As filed with the Securities and Exchange Commission on
November 19, 1997 Registration No. 333-4028 LA
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form SB-2
REGISTRATION STATEMENT
Under THE SECURITIES ACT OF 1933
MINISTRY PARTNERS INVESTMENT CORPORATION
(Exact name of registrant as specified in its charter)
California
(State or other jurisdiction of incorporation or organization)
33-0489154
(IRS Employer Identification Number)
1150 N. Magnolia Avenue, Anaheim, California 92801 800-753-6742
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
JOHN C. GARMO
President
1150 N. Magnolia Avenue,
Anaheim, California 92801
800-753-6742
With copy to:
BRUCE J. RUSHALL, ESQ.
RUSHALL & McGEEVER
2111 Palomar Airport Road,
Suite 200,
Carlsbad, California 92009
760-438-6855
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
Approximate date of proposed sale to the public: Upon the effective
date of this Registration Statement.
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please
check the following space and list the Securities Act registration
statement number of the earlier effective registration statement for
the same offering:___
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following space and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering:___
If delivery of the Prospectus is expected to be made pursuant to Rule
434, please check the following space:___
CALCULATION OF REGISTRATION FEE
Title of Each Class of Securities to be Registered: Class A-1 Notes
Dollar Amount to be Registered: $15,000,000
Proposed Maximum Offering Price per Unit: $1,000
Proposed Maximum Aggregate Offering Price: $15,000,000
Amount of Registration Fee: $4,545
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
the Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the
Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
MINISTRY PARTNERS INVESTMENT CORPORATION
CROSS-REFERENCE SHEET
Item Number and Caption in Form SB-2 Location or Heading in
Prospectus
1. Front of Registration Statement and Facing Page of Registration
Outside Front Cover Page of Statement; Cover Page of
Prospectus. Prospectus.
2. Inside Front and Outside Back Cover Inside Front and Outside Back
Pages of Prospectus. Back Cover Pages of Prospectus.
3. Summary Information and Risk Factors. Prospectus Summary; Business of
the Company; Risk Factors.
4. Use of Proceeds. Prospectus Summary; Use of
Proceeds.
5. Determination of Offering Price. *
6. Dilution. *
7. Selling Security Holders. *
8. Plan of Distribution. Cover Page; Plan of
Distribution.
9. Legal Proceedings. Legal Proceedings.
10. Directors, Executive Officers, Management.
Promoters and Control Persons.
11. Security Ownership of Certain Security Ownership of Certain
Beneficial Owners and Management. Beneficial Owners and
Management.
12. Description of Securities. Description of the Notes.
13. Interests of Named Experts and *
Counsel.
14. Disclosure of Commission Information Not Required in the
Position on Indemnification for Prospectus.
Securities Act Liabilities.
15. Organization within Last Five Years. The Company; Business of the
Company.
16. Description of Business. Business of the Company.
17. Management's Discussion and Management's Discussion and
Analysis of Plan of Operation. Analysis of Plan of Operation.
18. Description of Property. Business.
19. Certain Relationships and Related Certain Transactions; Risk
Transactions. Factors.
20. Market for Common Equity and *
Related Stockholder Matters.
21. Executive Compensation. Management Compensation.
22. Financial Statements. Financial Statements.
23. Changes In and Disagreements *
with Accountants on Accounting
and Financial Disclosure.
* Omitted as not applicable.
PROSPECTUS MINISTRY PARTNERS INVESTMENT CORPORATION
$15,000,000
Class A-1 Promissory Notes
Ministry Partners Investment Corporation, a California corporation (the
"Company"), is hereby offering its unsecured Class A-1 promissory notes
(the "Notes") in Series 1, 5, 10, 25, 50, 100 and C. Each Series of the
Notes are offered with maturities of 6, 12, 24, 30 and 60 months except
the Series C Notes, which are offered with a maturity of 72 months and
are callable by the holder at any time upon ninety (90) days prior
written notice to the Company. The Notes bear interest at the rates
equal to a fixed spread above the Blended Index Rate (the "BIR") for the
respective Series and maturity of a Note in effect on the date it is
sold. The BIR is the average of the National Index Rate and the Los
Angeles Index Rate for financial institutions reported by the Bank Rate
MonitorTM. The Notes must be purchased in the minimum initial investment
required for the Series of Notes purchased and thereafter in increments
of any amount. The Notes are redeemable at the election of the Company
upon 30 days prior written notice, in whole or in part, at their unpaid
principal balance, plus accrued and unpaid interest to the redemption
date. Interest is payable monthly unless otherwise elected by the
investor ("Holder"). See "DESCRIPTION OF THE NOTES -- Interest."
There is no market for the Notes and it is not expected that a
public market will develop for the Notes or that, if it does develop, it
will be sustained. The Notes are being offered directly by the Company
through its officers and selected employees. See "TERMS OF THE
OFFERING."
The Notes are being issued subject to the Class A-1 Notes Loan and
Standby Trust Agreement (the "Loan Agreement") which sets forth certain
terms and conditions respecting the Notes. See "DESCRIPTION OF THE NOTES -
Loan and Standby Trust Agreement." The Notes are general obligations
backed by the full credit of the Company, ranking in pari passu in right of
payment to all existing and future indebtedness of the Company not
expressly subordinated to the Notes. The Company intends to use funds from
the Company's operations and from proceeds from the sale of additional
Notes to repay the Notes. There is no provision for a sinking fund. See
"SUMMARY" and "RISK FACTORS." See "USE OF PROCEEDS." The Company is the
wholly-owned subsidiary of Evangelical Christian Credit Union ("ECCU").
THE COMPANY IS SEPARATE FROM ECCU. ECCU HAS NOT GUARANTEED OR OTHERWISE
AGREED TO BE RESPONSIBLE IN ANY MANNER FOR THE PAYMENT OF PRINCIPAL OR
INTEREST ON THE NOTES. THE NOTES ARE NOT INSURED BY ANY GOVERNMENTAL OR
PRIVATE ENTITY. See "RISK FACTORS" and "BUSINESS OF THE COMPANY."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL SECURITIES IN ANY
STATE TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
STATE.
Offering Underwriting Proceeds to
Price Discount the Company(1)
Minimum Purchase $ 1,000 None $ 1,000
Total $15,000,000 None $15,000,000
(1) Before deduction of (i) filing, printing, legal, accounting and
miscellaneous expenses payable by the Company estimated not to exceed
$30,000.
The current Rate Schedule and any other supplements to this Prospectus
are placed inside this front cover.
The date of this Prospectus is November 19, 1997
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on
Form SB-2 (including all amendments thereto, the "Registration Statement"),
with respect to the Securities offered hereby. As permitted by the rules
and regulations of the Commission, this Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits
and schedules thereto. For further information about the Company and
the Securities offered hereby, reference is made to the Registration
Statement and the exhibits thereto, which may be examined without charge at
the public reference facilities maintained by the Commission at Room 1204,
Judiciary Plaza, 450 Fifth Street NW, Washington, DC 20549, and copies of
which may be obtained from the Commission upon payment of the prescribed
fees. The Registration Statement may also be obtained from the
Commission's website maintained at http://www.sec.gov.
Since December 31, 1996 and continuing after the date of this
Prospectus, the Company will be required to file such reports with the
Securities and Exchange Commission (the "Commission") as it may be required
to file pursuant to the Exchange Act by reason of Section 15(d) thereof.
The Company is not otherwise subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith does not otherwise file reports, proxy statements and
other information with the Commission. Any reports, proxy statements and
other information filed by the Company in accordance with the Exchange
Act can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1204, Judiciary Plaza, 450 Fifth
Street NW, Washington, DC 20549 and Suite 1400, 5670 Wilshire Boulevard,
11th Floor, Los Angeles, California 90036. Copies of such material can be
obtained at prescribed rates from the public reference section of the
Commission at 450 Fifth Street NW, Washington, DC 20549. Copies of such
reports, proxy statements and other information concerning the company may
also be obtained from the Commission's website at http://www.sec.gov.
No person has been authorized by the Company to give any information
or to make any representation other than as contained in this Prospectus
and, if given or made, such information or representation must not be
relied upon as having been authorized by the Company. Neither the delivery
of this Prospectus nor any distribution of the shares of the common stock
issuable under the terms of this Prospectus, under any circumstances,
create any implication that there has been no change in the affairs of the
Company since the date hereof.
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . .-v-
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . .-1-
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . .-5-
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . -13-
THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . -14-
BUSINESS OF THE COMPANY. . . . . . . . . . . . . . . . . . . . -16-
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
MANAGEMENT COMPENSATION. . . . . . . . . . . . . . . . . . . . -31-
VOTING SECURITY OWNERSHIP. . . . . . . . . . . . . . . . . . . -32-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . -32-
CERTAIN TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . -36-
DESCRIPTION OF THE NOTES . . . . . . . . . . . . . . . . . . . -36-
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . -47-
EXPERTS AND COUNSEL. . . . . . . . . . . . . . . . . . . . . . -48-
LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . -48-
INDEX TO FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . .F-1
EXHIBITS:
A. Form of Note. . . . . . . . . . . . . . . . . . . . . . . . .A-1
B. Form of Loan and Standby Trust Agreement. . . . . . . . . . .B-1
<PAGE>
PROSPECTUS SUMMARY
The Company qualifies the following summary of certain information by
the more detailed information and financial statements appearing elsewhere
in this Prospectus.
The Company
The Company, Ministry Partners Investment Corporation, is a California
corporation. The Company was organized to provide financing for secured
loans to eligible Evangelical Christian churches and denominational church
organizations or church organizations through funds raised from constituent
institutions and persons of such churches and organizations. The Company's
secured loan investments ("Mortgage Loans") are secured by churches or
church-related properties. See "THE COMPANY" and "BUSINESS." The Company
is the wholly-owned subsidiary of Evangelical Christian Credit Union, a
non-profit corporation ("ECCU"). THE COMPANY'S BUSINESS IS SEPARATE FROM
THAT OF ECCU AND NEITHER THE COMPANY'S BUSINESS NOR THE NOTES IS THE
OBLIGATION OF, OR GUARANTEED BY, ECCU.
The Offering
Securities Offered -
$15,000,000 of the Company's Class A-1 Notes offered in Series 1, 5, 10,
25, 50, 100 and C. The Notes are issued pursuant to the Loan Agreement
which permits the issuance of up to $25,000,000 of Class A-1 Notes. Under
the Loan Agreement, the Company may not issue additional Notes if, after
giving effect to such issuance, the Company would have more than
$10,000,000 of Class A-1 Notes outstanding. See "DESCRIPTION OF THE NOTES
- Series Issued". Unless sooner terminated, the Offering will continue
until November 30, 1999 subject to compliance with applicable federal and
state securities laws.
Interest Rate -
Interest paid on the Notes is fixed on the date of sale at the rate equal
to the BIR then in effect for respective Note Series and maturity (i.e. 6,
12, 24, 30 or 60 mos.), plus the respective fixed spread as follows:
Note Series 1 5 10 25 50 100 C10 C25
Fixed Spread 1.00% 1.12% 1.24% 1.36% 1.48% 1.60% 1.00% 1.50%
The BIR is the average of the National Index Rate and the Los Angeles Index
Rate for financial institutions reported in the applicable edition of
the Bank Rate MonitorTM, which is the edition in effect on the first day
of each month. See "DESCRIPTION OF THE NOTES -Interest".
Note Maturity -
The Series 1, 5, 10, 25, 50 and 100 Notes are offered with maturities of 6,
12, 24, 30, and 60 months from the date of purchase. Series C Notes are
offered with a maturity of 72 months and are callable at anytime by the
Holder upon 90 days prior written notice to the Company. See "DESCRIPTION
OF THE NOTES - Series Issued."
Interest Payment Dates -
Unless the reinvestment option or other payment option is selected by the
Holder, the Notes are payable interest only in arrears monthly on or before
the 5th business day of the month next following the due date, prorated for
the first partial payment period, if any, after issuance; interest will
begin accruing upon the date of purchase of the Note. See "DESCRIPTION
OF THE NOTES -Interest".
Minimum Purchase -
Series 1 Notes - $ 1,000
Series 5 Notes - $ 5,000
Series 10 Notes - $10,000
Series 25 Notes - $25,000
Series 50 Notes - $50,000
Series 100 Notes - $100,000
Series C Notes - $10,000
Interest Reinvestment Option -
Holders may elect to purchase their Note with a reinvestment option
("Reinvestment Option") whereby the Company will retain all interest
payable and credit the Holder with the interest payable on the Note based
on a 365-day year on all retained interest from the date such payments
would have been paid until the end of the term of the Notes. See
"DESCRIPTION OF THE NOTES - Reinvestment Option".
Ranking -
The Notes will be general obligations backed by the full credit of the
Company, ranking pari passu in right of payment to all existing and future
Indebtedness of the Company and will be senior in right of payment to
the ECCU credit line and any other indebtedness of the Company expressly
subordinated to the Class A-1 Notes. The Notes are not secured or
guaranteed. At September 30, 1997, the Company had approximately
$6,590,805 of indebtedness which is pari passu with the Notes and
approximately $210,373 of indebtedness which is subordinated to the Notes.
See "DESCRIPTION OF THE NOTES - General".
Optional Prepayment -
Each Series of Notes are subject to prepayment (redemption) at the
election of Company upon not less than thirty (30) days nor more than sixty
(60) days prior written notice. The Company may prepay a Series of Notes
or a pro rata portion of any Series of Notes, in whole or in part, at their
unpaid principal balance, plus accrued and unpaid interest thereon, if any,
to the prepayment date. See "DESCRIPTION OF THE NOTES - Optional
Prepayment".
Certain Covenants -
The Notes incorporate certain covenants that, among other things, limit
certain borrowings by the Company and require the Company to maintain an
Adjusted Net Worth, as defined, of $2,000,000 and the Company's other
borrowings whether they are senior to or pari passu with the Notes. These
covenants also limit the ability of the Company to pay dividends, make
certain other distributions, repurchase capital stock or subordinated
indebtedness, enter into certain transactions with affiliates and
consummate certain mergers, consolidations or sales of assets. See
"DESCRIPTION OF THE NOTES - Loan and Standby Trust Agreement".
Early Presentment of Notes -
A Holder may request at any time that the Company repurchase or prepay
their Notes prior to their maturity. Upon its receipt of such a request,
the Company may, in its discretion, elect to purchase the Note for an
amount equal to the unpaid principal amount of the Note plus accrued and
unpaid interest thereon, if any, less an amount equal to lessor of three
(3) months interest payable on the Note or interest payable for one-sixth
of the term of the Note. See "DESCRIPTION OF THE NOTES - Early
Presentment of Notes".
Loan and Standby Agreement -
The Notes are issued pursuant to the Loan and Standby Trust Agreement
(the "Loan Agreement"). As a condition to the purchase of his or her Note,
each Holder must adopt and agree to be bound by the Loan Agreement. Under
the Loan Agreement, the Holders must pursue their remedies with respect to
a default under the Notes through a Trustee. A Trustee may be appointed by
the vote or written consent of the Holders. Upon the occurrence of a
default in the payment of any interest, penalty or the principal of any
Note when due or the failure by the Company to observe or comply with
other covenants of the Notes or this Prospectus and continuance of such
default or failure for thirty (30) days, the Holders of no less than a
majority in principal amount of the outstanding Notes may appoint a
Trustee. The Loan Agreement contains cross-default provisions whereby an
actual default by the Company with respect to one Series of Notes will
constitute a default with respect to all Series of Notes. The Loan
Agreement requires Holders who suffer an actual default on their Notes to
obtain the consent of a majority of all Holders, regardless of Series or
maturity or default status, to appoint a Trustee and take action against
the Company. THIS REQUIREMENT, IN EFFECT, MAY LEAVE MANY NOTEHOLDERS
WITHOUT PRACTICAL RECOURSE. See "DESCRIPTION OF THE NOTES - Loan and
Standby Trust Agreement".
Use of Proceeds -
After the payment of its offering costs, the Company will use the proceeds
from the sale of the Notes to (i) pay interest and principal due on the
Company's outstanding indebtedness other than subordinated indebtedness
owed ECCU, including previously sold Notes, if any, as they may from time
to time be payable, and (ii) acquire Mortgage Loan investments. See "USE
OF PROCEEDS."
Risk Factors
An investment should be made only after careful consideration of
significant risk factors which may affect the Company and its business.
See "RISK FACTORS." An investment in the Notes involves various risks
including, but not limited to:
* The Company will rely on funds from the following sources to
repay principal of the Notes: (i) payments received from its
Mortgage Loan Investments to pay interest on the Notes, (ii)
the ECCU Credit Line, (iii) the sale of additional Notes, and
(iv) the sale/hypothecation of its Mortgage Loan Investments.
See "RISK FACTORS - Dependence on Sale of Debt Securities;
Ability to Timely Repay Notes".
* The Notes are general obligations of the Company and the
Company's ability to timely pay interest and principal on the
Notes is dependent upon the success of the Company's business
of investing in Mortgage Loans. See "RISK FACTORS - Nature
of Obligations".
* The Company continuing operations depends on its ability to
raise funds from the sale of the Notes or other debt
securities which funds will be the primary source of its
investment capital. See "RISK FACTORS".
* The Company relies on a credit line from ECCU for funds to timely
acquire Mortgage Loan Investments and there is no assurance that
ECCU will continue to provide this financing to the Company on the
same terms in the future or at all. See "RISK FACTORS - Continuation
of ECCU Credit Line".
* The payment of principal and interest on the Notes is not
guaranteed by any person, the Notes are unsecured and there
is no sinking fund for repayment of the Notes. See "RISK
FACTORS - Notes Unsecured and Unrated; No Sinking Fund".
* The Company's business is subject to uncertainties of future
fluctuations in interest rates, national and local economic
conditions in general, local real estate markets and the
ability of the borrowers under the Company's Mortgage Loans
to timely repay their loan obligations. See "RISK FACTORS".
* The Notes are subject to the Loan and Standby Trust Agreement
which limits the manner in which the Holders may enforce
their rights against the Company. See "RISK FACTORS - No
Current Trustee, The Loan and Standby Trust Agreement", -
Amendment, Supplement and Waiver of Notes".
* The Company acquires substantially all of its Mortgage Loan
investments from its parent, ECCU, and certain conflicts of
interest exist between the Company and ECCU by reason of
certain common management. See "RISK FACTORS - Purchase of
Mortgage Loans for ECCU - Conflicts of Interest" and "-
Continuation of ECCU Credit Line". See also "CONFLICTS OF
INTEREST" and "CERTAIN TRANSACTIONS".
* The Offering of the Notes is being made directly by the
Company and there is no independent underwriter involved in
the Offering. See "RISK FACTORS - No Independent Underwriter"
and "- No Independent Determination of Offering Price".
Plan of Distribution
The Notes are being offered directly by the Company through its officers
and selected employees. The Company has not engaged an underwriter to
place the Notes and the Company currently pays no commissions or finder's
fees to any person in connection with the sale of the Notes. See "PLAN OF
DISTRIBUTION."
RISK FACTORS
An investment in the Notes involves various risks which should be
carefully considered. Discussed below are a number of the more important
risks which should be considered.
Nature of Obligations
The Notes are general obligations backed by the full credit of the
Company, ranking pari passu in right of payment to all existing and future
indebtedness of the Company except those obligations which may be expressly
subordinated to the Notes. The Notes are not senior in right of payment to
any other debt obligations of the Company. At September 30, 1997, the
Company had outstanding approximately $6,590,805 of indebtedness which is
pari passu with the Notes and approximately $418,000 of indebtedness which
is subordinated to the Notes. Repayment of the Notes will remain the sole
obligation of the Company. The Notes are not guaranteed by any agency or
instrumentality of the United States or any state or local government, by
the Company's parent, its officers or directors, or by any other person.
Dependence on Sale of Debt Securities; Ability to Timely Repay Notes
The Company's ability to satisfy its obligations to pay principal and
interest on the Notes will depend on a number of factors, many of which are
outside the control of the Company. These factors include timely payment
by borrowers under the Company's Mortgage Loan investments, legal and
regulatory requirements affecting the Company's ability to collect amounts
owing on Mortgage Loans which may become in default, Mortgage Loans,
changes in federal income tax and other regulatory laws, changes in local
and national financial markets, and national and local economic conditions
in general.
The Company will rely on funds from the following sources to pay interest
and principal on the Notes: (i) Net cash from operations, if any, (ii) the
sale of Notes in the Offering, (iii) Funds borrowed pursuant to the ECCU
credit line, and (iv) the repayment, sale and/or hypothecation of the
Company's Mortgage Loan investments. The Company will endeavor to maintain
tangible assets (which include the unpaid balance of its Mortgage Loan
portfolio) with a book value equal to at least 115% of the outstanding
unpaid principal balance of the Notes and the Company's other indebtedness
not expressly subordinated to the payment of the Notes ("unsubordinated
indebtedness"). Currently, the only indebtedness of the Company expressly
subordinated to the payment of the Notes is the ECCU Credit Line. Also,
under the Loan Agreement, the Company will be in default of the Notes
should its Adjusted Net Worth, which includes subordinated Indebtedness, be
less than $2,100,000 or if it incurs unsubordinated other Indebtedness in
excess of $750,000 over the amount of such indebtedness at September 30,
1997. There is no assurance, however, that the Company will be able to
maintain such a tangible asset to unsubordinated debt ratio of 115%.
The Company's ability to maintain such a ratio of its Tangible Assets
will depend substantially on the Company's not experiencing significant
uncured defaults on its Mortgage Loan investments. While the Company has
in the past not experienced a permanent default on any Mortgage Loan
investment, there is no assurance that it will not incur significant
defaults in the future. In the event of an uncured default on a Mortgage
Loan, the Company would be required to seek recovery from the security or
collateral for the loan and there is no assurance that such security would
be sufficient to enable the Company to recover the entire amount of its
investment. See "Delinquency, Foreclosure and Other Credit Risks" below.
Risk of Insufficient Liquidity
Irrespective of the value of the Company's Mortgage Loan investments and
its ability to repay the Notes outstanding at a particular time, the
Company's ability to timely pay its obligations under the Notes will depend
on the amount and timing of revenues it receives, i.e. its continuing
liquidity. In the event it is unable to timely pay interest and/or
principal on the Notes, the Company would be in default under the Notes
(and in general under the terms of its other borrowing(s)) which, among
other things, would increase its need for liquidity. The Company's
liquidity will derive primarily from revenues from its Mortgage Loan
investments, the Company's ability to continue its Offering of the Notes,
the sufficiency of the ECCU Credit Line and, if necessary, its ability to
timely realize funds through sale or borrowing (hypothecation) secured by
its Mortgage Loan investments. The price at which Mortgage Loans can be
sold or valued for hypothecation purposes will be dependent upon several
factors including the quality and yield of the Mortgage Loan and prevailing
financial market and economic conditions. Accordingly, there is no
assurance as to the price or value that the Company will be able to realize
from the sale or hypothecation of a Mortgage Loan or that the Company would
not realize a value substantially below the par or face amount of the
Mortgage Loan. The Company to date has not attempted to sell or
hypothecate its Mortgage Loan investments or entered into serious
negotiations for such transactions with third parties. While management is
aware of a number of institutions which from time to time purchase and/or
sell loans secured by church properties, there is no assurance that such a
willing buyer or lender would be available to the Company in the event it
seeks to sell or hypothecate its Mortgage Loan investments. In the event
these sources of funds are insufficient to repay the Notes as they are due,
the Company would likely default under the Loan Agreement with respect to
the Notes.
During its continued operations, the Company will depend significantly on
the sale of additional Notes for funds to repay previously sold and
outstanding debt obligations, including the Notes. As of September 30,
1997, approximately 41% of the Company's approximately $6,590,805 matures
on or before March 31, 1998. While the Company intends to rely on proceeds
from the sale of the Notes to repay previously paid Notes during its
continuing operations, Management believes that should it be unable to
continue the Offering or otherwise determine to cease continued operations,
the Company would have sufficient assets to repay any outstanding Notes in
the event it is not able to sell new Notes or it otherwise determines to
cease the sale of Notes. In the past, the Company has experienced
significant frequencies of reinvestment, particularly in the case of short
term note obligations.
Management, based on this experience, anticipates that a substantial
number of Noteholders will, upon maturity of their Notes, reinvest all or a
substantial portion of their investment in new Notes. There is, however no
assurance the Company will experience significant reinvestment by
Noteholders in the future or that it will be able to continue this
Offering. In the event it is unable to continue this Offering or to
otherwise obtain funds from other equity or debt investors, the Company
would rely on the ECCU Credit Line, if available, and the sale or
hypothecation of its Mortgage Loan investments to repay any Notes.
Interest Rate Fluctuations
Changes in interest rates can have a variety of effects on the Company's
business. In particular, changes in interest rates may impact the volume
of its Mortgage Loan investments, the net interest income on its Mortgage
Loan investments and the amount of gain or loss on any sale of its Mortgage
Loan investments by the Company.
The Company's net interest income or loss is the difference between the
interest income earned on its Mortgage Loan investments and the interest
expense paid on its borrowings by the Company to fund such investments.
The Company funds its Mortgage Loan investments principally through
borrowings pursuant to the Notes and short term credit arrangements. The
profitability of the Mortgage Loan investments is principally a function of
the spread between long term interest rates (the yields at which the
Mortgage Loans are purchased or originated) and the interest rates paid by
the Company on its borrowings. A decrease in this spread would have a
negative effect on the net interest income and profitability. There can be
no assurance that this spread will not decrease.
Purchase of Mortgage Loans from ECCU
Management anticipates that it will acquire most, if not all, of its
Mortgage Loan investments from ECCU and may own one or more Mortgage Loan
investments jointly with ECCU. While any such acquisitions or co-ownership
must meet certain stated criteria and be approved by the Company's
disinterested directors, conflicts of interest will be inherent in
connection with each such transaction.
No Current Trustee; The Loan and Standby Trust Agreement
Corporate debt, such as represented by the Notes, is often issued
pursuant to a trust indenture, such as the type required for many debt
offerings by the Trust Indenture Act. The indenture would provide
covenants and procedures to protect debt owners and appoint a Trustee
to act for the benefit of all debt Holders and protect their interest.
However, the Notes are not governed by an indenture with a current
Trustee. The Notes are being issued pursuant to an exemption from the
Trust Indenture Act, and the provisions of such Act designed to
protect debt owners are not applicable to the Notes. As a condition
to his or her purchase of a Note, a Noteholder must adopt and agree to
be bound by the terms and conditions of the Loan Agreement. See,
"Description of Notes - Loan and Standby Trust Agreement. There is a
provision in The Loan Agreement to come into operation if a majority
in interest of the Holders elect a Trustee after a default in payment
of the Notes has occurred and has not been cured for 30 days.
However, in the event of a default, each owner of a Note will have to
act to protect his or her own interests if no Trustee is appointed.
Further, in the event of a default related to any failure to pay
amounts due, the Notes provide for acceleration of principal and for
recovery of the amount owned with interest and late payment penalty
interest plus costs of legal actions for collection but do not
provide for any other penalties or consequences of non-payment. The
Loan Agreement contains cross-default provisions whereby an actual
default by the Company with respect to one Series of Notes will
constitute a default (technical default) with respect to each other
Series of the Notes outstanding. Noteholders suffering an actual
default by the Company may be more inclined to act to appoint a
Trustee under the Loan Agreement to take action against the Company
than Noteholders suffering only a technical default on their Notes.
Thus, where there is an actual default by the Company on one or more
Series of Notes constituting less than a majority of the unpaid
principal balance of the Notes outstanding, such Noteholders may not
be able to obtain the consent of the majority of all Noteholders to
appoint a Trustee under the Loan Agreement. IN SUCH EVENT, SUCH
NOTEHOLDERS MAY BE WITHOUT PRACTICAL RECOURSE AGAINST THE COMPANY.
Under the Loan Agreement the Trustee may make a compromise or
settlement with the Company in the case of an uncured default, and, if
such compromise or settlement is approved by a majority in interest of
the Noteholders, such settlement or compromise would be binding on all
the Noteholders. BY EXECUTING THE SUBSCRIPTION DOCUMENT, EACH HOLDER
ADOPTS AND AGREES TO BE BOUND BY THE TERMS AND CONDITIONS OF THE LOAN
AND STANDBY TRUST AGREEMENT AND TO THE APPOINTMENT OF A TRUSTEE PURSUANT TO
ITS TERMS. EACH INVESTOR SHOULD CAREFULLY REVIEW THE LOAN AND STANDBY
TRUST AGREEMENT ATTACHED AS EXHIBIT B TO THIS PROSPECTUS. NO NOTEHOLDER
SHALL HAVE THE RIGHT TO INSTITUTE OR CONTINUE ANY PROCEEDING, JUDICIAL OR
OTHERWISE, WITH RESPECT TO THE LOAN AND STANDBY TRUST AGREEMENT, THE NOTES,
OR FOR THE APPOINTMENT OF A RECEIVER OR TRUSTEE OR FOR ANY OTHER REMEDY
HEREUNDER, DURING THE PERIOD OF THE OPERATION OF THE LOAN AND STANDBY TRUST
AGREEMENT, UNLESS CERTAIN CONDITIONS, AS SET FORTH IN THE LOAN AND STANDBY
TRUST AGREEMENT, ARE SATISFIED.
Notes Unsecured and Unrated; No Sinking Fund
The Notes are backed by the full faith and credit of the Company.
However, the payment of interest and principal on the Notes is not the
responsibility of, or guaranteed by, the Company's parent company,
ECCU, or by any other person. Moreover, within certain limitations,
the assets of the Company may specifically pledge, assign or otherwise
set aside its assets to secure its other obligations or indebtedness.
Other liabilities or indebtedness of the Company secured by its assets
would have a superior lien or call on such assets to that of the Notes
in the event of default or liquidation, dissolution or bankruptcy of
the Company, although the ability of the Company to incur additional
indebtedness is limited by covenants incorporated into the Notes.
