethel Baptist
Methodist Allentown, PA Church
Episcopal Church
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOLLAR AMOUNT OFFERED $ 875,000 $ 1,820,000 $ 525,000
- ----------------------------------------------------------------------------------------------------
DOLLAR AMOUNT RAISED $ 875,000 $ 1,820,000 $ 525,000
- ----------------------------------------------------------------------------------------------------
PERCENTAGE OF FUNDS RAISED 100% 100% 100%
- ----------------------------------------------------------------------------------------------------
LESS OFFERING EXPENSES:
Selling Commissions &
Discounts Retained by Affiliates $ 61,250 (7%) $ 127,400 (7%) $ 36,750 (7%)
Organizational Expenses --- --- ---
Other Underwriting Expenses $ 16,000 (1.8%) $ 37,500 (2.1%) $ 12,250 (2.3%)
Percent Available to Issuer 91.2% 90.9% 90.7%
- ----------------------------------------------------------------------------------------------------
TOTAL ACQUISITION COST --- --- ---
- ----------------------------------------------------------------------------------------------------
PERCENT LEVERAGE (mortgage --- --- ---
financing divided by total
acquisition cost)
- ----------------------------------------------------------------------------------------------------
DATE OFFERING BEGAN 8/15/92 9/1/92 9/15/92
- ----------------------------------------------------------------------------------------------------
LENGTH OF OFFERING (mos.) 1 1 1
- ----------------------------------------------------------------------------------------------------
MONTHS TO INVEST 90% OF
AMOUNT AVAILABLE FOR --- --- ---
INVESTMENT (measured from
beginning of offering)
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
A-4
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (CONTINUED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Unity Palo Alto Christian Love Tabernacle
Community Church Baptist Church Baptist Church
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOLLAR AMOUNT OFFERED $ 2,180,000 $ 500,000 $ 1,550,000
- ----------------------------------------------------------------------------------------------------
DOLLAR AMOUNT RAISED $ 2,180,000 $ 500,000 $ 1,550,000
- ----------------------------------------------------------------------------------------------------
PERCENTAGE OF FUNDS RAISED 100% 100% 100%
- ----------------------------------------------------------------------------------------------------
LESS OFFERING EXPENSES:
Selling Commissions &
Discounts Retained by Affiliates $ 147,150 (6.75%) $ 35,000 (7%) $ 108,500 (7%)
Organizational Expenses --- --- ---
Other Underwriting Expenses $ 20,000 (.92%) $ 13,000 (2.6%) $ 22,000 (1.4%)
Percent Available to Issuer 92.3% 90.4% 91.6%
- ----------------------------------------------------------------------------------------------------
TOTAL ACQUISITION COST --- --- ---
- ----------------------------------------------------------------------------------------------------
PERCENT LEVERAGE (mortgage --- --- ---
financing divided by total
acquisition cost)
- ----------------------------------------------------------------------------------------------------
DATE OFFERING BEGAN 10/1/92 11/15/92 11/15/92
- ----------------------------------------------------------------------------------------------------
LENGTH OF OFFERING (mos.) 2 1 1
- ----------------------------------------------------------------------------------------------------
MONTHS TO INVEST 90% OF
AMOUNT AVAILABLE FOR --- --- ---
INVESTMENT (measured from
beginning of offering)
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Lee Memorial Nazareth Baptist Christian
African Church Pentecostal
Methodist Church
Episcopal Church
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOLLAR AMOUNT OFFERED $ 1,225,000 $ 390,000 $ 1,600,000
- -----------------------------------------------------------------------------------------------------
DOLLAR AMOUNT RAISED $ 1,225,000 $ 390,000 $ 1,600,000
- -----------------------------------------------------------------------------------------------------
PERCENTAGE OF FUNDS RAISED 100% 100% 100%
- -----------------------------------------------------------------------------------------------------
LESS OFFERING EXPENSES:
Selling Commissions &
Discounts Retained by Affiliates $ 85,750 (7%) $ 27,300 (7%) $ 112,000 (7%)
Organizational Expenses --- --- ---
Other Underwriting Expenses $ 21,000 (1.7%) $ 9,700 (2.5%) $ 24,000 (1.5%)
Percent Available to Issuer 91.3% 90.5% 91.5%
- -----------------------------------------------------------------------------------------------------
TOTAL ACQUISITION COST --- --- ---
- -----------------------------------------------------------------------------------------------------
PERCENT LEVERAGE (mortgage --- --- ---
financing divided by total
acquisition cost)
- -----------------------------------------------------------------------------------------------------
DATE OFFERING BEGAN 12/15/92 1/15/93 2/1/93
- -----------------------------------------------------------------------------------------------------
LENGTH OF OFFERING (mos.) 1 1 1
- -----------------------------------------------------------------------------------------------------
MONTHS TO INVEST 90% OF
AMOUNT AVAILABLE FOR --- --- ---
INVESTMENT (measured from
beginning of offering)
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
A-5
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (CONTINUED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Mount Zion Lake Baptist St. Marks
Christian Church Misssionary
Baptist Church Baptist Church
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOLLAR AMOUNT OFFERED $ 750,000 $ 365,000 $ 1,500,000
- ----------------------------------------------------------------------------------------------------
DOLLAR AMOUNT RAISED $ 750,000 $ 365,000 $ 1,500,000
- ----------------------------------------------------------------------------------------------------
PERCENTAGE OF FUNDS RAISED 100% 100% 100%
- ----------------------------------------------------------------------------------------------------
LESS OFFERING EXPENSES:
Selling Commissions &
Discounts Retained by Affiliates $ 52,500 (7%) $ 25,550 (7%) $ 105,000 (7%)
Organizational Expenses --- --- ---
Other Underwriting Expenses $ 14,500 (2.75%) $ 8,000 (2.2%) $ 23,000 (1.5%)
Percent Available to Issuer 90.25% 90.8% 91.5%
- ----------------------------------------------------------------------------------------------------
TOTAL ACQUISITION COST --- --- ---
- ----------------------------------------------------------------------------------------------------
PERCENT LEVERAGE (mortgage --- --- ---
financing divided by total
acquisition cost)
- ----------------------------------------------------------------------------------------------------
DATE OFFERING BEGAN 1/15/93 2/1/93 2/1/93
- ----------------------------------------------------------------------------------------------------
LENGTH OF OFFERING (mos.) 1 1 1
- ----------------------------------------------------------------------------------------------------
MONTHS TO INVEST 90% OF
AMOUNT AVAILABLE FOR --- --- ---
INVESTMENT (measured from
beginning of offering)
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Friendship Christian Faith Raleigh
Missionary Center Christian
Baptist Church Community Church
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOLLAR AMOUNT OFFERED $ 700,000 $ 1,765,000 $ 1,425,000
- -----------------------------------------------------------------------------------------------------
DOLLAR AMOUNT RAISED $ 700,000 $ 1,765,000 $ 1,425,000
- -----------------------------------------------------------------------------------------------------
PERCENTAGE OF FUNDS RAISED 100% 100% 100%
- -----------------------------------------------------------------------------------------------------
LESS OFFERING EXPENSES:
Selling Commissions &
Discounts Retained by Affiliates $ 49,000 (7%) $ 119,138 (6.75%) $ 90,750 (6.25%)
Organizational Expenses --- --- ---
Other Underwriting Expenses $ 15,000 (2.1%) $ 17,000 (1.0%) $ 14,000 (1.0%)
Percent Available to Issuer 90.9% 92.25% 92.75%
- -----------------------------------------------------------------------------------------------------
TOTAL ACQUISITION COST --- --- ---
- -----------------------------------------------------------------------------------------------------
PERCENT LEVERAGE (mortgage --- --- ---
financing divided by total
acquisition cost)
- -----------------------------------------------------------------------------------------------------
DATE OFFERING BEGAN 4/1/93 5/15/93 6/1/93
- -----------------------------------------------------------------------------------------------------
LENGTH OF OFFERING (mos.) 1 1 1
- -----------------------------------------------------------------------------------------------------
MONTHS TO INVEST 90% OF
AMOUNT AVAILABLE FOR --- --- ---
INVESTMENT (measured from
beginning of offering)
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
A-6
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (CONTINUED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Porters Day Care Outreach Evergreen
and Education Christian Center Missionary
Center Baptist Church
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOLLAR AMOUNT OFFERED $ 350,000 $ 575,000 $ 345,000
- ----------------------------------------------------------------------------------------------------
DOLLAR AMOUNT RAISED $ 350,000 $ 575,000 $ 345,000
- ----------------------------------------------------------------------------------------------------
PERCENTAGE OF FUNDS RAISED 100% 100% 100%
- ----------------------------------------------------------------------------------------------------
LESS OFFERING EXPENSES:
Selling Commissions &
Discounts Retained by Affiliates $ 25,500 (7%) $ 39,963 (6.95%) $ 24,150 (7%)
Organizational Expenses --- --- ---
Other Underwriting Expenses $ 14,000 (3.1%) $ 12,000 (1.7%) $ 11,000 (3.2%)
Percent Available to Issuer 89.9% 91.35% 89.8%
- ----------------------------------------------------------------------------------------------------
TOTAL ACQUISITION COST --- --- ---
- ----------------------------------------------------------------------------------------------------
PERCENT LEVERAGE (mortgage --- --- ---
financing divided by total
acquisition cost)
- ----------------------------------------------------------------------------------------------------
DATE OFFERING BEGAN 5/15/93 5/15/93 6/1/93
- ----------------------------------------------------------------------------------------------------
LENGTH OF OFFERING (mos.) 2 1 1
- ----------------------------------------------------------------------------------------------------
MONTHS TO INVEST 90% OF
AMOUNT AVAILABLE FOR --- --- ---
INVESTMENT (measured from
beginning of offering)
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Faith Southwest Cornerstone Church St. Paul African
Baptist Church Methodist
Episcopal Church
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOLLAR AMOUNT OFFERED $ 700,000 $ 4,355,000 $ 1,000,000
- -----------------------------------------------------------------------------------------------------
DOLLAR AMOUNT RAISED $ 700,000 $ 4,355,000 $ 1,000,000
- -----------------------------------------------------------------------------------------------------
PERCENTAGE OF FUNDS RAISED 100% 100% 100%
- -----------------------------------------------------------------------------------------------------
LESS OFFERING EXPENSES:
Selling Commissions &
Discounts Retained by Affiliates $ 48,650 (6.95%) $ 293,963 (6.75%) $ 67,500 (6.75%)
Organizational Expenses --- --- ---
Other Underwriting Expenses $ 14,000 (2.0%) $ 37,250 (.85%) $ 19,000 (1.9%)
Percent Available to Issuer 91.05% 92.4% 91.35%
- -----------------------------------------------------------------------------------------------------
TOTAL ACQUISITION COST --- --- ---
- -----------------------------------------------------------------------------------------------------
PERCENT LEVERAGE (mortgage --- --- ---
financing divided by total
acquisition cost)
- -----------------------------------------------------------------------------------------------------
DATE OFFERING BEGAN 6/15/93 7/15/93 8/15/93
- -----------------------------------------------------------------------------------------------------
LENGTH OF OFFERING (mos.) 1 1 1
- -----------------------------------------------------------------------------------------------------
MONTHS TO INVEST 90% OF
AMOUNT AVAILABLE FOR --- --- ---
INVESTMENT (measured from
beginning of offering)
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
A7
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (CONTINUED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Windsor Village First Baptist Peaceful Zion
United Methodist Church Missionary
Church Baptist Church
Miami, FL
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOLLAR AMOUNT OFFERED $ 3,100,000 $ 2,600,000 $ 750,000
- ----------------------------------------------------------------------------------------------------
DOLLAR AMOUNT RAISED $ 3,100,000 $ 2,600,000 $ 750,000
- ----------------------------------------------------------------------------------------------------
PERCENTAGE OF FUNDS RAISED 100% 100% 100%
- ----------------------------------------------------------------------------------------------------
LESS OFFERING EXPENSES:
Selling Commissions &
Discounts Retained by Affiliates $ 193,750 (6.25%) $ 175,500 (6.75%) $ 52,500 (7%)
Organizational Expenses --- --- ---
Other Underwriting Expenses $ 32,000 (1.0%) $ 30,500 (1.2%) $ 17,500 (2.3%)
Percent Available to Issuer 92.75% 92.05% 90.7%
- ----------------------------------------------------------------------------------------------------
TOTAL ACQUISITION COST --- --- ---
- ----------------------------------------------------------------------------------------------------
PERCENT LEVERAGE (mortgage --- --- ---
financing divided by total
acquisition cost)
- ----------------------------------------------------------------------------------------------------
DATE OFFERING BEGAN 9/1/93 10/1/93 10/15/93
- ----------------------------------------------------------------------------------------------------
LENGTH OF OFFERING (mos.) 2 1 1
- ----------------------------------------------------------------------------------------------------
MONTHS TO INVEST 90% OF
AMOUNT AVAILABLE FOR --- --- ---
INVESTMENT (measured from
beginning of offering)
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Central Holiness Apostolic Faith New Life
Church Home Assembly Christian
Ministry
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOLLAR AMOUNT OFFERED $ 1,405,000 $ 2,600,000 $ 2,000,000
- -----------------------------------------------------------------------------------------------------
DOLLAR AMOUNT RAISED $ 1,405,000 $ 2,600,000 $ 2,000,000
- -----------------------------------------------------------------------------------------------------
PERCENTAGE OF FUNDS RAISED 100% 100% 100%
- -----------------------------------------------------------------------------------------------------
LESS OFFERING EXPENSES:
Selling Commissions &
Discounts Retained by Affiliates $ 87,813 (6.25%) $ 169,000 (6.5%) $ 130,000 (6.5%)
Organizational Expenses --- --- ---
Other Underwriting Expenses $ 12,000 (.85%) $ 36,500 (1.4%) $ 23,000 (1.15%)
Percent Available to Issuer 92.8% 92.1% 92.0%
- -----------------------------------------------------------------------------------------------------
TOTAL ACQUISITION COST --- --- ---
- -----------------------------------------------------------------------------------------------------
PERCENT LEVERAGE (mortgage --- --- ---
financing divided by total
acquisition cost)
- -----------------------------------------------------------------------------------------------------
DATE OFFERING BEGAN 11/15/93 12/15/93 2/15/94
- -----------------------------------------------------------------------------------------------------
LENGTH OF OFFERING (mos.) 1 9 2
- -----------------------------------------------------------------------------------------------------
MONTHS TO INVEST 90% OF
AMOUNT AVAILABLE FOR --- --- ---
INVESTMENT (measured from
beginning of offering)
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
A-8
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (CONTINUED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Calvary Temple First Baptist Woodinville
of Allentown, PA Church Church of Christ
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOLLAR AMOUNT OFFERED $ 1,950,000 $ 740,000 $ 440,000
- -----------------------------------------------------------------------------------------------------
DOLLAR AMOUNT RAISED $ 1,950,000 $ 740,000 $ 440,000
- -----------------------------------------------------------------------------------------------------
PERCENTAGE OF FUNDS RAISED 100% 100% 100%
- -----------------------------------------------------------------------------------------------------
LESS OFFERING EXPENSES:
Selling Commissions &
Discounts Retained by Affiliates $ 121,875 (6.25%) $ 46,250 (6.25%) $ 27,500 (6.25%)
Organizational Expenses --- --- ---
Other Underwriting Expenses $ 18,000 (.9%) $ 11,200 (1.5%) $ 12,000 (2.27%)
Percent Available to Issuer 92.85% 92.25% 91.48%
- -----------------------------------------------------------------------------------------------------
TOTAL ACQUISITION COST --- --- ---
- -----------------------------------------------------------------------------------------------------
PERCENT LEVERAGE (mortgage --- --- ---
financing divided by total
acquisition cost)
- -----------------------------------------------------------------------------------------------------
DATE OFFERING BEGAN 2/15/94 4/1/94 5/15/94
- -----------------------------------------------------------------------------------------------------
LENGTH OF OFFERING (mos.) 1 2 1
- -----------------------------------------------------------------------------------------------------
MONTHS TO INVEST 90% OF
AMOUNT AVAILABLE FOR --- --- ---
INVESTMENT (measured from
beginning of offering)
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Resurrection Church of Jesus By His Word
Life Ministries Christ Christian Center
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOLLAR AMOUNT OFFERED $ 620,000 $ 1,735,000 $ 1,665,000
- ----------------------------------------------------------------------------------------------------
DOLLAR AMOUNT RAISED $ 620,000 $ 1,735,000 $ 1,665,000
- ----------------------------------------------------------------------------------------------------
PERCENTAGE OF FUNDS RAISED 100% 100% 100%
- ----------------------------------------------------------------------------------------------------
LESS OFFERING EXPENSES:
Selling Commissions &
Discounts Retained by Affiliates $ 90,300 (7%) $ 103,233 (5.95%) $ 71,595 (5.95%)
Organizational Expenses --- --- ---
Other Underwriting Expenses $ 3,000 (.5%) $ 21,000 (1.2%) $ 17,000 (1.0%)
Percent Available to Issuer 95.0% 92.85% 93.05%
- ----------------------------------------------------------------------------------------------------
TOTAL ACQUISITION COST --- --- ---
- ----------------------------------------------------------------------------------------------------
PERCENT LEVERAGE (mortgage --- --- ---
financing divided by total
acquisition cost)
- ----------------------------------------------------------------------------------------------------
DATE OFFERING BEGAN 5/15/94 6/1/94 8/28/94
- ----------------------------------------------------------------------------------------------------
LENGTH OF OFFERING (mos.) 2 3 2
- ----------------------------------------------------------------------------------------------------
MONTHS TO INVEST 90% OF
AMOUNT AVAILABLE FOR --- --- ---
INVESTMENT (measured from
beginning of offering)
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
A-9
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (CONTINUED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Liberty Morningstar Gates of Heaven
Church Baptist Church Church
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOLLAR AMOUNT OFFERED $ 900,000 $ 800,000 $ 3,400,000
- ----------------------------------------------------------------------------------------------------
DOLLAR AMOUNT RAISED $ 900,000 $ 800,000 $ 3,400,000
- ----------------------------------------------------------------------------------------------------
PERCENTAGE OF FUNDS RAISED 100% 100% 100%
- ----------------------------------------------------------------------------------------------------
LESS OFFERING EXPENSES:
Selling Commissions &
Discounts Retained by Affiliates $ 53,550 (5.95%) $ 47,600 (5.95%) $ 202,300 (5.95%)
Organizational Expenses --- --- ---
Other Underwriting Expenses $ 11,000 (1.2%) $ 10,000 (1.25%) $ 30,000 (1.00%)
Percent Available to Issuer 93.05% 92.80% 93.05%
- ----------------------------------------------------------------------------------------------------
TOTAL ACQUISITION COST --- --- ---
- ----------------------------------------------------------------------------------------------------
PERCENT LEVERAGE (mortgage --- --- ---
financing divided by total
acquisition cost)
- ----------------------------------------------------------------------------------------------------
DATE OFFERING BEGAN 7/1/94 9/15/94 11/15/94
- ----------------------------------------------------------------------------------------------------
LENGTH OF OFFERING (mos.) 5 3 10
- ---------------------------------------------------------------------------------------------------
MONTHS TO INVEST 90% OF
AMOUNT AVAILABLE FOR --- --- ---
INVESTMENT (measured from
beginning of offering)
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Windsor Village Hopewell St. Agnes
United Missionary Missionary
Methodist Baptist Church Baptist Church
Church
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOLLAR AMOUNT OFFERED $ 725,000 $ 6,350,000 $3,200,000
- -----------------------------------------------------------------------------------------------------
DOLLAR AMOUNT RAISED $ 725,000 $ 6,350,000 $1,600,000
- -----------------------------------------------------------------------------------------------------
PERCENTAGE OF FUNDS RAISED 100% 100% 100%
- -----------------------------------------------------------------------------------------------------
LESS OFFERING EXPENSES:
Selling Commissions &
Discounts Retained by Affiliates $ 45,313 (6.25%) $ 377,825 (5.95%) $ 190,400 (5.95%)
Organizational Expenses --- --- ---
Other Underwriting Expenses $ 7,000 (1.00%) $ 45,000 (.71%) $ 27,000 (.84%)
Percent Available to Issuer 92.75% 94.05% 94.05%
- -----------------------------------------------------------------------------------------------------
TOTAL ACQUISITION COST --- --- ---
- -----------------------------------------------------------------------------------------------------
PERCENT LEVERAGE (mortgage --- --- ---
financing divided by total
acquisition cost)
- -----------------------------------------------------------------------------------------------------
DATE OFFERING BEGAN 1/1/95 1/15/95 3/15/95
- -----------------------------------------------------------------------------------------------------
LENGTH OF OFFERING (mos.) 2 10 6
- -----------------------------------------------------------------------------------------------------
MONTHS TO INVEST 90% OF
AMOUNT AVAILABLE FOR --- --- ---
INVESTMENT (measured from
beginning of offering)
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
A-10
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (CONTINUED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Church of the Zion Evangelistic St. Mark's
Great Temple Missionary
Commission Baptist Church
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOLLAR AMOUNT OFFERED $2,200,000 $4,375,000 $360,000
- -----------------------------------------------------------------------------------------------------
DOLLAR AMOUNT RAISED $2,200,000 $4,375,000 $360,000
- -----------------------------------------------------------------------------------------------------
PERCENTAGE OF FUNDS RAISED 100% 100% 100%
- -----------------------------------------------------------------------------------------------------
LESS OFFERING EXPENSES:
Selling Commissions &
Discounts Retained by Affiliates $ 130,900 (5.95%) $ 260,313 (5.95%) $ 24,300 (6.25%)
Organizational Expenses --- --- ---
Other Underwriting Expenses $ 25,500 (1.20%) $ 39,000 (.89%) $ 14,500 (4.02%)
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
- -----------------------------------------------------------------------------------------------------
LENGTH OF OFFERING (mos.) 6 6 6
- -----------------------------------------------------------------------------------------------------
MONTHS TO INVEST 90% OF
AMOUNT AVAILABLE FOR --- --- ---
INVESTMENT (measured from
beginning of offering)
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Emmanuel Baptist The Community Abundant Life
Church Protestant Church Church of Christ
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOLLAR AMOUNT OFFERED $1,655,000 $1,500,000 $1,425,000
- ----------------------------------------------------------------------------------------------------
DOLLAR AMOUNT RAISED $1,655,000 $1,500,000 $1,425,000
- ----------------------------------------------------------------------------------------------------
PERCENTAGE OF FUNDS RAISED 100% 100% 100%
- ----------------------------------------------------------------------------------------------------
LESS OFFERING EXPENSES:
Selling Commissions &
Discounts Retained by Affiliates $ 98,475 (5.95%) $ 89,250 (5.95%) $ 80,888 (5.68%)
Organizational Expenses --- --- ---
Other Underwriting Expenses $ 20,000 (1.21%) $ 24,000 (1.6%) $ 30,000 (2.10%)
Percent Available to Issuer 92.84% 92.45% 92.22%
- ----------------------------------------------------------------------------------------------------
TOTAL ACQUISITION COST --- --- ---
- ----------------------------------------------------------------------------------------------------
PERCENT LEVERAGE (mortgage
financing divided by total
acquisition cost)
- ----------------------------------------------------------------------------------------------------
DATE OFFERING BEGAN 07/15/95 08/15/95 10/15/95
- ----------------------------------------------------------------------------------------------------
LENGTH OF OFFERING (mos.) 6 7 3
- ----------------------------------------------------------------------------------------------------
MONTHS TO INVEST 90% OF
AMOUNT AVAILABLE FOR --- --- ---
INVESTMENT (measured from
beginning of offering)
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
A-11
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (CONTINUED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Greeley Church of Twelfth Avenue The Holden Chapel
Christ General
Baptist Church,
Inc.
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOLLAR AMOUNT OFFERED $500,000 $1,195,000 $500,000
- ----------------------------------------------------------------------------------------------------
DOLLAR AMOUNT RAISED $500,000 $1,195,000 $500,000
- ----------------------------------------------------------------------------------------------------
PERCENTAGE OF FUNDS RAISED 100% 100% 100%
- ----------------------------------------------------------------------------------------------------
LESS OFFERING EXPENSES:
Selling Commissions &
Discounts Retained by Affiliates $ 41,500 (8.30%) $ 83,650 (7.00%) $ 29,750 (5.95%)
Organizational Expenses --- --- ---
Other Underwriting Expenses $ 5,000 (1.00%) $ 5,000 (0.41%) $ 5,000 (1.00%)
Percent Available to Issuer 90.70% 92.58% 93.05%
- ----------------------------------------------------------------------------------------------------
TOTAL ACQUISITION COST --- --- ---
- ----------------------------------------------------------------------------------------------------
PERCENT LEVERAGE --- --- ---
(mortgage financing
divided by total
acquisition cost)
- ----------------------------------------------------------------------------------------------------
DATE OFFERING BEGAN 10/15/95 10/15/95 11/01/95
- ----------------------------------------------------------------------------------------------------
LENGTH OF OFFERING (mos.) 2 1 1
- ----------------------------------------------------------------------------------------------------
MONTHS TO INVEST 90% OF
AMOUNT AVAILABLE FOR --- --- ---
INVESTMENT (measured from
beginning of offering)
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------
House of Praise Pembroke Park Faith Community
Ministries, Inc. Church Church, Inc.
of Christ, Inc.