Also, the Notes are unrated by any public or private credit rating
agency. No sinking fund or other specific allocation of assets or
cash flow has been made or will be made to secure repayment of the
principal of the Notes. The ability to repay the principal of the
Notes may be dependent on the availability of other financing or
capital to the Company. If such other capital or financing is needed,
there can be no assurance that such capital or financing will be
available when the principal of the Notes is due.
Amendment, Supplement and Waiver of Notes
The Notes may be amended or supplemented with the consent of the
Holders of at least a Majority in Principal Amount of the then
outstanding Notes, and any Default, Event of Default, or compliance
with any provision of the Notes may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding
Notes; provided that any such amendment or supplement affecting
the term, interest rate and other terms of the Notes must be ratable
and proportionate in effect on all outstanding Notes based on the
aggregate amount of principal and interest and penalty payments due them.
Conflicts of Interest
The Company's executive officers and certain of its directors
also serve as executive officers and/or directors for ECCU and may, in
the future, be affiliated with other entities, some or all of which
may have plans of business similar to that of the Company. Conflicts
of interest may arise between management, the Company and one or more
of these other businesses, in a number of ways including in connection
with the acquisition, management and disposition of the Company's
Mortgage Loan investments.
Concentration of Business
The Company's Mortgage Loan investments are and will continue to
be limited to loans secured by church and church-related properties.
Moreover, the Company's offices, as well as those of its loan
origination source, ECCU, are located in the state of California and
substantially all of the business and operations of the Company are
currently conducted in California and its Mortgage Loan investments
are concentrated in California. Although the Company intends in the
future to diversify its Mortgage Loan portfolio by acquiring Mortgage
Loans secured by properties in other geographical areas, there is no
assurance it will be able to do so. Because of this concentration,
the Company's ability to locate (or sell) its Mortgage Loan
investments could be negatively affected by changes in local and
regional economic conditions and by acts of nature that may adversely
affect real estate values in these markets. In particular, commencing
in approximately 1990, the California economy was influenced by the
economic recession that has affected most of the United States.
Although the circumstances have improved over approximately the past
year, there is no assurance that this trend will continue. The
reversal of this trend of improvement or worsening of economic
conditions could have a negative effect on the Company's business.
Continuation of ECCU Credit Line
ECCU currently provides the ECCU Credit Line financing to the
Company pursuant to one or more loans. The Company intends to rely upon
the ECCU Credit Line, as subordinated, to maintain its minimum Adjusted
Tangible Net Worth, as defined under the Loan Agrement and the Company has
relied on, and intends to continue to rely upon, the ECCU Credit Line for
funds to make timely acquisitions of Mortgage Loan Investments, and
possibly from time to time, for the payment of operating expenses including
the payment of interest on the Notes, in circumstances where the timing of
such expenses does not coincide with the Company's receipt of revenues
for its Mortgage Loan Investments and/or the sale of the Notes. The ECCU
Credit Line is currently contracted for in the amount of $2,100,000. See
"BUSINESS OF THE COMPANY - ECCU Credit Line". While ECCU's management
intends to renew this financing indefinitely on its current terms, there is
no assurance that it will be able to do so. The amount and terms of this
financing is subject to applicable credit union law and regulations and is
subject to review and approval by ECCU's board of directors. There is no
assurance that in the future, ECCU's compliance with such laws and
regulations may require ECCU to modify, reduce or terminate entirely, this
financing. In such event, the Company would be required to rely more
heavily, or entirely, on revenues from its Mortgage Investments and the
sale of the Notes for funds to pay its operating expenses and to pay
interest and principal on the Notes. In the event ECCU determines or is
otherwise required to end the ECCU Credit Line, it is likely the
Company would discontinue its Mortgage Loan investment activities,
discontinue this Offering, and liquidate its Mortgage Loan investments. In
such event, the Company would endeavor to prepay any then outstanding
Notes. However, there is no assurance the Company would successfully be
able to do so.
Also, pursuant to the Class A-1 Note Subordination Agreement (the
"Subordination Agreement"), ECCU has agreed to subordinate an aggregate of
$2,100,000 of the ECCU Credit Line to the current amounts due and owing on
the Notes on a continuous basis so long as the ECCU financing remains
outstanding. Under the Subordination Agreement, so long as payments are
not due and owing on the Notes and the Company maintains a minimum Tangible
Adjusted Net Worth as required under the Subordination Agreement, the
Company may repay the ECCU Credit Line without first retiring the Notes.
However, in the event the ECCU Credit Line is not timely repaid, the
Company would be in default thereunder and, as a result would be in default
under the Notes. See "DESCRIPTION OF THE NOTES - Continuing Covenants".
Limited Diversification
Because the Company is a special-purpose corporation investing in
only certain types of Mortgage Loans, from a limited group of
borrowers located in limited geographical areas, the Company's
Mortgage Loan portfolio will have limited diversification. While the
Company will attempt to diversify its Mortgage Loan portfolio by
investing in a number of loans by different borrowers secured by
properties in different areas, the Company's Mortgage Loan investments
may be concentrated in one or more geographical areas. Such limited
diversification will in general result in a greater risk to the
Company's Mortgage Loan investments. The Notes are offered subject to
prior sale, allotment and withdrawal, cancellation or modification of
the offer without notice, and subject to the approval of certain legal
matters by counsel for the Company. The Company reserves the right to
reject any offer for the purchase of Notes in whole or in part.
Nature of Mortgage Loan Investments
The Company will generally invest in Mortgage Loans which meet
certain criteria and which are secured by property which the Company
believes has sufficient value to assure repayment of the loan in the
event of a default. However, there is no assurance that, if
necessary, the Company could realize the value of a Mortgage Loan from
foreclosure on the property securing that loan. The property's value
could be insufficient or become insufficient due to a subsequent
reduction in value as a result of uninsured casualty loss (such as
earthquake or flood), a decline in the local real estate market,
undiscovered defects in the property that could result in sudden or
severe impairment of value or changes in demographic and residential
trends or growths in the area in which the property is located.
Further, churches and church-related properties may not be as
marketable as more common commercial properties.
The Company will invest in Mortgage Loans with remaining
maturities of 7 years or less. In general, these Mortgage Loans will
not be fully amortized over their term and will require a balloon
payment at maturity. It will generally be necessary for the borrower
to refinance the Mortgage Loan in order to repay the principal amount.
There is no assurance that borrowers needing to will be able to
refinance their Mortgage Loan within the time required.
The Company will require that properties securing its Mortgage
Loans be covered by comprehensive title, fire and liability insurance.
There are, however, certain types of losses (such as those of a
catastrophic nature such as earthquakes, floods, and losses due to
civil disobedience) which are either uninsurable or which are not
economically insurable. Thus, the Company will not be protected by
such insurance. Should any such losses occur, the Company could
suffer a substantial or total loss with respect to the Mortgage Loan
in which security is not insured for such catastrophic events.
Delinquency, Foreclosure and Other Credit Risks
During recessionary or depressed economic periods, foreclosures
and losses to the Company in connection with its Mortgage Loan
Investments could generally increase. In addition, such conditions
could lead to a potential decline in demand for Mortgage Loans even
though interest rates would likely be low or declining. The Company
is generally at risk for any Mortgage Loan defaults from the time that
the Company funds or purchases its Mortgage Loan investments to the
time its Mortgage Loans are paid, refinanced, or sold. Once a
Mortgage Loan is sold, the risk of loss from defaults thereunder and
foreclosures generally passes to the purchaser (or insurer) of the
Mortgage Loan. However, in the ordinary course of business, the
Company will generally make certain representations and warranties to
the purchasers and insurers of its Mortgage Loan (and to the
purchasers of the servicing rights relating thereto). If there has
been a breach of these representations or warranties, the Company may
be required to repurchase the Mortgage Loan and pay any unpaid
principal or interest on the Mortgage Loan. While any subsequent loss
may be mitigated by actions against the borrower or others, the
Company may ultimately bear any loss.
Historically, the Company's Mortgage Loan Investments have never
suffered an uncured default and the likelihood of one of its Mortgage
Loans becoming delinquent is deemed by management to be very low.
However, there is no assurance that this will continue to be true,
particularly where, as a result of substantial growth in the Company's
Mortgage Loan portfolio by reason of the proceeds from this Offering,
a larger percentage of the Company's portfolio may consist of recently
originated or unseasoned Mortgage Loans. If the Company experiences
significant delinquency rates, its revenues may materially decrease
and it may need to apply its resources for the collection of Mortgage
Loan delinquencies, negatively affecting profitability.
Lack of Public Market; Lack of Liquidity
While the Notes can generally be sold, encumbered, assigned,
pledged, conveyed or otherwise disposed of or transferred, there is no
public market for the Notes, and it is not anticipated that any such
market will develop. There is no assurance that they could be
transferred at or above the price paid at issuance. Moreover, early
presentment of the Notes by the Holders will be accepted only at the
Company's discretion and may result in a penalty. Investors in the
Notes should be prepared to bear the risk of an illiquid investment
although it is management's intent to grant prepayment requests,
especially in cases of hardship.
No Independent Determination of Offering Price
No independent underwriter or other party has negotiated the
offering price of the Notes. There is no market in the Notes from
which a market price could be determined. No independent appraisal or
valuation company has been involved in the pricing of the Notes.
Management has set the Note interest rate and terms and has an interest
in attracting capital at the lowest rate on the best terms possible.
No Independent Underwriter
The offering of the Notes is being made directly by the Company
and is without reliance on an independent underwriter or broker-dealer.
Accordingly, the purchasers of the Notes will not have the benefit of an
independent due diligence examination, review and analysis which would
generally be conducted by an independent broker-dealer marketing the Notes.
Moreover, the Company has not engaged an independent investment banking or
financial firm to evaluate the terms and conditions of the Notes, including
the interest rates thereon. Moreover, no federal or state agency has made
any finding or determination as to the fairness of an investment in the
Notes.
USE OF PROCEEDS
After payment of the expenses of the offers, which are estimated
not to exceed $30,000 in the event all $15,000,000 in principal amount
of the Notes are sold, the Company intends to use the remaining
proceeds to (i) repay then existing indebtedness, including prior sold
Notes other than subordinated indebtedness owed to ECCU not paid from
cash reserves or funds from operations, and (ii) purchase Mortgage
Loans and from time to time, to apply substantial portions of the
proceeds from the Offering. Based on its experience since the
Company's formation in 1991, management anticipates that a substantial
number of Noteholders will, upon maturity of the Notes, reinvest all
or a substantial portion of their repayment proceeds in a new Note and
that the proceeds from the sale of the Notes will be applied to the
repayment of previously sold Notes in this manner. However, there is
no assurance that significant rates of such "reinvestment" will occur.
As of September 30, 1997, the approximately $6,590,805 of indebtedness that
the Company had outstanding which was pari passu with the Notes, was
bearing interest at rates ranging from 5.14% to 8.55%. Approximately 41%
of this indebtedness is due and payable prior to March 31, 1998. The
Company will not use the proceeds from this Offering to repay any
subordinated indebtedness owing to ECCU. Where the Company does not have
sufficient funds to purchase an entire Mortgage Loan, it may purchase an
undivided, proportionate interest in the Mortgage Loan (a "participation
interest"). See "BUSINESS OF THE COMPANY".
THE COMPANY
General
The Company, Ministry Partners Investment Corporation, is a California
corporation, formed in October, 1991, for the sole purpose of investing in
or purchasing existing loans to qualified church organizations. The
Company was formed by and is currently the wholly-owned subsidiary of ECCU.
See "BUSINESS OF THE COMPANY - ECCU and Its Relationship to the Company."
The Company is a taxable organization under both federal and California
state law. ECCU is a mutual benefit corporation and is presently exempt
from federal but not California state income tax.
The Company was organized for the purpose (mission) of providing funds
for real property secured loans for the benefit of Evangelical churches and
church organizations through funding provided by members of and persons
associated with such churches and organizations. In accordance with its
mission, the Company operates with a view towards providing the highest
practical yields to its investors in relation to the yields it realizes on
its Mortgage Loan investments and its operating, general and administrative
cots. As the Company's sole shareholder, ECCU has not, and does not intend
in the future to cause the Company to operate with a view towards
maximizing profit. The Company's primary goal will be to continue to
provide funds for secured loans to Evangelical churches and church
organizations on a cost effective basis both for the Company and such
borrowers.
While to date the Company has relied on ECCU for its Mortgage
Loan investments, management believes, however, that if the Company is
required to do so, it could operate independently of ECCU's assistance
and services. Management has identified several sources of Mortgage
Loan investments comparable to those acquired from ECCU and management
believes the Company has a staff capable of originating Mortgage Loans
in accordance with the Company's underwriting standards. Management
also believes that the Company can obtain loan servicing contracts
from third party providers on terms comparable to those provided by
ECCU. The Company maintains its own staff of key personnel, headed by
Mr. Garmo, who can function independently of ECCU. Nevertheless, in
the event ECCU were unable to provide continued assistance and support
to the Company, there is no assurance that the Company's management
would elect to continue the Company's business.
In the event the Company chose to cease business, management
believes the Company would have sufficient assets to repay any Notes
then outstanding in full accordance with these terms. However, in
such an event, Noteholders might experience a delay in the repayment
of the Notes during the time it may take the Company to liquidate its
Mortgage Loan investments. See "RISK FACTORS - Dependence on Sale of
Debt Securities; Ability to Timely Repay Notes" and -- Risk of
Insufficient Liquidity."
The Company is one of the few institutions or agencies within the
western United States organized to assist local evangelical Christian
church congregations and organizations to provide financing for the
acquisition, development and/or renovation of churches or church-related
properties. Historically, through the sale of its debt
securities to persons affiliated with evangelical Christian churches
and organizations, the Company has given these persons the opportunity
to jointly and indirectly provide their organizations with such
financing, something they may not have been able to accomplish
individually. To date, the Company has suffered no defaults under any
of its mortgage loans nor has the Company defaulted on or been
delinquent in the payment of any interest or principal on the notes it
has sold to investors.
To date, the Company's investments have been financed by ECCU's
investment in the Company's common stock and through the sale of its
collateralized and uncollateralized notes. The Company's Mortgage
Loan Investments have been facilitated through a warehouse credit line
from ECCU. This credit line financing is currently in the amount of
$2,100,000. This credit line, which the Company intends to maintain
indefinitely, is subject to ECCU's standard commercial loan
requirements, including blanket liens on the Company's assets. ECCU
has agreed to subordinate this loan to the payment of the Class A and Class
A-1 Notes. See "BUSINESS OF THE COMPANY - ECCU Credit Line Financing".
There is no assurance that ECCU will be able to continue to provide
this credit line to the Company in the future.
The Company currently employs two full-time persons. The Company
currently rents its offices (approximately 1,000 square feet) from ECCU
on a month-to-month basis. ECCU provides the Company with certain
services and the use of certain of its facilities for which ECCU charges
the Company on a current basis. Presently, the amounts ECCU charges
the Company in this regard are generally less than the market rate for
similar services and facilities charged by unrelated persons. There is
no assurance that ECCU will continue this practice in the future.
The Company's business offices are located at 1150 N. Magnolia
Avenue, Anaheim, California 92801. The Company's telephone number is
800-753-6742.
BUSINESS OF THE COMPANY
General
There are presently few commercial lending sources available to
churches and related ministries. Commencing in the early 1990s, the
sources of such loans have become more limited, while the demand from
qualified borrowers has remained essentially constant. The Company
was organized to provide a source for such funds to eligible evangelical
Christian churches and related organizations. For reasons of efficiency
and economy, the Company in general relies on ECCU or others to originate
its Mortgage Loan investments.
In organizing the Company's business, Management has relied on
its substantial experience in church and related church property
financing. Based on this experience and analysis, the Company has
concluded that:
* In recent years, the number of new evangelical Christian
congregations has exceeded the supply of available church
buildings. This has largely contributed to a legitimate
church resale market and accompanied demand for acquisition
financing.
* As the population in certain areas, such as southern
California, has increased in recent years, the available
undeveloped property within existing communities has been
absorbed. As a consequence, the number of churches seeking
to buy adjacent properties and to remodel existing facilities
to accommodate growth has increased.
* Many existing congregations have owned their church
properties for many years and the original loans have been
repaid or significantly paid down. These church properties
often have substantial appraised values with little or no
existing indebtedness. Congregations with stable cash flows
often are in a strong financial position and are able and
willing to seek financing for expansion and remodeling.
Capitalization and Operational Funding
Investor Financing. The Company primarily relies on financing
through the sale of its debt securities, such as the Notes, to fund
its Mortgage Loan investments. To fund its continuing operations, the
Company intends to offer its debt securities on a continuous basis
subject to compliance with applicable federal and state securities
laws. The Company intends to continue to direct the sales of its debt
security offerings primarily to institutions and individuals who are
members or otherwise associated with the evangelical churches and
organizations which are, in general, borrowers under the Mortgage
Loans in which the Company invests.
In the event the Company is unable to continue to finance its
investment activities through the sale of its debt securities,
management intends to suspend further Mortgage Loan investment
activities and could terminate such activities permanently. In such
event, the Company would commence liquidation of its Mortgage Loan
portfolio as necessary to repay any then outstanding debt securities
(including the Notes) as they became due. If such liquidation is
necessary, management believes that it will have sufficient assets to
repay any outstanding Notes and other debt securities based on the
availability of the ECCU Credit Line of $2,100,000, which, pursuant to the
Subordination Agreement, is subordinated in right of payment to the Notes,
and/or the tangible assets of the Company in excess of the then outstanding
unpaid balance of such debt. The subordination of the ECCU Credit Line of
$2,100,000 together with ECCU's equity investment of $1,000,000 are
intended to allow the Company to maintain tangible assets in excess of the
outstanding unpaid principal balance of the Notes and its other debt
securities. The Company is subject to continuing covenants under the Loan
Agreement designed to place the Company in default of the Notes in the
event its tangible assets are less than 115% of the Notes and its other
debt securities. A default by the Company under the Notes would, among
other things, allow the Noteholders to declare the entire unpaid balance of
their Notes immediately due and payable. These covenants are intended to
assure that, at any such time, the Company's tangible assets will be
substantially in excess of its Note obligations and its other indebtedness
pari passu with the Notes. If such liquidation was necessary, management
also believes the Company could realize sufficient funds from its assets to
repay any then outstanding Notes or other debt securities on a timely
basis. Management bases this belief on its ability to determine its
liquidity needs with reasonable certainty at least 90 days in advance and
the nature and liquidity of the Company's cash and accounts receivable,
and Mortgage Loan portfolio, the historic prices paid for secured
loans comparable to the Company's Mortgage Loan investments, and the
availability of purchasers therefore. There is, of course, no assurance
that the Company will realize funds from the liquidation of its Mortgage
Loan investments in a sufficient amount to repay the Notes in full
according to their terms. See "RISK FACTORS".
Although, pursuant to the Loan Agreements, the Company may not issue
Class A-1 Notes if such issuance would result in an aggregate unpaid
balance exceeding $10,000,000 on the outstanding Class A-1 Notes, there is
no limitation as to the amount of Notes the Company may issue with the same
or proximate maturity dates. Therefore, it is possible that the Company
may, from time to time, have outstanding a significant amount of short-term
notes. That is, Notes that are due and payable six months to twelve months
from the date of their issuance. In order to repay such Notes as they
become due, it will be necessary for the Company to have sufficient funds
available from the sale of additional notes (including the reinvestment of
the proceeds from such notes coming due), funds available from unused
portions of the ECCU credit line, cash on hand and, if necessary, proceeds
from the sale or hypothecation of the Company's Mortgage Loan investments.
While the Company has in the past been able to meet its current cash needs
for the repayment of its outstanding investor debt through investor
reinvestment and temporary borrowings under the ECCU Credit Line, there is
no assurance that the Company will continue to be able to do so. See "Risk
Factors". Under the Company's liquidity plan, the Company is able to
accurately budget its cash needs at least 90 days in advance. Management
feels that this will allow adequate time to provide liquidity either
through ECCU financing or, if necessary, the sale or hypothecation of
Mortgage Loan investments if the Company's cash reserves are deemed
inadequate to fund required Note payments.
ECCU Credit Line Financing. The Company maintains one or more loans from
ECCU as credit line financing to provide warehouse financing for its
purchase of Mortgage Loan Investments and short term financing to meet
current operating expenses, the ECCU Credit Line. The ECCU Credit Line is
currently approved for up to an aggregate of $2,100,000 of advances. The
Company may use this financing to, from time to time, pay certain operating
expenses, including interest and/or principal payments on some of the
Notes. This financing is provided by ECCU to the Company in accordance
with ECCU's commercial lending standards and subject to credit union
regulatory requirements. This financing may consist of one or more loans
from time to time, which loans are secured by blanket liens on the
Company's Mortgage investments and other assets.
ECCU has entered into a Subordination Agreement whereby it has
subordinated an aggregate $2,100,000 of repayments of the ECCU Credit Line
to amounts due and owing on the Class A-1 Notes so long as this financing
remains outstanding. Under the Subordination Agreement, the Company may
repay the subordinated amount of the balance of the ECCU Credit Line only
if, at the time of repayment, payments due and owing on the Notes within 30
days of such date, have been made or provided for and such payment with
respect to the ECCU Credit Line will not result in the Company having a
Tangible Adjusted Net Worth of less than $2,100,000. As defined, Tangible
Adjusted Net Worth includes the contracted for amount of the ECCU Credit
Line to the extent it si subordinated, whether or not it is then funded.
Thus, if ECCU should fail to renew, reduce or otherwise inhibit the ECCU
Credit Line, the Company's Tangible Adjusted Net Worth would be reduced and
further issuance of the Notes, or other debt securities, could result in
the Company's default under the Loan Agreement. Although ECCU intends to
make this financing available to the Company indefinitely, its ability to
continue to do so is subject to ECCU's compliance with applicable credit
union law and regulations.
ECCU and its Relationship to the Company
ECCU has been the sole shareholder of the Company since the Company's
formation in 1991. ECCU organized the Company to further ECCU's purposes
of making available to the evangelical Christian community mortgage loans
consisting of real property secured financing for the purposes of
acquisition, construction and renovation of churches and church-related
properties such as schools and related structures. Other than with respect
to its capital contributions to the Company and its contractual obligations
in connection with the ECCU credit line, ECCU has no contractual
obligations to the Company, its business or its creditors, including the
Holders. THE COMPANY IS SEPARATE FROM ECCU. ECCU HAS NOT GUARANTEED OR
OTHERWISE AGREED TO BE RESPONSIBLE IN ANY MANNER FOR THE PAYMENT OF
PRINCIPAL OR INTEREST ON THE NOTES. THE NOTES ARE NOT INSURED BY ANY
GOVERNMENTAL OR PRIVATE ENTITY. See "RISK FACTORS."
For the nine (9) month period ended September 30, 1997, ECCU had net
earnings, after dividends, of $1.87 million and total assets of $145.6
million. For the year ended December 31, 1996, ECCU had net earnings after
dividends of $2.32 million and total assets of $122.3 million. ECCU
currently ranks in the top 5% in assets of all of the U.S. Federal and
State Chartered Credit Unions.
ECCU has specialized in providing lending and depository services to
churches, christian schools and related ministries for more than fifteen
(15) years. ECCU serves more than 250 separate ministry organizations and
several thousand denominationally affiliated and independent churches.
ECCU's member ministries range in size from under $250,000 in revenues to
more than $20 million in revenues. Most of ECCU's member ministries have
annual revenues of $250,000 or less.
ECCU focuses on providing real property construction, acquisition
financing and refinancing to churches and church related organizations.
ECCU also specializes in providing short term cash flow financing for
private Christian schools which depend, by their nature, on seasonal cash
flow. In connection with its real property financing, ECCU often obtains a
full depository relationship with the borrower. ECCU's key market niche is
construction lending for churches and church related facilities. The
typical construction loan amounts for churches and private schools range
from a few hundred thousand dollars to over $5,000,000. Today, ECCU has
granted and successfully administrated more than $45 million of such
construction loans. ECCU's church and ministry based real estate loan
portfolio currently totals approximately $99 million. ECCU provides loan
servicing for these loans and an additional $58 million in such loans which
it originated and sold to other financial institutions. ECCU has
experienced no losses on church or church related real estate loans during
its thirty-three year history.
Management believes that ECCU will continue to support the Company and
its business operations so long as, in the sole discretion of ECCU's Board
of Directors, ECCU: (i) may do so under the requirements of applicable
regulatory laws and regulations; (ii) continues to profit from its
investments in and servicing of its own mortgage loan investment portfolio,
after taking into account its unreimbursed costs, if any, of supporting the
Company's operations; and (iii) can bear the financial burden of any
support to the Company. THERE IS NO ASSURANCE THAT ECCU WILL CONTINUE TO
PROVIDE RESOURCES TO THE COMPANY BEYOND ITS CONTRACTUAL OBLIGATIONS TO DO
SO AS DESCRIBED HEREIN, OR THAT ECCU WILL RENEW SUCH CONTRACTUAL
COMMITMENTS AS THEY EXPIRE ON THE SAME BASIS IN THE FUTURE. In the event
ECCU withdraws its support of the Company, it is likely Management would
determine to discontinue and liquidate the Company's Mortgage Loan
investment business, even if the Company has the capability to continue its
business independently of ECCU.
Cash Reserve Policy
Reserve Account. Management currently follows a policy of retaining a
portion of the proceeds it receives from each sale of its debt securities
as operating reserves. The amounts retained range from 10% on short-term
obligations to 5% on long-term obligations. Since its organization, the
Company's operations reserves, together with cash from operations and funds
borrowed from time to time on the ECCU credit line, have been sufficient to
provide funds for the timely payment of interest and principal on the
Company's debt securities as they become due. The Company intends to
continue this policy but may change or modify its policy, in its
discretion, at any time or from time to time in the future.
Mortgage Loan Investments
Eligible Mortgage Loans. The Company will invest only in Mortgage
Loans which are the obligations of evangelical Christian churches or
related denominational evangelical Christian church organizations. In
general, such Mortgage Loans must be secured by real property
comprised of churches or church-related properties and/or which are
guaranteed. In general, Mortgage loans must be secured by
first liens on real property.
Mortgage Loan Origination. The Company will rely on ECCU and
possibly others for loans to originate or write loans by purchasing
existing loans. To date, the Company has purchased its Mortgage Loan
investments only from ECCU. ECCU has been a major source of church
and Christian school financing since 1964. ECCU believes that it can
continue to obtain quality Mortgage Loans meeting the Company's
underwriting criteria. The Company has, however, identified several
other institutions which to some degree originate and/or invest in
secured loans meeting the Company's underwriting criteria. ECCU has
in the past either effected loan purchase or sale transactions with or
had serious negotiations respecting such transactions with each of
these institutions. In the event the Company cannot continue to
obtain its Mortgage Loan investments from ECCU, management believes
the Company can obtain Mortgage Loan investments of comparable size
and quality from other sources. The Company believes that it would be
impractical for it to retain a loan underwriting staff on either an
employment or contract basis. Also, the Company is not currently
licensed to originate its own Mortgage Loans. However, the Company
may seek to become so licensed in the future in order to originate its
own Mortgage Loans.
As discussed above, to date the Company has acquired its Mortgage
Loan investments only from ECCU which has either itself originated such
Mortgage Loans or mortgage loan participations or acquired them from
third parties. Management is aware of several credit unions which on
a regular basis purchase and/or sell participations of secured loans
comparable to the Company's Mortgage Loan investments. However, the
Company has not to date, seriously discussed any Mortgage Loan acquisition
or sale transactions with any of these institutions. There is no assurance
that at such time, if any, as the Company may seek to sell a Mortgage Loan,
that it will be able to purchase a Mortgage Loan investment on terms
acceptable to the Company. Management anticipates that if Mortgage Loan
investments became unavailable from ECCU, the Company would terminate its
Mortgage Loan investment activities. See "RISK FACTORS."
Mortgage Loan Underwriting Standards. The net proceeds from the sale
of the Notes will be used primarily for purchasing qualified Mortgage
Loans. Each Mortgage Loan will be secured by a first lien except
where it is secured by a junior lien and each of the superior liens is
held by the Company or where the Loan is separately guaranteed by one
or more persons other than the borrower. Each Mortgage Loan must meet
the underwriting and appraisal standards established by the Company's
investment committee. The committee's current standards require the
following:
Interest rates and/or yields on the Company's Mortgage Loan
investments must be sufficient to meet the Company's proposed cash
flow needs, including cash required to pay principal and interest on
its then-outstanding Notes. The Company's investments in Mortgage
Loans of $350,000 or less may be approved by the loan investment
committee. Mortgage Loans in excess of $350,000 may be made only with
the approval of the Company's Board of Directors.
Neither the Company nor ECCU intends to condition or otherwise
approve Mortgage Loans to borrowers based on the amount that the
borrower, its members or affiliates invest in the Notes or other
securities of the Company. The Company is considering a policy
whereby the Company (or ECCU) might consider Mortgage Loans to an
organization or its affiliate on a priority basis where such
organization allows the Company access to its members for offering of
the Notes. Under such a policy, however, neither the Company nor ECCU
would commit or otherwise obligate itself to loan funds to such an
organization based on the level of participation of that organization's
members in the Offering. Neither the Company nor ECCU would make a
Mortgage Loan to any borrower unless such borrower otherwise met the
Company's Mortgage Loan underwriting standards described below.
Management believes that such a policy would be consistent with the
Company's Mortgage Loan underwriting standards described below.
Management believes that such a policy would be consistent with the
Company's purposes of providing secured loans to Evangelical churches
and church organizations where such loans are funded primarily by
members of that or sister churches and/or organizations.
Acquisitions. Unless the Company's investment committee
determines otherwise, the Company will not purchase a loan for a price
greater than par (that is, the outstanding principal balance of the
loan on the date of purchase). As circumstances dictate, the Company
intends to negotiate to purchase loans at a discount (that is, for a
purchase price less than the outstanding principal balance of the loan
on the date of purchase).
With respect to loans purchased by the Company from ECCU, or
any affiliated entity or person, the acquisition must be approved by a
majority of the Company's directors (including a majority of the
directors not interested in the transaction). Also, the price of the
loan may not exceed par without the prior approval of the investment
committee including all members who are independent of ECCU.
Interest. The Mortgage Loans bear an adjustable or fixed
interest rate, require monthly payments based on an amortization
schedule (typically 25 years to 30 years) and generally must be paid
in full no later than seven (7) years from the later of the date the
loan is made or the date the Company obtains the loan.
Size. Mortgage Loan investments typically range from
$200,000 to $1,000,000. The Company may acquire sole ownership of a
Mortgage Loan or may own a Mortgage Loan jointly with others,
including ECCU. By owning Mortgage Loans jointly with others, the
Company would be able to invest in a greater number of loans and to
greater diversify its Mortgage Loan portfolio.
Mortgage Loan Investment Standards. Mortgage Loans acquired by the
Company must meet the following criteria:
* In general, the maximum loan-to-value ratio for the real
estate loans secured by commercial property must be 60% and
the maximum loan-to-value ratio for loans secured by single-family
residences used as parsonages are 75%. The loan-to-value ratio for
real estate means the total Mortgage Loans, including the
Mortgage Loan purchased, as a percentage of the appraised value of
the property. In general, the lower the loan-to-value ratio, the
greater is the value of the security securing payment of the loan.
* The borrowing organization must support its overall ability
to meet principal and interest payments when due by its
operational history. The borrower must demonstrate its
ability to repay the Mortgage Loans from its cash flow. For
the purposes hereof, "cash flow" means donations and other
revenue which can be demonstrated to be of a continuing
nature as distinguished from irregular fund raising
campaigns.
* Generally, the periodic principal and interest payments of
the Mortgage Loan must not exceed a reasonable percentage of
the borrowing organization's cash flow over the expected term
of the Loan. For the purposes of the foregoing, a percentage
of 30% will be considered a reasonable percentage. However,
the Board may approve a larger percentage if the borrower
justifies a larger indebtedness by demonstrating: 1) its
ability to devote more cash flow to the service of
indebtedness; 2) that an increase in cash flow is to be
anticipated in line with past experience or as a result of
the improvements to be provided with the proceeds of the
proposed financing; or 3) other appropriate reasons.
* The remaining term of each Mortgage Loan must be seven (7)
years or less from the date the Company acquires or
originates the loan.
* Each Mortgage Loan must be secured by real property for which
there is available for review a recent independent appraisal.
Generally, loans may not exceed 60% of the appraised value of
the non-residential property security or 75% of the appraised
value of residential property security. Loans having a
higher loan-to-value ratio may be approved under
circumstances where the Loan is guaranteed, the borrowing
organization is able to demonstrate an exceptionally strong
commitment to its building program through member pledges, or
there are other factors present which demonstrate the
borrower's ability to repay the Mortgage Loan.
* Each Mortgage Loan must be evidenced by a written obligation
and must be secured by a first trust deed on the mortgaged
property, except the Company may acquire a Mortgage Loan
secured by a second deed of trust if the Company also holds
the first deed of trust. Each Mortgage Loan must be covered
by a current standard lender's title insurance policy. Loans
shall be funded through a formal escrow in a customary manner
in order to assure that the Company receives good title to
its security interest in the loan at the time the loan is
funded. Unless waived by the Company for good cause, all
monies received from the Mortgage Loan shall be deposited in
a trust account with a federally-insured financial
institution in the State of California available only for
expenditures on account of the project for which the
indebtedness is to be incurred.
* Procedures are established to assure the Mortgage Loan
proceeds have been or will be spent by the borrowing
congregations or organizations for the purposes authorized.
Where loan proceeds are to be used for construction of
improvements on real property, the proceeds are disbursed
through a fund control whereby, pursuant to written voucher
system, funds will be paid for goods, materials and services
only when the goods and materials have been delivered or the
services have been performed and applicable waivers of
mechanic's liens have been obtained. Fund control documents
and procedures shall be those customarily used and followed
by commercial lenders in the geographical area in which the
subject real property is located.
* Where the loan proceeds are to be used for construction, the
construction costs must be set forth on a schedule detailing
the construction of the project and a statement of estimated
cost with respect to each part of the construction project.
The cost estimate shall be substantiated by a statement of a
qualified independent contractor or other qualified and
independent person. The loan application shall demonstrate
that with the proceeds of the proposed financing, the
applicant will have funds sufficient to complete the project.
* Either the Company (or the original lender or the lender's
representative) must have made a personal on-site inspection
of the property securing the Loan.
* The value of the property securing the loan must be supported
by an independent appraisal by a qualified real estate
appraiser.
* The borrower under the loan must pass credit standards and
demonstrate sufficient income or cash flow to service the
Mortgage Loan.
Insurance. The Company will require its Mortgage Loans to be
covered by standard insurance protection customary in the industry,
including title insurance (to insure against title defects and some
forms of documentation), errors and omissions insurance (to insure
against good faith errors on the part of employees or agents of the
Company), and liability and casualty insurance in customary amounts.
The Company may also require special insurance in connection with
particular Mortgage Loans, including earthquake, flood and
environmental hazard insurance.
Mortgage Loan Portfolio Management
Risk Rating System. The Company has adopted a risk rating system
for rating the risk of its Mortgage Loans. Of the 5 risk rating
categories established, only those loans with the two highest ratings
(lowest assessed risks) will be considered for purchase. The Company
will update the risk ratings of its Mortgage Loan portfolio at least
annually.
The Board of Directors has adopted a liquidity management plan
for the Company in an attempt to reasonably assure the continued
availability of liquid funds to repay the Company's note
obligations as they mature. Under this plan, the Company has
attempted to estimate continued sources of cash, including cash
reserves, reinvestment by noteholders based on reasonable reinvestment
rate assumptions, and anticipated principal payments on Mortgage Loans
purchased by the Company. The Board of Directors will continually
review these cash availability assumptions in order to provide cash
for planned liquidity needs. However, there is no assurance that the
liquidity management plan adopted by the Company will be sufficient to
meet the Company's potential cash demands at all times, and there may
arise circumstances where the Company may have to delay or postpone
repayment of its debt obligations, including the payment of interest
or principal on the Notes.
Collection Procedures. The Company has adopted and will continue to
implement an aggressive collection policy where, among other things,
delinquent accounts are contacted within 10 days of a missed payment
and monitored on a regular basis.
Restrictions on Transactions With Interested Parties. The following
acts or transactions are prohibited:
* The directors, investment committee members and officers of
the Company shall not participate or seek to influence any
investment decision regarding any loan or transaction wherein
that individual or an immediate family member has any direct
or indirect fiduciary or pecuniary interest. The Company may
transact business with a board member, committee member or
officer, or any affiliate of such person, so long as such
transaction is fair and equitable to the Company and is
consistent with the Company's policies generally applicable
to similar transactions by the Company with unrelated
parties. Any such interest must be approved by a majority of
the Board of Directors not otherwise interested in the
transaction, following full and complete disclosure of the
person's or his affiliate's interest in the transaction.
* No fee, commission, gift or other inducement or "kickback" or
reciprocal arrangement of any kind may be solicited or
accepted by any officer, director or employee of the Company
in connection with an investment by the Company. Reciprocal
arrangements shall include any discounts on merchandise or
services, equity participation or any other form of
consideration or compensation whatsoever except as permitted
by the Board of Directors as described above.
* The Company may not purchase or participate in Mortgage Loans
where a portion of the amount of income to be received by the
Company from the loan is tied to or contingent upon the
revenues or income of the borrower or endeavor or to
appreciation which may be realized in the value of the
business, if any, underlying the collateral.
Nature of Mortgage Loan Investments
The Company's Mortgage Loan Investments, with the limited
exception described under "Mortgage Loan Underwriting Standards"
above, must be secured by property. Because the Company's
Mortgage Loan investments will not be guaranteed or insured by the
Company, ECCU, or any instrumentality or agency of the federal
government, any state government or any local government, the Company
will look to foreclosure on the property securing the Mortgage Loan as
the primary source of recovery in the event the loan is not repaid as
required. The Company's ability to recover the value of the Mortgage
Loan under such circumstances is affected by certain legal procedures
and rights. Mortgage Loans secured by real property are subject to
the laws of the state in which the property is located and as
applicable, federal law, including federal bankruptcy laws.
Currently, substantially all of the Company's Mortgage Loans are
secured by property located in the State of California. In the
future, the Company will endeavor to acquire Mortgage Loans secured by
properties in other states, although there is no assurance it will be
able to do so. Set forth below is a brief description of the more
pertinent legal procedures and rights pertaining to Mortgage Loans
under California law. This discussion is intended to provide a
general overview and is not intended to cover all legal principles or
considerations relating to investments in Mortgage Loans under
California or federal law.
Description of Legal Aspects. The Mortgage Loans are in the form of
promissory notes secured by deeds of trust or mortgages on church or
church-related real property. In general, the note will require the
payor or maker to pay the specified principal and interest to the
Company. The deed of trust will generally provide that in the event
of a default in payment of principal and/or interest on the note (or
in the event of a default of certain other obligations such as the
failure to maintain the property in good repair) the Company may
declare the entire balance of principal and interest under the note
then due and payable. In the event the principal and interest is not
paid within a specified period, the Company must first then attempt to
collect on the note by foreclosing on the security. In general,
California law will not allow the Company to disregard the security
and to proceed directly against the maker on the note. The Company
must foreclose on the property under the deed of trust.
Foreclosure. Under California law, in order to foreclose on the
property securing the Mortgage Loan under the deed of trust, the
Company may either pursue a non-judicial Trustee's sale under the deed
of trust (a "private sale") or file a lawsuit and ask the court to
foreclose on the property (a "judicial foreclosure"). The Company
will generally choose a private sale because a private sale can
generally be accomplished more quickly and at less expense than a
"judicial foreclosure." For reasons discussed below, the Company
would consider the greater time and expense of a judicial foreclosure
only where: (a) a judicial foreclosure was available; (b) the Company
determined that the value of the security at the time was insufficient
to cover the amount owed under the note; and (c) the Company
determined that the maker had sufficient unencumbered personal assets
to repay the Mortgage Loan in the event the Company was able to get a
court judgment against such person.
Under California's private sale foreclosure procedure, the
Company would first need to record a Notice of Default. If the note
remained in default after 90 days therefrom, the Company would record
a Notice of Sale at least 20 days prior to the scheduled sale
of the property. The sale of the property would be conducted at an
auction where any party, including the Company, could bid for the
property. Typically at such auction, the Company would bid the entire
amount of the Mortgage Loan owed. Unless a third-party should bid an
amount greater than an amount bid by the Company, the Company would
purchase the property at the sale. The amount bid by the Company
would include the amount owed under the Mortgage Loan, additional
unpaid interest and/or late charges, and the expenses of the
foreclosure including legal fees and Trustee's fees. It is not
uncommon for a third-party to bid an amount necessary to purchase the
property at the private sale. Thus, the foreclosing lender typically
ends up purchasing the property. Upon purchase of property at the
private sale, the Company would attempt to sell the property for the
best price it could obtain. The Company would typically engage a real
estate broker familiar with the area in which the property is located
to effect the sale. Depending on market conditions, the ultimate
proceeds of the sale of the property may not equal the Company's
investment in the Mortgage Loan (including additional interest, late
charges and foreclosure costs).
Rights of Redemption. Under California law, a person has the right
to reinstate the property in a private sale by repaying the amount of
delinquent payments, additional late charges, and foreclosure costs at
any time prior to the time of sale of the property. In the event this
payment is made, the Mortgage Loan is "reinstated." That is, the loan
is no longer in default and the lender could not proceed at that time
with the foreclosure. The amount required to reinstate the loan is
not the entire balance of principal and interest declared due by the
lender, but only the delinquent payments, including interest and late
charges to the date of reinstatement. It is common, therefore, that
in the event of delinquencies, loans are typically reinstated prior to
the actual sale. It is not uncommon for this to occur several times
over the life of the loan. However, the Company's costs in commencing
foreclosure actions and "forcing" the reinstatement are required to be
paid each time the borrower reinstates the Mortgage Loan.
Under a judicial foreclosure, but not a private sale, the
borrower and any junior lienholders are given a statutory period of 12
months from the date of the court-ordered foreclosure sale to redeem
the property. That is, for a period of up to 12 months after the sale
is complete, any of these persons may redeem the property from its
purchaser at the foreclosure sale for the amount paid plus interest
and costs. For the reasons discussed above, under a private sale, it
is uncommon for anyone other than the lender bringing the judicial
foreclosure action to purchase the property after judicial
foreclosure. Further, the fact that the property may be redeemed for
up to an additional 12 months substantially inhibits the purchaser's
ability to resell the property within that period. Consequently, as a
practical matter, this statutory right of redemption forces the
foreclosing lender to retain the property and pay the expenses of
ownership until the redemption period has run. For this reason and
the reasons discussed above, the Company does not anticipate that it
will use the judicial foreclosure procedure.
Debtor Protection Statutes. California imposes statutory prohibitions
which limit the remedies of a mortgage lender. A mortgage lender is
limited in its right to receive a deficiency judgment against
the borrower following foreclosure on the secured property. A
deficiency judgment in general means the right to require the borrower
to pay any amount on the Mortgage Loan in excess of the property
securing the loan. Another California statutory requirement is that
the mortgage lender first look to foreclosure on the property to
satisfy the Mortgage Loan before bringing any personal action against
the borrower. In addition, California law prevents any deficiency
judgment against a borrower by a mortgage lender where the loan either
represents a portion of the purchase price of the property payable to
the lender by that borrower (a "purchase money loan") or the loan is
secured by the borrower's residence. Finally, where a deficiency
judgment is permissible, it can only be obtained after a judicial
foreclosure on the property and then only for the excess of the
outstanding debt over the fair market value of the property at the
time of the foreclosure sale (as determined under statutory
provisions). The net result of these statutes is to offer substantial
protections to borrowers and to effectively require a mortgage lender
to look only to the value of the property securing the Mortgage Loan
through a private sale foreclosure.
In addition to the California state laws restricting actions
against borrowers, numerous other statutory provisions including the
federal bankruptcy laws, afford additional relief to debtors which may
interface with or affect the ability of a secured lender to realize
the value of its Mortgage Loan in the event of a default. For
example, under the Federal Bankruptcy Law, a court with federal
bankruptcy jurisdiction may permit a debtor through a Chapter 11 or
Chapter 13 rehabilitative plan to cure a monetary default in respect
of a Mortgage Loan on a debtor's property by reinstating the original
Mortgage Loan payment schedule and paying arrearages over a number of
years. Any such restructuring of such a Mortgage Loan would
substantially decrease the value of the loan and would in effect
result in a loss to the lender. Courts with bankruptcy jurisdiction
also have the power to modify, suspend and/or otherwise amend the
terms of a Mortgage Loan secured by property of the debtor upon just
cause shown by the debtor. Such modification could include reducing
the amount of each monthly payment, changing the rate of interest,
altering the repayment schedule and reducing the lender's security
interest to the value of the property, thereby leaving the lender a
general unsecured creditor for the difference between the value of the
property and the outstanding balance of the Mortgage Loan.
Under the Internal Revenue Code of 1986, as amended, certain
liens in favor of the Internal Revenue Service for tax payments are
provided priority over existing Mortgage Loans. Also, mortgage
lenders are subject to other statutory and administrative requirements
under various laws and regulations regarding the origination and
servicing of Mortgage Loans, including laws and regulations governing
federal and state consumer protection laws, truth-in-lending laws, the
Federal Real Estate Settlement Procedures Act, the Equal Credit
Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting Act,
and related statutes and regulations. These federal laws impose
specific statutory liabilities upon lenders who originate Mortgage
Loans and who fail to comply with the provisions of the law. In some
cases, this liability may affect an innocent assignee of a Mortgage
Loan where the violation of the act occurred by reason of an act of a
prior holder of the loan.
Any of the foregoing federal or state laws and regulations restricting
and/or regulating the origination and servicing of Mortgage Loans could
result in a monetary loss to the Company. In order to avoid the negative
application of these laws and regulations, the Company has sought and will
continue to seek the advice and guidance of independent legal and
accounting advisors in connection with the acquisition and servicing of its
Mortgage Loans. However, many of these laws and regulations are subject to
continual change and evolution and it is always possible that inadvertent
violations or liabilities may be incurred by reason of one or more of these
provisions.
MANAGEMENT
The management and direction of the Company's business activities
are under the control of its Board of Directors. The Company's daily
operations are managed by its Chief Executive Officer, Mr. Mark
Holbrook, and its President, Dr. John Garmo.
The Company's Board of Directors has established an investment committee.
The Company's investments, including loan purchases and dispositions, are
reviewed and approved by an investment committee appointed from time to
time by the Board of Directors. The committee will consist of at least 3
individuals. Currently, Messrs. Holbrook, Elliott and Black serve as
members of the investment committee.
Set forth below are the Directors and Executive officers of the Company.
Name Position Held
Mark G. Holbrook Chairman of the Board
John C. Garmo President
Mark A. Johnson Chief Financial Officer, Treasurer, Director
Van C. Elliott* Director
Arthur G. Black Director
Wallace G. Norling* Director
Scott T. Vandeventer Director
* Denotes Independent Director
The following is a summary of the business experience of the
officers and directors of the Company.
MARK G. HOLBROOK, age 47, has served as chairman of the Company since
its inception. Mr. Holbrook also serves as president and chief executive
officer of ECCU. He began his career with ECCU in 1975 and has served as
its president since 1984. ECCU currently has assets of over $150 million
and more than 23,000 members in 50 states and 90 foreign countries. Mr.
Holbrook serves as Board Chairman of Christian Management Association. He
received his Bachelor of Arts degree from Biola University in 1973 and has
completed post-graduate studies at Chapman College. Mr. Holbrook holds a
California real estate sales license.
JOHN C. (SKIP) GARMO, age 50, has served as president of the Company
since December, 1994. As president, Dr. Garmo is responsible for the
management of the Company's day-to-day operations subject to the
supervision of the Company's Board of Directors. Prior to joining the
Company, Dr. Garmo served as vice president of MAF Foundation, a private
foundation specializing in charitable gift-planning. Prior to joining MAF
Foundation in 1988, Dr. Garmo operated his own financial planning practice,
which he started in 1985. During this time, he was also a representative
for Presbyterian Ministers Fund. Dr. Garmo holds a Bachelor of Music
degree from Biola University, a Master of Arts degree from California State
University-Los Angeles, and a Doctor of Philosophy from the University of
Washington. Dr. Garmo is a published author, an ordained minister, and
holds a lifetime teaching credential. He is active in various professional
organizations and serves on several ministry-related boards.
MARK A. JOHNSON, age 40, has served as chief financial officer,
treasurer, and a director of the Company since its inception. Mr. Johnson
also serves as executive vice president of ECCU, a position he has held
since June, 1993. Mr. Johnson is also owner of Mailboxes Surprises since
its inception in January 1994. Prior to joining ECCU, Mr. Johnson served
as vice president of a multi-company commercial warehousing/distribution
organization and for six years served as president and chief executive
officer of a subsidiary of that company. Prior to that, Mr. Johnson served
as vice president/branch manager of a Southern California independent bank.
Mr. Johnson has a Bachelor of Science degree in Business Administration
from Biola University.
VAN C. ELLIOTT, age 60, has served as director of the Company since
1994. He has served as director for ECCU since 1990. Mr. Elliott served
as associate director of the Conservative Baptist Association of Southern
California from 1980 to 1994 where he was responsible for the general
administrative oversight of the association's activities. Since that time,
he has been self-employed as a consultant, and is Vice President of
Business Services for Dynamic Church Planting International. He received
his Bachelor's and Master's degrees in mathematics and speech from Purdue
University and spent seven years in the computer industry. Mr. Elliott
holds a Master of Divinity from Denver Seminary and has spent fourteen
years in local church ministries serving in the areas of Christian
education and administration. He has completed post-graduate instruction
at the College for Financial Planning. Mr. Elliott is a member of the
Institute of Certified Financial Planners, Christian Estate Planners of
California, Christian Management Association, and holds the professional
designation of Certified Financial Planner.
ARTHUR G. BLACK, age 59, has been elected to the Company's board
of directors. Mr. Black is currently a ministry development officer at
ECCU. Mr. Black was previously executive vice president of Truth For Life
(1994-1996), a nationally-syndicated radio Bible teaching ministry. He
held similar positions with the Biola Hour (1981-1991) and Solid Rock Radio
(1991-1993), and he served as director of U.S. broadcasting for Insight For
Living from 1993 to 1994. Mr. Black has been in Christian ministry
management since 1974. Prior to that, he held several corporate sales and
marketing management positions and six years as owner/President of two
consumer product/service companies. He is a General Partner for Rancho
Sierra Acres, Christian Investors, P/L Properties and Ocean View Investors.
Mr. Black was elected to the Board of Directors to replace the seat
previously held by Paul A. Kienel.
WALLACE G. NORLING, age 72, has served as a director of the Company
since its inception. During his ministerial career, Dr. Norling planted 26
churches and pastored five churches. Dr. Norling retired as district
superintendent for the southwest district of Evangelical Free Church, a
position he held for 25 years, and now serves as Superintendent Emeritus of
the southwest district of the Evangelical Free Church. Dr. Norling has a
Bachelor of Arts degree from Northwestern University, a Master of Divinity
from Bethel Seminary, an Honorary Doctor of Divinity degree from Trinity
Evangelical Divinity School.
SCOTT T. VANDEVENTER, age 41, has served as a director of the Company
since 1992. Mr. Vandeventer has been employed by ECCU since 1988 and is
currently executive vice president and chief operating officer of ECCU.
Prior to that time, Mr. Vandeventer provided consulting services to ECCU
and others through AM Business Communications, Inc., a marketing
communication company he founded and managed in 1980. Mr. Vandeventer is
also currently associated with NYE Partners, a business consulting firm
whose clients may include firms doing business with the Company and/or
ECCU. Mr. Vandeventer received his Bachelors Degree from Biola University
and has completed graduate work in finance and marketing at California
State University Fullerton School of Business Administration.
Except for Mr. Garmo, none of the Company's officers or directors
currently receives compensation from the Company. Each, however, is
entitled to be reimbursed for expenses incurred in performing duties on
behalf of the Company.
<PAGE>
MANAGEMENT COMPENSATION
The following table sets forth certain information regarding
compensation paid by the Company for services rendered to the Company
during its transitional year ended December 31, 1996 and its fiscal years
ended September 30, 1996, 1995 and 1994 by its Chief Executive Officer and
President. None of the Company's executive officers (the named Executive
Officers) had a total salary, plus bonus, exceeding $100,000 during this
period.
Summary Compensation Table
Annual Compensation Long-Term Compensation
Securities
Name and Fiscal Year Restricted Underlying
Principal Position Ended Salary(s)(1) Stock Awards Options
Mark G. Holbrook, 12-31-96 (2) -0- -0-
Chairman, Chief 9-30-96 (2) -0- -0-
Executive Officer 9-30-95 (2) -0- -0-
John C. Garmo, 12-31-96 $14,815 -0- -0-
President 9-30-96 59,500 -0- -0-
9-30-95 55,000 -0- -0-
(1) No bonuses were paid to any executive officers during the periods
stated.
(2) Mr. Holbrook is a full-time employee of ECCU. This amount was
paid to ECCU as reimbursement for the Company's use of ECCU's
personnel, including Mr. Holbrook, and for other services. Since
December 1, 1994, the commencement date of Mr. Garmo's employment
by the Company, Mr. Holbrook has expended, on the average,
approximately 2% of his time as an officer and director of the
Company. The Company reimburses ECCU for that portion of Mr.
Holbrook's time devoted to service to the Company as an officer
(but not director). Mr. Holbrook currently devotes less than 1%
of his time as an officer of the Company.
Option/Warrant Grants in Current Fiscal Year. No options, warrants or
other rights to purchase securities of the Company have been issued.
VOTING SECURITY OWNERSHIP
As of the date of this Prospectus, the Company has 100,000 shares
of its common stock outstanding, all of which shares are owned by
Evangelical Christian Credit Union, 1150 N. Magnolia Avenue, Anaheim,
California 92801. None of the Company's officers or directors beneficially
owned any of these shares. At December 31,1995, the Company did not have
outstanding any options, warrants or convertible securities.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Nine Months Ended September 30, 1997 vs. Nine Months Ended September 30,
1996
During the nine months ended September 30, 1997, the Company incurred
a net loss of $(42,895) as compared to a net loss of $(8,347) for the same
nine months ended September 30, 1996, a decrease in net income of
$(34,548). This change is attributable primarily to increases in
marketing, legal and accounting expenses as a new offering was prepared and
presented to the public. Interest income, net, for the period, was
$122,152, an increase of 1% from $121,050 for the nine months ended
September 30, 1996. The Company's cost of funds (i.e., interest expense)
during this period increased $20,908 (or 9.7%), to $235,730 for the nine
months ended September 30, 1997 as compared to $214,822 for nine months
ended September 30, 1996. This increase is attributable to an increase in
the sale of debt securities (Notes Payable). At September 30, 1997, the
company had outstanding debt securities of $6,573,441, up from $2,236,731
at September 30, 1996, an increase of 194%.
The Company's general and administrative expenses for the nine months
ended September 30, 1997 increased to $165,046 from $129,783 for the same
period ending September 30, 1996, an increase of 27%. This is attributable
to an increase of $22,084 in legal and accounting expenses associated with
SEC registration, over the same period in 1996, and an increase of $20,740
in marketing and promotion expenses as the new offering was presented to
the public.
Transitional Fiscal Year Ended December 31, 1996 vs. Three Months Ended
December 31, 1995
During the three months ended December 31, 1996, the Company realized Net
income of $11,192 as compared to a Net loss of $(2,561) for the three
months ended December 31, 1995, an increase in net income of 537%. This
increase is attributable to $18,000 of non-recurring Organizational income
in 1996 as compared to none for the same period in 1995. Net interest
income for the three months ended December 31, 1996 decreased by 15%
($34,980 in 1996 compared to $41,158 for the three months ended December
31, 1995). This decrease is attributable primarily to a reduction in the
Company's Mortgage Loan investments (Notes Receivable) pending
effectiveness of the Company's Registration Statement for the Offering of
its Class A Notes. During this time the Company was unable to replace its
investor debt securities as they matured (or to allow reinvestments
thereof).
For the three months ended December 31, 1996, Total Interest Expense as a
percentage of Total Interest Income decreased by 8% from the same period in
1995 (0.588 for 1996 compared to 0.639 for 1995). This decrease is due to
a greater proportional decrease of Interest expense on Notes payable than
on Interest income from Notes receivable during this period.
Total Operating Expenses decreased by 6% for the three month period
ending December 31, 1996 ($40,988 in 1996 compared to $43,719 for the three
months ended December 31, 1995). This decrease was due to reduced
marketing and investment costs pending commencement of the Offering of the
Class A Notes, which have been resumed.
On December 31, 1996, the company had outstanding debt securities (Notes
payable) of $2,157,653, down from $3,430,678 on December 31, 1995, a
decrease of 37%. On December 31, 1996, the current portion of Notes
payable as a percentage of Notes payable increased by 2,828% from that on
December 31, 1995 (63% on December 31, 1996 as compared to 2% on December
31, 1995). Again, these changes are due to the inability of the Company to
replace maturing Notes payable with new, longer term debt securities until
it could commence the Offering of its Class A Notes.
Fiscal Year Ended September 30, 1996 vs. Fiscal Year Ended September 30,
1995
The Company realized a net loss of $(15,264) for the year ended
September 30, 1996, an increase of 114% over the $(7,148) net loss
for the year ended September 30, 1995. The increased net loss in
1996 was due to a 100% decrease in Organizational income during 1996
(none in 1996 compared to $4,853 in 1995) and the increase in
Expenses discussed below. The Company's Net Interest Income in 1996
increased by 13% over 1995 ($157,938 compared to $139,877). In 1996,
however, interest income on the Company's short-term cash investments
with ECCU was carried as Income while in 1995 and in previous years,
such income was carried as Other income. If Net Interest Income for
1995 included "Interest income - ECCU" as it did in 1996, Net
Interest Income in 1995 would be $145,194 and the increase in 1996
would be 11%.
Total Operating Expenses increased by 10% in 1996 ($172,402 in
1996 compared to $156,667 in 1995). The increase was almost entirely
due to an increase of 19% in Salary and benefits ($105,751 in 1996
compared to $89,236 in 1995). The increase in salary and benefits
was attributable to the payment of salary and benefits to Mr. Garmo
for the entire twelve months of 1996 as compared to approximately
nine months of such payments in 1995, following Mr. Garmo's
engagement in December 1994. Also in 1996, legal expenses increased
by 45% ($18,320 in 1996 compared to $12,639 in 1995) in connection
with the offering of the Notes. Legal expenses, however, are
expected to remain at these increased levels. Office operations,
however, decreased by 21% in 1996 ($24,873 in 1996 compared to
$31,290 in 1995). This decrease was primarily because of the
cessation of certain activities related to processing investor debt
securities and the Company's Mortgage Loan investment activities,
which activities have been resumed upon the offering of the Notes and
are expected to return at least to 1995 levels.
In 1996, Total Interest Expense as a percentage of Total Interest
Income (when adjusted for 1995 as described above) increased by 12%
(0.646 in 1996 compared to 0.568 in 1995). Management believes the
increased expense ratio in 1996 was due to the Company's inability to
market its debt securities during the last half of 1996 pending
effectiveness of the Company's Registration Statement for the Offering of
the Class A Notes. On September 30, 1996, the Company had outstanding debt
securities (Notes Payable) of $2,236,731, down from $3,104,983 at September
30, 1995, a decrease of 18%. The Company's inability to raise funds from
the sale of it's debt securities during this period to replace its
maturing investor debt securities (or to allow reinvestments thereof) caused
the Company to liquidate its higher yielding Mortgage Loan investments and
maintain funds in lower yielding, more liquid investments, in order to have
the liquidity necessary to repay its debt securities as they matured.
Management believes that funds resulting from the continuing sales of
the Notes will allow the Company to maintain a higher yielding
Mortgage Loan portfolio which will result in a decrease of its
interest expense/interest income ratio. However, there is no assurance
that this result would occur. See "RISK FACTORS".