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOLLAR AMOUNT OFFERED $675,000 $600,000 $950,000
- ----------------------------------------------------------------------------------------------------
DOLLAR AMOUNT RAISED $675,000 $600,000 $950,000
- ----------------------------------------------------------------------------------------------------
PERCENTAGE OF FUNDS RAISED 100% 100% 100%
- ----------------------------------------------------------------------------------------------------
LESS OFFERING EXPENSES:
Selling Commissions &
Discounts Retained by Affiliates $ 40,163 (5.95%) $ 35,700 (5.95%) $ 64,800 (7.20%)
Organizational Expenses --- --- ---
Other Underwriting Expenses $ 20,837 (3.08%) $ 6,000 (1.00%) $ 13,000 (1.37%)
Percent Available to Issuer 90.96% 92.85% 91.81%
- ----------------------------------------------------------------------------------------------------
TOTAL ACQUISITION COST --- --- ---
- ----------------------------------------------------------------------------------------------------
PERCENT LEVERAGE --- --- ---
(mortgage financing
divided by total
acquisition cost)
- ----------------------------------------------------------------------------------------------------
DATE OFFERING BEGAN 10/01/95 11/15/95 12/01/95
- ----------------------------------------------------------------------------------------------------
LENGTH OF OFFERING (mos.) 10 9 1
- ----------------------------------------------------------------------------------------------------
MONTHS TO INVEST 90% OF
AMOUNT AVAILABLE FOR --- --- ---
INVESTMENT (measured from
beginning of offering)
- ----------------------------------------------------------------------------------------------------
</TABLE>
A-12
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (CONTINUED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Christ Church of Oasis Christian Centennial Star
Kirkland Center of Bethlehem
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOLLAR AMOUNT OFFERED $2,785,000 $825,000 $1,195,000
- ----------------------------------------------------------------------------------------------------
DOLLAR AMOUNT RAISED $2,785,000 $825,000 $1,195,000
- ----------------------------------------------------------------------------------------------------
PERCENTAGE OF FUNDS RAISED 100% 100% 100%
- ----------------------------------------------------------------------------------------------------
LESS OFFERING EXPENSES:
Selling Commissions &
Discounts Retained by Affiliates $ 192,165 (6.90%) $ 49,088 (5.95%) $ 71,103 (5.95%)
Organizational Expenses --- --- ---
Other Underwriting Expenses $ 8,400 (0.30%) $ 12,000 (1.45%) $ 14,000 (1.17%)
Percent Available to Issuer 92.78% 92.60% 92.88%
- ----------------------------------------------------------------------------------------------------
TOTAL ACQUISITION COST --- --- ---
- ----------------------------------------------------------------------------------------------------
PERCENT LEVERAGE (mortgage --- --- ---
financing divided by total
acquisitions costs)
- ----------------------------------------------------------------------------------------------------
DATE OFFERING BEGAN 12/29/95 02/15/96 02/01/96
- ----------------------------------------------------------------------------------------------------
LENGTH OF OFFERING (mos.) 7 10 8
- ----------------------------------------------------------------------------------------------------
MONTHS TO INVEST 90% OF
AMOUNT AVAILABLE FOR --- --- ---
INVESTMENT (measured from
beginning of offering)
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------
St. Agnes Lake Baptist Cornerstone Church
Missionary Church
Baptist Church
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOLLAR AMOUNT OFFERED $875,000 $1,840,000 $6,600,000
- -----------------------------------------------------------------------------------------------------
DOLLAR AMOUNT RAISED $875,000 $1,840,000 $6,600,000
- -----------------------------------------------------------------------------------------------------
PERCENTAGE OF FUNDS RAISED 100% 100% 100%
- -----------------------------------------------------------------------------------------------------
LESS OFFERING EXPENSES:
Selling Commissions &
Discounts Retained by Affiliates $ 52,063 (5.95%) $ 109,480 (5.95%) $ 412,500 (6.25%)
Organizational Expenses --- --- ---
Other Underwriting Expenses $ 15,000 (1.71%) $ 12,520 (1.06%) $ 32,000 (0.48%)
Percent Available to Issuer 92.33% 89.70% 93.26%
- -----------------------------------------------------------------------------------------------------
TOTAL ACQUISITION COST --- --- ---
- -----------------------------------------------------------------------------------------------------
PERCENT LEVERAGE (mortgage --- --- ---
financing divided by total
acquisitions costs)
- -----------------------------------------------------------------------------------------------------
DATE OFFERING BEGAN 03/15/96 03/15/96 05/15/96
- -----------------------------------------------------------------------------------------------------
LENGTH OF OFFERING (mos.) 5 6 3
- -----------------------------------------------------------------------------------------------------
MONTHS TO INVEST 90% OF
AMOUNT AVAILABLE FOR --- --- ---
INVESTMENT (measured from
beginning of offering)
- -----------------------------------------------------------------------------------------------------
</TABLE>
A-13
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (CONTINUED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Abundant Life Vollintine Baptist Aloha Christian
Family Worship Church, Inc. Life Center
Ctr., Inc.
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOLLAR AMOUNT OFFERED $2,025,000 $425,000 $1,380,000
- -----------------------------------------------------------------------------------------------------
DOLLAR AMOUNT RAISED $2,025,000 $425,000 $1,380,000
- -----------------------------------------------------------------------------------------------------
PERCENTAGE OF FUNDS RAISED 100% 100% 100%
- -----------------------------------------------------------------------------------------------------
LESS OFFERING EXPENSES:
Selling Commissions &
Discounts Retained by Affiliates $ 120,488 (5.95%) $ 25,288 (5.95%) $ 84,850 (6.15%)
Organizational Expenses --- --- ---
Other Underwriting Expenses $ 21,000 (1.03%) $ 8,000 (1.88%) $ 15,000 (1.08%)
Percent Available to Issuer 93.02% 92.17% 92.76%
- -----------------------------------------------------------------------------------------------------
TOTAL ACQUISITION COST --- --- ---
- -----------------------------------------------------------------------------------------------------
PERCENT LEVERAGE (mortgage --- --- ---
financing divided by total
acquisitions costs)
- -----------------------------------------------------------------------------------------------------
DATE OFFERING BEGAN 08/15/96 08/15/96 09/01/96
- -----------------------------------------------------------------------------------------------------
LENGTH OF OFFERING (mos.) 5 4 7
- -----------------------------------------------------------------------------------------------------
MONTHS TO INVEST 90% OF
AMOUNT AVAILABLE FOR --- --- ---
INVESTMENT (measured from
beginning of offering)
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------
New Life Baptist Centennial Star Cornerstone
Church of of Bethlehem Church
Thurston County Baptist Church
of Ossining ,
New York
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOLLAR AMOUNT OFFERED $1,300,000 $450,000 $4,680,000
- ----------------------------------------------------------------------------------------------------
DOLLAR AMOUNT RAISED $1,300,000 $450,000 $4,680,000
- ----------------------------------------------------------------------------------------------------
PERCENTAGE OF FUNDS RAISED 100% 100% 100%
- ----------------------------------------------------------------------------------------------------
LESS OFFERING EXPENSES:
Selling Commissions &
Discounts Retained by Affiliates $ 77,350 (5.95%) $ 29,250 (6.50%) $278,460 (5.95%)
Organizational Expenses --- --- ---
Other Underwriting Expenses $14,000 (1.08%) $ 13,000 (2.89%) $ 36,540 (.78%)
Percent Available to Issuer 92.97% 90.61% 93.27%
- ----------------------------------------------------------------------------------------------------
TOTAL ACQUISITION COST --- --- ---
- ----------------------------------------------------------------------------------------------------
PERCENT LEVERAGE (mortgage --- --- ---
financing divided by total
acquisitions costs)
- ----------------------------------------------------------------------------------------------------
DATE OFFERING BEGAN 10/15/96 11/15/96 12/15/96
- ----------------------------------------------------------------------------------------------------
LENGTH OF OFFERING (mos.) 5 4 4
- ----------------------------------------------------------------------------------------------------
MONTHS TO INVEST 90% OF
AMOUNT AVAILABLE FOR --- --- ---
INVESTMENT (measured from
beginning of offering)
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
A-14
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (CONTINUED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
United Baptist Spring Lake Church New Jerusalem
Church of Christ Church
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOLLAR AMOUNT OFFERED $1,525,000 $600,000 $2,300,000
- ----------------------------------------------------------------------------------------------------
DOLLAR AMOUNT RAISED $1,525,000 $600,000 $2,300,000
- ----------------------------------------------------------------------------------------------------
PERCENTAGE OF FUNDS RAISED 100% 100% 100%
- ----------------------------------------------------------------------------------------------------
LESS OFFERING EXPENSES:
Selling Commissions &
Discounts Retained by Affiliates $ 90,738 (5.95%) $ 52,800 (8.80%) $136,850 (5.95%)
Organizational Expenses --- --- ---
Other Underwriting Expenses $ 19,000 (1.24%) $ 10,000 (1.66%) $ 24,000 (1.04%)
Percent Available to Issuer 92.81% 89.54% 93.01%
- ----------------------------------------------------------------------------------------------------
TOTAL ACQUISITION COST --- --- ---
- ----------------------------------------------------------------------------------------------------
PERCENT LEVERAGE (mortgage --- --- ---
financing divided by total
acquisitions costs)
- ----------------------------------------------------------------------------------------------------
DATE OFFERING BEGAN 12/15/96 02/15/97 03/15/97
- ----------------------------------------------------------------------------------------------------
LENGTH OF OFFERING (mos.) 4 2 3
- ----------------------------------------------------------------------------------------------------
MONTHS TO INVEST 90% OF
AMOUNT AVAILABLE FOR --- --- ---
INVESTMENT (measured from
beginning of offering)
- ----------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Aloha Christian Bethany Baptist Original Holy Ark
Life Center Church Missionary
Baptist Church
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOLLAR AMOUNT OFFERED $490,000 $1,750,000 $675,000
- -----------------------------------------------------------------------------------------------------
DOLLAR AMOUNT RAISED $490,000 $1,750,000 $675,000
- -----------------------------------------------------------------------------------------------------
PERCENTAGE OF FUNDS RAISED 100% 100% 100%
- -----------------------------------------------------------------------------------------------------
LESS OFFERING EXPENSES:
Selling Commissions &
Discounts Retained by Affiliates $ 44,100 (9.00%) $104,125 (5.95%) $ 42,188 (6.25%)
Organizational Expenses --- --- ---
Other Underwriting Expenses $ 7,000 (1.43%) $ 22,000 (1.25%) $ 14,000 (2.24%)
Percent Available to Issuer 89.57% 92.80% 91.51%
- -----------------------------------------------------------------------------------------------------
TOTAL ACQUISITION COST --- --- ---
- -----------------------------------------------------------------------------------------------------
PERCENT LEVERAGE (mortgage --- --- ---
financing divided by total
acquisitions costs)
- -----------------------------------------------------------------------------------------------------
DATE OFFERING BEGAN 04/01/97 04/01/97 04/15/97
- -----------------------------------------------------------------------------------------------------
LENGTH OF OFFERING (mos.) 1 3 2
- -----------------------------------------------------------------------------------------------------
MONTHS TO INVEST 90% OF
AMOUNT AVAILABLE FOR --- --- ---
INVESTMENT (measured from
beginning of offering)
- -----------------------------------------------------------------------------------------------------
</TABLE>
A-15
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (CONTINUED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Bethlehem Temple Centro de Teen Mania
Community Church Capacitiacion Ministries, Inc.
of Rialto Cristiana
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOLLAR AMOUNT OFFERED $1,200,000 $ 650,000 $2,300,000
- ----------------------------------------------------------------------------------------------------
DOLLAR AMOUNT RAISED $1,200,000 $ 650,000 $2,300,000
- ----------------------------------------------------------------------------------------------------
PERCENTAGE OF FUNDS RAISED 100% 100% 100%
- ----------------------------------------------------------------------------------------------------
LESS OFFERING EXPENSES:
Selling Commissions &
Discounts Retained by Affiliates $ 75,000 (6.25%) $ 45,050 (6.93%) $139,150 (6.05%)
Organizational Expenses --- --- ---
Other Underwriting Expenses $ 19,000 (1.58%) $ 15,250 (2.35%) $ 29,000 (1.26%)
Percent Available to Issuer 92.17% 90.72% 92.69%
- ----------------------------------------------------------------------------------------------------
TOTAL ACQUISITION COST --- --- ---
- ----------------------------------------------------------------------------------------------------
Percent Leverage (mortgage --- --- ---
financing divided by total
acquisitions costs)
- ----------------------------------------------------------------------------------------------------
DATE OFFERING BEGAN 05/01/97 05/15/97 07/01/97
- ----------------------------------------------------------------------------------------------------
LENGTH OF OFFERING (mos.) 7 3 9
- ----------------------------------------------------------------------------------------------------
MONTHS TO INVEST 90% OF
AMOUNT AVAILABLE FOR --- --- ---
INVESTMENT (measured from
beginning of offering)
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Full Gospel Greater Mt. Zion Church of the
Christian Missionary Great Commission
Assembly Baptist Church
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOLLAR AMOUNT OFFERED $1,525,000 $1,185,000 $1,100,000
- -----------------------------------------------------------------------------------------------------
DOLLAR AMOUNT RAISED $1,525,000 $1,185,000 $1,100,000
- -----------------------------------------------------------------------------------------------------
PERCENTAGE OF FUNDS RAISED 100% 100% 100%
- -----------------------------------------------------------------------------------------------------
LESS OFFERING EXPENSES:
Selling Commissions &
Discounts Retained by Affiliates $ 95,313 (6.25%) $ 74,063 (6.25%) $ 65,450 (5.95%)
Organizational Expenses --- --- ---
Other Underwriting Expenses $ 23,000 (1.51%) $16,500 (1.39%) $ 15,000 (1.36%)
Percent Available to Issuer 92.24% 92.36% 92.69%
- -----------------------------------------------------------------------------------------------------
TOTAL ACQUISITION COST --- --- ---
- -----------------------------------------------------------------------------------------------------
Percent Leverage (mortgage --- --- ---
financing divided by total
acquisitions costs)
- -----------------------------------------------------------------------------------------------------
DATE OFFERING BEGAN 07/01/97 07/15/97 08/01/97
- -----------------------------------------------------------------------------------------------------
LENGTH OF OFFERING (mos.) 8 9 9
- -----------------------------------------------------------------------------------------------------
MONTHS TO INVEST 90% OF
AMOUNT AVAILABLE FOR --- --- ---
INVESTMENT (measured from
beginning of offering)
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
A-16
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (CONTINUED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
City Church Sharon Baptist New Hope Missionary
Church Baptist Church
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOLLAR AMOUNT OFFERED $1,600,000 $6,200,000 $2,300,000
- ----------------------------------------------------------------------------------------------------
DOLLAR AMOUNT RAISED $1,600,000 $6,200,000 $2,300,000
- ----------------------------------------------------------------------------------------------------
PERCENTAGE OF FUNDS RAISED 100% 100% 100%
- ----------------------------------------------------------------------------------------------------
LESS OFFERING EXPENSES:
Selling Commissions &
Discounts Retained by Affiliates $111,360 (6.96%) $368,900 (5.95%) $139,150 (6.05%)
Organizational Expenses --- --- ---
Other Underwriting Expenses $ 10,000 ( .63%) $ 36,000 (0.58%) $ 29,000 (1.26%)
Percent Available to Issuer 92.42% 93.47% 92.69%
- ----------------------------------------------------------------------------------------------------
TOTAL ACQUISITION COST --- --- ---
- ----------------------------------------------------------------------------------------------------
Percent Leverage (mortgage --- --- ---
financing divided by total
acquisitions costs)
- ----------------------------------------------------------------------------------------------------
DATE OFFERING BEGAN 09/01/97 10/15/97 10/15/97
- ----------------------------------------------------------------------------------------------------
LENGTH OF OFFERING (mos.) 9 10 9
- ----------------------------------------------------------------------------------------------------
MONTHS TO INVEST 90% OF
AMOUNT AVAILABLE FOR --- --- ---
INVESTMENT (measured from
beginning of offering)
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------
The Holy Way Swope Parkway The Community
Church, Inc. Church of Christ Protestant
Church of
CO-OP City
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOLLAR AMOUNT OFFERED $1,500,000 $1,200,000 $1,000,000
- -----------------------------------------------------------------------------------------------------
DOLLAR AMOUNT RAISED $1,500,000 $1,200,000 $ 1,000,000
- -----------------------------------------------------------------------------------------------------
PERCENTAGE OF FUNDS RAISED 100% 100% 100%
- -----------------------------------------------------------------------------------------------------
LESS OFFERING EXPENSES:
Selling Commissions &
Discounts Retained by Affiliates $ 89,250 (5.95%) $ 96,000 (8.00%) $ 59,500 (5.95%)
Organizational Expenses --- --- ---
Other Underwriting Expenses $ 21,000 (1.40%) $ 6,000 ( .50%) $ 18,000 (1.80%)
Percent Available to Issuer 92.65% 91.50% 92.25%
- -----------------------------------------------------------------------------------------------------
TOTAL ACQUISITION COST --- --- ---
- -----------------------------------------------------------------------------------------------------
Percent Leverage (mortgage --- --- ---
financing divided by total
acquisitions costs)
- -----------------------------------------------------------------------------------------------------
DATE OFFERING BEGAN 10/15/97 11/01/97 11/15/97
- -----------------------------------------------------------------------------------------------------
LENGTH OF OFFERING (mos.) 8 7 9
- -----------------------------------------------------------------------------------------------------
MONTHS TO INVEST 90% OF
AMOUNT AVAILABLE FOR --- --- ---
INVESTMENT (measured from
beginning of offering)
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
A-17
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (CONTINUED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Gospel Tabernacle The New York Dong New Life Baptist
Church Yang First Church Church
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOLLAR AMOUNT OFFERED $3,550,000 $ 735,000 $ 495,000
- ---------------------------------------------------------------------------------------------------
DOLLAR AMOUNT RAISED $3,550,000 $ 735,000 $ 495,000
- ---------------------------------------------------------------------------------------------------
PERCENTAGE OF FUNDS RAISED 100% 100% 100%
- ---------------------------------------------------------------------------------------------------
LESS OFFERING EXPENSES:
Selling Commissions &
Discounts Retained by Affiliates $211,225 (5.95%) $ 43,733 (5.95%) $ 29,453 (5.95%)
Organizational Expenses --- --- ---
Other Underwriting Expenses $ 30,000 (.85%) $ 10,000 (1.36%) $ 10,000 (2.02%)
Percent Available to Issuer 93.20% 92.69% 92.03%
- ---------------------------------------------------------------------------------------------------
TOTAL ACQUISITION COST --- --- ---
- ---------------------------------------------------------------------------------------------------
Percent Leverage (mortgage --- --- ---
financing divided by total
acquisitions costs)
- ---------------------------------------------------------------------------------------------------
DATE OFFERING BEGAN 02/01/98 03/15/98 03/15/98
- ---------------------------------------------------------------------------------------------------
LENGTH OF OFFERING (mos.) 9 7 2
- ---------------------------------------------------------------------------------------------------
MONTHS TO INVEST 90% OF
AMOUNT AVAILABLE FOR --- --- ---
INVESTMENT (measured from
beginning of offering)
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Church of the Spiritual Life The Lee Memorial
Great Commission Ministries, Inc. A.M.E. Church
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOLLAR AMOUNT OFFERED $1,900,000 $ 1,985,000 $ 1,000,000
- ------------------------------------------------------------------------------------------------------
DOLLAR AMOUNT RAISED $1,900,000 $ 1,985,000 $ 1,000,000
- ------------------------------------------------------------------------------------------------------
PERCENTAGE OF FUNDS RAISED 100% 100% 100%
- ------------------------------------------------------------------------------------------------------
LESS OFFERING EXPENSES:
Selling Commissions &
Discounts Retained by Affiliates $113,050 (5.95%) $ 118,108 (5.95%) $ 59,500 (5.95%)
Organizational Expenses --- --- ---
Other Underwriting Expenses $ 19,000 (1.00%) $ 15,000 (0.76%) $ 12,000 (1.20%)
Percent Available to Issuer 93.05% 93.29% 92.85%
- ------------------------------------------------------------------------------------------------------
TOTAL ACQUISITION COST --- --- ---
- ------------------------------------------------------------------------------------------------------
Percent Leverage (mortgage --- --- ---
financing divided by total
acquisitions costs)
- ------------------------------------------------------------------------------------------------------
DATE OFFERING BEGAN 04/01/98 05/15/98 06/01/98
- ------------------------------------------------------------------------------------------------------
LENGTH OF OFFERING (mos.) 2 6 5
- ------------------------------------------------------------------------------------------------------
MONTHS TO INVEST 90% OF
AMOUNT AVAILABLE FOR --- --- ---
INVESTMENT (measured from
beginning of offering)
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
A-18
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (CONTINUED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Harvest Community New Vision Full United Baptist
Church Gospel Baptist Church
Church
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOLLAR AMOUNT OFFERED $ 2,400,000 $1,125,000 $ 755,000
- ---------------------------------------------------------------------------------------------------
DOLLAR AMOUNT RAISED $ 2,400,000 $1,125,000 $ 755,000
- ---------------------------------------------------------------------------------------------------
PERCENTAGE OF FUNDS RAISED 100% 100% 100%
- ---------------------------------------------------------------------------------------------------
LESS OFFERING EXPENSES:
Selling Commissions &
Discounts Retained by Affiliates $ 117,120 (5.95%) $ 66,938 (5.95%) $ 44,923 (5.95%)
Organizational Expenses --- --- ---
Other Underwriting Expenses $ 5,000 (0.21%) $ 11,000 (0.98%) $ 11,000 (1.46%)
Percent Available to Issuer 94.91% 93.07% 92.59%
- ---------------------------------------------------------------------------------------------------
TOTAL ACQUISITION COST --- --- ---
- ---------------------------------------------------------------------------------------------------
Percent Leverage (mortgage --- --- ---
financing divided by total
acquisitions costs)
- ---------------------------------------------------------------------------------------------------
DATE OFFERING BEGAN 06/01/98 07/15/98 07/15/98
- ---------------------------------------------------------------------------------------------------
LENGTH OF OFFERING (mos.) 8 4 6
- ---------------------------------------------------------------------------------------------------
MONTHS TO INVEST 90% OF
AMOUNT AVAILABLE FOR --- --- ---
INVESTMENT (measured from
beginning of offering)
- ---------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Raleigh Teen Mania Linconia
Christian Ministries Tabernacle
Community Christian Center
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOLLAR AMOUNT OFFERED $ 3,420,000 $1,650,000 $1,100,000
- ------------------------------------------------------------------------------------------------------
DOLLAR AMOUNT RAISED $ 3,420,000 $1,650,000 $1,100,000
- ------------------------------------------------------------------------------------------------------
PERCENTAGE OF FUNDS RAISED 100% 100% 100%
- ------------------------------------------------------------------------------------------------------
LESS OFFERING EXPENSES:
Selling Commissions &
Discounts Retained by Affiliates $ 196,650 (5.95%) $ 99,825 (5.95%) $ 65,450 (5.95%)
Organizational Expenses --- --- ---
Other Underwriting Expenses $ 19,000 (0.55%) $ 17,000 (1.03%) $ 13,000 (1.18%)
Percent Available to Issuer 93.70% 92.92% 92.87%
- ------------------------------------------------------------------------------------------------------
TOTAL ACQUISITION COST --- --- ---
- ------------------------------------------------------------------------------------------------------
Percent Leverage (mortgage --- --- ---
financing divided by total
acquisitions costs)
- ------------------------------------------------------------------------------------------------------
DATE OFFERING BEGAN 08/01/98 09/15/98 08/15/98
- ------------------------------------------------------------------------------------------------------
LENGTH OF OFFERING (mos.) 6 5 4
- ------------------------------------------------------------------------------------------------------
MONTHS TO INVEST 90% OF
AMOUNT AVAILABLE FOR --- --- ---
INVESTMENT (measured from
beginning of offering)
- ------------------------------------------------------------------------------------------------------
</TABLE>
A-19
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (CONTINUED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
New Generation Sharon Baptist Full Gospel
Ministries Church of Pentecostal
Philadelphia Church
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOLLAR AMOUNT OFFERED $1,285,000 $1,325,000 $2,670,000
- ----------------------------------------------------------------------------------------------------
DOLLAR AMOUNT RAISED $1,285,000 $1,325,000 $2,670,000
- ----------------------------------------------------------------------------------------------------
PERCENTAGE OF FUNDS RAISED 100% 100% 100%
- ----------------------------------------------------------------------------------------------------
LESS OFFERING EXPENSES:
Selling Commissions &
Discounts Retained by Affiliates $ 76,458 (5.95%) $ 78,838 (5.95%) $ 210,930 (5.95%)
Organizational Expenses --- --- ---
Other Underwriting Expenses $ 14,000 (1.09%) $ 12,000 (0.91%) $ 24,000 (0.90%)
Percent Available to Issuer 92.96% 93.14% 91.20%
- ----------------------------------------------------------------------------------------------------
TOTAL ACQUISITION COST --- --- ---
- ----------------------------------------------------------------------------------------------------
Percent Leverage (mortgage --- --- ---
financing divided by total
acquisitions costs)
- ----------------------------------------------------------------------------------------------------
DATE OFFERING BEGAN 09/15/98 10/15/98 10/15/98
- ----------------------------------------------------------------------------------------------------
LENGTH OF OFFERING (mos.) 4 7 5
- ----------------------------------------------------------------------------------------------------
MONTHS TO INVEST 90% OF
AMOUNT AVAILABLE FOR --- --- ---
INVESTMENT (measured from
beginning of offering)
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Centennial Star St. Agnes Greater Open Door
of Bethlehem Missionary Church of God in
Church Baptist Church Chirst
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOLLAR AMOUNT OFFERED $1,845,000 $4,575,000 $ 900,000
- ------------------------------------------------------------------------------------------------------
DOLLAR AMOUNT RAISED $1,845,000 $4,575,000 $ 900,000
- ------------------------------------------------------------------------------------------------------
PERCENTAGE OF FUNDS RAISED 100% 100% 100%
- ------------------------------------------------------------------------------------------------------
LESS OFFERING EXPENSES:
Selling Commissions &
Discounts Retained by Affiliates $ 109,778 (5.95%) $ 272,213 (5.95%) $ 53,550 (5.95%)
Organizational Expenses --- --- ---
Other Underwriting Expenses $ 19,000 (1.00%) $ 29,000 (0.63%) $ 10,000 (1.11%)
Percent Available to Issuer 93.02% 93.42% 92.94%
- ------------------------------------------------------------------------------------------------------
TOTAL ACQUISITION COST --- --- ---
- ------------------------------------------------------------------------------------------------------
Percent Leverage (mortgage --- --- ---
financing divided by total
acquisitions costs)
- ------------------------------------------------------------------------------------------------------
DATE OFFERING BEGAN 11/15/98 12/15/98 11/01/98
- ------------------------------------------------------------------------------------------------------
LENGTH OF OFFERING (mos.) 4 3 1
- ------------------------------------------------------------------------------------------------------
MONTHS TO INVEST 90% OF
AMOUNT AVAILABLE FOR --- --- ---
INVESTMENT (measured from
beginning of offering)
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
A-20
<PAGE>
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS (CONTINUED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Southern Spiritual Life St. Agnes
California Word Ministries Missionary
of Faith Baptist Church
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOLLAR AMOUNT OFFERED $5,275,000 $ 255,000 $5,350,000
- -----------------------------------------------------------------------------------------------------------------------------------
DOLLAR AMOUNT RAISED $3,576,000 (1) $ 255,000 $ 887,000 (1)
- -----------------------------------------------------------------------------------------------------------------------------------
PERCENTAGE OF FUNDS RAISED 68% 100% 16%
- -----------------------------------------------------------------------------------------------------------------------------------
LESS OFFERING EXPENSES:
Selling Commissions &
Discounts Retained by Affiliates $ 313,863 (5.95%) $ 15,173 (5.95%) $ 318,325 (5.95%)
Organizational Expenses --- --- ---
Other Underwriting Expenses $ 37,000 (0.70%) $ 6,000 (2.35%) $ 34,000 (0.64%)
Percent Available to Issuer 93.35% 91.70% 94.41%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL ACQUISITION COST --- --- ---
- -----------------------------------------------------------------------------------------------------------------------------------
Percent Leverage (mortgage --- --- ---
financing divided by total
acquisitions costs)
- -----------------------------------------------------------------------------------------------------------------------------------
DATE OFFERING BEGAN 02/01/99 02/15/99 03/15/99
- -----------------------------------------------------------------------------------------------------------------------------------
LENGTH OF OFFERING (mos.) Open 1 Open
- -----------------------------------------------------------------------------------------------------------------------------------
MONTHS TO INVEST 90% OF
AMOUNT AVAILABLE FOR --- --- ---
INVESTMENT (measured from
beginning of offering)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Offering still in progress. Figures reflect bond sales through March 31,
1999.