Liquidity and Capital Resources
Net decrease in cash during the nine months ended September 30, 1997
was $(91,201), compared to a net decrease of $(33,566) for the nine months
ended September 30, 1996, a decrease of $57,635. Net cash used by
operating activities totaled $(27,624) for the nine months ended September
30, 1997, a decrease of $55,611 from $(83,235) used by operating activities
during the nine months ended September 30, 1996. This difference is
attributable primarily to a reduction in interest paid during the nine
months ended September 30, 1997 as compared to the same period in 1996.
Net cash used by investing activities totaled $(4,271,834) during the
nine months ended September 30, 1997, compared to $1,458,106 provided
during the nine months ended September 30, 1996, a difference of
$(5,729,940). This difference is primarily attributable to an increase in
Notes Receivable purchased during the nine months ended September 30, 1997
as compared to the same period in 1996.
Net cash provided by financing activities totaled $4,208,257 for this
nine month period in 1997, an increase of $5,616,694 from $(1,408,437) used
by financing activities during the nine months ended September 30, 1996.
This difference is primarily attributable to an increase in the Company's
sale of outstanding debt securities (Notes Payable) during the nine months
ended September 30, 1997 as compared to the same period in 1996.
At September 30, 1997, the Company's cash, which includes cash
reserves and cash available for investment in mortgage loans, was $69,202,
down from $162,867 at September 30, 1996, a decrease of $93,665 (57.5%).
Liquidity Plan
Management intends to continue the Company's current liquidity
plan which relies primarily on funds from operations, cash reserves
and borrowings under the ECCU Credit Line to pay interest and
principal on its debt securities on a timely basis. Historically,
these sources have provided sufficient funds for the Company's timely
payment of debt security obligations and it has not been required or
attempted to obtain funds from the sale or hypothecation of its
Mortgage Loan investments. Historically, the Company has experienced
significant rates of reinvestment or renewal by its debt security
investors upon maturity of their investments. Thus, these sources
may not continue to provide sufficient liquidity in the event the
Company does not experience comparable reinvestment rates on the
Notes. Even so, management believes that the Company can realize
sufficient funds from its ECCU Credit Line and/or the sale or
hypothecation of its Mortgage Loan investments, should additional
funds be necessary to repay the Company's debt securities as they
mature. Management bases this belief on the size and quality of the
Company's Mortgage Loan investments, the availability of purchasers
of those assets on a timely basis and a historic price (at or near
par) paid for secured loans comparable to the Company's Mortgage Loan
investments.
Management does not believe that its ability to achieve sufficient
margins between interest revenues and interest expenses will be adversely
impacted by fluctuating interest rates or inflation. This is because of
the Company's ability to adjust the interest rates offered to investors on
its debt securities to reflect increases or decreases on interest rates
achievable on the Company's Mortgage Loan investments. In addition, the
Company's Mortgage Loan investments in general bear variable interest rates
and reflect changes in interest rate fluctuations due to inflation or
otherwise. Thus, as fluctuations affect yields on the Company's Mortgage
Loan investments, it is able to adjust the cost of new funds from the sale
of its debt securities accordingly.
CERTAIN TRANSACTIONS
As described elsewhere in this Prospectus, ECCU is the sole shareholder
of the Company. During the past two years, ECCU has provided the Company
with a line of credit whereby ECCU is committed to loan to the Company from
time to time up to $2,100,000. The terms and conditions of this credit
line, including the interest rates charged thereon, are the same as those
charged by ECCU to its other commercial borrowers. Pursuant to the
Subordination Agreement, ECCU has agreed to subordinate such borrowings by
the Company to the payment of the Notes and to certain note obligations to
the Company. There is no assurance that in the future ECCU will not
modify, reduce or terminate this credit line.
ECCU provides the Company with office space and certain personnel. The
Company reimburses ECCU for the use of this office space and personnel in
amounts equal to ECCU's allocated costs therefor. There is no assurance
that ECCU will not modify the terms pursuant to which it provides office
space and/or personnel to the Company or that it will in the future
continue to provide office space and/or personnel to the Company.
The Company acquires it Mortgage Loans from ECCU. The Company's Mortgage
Loans are serviced by ECCU. See "BUSINESS OF THE COMPANY - Mortgage Loan
Investments."
Certain of the Company's officers and directors also serve as officers
and/or directors of ECCU. See "MANAGEMENT."
DESCRIPTION OF THE NOTES
General
The Class A-1 Notes are part of a Class of up to $25,000,000 of Notes
authorized under the Loan Agreement, of which an aggregate of $15,000,000
are being offered hereby in seven Series as described below. The Notes are
subject to the Loan Agreement, as described below, which restricts the
amount of Notes outstanding at any time to $10,000,000. Capitalized terms
used herein and not otherwise defined in this Prospectus have the meanings
set forth below.
The Notes are general unsecured obligations of the Company ranking pari
passu (or equal) in right of payment with all other existing and future
Indebtedness of the Company, except Indebtedness which is expressly
subordinated to Notes. Presently, the only obligation of the Company
expressly subordinated to the Notes is the ECCU Credit Line, which is
subordinated in the maximum amount of $750,000 to amounts currently due and
payable on the Notes. See "BUSINESS OF THE COMPANY - ECCU Credit Line
Financing". There is no assurance that this subordinated financing will
not be reduced, modified or terminated in the future. See "RISK FACTORS -
Continuation of ECCU Credit Line". The Notes are not guaranteed by
any person nor insured. However, with certain exceptions, the Company must
satisfy specified financial ratios to incur future indebtedness. See "THE
LOAN AND STANDBY TRUST AGREEMENT" below.
The Notes are governed by the Loan and Standby Trust Agreement
(the "Loan Agreement"), a copy of which is described under "Loan and
Standby Trust Agreement" below and is included as Exhibit B to this
Prospectus. The Loan Agreement is a form of indenture between the
Holders, the Company and a Trustee who may be appointed by the
Holders thereunder. See "Loan and Standby Trust Agreement"
below. The Loan Agreement has not been qualified under the Trust
Indenture Act of 1939 (the "TIA"). The Notes are not rated by any
private or governmental agency.
Series Issued
The Notes will be issued in the following series.
Series Minimum Initial Investment
1 $ 1,000
5 $ 5,000
10 $ 10,000
25 $ 25,000
50 $ 50,000
100 $ 100,000
C 10 $ 10,000
C 25 $ 25,000
Each of the Series 1, 5, 10, 25, 50 and 100 Notes are offered
with terms (" maturities") of six (6), twelve (12), twenty-four (24),
thirty (30) and sixty (60) months from the date of purchase. Series
C Notes have a seventy-two (72) month term and are callable at any
time after the initial three (3) months by the Holder upon
ninety (90) days prior written notice to the Company.
Interest
The stated interest rate payable on a Note is fixed on the date
of sale in an amount equal to a stated fixed premium above the
Blended Index Rate (the "BIR"). The BIR is the mean average of the
National Index Rate and the Los Angeles Index Rate for financial
institutions reported by the applicable edition of the Bank Rate
MonitorTM for the respective maturity of the Note purchased. For the
purposes of the forgoing, the applicable edition of the Bank Rate
MonitorTM is the edition in effect on the first day of the month
in which the Note was sold. The stated fixed premiums applicable to
the respective Series of Notes are set forth in the following table.
<PAGE>
INTEREST RATE TABLE
NOTE MATURITY
Note Series 6 Months 12 Months 24 Months 30 Months 60 Months
The 6 Mo. The 12 Mo. The 24 Mo. The 30 Mo. The 60 Mo.
BIR, Plus BIR, Plus BIR, Plus BIR, Plus BIR, Plus
Series 1 1.00% 1.00% 1.00% 1.00% 1.00%
Series 5 1.12% 1.12% 1.12% 1.12% 1.12%
Series 10 1.24% 1.24% 1.24% 1.24% 1.24%
Series 25 1.36% 1.36% 1.36% 1.36% 1.36%
Series 50 1.48% 1.48% 1.48% 1.48% 1.48%
Series 100 1.60% 1.60% 1.60% 1.60% 1.60%
Series C:
10 1.00% 1.00% 1.00% 1.00% 1.00%
25 1.50% 1.50% 1.50% 1.50% 1.50%
The interest rates payable on the day of purchase of a Note will
be confirmed by the Company upon request. As an illustration of the
foregoing, but not as a limitation thereon, if at the time of the sale
of a Series 25 Note having a 24-month maturity, the BIR was 5.10%,
then stated interest rate payable on such Series 25 Note would be
6.46%. Except for that of the Class C Note, which has a variable
interest rate, the stated interest rate on each Note is fixed in
accordance with the foregoing and will not change through the term of
the Note. To be entitled to receive the interest based on the BIR
effective on any day, an investor must have his or her purchase of
the Note confirmed and accepted on such day by the Company.
The Bank Rate MonitorTM (the "BRM") is published by Bank Rate
Monitor, Inc., N. Beach, Florida 33408-8888. The BRM is a nationally
recognized and utilized index of interest rates charged by financial
institutions. The indexes reported are based on interest rates
reported by a representative cross section of financial institutions
in selected regional and local markets.
Unless another payment option is selected by the Holder, interest
on the Notes will be paid monthly in arrears. A Holder may elect to
receive interest payable quarterly, semi-annually or annually.
Interest will be paid on the fifth business day of the month next
following the payment due date, prorated for the first partial
payment period, if any. Interest on the Notes will accrue from the
most recent date to which interest has been paid or, if no interest
has been paid, from the date of original issuance. Interest will be
computed on the basis of a 365-day year. Interest will be deemed
paid when mailed via the United States Postal Service addressed to
each Holder at the address supplied by the investor, subject to the
check or instrument mailed being drawn on good and sufficient funds.
Reinvestment Option
Holders may opt to take their Note with a reinvestment option
("Note with Reinvestment"). In regard to a Note with Reinvestment,
the Company will retain all interest payable and credit the Note with
interest at the stated rate based on a 365-day year on all retained
interest payments from the date such payments would have been paid
until the end of the term of the Note. No cash payments will be made
in respect of a Note with Reinvestment except in the case of
redemptions by the Company, discretionary acceptance by the Company
of early presentment by Holders or upon maturity. The Holder of a
Note with Reinvestment would be due a single payment upon maturity of
the Note. If all principal amounts of the Notes are prepaid,
excluding reinvested interest under Notes with Reinvestment, the
Company must also prepay the reinvested interest in full upon
prepayment of the principal amount.
Pursuant to the interest investment option, the Company will
pay additional interest on the interest reinvested at the rates and
under the terms stated in the Note for the payment of interest on
principal. Interest so invested will not be paid and kept in a
separate escrow account, but will be treated by the Company in the
same manner as the unpaid principal amount of the Notes to which it
relates.
Holders subject to taxation who elect the reinvestment option
should be aware that they will continue to have tax liability for all
accrued and reinvested interest in the year accrued and reinvested.
See "Certain Federal Income Tax Considerations."
Optional Prepayment
The Notes are redeemable at the election of the Company at any
time, in whole or in part, upon not less than thirty (30) nor more
than sixty (60) days notice, at their unpaid principal balance, plus
accrued and unpaid interest thereon, if any, to the redemption date.
Selection and Notice. If less than all of the Notes are to be
redeemed at any time, selection of the Notes for redemption will be
made by the Company on a pro rata basis. Notice of redemption shall
be mailed by first class mail to each Holder of Notes to be redeemed
at such Holder's address set forth in the register of Holders. If
any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal
to the unredeemed portion thereof shall be issued in the name of the
Holder thereof upon cancellation of the original Note. On and after
the redemption date, interest ceases to accrue on Notes or portions
of them called for redemption. The obligation of the Company to make
partial or total redemptions on a pro rata basis shall not limit the
Company's right to redeem Notes of any Holder on a voluntary basis,
including any repurchase or prepayment of a Note upon a Holder's
request as described below.
Early Presentment of Notes
A Holder may at any time, request in writing that the Company
purchase his or her Note prior to maturity by delivering such Note
and written request to the Company. Upon its receipt of such a
request, the Company may, in its sole discretion, determine to
purchase the Note for a price equal to the unpaid principal amount of
such Note plus accrued but unpaid interest thereon through the date
of purchase, less a discount equal to 90 days interest
payable on the Note or, if less, interest payable for one-sixth of
the term of the Note. The Company must determine whether to purchase
a Note so presented within ten (10) business days of its receipt of
the request to do so and will, in such event, promptly pay to the
requesting Noteholder the purchase price. The Company will endeavor
to purchase any Note so presented for purchase subject to availability of
funds. However, there is no assurance it will do so and any purchase of a
Note will be at the sole discretion of the Company.
Loan And Standby Trust Agreement
As a condition to his or her purchase of a Note, each Holder agrees and
adopts the Loan and Standby Trust Agreement. The Loan Agreement authorizes
the issuance of up to $25,000,000 of Notes but restricts the issuance of a
principal Note if the amount of such Note would, when added to the unpaid
balance of all other Notes then outstanding, exceed $10,000,000. The
following is a summary of material provisions of the Loan Agreement
and is qualified in its entirety by the terms and conditions of the
Loan Agreement, a copy of which is included as Exhibit "B" to this
Prospectus. Certain Capitalized terms used in the following summary
are defined under "Certain Definitions" below.
Continuing Covenants of the Company. While any Note is outstanding,
the Company may not (and will not permit any subsidiary to) (i) declare or
pay any dividend or make any distribution on account of the Company's
capital stock (other than dividends or distributions payable (x) in the
Company's or any subsidiary's stock or (y) to the Company or any
wholly-owned subsidiary); (ii) purchase, redeem or otherwise acquire or
retire for value any of the Company's capital stock or any wholly-owned
subsidiary; or (iii) voluntarily purchase, redeem or otherwise acquire or
retire for value, prior to the scheduled maturity of any mandatory sinking
fund payments thereon or the stated maturity thereof, any Indebtedness of
the Company that is subordinated in right of payment to the Notes (all such
payments and other actions set forth in clauses (i) through (iii) above
being collectively referred to as "Restricted Payments") unless, at the
time of such Restricted Payment no Default or Event of Default shall
have occurred and be continuing or would occur as a consequence
thereof;
In addition, any such Restricted Payment, together with the aggregate of
all other Restricted Payments made by the Company or any subsidiary, may
not exceed the sum of:
(i) 50% of the Net Income of the Company for the period
(taken as one accounting period) from the fiscal year ended December 31,
1996 to the end of the Company's most recently ended full fiscal quarter
for which financial statements are available at the time of such Restricted
Payment (or, if such Net Income for such period is a deficit, 100% of
such deficit), plus
(ii) 100% of the aggregate net cash proceeds received by
the Company from the issue or sale of the Company's capital stock
(other than capital stock sold to a subsidiary of the Company), debt
securities or capital stock convertible into the Company's capital
stock upon such conversion, or any funds advanced or loaned to the
Company by ECCU under its subordinated line of credit, plus
(iii) 100% of the cash, if any, contributed to the
capital of the Company, as additional paid in capital by any
stockholder of the Company.
The foregoing shall not, however, prohibit the following
Restricted Payments:
(a) the payment of any dividend within sixty (60) days
after the date of declaration thereof, if at said date of declaration
such payment would have complied with the foregoing provisions; or
(b) (x) the redemption, repurchase, retirement or other
acquisition of any of the Company's capital stock, (y) the purchase,
redemption or other acquisition or retirement for value prior to the
scheduled maturity of any mandatory sinking fund payments or stated
maturity of Indebtedness of the Company is subordinated in right of
payment to the Holders of the Notes, or (z) the making of any
investment in the Company or any subsidiary of the Company in each
case of (x), (y) and (z) in exchange for, or out of the proceeds of
the substantially concurrent sale (other than to the Company), of the
Company's capital stock.
Limitation on Outstanding Class A-1 Notes. The Company shall not issue
any Class A-1 Note if, after giving effect to such issuance, the Class A-1
Notes then outstanding would have an aggregate unpaid balance exceeding
$10,000,000.
Limitation on Incurrence of Indebtedness. While any Note remains
outstanding, the Company may not, and may not permit any subsidiary
to, directly or indirectly, create, incur, issue, assume, guaranty or
otherwise become, directly or indirectly, liable with respect to
(collectively, "incur") any Indebtedness, unless the Fixed Charge Coverage
Ratio of the Company, as defined below, determined on a consolidated basis,
for the Company's most recently ended four full fiscal quarters for which
financial statements are available immediately preceding the date on which
such additional Indebtedness is incurred would have been at least 1.20 to
1.0, determined on a pro forma basis (including a pro forma application of
the net proceeds therefrom to a repayment of any Indebtedness), as if
the additional Indebtedness had been incurred at the beginning of
such four-quarter period. Provided, however, that notwithstanding the
foregoing, the Company may incur indebtedness that: (i) is evidenced by the
Notes; (ii) was existing at September 30, 1997 as it may be extended or
modified; (iii) is incurred in the ordinary course of business for the
funding of mortgage loans which includes warehouse lines of credit and/or
repurchase facilities; (iv) is in respect of performance, completion,
guarantee, surety and similar bonds, banker's acceptances or letters of
credit provided by the Company in the ordinary course of business; and/or
(v) when incurred does not result in other Indebtedness, as defined below,
in excess of $750,000 outstanding at any time.
Merger, Consolidation or Sale of Assets. While any Note is
outstanding, the Company may not consolidate or merge with or into
any other person or entity (whether or not the Company is the
surviving corporation) or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its properties or
assets (excepting loans held for sale in the normal course of the
Company's mortgage banking operations) in one or more related
transactions to, another corporation, person or entity, unless (i)
the Company is the surviving corporation of such consolidation or
merger; and (ii) immediately after such transaction no Default or
Event of Default under the Notes exists.
Maintenance of Tangible Adjusted Net Worth. In the event that,
while any Class A-1 Note is outstanding, within 55 days after the end
of any fiscal quarter (100 days after the end of any fiscal year) as
of the end of which the Company's Tangible Adjusted Net
Worth, as defined below, is less than $2,000,000 (the "Minimum
Tangible Adjusted Net Worth"), the Company must notify
the Holders of such event and must within sixty (60) days thereafter
restore its Tangible Adjusted Net Worth to an amount greater
than the Minimum Tangible Adjusted Net Worth. For the purposes of this
covenant, Tangible Adjusted Net Worth includes the contracted for amount of
the ECCU Credit Line to the extent it is subordinated in right for payment
on a current basis to the Notes.
Books and Records. The Company must keep proper books of record and
account, in which full and correct entries shall be made of all dealings or
transactions of or in relation to the Notes and the business and affairs of
the Company in accordance with generally accepted accounting principles.
The Company must furnish to the Trustee any and all information related to
the Notes as the Trustee may reasonably request and which is in the
Company's possession.
Other than the foregoing, there are no covenants or similar restrictions
(other than those contained under the California General Corporation Law)
restricting the Company's ability to enter into transactions with ECCU or
its other Affiliates including, but not limited to, transactions involving
the sale, lease, transfer or otherwise disposal of any of the Company
assets to, or purchase any assets from, or any contract, agreement,
understanding, loan, advance of guarantee with, or for the benefit of, any
such Affiliate.
Under California law, the independent Directors' fiduciary obligations
require that they act in good faith in a manner which they believe to be in
the best interests of the Company and its shareholders, which may not, in
all circumstances, be the same as those of the Holders of the Senior Notes.
Default and Remedies
Events of Default. Each of the following constitutes an Event
of Default under the Notes: (i) default for thirty (30) days in the
payment when due of interest or penalty on any Note; (ii) default for
thirty (30) days in the payment when due of principal of any Note;
(iii) if not cured in a timely manner, failure by the Company to
observe or perform any of the covenants or agreements in the Notes or
set forth under Article II of the Loan Agreement required to be performed
by it; or (iv) if not cured in a timely manner, default under the
instruments governing any Other Indebtedness or any mortgage, indenture or
instrument under which there may be issued or by which there may be
secured or evidenced any Other Indebtedness for money borrowed by the
Company whether such Other Indebtedness or guarantee now exists, or
is hereafter created which default (a) is caused by a failure to pay
when due principal or interest on such Other Indebtedness within the
grace period provided in such Other Indebtedness and which continues
beyond any applicable grace period (a "Payment default") or (b)
results in the acceleration of such Other Indebtedness prior to its
express maturity, provided in each case the principal amount of any
such Other Indebtedness, together with the principal amount of any
other such Other Indebtedness under which there has been a Payment
default or the maturity of which has been so accelerated, aggregates
$250,000 or more.
Cure of Default. In order to cure payment Default, the Company
must mail to the Holder, direct deposit or credit if that option is
selected, the amount of the nonpayment plus a late payment penalty
equal to simple interest on the amount unpaid at the rate of 10% per
annum, measured from the date the payment should have been mailed,
deposited or credited pursuant to the terms of the Notes until the
date it actually is mailed, deposited or credited.
Remedies in Event of Default. If any Event of Default occurs and
is continuing, the Holders of not less than a Majority in Principal
Amount of the then Outstanding Notes (a "Majority in Interest")
appoint a Trustee under the Loan Agreement and may instruct the
Trustee to declare all the Notes to be due and payable immediately
and take any action allowed by law to collect such amounts.
Notwithstanding the foregoing, in the case of an Event of Default
arising from events of bankruptcy or insolvency with respect to the
Company, all outstanding Notes will become due and payable
without further action or notice. If an Event of Default has
occurred and is continuing, the Company must, upon written request
of the Trustee, cure such default and pay for the benefit of the
Holders the whole amount then due, any penalties which may be due
and, in addition thereto, such further amount as shall be sufficient
to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel and all other amounts due to the
Trustee hereunder. If the Company fails to cure such defaults and
pay such amounts forthwith upon such demand, the Trustee, in its own
name and as Trustee of an express trust, shall be entitled to sue
for and recover judgment against the Company and any other obligor on
the Notes for the amount so due and unpaid pursuant to the terms of
the Notes.
Trustee in the Event of an Uncured Default
If an Event of Default occurs and is continuing, then the Holders
of a Majority in Interest of the Outstanding Notes may, within thirty
(30) days of such Event of Default, appoint a Trustee to represent
the interests of all the Holders pursuant to the Loan Agreement.
Upon acceptance of such appointment by the Trustee, the operation of
the Trust shall commence and the power and rights of the Trustee
thereunder shall begin. If a Majority in Interest of the Holders
cannot agree on a Trustee, the Trust will not be instituted.
The Company has committed upon the completion of the Minimum
Offering to engage and pay the fee to an appropriate unaffiliated
entity, such as an accounting firm, for organizing a vote of the
Holders as soon as practicable upon the occurrence of an Event of
Default for the purpose of appointing a Trustee in accordance to the
terms of the Loan Agreement. The entity is not required to act as a
Trustee. The Company must supply such entity with the names,
addresses and occurrence of any Event of Default. The Company has
agreed to pay the reasonable expenses of any Trustee duly appointed
by a Majority in Interest of the Holders pursuant to the Loan
Agreement.
A Trustee appointed under the terms of the Loan Agreement may not
make any settlement or compromise concerning the rights of the
Holders, in regard to payments of principal or interest, unless it is
approved in a separate vote by a Majority in Interest of the
Holders. Any settlement or compromise so approved would be binding
upon all the Holders. The Trustee may withhold from the Holders
notice of any Default or Event of Default if it believes that
withholding notice is in their interest except a Default or Event of
Default relating to the payment of principal or interest or
penalties. NO HOLDER SHALL HAVE THE RIGHT TO INSTITUTE OR CONTINUE
ANY PROCEEDING, JUDICIAL OR OTHERWISE, WITH RESPECT TO THE LOAN
AGREEMENT, THE NOTES, OR FOR THE APPOINTMENT OF A RECEIVER OR TRUSTEE
OR FOR ANY OTHER REMEDY HEREUNDER, DURING THE PERIOD OF THE OPERATION
OF THE TRUST AGREEMENT, UNLESS CERTAIN CONDITIONS, AS SET FORTH IN
THE TRUST AGREEMENT, ARE SATISFIED. The Loan Agreement requires
Holders who suffer an actual default on their notes to obtain the
consent of a majority of all Holders, regardless of Series or
maturity or default status, to appoint a Trustee and take action
against the Company. THIS REQUIREMENT, IN EFFECT, MAY LEAVE MANY
NOTEHOLDERS WITHOUT PRACTICAL RECOURSE.
BY EXECUTING THE SUBSCRIPTION DOCUMENT, EACH HOLDER IS AGREEING
TO BE BOUND BY THE TERMS OF THE TRUST AGREEMENT SHOULD IT COME INTO
FORCE BY THE APPOINTMENT OF A TRUSTEE PURSUANT TO ITS TERMS. EACH
PROSPECTIVE INVESTOR SHOULD CAREFULLY REVIEW THE LOAN AGREEMENT
(ATTACHED AS EXHIBIT B). THE FOREGOING IS ONLY A SUMMARY OF THE
PROVISIONS OF THE LOAN AGREEMENT.
Amendment, Supplement and Waiver
The Loan Agreement and/or the Notes may be amended or
supplemented with the consent of the Holders of at least a Majority
in Principal Amount of the then Outstanding Notes, and any Default,
Event of Default, compliance or noncompliance with any provision of
the Notes may be waived with the consent of the Holders of a Majority
of Principal Amount of the then Outstanding Notes; provided that any
such amendment or supplement affecting the term, interest rate and
other terms of the Notes must be ratable and proportionate in effect
on all outstanding Note Holders based on the aggregate amount of
principal and interest and penalty payments due them.
Certain Definitions
Set forth below are certain defined terms used in this Prospectus
in discussing the terms and conditions of the Notes.
"Adjusted Net Worth" means the sum of (i) the consolidated
equity of the common stockholders of the Company and any consolidated
subsidiary, plus (ii) the respective amounts reported on such
entity's most recent balance sheet with respect to any series of
preferred stock, plus (iii) the amount of the ECCU Credit Line, whether or
not then funded, and any loan ECCU or any other
lender is contractually obligated to loan to the Company, but only to
the extent such loan amount is expressly subordinated in right to
payment on a current basis to the Class A-1 Notes. For purposes of
computing Adjusted Net Worth, except with respect to the ECCU Credit Line
and any other loans included in Adjusted Net Worth as provided in the
foregoing, all transactions between the Company and any Affiliates,
including ECCU, shall be treated as if the transactions had been entered
into with an unaffiliated third-party to the extent that GAAP would require
any different treatment.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct
or indirect common control with such specified Person. For
purposes of this definition, "control," "controlling" and
"controlled," when used with respect to any specified Person, means
the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise.
"Business Day" means any day other than a Saturday or Sunday or a
day on which banking institutions in the State of California are not
required to be open.
"Cash Flow" means with respect to any period, Consolidated Net
income of the Company and any subsidiary for such period plus (a) an
amount equal to any extraordinary loss plus any net loss realized in
connection with the sale or other disposition of any assets (to the
extent such net losses were deducted in computing Net Income for such
period), plus (b) provision for taxes based on income or profits to
the extent such provisions for taxes was deducted in computing Net
Income for such period, plus (c) Fixed Charges for such period, plus
(d) depreciation and amortization, plus (e) interest expense for such
period paid or accrued with respect to the ECCU Credit Line and any
other Indebtedness which is subordinated to the Notes, plus (f) the
unused amount of financing on the ECCU Credit Line (and other
financing subordinated to the Notes) available to the Company on the
date the determination of Cash Flow hereunder is made.
"Class A Notes" means the Series1, Series 5, Series 10, Series 25, Series
50, Series 100 and Series C Notes provided, however, that the aggregate of
all series of Class A Notes shall not exceed $5,000,000.
"Default" means any event that with the passage of time or the
giving of notice or both is or could be an Event of Default.
"ECCU Credit Line" means that certain loan agreement and note in the
amount of $2,100,000 dated February 26, 1997, as amended, as subordinated
by that certain Subordination Agreement dated June 1, 1994, as amended.
"Events of Default" means those Events of Default defined under
"Events of Default" herein, whatever the reason for such event and
whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or
governmental body.
"Fixed Charges" means, with respect to any period, consolidated
interest expense for such period, whether paid or accrued, to the
extent such expense was deducted in computing Consolidated Net Income
(including amortization of original issue discount, noncash interest
payments and the interest component of capital leases, but excluding
amortization of deferred financing fees) plus, without duplication,
all interest capitalized for such period on a consolidated basis and
in accordance with GAAP. Fixed Charges shall not include any
interest expense for such period paid or accrued with respect to the
ECCU Credit Line or any other Indebtedness which is subordinated to
the Notes.
"Fixed Charge Coverage Ratio" means, with respect to any period,
the ratio of the Cash Flow of the Company for such period to the
Fixed Charges of the Company for such period. In the event the
Company incurs, assumes, guarantees, repays, redeems or otherwise
retires any Indebtedness (other than the Company's credit line with
ECCU) subsequent to the commencement of the period for which the
Fixed Charge Coverage Ratio is being calculated but prior to the
event for which the calculation of the Fixed Charge Coverage Ratio is
made, then the Fixed Charge Coverage Ratio shall be calculated giving
pro forma effect to such incurrence, assumption, guarantee,
repayment, redemption or retirement of Indebtedness,
including, if applicable, the application of the proceeds therefrom,
as if the same had occurred at the beginning of the applicable
period. In making such calculations on a pro forma basis, interest
attributable to Indebtedness bearing a floating interest rate shall
be computed as if the rate in effect on the date of computation had
been the applicable rate for the entire period.
"GAAP" means generally accepted accounting principles set forth
in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards
Board or in such other statements by such other entity as approved by
a significant segment of the accounting profession, which are in
effect from time to time.
"Holder" means the Person or Persons in whose name a Note is
registered on the books and records of the Company as a holder of
Notes.