A-21
<PAGE>
TABLE II - COMPENSATION TO SPONSOR AND AFFILIATES
For Program Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
Hopewell New Life Triumph New
Missionary Christian Testament Church
Baptist Church Ministry
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date Offering Commenced 1/15/91 3/1/91 3/15/91
- ---------------------------------------------------------------------------------------------------
Dollar Amount Raised $ 3,700,000 $ 715,000 $ 850,000
- ---------------------------------------------------------------------------------------------------
Amount Paid to Sponsor
from Proceeds of Offering:
Underwriting Fees (1)
Acquisition Fees $ 259,000 $ 50,050 $ 59,500
- real estate fees --- --- ---
- advisory fees --- --- ---
- other (type & amount) (2) $ 46,425 $ 20,000 $ 21,250
- ---------------------------------------------------------------------------------------------------
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
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>
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Mt. Moriah Lake Baptist Temple Baptist
African Church Church
Methodist
Episcopal Church
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date Offering Commenced 5/15/91 8/1/91 8/1/91
- ------------------------------------------------------------------------------------------------------
Dollar Amount Raised $ 1,290,000 $ 1,800,000 $ 1,850,000
- ------------------------------------------------------------------------------------------------------
Amount Paid to Sponsor
from Proceeds of Offering:
Underwriting Fees (1)
Acquisition Fees $ 90,300 $ 108,000 $ 129,500
- real estate fees --- --- ---
- advisory fees --- --- ---
- other (type & amount) (2) $ 24,000 $ 22,500 $ 35,000
- ------------------------------------------------------------------------------------------------------
Dollar Amount of Cash Generated --- --- ---
from Operations before Deducting
Payments to Sponsor
- ------------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Operations:
Property Management Fees --- --- ---
Partnership Management Fees --- --- ---
Reimbursements --- --- ---
Leasing Commissions --- --- ---
Annual Advisor Fee earned
to date (3) $ 9,751 $ 10,206 $ 7,333
Other (identify & quantify) --- --- ---
- ------------------------------------------------------------------------------------------------------
Dollar Amount of Property Sales
and Refinancing before Deducting
Payments to Sponsor:
Cash --- --- ---
Notes --- --- ---
- ------------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Property Sales & Refinancing:
Real Estate Commissions --- --- ---
Incentive Fees --- --- ---
Other (identify & quantify) --- --- ---
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group,
Inc., Underwriter, an affiliate of the Advisor and the Managing
Underwriter 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 03/31/99. 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 Shorter African New Life
African Methodist Christian
Methodist Episcopal Church Ministry, Inc.
Episcopal Church
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date Offering Commenced 10/15/91 11/1/91 12/1/91
- ---------------------------------------------------------------------------------------------------
Dollar Amount Raised $ 725,000 $ 1,860,000 $ 110,000
- ---------------------------------------------------------------------------------------------------
Amount Paid to Sponsor
from Proceeds of Offering:
Underwriting Fees (1) $ 50,750 $ 130,200 $ 8,250
Acquisition Fees
- real estate fees --- --- ---
- advisory fees --- --- ---
- other (type & amount) (2) $ 17,000 $ 34,800 $ 8,000
- ---------------------------------------------------------------------------------------------------
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) $ 5,196 $ 18,676 $ 358
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>
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Mt. Vernon Macedonia First Baptist
Baptist Missionary Church
Church Baptist Church
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date Offering Commenced 12/15/91 2/15/92 3/1/92
- ------------------------------------------------------------------------------------------------------
Dollar Amount Raised $ 1,350,000 $ 1,195,000 $ 1,040,000
- ------------------------------------------------------------------------------------------------------
Amount Paid to Sponsor
from Proceeds of Offering:
Underwriting Fees (1) $ 94,500 $ 83,650 $ 72,800
Acquisition Fees
- real estate fees --- --- ---
- advisory fees --- --- ---
- other (type & amount) (2) $ 27,500 $ 12,100 $ 22,200
- ------------------------------------------------------------------------------------------------------
Dollar Amount of Cash Generated --- --- ---
from Operations before Deducting
Payments to Sponsor
- ------------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Operations:
Property Management Fees --- --- ---
Partnership Management Fees --- --- ---
Reimbursements --- --- ---
Leasing Commissions --- --- ---
Annual Advisory Fee earned
to date (3) $ 5,060 $ 13,949 $12,593
Other (identify & quantify) --- --- ---
- ------------------------------------------------------------------------------------------------------
Dollar Amount of Property Sales
and Refinancing before Deducting
Payments to Sponsor:
Cash --- --- ---
Notes --- --- ---
- ------------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Property Sales & Refinancing:
Real Estate Commissions --- --- ---
Incentive Fees --- --- ---
Other (identify & quantify) --- --- ---
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group,
Inc., Underwriter, an affiliate of the Advisor and the Managing
Underwriter 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 03/31/99. 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 By His Word Metropolitan
Assembly Christian Center Baptist Church
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date Offering Commenced 3/15/92 4/1/92 4/1/92
- ---------------------------------------------------------------------------------------------------
Dollar Amount Raised $ 720,000 $ 1,215,000 $ 475,000
- ---------------------------------------------------------------------------------------------------
Amount Paid to Sponsor
from Proceeds of Offering:
Underwriting Fees (1) $50,400 $ 85,050 $ 33,250
Acquisition Fees
- real estate fees --- --- ---
- advisory fees --- --- ---
- other (type & amount) (2) $15,100 $ 18,500 $ 13,750
- ---------------------------------------------------------------------------------------------------
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 $ 5,587
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 Hope Bible Missionary Central Holiness
Center Baptist Church Church
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date Offering Commenced 5/1/92 5/15/92 6/15/92
- ------------------------------------------------------------------------------------------------------
Dollar Amount Raised $ 506,000 $ 1,300,000 $ 250,000
- ------------------------------------------------------------------------------------------------------
Amount Paid to Sponsor
from Proceeds of Offering:
Underwriting Fees (1) $ 35,420 $ 91,000 $ 17,500
Acquisition Fees
- real estate fees --- --- ---
- advisory fees --- --- ---
- other (type & amount) (2) $ 11,500 $ 32,250 $ 10,000
- ------------------------------------------------------------------------------------------------------
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) $ 8,208 $ 14,452 $ 7,596
Other (identify & quantify) --- --- ---
- ------------------------------------------------------------------------------------------------------
Dollar Amount of Property Sales
and Refinancing before Deducting
Payments to Sponsor:
Cash --- --- ---
Notes --- --- ---
- ------------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Property Sales & Refinancing:
Real Estate Commissions --- --- ---
Incentive Fees --- --- ---
Other (identify & quantify) --- --- ---
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group,
Inc., Underwriter, an affiliate of the Advisor and the Managing
Underwriter 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 03/31/99. 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 Church of Jesus Temple Baptist
Episcopal Church Christ Church
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date Offering Commenced 6/24/92 7/1/92 8/1/92
- ---------------------------------------------------------------------------------------------------
Dollar Amount Raised $ 1,430,000 $ 1,280,000 $ 380,000
- ---------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 85,085 $ 89,600 $ 26,700
Acquisition Fees
- real estate fees --- --- ---
- advisory fees --- --- ---
- other (type & amount) (2) $ 12,215 $ 17,000 $ 11,900
- ---------------------------------------------------------------------------------------------------
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) $ 10,069 $ 4,022 $ 765
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>
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Mt. Zion African Calvary Temple of Bethel Baptist
Methodist Allentown, PA Church
Episcopal Church
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date Offering Commenced 8/15/92 9/1/92 9/15/92
- ------------------------------------------------------------------------------------------------------
Dollar Amount Raised $ 875,000 $ 1,820,000 $ 525,000
- ------------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 61,250 $ 127,400 $ 36,750
Acquisition Fees
- real estate fees --- --- ---
- advisory fees --- --- ---
- other (type & amount) (2) $ 16,000 $ 37,500 $ 12,250
- ------------------------------------------------------------------------------------------------------
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) $ 2,243 $ 5,356 $ 5,372
Other (identify & quantify) --- --- ---
- ------------------------------------------------------------------------------------------------------
Dollar Amount of Property Sales
and Refinancing before Deducting
Payments to Sponsor:
Cash --- --- ---
Notes --- --- ---
- ------------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Property Sales & Refinancing:
Real Estate Commissions --- --- ---
Incentive Fees --- --- ---
Other (identify & quantify) --- --- ---
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group,
Inc., Underwriter, an affiliate of the Advisor and the Managing
Underwriter 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 03/31/99. 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 Tabernacle
Community Church Baptist Church Baptist Church
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date Offering Commenced 10/1/92 11/15/92 11/15/92
- ---------------------------------------------------------------------------------------------------
Dollar Amount Raised $ 2,180,000 $ 500,000 $ 1,550,000
- ---------------------------------------------------------------------------------------------------
Amount Paid to Sponsor
from Proceeds of Offering:
Underwriting Fees (1) $ 147,150 $ 35,000 $ 108,500
Acquisition Fees
- real estate fees --- --- ---
- advisory fees --- --- ---
- other (type & amount) (2) $ 20,000 $ 13,000 $ 22,000
- ---------------------------------------------------------------------------------------------------
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) $ 14,904 $ 5,343 $ 11,888
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>
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Lee Memorial Nazareth Baptist Christian
African Church Pentecostal
Methodist Church
Episcopal Church
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date Offering Commenced 12/15/92 1/15/93 2/1/93
- ------------------------------------------------------------------------------------------------------
Dollar Amount Raised $ 1,225,000 $ 390,000 $ 1,600,000
- ------------------------------------------------------------------------------------------------------
Amount Paid to Sponsor
from Proceeds of Offering:
Underwriting Fees (1) $ 85,750 $ 27,300 $ 112,000
Acquisition Fees
- real estate fees --- --- ---
- advisory fees --- --- ---
- other (type & amount) (2) $ 21,000 $ 9,700 $ 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 Advisory Fee earned --- --- ---
to date (3) $ 8,502 $ 5,254 $ 9,054
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) --- --- ---
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group,
Inc., Underwriter, an affiliate of the Advisor and the Managing
Underwriter 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 03/31/99. 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 Lake Baptist St. Marks
Christian Church Missionary
Baptist Church Baptist Church
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date Offering Commenced 1/15/93 2/1/93 2/1/93
- ---------------------------------------------------------------------------------------------------
Dollar Amount Raised $ 750,000 $ 365,000 $ 1,500,000
- ---------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 52,500 $ 25,550 $ 105,000
Acquisition Fees
- real estate fees --- --- ---
- advisory fees --- --- ---
- other (type & amount) (2) $ 14,500 $ 8,000 $ 23,000
- ---------------------------------------------------------------------------------------------------
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) $ 8,307 $ 1,540 $ 9,395
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>
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Friendship Christian Faith Raleigh
Missionary Center Christian
Baptist Church Community
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date Offering Commenced 4/1/93 5/15/93 6/1/93
- ------------------------------------------------------------------------------------------------------
Dollar Amount Raised $ 700,000 $ 1,765,000 $ 1,425,000
- ------------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 49,000 $ 119,138 $ 90,750
Acquisition Fees
- real estate fees --- --- ---
- advisory fees --- --- ---
- other (type & amount) (2) $ 15,000 $ 17,000 $ 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) $ 7,561 $ 9,096 $ 10,600
Other (identify & quantify) --- --- ---
- ------------------------------------------------------------------------------------------------------
Dollar Amount of Property Sales
and Refinancing before Deducting
Payments to Sponsor:
Cash --- --- ---
Notes --- --- ---
- ------------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Property Sales & Refinancing:
Real Estate Commissions --- --- ---
Incentive Fees --- --- ---
Other (identify & quantify) --- --- ---
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group,
Inc., Underwriter, an affiliate of the Advisor and the Managing
Underwriter 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 03/31/99. 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 Outreach Evergreen
and Educational Christian Center Baptist Church
Center
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date Offering Commenced 5/15/93 5/15/93 6/1/93
- ---------------------------------------------------------------------------------------------------
Dollar Amount Raised $ 350,000 $ 575,000 $ 345,000
- ---------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 25,500 $ 39,963 $ 24,150
Acquisition Fees
- real estate fees --- --- ---
- advisory fees --- --- ---
- other (type & amount) (2) $ 14,000 $ 12,000 $ 11,000
- ---------------------------------------------------------------------------------------------------
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) $ 3,514 $ 5,119 $ 966
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>
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Faith Southwest Cornerstone Church St. Paul African
Baptist Church Methodist
Episcopal Church
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date Offering Commenced 6/15/93 7/15/93 8/15/93
- ------------------------------------------------------------------------------------------------------
Dollar Amount Raised $ 700,000 $ 4,355,000 $ 1,000,000
- ------------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 48,650 $ 293,963 $ 67,500
Acquisition Fees
- real estate fees --- --- ---
- advisory fees --- --- ---
- other (type & amount) (2) $ 14,000 $ 37,250 $ 19,000
- ------------------------------------------------------------------------------------------------------
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) $ 4,819 $ 10,468 $ 7,558
Other (identify & quantify) --- --- ---
- ------------------------------------------------------------------------------------------------------
Dollar Amount of Property Sales
and Refinancing before Deducting
Payments to Sponsor:
Cash --- --- ---
Notes --- --- ---
- ------------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Property Sales & Refinancing:
Real Estate Commissions --- --- ---
Incentive Fees --- --- ---
Other (identify & quantify) --- --- ---
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group,
Inc., Underwriter, an affiliate of the Advisor and the Managing
Underwriter 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 03/31/99. 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 First Baptist Peaceful Zion
United Methodist Church Missionary
Church Baptist Church
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date Offering Commenced 9/1/93 10/1/93 10/15/93
- ---------------------------------------------------------------------------------------------------
Dollar Amount Raised $ 3,100,000 $ 2,600,000 $ 750,000
- ---------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 193,750 $ 175,500 $ 52,500
Acquisition Fees
- real estate fees --- --- ---
- advisory fees --- --- ---
- other (type & amount) (2) $ 32,000 $ 30,500 $ 17,500
- ---------------------------------------------------------------------------------------------------
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) $ 23,181 $ 18,962 $ 7,261
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>
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Central Holiness Apostolic Faith New Life
Church Home Assembly Christian
Ministry
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date Offering Commenced 11/15/93 12/15/93 2/15/94
- ------------------------------------------------------------------------------------------------------
Dollar Amount Raised $ 1,405,000 $ 2,600,000 $ 2,000,000
- ------------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 87,813 $ 169,000 $ 130,000
Acquisition Fees
- real estate fees --- --- ---
- advisory fees --- --- ---
- other (type & amount) (2) $ 12,000 $ 36,500 $ 23,000
- ------------------------------------------------------------------------------------------------------
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) $ 12,814 $ 18,630 $ 17,864
Other (identify & quantify) --- --- ---
- ------------------------------------------------------------------------------------------------------
Dollar Amount of Property
Sales and Refinancing
before Deducting Payments
to Sponsor:
Cash --- --- ---
Notes --- --- ---
- ------------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Property Sales & Refinancing:
Real Estate Commissions --- --- ---
Incentive Fees --- --- ---
Other (identify & quantify) --- --- ---
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group,
Inc., Underwriter, an affiliate of the Advisor and the Managing
Underwriter 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 03/31/99. 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 First Baptist Woodinville
of Allentown, PA Church Church of Christ
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date Offering Commenced 2/15/94 4/1/94 5/15/94
- ---------------------------------------------------------------------------------------------------
Dollar Amount Raised $ 1,950,000 $ 740,000 $ 440,000
- ---------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 121,875 $ 46,250 $ 27,500
Acquisition Fees
- real estate fees --- --- ---
- advisory fees --- --- ---
- other (type & amount) (2) $ 18,000 $ 11,200 $ 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) $ 9,724 $ 13,221 $ 2,886
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>
- ------------------------------------------------------------------------------------------------------
Resurrection Church of Jesus By His Word
Life Ministries Christ Christian Center
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date Offering Commenced 5/15/94 6/1/94 8/28/94
- ------------------------------------------------------------------------------------------------------
Dollar Amount Raised $ 620,000 $ 1,735,000 $ 1,665,000
- ------------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 90,300 $ 103,233 $ 71,595
Acquisition Fees
- real estate fees --- --- ---
- advisory fees --- --- ---
- other (type & amount) (2) $ 3,000 $ 21,000 $ 17,000
- ------------------------------------------------------------------------------------------------------
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) $ 20,388 $ 17,874 $ 16,817
Other (identify & quantify) --- --- ---
- ------------------------------------------------------------------------------------------------------
Dollar Amount of Property Sales
and Refinancing before Deducting
Payments to Sponsor:
Cash --- --- ---
Notes --- --- ---
- ------------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Property Sales & Refinancing:
Real Estate Commissions --- --- ---
Incentive Fees --- --- ---
Other (identify & quantify) --- --- ---
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group,
Inc., Underwriter, an affiliate of the Advisor and the Managing
Underwriter 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 03/31/99. 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 Gates of Heaven
Baptist
Church
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date Offering Commenced 7/1/94 9/15/94 11/15/94
- ---------------------------------------------------------------------------------------------------
Dollar Amount Raised $ 900,000 $ 800,000 $ 3,400,000
- ---------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 53,550 $ 47,600 $ 202,300
Acquisition Fees
- real estate fees --- --- ---
- advisory fees --- --- ---
- other (type & amount) (2) $ 11,000 $ 10,000 $ 30,000
- ---------------------------------------------------------------------------------------------------
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) $ 8,269 $ 9,779 $ 21,712
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>
- ------------------------------------------------------------------------------------------------------
Windsor Village Hopewell St. Agnes
United Missionary Missionary
Methodist Church Baptist Church Baptist Church
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date Offering Commenced 1/1/95 1/15/95 3/15/95
- ------------------------------------------------------------------------------------------------------
Dollar Amount Raised $ 725,000 $ 6,350,000 $3,200,000
- ------------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 45,313 $ 377,825 $ 190,400
Acquisition Fees
- real estate fees --- --- ---
- advisory fees --- --- ---
- other (type & amount) (2) $ 7,000 $ 45,000 $ 27,000
- ------------------------------------------------------------------------------------------------------
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) $ 3,946 $ 24,556 $ 14,803
Other (identify & quantify) --- --- ---
- ------------------------------------------------------------------------------------------------------
Dollar Amount of Property Sales
and Refinancing before Deducting
Payments to Sponsor:
Cash --- --- ---
Notes --- --- ---
- ------------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Property Sales & Refinancing:
Real Estate Commissions --- --- ---
Incentive Fees --- --- ---
Other (identify & quantify) --- --- ---
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group,
Inc., Underwriter, an affiliate of the Advisor and the Managing
Underwriter 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 03/31/99. 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 Zion St. Mark's
Great Evangelistic Missionary
Commission Temple Baptist Church
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date Offering Commenced 4/1/95 4/15/95 04/01/95
- ---------------------------------------------------------------------------------------------------
Dollar Amount Raised $ 2,200,000 $4,375,000 $360,000
- ---------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 130,900 $ 260,313 $ 24,300
Acquisition Fees
- real estate fees --- --- ---
- advisory fees --- --- ---
- other (type & amount) (2) $ 25,500 $ 39,000 $ 14,500
- ---------------------------------------------------------------------------------------------------
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 Advisor Fee earned
to date (3) $ 15,089 $ 18,005 $ 2,858
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>
- ------------------------------------------------------------------------------------------------------
Emmanuel Baptist The Community Abundant Life
Church Protestant Church Church
of Christ
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date Offering Commenced 07/15/95 08/15/95 10/15/95
- ------------------------------------------------------------------------------------------------------
Dollar Amount Raised $1,655,000 $1,500,000 $1,425,000
- ------------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 98,475 $ 89,250 $ 80,888
Acquisition Fees
- real estate fees --- --- ---
- advisory fees --- --- ---
- other (type & amount) (2) $ 20,000 $ 24,000 $ 30,000
- ------------------------------------------------------------------------------------------------------
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) $ 14,457 $ 11,099 $ 10,903
Other (identify & quantify) --- --- ---
- ------------------------------------------------------------------------------------------------------
Dollar Amount of Property Sales
and Refinancing before Deducting
Payments to Sponsor:
Cash --- --- ---
Notes --- --- ---
- ------------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Property Sales & Refinancing:
Real Estate Commissions --- --- ---
Incentive Fees --- --- ---
Other (identify & quantify) --- --- ---
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group,
Inc., Underwriter, an affiliate of the Advisor and the Managing
Underwriter 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 03/31/99. 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 The Holden Chapel
Christ General Baptist
Church, Inc.