"Indebtedness" means any indebtedness, whether or not contingent,
(i) in respect of borrowed money or evidenced by bonds, notes,
debentures or similar instruments or credit (or reimbursement
agreements in respect thereof), (ii) representing the balance
deferred and unpaid of the purchase price of any property, (iii)
representing capital lease obligations; and (iv) representing any
hedging obligations, except, in each case, any such balance that
constitutes an accrued expense or trade payable, if and to the extent
any of the foregoing Indebtedness (other than hedging obligations)
would appear as a liability upon a balance sheet prepared in
accordance with GAAP, and also includes, to the extent not otherwise
included, the guarantee of obligations of other persons that would be
included within this definition.
"Loan Agreement" means the Loan and Standby Trust Agreement
which the Holders agree to adopt and be bound by as a condition to
their purchase of the Notes as it may from time to time be
supplemented, modified or amended by one or more supplemental
agreements hereto entered into pursuant to the applicable provisions
hereof. The Agreement is not qualified under or subject to the Trust
Indenture Act of 1939, as amended.
"Majority in Interest" or "Majority of Principal Amount" shall
mean a majority of the outstanding unpaid principal amount of all
Outstanding Notes plus all unpaid interest due thereon (as reflected
on the books and records of the Company as voted by the Holders
thereof).
"Maturity Date" means the date on which the unpaid balance of
principal and accrued interest is due and payable on the respective
Note.
"Net Income" means, with respect to the Company for any period,
the aggregate of the net Income of the Company for such period, on a
consolidated basis, determined in accordance with GAAP; provided that
the Net Income of any entity that is not a subsidiary of the Company
or that is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or
distributions paid to the referent entity or a wholly-owned
subsidiary of the Company.
"Net Tangible Assets" means, with respect to the Company, the
total amount of assets of the Company and any subsidiary (less
applicable reserves) on a consolidated basis, as determined in
accordance with GAAP, less intangible assets. For purposes of
computing Net Tangible Assets, all transactions between the Company
and any Affiliates including ECCU, shall be treated as if the
transactions had been entered into with an unaffiliated third-party
to the extent GAAP would require any different treatment.
"Other Indebtedness" means any Indebtedness of the Company
outstanding other than any amounts owing with respect to the Notes
and any extension, refinancing, refunding, renewal, substitution or
replacement of any such Indebtedness, but only to the extent that any
such extension, refinancing, refunding, renewal, substitution or
replacement does not exceed the principal amount of the Indebtedness
being extended, refinanced, refunded, renewed, substituted or
replaced (plus the amount of the reasonable fees and expenses in
connection therewith) and that no additional security is granted in
connection with any such extension, refinancing, refunding, renewal,
substitution or replacement.
"Outstanding Notes" when used with respect to Notes means, as of
the date of determination, all Notes theretofore issued and delivered
by the Company and not paid, prepaid or redeemed in full pursuant to
their terms.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock partnership, trust, unincorporated
organization or government or any agency or political subdivision
thereof.
"Rate Schedule" means the schedule of interest rates payable on
the Notes as issued from time to time by the Company as a supplement
to the Prospectus.
"Tangible Adjusted Net Worth" means the Adjusted
Net Worth of the Company less the Company's intangible assets, if any.
"Trustee" means the Person or Persons elected as the "Trustee"
pursuant to the terms of this Agreement or a successor thereto once
the latter shall have become such pursuant to the applicable
provisions of this Agreement.
PLAN OF DISTRIBUTION
The Notes offered hereby are being offered by the Company
directly by certain of its officers and directors. Currently,
management anticipates that only Mr. Garmo will provide significant
services in placing the Notes and that certain of the Company's
administrative employees will provide only ministerial services in
connection with the Offering. None of such persons will receive any
commission or compensation for their services in connection with the
sale of the Notes other than their normal employment compensation.
The Company intends to offer the Notes pursuant to written
solicitations (accompanied or preceded by a copy of the Prospectus)
directed to the Company's current and past investors, members of
various Evangelical denominational, non-denominational, church and
ministry organizations, and possibly to members of specific churches
and/or church organizations. The Company does not anticipate
marketing the Notes to a specific church group or church organization
in connection with Mortgage Loan financing viable to that
organization, or as a condition to making.
Unless sooner terminated, and subject to prior sale, the Company
will offer the Notes until November 30, 1999. The Company's
ability to continue the Offering through such date will depend, upon
other things, the Company's continuing compliance with applicable
federal and state securities laws.
Persons desiring to purchase a Note must complete, date and sign
the PURCHASE APPLICATION accompanying this Prospectus, and return it
to the Company together with payment in full for the aggregate
principal amount of the Notes purchased. The PURCHASE APPLICATION is
subject to acceptance by the Company within twenty-four hours of the
Company's receipt thereof. The Company may accept or reject a
PURCHASE APPLICATION in its sole discretion. Any questions
concerning the procedure for purchasing the Notes should be directed
to John C. Garmo, President, P.O. Box 61084, Anaheim, California
92803-6184. The Company's telephone number is 1-800-753-6742.
EXPERTS AND COUNSEL
The balance sheets as of December 31, 1996 and September 30, 1996 and the
related statements of income and retained earnings, and cash flows for the
fiscal years then ended have been included in this Prospectus and reliance
is made on the report of Turner, Warren, Hwang & Conrad, an Accountancy
corporation, independent accountants, given on the authority of that firm
as experts in accounting and auditing.
Rushall & McGeever, Carlsbad, California, special counsel to the Company,
has passed on certain legal matters in connection with the Notes.
LEGAL PROCEEDINGS
No legal proceedings to which the Company is a party or which otherwise
involve the Company currently exist.
INDEX TO FINANCIAL STATEMENTS
Unaudited Financial Statements for the Nine Months Ended
September 30, 1997 and 1996
Balance Sheets F-2
Statements of Operations And Retained Earnings F-3
Statements of Cash Flows F-4
Notes to Financial Statements F-5
Audited Financial Statements for the Transitional Year Ended December 31,
1996
Report of Independent Certified Public Accountants F-9
- Turner, Warren, Hwang & Conrad Accounting corporation,
on behalf of Ministry Partners Investment Corporation
Balance Sheet F-10
Statement of Operations and Retained Earnings F-11
Statement of Cash Flows F-12
Notes to Financial Statements F-13
Audited Financial Statements for the Year Ended September 30, 1996
Report of Independent Certified Public Accountants F-17
- Turner, Warren, Hwang & Conrad Accounting corporation,
on behalf of Ministry Partners Investment Corporation
Balance Sheet F-18
Statement of Operations and Retained Earnings F-19
Statement of Cash Flows F-20
Notes to Financial Statements F-21
<PAGE>
MINISTRY PARTNERS INVESTMENT CORPORATION
BALANCE SHEETS
UNAUDITED
September 30,
1997 1996
Assets
Current Assets
Cash $ 69,202 $ 162,867
Notes Receivable 1,235,992 805,924
Interest Receivable 41,791 25,595
Prepaid Expense 47,761 53,230
Prepaid Income Tax 761 780
Total Current Assets 1,395,507 $1,048,396
Other Assets
Notes Receivable $6,378,853 2,685,959
Organization & Start Up Cost, net 0 6,462
Total Other Assets $6,378,853 $2,692,421
Total Assets $7,774,360 $3,740,816
Liabilities and Stockholder's Equity
Current Liabilities
Accounts Payable $ 17,365 $ 10,697
Line of Credit-ECCU 210,373 492,708
Notes Payable-current portion 5,031,597 1,364,182
Total Current Liabilities $5,259,334 $1,867,587
Long-term Liabilities
Notes Payable $6,573,441 $2,236,731
Less current portion (5,031,597) (1,364,182)
Total Long-term Liabilities $1,541,844 $ 872,549
Stockholder's Equity $1,000,000 $1,000,000
Common Stock, 10,000,000 shares
authorized, 100,000 shares issued
& outstanding, no par value
Retained Earnings (26,818) 680
Total Stockholder's Equity $ 973,182 $1,000,680
Total Liabilities & Stockholder's Equity $7,774,360 $3,740,816
The accompanying notes are an integral part of these financial statements
F-2<PAGE>
MINISTRY PARTNERS INVESTMENT CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
Nine months ended September 30,
1997 1996
Interest Income
Notes Receivable $ 334,808 $ 329,052
Interest-bearing Accounts-ECCU 7,822 6,821
Organizational Income 13,750 0
Other Income 1,501 0
Total Interest Income 357,882 335,873
Interest Expense-Cost of Funds
Line of Credit-ECCU 19,865 25,954
Notes Payable 215,865 188,868
Total Interest Expense 235,730 214,822
Net Interest Income 122,152 121,050
Operating Expenses
Salaries and Benefits 84,605 81,400
Marketing and Promotion 26,259 5,519
Office Operations 16,527 20,741
Legal Expenses 32,576 10,492
Amortization 2,585 11,631
Income Tax Expense 2,494 0
Total Operating Expenses 165,046 129,783
(Loss)Income before provision
for income taxes (42,895) (8,733)
Provision for Income Taxes 0 (385)
Net (Gain/Loss) Income $(42,895) $ (8,347)
The accompanying notes are an integral part of these financial statements
F-3<PAGE>
MINISTRY PARTNERS INVESTMENT CORPORATION
STATEMENTS OF CASH FLOWS
Nine months ended September 30,
1997 1996
Cash flows from operating activities:
Income - Notes Receivable 327,949 327,529
Interest received - ECCU 7,822 6,821
Organizational income 13,750 0
Cash paid to suppliers, vendors and ECCU (142,916) (126,454)
Interest paid - borrowers and ECCU (235,730) (291,191)
Income taxes paid 0 0
Other Income 1,501 0
Net Cash Used by Operating Activities (27,624) (83,235)
Cash flows from investing activities:
Notes Receivable purchased (3,860,014) (158,510)
Collections on Notes Receivable (417,250) 1,623,316
Prepaid Offering Expense (5,430) (6,700)
Net cash used by investing activities (4,271,834) 1,458,106
Cash flows from financing activities:
Line of Credit --ECCU, net (207,531) (290,859)
Notes Payable, borrowings 4,235,617 0
Notes Payable, repayments 180,171 (1,117,578)
Common Stock purchased--ECCU 0 0
Net cash provided by financing activities 4,208,257 (1,408,437)
Net increase/decrease in Cash (91,201) (33,566)
Cash at beginning of period 160,403 196,433
Cash at end of period 69,202 162,867
Reconciliation of net income to cash
provided by operating activities
Net Loss (42,895) (8,347)
Adjustments to reconcile net income to
net cash provided by operating activities-
Amortization 2,585 11,631
Prior period adjustment 4,205 0
Decrease/Increase in interest receivable (6,859) (1,463)
Decrease in prepaid expenses 7,708 (5,132)
Decrease in prepaid income taxes 19 3,401
Increase in accounts payable & accrued 7,612 (83,325)
expenses
Net cash used by operating activities (27,624) (83,235)
The accompanying notes are an integral part of these financial statements
F-4<PAGE>
MINISTRY PARTNERS INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
1. Summary of Significant accounting policies
Nature of Business
Ministry Partners Investment Corporation (MPIC) was incorporated in
California in 1991 and is a wholly-owned subsidiary of Evangelical
Christian Credit Union (ECCU). The Company provides funds for real
property secured loans for the benefit of Evangelical churches and church
organizations through funding provided by members of and persons associated
with such churches and organizations. The Company's offices, as well as
those of its loan origination source, ECCU, are located in the state of
California and substantially all of the business and operations of the
Company are currently conducted in California and its mortgage loan
investments are concentrated in California.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities as of the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Prepaid offering expense
Prepaid offering expense is related to a proposed public offering of
unsecured notes. It is being amortized over a three year period.
Organization and start up costs
Organization and start up costs have been capitalized and are being
amortized, using the straight-line method over a five-year period.
Notes Receivable
Interest income on notes receivable is recognized over the term of the note
and is generally computed using the simple interest method.
F-5<PAGE>
2. Related party transactions
MPIC maintains all of its funds at the parent, ECCU. Total funds held with
ECCU were $69,202 and $162,867 at September 30, 1997 and 1996,
respectively. Interest earned on these funds were $7,822 and $6,821 for
the nine months ended September 30, 1997 and 1996, respectively.
MPIC utilized physical facilities and other services of ECCU. A charge of
$9,237 - 1997 and $8,136 - 1996 was made for these services which is
included in Office Operations. The method used to arrive at the periodic
charge is based on the fair market value of services provided. Management
asserts that such method is reasonable.
Notes payable are substantially to members of ECCU.
3. Notes receivable
In March 1992, MPIC purchased a pool of first trust deed seasoned loans
from ECCU for the then outstanding balance. Loan maturities extend through
2001, although the majority were due in 1995 and 1996. Interest rates
range from 7.025% to 11.50%, yielding an average 9.138%. The loans were
made to churches in Southern California and are the collateral for certain
notes payable. This pool of first trust deed notes was retired in early
1996.
During 1996 and 1997, MPIC participated in church loans made by ECCU.
Interest is at variable rates of interest; ranging from 8.25% to 11.25%.
ECCU services these loans, charging a service fee.
No allowance for doubtful accounts has been established for the notes
receivable. The Company has no experience of loan loss and, as of
September 30, 1997 and 1996, none of the loans are impaired. Management
believes all of the notes are adequately secured and fully collectible.
4. Organization and start up costs
Organization and start up costs at September 30, 1997 and 1996 are stated
as follows:
1997 1996
Start up
Cost $ 63,292 $ 63,292
Accumulated amortization 63,292 58,117
-0- 5,175
Organization
Cost 15,438 15,438
Accumulated amortization 15,438 14,151
-0- 1,287
-0- $ 6,462
5. Line of credit - ECCU
MPIC has an unsecured $2,100,000 line of credit with ECCU, of which
$ 210,373 and $ 492,708 was borrowed at September 30, 1997 and 1996,
respectively. Interest at September 30, 1997 and 1996 was 6.097% and
6.057%, respectively, and varies according to ECCU's cost of funds.
6. Notes payable
MPIC has unsecured notes payable at September 30, 1997, as follows:
Total Interest Rate
Private Placement $ 408,661 6.36 - 8.55
CA Public Offering 521,192 6.81 - 8.66
National Offering 4,237,224 5.14 - 7.86
Special Offering 1,406,364 6.38 - 7.47
$6,573,441
Future maturities at September 30 are as follows:
1997 1996
1996 $ - $ 267,143
1997 1,644,407 1,095,874
1998 3,205,382 200,670
1999 758,578 197,829
2000 468,702 323,368
2001 96,655 151,847
2002 176,181 -
$ 6,349,905 $ 2,236,731
7. Public offering
In August 1994, MPIC received approval from the Department of Corporations
of the State of California to offer $6,000,000 in unsecured notes payable,
of which only $3,000,000 may be outstanding at any one time. At September
30, 1997 and 1996, $521,192 and 1,199,734 respectively, were outstanding.
8. National Offering
In October 1996, MPIC received approval from the Se curities and Exchange
Commission to offer $5,000,000 in unsecured notes payable nation wide.
This offering is currently available in California, Colorado, and Oregon.
It is pending in Arizona and Washington. At September 30, 1997 and 1996,
$4,237,224 and $ 0 , respectively, were outstanding.
<PAGE>
TURNER, WARREN, HWANG & CONRAD
ACCOUNTANCY CORPORATION
100 NORTH FIRST STREET, SUITE 202
BURBANK, CALIFORNIA 91502
GARY W TURNER, CPA (818) 955-9537
JUDITH M WARREN, CPA (310) 435-2836
WALTER Y HWANG, CPA
DAVID A CONRAD, CPA FAX (818) 955-8416
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Ministry Partners Investment Corporation
Anaheim, California
We have audited the accompanying balance sheet of Ministry Partners
Investment Corporation as of December 31, 1996, and the related statements
of income and retained earnings and cash flows for the three-month period
then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Ministry Partners
Investment Corporation as of December 31, 1996, and the results of its
operations and its cash flows for the three-month period then ended in
conformity with generally accepted accounting principles.
TURNER, WARREN, HWANG & CONRAD
ACCOUNTANCY CORPORATION
May 1, 1997
F-9<PAGE>
MINISTRY PARTNERS INVESTMENT CORPORATION
BALANCE SHEET
DECEMBER 31, 1996
ASSETS
Current Assets
Cash $ 81,977
Certificates of deposit 78,426
Notes receivable 829,630
Interest receivable 34,932
Prepaid expenses 63,181
Total Current Assets $1,088,146
Other Assets
Notes receivable 2,507,951
Organizational and start-up costs, net 2,585
Total Other Assets 2,510,536
Total Assets $3,598,682
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Accounts payable $ 9,753
Line of credit 417,904
Notes payable - current portion 1,358,301
Income taxes payable 1,354
Total Current Liabilities $1,787,312
Long-term Liabilities
Notes payable 2,157,652
Less current portion (1,358,301)
Total Long-term Liabilities 799,351
Stockholder's Equity
Common stock, 10,000,000 shares authorized,
100,000 shares issued and outstanding,
no par value 1,000,000
Retained earnings 12,019
Total Stockholder's Equity 1,012,019
Total Liabilities and Stockholder's Equity $3,598,682
<PAGE>
MINISTRY PARTNERS INVESTMENT CORPORATION
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE THREE-MONTH PERIOD END DECEMBER 31, 1996
INTEREST INCOME
Notes receivable $ 83,158
Interest-bearing accounts 1,826
Total Interest Income $ 84,984
INTEREST EXPENSE
Line of credit 8,471
Notes payable 41,533
Total Interest Expense $ 50,004
NET INTEREST INCOME $ 34,980
OTHER INCOME
Point fee income 18,000
Other 1,501
Total Other Income $ 19,501
OPERATING EXPENSES
Salaries and benefits reimbursed 24,270
Marketing and promotion 874
Office operations 7,911
Legal and accounting 4,056
Amortization 3,877
Total Operating Expenses 40,988
INCOME BEFORE PROVISION FOR INCOME TAXES 13,493
Provision for Income Taxes 2,154
NET INCOME 11,339
RETAINED EARNINGS, BEGINNING 680
RETAINED EARNINGS, ENDING $ 12,019
<PAGE>
MINISTRY PARTNERS INVESTMENT CORPORATION
STATEMENT OF CASH FLOWS
FOR THE THREE-MONTH PERIOD ENDED DECEMBER 31, 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received on notes receivable $ 73,820
Interest received on interest-bearing accounts 1,826
Point fee income 18,000
Cash paid to suppliers, vendors and parent (45,725)
Interest paid to investors and parent (50,004)
Income taxes paid (800)
Net Cash Used by Operating Activities (2,883)
CASH FLOWS FROM INVESTING ACTIVITIES
Principal payments received on notes receivable 319,921
Purchase of notes receivable (165,619)
Purchase of certificate of deposit (1,142)
Net Cash Provided by Investing Activities 153,160
CASH FLOWS FROM FINANCING ACTIVITIES
Advances made on line of credit 289,000
Principal payments made on line of credit (363,805)
Proceeds from borrowings on notes payable 259,052
Principal payments made on notes payable (338,130)
Net Cash Used by Financing Activities (153,883)
Net decrease in cash ( 3,606)
Cash at beginning of year 85,583
Cash at end of year $ 81,977
Reconciliation of net income to net cash used by
operating activities:
Net income $ 11,339
Adjustments to reconcile net income to net cash used by
operating activities:
Amortization 3,877
Increase in interest receivable (9,338)
Increase in prepaid expenses (9,171)
Decrease in accounts payable and accrued expenses (944)
Increase in income taxes payable 1,354
Net Cash Used by Operating Activities $ (2,883)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business: Ministry Partners Investment Corporation was
incorporated in California in 1991 and is a wholly-owned subsidiary of
Evangelical Christian Credit Union (ECCU). The Company provides funds for
real property secured loans for the benefit of Evangelical churches and
church organizations through funding provided by members of and persons
associated with such churches and organizations. The Company's offices, as
well as those of its loan origination source, ECCU, are located in the
state of California and substantially all of the business and operations of
the Company are currently conducted in California and its mortgage loan
investments are concentrated in California.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities as of the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Notes Receivable: Interest income on notes receivable is recognized over
the term of the note and is generally computed using the simple interest
method.
Prepaid Offering Expense: Prepaid public offering is related to a public
offering of unsecured notes. It is being amortized over a three-year
period.
Organization and start up costs: Organization and start-up costs have been
capitalized and are being amortized, using the straight-line method over a
five-year period.
NOTE 2 - RELATED PARTY TRANSACTIONS
The Company maintains all its funds at the parent, ECCU. Total funds held
with ECCU at December 31, 1996 were $160,403. Interest earned on these
funds for the three-month period ended December 31, 1996 was $1,826.
The Company, as part of its investment strategy, purchases an interest in
loans offered for sale by ECCU. In consideration, ECCU has entered into an
agreement with the Company to share net fee income on loans purchased. The
Company received $18,000 of fee income from ECCU during the three-month
period ended December 31, 1996.
F-13<PAGE>
NOTE 2 - RELATED PARTY TRANSACTIONS (CONTINUED)
The Company pays support charges for management services and rent to ECCU
on a month-to-month basis. A charge of $3,310 was made for these services
for the three-month period ended December 31, 1996. The method used to
arrive at the periodic charge is based on the fair market value of services
provided. Management believes that such method is reasonable.
The Company reimburses ECCU for salaries and benefits of employees. The
amount reimbursed for the year three-month period ended December 31, 1996
was $24,270. There was $9,753 due to ECCU at December 31, 1996.
NOTE 3 - NOTES RECEIVABLE
The notes receivable are backed by loan participation agreements secured by
loans originated by ECCU to various churches and related organizations to
finance facilities. Loan maturities extend through 2002, although the
majority are due in 1999 and 2000. The notes earn interest at rates
between 8.25% and 9.75%, with a weighted average yield of 9.206%.
No allowance for uncollectible accounts has been established for the notes
receivable. The Company has no experience of loan loss and, as of December
31, 1996, none of the loans are impaired. Management believes all of the
notes are adequately secured and fully collectible.
NOTE 4 - ORGANIZATION AND START UP COSTS
Organization and start-up costs at December 31, 1996 are stated as follows:
Start Up
Cost $ 63,292
Accumulated amortization 61,222
2,070
Organization
Cost 15,438
Accumulated amortization 14,923
515
$ 2,585
NOTE 5 - LINE OF CREDIT
The Company has an unsecured $2,100,000 line of credit with ECCU that
expires March 31, 1998 There was $417,904 outstanding as of December 31,
1996. Interest at December 31, 1996 was 5.902%, and varies according to
ECCU's cost of funds. Interest of $8,471 was paid to ECCU during the
three-month period ended December 31, 1996.
NOTE 6 - NOTES PAYABLE
The Company has unsecured notes payable at December 31, 1996, as follows:
Amount Interest Rate
Private Placement Notes $ 993,225 6.10% - 8.55%
Public Offering Notes 1,141,394 6.32% - 8.66%
National Offering Notes 23,033 6.41% - 6.91%
$ 2,157,652
Notes payable are substantially to members of ECCU.
The following are maturities of notes payable for each of the next five
years:
Year Ending December 30
1997 $ 1,121,656
1998 234,552
1999 156,855
2000 164,001
2001 480,588
$ 2,157,652
NOTE 7 - PUBLIC OFFERING
In August 1994, the Company received approval from the Department of
Corporations of the State of California to offer $6,000,000 in unsecured
notes payable, of which only $3,000,000 may be outstanding at any one time.
There was $1,141,394 outstanding at December 31, 1996.<PAGE>
NOTE 7 - PUBLIC OFFERING (CONTINUED)
The Company filed a registration statement with the U.S. Securities and
Exchange Commission and received approval in October 1996 to offer
$5,000,000 in unsecured promissory notes to the public. There was $23,033
outstanding at December 31, 1996.
NOTE 8 - INCOME TAXES
Federal income and state franchise taxes for the three-month period ended
December 31, 1996 are as follows:
Federal income taxes $ 1,354
State franchise taxes 800
Tax expense $ 2,154
NOTE 9 - CONCENTRATION OF CREDIT RISK
At December 31, 1996, the Company had cash and certificates of deposit at
ECCU which exceeded federally insured limits. The aggregate uninsured
amount was $60,403.
<PAGE>
TURNER, WARREN, HWANG & CONRAD
ACCOUNTANCY CORPORATION
100 NORTH FIRST STREET, SUITE 202
BURBANK, CALIFORNIA 91502
GARY W TURNER, CPA (818) 955-9537
JUDITH M WARREN, CPA (310) 435-2836
WALTER Y HWANG, CPA
DAVID A CONRAD, CPA FAX (818) 955-8416
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Ministry Partners Investment Corporation
Anaheim, California
We have audited the accompanying balance sheet of Ministry Partners
Investment Corporation as of September 30, 1996, and the related
statements of income and retained earnings and cash flows for the year
then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Ministry Partners
Investment Corporation as of September 30, 1996, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
TURNER, WARREN, HWANG & CONRAD
ACCOUNTANCY CORPORATION
February 10, 1997
F-17
<PAGE>
MINISTRY PARTNERS INVESTMENT CORPORATION
BALANCE SHEET
SEPTEMBER 30, 1996
ASSETS
Current Assets
Cash $ 85,583
Certificates of deposit 77,284
Notes receivable 831,537
Interest receivable 25,594
Prepaid expenses 54,010
Total Current Asset $ 1,074,008
Other Assets
Notes receivable 2,660,346
Organizational and start-up costs, net 6,462
Total Other Assets 2,666,808
Total Assets $ 3,740,816
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Accounts payable $ 10,697
Line of credit 492,708
Notes payable-current portion 1,363,017
Total Current Liabilities $ 1,866,422
Long-term Liabilities
Notes payable 2,236,731
Less current portion (1,363,017)
Total Long-term Liabilities 873,714
Stockholder's Equity
Common stock, 10,000,000 shares authorized
100,000 shares issued and outstanding,
no par value 1,000,000
Retained earnings 680
Total Stockholder's Equity 1,000,680
Total Liabilities and Stockholder's Equity $ 3,740,816
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
MINISTRY PARTNERS INVESTMENT CORPORATION
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED SEPTEMBER 30, 1996
INTEREST INCOME
Notes receivable $ 437,168
Interest-bearing accounts 8,380
Total Interest Income $ 445,548
INTEREST EXPENSE
Line of credit 35,443
Notes payable 252,167
Total Interest Expense 287,610
NET INTEREST INCOME 157,938
OPERATING EXPENSES
Salaries and benefits reimbursed 105,751
Marketing and promotion 7,950
Office operations 24,873
Legal and accounting 18,320
Amortization 15,508
Total Operating Expenses 172,402
LOSS BEFORE PROVISION FOR INCOME TAXES (14,464)
Provision for Income Taxes 800
NET LOSS (15,264)
RETAINED EARNINGS, BEGINNING 15,944
RETAINED EARNINGS, ENDING $ 680
The accompanying notes are an integral part of these financial statements.
F-19
MINISTRY PARTNERS INVESTMENT CORPORATION
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30, 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received on notes receivable $ 439,335
Interest received on interest-bearing accounts 8,380
Cash paid to suppliers, vendors and parent (177,304)
Interest paid to investors and parent (356,631)
Income taxes paid (800)
Net Cash Used by Operating Activities (87,020)
CASH FLOWS FROM INVESTING ACTIVITIES
Principal payments received on notes receivable 2,231,583
Purchase of notes receivable (1,418,108)
Purchase of certificate of deposit (77,284)
Net Cash Provided by Investing Activities 736,191
CASH FLOWS FROM FINANCING ACTIVITIES
Advances made on line of credit 2,037,495
Principal payments made on line of credit (1,883,321)
Proceeds from borrowings on notes payable 1,555,234
Principal payments made on notes payable (2,423,486)
Net Cash Used by Financing Activities (714,078)
Net decrease in cash (64,907)
Cash at beginning of year 150,490
Cash at end of year $ 85,583
Reconciliation of net loss to cash used by operating activities:
Net loss $ (15,264)
Adjustments to reconcile net loss to net cash used by operating
activities:
Amortization 15,508
Decrease in interest receivable 2,167
Increase in prepaid expenses (17,679)
Decrease in accounts payable and accrued expenses (71,752)
Net Cash Used by Operating Activities $ (87,020)
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
MINISTRY PARTNERS INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business: Ministry Partners Investment Corporation was
incorporated in California in 1991 and is a wholly-owned subsidiary
of Evangelical Christian Credit Union (ECCU). The Company provides
funds for real property secured loans for the benefit of Evangelical
churches and church organizations through funding provided by members
of and persons associated with such churches and organizations. The
Company's offices, as well as those of its loan origination source,
ECCU, are located in the state of California and substantially all of
the business and operations of the company are currently conducted in
California and its mortgage loan investments are concentrated in
California.
Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent
assets and liabilities as of the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Notes Receivable: Interest income on notes receivable is recognized
over the term of the note and is generally computed using the simple
interest method.
Prepaid Offering Expense: Prepaid public offering is related to a
public offering of unsecured notes. It is being amortized over a
three-year period.
Organization and start up costs: Organization and start-up costs have
been capitalized and are being amortized, using the straight-line
method over a five-year period.
NOTE 2 - RELATED PARTY TRANSACTIONS
The Company maintains all its funds at the parent, ECCU. Total funds
held with ECCU at September 30, 1996 were $162,867. Interest earned
on these funds for the year ended September 30, 1996 was $8,380.
The Company pays support charges for management services and rent to
ECCU on a month-to-month basis. A charge of $13,617 was made for
these services for the year ended September 30, 1996. The method
used to arrive at the periodic charge is based on the fair market
value of services provided. Management believes that such method is
reasonable.
The company reimburses ECCU for salaries and benefits of employees.
The amount reimbursed for the year ended September 30,1 996 was
$105,751.
F-21
NOTE 3 - NOTES RECEIVABLE
The notes receivable are backed by loan participation agreements
secured by loans originated by ECCU to various churches and related
organizations to finance facilities. Loan maturities extend through
2002, although the majority are due in 1999 and 2000. The notes earn
interest at rates between 8.25% and 9.75%, with a weighted average
yield of 9.245%.
No allowance for uncollectible accounts has been established for the
notes receivable. The Company has no experience of loan loss and, as
of September 30, 1996, none of the loans are impaired. Management
believes all of the notes are adequately secured and fully
collectible.