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date Offering Commenced 10/15/95 10/15/95 11/01/95
- ---------------------------------------------------------------------------------------------------
Dollar Amount Raised $500,000 $1,195,000 $500,000
- ---------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 41,500 83,650 29,750
Acquisition Fees
- real estate fees --- --- ---
- advisory fees --- --- ---
- other (type & amount) (2) $ 5,000 $ 5,000 $5,000
- ---------------------------------------------------------------------------------------------------
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) --- --- $ 1,715
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>
- ------------------------------------------------------------------------------------------------------
House of Praise Pembroke Park Faith Community
Ministries, Inc. Church Church, Inc.
of Christ, Inc.
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date Offering Commenced 10/01/95 11/15/95 12/01/95
- ------------------------------------------------------------------------------------------------------
Dollar Amount Raised $675,000 $600,000 $950,000
- ------------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 40,163 $ 35,700 $ 84,800
Acquisition Fees
- real estate fees --- --- ---
- advisory fees --- --- ---
- other (type & amount) (2) $ 20,837 $ 6,000 $ 13,000
- ------------------------------------------------------------------------------------------------------
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) $ 4,599 $ 2,091 ---
Other (identify & quantify) --- --- ---
- ------------------------------------------------------------------------------------------------------
Dollar Amount of Property Sales
and Refinancing before Deducting
Payments to Sponsor:
Cash --- --- ---
Notes --- --- ---
- ------------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Property Sales & Refinancing:
Real Estate Commissions --- --- ---
Incentive Fees --- --- ---
Other (identify & quantify) --- --- ---
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group,
Inc., Underwriter, an affiliate of the Advisor and the Managing
Underwriter 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 03/31/99. 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 Oasis Christian Centennial Star
Kirkland Center of Bethlehem
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date Offering Commenced 12/29/95 02/15/96 02/01/96
- ---------------------------------------------------------------------------------------------------
Dollar Amount Raised $2,785,000 $825,000 $1,195,000
- ---------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 192,165 $ 49,088 $ 71,103
Acquisition Fees
- real estate fees --- --- ---
- advisory fees --- --- ---
- other (type & amount) (2) $ 8,400 $ 12,000 $ 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) $ 16,624 $ 5,903 $ 6,499
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>
- ------------------------------------------------------------------------------------------------------
St. Agnes Lake Baptist Cornerstone Church
Missionary Church
Baptist Church
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date Offering Commenced 03/15/96 03/15/96 05/15/96
- ------------------------------------------------------------------------------------------------------
Dollar Amount Raised $875,000 $1,840,000 $6,600,000
- ------------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 52,063 $ 109,480 $ 412,500
Acquisition Fees
- real estate fees --- --- ---
- advisory fees --- --- ---
- other (type & amount) (2) $ 15,000 $ 12,520 $ 32,000
- ------------------------------------------------------------------------------------------------------
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) $ 13,268 $ 13,952 $ 7,079
Other (identify & quantify) --- --- ---
- ------------------------------------------------------------------------------------------------------
Dollar Amount of Property Sales
and Refinancing before Deducting
Payments to Sponsor:
Cash --- --- ---
Notes --- --- ---
- ------------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Property Sales & Refinancing:
Real Estate Commissions --- --- ---
Incentive Fees --- --- ---
Other (identify & quantify) --- --- ---
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group,
Inc., Underwriter, an affiliate of the Advisor and the Managing
Underwriter 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 03/31/99. 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 Vollintine Aloha Christian
Family Worship Baptist Church, Life Center
Ctr. Inc. Inc.
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date Offering Commenced 08/15/96 08/15/96 09/01/96
- ---------------------------------------------------------------------------------------------------
Dollar Amount Raised $2,025,000 $ 425,000 $1,380,000
- ---------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $120,488 $ 25,288 $ 84,850
Acquisition Fees
- real estate fees --- --- ---
- advisory fees --- --- ---
- other (type & amount) (2) $ 21,000 $ 8,000 $ 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) $ 10,413 $ 2,026 $ 1,887
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>
- ------------------------------------------------------------------------------------------------------
New Life Baptist Centennial Star of Cornerstone Church
Church of Bethlehem Baptist
Thurston County Church of
Ossining, New York
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date Offering Commenced 10/15/96 11/15/96 12/15/96
- ------------------------------------------------------------------------------------------------------
Dollar Amount Raised $1,300,000 $ 450,000 $4,680,000
- ------------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 77,350 $ 29,250 $278,460
Acquisition Fees
- real estate fees --- --- ---
- advisory fees --- --- ---
- other (type & amount) (2) $ 14,000 $ 13,000 $ 36,540
- ------------------------------------------------------------------------------------------------------
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) $ 6,190 $ 837 $ 22,257
Other (identify & quantify) --- --- ---
- ------------------------------------------------------------------------------------------------------
Dollar Amount of Property Sales
and Refinancing before Deducting
Payments to Sponsor:
Cash --- --- ---
Notes --- --- ---
- ------------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Property Sales & Refinancing:
Real Estate Commissions --- --- ---
Incentive Fees --- --- ---
Other (identify & quantify) --- --- ---
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group,
Inc., Underwriter, an affiliate of the Advisor and the Managing
Underwriter 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 03/31/99. 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 Spring Lake New Jerusalem
Church Church of Christ Church
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date Offering Commenced 12/15/96 02/15/97 03/15/97
- ----------------------------------------------------------------------------------------------------
Dollar Amount Raised $1,525,000 $ 600,000 $2,300,000
- ----------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 90,738 $ 52,800 $136,850
Acquisition Fees
- real estate fees --- --- ---
- advisory fees --- --- ---
- other (type & amount) (2) $ 19,000 $ 10,000 $ 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) $ 5,408 $ 2,884 $ 6,881
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>
Aloha Christian Bethany Baptist Original Holy Ark
Life Center Church Missionary
Baptist Church
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date Offering Commenced 04/01/97 04/01/97 04/15/97
- -------------------------------------------------------------------------------------------------
Dollar Amount Raised $490,000 $1,750,000 $675,000
- -------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 44,100 $104,125 $ 42,188
Acquisition Fees
- real estate fees --- --- ---
- advisory fees --- --- ---
- other (type & amount) (2) $ 7,000 $ 22,000 $ 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) $ 3,165 $ 8,328 $ 3,135
Other (identify & quantify) --- --- ---
- -----------------------------------------------------------------------------------------------
Dollar Amount of Property Sales
and Refinancing before Deducting
Payments to Sponsor:
Cash --- --- ---
Notes --- --- ---
- -----------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Property Sales & Refinancing:
Real Estate Commissions --- --- ---
Incentive Fees --- --- ---
Other (identify & quantify) --- --- ---
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group,
Inc., Underwriter, an affiliate of the Advisor and the Managing
Underwriter 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 03/31/99. These
fees remain payable for the duration for which each issuer's first
mortgage bonds are outstanding.
B-15
<PAGE>
TABLE II - COMPENSATION TO SPONSOR AND AFFILIATES (CONTINUED)
For Program Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Bethlehem Temple Centro de Teen Mania
of Rialto Capacitiacion Ministries
Cristiana
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date Offering Commenced 05/01/97 05/15/97 07/01/97
- -----------------------------------------------------------------------------------------------------
Dollar Amount Raised $ 1,200,000 $ 650,000 $2,300,000
- -----------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 75,000 $ 45,050 $ 139,150
Acquisition Fees
- real estate fees --- --- ---
- advisory fees --- --- ---
- other (type & amount) (2) $ 19,000 $ 15,250 $ 29,000
- -----------------------------------------------------------------------------------------------------
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) $ 4,620 $ 3,010 $ 9,198
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>
- --------------------------------------------------------------------------------------------------------------
Full Gospel Greater Mt. Zion Church of the
Christian Assembly Missionary Baptist Great Commission
Church
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date Offering Commenced 07/01/97 07/15/97 08/01/97
- --------------------------------------------------------------------------------------------------------------
Dollar Amount Raised $1,525,000 $1,185,000 $1,100,000
- --------------------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 95,313 $ 74,063 $ 65,450
Acquisition Fees
- real estate fees --- --- ---
- advisory fees --- --- ---
- other (type & amount) (2) $ 23,000 $ 16,500 $ 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) $ 8,206 $ 4,256 $ 3,844
Other (identify & quantify) --- --- ---
- ------------------------------------------------------------------------------------------------------------
Dollar Amount of Property Sales
and Refinancing before Deducting
Payments to Sponsor:
Cash --- --- ---
Notes --- --- ---
- ------------------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Property Sales & Refinancing:
Real Estate Commissions --- --- ---
Incentive Fees --- --- ---
Other (identify & quantify) --- --- ---
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group,
Inc., Underwriter, an affiliate of the Advisor and the Managing
Underwriter 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 03/31/99. These
fees remain payable for the duration for which each issuer's first
mortgage bonds are outstanding.
B-16
<PAGE>
TABLE II - COMPENSATION TO SPONSOR AND AFFILIATES (CONTINUED)
For Program Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
City Church Sharon Baptist New Hope Missionary
Church Baptist Church
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date Offering Commenced 09/01/97 10/15/97 10/15/97
- ----------------------------------------------------------------------------------------------------------
Dollar Amount Raised $1,563,000 $ 5,864,000 $2,300,000
- ----------------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 108,785 $ 348,908 $139,150
Acquisition Fees
- real estate fees --- --- ---
- advisory fees --- --- ---
- other (type & amount) (2) $ 10,000 $ 36,000 $ 29,000
- ----------------------------------------------------------------------------------------------------------
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) $ 5,846 $ 22,310 $ 6,708
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 Holy Way Swope Parkway The Community
Church, Inc. Church of Christ Protestant Church
of CO-OP City
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date Offering Commenced 10/15/97 11/01/97 11/15/97
- ------------------------------------------------------------------------------------------------------
Dollar Amount Raised $1,500,000 $1,200,000 $ 995,000
- ------------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 89,250 $ 96,000 $ 59,203
Acquisition Fees
- real estate fees --- --- ---
- advisory fees --- --- ---
- other (type & amount) (2) $ 21,000 $ 6,000 $ 18,000
- ------------------------------------------------------------------------------------------------------
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) $ 4,257 $ 0 $ 2,808
Other (identify & quantify) --- --- ---
- ------------------------------------------------------------------------------------------------------
Dollar Amount of Property Sales
and Refinancing before Deducting
Payments to Sponsor:
Cash --- --- ---
Notes --- --- ---
- ------------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Property Sales & Refinancing:
Real Estate Commissions --- --- ---
Incentive Fees --- --- ---
Other (identify & quantify) --- --- ---
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group,
Inc., Underwriter, an affiliate of the Advisor and the Managing
Underwriter 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 03/31/99. These
fees remain payable for the duration for which each issuer's first
mortgage bonds are outstanding.
B-17
<PAGE>
TABLE II - COMPENSATION TO SPONSOR AND AFFILIATES (CONTINUED)
For Program Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Gospel Tabernacle New York Dong New Life Baptist
Church Yang First Church
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date Offering Commenced 02/01/98 03/15/98 03/15/98
- -------------------------------------------------------------------------------------------------------------------
Dollar Amount Raised $2,871,000 $ 735,000 $ 495,000
- -------------------------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $170,825 $ 43,733 $ 29,453
Acquisition Fees
- real estate fees --- --- ---
- advisory fees --- --- ---
- other (type & amount) (2) $ 30,000 $ 10,000 $ 10,000
- -------------------------------------------------------------------------------------------------------------------
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) $ 6,396 $ 2,120 $ 1,188
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 the Spiritual Life The Lee Memoiral
Great Commission. Ministires A.M.E. Church, Inc.
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date Offering Commenced 04/01/98 05/15/98 06/01/98
- ----------------------------------------------------------------------------------------------------------------
Dollar Amount Raised $1,900,000 $1,985,000 $1,000,000
- ----------------------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $113,050 $118,108 $ 59,500
Acquisition Fees
- real estate fees --- --- ---
- advisory fees --- --- ---
- other (type & amount) (2) $ 19,000 $ 15,000 $ 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 Advisor Fee earned
to date (3) $ 5,320 $ 2,832 $ 1,890
Other (identify & quantify) --- --- ---
- ----------------------------------------------------------------------------------------------------------------
Dollar Amount of Property Sales
and Refinancing before Deducting
Payments to Sponsor:
Cash --- --- ---
Notes --- --- ---
- ----------------------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Property Sales & Refinancing:
Real Estate Commissions --- --- ---
Incentive Fees --- --- ---
Other (identify & quantify) --- --- ---
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group,
Inc., Underwriter, an affiliate of the Advisor and the Managing
Underwriter 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 03/31/99. These
fees remain payable for the duration for which each issuer's first
mortgage bonds are outstanding.
B-18
<PAGE>
TABLE II - COMPENSATION TO SPONSOR AND AFFILIATES (CONTINUED)
For Program Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Harvest Community New Vision Full United Baptist
Church Gospel Baptist Church
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date Offering Commenced 06/01/98 07/15/98 07/15/98
- ---------------------------------------------------------------------------------------------------------------
Dollar Amount Raised $2,400,000 $1,125,000 $ 755,000
- ---------------------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 117,120 $ 66,938 $ 44,923
Acquisition Fees
- real estate fees --- --- ---
- advisory fees --- --- ---
- other (type & amount) (2) $ 5,000 $ 11,000 $ 11,000
- ---------------------------------------------------------------------------------------------------------------
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) $ 270 $2,074 $ 1,359
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>
- -------------------------------------------------------------------------------------------------------------
Raleigh Christian Teen Mania Linconia Tabernacle
Community Ministries Christian Center
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date Offering Commenced 08/01/98 09/15/98 08/15/98
- -------------------------------------------------------------------------------------------------------------
Dollar Amount Raised $3,420,000 $1,650,000 $1,100,000
- -------------------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $196,650 $ 99,825 $ 65,450
Acquisition Fees
- real estate fees --- --- ---
- advisory fees --- --- ---
- other (type & amount) (2) $ 19,000 $ 17,000 $ 13,000
- -------------------------------------------------------------------------------------------------------------
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) $ 1,980 $ 1,980 $ 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) --- --- ---
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group,
Inc., Underwriter, an affiliate of the Advisor and the Managing
Underwriter 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 03/31/99. These
fees remain payable for the duration for which each issuer's first
mortgage bonds are outstanding.
B-19
<PAGE>
TABLE II - COMPENSATION TO SPONSOR AND AFFILIATES (CONTINUED)
For Program Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
New Generation Sharon Baptist Full Gospel
Ministries Church of Pentecostal Church
Philadelphia
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date Offering Commenced 09/15/98 10/15/98 10/15/98
- ---------------------------------------------------------------------------------------------------------------
Dollar Amount Raised $1,285,000 $1,325,000 $2,670,000
- ---------------------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 76,458 $ 78,838 $210,930
Acquisition Fees
- real estate fees --- --- ---
- advisory fees --- --- ---
- other (type & amount) (2) $ 14,000 $ 12,000 $ 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) $ 0 $793 $ 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 St. Agnes Greater Open Door
of Bethlehem Missionary Baptist Church of God in
Church Church Christ
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date Offering Commenced 11/15/98 12/15/98 11/01/98
- --------------------------------------------------------------------------------------------------------------------
Dollar Amount Raised $1,845,000 $4,575,000 $ 900,000
- --------------------------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $109,778 $ 272,213 $ 53,350
Acquisition Fees
- real estate fees --- --- ---
- advisory fees --- --- ---
- other (type & amount) (2) $ 19,000 $ 29,000 $ 10,000
- --------------------------------------------------------------------------------------------------------------------
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 $3,495 $ 539
Other (identify & quantify) --- --- ---
- --------------------------------------------------------------------------------------------------------------------
Dollar Amount of Property Sales
and Refinancing before Deducting
Payments to Sponsor:
Cash --- --- ---
Notes --- --- ---
- --------------------------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Property Sales & Refinancing:
Real Estate Commissions --- --- ---
Incentive Fees --- --- ---
Other (identify & quantify) --- --- ---
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group,
Inc., Underwriter, an affiliate of the Advisor and the Managing
Underwriter 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 03/31/99. These
fees remain payable for the duration for which each issuer's first
mortgage bonds are outstanding.
B-20
<PAGE>
TABLE II - COMPENSATION TO SPONSOR AND AFFILIATES (CONTINUED)
For Program Offerings Concluded Since January 1991
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Southern Spiritual Life St. Agnes
California Word Ministries Missionary
of Faith Baptist Church
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date Offering Commenced 02/01/99 02/15/99 03/15/99
- ------------------------------------------------------------------------------------------------------
Dollar Amount Raised $5,275,000 $ 255,000 $5,350,000
- ------------------------------------------------------------------------------------------------------
Amount Paid to Sponsor from
Proceeds of Offering:
Underwriting Fees (1) $ 313,863 $ 15,173 $ 318,325
Acquisition Fees
- real estate fees --- --- ---
- advisory fees --- --- ---
- other (type & amount) (2) $ 37,000 $ 6,000 $ 34,000
- ------------------------------------------------------------------------------------------------------
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) $ 2,440 $ 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)
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents Broker-Dealer discounts paid to American Investors Group,
Inc., Underwriter, an affiliate of the Advisor and the Managing
Underwriter 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 03/31/99. These
fees remain payable for the duration for which each issuer's first
mortgage bonds are outstanding.
B-21
<PAGE>
TABLE II B
LOCATION OF PRIOR MORTGAGE LOANS TO CHURCHES
MADE BY AFFILIATE* OF ADVISOR
1987 to March 31, 1999
<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 2 $ 1,600,000 0.72%
California 11 21,215,000 9.54%
Colorado 3 2,820,000 1.27%
Connecticut 1 1,655,000 0.74%
District of Columbia 4 5,510,000 2.48%
Florida 6 6,860,000 3.09%
Georgia 5 12,770,000 5.74%
Illinois 7 6,680,000 3.00%
Indiana 1 1,195,000 0.54%
Kansas 1 475,000 0.21%
Maryland 6 8,390,000 3.77%
Massachusetts 1 500,000 0.22%
Michigan 2 6,675,000 3.00%
Minnesota 6 7,605,000 3.42%
Missouri 1 1,200,000 0.54%
New Jersey 9 9,315,000 4.19%
New York 17 15,090,000 6.79%
North Carolina 4 6,897,000 3.10%
Ohio 2 2,225,000 1.00%
Oklahoma 2 1,470,000 0.66%
Oregon 8 11,695,000 5.26%
Pennsylvania 6 12,745,000 5.73%
Tennessee 8 7,440,000 3.35%
Texas 22 53,765,000 24.19%
Virginia 4 5,271,000 2.37%
Washington 8 11,240,000 5.06%
----- ------------- -----
147 $ 222,303,000 100.00%
</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.
<PAGE>
TABLE III
MORTGAGE BOND FINANCINGS BY MANAGING UNDERWRITER
The purpose of this summary is to provide information on the prior
performance of the first mortgage church financing programs underwritten by
American Investors Group, Inc., so as to provide a basis to evaluate the
experience of the Advisor's affiliate -- American, which is owned and
controlled by the principals of the Advisor. Notwithstanding the foregoing,
although many of the financing guidelines and principles applicable to the
Company's investment and business plan are applied in American's bond
underwriting procedures, there can be no assurance that the results of
financings underwritten by American, or the yields represented thereby, can
or will be achieved by the Company, and the data herein is presented for
information purposes only.
MATERIAL FACTORS COMMON TO ALL OF THE CHURCH BOND FINANCING PROJECTS LISTED
BELOW INCLUDE:
> Secured by first mortgages with loan-to-value ratios of 75% or
less, based on written appraisals issued by a Member of the
Appraisal Institute ("MAI") or a state-certified appraiser.
> Fixed interest rate loans with level or limited graduated payments.
> ALTA or equivalent mortgagee title insurance policy required.
> Borrower's total long-term debt (including the financing) limited
to a multiple of four (4) times gross income for its most recent
12 months.
> Borrower required to furnish audited financial statements for its
most recent complete fiscal year, and reviewed or compiled financial
statements for the two complete fiscal years prior to the most
recent and, on a comparative basis, for the current period within
90 days of the financing date.
> A security interest in all personal property of the borrower
is required.
> Key-man life insurance and automatic weekly loan payments
are required.
<TABLE>
<CAPTION>
Ratio of
High Bond (2) Mortgage Debt
Date Principal Loan-to- Yield/Last Average to Annual Term
Financing Amount of Value Maturity Interest Payment Support & in
Issuer Name Effective Financing Ratio (1) Date Rate (3) Status Revenue (4) Years
- ------------------------------------- ---------- ---------- ---------- ------------- -------- ----------- ---------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. Deeper Life Christian
Fellowship, Inc. 5/87 $1,038,000 51% 11.00%/May 2002 10.63% Current 1.13 15 yrs
2. Isrealite Church of God in
Christ, Inc. 5/87 460,000 71% 11.25%/May 1998 11.00% Repaid 2.13 15 yrs
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% Restructured 3.13 13 yrs
6. Windsor Village United
Methodist 4/88 1,570,000 75% 12.2%/Apr 2000 12.00% Repaid 1.78 12 yrs
7. Deeper Life Christian
Fellowship, Inc. 6/88 332,000 67% 11.0%/Nov 1996 10.80% Repaid 1.85 11 yrs
8. Macedonia Missionary
Baptist Church 9/88 750,000 71% 12.25%/Sept 2003 12.15% Repaid 2.85 15 yrs
9. St. Agnes Missionary
Baptist Church 9/88 900,000 58% 12.25%/Sept 2002 12.15% Repaid 2.45 14 yrs
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
</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.
<PAGE>
<TABLE>
<CAPTION>
Ratio of
High Bond (2) Mortgage Debt
Date Principal Loan-to- Yield/Last Average to Annual Term
Financing Amount of Value Maturity Interest Payment Support & in
Issuer Name Effective Financing Ratio (1) Date Rate (3) Status Revenue (4) Years
- ------------------------------------- ---------- ---------- ---------- ------------- -------- ----------- ---------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12. Faith Outreach International
d/b/a Christian Faith Centre 4/89 1,720,000 75% 12.40%/Apr 2004 12.25% Repaid 1.52 15 yrs
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
Church 9/89 390,000 71% 12.50%/Sept 2004 12.25% Repaid 3.45 15 yrs
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
Baptist Church 6/90 1,100,000 63% 12.40%/June 2005 12.30% Repaid 3.10 15 yrs
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
Church 1/91 3,700,000 64% 12.30%/Jan 2006 11.90% Repaid 4.08 15 yrs
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
30. Lake Baptist Church 8/91 1,800,000 51% 12.00%/Aug 2006 11.80% Repaid 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. Church 11/91 1,860,000 53% 12.00%/Nov 2006 11.80% Current 2.83 15 yrs
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
Church 2/92 1,195,000 75% 11.20%/Feb 2007 11.00% Current 3.37 15 yrs
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% Repaid 2.89 15 yrs
41. Bible Missionary Baptist
Church-Miami 5/92 1,300,000 62% 11.00%/May 2007 10.50% Current 2.55 15 yrs
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
of Nashville 8/92 380,000 65% 11.20%/Feb 2008 11.50% Repaid 3.00 15 yrs
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% Repaid 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
</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.
<PAGE>
<TABLE>
<CAPTION> Ratio of
High Bond (2) Mortgage Debt
Date Principal Loan-to- Yield/Last Average to Annual Term
Financing Amount of Value Maturity Interest Payment Support & in
Issuer Name Effective Financing Ratio (1) Date Rate (3) Status Revenue (4) Years
- ------------------------------------- ---------- ---------- ---------- ------------- -------- ----------- ---------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50. Christian Love Baptist Church 11/92 500,000 44% 10.30%/Nov 2007 9.80% Current 1.02 15 yrs
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% Repaid 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
Church of Christ 2/93 1,600,000 46% 10.30%/Feb 2008 9.80% Current 3.28 15 yrs
55. Mt. Zion Christian Baptist
Church 1/93 750,000 59% 10.30%/Jan 2008 9.80% Current 3.30 15 yrs
56. Lake Baptist Church 2/93 365,000 60% 10.00%/Aug 2007 10.00% Repaid 2.66 14.5 yrs
57. St. Mark's Missionary
Baptist Church 2/93 1,500,000 67% 10.30%/Feb 2008 9.90% Current 2.90 15 yrs
58. Friendship Missionary
Baptist Church 4/93 700,000 48% 10.00%/Apr 2008 9.90% Current 1.77 15 yrs
59. Christian Faith Centre 5/93 1,765,000 66% 10.00%/May 2008 9.50% Repaid 1.86 15 yrs
60. Raleigh Christian Community 6/93 1,452,000 70% 10.00%/June 2008 9.50% Repaid 1.19 15 yrs
61. Porter's Day Care and
Educational Ctr. 5/93 350,000 51% 10.00%/May 2008 9.80% Current .65 15 yrs
62. Outreach Christian Center 5/93 575,000 46% 10.00%/May 2008 9.60% Repaid 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% Default 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% Repaid 2.25 15 yrs
67. Windsor Village United Methodist 9/93 3,100,000 37% 9.65%/Sept 2008 9.25% Repaid 1.03 15 yrs
68. First Baptist Church of Hampton 10/93 2,600,000 55% 9.70%/Oct 2008 9.35% Repaid 2.86 15 yrs
69. Peaceful Zion Missionary Baptist 10/93 750,000 59% 9.70%/Oct 2008 9.65% Current 2.72 15 yrs
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 Assembly 12/93 2,600,000 45% 9.50%/Dec 2008 9.20% Current 1.75 15 yrs
72. New Life Christian Ministry 2/94 2,000,000 70% 9.75%/Feb 2001 29.45% Current 2.60 18 yrs
73. Calvary Temple of Allentown 2/94 1,950,000 41% 10.00%/Dec 2001 49.50% Repaid 2.34 20 yrs
74. First Baptist Church of Hampton 4/94 740,000 54% 9.55%/Oct 2010 9.50% Repaid 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% Repaid 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
Baptist Church 9/94 800,000 57% 9.80%/Sept 2014 9.60% Current 1.45 20 yrs
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
Church 1/95 6,350,000 68% 10.20%/Jan 2015 9.90% Repaid 4.00 20 yrs
83. Windsor Village United Methodist 1/95 725,000 58% 10.00%/Sept 2010 10.00% Repaid 1.14 15.5 yrs
84. St. Agnes Missionary Baptist
Church 3/95 3,200,000 59% 10.20%/Mar 2015 10.00% Repaid 2.22 20 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.
<PAGE>
<TABLE>
<CAPTION> Ratio of
High Bond (2) Mortgage Debt
Date Principal Loan-to- Yield/Last Average to Annual Term
Financing Amount of Value Maturity Interest Payment Support & in
Issuer Name Effective Financing Ratio (1) Date Rate (3) Status Revenue (4) Years
- ------------------------------------- ---------- ---------- ---------- ------------- -------- ----------- ---------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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% Repaid 2.40 20 yrs
87. St. Mark's Missionary
Baptist Church 4/95 360,000 72% 10.20%/Feb 2010 10.20% Repaid 2.04 15 yrs
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 Baptist
Church 10/95 1,195,000 55% 9.90%/Oct 2010 9.50% Current 1.41 15 yrs
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 Bethlehem
Church 02/96 1,195,000 52% 10.20%/Feb 2016 9.75% Repaid 3.28 20 yrs
100. St. Agnes Missionary Baptist
Church 03/96 875,000 67% 10.20%/Mar 2016 10.05% Repaid 2.82 20 yrs
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 Worship
Ctr, Inc. 08/96 2,025,000 70% 10.20%/Aug 2016 9.85% Current 2.68 20 yrs
104. Vollintine Baptist Church, Inc. 08/96 425,000 65% 10.35%/Aug 2016 9.85% Current 1.68 20 yrs
105. Aloha Christian Life Center 09/96 1,380,000 48% 10.20%/Sept 2016 9.85% Repaid 3.30 20 yrs
106. New Life Baptist Church of
Thurston Cty 10/96 1,300,000 59% 10.20%/Oct 2016 9.85% Current 3.58 20 yrs
107. Centennial Star of Bethlehem
Baptist 11/96 450,000 59% 10.30%/Nov 2016 9.85% Current 3.59 20 yrs
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% Default 2.69 20 yrs
112. Aloha Christian Life Center 04/97 490,000 52% 10.20%/Apr 2017 9.90% Repaid 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
114. Original Holy Ark Missionary
Baptist Church 04/97 675,000 52% 10.10%/Apr 2017 9.84% Current 1.26 20 yrs
115. Bethlehem Temple Community
Church of Rialto 05/97 1,200,000 51% 10.10%/May 2017 9.84% Current 1.05 20 yrs
116. Centro de Capacitiacion
Christiana 05/97 650,000 65% 10.10%/Jun 2017 9.80% Current 1.98 20 yrs
117. Teen Mania Ministries, Inc. 07/97 2,300,000 65% 10.10%/July 2017 9.81% Current 4.34 20 yrs
118. Full Gospel Christian Assembly 07/97 1,525,000 71% 10.10%/July 2017 9.84% Current 1.48 20 yrs
119. Greater Mt. Zion Missionary
Baptist Church 07/97 1,185,000 75% 10.10%/July 2017 9.84% Current 1.75 20 yrs
120. Church of the Great Commission 08/97 1,100,000 55% 10.10%/July 2017 9.94% Current 1.06 20 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.
<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> <C>
121. City Church 09/97 1,600,000 48% 10.10%/Sept. 2017 9.81% Current 1.04 20 yrs
122. Sharon
Baptist 10/97 6,200,000 61% 10.10%/Oct. 2017 9.81% Current 1.19 20 yrs
123. New Hope
Missionary
Baptist
Church 10/97 2,300,000 53% 10.10%/Oct. 2017 9.79% Current 1.07 20 yrs
124. The Holy
Way Church,
Inc. 10/97 1,500,000 68% 10.10%/Oct 2017 9.80% Current 1.49 20 yrs
125. Swope Parkway
Church of
Christ 11/97 1,200,000 63% 10.10%/Nov 2017 9.78% Current 1.14 20 yrs
126. The Community
Protestant
Church Co-op
City 11/97 1,000,000 60% 10.10%/Nov 2017 9.94% Current 1.03 20 yrs
127. Gospel
Tabernacle
Church 02/98 3,550,000 59% 10.10%/Feb. 2018 9.78% Current 1.63 20 yrs
128. New York Dong
Yang First
Church 03/98 735,000 53% 10.00%/Mar. 2018 9.73% Current 2.02 20 yrs
129. New Life
Baptist 03/98 495,000 75% 10.10%/Mar. 2018 10.01% Current 1.28 20 yrs
130. Church of
the Great
Commission 04/98 1,900,000 60% 10.10%/Apr. 2018 9.84% Current 1.09 20 yrs
131. Spiritual
Life
Ministries,
Inc. 05/98 1,985,000 75% 9.85%/May 2013 9.68% Current 1.88 15 yrs
132. The Lee
Memorial
A.M.E.
Church, Inc. 06/98 1,000,000 63% 9.80%/Jun 2013 9.64% Current 2.00 15 yrs
133. Harvest
Community
Church 06/98 2,400,000 72% 10.00%/Jun 2018 9.52% Current 2.32 20 yrs
134. New Vision
Full Gospel
Baptist Church,
Inc. 07/98 1,125,000 70% 9.95%/Jul 2018 9.67% Current 1.39 20 yrs
135. United Baptist
Church 07/98 755,000 68% 9.95%/Jul 2018 9.95% Current 1.14 20 yrs
136. Raleigh
Christian
Community,
Inc. 08/98 3,420,000 75% 9.85%/Aug 2018 9.57% Current 1.09 20 yrs
137. Teen Mania
Ministries,
Inc. 09/98 1,650,000 67% 9.75%/Sept 2018 9.52% Current 5.43 20 yrs
</TABLE>
C-6
<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> <C>
138. Linconia
Tabernacle
Christian
Center 08/98 1,100,000 67% 9.80%/Aug 2018 9.51% Current 1.18 20 yrs
139. New Generation
Ministries,
Inc. 09/98 1,285,000 68% 9.70%/Sept 2018 9.41% Current 1.23 20 yrs
140. Sharon Bapitst
Church of
Philadelphia,
Inc. 10/98 1,325,000 74% 9.65%/Oct 2018 9.52% Current 1.13 20 yrs
141. Full Gospel
Pentecostal
Church 10/98 2,670,000 68% 9.70%/Oct 2018 9.38% Current 1.30 20 yrs
142. Centennial
Star of
Bethlehem
Church 11/98 1,845,000 64% 9.35%/Nov 2018 9.14% Current 2.62 20 yrs
143. St. Agnes
Missionary
Baptist
Church 12/98 4,575,000 75% 9.30%/Dec 2018 9.12% Current 3.96 20 yrs
144. Greater Open
Door Church
of God
in Christ 11/98 900,000 75% 9.80%/Nov 2018 9.54% Current 1.56 20 yrs
145. Southern
California
Word of
Faith 02/99 5,275,000 60% 9.25%/Feb 2019 9.08% Current 1.88 20 yrs
146. Spiritual
Life
Ministries 02/99 255,000 71% 9.50%/Feb 2014 9.50% Current 1.66 15 yrs
147. St. Agnes
Missionary
Baptist
Church 03/99 5,350,000 75% 9.20%/Mar 2019 9.02% Current 1.96 20 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.
C-6
<PAGE>
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 $1.2
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 enforce 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 completed on behalf of the bondholders and the
bond trustee listed the real estate and improvements for sale on behalf and
for the benefit of the bondholders. A sales agreement has been entered into
whereby the church property is to be sold for $500,000 the net proceeds of
which is to be distributed to bondholders.
In June 1993, American, including the principals of the Advisor,
underwrote the offering of $700,000 principal amount of first mortgage bonds
issued by Faith Southwest Baptist Church, Houston, Texas ("Faith"). In June
1997, Faith failed to make its quarterly interest and principal payment to
bondholders. Based on information currently available through counsel and the
bond trustee, Faith ceased making sinking fund payments in the spring of
1997. As of June 1, 1998 Faith has re-commenced its sinking fund payments and
is in the process of negotiating with the bond trustee and its legal counsel
to abate the trustee's foreclosure action provided that Faith remains current
on its sinking fund payments, and supplements each payment by an amount
scheduled to recover the current interest arrearage of approximately $87,000
over a four-year period. There can be no assurance that such a definitive
agreement between Faith and the bond trustee will be reached, and, if
reached, that Faith will be able to make all such scheduled payments. In such
event, the bond trustee expects to proceed with its foreclosure action and
sell the church property for the benefit of bondholders.
In March 1997, American, including the principals of the Advisor,
underwrote the offering of $2,300,000 principal amount of first mortgage
bonds issued by New Jerusalem Church, Lansing Michigan (" New Jerusalem"). In
March 1999, New Jerusalem failed to make its quarterly interest and principal
payment to bondholders. Based on information currently available through
counsel and the bond trustee, New Jerusalem has represented its inability to
meet its obligation due to cash flow problems caused by an excess of expenses
of tithes and offerings, and by periodic reductions in support and revenues.
The Church is optimistic that it can overcome this problem once it opens its
new "Charter School" in September 1999, for which the Lansing School District
and/or State of Michigan will compensate the Church at a projected annual
rate of $6,600 per student. The Church maintains that it can attract close to
its authorized maximum of 300 students to the Charter School, which will then
be operated by an independent school management company. The Church projects
that its net income will range from $150,000 to $350,000 per year thorough
the Charter School revenue. In addition, the Church will make weekly payments
of $4,000 rather than their current $5,300 and continue these payments
uninterrupted until September 15, 1999, when the Charter School is scheduled
to be operating and generating cash flow to the Church. Commencing the week
of September 15th, 1999 the Church's weekly payment will be elevated back to
$5,300 per week, and adjusted incrementally upward thereafter at six-month
intervals until all missed interest is recovered by the trustee and paid back
to the bondholders. There can be no assurance that this effort to mitigate
the Church's cash flow problem until the Charter School is opened will be
successful. If the Church does not make its adjusted payments, the Trustee
will then initiate foreclosure or take whatever other appropriate measures
are necessary to protect bondholder's investment.
In October 1997, American, including the principals of the Advisor,
underwrote the offering of $1,500,000 principal amount of first mortgage
bonds issued by The Holy Way Church, Inc. ("Holy Way"). In March 1999, the
trustee notified the bondholders that Holy Way had failed to make their
required weekly sinking fund (mortgage) payments since January 28, 1999 and
under the terms of the trust indenture an "Event of Default" existed and the
trustee intends to take appropriate actions to protect the interest of
bondholders. The bonds were issued to provide funds for Holy Way to acquire
two parcels of real estate, the first ("Parcel A") for the sum of $400,000
and the second ("Parcel B") for the sum of $1,000,000. Parcel A was acquired
by the Church shortly after the bonds were issued. The Church has not
completed the purchase of Parcel B and the trustee was holding approximately
$1,000,000 of bond and other proceeds earmarked originally for the purchase
of Parcel B, together with interest earnings on these proceeds. The trustee
has exercised its rights under the trust indenture to apply these funds to
the Church's obligations under the indenture. On April 15, 1999 the trustee
returned 64.75% of the principal amount outstanding to each bondholder along
with interest entitled to each bondholder through this date. An "Event of
Default" still exists and the trustee will initiate foreclosure or take
whatever other appropriate measures are necessary to protect the remaining
bondholder's investment.
The Company makes no representations as to the status of first
mortgage bond offerings underwritten by American after the date of this
prospectus. The status of first mortgage bond offerings may change during
this Offering and the Company will not undertake to amend & supplement this
Prospectus to reflect any such changes.
C-7
<PAGE>
EXHIBIT A
[logo of American Church Mortgage Company]
American Church Mortgage Company
Subscription Agreement
Amount $ _________________________ Number of Shares__________________
Dividend Reinvestment Option ______ yes ______ no
<TABLE>
<S> <C>
OWNERSHIP Name(s)_______________________________________________________________________________
REGISTRATION: (investor(s) names)
Address_______________________________________________________________________________
City__________________________________________State______________Zip__________________
Social Security # _____-_____-______ or Tax I.D.# _____-________ Date(s) of Birth __/__/__
_____-_____-______ __/__/__
Under penalties of perjury, the undersigned certifies (1) that the number shown as his taxpayer identification number is his
correct taxpayer identification number and (2) that he is not subject to back up withholding either because he has not been
notified that he is subject to backup withholding as a result of a failure to report all interest and dividends or because the
Internal Revenue Service has notified him that he is no longer subject to backup withholding.
- -------------------------------------------------------------------------------------------------------------------------------
MAILING ADDRESS Name(s)_______________________________________________________________________________
FOR CORRES-
PONDENCE AND CASH Address_______________________________________________________________________________
DISTRIBUTIONS:
(If different
from above) City____________________________________State______________Zip________________________
- -------------------------------------------------------------------------------------------------------------------------------
TITLE TO ___Individual ___Tenants in Common ___IRA ___Partnership
BE HELD: ___Joint Tenants/Rights ___Corporation ___Trust ___Pension Plan
of Survivorship ___Transfer on Death (TOD) ___Custodian ___Profit Sharing
- -------------------------------------------------------------------------------------------------------------------------------
SIGNATURES: The undersigned hereby represents and warrants that:
(i) he/she is or will be in a financial position appropriate to enable him/her to realize, to a significant
extent, the benefits discussed in the Prospectus;
(ii) he/she has a fair market net worth sufficient to sustain the risks inherent in the Shares, including loss
of investment and lack of liquidity;
(iii) the Shares are otherwise suitable for the above-named investor based on the factors set forth in the
Prospectus; and
(iv) a copy of the Prospectus, as amended and/or supplemented to date, has been delivered to me, and I
acknowledge that such Prospectus was received.
Executed this ______day of ______________, 199_____ at _______________________________(city)_______________(state)
Signature (investor's, otherwise Trustee of IRA, Pension Plan, etc.)______________________________________________
Additional Signature (if joint tenant)____________________________________________________________________________
- ---------------------------------------------------------------------------------------------------------------------------------
On the basis of the foregoing representations and warranties, the Soliciting Dealer believes that the Shares are suitable
for the above-named investor(s) and we have informed the investor(s) of the illiquidity of the Shares, and the investor(s)
has a fair market net worth sufficient to sustain the risks inherent in the Shares.
SOLICITING Firm____________________________________________________________________________________________________
DEALER
ENDORSEMENT: Registered Representative_________________________________ Phone________________________________________
Address_________________________________________________________________________________________________
Dealer Authorized Signature_____________________________________________________________________________
NOTE: CHECKS TO BE MADE PAYABLE TO: AMERICAN INVESTORS GROUP, INC., 10237 Yellow Circle Drive, Minnetonka, MN 55343
- ---------------------------------------------------------------------------------------------------------------------------------
Accepted by: AMERICAN CHURCH MORTGAGE CORPORATION
By: CHURCH LOAN ADVISORS, INC. Date
------------------------------------------------------------------------------------------------------
(Advisor) (Officer)
WHITE - ISSUER YELLOW - INVESTOR PINK - BROKER-DEALER GOLD - BROKER
</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.
Note: The Underwriters will forward to the Company subscription agreements and
checks by noon the next business day following receipt thereof in compliance
with SEC Rule 15c2-4. Subscriptions may be rejected for any reason. If a
subscription is rejected, the Company will promptly refund to the investor the
consideration paid for the Shares without deduction or interest. Subscriptions
will be accepted or rejected within four (4) business days. If a subscription
is accepted, a confirmation will be mailed within two weeks of acceptance of the
investor as a Shareholder.
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. 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. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY
ANY SECURITIES IN ANY CIRCUMSTANCES OR IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS UNLAWFUL. THE INFORMATION IN THIS PROSPECTUS IS
CORRECT AS OF THE DATE OF THE PROSPECTUS. THE STATUS OF THE COMPANY MAY HAVE
CHANGED AFTER THAT DATE. NEITHER THE COMPANY NOR THE UNDERWRITER HAVE AN
OBLIGATION TO UPDATE THE INFORMATION IN THIS PROSPECTUS.
-----------------------
TABLE OF CONTENTS
<S> <C>
PROSPECTUS SUMMARY............................... 4
RISK FACTORS..................................... 9
WHO MAY INVEST................................... 13
USE OF PROCEEDS.................................. 14
COMPENSATION TO ADVISOR AND
AFFILIATES..................................... 15
CONFLICTS OF INTEREST............................ 17
DISTRIBUTIONS.................................... 18
CAPITALIZATION................................... 20
SELECTED FINANCIAL DATA.......................... 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULT OF
OPERATIONS..................................... 22
BUSINESS OF THE COMPANY.......................... 24
MANAGEMENT....................................... 34
SECURITY OWNERSHIP OF MANAGEMENT
AND OTHERS..................................... 37
CERTAIN RELATIONSHIPS AND
TRANSACTIONS................................... 38
THE ADVISORY AND THE ADVISORY
AGREEMENT...................................... 39
FEDERAL INCOME TAX CONSEQUENCES.................. 41
ERISA CONSEQUENCES............................... 46
DESCRIPTION OF CAPITAL STOCK..................... 47
SUMMARY OF THE ORGANIZATIONAL
DOCUMENTS...................................... 49
PLAN OF DISTRIBUTION............................. 52
COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES................. 54
LEGAL MATTERS.................................... 54
EXPERTS.......................................... 54
REPORTS TO SHAREHOLDERS, AND RIGHTS
OF EXAMINATION................................. 55
ADDITIONAL INFORMATION........................... 56
GLOSSARY......................................... 56
FINANCIAL STATEMENTS............................. F-1
APPENDIX I....................................... A-1
EXHIBIT A -- SUBSCRIPTION AGREEMENT..............
EXHIBIT B -- SUITABILITY CERTIFICATE.............
</TABLE>
-----------------------------
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS
UNTIL 45 DAYS AFTER COMPLETION OF THIS OFFERING. 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
- -------------------------------------------------------------------------------
[Logo]
- -------------------------------------------------------------------------------
AMERICAN CHURCH
MORTGAGE COMPANY
Common Stock
------------------------
PROSPECTUS
------------------------
AMERICAN INVESTORS GROUP, INC.
July ___, 1999
---------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<S> <C>
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
**Underwriter's Expense Allowance............................................. 133,000
*Legal Fees and Expenses...................................................... 12,850
*Accounting Fees and Expenses................................................. 6,000
*Miscellaneous................................................................ 10,000
---------
Total............................................................. $ 203,000
=========
- ----------------------------------------
</TABLE>
* The amount has been estimated.
** Assumes all Shares are sold. The Company has agreed to pay the
non-accountable expense allowance 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.
ITEM 34. 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 indemnity, or (b) such claims have been
dismissed with prejudice on the merits by a court of competent jurisdiction
as to the particular indemnity, or (c) a court of competent jurisdiction
approves a settlement or the claims against a particular indemnity 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
4
<PAGE>
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.
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
1.0 hereto provides for the indemnification by the Underwriter 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 36. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS
Audited Financial Statement:
Report of Independent Auditors
Balance Sheet at March 31, 1998 and 1999 (unaudited)
Balance Sheet at December 31, 1995, 1996, 1997 and 1998
Statements of Operations for the Years Ended
December 31, 1995, 1996, 1997 and 1998 and for the Three
Months Ended March 31, 1998 and 1999 (unaudited)
Statement of Stockholders' Equity for the Years Ended December 31,
1995, 1996, 1997 and 1998 and for the Three Months Ended March
31, 1999 (unaudited)
Statements of Cash Flows for the Years Ended December 31, 1995,
1996, 1997 and 1998 and for the Three Months Ended March 31,
1998 and 1999 (unaudited)
SCHEDULES
None
5
<PAGE>
<TABLE>
<CAPTION>
(b) EXHIBITS
Exhibit
Number Title Method of Filing
- ------ ----- ----------------
<S> <C> <C>
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 Supplement and Amendment to Advisory Agreement Between the
Company and Church Loan Advisors, Inc.................................... **
10.2 Amendment No. 1 to Amended Advisory Agreement between the Company
and Church Loan Advisors, Inc............................................ filed herewith
10.3 Dividend Reinvestment Plan of the Company................................ filed herewith
10.4 Stock Option Plan for Directors and Advisor (includes form of
Stock Option Agreement Exhibit "A")...................................... filed herewith
10.5 Gemisys Corporation Agreement to act as Transfer Agent, Registrar
and Dividend Reinvestment Agent.......................................... filed herewith
23 Consent of Auditor....................................................... filed herewith
23.2 Consent of Counsel....................................................... filed herewith***
24 Power of Attorney........................................................ filed herewith****
</TABLE>
- --------------------------------------
* Incorporated by reference to the Registrant's filing on Form 8-A dated
April 30, 1999.
** Incorporated by reference to the Registrant's filing on Form S-11/A
dated August 18, 1997 for Registration Number 333-27601.
*** Included within Exhibit 5.
**** Included within signature page.
ITEM 37. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the
Underwriter at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required
by the Underwriter to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to directors, officers
and controlling persons of the Registrant, the Registrant has been advised
that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in such Act and is,
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 person of the
Registrant in the successful defense of any action suite or proceeding) is
asserted by such director, officer of controlling person in
6
<PAGE>
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 question whether
such indemnification by it is against public policy as expressed in such Act
and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby further undertakes:
(1) To remove from registration by means of a post-effective amendment
any of the securities being registered for sale to the public pursuant to the
Prospectus (part I) which remain unsold at the termination of the offering.
(2) That all post-effective amendments will comply with the applicable
forms, rules and regulations of the Securities and Exchange Commission in effect
at the time such post-effective amendments are filed.
(3) To send to each shareholder at least on an annual basis a detailed
statement of all transactions with the Advisor or its affiliates, and of fees,
commissions, compensation and other benefits paid, or accrued to the Advisor or
its affiliates for the fiscal year completed, showing the amount paid or accrued
to each recipient and the services performed.
(4) To file a sticker supplement pursuant to Rule 424(c) under the
Securities Act of 1933, during the distribution period describing each property
involving the use of 10% or more (on a cumulative basis) of the total assets of
the Registrant, and which has not been identified in the Prospectus, and to
consolidate all such stickers into a post-effective amendment filed at least
once every three months, with the information contained in such amendment
provided simultaneously to the shareholders. Each sticker supplement shall
disclose all compensation and fees received by the Advisor and/or its affiliates
in connection with any such acquisition. The post-effective amendment shall
include audited financial statements meeting the requirements of Rule 3-14
Regulation S-X for such properties acquired during the distribution period.
(5) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement: (i) to include any
prospectus required by 10(a)(3) of the Securities Act of 1933; (ii) to reflect
in the prospectus any fact or events arising after the effective date of the
registration statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement; and (iii) to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any liability under the Securities
Act of 1933, each such post- effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bond
fide offering thereof.
(6) The Registrant undertakes to provide to the shareholders the
financial statements required by Form 10-K for each full fiscal year of the
Registrant's operations.
(7) That, for the purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of a registration statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to
be part of the registration statement as of the time it was declared effective.
(8) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at the time
shall be deemed to be the initial bona fide offering thereof.