NOTE 4 - ORGANIZATION AND START UP COSTS
Organization and start-up costs at September 30, 1996 are stated as
follows:
Start Up
Cost $ 63,292
Accumulated amortization 58,117
5,175
Organization
Cost 15,438
Accumulated amortization 14,151
1,287
$ 6,462
NOTE 5 - LINE OF CREDIT
The Company has an unsecured $2,100,000 line of credit with ECCU that
expires December 31, 1996. There was $492,708 outstanding as of
September 30, 1996. Interest at September 30, 1996 was 6.057%, and
varies according to ECCU's cost of funds. Interest of $35,443 was
paid to ECCU during the year ended September 30, 1996.
NOTE 6 - NOTES PAYABLE
The Company has unsecured notes payable at September 30, 1996, as
follows:
Amount Interest Rate
Private Placement Notes $ 1,036,997 6.10% - 8.55%
Public Offering Notes 1,199,734 5.64% - 8.66%
$ 2,236,731
Notes payable are substantially to members of ECCU.
The following are maturities of note payable for each of the next five years:
Year Ending September 30
1997 $ 1,363,017
1998 200,670
1999 197,829
2000 323,368
2001 151,847
$ 2,236,731
NOTE 7 - PUBLIC OFFERING
In August 1994, the Company received approval from the Department of
Corporations of the State of California to offer $6,000,000 in
unsecured notes payable, of which only $3,000,000 may be outstanding
at any one time. There was $1,199,734 outstanding at September 30,
1996.
NOTE 8 - INCOME TAXES
Federal income and state franchise taxes for the year ended September
30, 1996 are as follows:
Federal income taxes $ -0-
State franchise taxes 800
Tax expense $ 800
NOTE 9- CONCENTRATION OF CREDIT RISK
At September 30, 1996, the Company had cash and certificates of deposit at
ECCU which exceeded federally insured limits. The aggregate uninsured amount
was $62,867.
NOTE 10- SUBSEQUENT EVENTS
The Company filed a registration statement with the U.S. Securities and
Exchange Commission and received approval in October 1996 to offer $5,000,000
in unsecured promissory notes to the public.
<PAGE>
SPECIMEN
MINISTRY PARTNERS INVESTMENT CORPORATION
CLASS A-1 NOTE
SERIES___________
PRINCIPAL AMOUNT: $____________________ ISSUANCE DATE:________, 199_
[INTEREST REINVESTMENT ELECTED, _________________, California
See Section 5 Below]
THIS NOTE IS SUBJECT TO THE PROVISIONS OF A STANDBY TRUST AGREEMENT DATED
November 19, 1997, which authorizes the issuance of up to $25,000,000 of
Class A-1 Notes.
1. Principal and Interest. For value received, MINISTRY PARTNERS
INVESTMENT CORPORATION, a California corporation ("Maker"), hereby
promises to pay to the order of the registered holder of this Note
("Holder"), at such address of Holder as is set forth on the records
of Maker, or at such other place as Holder may designate in writing
to Maker, the principal sum of ____________________________________
Dollars ($___________) (hereafter the "Principal"). This Note shall
bear interest from the date hereof on the unpaid Principal balance until
paid at the rate of___________ Percent (____%) per annum. Interest
accruing hereunder shall be calculated on the basis of a 365-day year
for actual days elapsed.
2. Manner and Form of Payment. This Note shall be payable interest
only, in arrears, on the fifth day of ________ and on the fifth day
of each month thereafter until _________ (the "Payment Date"), on
which date the unpaid balance of principal and accrued interest shall
be due and payable. All Principal and interest shall be payable in
lawful money of the United States of America. All payments made
hereunder shall be applied first to the payment of accrued interest
and the balance remaining to the payment of Principal.
3. Loan and Standby Trust Agreement. As a condition to the
issuance of this Note, Holder agrees to adopt and to be bound by the
terms and conditions of the Loan and Standby Trust Agreement dated
November 19, 1997 (the "Loan Agreement"), the terms and conditions of
which are incorporated herein by reference.
4. Events of Default. This Note shall be subject to each of the
Events of Default and remedies set forth in the Loan Agreement. In
order to cure Payment Default, Maker must mail to the Holder, or
direct deposit if that option is selected, the amount of the
nonpayment plus a late payment penalty equal to simple interest on
the amount unpaid at the rate of ___% per annum, measured from the
date the payment should have been mailed, deposited or credited
pursuant to the terms of this Note until the date it actually is
mailed, deposited or credited.
Exhibit A
If an Event of Default occurs and is continuing, then and in
every such case the Holders of not less than a Majority in Principal
Amount of the Outstanding Notes may appoint a Trustee to represent
the interest of all the Holders pursuant to the Loan Agreement as
provided therein. No Holder shall have the right to institute or
continue any proceeding, judicial or otherwise, with respect to the
Notes except pursuant to the Loan Agreement.
Under the Loan Agreement, the Trustee, at the direction of the
Majority Vote of the Holders may, declare all the Notes to be due and
payable immediately and take any action allowed by law to collect
such amounts. Notwithstanding the foregoing, in the case of an Event
of Default arising from events of bankruptcy or insolvency with
respect to Maker, all Outstanding Notes will become due and payable
without further action or notice.
5. Interest Reinvestment. If the Holder has elected to reinvest
interest payable on the Note (the "Interest Reinvestment Election"),
Maker shall defer all interest payable on its Note until the Payment
Date by increasing the Principal Amount by an amount equal to each
interest payment otherwise payable on this Note, as of the Payment
Date of such interest payment. Interest shall be payable on such
increased Principal Amount thereon in the manner otherwise provided
herein.
6. Prepayment of Note. The Maker may at any time, upon not less
than thirty (30) nor more than sixty (60) days prior written notice
to the Holder, elect to prepay the Principal Amount in whole or in
part, and by delivering to the Holder payment equal to such amount of
prepayment plus accrued and unpaid interest thereon through such date
of prepayment. Notice of prepayment shall be mailed by first class
mail to Holder. If less than all of the Series of the Note is
prepaid, Maker shall prepay all Notes of the Series on a pro rata
basis. In the event of such prepayment, a new Note in principal
amount equal to the unpaid principal amount of the original Note
shall be issued in the name of Holder and the original Note shall be
cancelled. On and after the prepayment date, interest shall cease to
accrue on the portion of the Principal Amount prepaid. The foregoing
obligation to prepay a Series of Notes on a pro rata basis herein
shall not in any manner limit the Maker's right to repurchase or
prepay any Note on a voluntary basis agreed to by the holder thereof,
including any prepayment of the Note prior to maturity as described
below.
7. Early Presentment. Holder may upon written notice to Maker,
request prepayment of the Note at any time prior to maturity. In
such event, Maker shall determine in Maker's sole judgment, whether
to so prepay the Note. In the event Maker determines to prepay the
Note, it shall prepay (i) an amount equal to the unpaid balance of
the Principal Amount, plus (ii) the accrued but unpaid interest
through the date of prepayment, less (iii) an amount equal to the
lessor of three (3) months interest on the balance of the unpaid
Principal Amount or one-sixth of the interest payable on the Note
during its original term.
8. Amendment, Supplement and Wavier. Pursuant to the Loan
Agreement, the Notes may be amended or supplemented by a Majority
Vote of the Holders and any Default, Event of Default,
compliance or noncompliance with any provision of the Notes may be
waived by a Majority Vote of the Holders, provided that any such
amendment or supplement affecting the term, interest rate and other
terms of the Notes must be ratable and proportionate in effect on all
Holders of the then outstanding Notes based on the aggregate amount
of principal and interest and penalty payments due them.
9. Waivers. The Maker waives demand for payment, presentment for
payment, protest, notice of protest, notice of dishonor, notice of
nonpayment, notice of acceleration or maturity, diligence in taking
any action to collect sums owning hereunder.
10. Separability. In case any provision in this Note shall be
invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
11. California Law; Jurisdiction. This Note is made in the State
of California and the provisions hereof shall be construed in
accordance with the laws of the State of California, except to the
extent preempted by federal law; and such parties further agree that
in the event of a default hereunder, this Note may be enforced in any
court of competent jurisdiction in the State of California, and they
do hereby submit to the jurisdiction of such court regardless of
their residence or where this Note or any endorsement hereof may have
been executed.
MINISTRY PARTNERS INVESTMENT CORPORATION
By:____________________________________
<PAGE>
CLASS A-1 NOTE
LOAN AND STANDBY TRUST AGREEMENT
THIS LOAN AND STANDBY TRUST AGREEMENT is dated as of _____________,
1997 between Ministry Partners Investment Corporation, a California
corporation (the "Company"), the Holders of the Company's Class A-1 Notes,
as defined below, and such Trustee or Trustees as may be appointed by the
Holders pursuant to the terms hereof.
WHEREAS, the Company has undertaken to offer and issue, through an
offering registered under the Securities Act of 1933, as amended (the "1933
Act"), pursuant to that certain Registration Statement on Form SB-2 and the
Prospectus which is a part thereof (the "Prospectus"), as supplemented, up
to $25,000,000 of its Class A-1 Notes.
NOW, THEREFORE, in consideration of the agreements contained herein
and for other good and valuable consideration, the adequacy of which is
hereby acknowledged, the Company, the Holders and the Trustee mutually
agree as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1. Definitions
For the purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires, the capitalized terms
used herein and not otherwise defined in this section have the meaning
assigned to them in the Prospectus and include the plural as well as the
singular. All accounting terms not otherwise defined herein have the
meanings assigned to them in the Prospectus and all computations herein
provided for shall be made in accordance with generally accepted accounting
principles. In determining generally accepted accounting principles, the
Company may conform to any other rule or regulation of any regulatory
authority having jurisdiction over the Company.
"Adjusted Net Worth" means the sum of (i) the consolidated equity of
the common stockholders of the Company and any consolidated subsidiary,
plus (ii) the respective amounts reported on such entity's most recent
balance sheet with respect to any series of preferred stock, plus (iii) the
amount of the ECCU credit line, whether or not then funded, and any loan
ECCU or any other lender is contractually obligated to loan to the Company,
but only to the extent such loan amount is expressly subordinated in right
to payment on a current basis to the Class A-1 Notes. For purposes of
computing Adjusted Net Worth, except with respect to the ECCU credit line
and any other loans included in Adjusted Net Worth as provided in the
foregoing, all transactions between the Company and any Affiliates,
including ECCU, shall be treated as if the transactions had been entered
into with an unaffiliated third-party to the extent that GAAP would require
any different treatment.
"Affiliate" of any specified Person means any other Person directly
or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this
definition, "control," "controlling" and "controlled," when used with
respect to any specified Person, means the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise.
"Agreement" means this instrument as originally executed or as it may
from time to time be supplemented, modified or amended by one or more
supplemental agreements hereto entered into pursuant to the applicable
provisions hereof. The Agreement is not qualified under or subject to the
Trust Indenture Act of 1939, as amended.
"Business Day" means any day other than a Saturday or Sunday or a day
on which banking institutions in the State of California are not required
to be open.
"Cash Flow" means with respect to any period, Consolidated Net income
of the Company and any subsidiary for such period plus (a) an amount equal
to any extraordinary loss plus any net loss realized in connection with the
sale or other disposition of any assets (to the extent such net losses were
deducted in computing Net Income for such period), plus (b) provision for
taxes based on income or profits to the extent such provisions for taxes
was deducted in computing Net Income for such period, plus (c) Fixed
Charges for such period, plus (d) depreciation and amortization (including
amortization of goodwill and other intangibles) for such period to the
extent such depreciation and amortization were deducted in computing Net
Income for such period, in each case, on a consolidated basis and
determined in accordance with GAAP, plus (e) interest expense paid or
accrued for such period with respect to the subordinated ECCU Credit line
and any other Indebtedness which is subordinated to the Notes, plus (f) the
unused amount of the ECCU Credit Line (and any other financing subordinated
to the Notes) available to the Company on the date the determination of
Cash Flow is made.
"Class A Notes" means the Series 1, Series 5, Series 10, Series 25,
Series 50, Series 100 and Series C Notes provided, however, that the
aggregate of all series of Class A Notes shall not exceed $5,000,000.
"Class A-1 Notes" means the Series 1, Series 5, Series 10, Series
25, Series 50, Series 100 and Series C Notes provided, however, that the
aggregate of all series of Class A-1 Notes shall not exceed $25,000,000.
"Default" means any event that with the passage of time or the giving
of notice or both is or could be an Event of Default.
"ECCU Credit Line" means that certain loan agreement and note in the
amount of $2,100,000 dated February 26, 1997, as amended, as subordinated
by that certain Subordination Agreement dated June 1, 1994, as amended.
"Events of Default" means those Events of Default defined under
"Events of Default" herein, whatever the reason for such event and whether
it shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule
or regulation of any administrative or governmental body.
"Fixed Charges" means, with respect to any period, consolidated
interest expense for such period, whether paid or accrued, to the extent
such expense was deducted in computing Consolidated Net Income (including
amortization of original issue discount, noncash interest payments and the
interest component of capital leases, but excluding amortization of
deferred financing fees) plus, without duplication, all interest
capitalized for such period on a consolidated basis and in accordance with
GAAP. Fixed Charges shall not include any interest expense for such period
paid or accrued with respect to any loan to the extent it is expressly
subordinated to in right of payment amounts due and payable to the Class A-1
Notes.
"Fixed Charge Coverage Ratio" means, with respect to any period, the
ratio of the Cash Flow of the Company for such period to the Fixed Charges
of the Company for such period. In the event the Company incurs, assumes,
guarantees, repays, redeems or otherwise retires any Indebtedness (other
than the Company's credit line with ECCU) subsequent to the commencement of
the period for which the Fixed Charge Coverage Ratio is being calculated
but prior to the event for which the calculation of the Fixed Charge
Coverage Ratio is made, then the Fixed Charge Coverage Ratio shall be
calculated giving pro forma effect to such incurrence, assumption,
guarantee, repayment, redemption or retirement of Indebtedness, including,
if applicable, the application of the proceeds therefrom, as if the same
had occurred at the beginning of the applicable period. In making such
calculations on a pro forma basis, interest attributable to Indebtedness
bearing a floating interest rate shall be computed as if the rate in effect
on the date of computation had been the applicable rate for the entire
period.
"GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession, which are in effect from time to time.
"Holder" means the Person or Persons in whose name a Class A-1 Note
is registered on the books and records of the Company as a holder of Class
A-1 Notes.
"Indebtedness" means any indebtedness, whether or not contingent, (i)
in respect of borrowed money or evidenced by bonds, notes, debentures or
similar instruments or credit (or reimbursement agreements in respect
thereof), (ii) representing the balance deferred and unpaid of the purchase
price of any property, (iii) representing capital lease obligations; and
(iv) representing any hedging obligations, except, in each case, any such
balance that constitutes an accrued expense or trade payable, if and to the
extent any of the foregoing Indebtedness (other than hedging obligations)
would appear as a liability upon a balance sheet prepared in accordance
with GAAP, and also includes, to the extent not otherwise included, the
guarantee of obligations of other persons that would be included within
this definition.
"Majority in Interest" or "Majority of Principal Amount" shall mean a
majority of the outstanding unpaid principal amount of all Outstanding
Class A-1 Notes plus all unpaid interest due thereon (as reflected on the
books and records of the Company as voted by the Holders thereof).
"Maturity Date" means the date on which the unpaid balance of
principal and accrued interest is due and payable on the respective Class
A-1 Note. The Maturity Date of a Class A-1 Note may be six (6), twelve
(12), twenty-four (24), thirty (30) or sixty (60) months, other than the
Series C Notes shall have a Maturity Date of seventy-two (72) months from
the date of issuance.
"Net Income" means, with respect to the Company for any period, the
aggregate of the net income of the Company for such period, on a
consolidated basis, determined in accordance with GAAP; provided that the
Net Income of any entity that is not a subsidiary of the Company or that is
accounted for by the equity method of accounting shall be included only to
the extent of the amount of dividends or distributions paid to the referent
entity or a wholly-owned subsidiary of the Company.
"Net Tangible Assets" means, with respect to the Company, the total
amount of assets of the Company and any subsidiary (less applicable
reserves) on a consolidated basis, as determined in accordance with GAAP,
less intangible assets. For purposes of computing Net Tangible Assets, all
transactions between the Company and any Affiliates, including ECCU, shall
be treated as if the transactions had been entered into with an
unaffiliated third-party to the extent GAAP would require any different
treatment.
"Other Indebtedness" means any Indebtedness of the Company
outstanding other than any amounts owing with respect to the Class A-1
Notes and any extension, refinancing, refunding, renewal, substitution or
replacement of any such Indebtedness, but only to the extent that any such
extension, refinancing, refunding, renewal, substitution or replacement
does not exceed the principal amount of the Indebtedness being extended,
refinanced, refunded, renewed, substituted or replaced (plus the amount of
the reasonable fees and expenses in connection therewith) and that no
additional security is granted in connection with any such extension,
refinancing, refunding, renewal, substitution or replacement.
"Outstanding Class A-1 Notes" when used with respect to Class A-1
Notes means, as of the date of determination, all Class A-1 Notes
theretofore issued and delivered by the Company and not paid, prepaid or
redeemed in full pursuant to their terms.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock partnership, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Rate Schedule" means the schedule of interest rates payable on the
Class A-1 Notes as issued from time to time by the Company as a supplement
to the Prospectus.
"Series 1 Note" means one of the series of up to $25,000,000 of
principal amount (less the aggregate principal amount of all other series
of Class A-1 Notes issued) of Class A-1 Notes which must be issued within
the initial principal amount of at least $1,000, bearing interest at the
rate designated for Series 1 Notes by the Company on the Rate Schedule
effective on the issuance date of said Note and having the Maturity Date
elected by the Holder.
"Series 5 Note" means one of the series of up to $25,000,000 of
principal amount (less the aggregate principal amount of all other series
of Class A-1 Notes issued) of Class A-1 Notes which must be issued within
the initial principal amount of at least $5,000, bearing interest at the
rate designated for Series 5 Notes by the Company on the Rate Schedule
effective on the issuance date of said Note and having the Maturity Date
elected by the Holder.
"Series 10 Note" means one of the series of up to $25,000,000 of
principal amount (less the aggregate principal amount of all other series
of Class A-1 Notes issued) of Class A-1 Notes which must be issued within
the initial principal amount of at least $10,000, bearing interest at the
rate designated for Series 10 Notes by the Company on the Rate Schedule
effective on the issuance date of said Note and having the Maturity Date
elected by the Holder.
"Series 25 Note" means one of the series of up to $25,000,000 of
principal amount (less the aggregate principal amount of all other series
of Class A-1 Notes issued) of Class A-1 Notes which must be issued within
the initial principal amount of at least $25,000, bearing interest at the
rate designated for Series 25 Notes by the Company on the Rate Schedule
effective on the issuance date of said Note and having the Maturity Date
elected by the Holder.
"Series 50 Note" means one of the series of up to $25,000,000 of
principal amount (less the aggregate principal amount of all other series
of Class A-1 Notes issued) of Class A-1 Notes which must be issued within
the initial principal amount of at least $50,000, bearing interest at the
rate designated for Series 50 Notes by the Company on the Rate Schedule
effective on the issuance date of said Note and having the Maturity Date
elected by the Holder.
"Series 100 Note" means one of the series of up to $25,000,000 of
principal amount (less the aggregate principal amount of all other series
of Class A-1 Notes issued) of Class A-1 Notes which must be issued within
the initial principal amount of at least $100,000, bearing interest at the
rate designated for Series 100 Notes by the Company on the Rate Schedule
effective on the issuance date of said Note and having the Maturity Date
elected by the Holder.
"Series C Note" means one of the series of up to $25,000,000 of
principal amount (less the aggregate principal amount of all other series
of Class A-1 Notes issued) of Class A-1 Notes issued in the initial
principal amount of $10,000 or $25,000 bearing interest at the variable
rate designated by the Company for the Series C Notes on the Rate Schedule
effective on the date of issuance of the Note and having a Maturity Date of
seventy-two (72) months from the date of issuance.
"Tangible Adjusted Net Worth" means the Adjusted Net Worth of the
Company less the Company's intangible assets, if any.
"Trustee" means the Person or Persons elected as the "Trustee"
pursuant to the terms of this Agreement or a successor thereto once the
latter shall have become such pursuant to the applicable provisions of this
Agreement.
Section B. Acts of Holders
1. Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Agreement to be given or taken by
Holders may be embodied in and evidenced by one or more substantially
concurrent instruments of substantially similar tenor signed by such
Holders in person or by an agent or attorney duly appointed in writing;
and, except as herein otherwise expressly provided, such action shall
become effective when such instrument or instruments are delivered to the
Trustee, and, where it is herein expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders
signing such instrument or instruments.
2. The ownership of the Class A-1 Notes shall be conclusively
proven by the books and records of the Company.
3. Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Class A-1 Note shall bind every
future Holder of the same Class A-1 Note and the Holder of every Class A-1
Note issued upon the transfer thereof or in exchange therefor or in lieu
thereof, in respect of anything done or suffered to be done by the Trustee
or the Company in reliance thereon, whether or not notation of such action
is made upon such Class A-1 Note.
Section C. Notices to Trustee and the Company
Any request, demand, authorization, direction, notice, consent,
waiver or Act of Holders or other document provided or permitted by this
Agreement to be made upon, given or furnished to, or filed with:
1. The Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if given in writing by personal
service or mailed by certified mail, return receipt requested, addressed to
the Trustee at the address provided to the Holder by the Trustee in
writing, or
2. The Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder if given in writing by personal
service or mailed by certified mail, return receipt requested, addressed to
the Company at 1150 N. Magnolia Avenue, Anaheim, California 92801,
Attention: John C. Garmo, President, or at any other address previously
furnished in writing to the Trustee by the Company.
Section D. Notices to Holders
Where this Agreement provides for publication of notice to Holders of
any event, such notice shall be sufficiently given (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage prepaid,
to each Holder of such Class A-1 Notes, at the address of such Holder as it
appears in the books and records of the Company, not later than the latest
date, and not earlier than the earliest date, prescribed for the first
publication of such notice.
Section E. Effect of Headings and Table of Contents
The Article and Section headings herein are for convenience only and
shall not affect the construction hereof.
Section F. Successors and Assigns
All covenants and agreements in this Agreement by the Company shall
bind its successors and assigns, whether so expressed or not.
Section G. Severability
In case any provision in this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
Section H. Benefits of Agreement
Nothing in this Agreement or in the Class A-1 Notes, expressed or
implied, shall give to any Person, other than the parties hereto and their
successors hereunder, any benefit or any legal or equitable right, remedy
or claim under this Agreement.
Section I. Governing Law
This Agreement and all rights and obligations of the undersigned
hereof shall be governed, construed and interpreted in accordance with the
laws of the State of California without regard to conflict of law
principles.
Section J. Persons Deemed Owners
The Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name any Note is registered as the owner of
such Class A-1 Note for the purpose of receiving payment of principal of or
interest on said Class A-1 Note and for all other purposes whatsoever,
whether or not such Class A-1 Note is overdue.
ARTICLE II
CONTINUING COVENANTS OF THE COMPANY
Section A. Continuing Covenants of the Company
1. Limitation on Restricted Payment. While any Class A-1 Note is
outstanding, the Company shall not, and will not permit any subsidiary to,
directly or indirectly: (i) declare or pay any dividend or make any
distribution on account of the stock of the Company or any subsidiary
(other than dividends or distributions payable (x) in capital stock of the
Company or such subsidiary or (y) to the Company or any wholly-owned
subsidiary); (ii) purchase, redeem or otherwise acquire or retire for value
any capital stock of the Company or any wholly-owned subsidiary; (iii)
voluntarily purchase, redeem or otherwise acquire or retire for value,
prior to the scheduled maturity of any mandatory sinking fund payments
thereon or the stated maturity thereof, any Indebtedness of the Company
that is subordinated in right of payment to the Class A-1 Notes (all such
payments and other actions set forth in clauses (i) through (iii) above
being collectively referred to as "Restricted Payments") unless, at the
time of such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) such Restricted Payment, together with the aggregate of
all other Restricted Payments made by the Company or any subsidiary, does
not exceed the sum of:
(i) 50% of the Net Income of the Company for the period
(taken as one accounting period) from fiscal year ended December 31, 1996 to
the end of the Company's most recently ended full fiscal quarter for which
financial statements are available at the time of such Restricted Payment (or,
if such Net Income for such period is a deficit, 100% of such deficit), plus
(ii) 100% of the aggregate net cash proceeds received by
the Company from the issue or sale of capital stock of the Company (other
than capital stock sold to a subsidiary of the Company), debt securities or
capital stock convertible into capital stock of the Company upon such
conversion, or any funds advanced or loaned to the Company by ECCU under
its subordinated line of credit, plus
(iii) 100% of the cash, if any, contributed to the capital of
the Company, as additional paid in capital by any stockholder of the Company.
(c) The foregoing notwithstanding, the provisions of
subsection (b)(i), (ii) and (iii) above shall not prohibit the following
Restricted Payments:
(i) the payment of any dividend within sixty (60) days
after the date of declaration thereof, if at said date of declaration such
payment would have complied with the foregoing provisions; or
(ii) (x) the redemption, repurchase, retirement or other
acquisition of any capital stock of the Company, (y) the purchase,
redemption or other acquisition or retirement for value prior to the
scheduled maturity of any mandatory sinking fund payments or stated
maturity of Indebtedness of the Company subordinated in right of payment to
the Holders of the Class A-1 Notes, or (z) the making of any investment in
the Company or any subsidiary of the Company in each case of (x), (y) and
(z) in exchange for, or out of the proceeds of the substantially concurrent
sale (other than to the Company) of, capital stock of the Company.
2. Limitation or Outstanding Class A-1 Notes. The Company shall
not issue any Class A-1 Note if, after giving effect to such issuance, the
Class A-1 Notes then outstanding would have an aggregate unpaid balance
exceeding $10,000,000.
3. Limitation on Incurrence of Indebtedness. While any Class A-1
Note is outstanding, the Company shall not, and will not permit any
subsidiary to, directly or indirectly, create, incur, issue, assume,
guaranty or otherwise become, directly or indirectly, liable with respect
to (collectively, "incur") any Indebtedness; unless the Fixed Charge
Coverage Ratio of the Company, determined on a consolidated basis, for the
Company's most recently ended four full fiscal quarters for which financial
statements are available immediately preceding the date on which such
additional Indebtedness is incurred, would have been at least 1.20 to 1.0,
determined on a pro forma basis (including a pro forma application of the
net proceeds therefrom to a repayment of any Indebtedness), as if the
additional Indebtedness had been incurred at the beginning of such
four-quarter period. Provided, however, that notwithstanding the foregoing,
the Company may incur Indebtedness that: (i) is evidenced by the Class A-1
Notes; (ii) was existing at December 31, 1996 as it may be extended or
modified; (iii) is incurred in the ordinary course of business for the
funding of mortgage loans which includes warehouse lines of credit and
gestation or repurchase facilities; (iv) is in respect of performance,
completion, guarantee, surety and similar bonds, banker's acceptances or
letters of credit provided by the Company in the ordinary course of
business; and/or (v) when incurred, does not result in other Indebtedness
in excess of $750,000 outstanding at any time.
4. Merger, Consolidation or Sale of Assets. While any Class A-1
Note is outstanding, the Company shall not consolidate or merge with or
into any other person or entity (whether or not the Company is the
surviving corporation) or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its properties or assets
(excepting loans held for sale in the normal course of the Company's
mortgage banking operations) in one or more related transactions to,
another corporation, person or entity, unless (i) the Company is the
surviving corporation of such consolidation or merger; and (ii) immediately
after such transaction no Default or Event of Default exists.
5. Maintenance of Tangible Adjusted Net Worth. In the event that,
while any Class A-1 Note is outstanding, within 55 days after the end of
any fiscal quarter (100 days after the end of any fiscal year) as of the
end of which the Company's Tangible Adjusted Net Worth is less than
$2,000,000 (the "Minimum Tangible Adjusted Net Worth"), the Company shall
notify the Holders of such event and shall within sixty (60) days
thereafter restore its Tangible Adjusted Net Worth to an amount greater
than the Minimum Tangible Adjusted Net Worth.
6. Books and Records. The Company shall keep proper books of
record and account, in which full and correct entries shall be made of all
dealings or transactions of or in relation to the Class A-1 Notes and the
business and affairs of the Company in accordance with generally accepted
accounting principles. The Company shall furnish to the Trustee any and
all information related to the Class A-1 Notes as the Trustee may
reasonably request and which is in the Company's possession.
ARTICLE III
REMEDIES
Section A. Events of Default
Each of the following constitutes an Event of Default under the Class
A-1 Notes: (i) default for thirty (30) days in the payment when due of
interest or penalty on any Class A-1 Note; (ii) default for thirty (30)
days in the payment when due of principal of any Class A-1 Note; (iii) if
not cured in a timely manner, failure by the Company to observe or perform
any of the covenants or agreements in the Class A-1 Notes or set forth
under Article II hereof required to be performed by it; or (iv) if not
cured in a timely manner, default under the instruments governing any Other
Indebtedness or any mortgage, indenture or instrument under which there may
be issued or by which there may be secured or evidenced any Other
Indebtedness for money borrowed by the Company, whether such Other
Indebtedness or guarantee now exists or is hereafter created, which default
(a) is caused by a failure to pay when due principal or interest on such
Other Indebtedness within the grace period provided in such Other
Indebtedness and which continues beyond any applicable grace period (a
"Payment default") or (b) results in the acceleration of such Other
Indebtedness prior to its express maturity, provided in each case the
principal amount of any such Other Indebtedness, together with the
principal amount of any other such Other Indebtedness under which there has
been a Payment default or the maturity of which has been so accelerated,
aggregates $250,000 or more.
In order to cure payment Default, the Company must mail to the
Holder, direct deposit or credit if that option is selected, the amount of
the nonpayment plus a late payment penalty equal to simple interest on the
amount unpaid at the rate of 10% per annum, measured from the date the
payment should have been mailed, deposited or credited pursuant to the
terms of the Class A-1 Notes until the date it actually is mailed,
deposited or credited.