The Registrant also undertakes to file, after the end of the distribution
period, a current report on Form 8-K containing the financial statements and any
additional information required by Rule 3-14 of Regulation S-X, to reflect each
commitment (i.e., the signing of a binding purchase agreement) made after the
end of the distribution period involving the use of 10% of more (on a cumulative
basis) of the net proceeds of the offering and to provide the information
contained in such report to the shareholders at least once each quarter after
the distribution period of the offering has ended.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 the Registrant
hereby certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-11 and has duly caused this Registration
7
<PAGE>
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Minneapolis, State of Minnesota, on the 25th day of
June, 1999.
AMERICAN CHURCH MORTGAGE COMPANY
By: /s/ David G. Reinhart
-------------------------
David G. Reinhart, President and Treasurer
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 that is 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, 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:
<TABLE>
<CAPTION>
Signature Capacity Date
- --------- -------- ----
<S> <C> <C>
/s/ David G. Reinhart President and Treasurer June 25, 1999
- ---------------------
David G. Reinhart
/s/ V. James Davis Vice President and Secretary June 25, 1999
- ------------------
V. James Davis
/s/ Kirbyjon H. Caldwell Director June 25, 1999
- ------------------------
Kirbyjon H. Caldwell
/s/ Robert O. Naegele, Jr. Director June 25, 1999
- --------------------------
Robert O. Naegele, Jr.
/s/ Dennis J. Doyle Director June 25, 1999
- -------------------
Dennis J. Doyle
/s/ John M. Clarey Director June 25, 1999
- ------------------
John M. Clarey
</TABLE>
8
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
1,500,000
Shares of Common Stock
$.0l Par Value
UNDERWRITING AGREEMENT
________________, 1999
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" 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") may
allow other NASD-member broker-dealers to participate as "Soliciting Dealers"
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 any Soliciting Dealer under it.
1. REPRESENTATION AND WARRANTIES OF THE COMPANY. The Company hereby
represents, warrants and agrees with you that:
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<PAGE>
(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 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 & 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 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 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 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.
4
<PAGE>
(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 Underwriter or if sold by a Soliciting Dealer
qualified to handle customer funds under NASD rules, to such Soliciting
Dealer, upon which the 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 rejected subscriber.
(c) TERMINATION OF THE OFFERING. The Offering Period will
terminate upon the earlier of (i) two years 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 two years
and sixty (60) 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.
5
<PAGE>
(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 you,
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 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.
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
(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.
6
<PAGE>
(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.
(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:
7
<PAGE>
(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
(iii) such other information as you may from time to time
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 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 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.
8
<PAGE>
(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
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.
9
<PAGE>
(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.
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;
10
<PAGE>
(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 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.
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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 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
12
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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 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
13
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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 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. Kathi Genz) 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.
14
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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 constitute
you and/or the Soliciting Dealers or any of them as an association,
partnership, limited liability company, unincorporated business or other
separate entity.
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
--------------------------------------------
David G. Reinhart, President
Accepted as of the date
first above written:
AMERICAN INVESTORS GROUP, INC.
- -----------------------------------
Philip J. Myers, President
15
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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.
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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 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 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." 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,
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 Underwriter as processing broker-dealer. If any Subscription Agreement
solicited by you is rejected by the Company, the Subscription Agreement and
check will be forwarded by the Company back to us 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
2
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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. 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 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
3
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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
American Investors Group, Inc., 10237 Yellow Circle Drive, Minnetonka, Minnesota
55343, Attention: Philip J. Myers. 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.
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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,
AMERICAN INVESTORS GROUP, INC.
- --------------------------------
By
- -------------------------------- -----------------------------------
Philip J. Myers
Its President
Dated:
----------------
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:
----------------- -------------------------------------
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:
--------------------------------------
--------------------------------------
--------------------------------------
Telephone:
--------------------------------------
Attention:
--------------------------------------
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EXHIBIT 5
[MAUN & SIMON PLC LETTERHEAD]
June 25, 1999
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/ Philip T. Colton
-----------------------------------
Philip T. Colton, a Member
PTC:cr
<PAGE>
[MAUN & SIMON PLC LETTERHEAD]
June 25, 1999
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
1,650,000 shares of common stock, with a par value of $.01 per share (the
"Shares"), of American Church Mortgage Company ("ACMC"), a Minnesota
corporation. 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 assumed that the
business of the Company will be conducted as described in the Registration
Statement.
<PAGE>
American Church Mortgage Company
June 25, 1999
Page 2
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 "FEDERAL INCOME TAX MATTERS" and "LEGAL MATTERS"
in the Prospectus.
Very truly yours,
MAUN & SIMON, PLC
By: /s/ Philip T. Colton
----------------------------------
Philip T. Colton, a Member
PTC:cr
<PAGE>
AMENDMENT NO. 1 TO
AMENDED AND RESTATED REIT ADVISORY AGREEMENT
CHURCH LOAN ADVISORS, INC.
THIS AMENDMENT NO. 1 TO AMENDED AND RESTATED REIT ADVISORY AGREEMENT is
entered into as of this 1st day of January, 1999, between AMERICAN CHURCH
MORTGAGE COMPANY, a Minnesota corporation (the "Company"), and CHURCH LOAN
ADVISORS, INC., a Minnesota corporation (the "Advisor").
WHEREAS, the Company and the Advisor are parties to that certain Amended
and Restated REIT Advisory Agreement dated as of May 19, 1995 (hereinafter
the "Advisory Agreement"); and
WHEREAS, the Advisor and the Company desire to amend the provisions of
the Advisory Agreement and evidence such amendment by this Agreement;
NOW, THEREFORE, in consideration of the foregoing, and the promises and
mutual covenants and agreements hereinafter set forth, the parties agree that
the Advisory Agreement is hereby amended as follows:
1. ARTICLE VII - TERM AND TERMINATION, Section 7.3 "Termination Fee" is
hereby deleted in its entirety and shall no longer have any force and
effect. This Section 7.3 shall be deemed to be "left blank" for all
future purposes and other Sections of Article VII shall remain as
originally designated.
2. Except as specifically set forth in "1" above, the Advisory Agreement
shall remain in full force and effect in accordance with its original
terms and provisions.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to the
Advisory Agreement to be executed by their duly authorized officers as of the
day and year first above written.
AMERICAN CHURCH MORTGAGE COMPANY
By:
-----------------------------------
David G. Reinhart, President
CHURCH LOAN ADVISORS, INC.
By:
-----------------------------------
Philip J. Myers, President
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
DIVIDEND REINVESTMENT PLAN
TO OUR SHAREHOLDERS
American Church Mortgage Company (the "Company") dividend reinvestment
plan provides shareholders the opportunity to invest quarterly cash dividends
in additional shares of its common stock without incurring any brokerage
charges.
Our Dividend Reinvestment Plan is described fully in this brochure. If
you elect to participate in the plan, your quarterly dividends will be used
to purchase additional shares of common stock of American Church Mortgage
Company in your name. American Church Mortgage Company will pay brokerage
charges, if any, associated with purchases under the plan.
This plan is entirely voluntary and you may join or withdraw at any
time. One primary benefit of the program is that it provides you the right to
buy additional shares without brokerage charges.
We suggest that you carefully review the information in this brochure
and retain it for future reference. If you decide to participate, please sign
and mail the authorization card in the enclosed postage-paid envelope. If you
do not elect to join the plan, you will continue to receive your dividends as
you have previously designated. After reading this information, if you have
any questions, please feel free to contact the Dividend Reinvestment Agent,
Gemisys Corporation, Dividend Reinvestment Department, 7103 South Revere
Parkway, Englewood, Colorado 80112, telephone (303) 705-6000.
Sincerely,
David G. Reinhart, President
American Church Mortgage Company
<PAGE>
The Dividend Reinvestment Plan described in this brochure is designed
for all shareholders of American Church Mortgage Company regardless of the
size of their holdings. It provides a practical and economical way of
reinvesting dividends from American Church Mortgage Company (the "Company")
in shares of common stock of the Company. Under the plan, the dividends due
to participating shareholders will be deposited directly with Gemisys
Corporation, Englewood, Colorado (the "Dividend Reinvestment Agent") which,
as purchasing agent, will combine the purchases of all participating
shareholders.
The plan offers several attractive features:
Investments are made automatically, without brokerage fees or service
charges. The Company pays for any charges associated with acquiring
additional shares of common stock of the Company.
The Dividend Reinvestment Agent keeps detailed records of your account
and mails you a statement quarterly which will reflect transactions in your
account during that period.
The service is entirely voluntary. You may join at any time or end your
participation in the plan whenever you wish.
Your invested funds are utilized fully since your account is credited
with fractional interests in shares, (computed to three decimal places) on
which future dividends are prorated and invested for you.
AUTOMATIC INVESTMENT
Once you have enrolled by returning the enclosed authorization card, the
service will be automatic. The Dividend Reinvestment Agent, as your agent,
will receive the total amount of your dividends on the shares then held by
you and on any additional full or fractional shares acquired under the plan.
The Dividend Reinvestment Agent will then purchase more common shares of the
Company for you at the prevailing market price (or during the initial
offering period or when no market exists, at $10.00 per share). Your
dividends, regardless of size, will be fully invested. The Dividend
Reinvestment Agent will credit you with fractional shares computed to three
decimal places for any amount less than the cost of one full share.
STATEMENT OF ACCOUNT
You will receive a detailed quarterly statement of your account showing
total cash dividends received, shares purchased and total shares held in your
account by the Dividend Reinvestment Agent.
CUSTODY OF SHARES
The Dividend Reinvestment Agent will hold the shares purchased for you
until termination of your participation in the plan. This convenience
provides added protection against loss, theft or inadvertent destruction of
stock certificates.
However, certificates for full shares held by the Dividend Reinvestment
Agent can be issued to you at any time upon your written request. Or, you may
file a blanket request that certificates be issued for full shares whenever
they are credited to your account.
VOTING RIGHTS
The Dividend Reinvestment Agent will vote any shares held for your
account only in accordance with item 6 of the Terms and Conditions herein.
TAX RESPONSIBILITY
Dividends that are reinvested for you are subject to income taxes as if
they had been paid directly to you in cash. In addition, the Internal Revenue
Service has issued a private ruling on an arrangement similar to this Plan to
the effect that any brokerage commissions paid by the Company on your behalf
are also to be treated as dividend income to you.
Accordingly, the Dividend Reinvestment Agent will send you a year-end
statement showing dividends invested, service charges and any brokerage
commissions paid on your behalf, and you should retain this statement for
your tax records.
You should consult your personal tax advisor concerning your proper tax
treatment of these amounts, as interpretations may differ, and laws,
regulations and rulings may change over time.
The price at which your shares are purchased will be the average price
of all the shares the Dividend Reinvestment Agent bought for Plan
participants at the same time your shares are purchased. The Internal
2
<PAGE>
Revenue Service's private ruling also stated that any brokerage commissions
may be added to the cost basis of the shares purchased for your account. You
will need to know this information in order to compute taxable gains or
losses if you sell your shares.
TERMINATION
You may terminate your participation in the Plan at any time by writing
the Dividend Reinvestment Agent. Ordinarily a termination notice is effective
immediately, but if it is not received before the record date for a
particular dividend, that dividend will be reinvested under the plan, but
future dividends will thereafter be sent directly to you. Upon termination,
stock certificates for full shares will be issued in your name. Or, if you
desire, the full shares held for your account may be sold and you will
receive the proceeds, less applicable brokerage commissions and service
charges. Any fractional shares at the time of termination will be liquidated
at the then-prevailing market price of common shares of the Company and you
will receive the proceeds in cash for fractional shares.
HOW TO JOIN
To participate in this service, complete the enclosed authorization card
and mail it to the Dividend Reinvestment Agent. Your participation will begin
with the next dividend, provided your authorization is received before the
Dividend Record Date. Should your authorization card arrive after the
Dividend Record Date, it will be necessary to delay participation until the
next dividend. To participate in the Optional Cash Investment feature, simply
send your check or money order payable to the Dividend Reinvestment Agent
along with the authorization form or with the tear-off portion of the
Statement of Account you will receive after your initial dividend has been
invested. MAIL THIS DIRECTLY TO THE DIVIDEND REINVESTMENT AGENT, not to the
Company. The formal terms of the service are in this leaflet. All questions
and correspondence about the service should be directed to:
Gemisys Corporation
Dividend Reinvestment Department
7103 South Revere Parkway
Englewood, Colorado 80112
Telephone: (303) 705-6000
TERMS AND CONDITIONS
Terms and Conditions of Authorization for Automatic Dividend
Reinvestment Plan
1. DIVIDEND REINVESTMENT AGENT AS AGENT
As agent for the participant, Gemisys Corporation (the "Dividend
Reinvestment Agent") will apply all dividends on the shares of Common Stock
of the Company held by the participant, acquired under the Company Dividend
Reinvestment Plan (the "Plan") to the purchase of additional shares of Common
Stock of the Company for the participant's account. Such purchases may be
made directly from the Company, on any securities exchange where such shares
are traded, in the over-the-counter market or in negotiated transactions and
may be on such terms as to price, delivery and otherwise as the Dividend
Reinvestment Agent may determine.
2. INVESTMENT OF DIVIDENDS
In making purchases for the participant's account, the Dividend
Reinvestment Agent may commingle the participant's funds with those of other
participants. In the case of each purchase, the price at which the Dividend
Reinvestment Agent shall be deemed to have acquired shares for the
participant's account shall be the average price of all shares purchased by
it, as agent for participants in the Plan, with their aggregate funds used
for such purchase. The Dividend Reinvestment Agent may hold the shares of all
participants together in its name or the name of its nominee. The Dividend
Reinvestment Agent shall have no responsibility as to the value of the Common
Stock of the Company acquired for the participant's account. Dividends will
be invested by the Dividend Reinvestment Agent no later than 30 days after
receipt, and optional cash investments will be invested at 30 day intervals
provided that the aggregate funds are sufficient to purchase at least 100
shares, except where deferment is necessary to comply with Rule 10b-6 under
the Securities Exchange Act of 1934 or other applicable provisions of
securities law. It is understood that, in any event, the Dividend
Reinvestment Agent shall have no liability in connection with any inability
to purchase shares or the timing of any purchases. Participant's funds held
by the Dividend Reinvestment Agent will not bear interest.
3
<PAGE>
3. STATEMENT OF ACCOUNT
On at least a quarterly basis, the Dividend Reinvestment Agent will send
to each participant whose funds have been applied to such purchase a
statement of all transactions in the account since the last statement,
including a statement showing the current shares in the account.
4. SHARE CERTIFICATES
No certificates will be issued to a participant for shares in the
participant's account unless so requested of the Dividend Reinvestment Agent
in writing or until the account is terminated. A participant may file a
blanket request that certificates be issued for full shares as they are
credited to the account. Such requests shall be handled by the Dividend
Reinvestment Agent without charge to the participant. No certificate for a
fractional share will be issued, but dividends on a fractional interest in a
share will be credited to the participant's account.
5. INCOME TAX
It is understood that the reinvestment of dividends does not relieve the
participant of any income tax which may be payable on such dividends. The
Dividend Reinvestment Agent will report to all participants the amount of
dividends credited their accounts.
6. VOTING OF SHARES
The Dividend Reinvestment Agent will vote all shares held in the
participant's account in the same way in which each participant votes shares
of the Company standing of record in the participant's name by the regular
proxy returned by participants to the Company, or, if Dividend Reinvestment
Agent sends to participant a separate proxy covering the shares credited to
participant's dividend reinvestment account, then such shares will be voted
as designated in such separate proxy. In the event participant does not
direct the voting of shares by either such regular or separate proxy, the
shares credited to participant's dividend reinvestment account will not be
voted.
7. NO SALE, PLEDGE, ASSIGNMENT, ETC.
Except as otherwise expressly provided herein, the participants may not
sell, pledge, hypothecate or otherwise assign or transfer the participant's
account, any interest therein or any cash or shares credited to the
participant's account. No attempt at any such sale, pledge, hypothecation or
other assignment or transfer shall be effective. Nothing herein shall affect
a shareholder's rights with respect to shares for which certificates have
been received.
8. TERMINATION OF PARTICIPATION
A participant may terminate the account at any time by written notice to
the Dividend Reinvestment Agent. Any such notice received after a dividend
record date shall not be effective until dividends paid for such record date
have been credited to the participant's account. The Dividend Reinvestment
Agent may terminate the account at any time by notice in writing mailed to
the participant. A participant requesting termination may elect to receive
either stock or cash for all the full shares in the account. If cash is
elected, the Dividend Reinvestment Agent will sell such shares at the then
current market value and the Dividend Reinvestment Agent will send the net
proceeds to the participant, after deducting brokerage commissions and
service charges. If no election is made in the request for termination, stock
will be issued for full shares. In either case, the participant will receive
cash at then current market value in lieu of any fractional interest in a
share. If a participant disposes of all shares registered in the
participant's name on the books of the Company, the Dividend Reinvestment
Agent will request instructions as to the disposition the participant wishes
to be made of shares in the participant's account with the Dividend
Reinvestment Agent. If the Dividend Reinvestment Agent should be unable to
obtain instructions in such a case within 30 days after the mailing of such
request, it may terminate the account and issue certificates for all full
shares in the Dividend Reinvestment Account together with cash for any
fractional interest in a share.
9. STOCK DIVIDENDS OR STOCK SPLITS
It is understood that any stock dividends or stock splits distributed by
the Company on shares held by the Dividend Reinvestment Agent for the
participant will be credited to the participant's account. In the event that
the Company makes available to its shareholders rights to purchase additional
shares or other securities of the Company, the Dividend Reinvestment Agent will
sell such rights accruing to shares held by the Dividend Reinvestment Agent for
the participant and will combine the resultant funds with the next regular
dividend or Optional Cash Investment for reinvestment at that time. If a
participant desires to exercise such rights, the
4
<PAGE>
participant should request that certificates be issued for full shares, as
provided in item 4 above.
10. STANDARD OF CARE
The Dividend Reinvestment Agent, its nominee and the Company shall have
no responsibility beyond the exercise of ordinary care for any action taken
or omitted pursuant to the Plan nor shall they have any duties,
responsibilities or liabilities except such as are expressly set forth herein.
11. LIABILITY
The Dividend Reinvestment Agent shall not be liable hereunder for any
act done in good faith, nor for any good faith omission to act, including
without limitation, any claims of liability (1) arising out of failure to
terminate the participant's account upon such participant's death prior to
receipt of notice in writing of such death, and (2) with respect to the
prices at which shares are purchased or sold for the participant's account
and the times such purchases or sales are made.
12. GOVERNING LAW
The terms and conditions of the Plan and the Authorization Card shall be
governed by the laws of the State of Minnesota.
5
<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
STOCK OPTION PLAN FOR DIRECTORS AND ADVISOR
SEPTEMBER 30, 1994
1. PURPOSE. This Stock Option Plan for Directors and the Advisor (the
"Plan") is intended to attract and retain the services of experienced and
knowledgeable directors and advisors of American Church Mortgage Company, a
Minnesota corporation and Real Estate Investment Trust (the "Company") for
the benefit of the Company and its shareholders and to provide additional
incentive for such directors and the advisor to continue to work for the best
interest of the Company and its shareholders.
2. STOCK SUBJECT TO THE PLAN. There are reserved for issuance upon
the exercise of options granted under the Plan 100,000 shares of common stock
of the Company (the "Common Stock"). If any option granted under the Plan
shall expire or terminate for any reason without having been exercised in
full, the shares subject thereto shall again be available for the purpose of
issuance upon the exercise of options granted under the Plan.
3. ADMINISTRATION. The Plan shall be administered by the Board of
Directors of the Company (the "Board"). The Board shall have plenary
authority to interpret the Plan, to prescribe, amend and rescind rules and
regulations relating to it, to determine the terms and provisions of the
option grants or agreements (which shall comply with the terms and conditions
of the Plan) and to make all other determinations necessary or advisable for
the administration of the Plan. The Board's determination in all matters
shall be final.
4. ELIGIBILITY. Each director of the Company shall automatically be
granted an option to purchase 3,000 shares of Common Stock (subject to
adjustment as provided in Paragraph 7) immediately upon being appointed or
elected as a director of the Company, whichever first occurs. So long as a
director shall remain a director of the Company, on each date of his or her
annual reelection (or the anniversary date of the last annual meeting, if a
current annual meeting is not held) such Director shall be granted an
additional option to purchase 3,000 shares of common stock (subject to
adjustment as provided for in Paragraph 7).
5. OPTION TERMS. Options granted under the Plan shall have the
following terms:
(a) The purchase price of the Common Stock under each option
granted under the Plan shall be 100% of the fair market value of the
stock at the time such option is granted. Fair market value shall
mean the mean of the high and low sale price of the Company's Common
Stock as reported on the National Association of Securities Dealers
Automated Quotation System (NASDAQ) for the date of grant, or if no
quotation is available, at the fair market value as established by the
Board applying the guidelines established by Treasury Regulations
Section 20.2031-2.
(b) No option shall be exercisable until the first anniversary
of the date of grant. Thereafter options shall be exercisable in full
or in part at the discretion of the optionee. The term of each option
shall be five years from the date of grant thereof, or such shorter
period as is prescribed in Paragraph 5(c).
<PAGE>
(c) In the event that an optionee shall cease to be a director
in the Company during the one year period following the date of grant
of the option, the option shall forthwith terminate on the date the
optionee ceases to serve as a director.
(d) Upon exercise, the option price is to be paid in full in
cash, or at the discretion of the Board, in common stock owned by the
optionee having a fair market value on the date of exercise equal to
the aggregate option price, or at the discretion of the Board, in a
combination of cash and stock. For purposes of this paragraph, the
market value of shares tendered to exercise an option shall be the
mean of the high and low reported sales prices of the Common Stock as
reported by NASDAQ on the exercise date; if the Common Stock is not
traded on the exercise date, the fair market value on such date shall
be determined under Treasury Regulations Section 20.2031-2.
(e) Nothing in the Plan or in any option granted pursuant to the
Plan shall confer on any individual any right to continue as a
director of the Company or interfere in any way with the right of the
Company to terminate the optionee's services as a director at any
time.
(f) In the event that an individual to whom an option has been
granted under the Plan dies while such option remains unexercised, the
option theretofore granted to the optionholder may be exercised by the
personal representative of the optionholder at any time during the
term that the option could have been exercised by the optionee.
(g) Only options which do not qualify as "incentive stock
options" under Section 422A of the Internal Revenue Code of 1986, as
amended, shall be granted under the Plan.
(h) Each option shall be evidenced by a Stock Option Agreement
in the form attached hereto as Exhibit A.
6. TRANSFERABILITY AND SHARE RIGHTS OF HOLDERS OF OPTIONS. No option
granted under the Plan shall be transferable otherwise than by will or by the
laws of descent and distribution, and the option may be exercised, during the
lifetime of the holder thereof, only by the holder. The holder of an option
shall have none of the rights of a shareholder until the shares subject
thereto have been registered in the name of the person or persons exercising
such option on the transfer books of the Company upon such exercise.
7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. Notwithstanding any
other provision of the Plan, the number and class of shares subject to the
options and option prices of the options covered thereby shall be
proportionally adjusted in the event of changes in the Company's outstanding
Common Stock by reason of stock dividends, stock splits, recapitalizations,
mergers, consolidations, accommodations or exchanges of shares, split ups,
split offs, spin offs, liquidations or other similar changes in
capitalization, or any distribution to common shareholders other than cash
dividends and, in the event of any such change in the outstanding Common
Stock, the aggregate number and class
<PAGE>
of shares available under the Plan and the number of shares as to which
options may be granted shall be appropriately adjusted by the Board.
8. AMENDMENTS AND TERMINATION. Unless the Plan shall theretofore have
been terminated as hereinafter provided, the Plan shall terminate on and no
awards of options shall be made after, December 31, 2002. The Plan may be
terminated, modified or amended by the shareholders of the Company. The
Board of Directors of the Company may also terminate the Plan at any time or
may modify or amend the Plan in such respects as it shall deem advisable in
order to conform to any changes in the law or regulations applicable thereto,
or in respects which shall not change: (i) the total number of shares as to
which options may be granted, (ii) the class of persons eligible to receive
options under the Plan; (iii) the manner of determining option prices; (iv)
the period during which the options may be granted or exercised, or (v) the
provisions relating to the administration of the Plan by the Board.
Termination of the Plan shall not affect rights under options granted prior
to termination of the Plan.
9. WITHHOLDING. Upon the transfer of Common Stock as a result of the
exercise of an option, the Company shall have the right to retain or sell
without notice, sufficient shares of stock (valued as provided in Paragraph
5(d)) to cover the amount of any tax required by any government to be
withheld or otherwise deducted and paid with respect to such exercise,
remitting any balance to the optionee; provided, however, that the optionee
shall have the right to provide the Company with the funds to enable it to
pay such tax.
10. EFFECTIVE DATE AND APPROVAL. The Plan shall become effective on
the date the Plan is adopted by the Board of Directors. The Plan shall be
submitted to the shareholders for approval as soon as practicable after the
effective date of the Plan.