Section B. Appointment of Trustee and Commencement of Operation of the
Trust
If an Event of Default occurs and is continuing, then and in every
such case the Holders of not less than a Majority in Principal Amount of
the Outstanding Class A-1 Notes by written and signed ballot or other
written and signed consent may, within thirty (30) days of such Event of
Default, appoint a Trustee. Upon delivery of the properly executed written
instrument evidencing the appointment of the Trustee and the latter's
acceptance of such appointment by due execution of this specific and exact
form of Agreement, the operation of this Trust shall commence and the power
and rights of the Trustee hereunder shall begin.
Section C. Covenant to Pay Trustee Amounts Due on Class A-1 Notes and
Right of Trustee and Holders of Judgment
The Company covenants that, if an Event of Default has occurred and
is continuing, the Company will, upon written request of the Trustee, cure
such default and pay forthwith for the benefit of the Holders the whole
amount then due, any penalties which may be due and, in addition thereto,
such further amount as shall be sufficient to cover the costs and expenses
of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel and all
other amounts due to the Trustee hereunder. If the Company fails to cure
such defaults and pay such amounts forthwith upon such demand, the Trustee,
in its own name and as Trustee of an express trust, shall be entitled to
sue for and recover judgment against the Company and any other obligor on
the Class A-1 Notes for the amount so due and unpaid pursuant to the terms
of the Class A-1 Notes.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of not less than a Majority in Principal Amount of the then
Outstanding Class A-1 Notes may declare all the Class A-1 Notes to be due
and payable immediately and take any action allowed by law to collect such
amounts. Notwithstanding the foregoing, in the case of an Event of Default
arising from certain events of bankruptcy or insolvency with respect to the
Company, all Outstanding Class A-1 Notes will become due and payable
without further action or notice.
The Trustee may withhold from the Holders notice of any Default or
Event of Default if it believes that withholding notice is in their
interest, except a Default or Event of Default relating to the payment of
principal, interest or penalties.
Section D. Application of Money Collected
Any money collected by the Trustee pursuant to this Article, together
with any other sums then held by the Trustee hereunder, shall be applied in
the following order, at the date or dates fixed by the Trustee and, in case
of the distribution of such money on account of principal or interest upon
presentation of the Class A-1 Notes, and the notation thereof of the
payment if only partially paid and upon surrender thereof if fully paid:
(i) First: To the payment of all unpaid amounts due to the
Trustee hereunder;
(ii) Second: To the payment of the whole amount then due and
unpaid on the Outstanding Class A-1 Notes, for principal and interest
and any penalties which may be due under the terms of the Class A-1
Notes, in respect of which or for the benefit of which such money has
been collected; and in case such proceeds shall be insufficient to
pay in full the whole amount so due and unpaid on such Class A-1
Notes, then to the payment of such principal and interest and without
any preference or priority, ratably according to the aggregate amount
so due; and
(iii) Third: To the payment of the remainder, if any, to the
Company or to whosoever may be lawfully entitled to receive the same
or as a court of competent jurisdiction may direct.
Section E. Trustee May File Proofs of Claim
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Class A-1 Notes or the property of the Company or of such other obligor or
their creditors, the Trustee (irrespective of whether the principal of the
Class A-1 Notes shall then be due and payable, as therein expressed or by
declaration or otherwise, and irrespective of whether the Trustee shall
have made any demand on the Company for the payment of overdue principal or
interest) shall be entitled and empowered, by intervention in such
proceeding or otherwise,
(i) To file and prove a claim for the whole amount of
principal, interest and penalty owing and unpaid in respect of the
Outstanding Class A-1 Notes and to file such other papers or
documents as may be necessary or advisable in order to have the
claims of the Trustee (including to the extent permitted by law any
claim for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel) and of the Holders
allowed in such judicial proceeding, and
(ii) To collect and receive any monies or other property
payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, Trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized
by each Holder to make such payments to the Trustee, and in the event that
the Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel, and any other amounts due the Trustee under this
Agreement.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan
or reorganization, arrangement, adjustment or composition affecting the
Class A-1 Notes or the rights of any Holder thereof, or to authorize the
Trustee to vote in respect of the claim of any Holder.
Section F. Trustee May Enforce Claims Without Possession of Class A-1
Notes
All rights of action and claims under this Agreement, or documents
related thereto, may be prosecuted and enforced by the Trustee without the
possession of any of the Class A-1 Notes or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by the
Trustee shall be brought in its own name as Trustee of an express trust.
Any recovery of judgment shall, after provision for the payment of the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel and all other amounts due to the Trustee
hereunder, be for the ratable benefit of the Holders of the Class A-1 Notes
(based on the aggregate amount of unpaid principal and interest due each
such Holder on such date) in respect of which such judgment has been
recovered.
Section G. Limitation on Suits
DURING THE PERIOD OF THE OPERATION OF THIS AGREEMENT, NO HOLDER SHALL
HAVE ANY RIGHT TO INSTITUTE OR CONTINUE ANY PROCEEDING or judicial action
pursuant to Articles II and III above or otherwise, under or with respect
to this Agreement or the Class A-1 Notes, or for the appointment of a
receiver or trustee or for any other remedy hereunder, unless all of the
following have occurred:
(i) Such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(ii) The Holders of not less than a Majority in Principal
Amount of the Outstanding Class A-1 Notes shall have made written
request to the Trustee to institute proceedings in respect of such
Event of Default in its own name as Trustee hereunder;
(iii) Such Holder has offered to the Trustee indemnity
reasonably acceptable to the Trustee against the costs, expenses and
liabilities to be incurred in compliance with such request and
provided security therefor reasonably acceptable to the Trustee;
(iv) The Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(v) No written direction inconsistent with such written
request has been given to the Trustee during such 60-day period by
the Holders of a Majority in Principal Amount of the Outstanding
Class A-1 Notes;
it being understood and intended that no one or more Holders of Class A-1
Notes shall have any right in any manner whatever by virtue of, or pursuant
to any provision of this Agreement to affect, disturb or prejudice the
rights created under this Agreement or the rights of any other Holders of
Class A-1 Notes, or to obtain or to seek to obtain priority or preference
over any other Holders or to enforce any right under this Agreement, except
in the manner herein provided and for the equal and ratable benefit of all
Outstanding Class A-1 Note Holders. No Holder shall have the right and
each Holder hereby waives the right to sue individually except in
accordance with the provisions of this Agreement.
Section H. Rights to Settle or Compromise
A Trustee may not make any settlement or compromise concerning the
rights of Holders, including in regard to payments of principal or
interest, unless it is approved in a separate vote by a Majority in
Interest of the Holders. Any settlement or compromise so approved would be
binding upon all the Holders.
Section I. Rights and Remedies Cumulative
Except insofar as same shall contradict the express terms of this
Agreement, no right or remedy herein conferred upon or reserved to the
Trustee or to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law
and the terms of this Agreement, be cumulative and in addition to every
other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise.
Section J. Delay or Omission not Waiver
No delay or omission of the Trustee or of any Holder of any Class A-1
Note to exercise any right or remedy accruing upon an Event of Default
shall impair any such right or remedy or constitute a waiver of any such
Event of Default or an acquiescence therein. Every right and remedy given
by this Agreement or by law to the Trustee or to the Holders may be
exercised from time to time, and as often as may be deemed expedient, by
the Trustee or by the Holders, as the case may be.
Section K. Waiver of Past Defaults
Before any judgment or decree for payment of money due has been
obtained by the Trustee as provided in this Article, the Holders of not
less than a Majority in Principal Amount of the Outstanding Class A-1 Notes
may, by Act of such Holders delivered to the Trustee and the Company, on
behalf of the Holders of all the Notes waive any past default hereunder and
its consequences and settle or compromise any claim related to the payment
of principal and interest on the Outstanding Class A-1 Notes, provided the
terms of such settlement or compromise have been made known to all Holders
of Outstanding Class A-1 Notes and the approval of the Majority in Interest
has been made in a signed written document. If and only if required by
law, the Trustee may provide a procedure for any Holder so desiring to
remove itself from the group settlement and to allow the Holder opting out
of the group settlement to proceed to enforce its rights individually and
as it sees fit.
Upon any such waiver, such default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Agreement; but no such waiver shall extend to any
subsequent or other Default or impair any right consequent thereon.
Section L. Notice of Defaults
As soon as practicable after the occurrence of any Event of Default
hereunder, the Company shall transmit notice thereof by mail to all Holders
of Class A-1 Notes, as their names and addresses appear on the books and
records of the Company.
ARTICLE IV
THE TRUSTEE
Section A. Certain Duties and Responsibilities
1. The Trustee shall, in the exercise of the rights and powers
vested in it by this Agreement, use the same degree of care and skill in
its exercise as a reasonable person would exercise or use.
2. No provision of this Agreement shall be construed to relieve
the Trustee from liability for its own grossly negligent action, its own
grossly negligent failure to act, or its own willful misconduct, except
that:
a. The Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with
the direction of the Holders of a Majority in Principal Amount of the
Outstanding Class A-1 Notes relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee, under this
Agreement;
b. No provision of this Agreement shall require the Trustee
to advance, expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers;
c. The Trustee shall be presumed to have acted without
negligence if it acted, or omitted to act, in good faith and in reliance
upon an opinion of counsel obtained by it.
Section B. Certain Rights of Trustee
Except as otherwise provided below:
1. The Trustee may consult with counsel, accountants and other
experts and the advice or opinion of such counsel, accountants and other
experts shall be full and complete authorization and protection in respect
of any action taken, suffered or omitted by the Trustee hereunder in good
faith and in reliance thereon and the Trustee shall have the right at any
time to seek instructions from a court of competent jurisdiction;
2. The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Agreement at the request or direction
of any of the Holders pursuant to this Agreement, unless such Holders shall
have offered to the Trustee security or indemnity reasonably acceptable to
the Trustee against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
3. The Trustee may execute any of the powers hereunder or perform
any duties hereunder either directly or by or through agents or attorneys
and the Trustee shall not be responsible for any misconduct or negligence
on the part of any agent or attorney appointed by it hereunder with the
care required below; and
4. Anything to the contrary contained herein notwithstanding, the
Trustee shall have no duty to take any action whatsoever if it believes in
good faith that the taking of such action may expose the Trustee to
personal liability.
Section C. May Hold Class A-1 Notes
The Trustee in its individual or any other capacity may become the
owner or pledgee of Class A-1 Notes and may otherwise deal with the Company
with the same rights it would have if it were not Trustee.
Section D. Compensation, Reimbursement and Security Therefor
The Company agrees:
1. To pay to the Trustee from time to time reasonable compensation
for all services rendered by it hereunder;
2. To reimburse the Trustee upon its request for all reasonable
expenses, disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Agreement, including reasonable fees
and expenses of counsel for the Trustee, except as such expense,
disbursement or advance may be attributable to the Trustee's gross
negligence or bad faith;
3. To indemnify the Trustee for, and to hold it harmless against
any loss, liability or expense incurred without gross negligence or bad
faith on its part, arising out of or in connection with the acceptance or
administration of this trust, including the costs and expenses of defending
itself against any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder.
Section E. Trustee Eligibility
The Trustee may not be an Affiliate of the Company.
Section F. Termination of Trust and Removal of Trustee, Appointment of
Successor
1. Upon the moment all Defaults or Events of Defaults are cured or
deemed cured pursuant to this Agreement, the appointment of the Trustee and
the operation of the Trust will terminate and the powers and the rights of
the Trustee hereunder shall cease forthwith.
2. No resignation or removal of the Trustee and no appointment of
a successor Trustee pursuant to this Article shall become effective until
the acceptance of appointment by the successor Trustee as provided herein.
3. The Trustee may resign as Trustee hereunder at any time by
giving written notice thereof to the Company and the Holders. Upon
delivery of an instrument of acceptance by a successor Trustee duly
appointed by a Majority in Interest of the Holders the resignation will
become effective.
4. The Trustee may be removed as Trustee hereunder at any time by
Act of the Holders of a Majority in Principal Amount of the Class A-1
Notes, delivered to the Trustee and to the Company.
5. If at any time:
a. The Trustee shall cease to be eligible as Trustee and
shall fail to resign after written request therefor by the Company or by
any Holder, or
b. The Trustee shall be adjudged incompetent, bankrupt or
insolvent or a receiver of the Trustee or of its property shall be
appointed or any public officer shall take charge or control of the Trustee
or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation;
then in any such case, any Holder may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
Section G. Acceptance of Appointment by Successor
Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an
instrument accepting such appointment, and thereupon the resignation or
removal of the retiring Trustee shall become effective and such successor
Trustee, without any further act, deed or conveyance, shall become vested
with all the rights, powers and duties of the retiring Trustee under this
Agreement.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible
under this Article.
ARTICLE V
HOLDER'S LISTS AND REPORTS BY TRUSTEE AND THE COMPANY
Section A. The Company to Furnish Trustee Lists of Holders
The Company will furnish or cause to be furnished to the Trustee not
more than five (5) days after its appointment and acceptance as Trustee,
and at such other times as the Trustee may reasonably request in writing,
within ten (10) business days after receipt by the Company of any such
request, a list in such form as the Trustee may reasonably request
containing all the information in the possession or control of the Company,
or any of its paying agents, as to the names and addresses of the Holders
of Class A-1 Notes, obtained since the date as of which the next previous
list, if any, was furnished, and the status of the amount of principal and
interest paid or outstanding in respect of each Class A-1 Notes.
ARTICLE VI
SUPPLEMENTAL AGREEMENTS
Section A. Supplement Agreement Without Consent of Holders
Without the consent of the Holder of any Class A-1 Note, the Company,
when authorized by a board resolution, and the Trustee may from time to
time enter into one or more agreements supplemental hereto, in form
satisfactory to the Trustee, for any of the following purposes:
1. To add to the conditions, limitations and restrictions on the
authorized amount or purposes of issue, authentication and delivery of
Class A-1 Notes, as herein set forth, additional conditions, limitations
and restrictions thereafter to be observed; provided that any such
modification does not adversely affect the rights and interests of the
Holders.
2. To evidence the succession of another corporation or entity to
the Company and the assumption by any such successor of the covenants of
the Company contained herein; or
3. To add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the
Company; or
4. To cure any ambiguity, to amend any provision herein which may
be inconsistent with any other provision herein or to make any other
provisions, with respect to matters or questions arising under this
Agreement, which shall not be inconsistent with the provisions of this
Agreement, provided such action shall not adversely affect the rights and
interests of the Holders.
Section B. Supplemental Agreements with Consent of Holders
With the consent of the Holders of not less than a Majority in
Principal Amount affected by such agreement or supplemental agreement, by
Act of such Holders delivered to the Company and the Trustee, the Company
and the Trustee may enter into an agreement or agreements supplemental
hereto for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of this Agreement or of
modifying in any manner the rights of the Holders of the Class A-1 Notes
under this Agreement. Such agreement or supplemental agreement may, with
the consent of a Majority in Interest of the Holders of each Outstanding
Class A-1 Notes affected thereby, effect a compromise or settlement
affecting the term, interest rate and other terms of all the Class A-1
Notes; provided that any such compromise or settlement must be ratable and
proportionate in effect on all Outstanding Class A-1 Note Holders based on
the aggregate amount of principal and interest and penalty payments due
them under the terms of their respective Class A-1 Notes as of the date of
settlement.
The Trustee may in its discretion determine whether or not any Class
A-1 Notes would be affected by any supplemental agreement and any such
determination shall be conclusive upon the Holders of all Class A-1 Notes,
whether theretofore or thereafter authenticated and delivered hereunder.
The Trustee shall not be liable for any such determination made in good
faith.
It shall not be necessary for any Act of Holders under this section
to approve the particular form of any proposed supplemental agreement, but
it shall be sufficient if such Act shall approve the substance thereof.
Section C. Effect of Supplemental Agreements
Upon the execution of any supplemental agreements under this Article,
this Agreement shall be modified in accordance therewith and such
supplemental agreement shall form a part of this Agreement for all
purposes; and every Holder of Class A-1 Notes theretofore or thereafter
authenticated and delivered hereunder shall be bound thereby.
ARTICLE VII
DEFEASANCE
Section A. Payment of Indebtedness, Satisfaction and Discharge of
Agreement.
Whenever the Company has paid or caused to be paid all amounts then
currently due and payable pursuant to the terms of the Class A-1 Notes then
this Agreement and the rights and interests created hereby shall cease and
become null and void (except as to any surviving rights of transfer or
exchange of Class A-1 Notes herein or therein provided for and except as
otherwise stated in the next paragraph) and the Trustee then acting as such
hereunder shall, at the expense of the Company, execute and deliver such
instruments of satisfaction and discharge as may be necessary.
Notwithstanding anything to the contrary herein contained, the
obligations of the Company to pay or reimburse the Trustee as provided
herein shall survive the termination, satisfaction and discharge of this
Agreement.
ARTICLE VIII
MISCELLANEOUS
Section A. Counterparts
This Agreement may be executed in several counterparts, all of which
together shall constitute one agreement binding on all parties hereto,
notwithstanding that all the parties have not signed the same counterpart.
The Holders have consented hereto and are bound hereto by executing an
agreement to be bound hereby contained in the subscription document related
to the offering of the Class A-1 Notes.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
MINISTRY PARTNERS INVESTMENT
CORPORATION, a California corporation
By: __________________________
TRUSTEE
By: ___________________________
___________________________
Print Name
Date: _____________________________
No dealer, salesperson or other individual has been authorized to give any
information or make any representations other than those contained in this
Prospectus and, if given or made, such information or representations must
not be relied upon as having been authorized by the Company. This
Prospectus does not constitute an offer by the Company to sell, or a
solicitation of an offer to buy, the securities offered hereby in any
jurisdiction where, or to any person to whom, it is unlawful to make an
offer or solicitation. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create an implication
that there has been any change in the affairs of the Company since the
date hereof or that the information contained herein is correct or complete
as of any time subsequent to the date hereof.
MINISTRY PARTNERS INVESTMENT CORPORATION
$15,000,000
Unsecured Promissory Notes
P R O S P E C T U S
November 19, 1997
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Registrant's Articles of Incorporation authorize Registrant to
indemnify its agents (including its officers and directors to the
fullest extent permitted under the California General Corporation
Law). Registrant's Bylaws generally allow for indemnification of
directors and officers against certain loss from proceedings
including threatened, pending or completed investigative,
administrative civil and criminal proceedings, provided such persons
acted in good faith and in a manner the person reasonably believed to
be in the best interests of Registrant or that the person had
reasonable cause to believe to be lawful.
Item 25. Other Expenses of Issuance and Distribution.
The following is an itemized statement of expenses incurred in
connection with this Registration Statement. All such expenses will
be paid by the Company.
Securities and Exchange Commission Registration Fee $4,546
Accounting and Legal Fees and Expenses $20,000
Printing $2,500
Miscellaneous Expenses $2,500
TOTAL $29,546
All of the above items except the registration fee are estimates.
<PAGE>
Item 26. Recent Sales of Unregistered Securities.
Since January 1997, the Company has from time to time issued note
obligations for loans negotiated with ministries or sophisticated
individuals who have purchased notes from the Company before and/or are
accredited persons within the meaning of Rule 501 under Regulation D. For
each of these notes, interest rates, terms and other conditions of the loan
were negotiated with the investor. The Company has relied upon the
exemptions under Section 4(2) of the 1933 Act in selling these debt
securities. During the period from February 3, 1997 to November 7, 1997, the
Company received a total of $2,079,287 from 11 investors. Of this amount, the
following 2 investors purchased $400,000 or more: Grace Community
Church/Auburn and Inland Hills Church.
As of November 7, 1997, total Notes matured were $267,205 and total Notes
outstanding were $1,812,082.
In a private placement offering, which commenced in 1992, Registrant sold
a class of subordinated notes and a class of collateralized notes in a
private placement offering to a total of 35 persons. This offering was
terminated in 1996. In this offering, Registrant had sold a total of
approximately $2,906,428 principal amount of these notes, of which
approximately $1,983,796 was outstanding on April 20, 1996. These notes
were purchased by institutions and individuals associated with the
evangelical Christian community. These notes were offered directly by
Registrant through certain of its officers and directors who were not
specially compensated for these services and no third-party broker-dealers
or underwriters participated in connection with this Offering. These
notes were issued for cash at a price equal to their principal amount. The
private placement offering was made pursuant to the exemption set forth in
Section 506 of Regulation D under the Securities Act of 1933 (the "1933
Act").
Pursuant to permits dated June 23, 1994 and June 26, 1995 issued by the
California Department of Corporation, Registrant has offered and sold a class
of senior notes to California residents only. This offering was terminated in
April 1996. A total of approximately $1,336,787 in principal amount of these
notes were sold to 38 persons. Of this amount, the following 2 investors
purchased $250,000 or more: Family Resource Ministries and Emmanuel Faith
Community Church.
The names and amounts purchased by officers, directors and affiliates of
Registrant, are set forth in the following table.
Schedule of Investments in Prior Offerings by Affiliates(1):
Investor Principal Amount of Note
A. Black 10,000
J. Garmo 10,500
M. Johnson 10,000
G. Jones 56,000
M. Jones 11,000
M. Norling 45,000
K. Von Rohr 50,000
__________________
(1) Each investor is officer and/or director of Registrant and/or ECCU or is
a close family member of such person.
This offering was being made pursuant to the exemption set forth in Section
3(a)(11) of the 1933 Act. This offering was made directly by Registrant
through certain of its directors and officers who are not additionally
compensated for these services and no third-party broker-dealers or
underwriters participated in this Offering. These notes were issued at par
for cash consideration.
Item 27. Exhibits.
3.1 Articles of Incorporation of Registrant.(1)
3.2 Bylaws of Registrant.(1)
4.1 Form of Class A-1 Note.
4.2 Form of Class A-1 Loan and Standby Trust Agreement.
4.3 ECCU Class A-1 Note Subordination Agreement.
5.1 Opinion of Rushall & McGeever.
10.1 ECCU Loan Agreement and Note.(1)
23.1 Consent of Rushall & McGeever (included in Exhibit 5.1 hereto).(1)
23.2 Consent of Turner, Warren, Hwang & Conrad (2)
23.3 Consent of Turner, Warren, Hwang & Conrad (2)
25.1 Powers of Attorney (included on page II-4 of Registration
Statement.
____________________
(1) Incorporated by reference from Registration Statement on Form SB-2
filed on April 24, 1996, as amended.
(2) To be filed by amendment.
Item 28. Undertakings
(a) Rule 415 Offering. The undersigned Registrant hereby
undertakes:
(1) To file, during any period in which offers or sales are
being made of the Securities registered hereby, a post-effective
amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the Registration Statement; and
notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate,the changes in the volume and
price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration
Statement; and
(iii) To include any additional or changed material information
on the plan of distribution.
Provided, however, that the undertakings set forth in paragraphs
(1)(i) and (1)(ii) above do not apply if the Registration Statement
is on Form S-3 or S-8 and the information required in a
post-effective amendment is incorporated by reference in periodic reports
filed by the Registrant pursuant to the Securities Exchange Act of
1934.
(2) That, for the purposes of determining 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 that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the Securities being registered which remain
unsold at the termination of the offering.
(b) Equity offerings of non-reporting small business issuers. As
Registrant has no duty before the offering to file reports with the
Commission under Section 13(a) or 15(d) of the Exchange Act
registering equity securities for sale in an underwritten offering,
Registrant hereby undertakes to provide to any 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.
(c) Indemnification. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities 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, 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 question
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.
Item 29. Financial Statements.
Included in the Prospectus in Part I of this Registration
Statement.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933,
as amended, the Registrant certifies that it has reasonable grounds
to believe that it meets all of the requirements for filing on Form
SB-2 to be signed on its behalf by the undersigned, in the City of
Anaheim, California, on the 19th day of November, 1997.
MINISTRY PARTNERS INVESTMENT CORPORATION
By:/s/ Mark G. Holbrook
Mark G. Holbrook,
Chairman of the Board
In accordance with the requirements of the Securities Act of 1933,
as amended, this Registration Statement has been signed below by the
following persons in the capacities and on the dates stated:
Signature Title Date
/s/ Mark G. Holbrook Chairman of November 19, 1997
Mark G. Holbrook the Board
/s/ Mark A. Johnson Chief Financial November 19, 1997
Mark A. Johnson Officer, Director
/s/ Van C. Elliott, by Mark G. Secretary, Director November 19, 1997
Holbrook, his attorney-in-fact
Van C. Elliott, by Mark G.
Holbrook, his attorney-in-fact
/s/ Arthur G. Black, by Mark G. Director November 19, 1997
Holbrook, his attorney-in-fact
Arthur G. Black, by Mark G.
Holbrook, his attorney-in-fact
/s/ Wallace G. Norling, by Mark Director November 19, 1997
G.Holbrook, his attorney-in-fact
Wallace G. Norling, by Mark G.
Holbrook, his attorney-in-fact
/s/ Scott T. Vandeventer, by Director November 19, 1997
Mark G. Holbrook, his
Attorney-in-fact
Scott T. Vandeventer, by
Mark G. Holbrook,
his Attorney-in-fact
SPECIMEN
MINISTRY PARTNERS INVESTMENT CORPORATION
CLASS A-1 NOTE
SERIES___________
PRINCIPAL AMOUNT: $____________________ ISSUANCE DATE:________, 199_
[INTEREST REINVESTMENT ELECTED, _________________, California
See Section 5 Below]
THIS NOTE IS SUBJECT TO THE PROVISIONS OF A STANDBY TRUST AGREEMENT DATED
November 19, 1997, which authorizes the issuance of up to $25,000,000 of
Class A-1 Notes.
1. Principal and Interest. For value received, MINISTRY PARTNERS
INVESTMENT CORPORATION, a California corporation ("Maker"), hereby
promises to pay to the order of the registered holder of this Note
("Holder"), at such address of Holder as is set forth on the records
of Maker, or at such other place as Holder may designate in writing
to Maker, the principal sum of ____________________________________
Dollars ($___________) (hereafter the "Principal"). This Note shall
bear interest from the date hereof on the unpaid Principal balance until
paid at the rate of___________ Percent (____%) per annum. Interest
accruing hereunder shall be calculated on the basis of a 365-day year
for actual days elapsed.
2. Manner and Form of Payment. This Note shall be payable interest
only, in arrears, on the fifth day of ________ and on the fifth day
of each month thereafter until _________ (the "Payment Date"), on
which date the unpaid balance of principal and accrued interest shall
be due and payable. All Principal and interest shall be payable in
lawful money of the United States of America. All payments made
hereunder shall be applied first to the payment of accrued interest
and the balance remaining to the payment of Principal.
3. Loan and Standby Trust Agreement. As a condition to the
issuance of this Note, Holder agrees to adopt and to be bound by the
terms and conditions of the Loan and Standby Trust Agreement dated
November 19, 1997 (the "Loan Agreement"), the terms and conditions of
which are incorporated herein by reference.
4. Events of Default. This Note shall be subject to each of the
Events of Default and remedies set forth in the Loan Agreement. In
order to cure Payment Default, Maker must mail to the Holder, or
direct deposit if that option is selected, the amount of the
nonpayment plus a late payment penalty equal to simple interest on
the amount unpaid at the rate of ___% per annum, measured from the
date the payment should have been mailed, deposited or credited
pursuant to the terms of this Note until the date it actually is
mailed, deposited or credited.
Exhibit A
If an Event of Default occurs and is continuing, then and in
every such case the Holders of not less than a Majority in Principal
Amount of the Outstanding Notes may appoint a Trustee to represent
the interest of all the Holders pursuant to the Loan Agreement as
provided therein. No Holder shall have the right to institute or
continue any proceeding, judicial or otherwise, with respect to the
Notes except pursuant to the Loan Agreement.
Under the Loan Agreement, the Trustee, at the direction of the
Majority Vote of the Holders may, declare all the Notes to be due and
payable immediately and take any action allowed by law to collect
such amounts. Notwithstanding the foregoing, in the case of an Event
of Default arising from events of bankruptcy or insolvency with
respect to Maker, all Outstanding Notes will become due and payable
without further action or notice.
5. Interest Reinvestment. If the Holder has elected to reinvest
interest payable on the Note (the "Interest Reinvestment Election"),
Maker shall defer all interest payable on its Note until the Payment
Date by increasing the Principal Amount by an amount equal to each
interest payment otherwise payable on this Note, as of the Payment
Date of such interest payment. Interest shall be payable on such
increased Principal Amount thereon in the manner otherwise provided
herein.
6. Prepayment of Note. The Maker may at any time, upon not less
than thirty (30) nor more than sixty (60) days prior written notice
to the Holder, elect to prepay the Principal Amount in whole or in
part, and by delivering to the Holder payment equal to such amount of
prepayment plus accrued and unpaid interest thereon through such date
of prepayment. Notice of prepayment shall be mailed by first class
mail to Holder. If less than all of the Series of the Note is
prepaid, Maker shall prepay all Notes of the Series on a pro rata
basis. In the event of such prepayment, a new Note in principal
amount equal to the unpaid principal amount of the original Note
shall be issued in the name of Holder and the original Note shall be
cancelled. On and after the prepayment date, interest shall cease to
accrue on the portion of the Principal Amount prepaid. The foregoing
obligation to prepay a Series of Notes on a pro rata basis herein
shall not in any manner limit the Maker's right to repurchase or
prepay any Note on a voluntary basis agreed to by the holder thereof,
including any prepayment of the Note prior to maturity as described
below.
7. Early Presentment. Holder may upon written notice to Maker,
request prepayment of the Note at any time prior to maturity. In
such event, Maker shall determine in Maker's sole judgment, whether
to so prepay the Note. In the event Maker determines to prepay the
Note, it shall prepay (i) an amount equal to the unpaid balance of
the Principal Amount, plus (ii) the accrued but unpaid interest
through the date of prepayment, less (iii) an amount equal to the
lessor of three (3) months interest on the balance of the unpaid
Principal Amount or one-sixth of the interest payable on the Note
during its original term.