11. SECTION 16b-3 COMPLIANCE. It is intended that this Plan and all
options granted thereunder shall comply with Rule 16b-3 of the Securities and
Exchange Commission and the Plan shall be administered and interpreted so as
to comply with such rule.
<PAGE>
EXHIBIT "A"
AMERICAN CHURCH MORTGAGE COMPANY
DIRECTOR'S AND ADVISOR'S STOCK OPTION AGREEMENT
This Option Agreement made this _____ day of _________________________,
19____, by and between AMERICAN CHURCH MORTGAGE COMPANY, a Minnesota
corporation, hereinafter called the "Company" and
____________________________________ hereinafter called the "Optionee;"
W I T N E S S E T H:
The Company desires to afford Optionee an opportunity to purchase shares
of its $.0l par value Common Stock, hereinafter called the "Shares," pursuant
to the Stock Option Plan for Directors and the Advisor dated September 30,
1994 (the "Plan").
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth and for other good and valuable consideration, the parties hereto agree
as follows:
I.
GRANT OF OPTION
The Company hereby grants to the Optionee the right and option
(hereinafter called the "Option") to purchase all or any part of an aggregate
of Three Thousand (3,000) Shares (such number being subject to adjustment as
provided in Paragraph V hereof) on the terms and conditions herein set forth.
II.
PURCHASE PRICE
Subject to the provisions of Article V hereof, the purchase price of the
Shares shall be $________ per Share, which has been determined to be the fair
market value of the Shares at the date of grant of this Option in accordance
with the Plan.
<PAGE>
III.
TERM AND EXERCISE OF OPTION
Except as provided below, this Option shall expire at the close of
business on the fifth anniversary date of this Stock Option Agreement. The
Optionee shall be entitled to exercise this option and acquire Shares covered
by this Option at any time after the expiration of twelve (12) months from
the date of this Agreement. Thereafter, the Option may be exercised by the
Optionee as to the whole or any part of the Shares covered hereby. If
Optionee ceases to be a director of the Company prior to the date this option
becomes exercisable, the Option and all rights of Optionee hereunder shall
immediately terminate.
IV.
NONTRANSFERABILITY OF OPTION RIGHTS
The Option shall not be transferable otherwise than by will or the laws
of descent and distribution, and the Option may be exercised, during the
lifetime of the Optionee only by Optionee. More particularly (but without
limiting the generality of the foregoing), the Option may not be assigned,
transferred (except as provided above), pledged, or hypothecated in any way,
and shall not be subject to execution, attachment, or similar process. Any
attempted assignment, transfer, pledge, hypothecation, or other disposition
of the Option contrary to the provisions hereof, or the levy of any
execution, attachment or similar process upon the Option, shall be null and
void and without effect.
V.
CHANGES IN CAPITAL STRUCTURE
If all or any portion of the Stock Option shall be exercised subsequent
to any share dividend, recapitalization, merger, consolidation, exchange of
shares or reorganization as a result of which shares of any class shall be
issued in respect of outstanding Common Stock, of if Common Stock shall
<PAGE>
be changed into the same or a different number of shares of the same or
another class or classes, the person or persons so exercising the Option
shall receive, for the aggregate price paid upon such exercise, the aggregate
number and class of shares to which they would have been entitled if Common
Stock (as authorized at the date hereof) had been purchased at the date
hereof for the same aggregate price (on the basis of the price per share set
forth in Paragraph II hereof) and had not been disposed of. No fractional
share shall be issued upon any such exercise and the aggregate price paid
shall be appropriately reduced on account of any fractional share not issued.
VI.
METHOD OF EXERCISING OPTION
Subject to the terms and conditions of this Option Agreement, the Option
may be exercised by written notice to the Company at its principal office and
place of business in the State of Minnesota. Such notice shall state the
election to exercise the Option and the number of Shares in respect of which
it is being exercised, and shall be signed by the person so exercising the
Option. Such notice shall be accompanied by the payment to the Company of the
full purchase price of such Shares in cash or by delivery of certificates for
shares of Common Stock of the Company owned by optionee having a fair market
value as determined under Section 5(d) of the Plan equal to the full purchase
price, or in cash and shares so valued equal to the full purchase price of
the Shares. The certificate for the Shares as to which the Option shall have
been so exercised shall be registered in the name of the person exercising
the Option. If the Optionee shall so request in the notice exercising the
Option, the certificate shall be registered in the name of the Optionee and
another person jointly with right of survivorship, and shall be delivered as
provided above to or upon the written order of the person exercising the
Option. In the event the Option shall be exercised by any person or persons
other than Optionee, such notice shall be accompanied by appropriate proof of
the right of such
<PAGE>
person to exercise the Option. As provided in Section 9 of the Plan, the
Company shall have the right to retain, without notice, sufficient Shares
(valued as provided in Section 5(d) of the Plan) to cover the amount of tax
required to be withheld or otherwise deducted and paid with respect to such
exercise.
VII.
RESERVATION OF SHARES
The Company shall, at all times during the term of this Option, reserve
and keep available such number of Common Shares as will be sufficient to
satisfy the requirements of this Stock Option Agreement, and shall pay all
original issue and transfer taxes with respect to the issue and transfer of
Shares pursuant hereto, and all other fees and expenses necessarily incurred
by the Company in connection therewith.
VIII.
RIGHTS AS STOCKHOLDER
The holder of the Option shall not have any of the rights of a
shareholder with respect to the Shares covered by the Option except to the
extent that one or more certificates for such Shares shall be delivered to
the Optionee upon the due exercise of the Option.
IX.
NO REGISTRATION REQUIREMENTS
The Company shall not be deemed by reason of issuance of any Common
Stock under this Option to have any obligation to register such Shares under
the Securities Act of 1933, as amended, or any state securities law, or
maintain in effect any registration of such Shares. In addition, unless
Shares have been so registered, all options granted shall be on the condition
that prior to the exercise of the option, Optionee shall represent that the
Shares are being acquired for investment purposes
<PAGE>
only and that Optionee can bear the economic risk of the investment for an
indefinite period of time since the Shares so acquired cannot be sold unless
they are subsequently registered or an exemption from such registration is
available. Optionee agrees that a legend may be placed on all certificates
for Shares acknowledging the restrictions on subsequent distribution of the
Shares.
X.
INTERPRETATION
This Option is granted pursuant to the Plan and shall be interpreted to
be consistent with such Plan, including the right of the Board of Directors
to make rules relating to the administration of the Plan, to amend, modify or
to terminate the Plan.
XI.
MISCELLANEOUS
This Stock Option Agreement shall be binding upon and inure to the
benefit of the parties hereto and their heirs, successors, assigns and
representatives and shall be governed by the internal laws of the State of
Minnesota.
IN WITNESS WHEREOF, the Company has caused this Stock Option Agreement
to be duly executed by its officer thereunto duly authorized, and the
Optionee has hereunto set his hand, all on the day and year first above
written.
ATTEST: AMERICAN CHURCH MORTGAGE COMPANY
a Minnesota Corporation
By:
- ------------------------------- ------------------------------------
Secretary President
------------------------------------
Optionee
<PAGE>
SHAREHOLDER SERVICES
AGREEMENT
------------------------------
by and between
AMERICAN CHURCH MORTGAGE COMPANY
and
GEMISYS CORPORATION
<PAGE>
[LETTERHEAD]
QUOTATION NO.: 2206 DATE OF QUOTATION: December 1, 1994
SHAREHOLDER SERVICES AGREEMENT
CLIENT: American Church Mortgage Company
ADDRESS: 600 Highway 169, Suite 700
CITY: Minneapolis STATE: Minnesota ZIP: 55426
A binding contract comes into being upon execution of this Shareholder
Services Agreement ("Agreement") by Client and by a duly authorized officer
of GEMISYS. This Agreement, together with the terms and conditions contained
in those Schedules and/or Supplements listed below and executed
contemporaneously with this Agreement, supersedes all prior agreements,
negotiations, representations, and proposals, written or oral, regarding the
subject matter and shall prevail notwithstanding any variance with the terms
and conditions of any order submitted by Client.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Attached and made a part of this Shareholder Services Agreement are the
following Supplements:
Shareholder Services Agreement Terms and Conditions
Shareholder Services and Fee Supplement
CLIENT: American Church Mortgage Company GEMISYS
SIGNATURE: /s/ V. James Davis SIGNATURE: /s/ Darrall E. Robbins
--------------------------- ---------------------------
NAME: V. James Davis NAME: Darrall E. Robbins
TITLE: President TITLE: President
DATE: 12-23-94 DATE: 12/19/94
-------------------------------- -------------------------------
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<PAGE>
[LETTERHEAD]
SHAREHOLDER SERVICES AGREEMENT
TERMS AND CONDITIONS
- -------------------------------------------------------------------------------
This Shareholder Services Agreement ("Agreement") is entered into this
19th day of Dec., 1994, by American Church Mortgage Corporation, a Minnesota
corporation ("Client"), whose signatures appear below, and GEMISYS
CORPORATION, a California corporation ("GEMISYS").
RECITALS
This Agreement is made with reference to the following facts, objectives, and
definitions:
A. The Client is a real estate investment trust organized and
registered in the State of Minnesota, which has or will issue shares of
common stock and prospectively preferred stock.
B. GEMISYS is engaged in the business of providing data
processing, securities transfer, administrative, and other services in
connection with the operation of public corporations and other investment
vehicle forms.
C. Unless the context otherwise requires, the following terms when
used in this Agreement shall have the following meanings:
1. AFFILIATE: Any "parent," subsidiary, or other entity
which directly or indirectly through one or more intermediaries controls, is
controlled by, or is in common control with a party.
2. CONFIDENTIAL INFORMATION: That certain confidential and
proprietary information and techniques which GEMISYS has and will develop,
compile, and own, which has great value in its business including, without
limitation, all information that has or could have commercial value or
utility in the business in which GEMISYS, or any persons or entities for whom
GEMISYS performs services ("GEMISYS' Clients") or from whom GEMISYS obtains
information, is engaged or contemplates engaging in. Confidential Information
also includes all information which the unauthorized disclosure of could be
detrimental to the interests of GEMISYS or GEMISYS' Clients, whether or not
such information is identified as Confidential Information by GEMISYS or
GEMISYS' Clients. By example and without limitation, Confidential Information
includes any and all information concerning GEMISYS' reference materials,
procedure manuals, teaching techniques, processes, formulae, specifications,
methods, systems, reports, screen appearances, innovations, inventions,
discoveries, improvements, research or development and test results,
know-how, data, or trade secrets, or other elements created, learned or
developed by GEMISYS in connection with GEMISYS' computer software and with
GEMISYS' performance under this Agreement. Confidential Information also
includes, by
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example and without limitation, any and all GEMISYS marketing and business
plans, strategies, forecasts, unpublished financial information, budgets,
projections, and customer and supplier identities, characteristics, and
agreements.
3. CLIENT DATA: That certain confidential and proprietary
information which the Client has and will develop, compile, and own, which
has great value in its business including, by example and without limitation,
any and all information provided to GEMISYS by the Client or by the Client's
investors or their representatives (as defined below) which concerns the
Client's investors and is contained in the "SUB Client" database sub-system,
or in correspondence, memoranda, or telecommunications.
4. CLIENT INVESTOR(S) OR THEIR REPRESENTATIVE(S): Any owner
of common stock or preferred stock in the Client ("Client Investor") or that
owner's Broker/Dealer or other representative ("Representative"), as
reflected in Client Data provided to GEMISYS.
D. The Client and GEMISYS acknowledge and agree that each has
taken and hereby takes reasonable and affirmative efforts to maintain the
confidentiality of Client Data and Confidential Information.
NOW, THEREFORE, in consideration of the mutual covenants, conditions,
and undertakings set forth below, the Client, and GEMISYS agree as follows:
AGREEMENT
1. PROCESSING SERVICES
1.01 MASTER FILE. GEMISYS shall maintain the file containing all
Client Investor and Representative information previously supplied to GEMISYS
by Client (the "Master File").
1.02 STANDARD SERVICES. GEMISYS shall regularly perform all services
described in Shareholder Services Agreement and the Shareholder Services and
Fee Supplement, attached hereto ("Standard Services").
1.03 QUALITY ASSURANCE. GEMISYS shall perform all Services in a
consistently error-free manner and all output produced by GEMISYS as part of
its Services shall be uniform in appearance, clean, and presentable. For
purposes of this Section, errors are defined as failure to meet the Client's
functional requirements as specified in requests or instructions communicated
to GEMISYS by the Client in connection with GEMISYS' Services. Any error
discovered by the Client shall be promptly corrected by GEMISYS without cost
to the Client, subject to Section 7.05(b), below, provided that the Client
deliver its written or telephonic request for error resolution to GEMISYS
within five (5) business days following the Client's receipt of the erroneous
output. In the event that the Client fails to request error resolution from
GEMISYS
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within that time period, all Services and output produced shall be deemed to
be satisfactory.
1.04 CLIENT REQUESTS AND INSTRUCTIONS. The Client shall be
exclusively responsible for authorizing and communicating to GEMISYS all
Client Data, requests, or instructions in connection with Services. GEMISYS
shall have no authority or duty to supervise the investment of or to make or
issue any instructions or recommendations with respect to the operation or
disposition of the Client or of any securities, limited partner interests, or
other assets owned or controlled by the Client or by Client Investors. Any
Client Data, requests, or instructions received by GEMISYS from the Client or
duly authorized representative of the Client shall be deemed to be genuine
and duly authorized by the Client, and GEMISYS may rely solely upon their
accuracy and upon the authority of the requesting or instructing party in
acting upon such. GEMISYS may rely solely upon the accuracy of information or
instructions received from Client Investors or their Representatives as is
more fully set forth in Section 9.02, below.
1.05 OWNERSHIP OF AND ACCESS TO CLIENT DATA. The Client's records
and information supplied to and utilized by GEMISYS in performing Services
including, without limitation, Client Data, are the exclusive property of the
Client. GEMISYS shall preserve and retain those records and information
during the initial term and any renewal term of this Agreement under
appropriate safeguards to prevent their destruction and to preserve their
confidentiality. The Client shall have access to such records and information
for inspection and audit at the Client's sole expense upon reasonable prior
notice to GEMISYS and during normal business hours.
1.06 OWNERSHIP OF GEMISYS PROGRAMS AND PROCEDURES. All computer
programs and procedures developed by GEMISYS in performing Services
including, without limitation, Confidential Information and user
documentation, are the exclusive property of GEMISYS.
1.07 WARRANTIES. GEMISYS makes no warranty, either express or
implied, in connection with this Agreement or any Services rendered by
GEMISYS pursuant to this Agreement including, without limitation, any
warranty of merchantability or of fitness for a particular purpose.
2. SOFTWARE DEVELOPMENT SERVICES
The Client may request that GEMISYS modify, enhance, or upgrade
GEMISYS' computer programs, Services, or reports due to changes in the
Client's requirements. GEMISYS shall use its best efforts to so meet the
Client's changed requirements within mutually agreed upon time periods. Such
services shall be subject to Section 4.03, below, and GEMISYS shall retain
full proprietary rights in and to any such modification, enhancement, or
upgrade.
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3. TERM AND TERMINATION OF AGREEMENT
3.01 TERM. This Agreement shall be for an initial term of three (3)
years, commencing on January 1, 1995, and shall thereafter be automatically
renewed for successive one (1) year terms unless either party terminates this
Agreement for any reason by written notice of not less than ninety (90) days
to the other party, prior to expiration date of the initial term or of any
renewal term.
3.02 DEFAULT. This Agreement may be terminated by either party upon
the occurrence of any Event of Default which continues uncured for more than
ten (10) days after written notice thereof is received by the defaulting
party from the non-defaulting party. For purposes of this Section, the
occurrence of any one or more of the events described in Section 5.01, below,
or the unauthorized disclosure of Confidential Information or Client Data in
violation of Section 6, below, shall constitute an "Event of Default":
3.03 TRANSITION. Upon termination, the parties shall cooperate in
the orderly transition to a new vendor. Prior to termination, the Client
shall pay in full all fees set forth in Section 4, below, for all Services
performed up to the date of termination, together with all reasonable
attorneys' fees and costs incurred by GEMISYS including, without limitation,
the cost of all unused materials purchased by GEMISYS for the Client's use
and the cost of shipping the same to the Client.
4. FEES
4.01 MASTER FILE FEE. The fee payable by the Client to GEMISYS for
creation of a Master File is included in the Standard Service Fee (as defined
in Section 4.02, below).
4.02 STANDARD SERVICE FEE. The Client shall pay to GEMISYS, as fees
for Standard Services performed for the Client, the sum set out in the
Shareholder Services and Fee Supplement (the "Standard Shareholder Services
Fee"). The Standard Shareholder Services Fee shall be invoiced on a monthly
basis and payment shall be due within thirty (30) days of date of the invoice.
4.03 EXTRAORDINARY SERVICES FEES. The Client shall pay to GEMISYS,
all charges required to produce any extraordinary Services other than
standard services for the Client, on either a mutually agreed upon unit basis
or on the basis of current hourly billing rates for GEMISYS personnel then in
effect and the actual costs of materials used. Such Services shall be
invoiced whenever incurred and payment shall be due upon the Client's receipt
of GEMISYS' invoice.
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4.04 PASS-THROUGH COSTS. In addition to the Standard Service Fee and
any extraordinary Services fees, the Client shall pay or reimburse GEMISYS'
costs incurred in connection with telecommunications, mailing, postage,
printing, delivery, storage, or bonding services to or for the Client or
Client Investors or their Representatives.
4.05 FEE INCREASES. During the initial term or any renewal term of
this Agreement, GEMISYS may increase its fees set forth in Section 4.02,
above, not more than once in any twelve (12) month period, and no such
increase shall exceed the proportionate increase in the Consumer Price Index
for Urban Wage Earners and Clerical Workers for San Francisco-Oakland-San
Jose, California, published by the United States Department of Labor, Bureau
of Labor Statistics, which is published for the month immediately preceding
the date of the commencement of any twelve (12) month period. If the Index is
discontinued or revised during any term, such other government index or
computation shall be used by mutual agreement of the parties in order to
obtain substantially the same results as would be obtained if the Index had
not been discontinued or revised.
4.06 LATE CHARGES; INTEREST ON UNPAID FEES. If the Client should
fail to make any payment of fees due under this Agreement within ten (10)
days of its receipt of GEMISYS' invoice, the Client shall pay to GEMISYS, as
a late charge, an additional sum equal to one and one-half percent (1.5%) per
month of the overdue payment, which amount the parties agree represents a
fair and reasonable estimate of the damages which GEMISYS would sustain as a
result of late payment. The amount of such unpaid fees shall bear interest
from ten (10) days after the due date until paid at the rate of interest from
time to time announced by the Bank of America, San Francisco, California, or
at the maximum rate permissible by law, whichever is greater.
5. TERMINATION
5.01 EVENTS OF DEFAULT. At its option, GEMISYS or the Client shall
have the right to declare the other party to be in default of this Agreement
in the event that the other party:
(a) fails to cure any default (including, without limitation, any
failure to pay any fees when due) within ten (10) days after written notice
thereof is received by that party from the non-defaulting party;
(b) for any reason ceases to conduct business in the normal course;
(c) files (i) a general assignment for the benefit of creditors;
(ii) a petition in bankruptcy, (iii) a petition seeking for itself any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar arrangement under any statute, law, or regulation, or
(iv) an answer admitting the material allegations of a petition against it in
any such proceeding;
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- -------------------------------------------------------------------------------
(d) consents to or acquiesces in the appointment of a custodian,
trustee, receiver, or liquidator of it or all or any substantial part of its
assets or properties;
(e) its shareholders or shareholders shall take any action looking
to its dissolution or liquidation; or
(f) becomes subject to any order for relief entered against it by a
bankruptcy court or other court of competent jurisdiction.
5.02 ACTIONS UPON DEFAULT. Upon the declaration by either party of a
default hereunder:
(a) the non-defaulting party shall promptly provide written notice
thereof to the defaulting party;
(b) in the event of a default by the Client, the Client shall cease
using the "SUB Client" database sub-system and shall return to GEMISYS all
GEMISYS programs, procedures, and user documentation without delay; and
(c) the non-defaulting party may, at its option, terminate or
suspend its performance under this Agreement if the default remains uncured
for more than ten (10) days after written notice thereof is received by the
defaulting party.
(d) Upon termination and written request by the Client, and after
all payments due have been received, GEMISYS shall provide within a
reasonable time at a reasonable fee, a copy of all Client Data in the
standard GEMISYS format.
6. CONFIDENTIALITY
6.01 CLIENT'S OBLIGATIONS. The Client acknowledges that during the
performance of this Agreement it may be necessary for GEMISYS to disclose to
the Client certain proprietary information and trade secrets of GEMISYS
developed at GEMISYS' expense including, without limitation, proprietary
information and trade secrets relating to Confidential Information, and to
permit the Clients access to facilities which embody such matter. The Client
acknowledges that the unauthorized disclosure of Confidential Information may
be highly prejudicial to GEMISYS' interests and may constitute an improper
disclosure of trade secrets.
In order to protect GEMISYS' rights in and to Confidential
Information, each shareholdership agrees that Confidential Information shall
be deemed confidential and proprietary to GEMISYS, and shall not be disclosed
by the Client to unauthorized third parties, and shall be safeguarded by the
Client to the same extent that the Client safeguards confidential matters
relating to its own operation, which shall include safeguards that a
reasonably prudent person would take under similar circumstances. To these
ends, each Client shall take such steps as may be necessary to ensure that
neither Confidential Information nor any information comprising or
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- -------------------------------------------------------------------------------
relating to Confidential Information is used, copied, replicated in form or
function, modified, disclosed, or made available to third parties by the
Client or its employees, agents, representatives, or affiliates in any manner
or for any purpose other than as provided in this Agreement without prior
written consent of an authorized officer of GEMISYS. Such steps shall
include, without limitation, (i) the taking of appropriate action by each
Client via instruction, agreement, or otherwise with its employees, agents,
representatives, and affiliates permitted access to the Confidential
Information to ensure that each Client's obligations under this Section can
be fully satisfied, and (ii) compliance by each Client and its employees,
agents, representatives, and affiliates with the provisions Section 10.03,
below, if and when that Section should become applicable.
6.02 GEMISYS' OBLIGATIONS. GEMISYS acknowledges that during the
performance of this Agreement it will be necessary for Client to disclose to
GEMISYS certain Client Data relating to each Client's operation and to Client
Investors or their Representatives. GEMISYS acknowledges that the
unauthorized disclosure of Client Data may be highly prejudicial to the
Client's or Client Investors' interests and may constitute an improper
disclosure of trade secrets. In order to protect each Client's rights in
Client Data, GEMISYS agrees the Client Data shall be deemed confidential and
proprietary to the Client, shall not be disclosed by GEMISYS to parties other
than the Client, and shall be safeguarded by GEMISYS to the same extent that
GEMISYS safeguards confidential matters relating to its own operation, which
shall include the safeguards that a reasonably prudent person would take
under similar circumstances. To these ends, GEMISYS shall take such steps as
may be necessary to ensure that neither Client Data nor any information
comprising or relating to Client Data is used, copied, replicated in form or
function, modified, disclosed, or made available to parties other than the
Clients by GEMISYS or by its employees, agents, representatives, or
affiliates in any manner or for any purpose other than as provided in this
Agreement without the prior consent of the Client. Such steps shall include,
without limitation: (i) the taking of appropriate action by GEMISYS via
instruction, agreement, or otherwise with its employees, agents,
representatives, and affiliates permitted access to Client Data to ensure
that GEMISYS' obligations under this Section can be fully satisfied, and (ii)
compliance by GEMISYS and its employees, agents, representatives, and
affiliates with the provisions of Section 10.03, below, if and when that
Section should become applicable.
6.03 EXCEPTIONS. The parties' obligations set forth in Section 6.01
and 6.02, above, shall not apply to: (i) information which is in the public
domain, other than as a result of any breach of this Agreement, or (ii)
information which the Client or GEMISYS is obligated to disclose pursuant to
the lawful order of any court of government instrumentality of the United
States, but only to the extent required by such order and subject to the
provisions of Section 10.03, below.
6.04. REMEDIES UPON BREACH. If the parties or their employees,
agents, representatives, or affiliates attempt to use, disclose, or
misappropriate any Confidential Information or Client Data in any manner
contrary to the terms of this Agreement, the non-disclosing party shall have
the right, in addition to any other remedies which may otherwise be available
to it at law or in equity, to: (i) apply to a court of competent jurisdiction
for an order restraining and enjoining
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such acts or attempts, it being acknowledged by each Client and GEMISYS that
in such event legal remedies are inadequate, and/or (ii) suspend or terminate
this Agreement without the disclosing party's consent and without the
requirements of any additional instructions, authorizations, or signatures of
any persons or entities.
6.05 SURVIVAL OF OBLIGATIONS. All rights and obligations of the
parties set forth in Section 6.01, 6.02, and 6.04, above, shall survive the
expiration or termination of this Agreement and the termination of the
employment, agency, representation, or affiliation of any individual or
entity referred to therein, even if occasioned by the employer's or
principal's breach or wrongful termination.
7. INDEMNIFICATION AND LIABILITY
7.01 INDEMNIFICATION BY GEMISYS. GEMISYS shall indemnify, defend,
and hold harmless each Client and its Managers, employees, agents,
representatives, and affiliates from and against any claims, liability,
losses, damages, and expenses including, without limitation, reasonable
attorneys' fees and costs incurred by each Client, its Managers, employees,
agents, representatives, and affiliates which arise out of or relate to the
negligence or willful misconduct of GEMISYS or from any breach or default by
GEMISYS of any of its obligations under this Agreement or any of its
provisions. In the event that any action or proceeding is brought against the
Client by reason of any claims or liability, GEMISYS shall defend that action
or proceeding at GEMISYS' sole expense by counsel of the Client's choice or
by counsel reasonably satisfactory to the Client.
7.02 INDEMNIFICATION BY THE CLIENTS. The Client shall indemnify,
defend, and hold harmless GEMISYS, and its directors, officers, employees,
agents, representatives, and affiliates from and against any claims,
liability, losses, damages, and expenses including, without limitation,
reasonable attorneys' fees and costs incurred by GEMISYS, its directors,
officers, employees, agents, representatives, and affiliates which arise out
of or relate to: (i) the negligence or willful misconduct of the Client or
the Client's Investors or their Representatives; or (ii) any breach or
default by the Client of any of its obligations under this Agreement or in
connection with the enforcement of this Agreement or any of its provisions,
or (iii) any claim brought against GEMISYS by a third party including,
without limitation, any claim by the Client's Investor(s) or their
Representative(s) which relates in any way to the fulfillment of any
obligation under this Agreement by the Client. In the event that any action
or proceeding is brought against GEMISYS by reason of such claims or
liability, the Client shall defend that action or proceeding at the Client's
sole expense by counsel of GEMISYS' choice or by counsel reasonably
satisfactory to GEMISYS.
7.03 DUTY TO NOTIFY. As an express condition precedent to either
party's rights or obligations described in Sections 7.01 and 7.02, above, the
party invoking its right to indemnification ("the indemnified party") must
provide written notification of any such claim or liability to the party from
whom indemnification is sought (the "Indemnifying Party") within
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reasonable time after the indemnified party's receipt of the written claim
against it. As used in this Section, "reasonable time" shall mean that period
of time within which the rights or interests of the Indemnifying Party in
defending that claim or liability are not substantially prejudiced or
impaired as a result of delay by the Indemnified Party. This condition
precedent is deemed to be for the benefit of both the Clients and GEMISYS,
and may be waived only by the Indemnified Party in writing.
7.04 SURVIVAL OF INDEMNITIES. The rights and obligations of the
parties set forth in Sections 7.01, 7.02, and 7.03, above, shall survive the
expiration or termination of this Agreement with respect to any claim or
liability occurring prior to such expiration or termination.
7.05 LIMITATIONS ON LIABILITY. Notwithstanding the provisions of
Sections 7.01 and 7.02,
(a) CONSEQUENTIAL DAMAGES. No party shall bear any liability under
this Agreement for any lost profits or consequential, special, or indirect
damages, even if a party has been informed of the possibility of such damages
or could have reasonably foreseen them.
(b) ERROR. GEMISYS' liability in the event of any request by the
Client for error resolution pursuant to Section 1.03, above, shall not exceed
GEMISYS' internal costs incurred in investigating and correcting the error
identified.
(c) FORCE MAJEURE. In no event shall any party bear any
responsibility for delays or failures in the performance of its obligations
under this Agreement which result from acts beyond that party's control, and
such party shall be excused from such delays or performance. Such acts shall
include, without limitation, acts of God, strikes, lockouts, riots, acts of
war, epidemics, any act or omission by any governmental authority,
regulations or restrictions superimposed after the fact by any governmental
authority, fire, explosions, communications line failures, power failures,
earthquakes, or other disasters. At all times during the performance of this
Agreement, GEMISYS shall maintain a reasonable recovery plan providing for
back-up capability in the event of any unplanned interruption of its
operations or inaccessibility to its computer facilities.
(d) VALUE OF CONTRACT. In no event shall GEMISYS' liability under
this Agreement, in the aggregate, exceed six (6) months Standard Service Fee.
8. COOPERATION AND ACCESS TO INFORMATION
8.01 COOPERATION OF THE PARTIES. The parties agree to cooperate and,
if requested, to use all efforts reasonably required to assist the other
party in fulfilling its obligations under this Agreement. In the event that
any party is (a) involuntarily made a party-defendant to any litigation
concerning this Agreement or any Client-sponsored investment vehicle, or (b)
subjected to or suffers any claim, liability, loss, damage, or expense as
described in Sections 8.01 or 8.02,
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above, the parties agree to execute and deliver any instrument, furnish any
information, or perform any other act reasonably necessary to assist the
other party in defending such litigation, claim, or liability without undue
delay or expense.
8.02 ACCESS TO RECORDS AND DOCUMENTS. The parties shall maintain,
preserve, and make available to one another all printed materials including,
without limitation, negotiation notes, internal memoranda, Agreement drafts,
and post-Agreement documents and correspondence relevant to this Agreement,
in the event of the commencement of any litigation (including claims or
liabilities under Section 7.01 and 7.02 under this Agreement) arising out of
any breach or default under this Agreement or in connection with the
enforcement of this Agreement or any of its provisions. The requesting party
shall have the right to examine and make copies of such materials upon
reasonable prior notice to the non-requesting party and during normal
business hours. Original materials shall be retained by the parties for a
period of not less than six (6) years following the date of termination or
expiration of this Agreement.
9. RELATIONS OF ENTITIES
9.01 RELATIONS BETWEEN THE PARTIES. GEMISYS shall act solely as an
independent contractor to each Client and neither GEMISYS nor any GEMISYS
employee shall be the employee of any Client or its agent for any purpose. No
party is granted any express or implied right or authority by any other party
to assume or create any obligation or responsibility on behalf of or in the
name of any other party, or to bind any other party in any manner or thing
whatsoever. GEMISYS is not in any way a fiduciary, named or unnamed, actual
or constructive, under this Agreement or under any Client-sponsored
investment vehicle. GEMISYS shall be responsible only for those duties and
responsibilities detailed in this Agreement and it shall have no
discretionary powers or abilities other than those specifically set forth in
this Agreement, if any. No implied covenant or obligation shall be read into
this Agreement against GEMISYS.
9.02 RELATIONS BETWEEN GEMISYS AND THIRD PARTIES. In performing its
Services under this Agreement GEMISYS may rely solely upon the accuracy of
all facts and representations supplied or made at any time by Client
Investor(s) or their Representative(s) which GEMISYS reasonably believes to
be genuine. GEMISYS shall be protected in accordance with Sections 1.04 and
7.02, above, in the event that GEMISYS reasonably relies solely upon the
instructions or information received from a duly authorized representative of
the Client or Client Investor(s) or their Representative(s) in effecting any
transactions with respect to the Client, and GEMISYS shall be under no duty
to inquire or ascertain whether the approval or direction of the Client
Investor or its Representative(s) has been lawfully obtained.
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10. DISPUTE RESOLUTION
10.01 ARBITRATION. If any controversy or claim arises between the
parties concerning this Agreement or the rights or duties of any party in
relation thereto or by reason of the breach of alleged breach thereof, then
that controversy or claim shall be submitted to arbitration in the County of
Santa Clara, State of California, in accordance with the rules then
prevailing of the American Arbitration Association.
10.02 JUDGMENT. Any judgment on the award rendered by the
arbitrator(s) under Section 10.01, above, may be entered and enforced in any
court of competent jurisdiction, provided, that within seven (7) days after
service of that award on the parties, no party has served the other party
with a written rejection of and election not to be bound by that
arbitrator(s)' award. If either party rejects the award in a timely manner,
then the parties shall submit their dispute to a binding adjudication before
a retired judge of the Superior Court of California for the Counties of Santa
Clara, San Mateo, San Francisco, or Marin in accordance with Section 638 of
the California Code of Civil Procedure. Any judgment on the award rendered by
the retired judge under this Section may be entered and enforced in any court
of competent jurisdiction.
10.03 PROTECTION OF PROPRIETARY INFORMATION. In the event of
arbitration, private adjudication, or litigation between the parties
concerning this Agreement or the rights or duties of any party in relation
thereto or by reason of the breach or alleged breach thereof, then any
document or material of any type, form, or media which is proffered as
evidence or is otherwise presented, submitted, or filed therein which
contains, may contain, or is designated as containing any Confidential
Information or Client Data shall be: (i) placed under seal or other safeguard
adequate to prevent any publication, misappropriation, or disclosure which
may endanger the proprietary nature or status of that Information or Data;
and (ii) designated as "Confidential" by any manner reasonably calculated to
impart notice that such Information or Data is being disclosed; and (iii)
used only for the purpose of conducting that arbitration or litigation; and
(iv) subject to a protective order to avoid unnecessary disclosure therein
and, if necessary, to an order restraining further disclosure, by both of
which the parties and their counsel shall abide.
10.04 ATTORNEYS' FEES. Each party shall be responsible for the
payment of its attorneys' fees, costs, and expenses previously incurred, or
to be incurred in the future, in connection with the preparation, drafting,
and execution of this Agreement or any amendment to it. In the event that
arbitration or litigation is commenced between the parties concerning this
Agreement or the rights or duties of any party in relation thereto or by
reason of the breach of alleged breach thereof, then the prevailing party in
such a proceeding shall be entitled to its reasonable attorneys' fees and
costs incurred as a result, the amount of which shall be determined by the
judge or court or in a separate action brought for that purpose.
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AMERICAN CHURCH MORTGAGE COMPANY
SHAREHOLDER SERVICES - TERMS AND CONDITIONS
- -------------------------------------------------------------------------------
11. NON-HIRING OF EMPLOYEES
During the term of this Agreement, and for a period of two (2) years
immediately following the termination or expiration of this Agreement, the
parties shall not interfere with the business of one another in any manner
including, without limitation, by inducing any Client or GEMISYS employee to
leave the others' employ or by inducing a consultant or other independent
contractor to breach that person's contract with the Client or with GEMISYS.
12. NON-COMPETITION
During the term of this Agreement, the Client, the Client's Managers,
the Client's sponsors, and their affiliates shall not solicit the trade or
patronage of GEMISYS' clients or potential clients of GEMISYS for the purpose
of rendering services similar to those to be performed by GEMISYS under this
Agreement, whether or not competitive therewith.
13. MISCELLANEOUS
13.01 NOTICES. Any notice, consent, demand, request, or other
communication required or permitted under this Agreement shall be in writing
and shall be deemed to have been duly given on the date of service if served
personally, or on the third (3rd) day after mailing if sent by first class,
postage prepaid United States mail and addressed to the addressee at the
address stated opposite its name set forth below, or at the most recent
address specified by written notice given to the sender by the addressee
under this Section. Such written communication(s) shall be addressed as
follows:
TO THE CLIENT: American Church Mortgage Company
Mr. V. James Davis, President
600 Highway 169, Suite 700
Minneapolis, Minnesota 55426
TO GEMISYS: GEMISYS CORPORATION
Darrall E. Robbins, President
3605 South Teller
Lakewood, Colorado 80235
13.02 ASSIGNMENT RESTRICTED. None of the Client's rights and
obligations under this Agreement may be assigned or transferred without the
prior written consent of GEMISYS, which consent shall not be unreasonably
withheld.
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AMERICAN CHURCH MORTGAGE COMPANY
SHAREHOLDER SERVICES - TERMS AND CONDITIONS
- -------------------------------------------------------------------------------
13.03 RULES OF CONSTRUCTION. The rule of construction, to the effect
that any ambiguities are to be resolved against the drafting party, shall not
be employed in the interpretation of this Agreement or any amendment to it.
No course of dealing, usage of trade, or course of performance shall be
relevant to explain or supplement any terms of this Agreement. All activities
undertaken by GEMISYS pursuant to this Agreement shall constitute "services"
and shall not be considered as "goods" by or under any definition or law.
13.04 WARRANTY OF CAPACITY TO EXECUTE AGREEMENT. The Client and
GEMISYS hereby represents and warrants to the other that no other person or
entity has any interest, liens, or assignment at law or in equity or
otherwise which would materially impair its ability to perform its
obligations under this Agreement. The Client further represents and warrants
that the persons executing this Agreement on behalf of that corporation have
the sole right and exclusive authority to do so, and have the authority to
bind the Client to this Agreement and to execute such other documents as may
be required to be delivered under it on behalf of the Client. The Client and
GEMISYS further represents and warrants that each has the sole right to
receive the services, sums, or other consideration specified in it, and is
fully entitled to enter into this Agreement.
13.05 Taxes. While GEMISYS knows at this time of no taxes applicable
to it as a result of the execution and performance of this Agreement other
than income taxes, each Client shall pay or reimburse GEMISYS for any other
taxes, excluding income or similar taxes, levied upon GEMISYS in connection
with the Services performed for the Client. GEMISYS shall have no duty to see
to the payment or discharge of any tax or other governmental charge or lien
of any kind owing with respect to, assessed, or levied against the assets of
the Client or any other Client-sponsored investment vehicle, or to the filing
of any tax or other governmental information in connection with any
Client-sponsored investment vehicle.
13.06 RIGHT OF REVIEW OF CLIENT MATERIALS. Except for those Client
materials which identify GEMISYS merely as "Transfer Agent," "Investor
Services Representative," or other similarly descriptive title, the Client
shall deliver to GEMISYS draft copies of all printed Client materials
intended for public distribution or distribution to Client Investors or their
Representatives which identify or refer to GEMISYS including, without
limitation, prospectuses or promotional materials, on or before the tenth
(10th) business day prior to that document's proposed distribution date.
GEMISYS shall have the right to review and to object to any such document
which it reasonably believes creates a legal duty or liability on GEMISYS'
part which it has not expressly agreed to assume under this Agreement.
GEMISYS' objection(s), if any, shall be in writing and shall be delivered to
the Client within five (5) business days after GEMISYS' receipt of the Client
materials. The Client shall not distribute any document so objected to unless
and until GEMISYS' objection(s) has been addressed to the reasonable
satisfaction of both parties.
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AMERICAN CHURCH MORTGAGE COMPANY
SHAREHOLDER SERVICES - TERMS AND CONDITIONS
- -------------------------------------------------------------------------------
14. GENERAL PROVISIONS
14.01 GOVERNING LAW. This Agreement is executed and intended to be
performed in the State of California, and the laws of the State of California
shall govern its interpretations, construction, enforcement, and effect.
Except as provided in Sections 10.01 and 10.02, above, the forum for the
resolution of any dispute arising out of this Agreement shall be the Superior
Court of the State of California in and for the County of Santa Clara. Each
party agrees to submit to the jurisdiction of such Court and that venue is
proper therein.
14.02 SUCCESSORS. This Agreement shall be binding upon and inure to
the benefit of the respective successors, heirs, assigns, and legal
representatives of the parties, except to the extent of any contrary
provision in this Agreement.
14.03 SEVERABILITY. If any term, provision, covenant, or condition of
this Agreement is held by a court of competent jurisdiction to be invalid,
void, or unenforceable, then the rest of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired, or invalidated.
14.04 CAPTIONS. The captions to the various sections of this
Agreement are for convenience only. Those captions or titles shall not amend
or modify this Agreement, or be resorted to in interpreting it.
14.05 GENDER, ETC. As used in this Agreement, the masculine,
feminine, or neuter gender, and the singular or plural number, shall be
deemed to include the others whenever the context so indicates or requires.
14.06 REMEDIES NOT EXCLUSIVE AND WAIVERS. No remedy conferred by any
of the provisions of this Agreement is intended to be exclusive of any other
remedy, and each and every remedy shall be cumulative and shall be in
addition to every other remedy given under this Agreement or now or hereafter
existing at law or in equity or by statute or otherwise. The election of any
one or more remedies shall not constitute a wavier of the right to pursue
other available remedies.
14.07 WAIVER. No waiver of any provisions of this Agreement shall be
valid unless in writing and signed by the party against whom charged.
14.08 SCHEDULES. The Exhibit and all of the Schedules attached to
this Agreement and all schedules or exhibits to the Schedules attached to
this Agreement are incorporated herein as though set forth in full and shall
be considered as a material part of the Agreement of the parties.
14.09 SURVIVAL. The provisions, representations, and warranties
contained in this Agreement shall survive GEMISYS' delivery of Services and
the Clients' payment of any Fees.
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AMERICAN CHURCH MORTGAGE COMPANY
SHAREHOLDER SERVICES - TERMS AND CONDITIONS
- -------------------------------------------------------------------------------
14.10 ENTIRE AGREEMENT. This Agreement contains the entire agreement
of the parties relating to the rights granted and obligations assumed in this
Agreement. Any modifications or amendments must be in writing and signed by
the parties. The parties acknowledge that such modifications or amendments
may also include or result in changes in the various Schedules attached
hereto.
14.11 CONFIDENTIALITY. Client shall treat the terms of this Agreement
as confidential; provided, however, that Client shall be permitted, as
required by the terms of the corporate charter and bylaws, the securities
laws of the United States, or other regulatory authority, to disclose the
terms hereof, but only to the extent required by such agreements, laws, or
authority.
14.12 COUNTERPART COPIES. This Agreement may be signed in counterpart
or duplicate copies, and any signed counterpart or duplicate copy shall be
equivalent to a signed original for all purposes.
IN WITNESS WHEREOF, Client, and GEMISYS execute this Agreement as of
12-1, 1994.
Date: 12-23 , 1994. American Church Mortgage Company
------------------ a Minnesota corporation
By: /s/ V. James Davis
-----------------------------------
V. James Davis
President
Date: 12/19 , 1994. GEMISYS CORPORATION
---------------------- a California corporation
By: /s/ Darrall E. Robbins
-----------------------------------
Darrall E. Robbins
President
17
<PAGE>
[LETTERHEAD]
SHAREHOLDER SERVICES AND FEE SUPPLEMENT
CLIENT: American Church Mortgage Company DATE: December 1, 1994
ADDRESS: 600 Highway 169, Suite 700
CITY: Minneapolis STATE: Minnesota ZIP: 55426
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This Shareholder Services and Fee Supplement includes all services stated
below and detailed in the following supplement to cover the services in
support of American Church Mortgage Company ("Client") intention to raise new
capital in the form of a Real Estate Investment Trust (REIT) entity and to be
traded on the NASDAQ or over-the-counter.
Some variable services and pass through charges are set forth within the
standard services package below, in order to present them in the appropriate
service sequence order. However, these variable charges will be extra to
Client and include printed materials, forms, laser printing, mailing
services, postage and telephone services.
I. STANDARD SHAREHOLDER SERVICES PACKAGE
<TABLE>
<S> <C>
- Initial set-up fee, to be paid upon execution $1,000
- Monthly Standard Shareholder Services fee;
- up to 500 shareholders $ 500/month*
- 500 or more shareholders $0.50/shareholder/month
</TABLE>
Note:
These fees shall not exceed a maximum of $2,000 monthly for Standard
Shareholder Services Fees. For fee purposes, all recordholders and
streetname investors will be counted if identifiable on the Transfer
Agency System.
* This monthly Standard Shareholder Services fee should commence the
month that the Initial Public Offering breaks impound.
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<PAGE>
AMERICAN CHURCH MORTGAGE COMPANY
SHAREHOLDER SERVICES AND FEE SUPPLEMENT
- --------------------------------------------------------------------------------
1. ACCOUNT MAINTENANCE AND RECORDKEEPING SERVICES INCLUDED
- "Stockwatch" services, including
- Unlimited Ad-hoc demographic and marketing reports
- Shareholder phone services
- Account administration
- Complete maintenance of shareholder records
- Reply to general shareholder requests
- Process address changes
- Confirmation letter on Postal Service address change
notices
- Process daily correspondence
- Bond of Indemnity insurance forms
2. STOCK TRANSFER AGENT AND REGISTRAR INCLUDED
- Review transfers for endorsements, signature guarantees,
and produce routine correspondence necessary to correct
deficiencies, in compliance with SEC, NASD and NYSE rules
relating to stock transfers
- Issue new certificates
- Maintain stock and note register
- Cancel old certificates
- Register certificates
- Mail stock certificates
- Maintain stock certificates inventory
- Insurance for mailing of certificates
- Monitor processing time for transfers
- Update records to reflect debits and credits
- Maintain stop transfer file
- Process daily transfers
- Produce transfer journals (daily)
- Process priority and exception items
- Process stock options
- Place restrictions and legends on stock
- Replace lost or stolen certificates, process Surety Bonds
and file notice of loss with SEC
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AMERICAN CHURCH MORTGAGE COMPANY
SHAREHOLDER SERVICES AND FEE SUPPLEMENT
- --------------------------------------------------------------------------------
3. DIVIDEND DISBURSEMENT SERVICES QUARTERLY PAYMENT - INCLUDED
MONTHLY PAYMENT - $0.20/CHECK
- Prepare monthly or quarterly dividends payment checks
- Issue checks from a GEMISYS controlled bank account
- Print and sign roll-up checks to IRA custodians or other
payees
- Print investor Payment Advices
- Insert checks and one additional insert, sort and mail
- Prepare a hardcopy dividend list as of each dividend record
date
- Deduct back-up withholding and nonresident alien tax
- Reconcile and report taxes withheld to IRS
- Coding "undeliverable" accounts to suppress mailing future
dividend checks, after attempts made to locate
shareholders.
- Process and track accumulated, uncashed dividends
- Furnish requested dividend information to stockholders
- Receive investor, check re-issue requests
- Receive and issue stop-payments
- Replace lost dividend checks
- Provide photocopies of canceled checks when requested
- Provide broker dividend summary and letter (at Client's
option)
- Form W9 solicitation, performed annually
- Establish and maintain dividend check inventory
- Prepare and file magnetic Federal Information Returns (as
needed - 1099-DIV, 1009-INT) of dividends paid in a year,
and mail a statement to each shareholder
- Provide duplicate copies of Forms 1099 and 1042, as
requested by shareholder
- Prepare and file magnetic State Information Returns of
dividends paid in a year to shareholders within such state.
4. BANK RECONCILIATION NO CHARGE
- Provide on-line check inquiry
- Load bank account data by modem daily, or periodically by
tape
- Process automated check reconciliation
- Maintain check register
- Reconcile paid and outstanding checks
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AMERICAN CHURCH MORTGAGE COMPANY
SHAREHOLDER SERVICES AND FEE SUPPLEMENT
- --------------------------------------------------------------------------------
5. DIVIDEND REINVESTMENT PLAN SERVICES INCLUDED
- Coordinate the Dividend Reinvestment Plan participants
request to acquire additional shares in the REIT, in lieu
of return cash.
- Issue the needed shares from treasury stock of Client set
aside for this purpose
- Generate a Dividend Reinvestment "Payment Advice" and
forward it to each participant in the DRP Plan.
6. ANNUAL PROXY, ANNUAL MEETING, AND RELATED SERVICES INCLUDED
- Prepare a full shareholder list (certified) as of the
Annual Meeting Record Date
- Address proxy cards
- Receive, open and examine returned proxies
- Attempt to remedy unsigned or improperly executed proxies
- Provide summary reports on status of tabulation, on a daily
basis
- Vote Transaction Summary Report, on-line and hard-copy
- Descending Share Balance Report
- Responding to inquiries as to whether specific accounts
have yet voted
- Tabulating returned proxies including multiple issues
- Preparing a final Annual Meeting list reflecting how each
account has voted on each proposal
- Provide Inspector of Election at annual meeting
II. VARIABLE SERVICES
1. MAIL QUARTERLY AND ANNUAL REPORTS See mail costs below
- Address, insert and mail quarterly reports (three per
annum)
- Address, insert and mail annual report (in Bipak envelope
with proxy card, proxy statement and return envelope, if
applicable)
2. MISCELLANEOUS REPORTS $0.04/page
- Prepare 25 ad hoc reports for Client
- Prepare 5 tapes or transmission reports to be formatted
- Prepare 5 annual proxy demographic reports
- Prepare 2 full shareholder lists
- Prepare 2 lists of new shareholders
- Prepare 52 weekly reports of top shareholders
- Prepare escheat fulfillment reports, as needed
21
<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
17, 1999 appearing in (or incorporated by reference in) to the Registration
Statement Form S-11 of American Church Mortgage Company for the years ended
December 31, 1998, 1997, 1996 and 1995. We consent to the reference to our
Firm under the caption "Experts" in the Prospectus included therein.
/s/ Boulay, Heutmaker, Zibell & Co. P.L.L.P.
Boulay, Heutmaker, Zibell & Co. P.L.L.P.
Certified Public Accountants
Minneapolis, Minnesota
June 24, 1999