8. Amendment, Supplement and Wavier. Pursuant to the Loan
Agreement, the Notes may be amended or supplemented by a Majority
Vote of the Holders and any Default, Event of Default,
compliance or noncompliance with any provision of the Notes may be
waived by a Majority Vote of the Holders, provided that any such
amendment or supplement affecting the term, interest rate and other
terms of the Notes must be ratable and proportionate in effect on all
Holders of the then outstanding Notes based on the aggregate amount
of principal and interest and penalty payments due them.
9. Waivers. The Maker waives demand for payment, presentment for
payment, protest, notice of protest, notice of dishonor, notice of
nonpayment, notice of acceleration or maturity, diligence in taking
any action to collect sums owning hereunder.
10. Separability. In case any provision in this Note shall be
invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
11. California Law; Jurisdiction. This Note is made in the State
of California and the provisions hereof shall be construed in
accordance with the laws of the State of California, except to the
extent preempted by federal law; and such parties further agree that
in the event of a default hereunder, this Note may be enforced in any
court of competent jurisdiction in the State of California, and they
do hereby submit to the jurisdiction of such court regardless of
their residence or where this Note or any endorsement hereof may have
been executed.
MINISTRY PARTNERS INVESTMENT CORPORATION
By:____________________________________
CLASS A-1 NOTE
LOAN AND STANDBY TRUST AGREEMENT
THIS LOAN AND STANDBY TRUST AGREEMENT is dated as of ___________,
1997 between Ministry Partners Investment Corporation, a California
corporation (the "Company"), the Holders of the Company's Class A-1 Notes,
as defined below, and such Trustee or Trustees as may be appointed by the
Holders pursuant to the terms hereof.
WHEREAS, the Company has undertaken to offer and issue, through an
offering registered under the Securities Act of 1933, as amended (the "1933
Act"), pursuant to that certain Registration Statement on Form SB-2 and
the Prospectus which is a part thereof (the "Prospectus"), as supplemented,
up to $25,000,000 of its Class A-1 Notes.
NOW, THEREFORE, in consideration of the agreements contained herein
and for other good and valuable consideration, the adequacy of which is
hereby acknowledged, the Company, the Holders and the Trustee mutually
agree as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1. Definitions
For the purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires, the capitalized terms
used herein and not otherwise defined in this section have the meaning
assigned to them in the Prospectus and include the plural as well as the
singular. All accounting terms not otherwise defined herein have the
meanings assigned to them in the Prospectus and all computations herein
provided for shall be made in accordance with generally accepted accounting
principles. In determining generally accepted accounting principles, the
Company may conform to any other rule or regulation of any regulatory
authority having jurisdiction over the Company.
"Adjusted Net Worth" means the sum of (i) the consolidated equity of
the common stockholders of the Company and any consolidated subsidiary,
plus (ii) the respective amounts reported on such entity's most recent
balance sheet with respect to any series of preferred stock, plus (iii) the
amount of the ECCU credit line, whether or not then funded, and any loan
ECCU or any other lender is contractually obligated to loan to the Company,
but only to the extent such loan amount is expressly subordinated in right
to payment on a current basis to the Class A-1 Notes. For purposes of
computing Adjusted Net Worth, except with respect to the ECCU credit line
and any other loans included in Adjusted Net Worth as provided in the
foregoing, all transactions between the Company and any Affiliates,
including ECCU, shall be treated as if the transactions had been entered
into with an unaffiliated third-party to the extent that GAAP would require
any different treatment.
"Affiliate" of any specified Person means any other Person directly
or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this
definition, "control," "controlling" and "controlled," when used with
respect to any specified Person, means the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise.
"Agreement" means this instrument as originally executed or as it may
from time to time be supplemented, modified or amended by one or more
supplemental agreements hereto entered into pursuant to the applicable
provisions hereof. The Agreement is not qualified under or subject to the
Trust Indenture Act of 1939, as amended.
"Business Day" means any day other than a Saturday or Sunday or a day
on which banking institutions in the State of California are not required
to be open.
"Cash Flow" means with respect to any period, Consolidated Net income
of the Company and any subsidiary for such period plus (a) an amount equal
to any extraordinary loss plus any net loss realized in connection with the
sale or other disposition of any assets (to the extent such net losses were
deducted in computing Net Income for such period), plus (b) provision for
taxes based on income or profits to the extent such provisions for taxes
was deducted in computing Net Income for such period, plus (c) Fixed
Charges for such period, plus (d) depreciation and amortization (including
amortization of goodwill and other intangibles) for such period to the
extent such depreciation and amortization were deducted in computing Net
Income for such period, in each case, on a consolidated basis and
determined in accordance with GAAP, plus (e) interest expense paid or
accrued for such period with respect to the subordinated ECCU Credit line
and any other Indebtedness which is subordinated to the Notes, plus (f) the
unused amount of the ECCU Credit Line (and any other financing subordinated
to the Notes) available to the Company on the date the determination of
Cash Flow is made.
"Class A Notes" means the Series 1, Series 5, Series 10, Series 25,
Series 50, Series 100 and Series C Notes provided, however, that the
aggregate of all series of Class A Notes shall not exceed $5,000,000.
"Class A-1 Notes" means the Series 1, Series 5, Series 10, Series
25, Series 50, Series 100 and Series C Notes provided, however, that the
aggregate of all series of Class A-1 Notes shall not exceed $25,000,000.
"Default" means any event that with the passage of time or the giving
of notice or both is or could be an Event of Default.
"ECCU Credit Line" means that certain loan agreement and note in the
amount of $2,100,000 dated February 26, 1997, as amended, as subordinated
by that certain Subordination Agreement dated June 1, 1994, as amended.
"Events of Default" means those Events of Default defined under
"Events of Default" herein, whatever the reason for such event and whether
it shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule
or regulation of any administrative or governmental body.
"Fixed Charges" means, with respect to any period, consolidated
interest expense for such period, whether paid or accrued, to the extent
such expense was deducted in computing Consolidated Net Income (including
amortization of original issue discount, noncash interest payments and the
interest component of capital leases, but excluding amortization of
deferred financing fees) plus, without duplication, all interest
capitalized for such period on a consolidated basis and in accordance with
GAAP. Fixed Charges shall not include any interest expense for such period
paid or accrued with respect to any loan to the extent it is expressly
subordinated to in right of payment amounts due and payable to the Class A-1
Notes.
"Fixed Charge Coverage Ratio" means, with respect to any period, the
ratio of the Cash Flow of the Company for such period to the Fixed Charges
of the Company for such period. In the event the Company incurs, assumes,
guarantees, repays, redeems or otherwise retires any Indebtedness (other
than the Company's credit line with ECCU) subsequent to the commencement of
the period for which the Fixed Charge Coverage Ratio is being calculated
but prior to the event for which the calculation of the Fixed Charge
Coverage Ratio is made, then the Fixed Charge Coverage Ratio shall be
calculated giving pro forma effect to such incurrence, assumption,
guarantee, repayment, redemption or retirement of Indebtedness, including,
if applicable, the application of the proceeds therefrom, as if the same
had occurred at the beginning of the applicable period. In making such
calculations on a pro forma basis, interest attributable to Indebtedness
bearing a floating interest rate shall be computed as if the rate in effect
on the date of computation had been the applicable rate for the entire
period.
"GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession, which are in effect from time to time.
"Holder" means the Person or Persons in whose name a Class A-1 Note
is registered on the books and records of the Company as a holder of Class
A-1 Notes.
"Indebtedness" means any indebtedness, whether or not contingent, (i)
in respect of borrowed money or evidenced by bonds, notes, debentures or
similar instruments or credit (or reimbursement agreements in respect
thereof), (ii) representing the balance deferred and unpaid of the purchase
price of any property, (iii) representing capital lease obligations; and
(iv) representing any hedging obligations, except, in each case, any such
balance that constitutes an accrued expense or trade payable, if and to the
extent any of the foregoing Indebtedness (other than hedging obligations)
would appear as a liability upon a balance sheet prepared in accordance
with GAAP, and also includes, to the extent not otherwise included, the
guarantee of obligations of other persons that would be included within
this definition.
"Majority in Interest" or "Majority of Principal Amount" shall mean a
majority of the outstanding unpaid principal amount of all Outstanding
Class A-1 Notes plus all unpaid interest due thereon (as reflected on the
books and records of the Company as voted by the Holders thereof).
"Maturity Date" means the date on which the unpaid balance of
principal and accrued interest is due and payable on the respective Class
A-1 Note. The Maturity Date of a Class A-1 Note may be six (6), twelve
(12), twenty-four (24), thirty (30) or sixty (60) months, other than the
Series C Notes shall have a Maturity Date of seventy-two (72) months from
the date of issuance.
"Net Income" means, with respect to the Company for any period, the
aggregate of the net income of the Company for such period, on a
consolidated basis, determined in accordance with GAAP; provided that the
Net Income of any entity that is not a subsidiary of the Company or that is
accounted for by the equity method of accounting shall be included only to
the extent of the amount of dividends or distributions paid to the referent
entity or a wholly-owned subsidiary of the Company.
"Net Tangible Assets" means, with respect to the Company, the total
amount of assets of the Company and any subsidiary (less applicable
reserves) on a consolidated basis, as determined in accordance with GAAP,
less intangible assets. For purposes of computing Net Tangible Assets, all
transactions between the Company and any Affiliates, including ECCU, shall
be treated as if the transactions had been entered into with an
unaffiliated third-party to the extent GAAP would require any different
treatment.
"Other Indebtedness" means any Indebtedness of the Company
outstanding other than any amounts owing with respect to the Class A-1
Notes and any extension, refinancing, refunding, renewal, substitution or
replacement of any such Indebtedness, but only to the extent that any such
extension, refinancing, refunding, renewal, substitution or replacement
does not exceed the principal amount of the Indebtedness being extended,
refinanced, refunded, renewed, substituted or replaced (plus the amount of
the reasonable fees and expenses in connection therewith) and that no
additional security is granted in connection with any such extension,
refinancing, refunding, renewal, substitution or replacement.
"Outstanding Class A-1 Notes" when used with respect to Class A-1
Notes means, as of the date of determination, all Class A-1 Notes
theretofore issued and delivered by the Company and not paid, prepaid or
redeemed in full pursuant to their terms.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock partnership, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Rate Schedule" means the schedule of interest rates payable on the
Class A-1 Notes as issued from time to time by the Company as a supplement
to the Prospectus.
"Series 1 Note" means one of the series of up to $25,000,000 of
principal amount (less the aggregate principal amount of all other series
of Class A-1 Notes issued) of Class A-1 Notes which must be issued within
the initial principal amount of at least $1,000, bearing interest at the
rate designated for Series 1 Notes by the Company on the Rate Schedule
effective on the issuance date of said Note and having the Maturity Date
elected by the Holder.
"Series 5 Note" means one of the series of up to $25,000,000 of
principal amount (less the aggregate principal amount of all other series
of Class A-1 Notes issued) of Class A-1 Notes which must be issued within
the initial principal amount of at least $5,000, bearing interest at the
rate designated for Series 5 Notes by the Company on the Rate Schedule
effective on the issuance date of said Note and having the Maturity Date
elected by the Holder.
"Series 10 Note" means one of the series of up to $25,000,000 of
principal amount (less the aggregate principal amount of all other series
of Class A-1 Notes issued) of Class A-1 Notes which must be issued within
the initial principal amount of at least $10,000, bearing interest at the
rate designated for Series 10 Notes by the Company on the Rate Schedule
effective on the issuance date of said Note and having the Maturity Date
elected by the Holder.
"Series 25 Note" means one of the series of up to $25,000,000 of
principal amount (less the aggregate principal amount of all other series
of Class A-1 Notes issued) of Class A-1 Notes which must be issued within
the initial principal amount of at least $25,000, bearing interest at the
rate designated for Series 25 Notes by the Company on the Rate Schedule
effective on the issuance date of said Note and having the Maturity Date
elected by the Holder.
"Series 50 Note" means one of the series of up to $25,000,000 of
principal amount (less the aggregate principal amount of all other series
of Class A-1 Notes issued) of Class A-1 Notes which must be issued within
the initial principal amount of at least $50,000, bearing interest at the
rate designated for Series 50 Notes by the Company on the Rate Schedule
effective on the issuance date of said Note and having the Maturity Date
elected by the Holder.
"Series 100 Note" means one of the series of up to $25,000,000 of
principal amount (less the aggregate principal amount of all other series
of Class A-1 Notes issued) of Class A-1 Notes which must be issued within
the initial principal amount of at least $100,000, bearing interest at the
rate designated for Series 100 Notes by the Company on the Rate Schedule
effective on the issuance date of said Note and having the Maturity Date
elected by the Holder.
"Series C Note" means one of the series of up to $25,000,000 of
principal amount (less the aggregate principal amount of all other series
of Class A-1 Notes issued) of Class A-1 Notes issued in the initial
principal amount of $10,000 or $25,000 bearing interest at the variable
rate designated by the Company for the Series C Notes on the Rate Schedule
effective on the date of issuance of the Note and having a Maturity Date of
seventy-two (72) months from the date of issuance.
"Tangible Adjusted Net Worth" means the Adjusted Net Worth of the
Company less the Company's intangible assets, if any.
"Trustee" means the Person or Persons elected as the "Trustee"
pursuant to the terms of this Agreement or a successor thereto once the
latter shall have become such pursuant to the applicable provisions of this
Agreement.
Section B. Acts of Holders
1. Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Agreement to be given or taken by
Holders may be embodied in and evidenced by one or more substantially
concurrent instruments of substantially similar tenor signed by such
Holders in person or by an agent or attorney duly appointed in writing;
and, except as herein otherwise expressly provided, such action shall
become effective when such instrument or instruments are delivered to the
Trustee, and, where it is herein expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders
signing such instrument or instruments.
2. The ownership of the Class A-1 Notes shall be conclusively
proven by the books and records of the Company.
3. Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Class A-1 Note shall bind every
future Holder of the same Class A-1 Note and the Holder of every Class A-1
Note issued upon the transfer thereof or in exchange therefor or in lieu
thereof, in respect of anything done or suffered to be done by the Trustee
or the Company in reliance thereon, whether or not notation of such action
is made upon such Class A-1 Note.
Section C. Notices to Trustee and the Company
Any request, demand, authorization, direction, notice, consent,
waiver or Act of Holders or other document provided or permitted by this
Agreement to be made upon, given or furnished to, or filed with:
1. The Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if given in writing by personal
service or mailed by certified mail, return receipt requested, addressed to
the Trustee at the address provided to the Holder by the Trustee in
writing, or
2. The Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder if given in writing by personal
service or mailed by certified mail, return receipt requested, addressed to
the Company at 1150 N. Magnolia Avenue, Anaheim, California 92801,
Attention: John C. Garmo, President, or at any other address previously
furnished in writing to the Trustee by the Company.
Section D. Notices to Holders
Where this Agreement provides for publication of notice to Holders of
any event, such notice shall be sufficiently given (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage prepaid,
to each Holder of such Class A-1 Notes, at the address of such Holder as it
appears in the books and records of the Company, not later than the latest
date, and not earlier than the earliest date, prescribed for the first
publication of such notice.
Section E. Effect of Headings and Table of Contents
The Article and Section headings herein are for convenience only and
shall not affect the construction hereof.
Section F. Successors and Assigns
All covenants and agreements in this Agreement by the Company shall
bind its successors and assigns, whether so expressed or not.
Section G. Severability
In case any provision in this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
Section H. Benefits of Agreement
Nothing in this Agreement or in the Class A-1 Notes, expressed or
implied, shall give to any Person, other than the parties hereto and their
successors hereunder, any benefit or any legal or equitable right, remedy
or claim under this Agreement.
Section I. Governing Law
This Agreement and all rights and obligations of the undersigned
hereof shall be governed, construed and interpreted in accordance with the
laws of the State of California without regard to conflict of law
principles.
Section J. Persons Deemed Owners
The Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name any Note is registered as the owner of
such Class A-1 Note for the purpose of receiving payment of principal of or
interest on said Class A-1 Note and for all other purposes whatsoever,
whether or not such Class A-1 Note is overdue.
ARTICLE II
CONTINUING COVENANTS OF THE COMPANY
Section A. Continuing Covenants of the Company
1. Limitation on Restricted Payment. While any Class A-1 Note is
outstanding, the Company shall not, and will not permit any subsidiary to,
directly or indirectly: (i) declare or pay any dividend or make any
distribution on account of the stock of the Company or any subsidiary
(other than dividends or distributions payable (x) in capital stock of the
Company or such subsidiary or (y) to the Company or any wholly-owned
subsidiary); (ii) purchase, redeem or otherwise acquire or retire for value
any capital stock of the Company or any wholly-owned subsidiary; (iii)
voluntarily purchase, redeem or otherwise acquire or retire for value,
prior to the scheduled maturity of any mandatory sinking fund payments
thereon or the stated maturity thereof, any Indebtedness of the Company
that is subordinated in right of payment to the Class A-1 Notes (all such
payments and other actions set forth in clauses (i) through (iii) above
being collectively referred to as "Restricted Payments") unless, at the
time of such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) such Restricted Payment, together with the aggregate of
all other Restricted Payments made by the Company or any subsidiary, does
not exceed the sum of:
(i) 50% of the Net Income of the Company for the period
(taken as one accounting period) from fiscal year ended December 31, 1996
to the end of the Company's most recently ended full fiscal quarter for
which financial statements are available at the time of such Restricted
Payment (or, if such Net Income for such period is a deficit, 100% of such
deficit), plus
(ii) 100% of the aggregate net cash proceeds received by
the Company from the issue or sale of capital stock of the Company (other
than capital stock sold to a subsidiary of the Company), debt securities or
capital stock convertible into capital stock of the Company upon such
conversion, or any funds advanced or loaned to the Company by ECCU under
its subordinated line of credit, plus
(iii) 100% of the cash, if any, contributed to the capital
of the Company, as additional paid in capital by any stockholder of the
Company.
(c) The foregoing notwithstanding, the provisions of
subsection (b)(i), (ii) and (iii) above shall not prohibit the following
Restricted Payments:
(i) the payment of any dividend within sixty (60) days
after the date of declaration thereof, if at said date of declaration such
payment would have complied with the foregoing provisions; or
(ii) (x) the redemption, repurchase, retirement or other
acquisition of any capital stock of the Company, (y) the purchase,
redemption or other acquisition or retirement for value prior to the
scheduled maturity of any mandatory sinking fund payments or stated
maturity of Indebtedness of the Company subordinated in right of payment to
the Holders of the Class A-1 Notes, or (z) the making of any investment in
the Company or any subsidiary of the Company in each case of (x), (y) and
(z) in exchange for, or out of the proceeds of the substantially concurrent
sale (other than to the Company) of, capital stock of the Company.
2. Limitation or Outstanding Class A-1 Notes. The Company shall
not issue any Class A-1 Note if, after giving effect to such issuance, the
Class A-1 Notes then outstanding would have an aggregate unpaid balance
exceeding $10,000,000.
3. Limitation on Incurrence of Indebtedness. While any Class A-1
Note is outstanding, the Company shall not, and will not permit any
subsidiary to, directly or indirectly, create, incur, issue, assume,
guaranty or otherwise become, directly or indirectly, liable with respect
to (collectively, "incur") any Indebtedness; unless the Fixed Charge
Coverage Ratio of the Company, determined on a consolidated basis, for the
Company's most recently ended four full fiscal quarters for which financial
statements are available immediately preceding the date on which such
additional Indebtedness is incurred, would have been at least 1.20 to 1.0,
determined on a pro forma basis (including a pro forma application of the
net proceeds therefrom to a repayment of any Indebtedness), as if the
additional Indebtedness had been incurred at the beginning of such
four-quarter period. Provided, however, that notwithstanding the foregoing,
the Company may incur Indebtedness that: (i) is evidenced by the Class A-1
Notes; (ii) was existing at December 31, 1996 as it may be extended or
modified; (iii) is incurred in the ordinary course of business for the
funding of mortgage loans which includes warehouse lines of credit and
gestation or repurchase facilities; (iv) is in respect of performance,
completion, guarantee, surety and similar bonds, banker's acceptances or
letters of credit provided by the Company in the ordinary course of
business; and/or (v) when incurred, does not result in other Indebtedness
in excess of $750,000 outstanding at any time.
4. Merger, Consolidation or Sale of Assets. While any Class A-1
Note is outstanding, the Company shall not consolidate or merge with or
into any other person or entity (whether or not the Company is the
surviving corporation) or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its properties or assets
(excepting loans held for sale in the normal course of the Company's
mortgage banking operations) in one or more related transactions to,
another corporation, person or entity, unless (i) the Company is the
surviving corporation of such consolidation or merger; and (ii) immediately
after such transaction no Default or Event of Default exists.
5. Maintenance of Tangible Adjusted Net Worth. In the event that,
while any Class A-1 Note is outstanding, within 55 days after the end of
any fiscal quarter (100 days after the end of any fiscal year) as of the
end of which the Company's Tangible Adjusted Net Worth is less than
$2,000,000 (the "Minimum Tangible Adjusted Net Worth"), the Company shall
notify the Holders of such event and shall within sixty (60) days
thereafter restore its Tangible Adjusted Net Worth to an amount greater
than the Minimum Tangible Adjusted Net Worth.
6. Books and Records. The Company shall keep proper books of
record and account, in which full and correct entries shall be made of all
dealings or transactions of or in relation to the Class A-1 Notes and the
business and affairs of the Company in accordance with generally accepted
accounting principles. The Company shall furnish to the Trustee any and
all information related to the Class A-1 Notes as the Trustee may
reasonably request and which is in the Company's possession.
ARTICLE III
REMEDIES
Section A. Events of Default
Each of the following constitutes an Event of Default under the Class
A-1 Notes: (i) default for thirty (30) days in the payment when due of
interest or penalty on any Class A-1 Note; (ii) default for thirty (30)
days in the payment when due of principal of any Class A-1 Note; (iii) if
not cured in a timely manner, failure by the Company to observe or perform
any of the covenants or agreements in the Class A-1 Notes or set forth
under Article II hereof required to be performed by it; or (iv) if not
cured in a timely manner, default under the instruments governing any Other
Indebtedness or any mortgage, indenture or instrument under which there may
be issued or by which there may be secured or evidenced any Other
Indebtedness for money borrowed by the Company, whether such Other
Indebtedness or guarantee now exists or is hereafter created, which default
(a) is caused by a failure to pay when due principal or interest on such
Other Indebtedness within the grace period provided in such Other
Indebtedness and which continues beyond any applicable grace period (a
"Payment default") or (b) results in the acceleration of such Other
Indebtedness prior to its express maturity, provided in each case the
principal amount of any such Other Indebtedness, together with the
principal amount of any other such Other Indebtedness under which there has
been a Payment default or the maturity of which has been so accelerated,
aggregates $250,000 or more.
In order to cure payment Default, the Company must mail to the
Holder, direct deposit or credit if that option is selected, the amount of
the nonpayment plus a late payment penalty equal to simple interest on the
amount unpaid at the rate of 10% per annum, measured from the date the
payment should have been mailed, deposited or credited pursuant to the
terms of the Class A-1 Notes until the date it actually is mailed,
deposited or credited.
Section B. Appointment of Trustee and Commencement of Operation of the
Trust
If an Event of Default occurs and is continuing, then and in every
such case the Holders of not less than a Majority in Principal Amount of
the Outstanding Class A-1 Notes by written and signed ballot or other
written and signed consent may, within thirty (30) days of such Event of
Default, appoint a Trustee. Upon delivery of the properly executed written
instrument evidencing the appointment of the Trustee and the latter's
acceptance of such appointment by due execution of this specific and exact
form of Agreement, the operation of this Trust shall commence and the power
and rights of the Trustee hereunder shall begin.
Section C. Covenant to Pay Trustee Amounts Due on Class A-1 Notes and
Right of Trustee and Holders of Judgment
The Company covenants that, if an Event of Default has occurred and
is continuing, the Company will, upon written request of the Trustee, cure
such default and pay forthwith for the benefit of the Holders the whole
amount then due, any penalties which may be due and, in addition thereto,
such further amount as shall be sufficient to cover the costs and expenses
of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel and all
other amounts due to the Trustee hereunder. If the Company fails to cure
such defaults and pay such amounts forthwith upon such demand, the Trustee,
in its own name and as Trustee of an express trust, shall be entitled to
sue for and recover judgment against the Company and any other obligor on
the Class A-1 Notes for the amount so due and unpaid pursuant to the terms
of the Class A-1 Notes.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of not less than a Majority in Principal Amount of the then
Outstanding Class A-1 Notes may declare all the Class A-1 Notes to be due
and payable immediately and take any action allowed by law to collect such
amounts. Notwithstanding the foregoing, in the case of an Event of Default
arising from certain events of bankruptcy or insolvency with respect to the
Company, all Outstanding Class A-1 Notes will become due and payable
without further action or notice.
The Trustee may withhold from the Holders notice of any Default or
Event of Default if it believes that withholding notice is in their
interest, except a Default or Event of Default relating to the payment of
principal, interest or penalties.
Section D. Application of Money Collected
Any money collected by the Trustee pursuant to this Article, together
with any other sums then held by the Trustee hereunder, shall be applied in
the following order, at the date or dates fixed by the Trustee and, in case
of the distribution of such money on account of principal or interest upon
presentation of the Class A-1 Notes, and the notation thereof of the
payment if only partially paid and upon surrender thereof if fully paid:
(i) First: To the payment of all unpaid amounts due to the
Trustee hereunder;
(ii) Second: To the payment of the whole amount then due and
unpaid on the Outstanding Class A-1 Notes, for principal and interest
and any penalties which may be due under the terms of the Class A-1
Notes, in respect of which or for the benefit of which such money has
been collected; and in case such proceeds shall be insufficient to
pay in full the whole amount so due and unpaid on such Class A-1
Notes, then to the payment of such principal and interest and without
any preference or priority, ratably according to the aggregate amount
so due; and
(iii) Third: To the payment of the remainder, if any, to the
Company or to whosoever may be lawfully entitled to receive the same
or as a court of competent jurisdiction may direct.
Section E. Trustee May File Proofs of Claim
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Class A-1 Notes or the property of the Company or of such other obligor or
their creditors, the Trustee (irrespective of whether the principal of the
Class A-1 Notes shall then be due and payable, as therein expressed or by
declaration or otherwise, and irrespective of whether the Trustee shall
have made any demand on the Company for the payment of overdue principal or
interest) shall be entitled and empowered, by intervention in such
proceeding or otherwise,
(i) To file and prove a claim for the whole amount of
principal, interest and penalty owing and unpaid in respect of the
Outstanding Class A-1 Notes and to file such other papers or
documents as may be necessary or advisable in order to have the
claims of the Trustee (including to the extent permitted by law any
claim for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel) and of the Holders
allowed in such judicial proceeding, and
(ii) To collect and receive any monies or other property
payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, Trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized
by each Holder to make such payments to the Trustee, and in the event that
the Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel, and any other amounts due the Trustee under this
Agreement.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan
or reorganization, arrangement, adjustment or composition affecting the
Class A-1 Notes or the rights of any Holder thereof, or to authorize the
Trustee to vote in respect of the claim of any Holder.
Section F. Trustee May Enforce Claims Without Possession of Class A-1
Notes
All rights of action and claims under this Agreement, or documents
related thereto, may be prosecuted and enforced by the Trustee without the
possession of any of the Class A-1 Notes or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by the
Trustee shall be brought in its own name as Trustee of an express trust.
Any recovery of judgment shall, after provision for the payment of the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel and all other amounts due to the Trustee
hereunder, be for the ratable benefit of the Holders of the Class A-1 Notes
(based on the aggregate amount of unpaid principal and interest due each
such Holder on such date) in respect of which such judgment has been
recovered.
Section G. Limitation on Suits
DURING THE PERIOD OF THE OPERATION OF THIS AGREEMENT, NO HOLDER SHALL
HAVE ANY RIGHT TO INSTITUTE OR CONTINUE ANY PROCEEDING or judicial action
pursuant to Articles II and III above or otherwise, under or with respect
to this Agreement or the Class A-1 Notes, or for the appointment of a
receiver or trustee or for any other remedy hereunder, unless all of the
following have occurred:
(i) Such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(ii) The Holders of not less than a Majority in Principal
Amount of the Outstanding Class A-1 Notes shall have made written
request to the Trustee to institute proceedings in respect of such
Event of Default in its own name as Trustee hereunder;
(iii) Such Holder has offered to the Trustee indemnity
reasonably acceptable to the Trustee against the costs, expenses and
liabilities to be incurred in compliance with such request and
provided security therefor reasonably acceptable to the Trustee;
(iv) The Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(v) No written direction inconsistent with such written
request has been given to the Trustee during such 60-day period by
the Holders of a Majority in Principal Amount of the Outstanding
Class A-1 Notes;
it being understood and intended that no one or more Holders of Class A-1
Notes shall have any right in any manner whatever by virtue of, or pursuant
to any provision of this Agreement to affect, disturb or prejudice the
rights created under this Agreement or the rights of any other Holders of
Class A-1 Notes, or to obtain or to seek to obtain priority or preference
over any other Holders or to enforce any right under this Agreement, except
in the manner herein provided and for the equal and ratable benefit of all
Outstanding Class A-1 Note Holders. No Holder shall have the right and
each Holder hereby waives the right to sue individually except in
accordance with the provisions of this Agreement.
Section H. Rights to Settle or Compromise
A Trustee may not make any settlement or compromise concerning the
rights of Holders, including in regard to payments of principal or
interest, unless it is approved in a separate vote by a Majority in
Interest of the Holders. Any settlement or compromise so approved would
be binding upon all the Holders.
Section I. Rights and Remedies Cumulative
Except insofar as same shall contradict the express terms of this
Agreement, no right or remedy herein conferred upon or reserved to the
Trustee or to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law
and the terms of this Agreement, be cumulative and in addition to every
other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise.
Section J. Delay or Omission not Waiver
No delay or omission of the Trustee or of any Holder of any Class A-1
Note to exercise any right or remedy accruing upon an Event of Default
shall impair any such right or remedy or constitute a waiver of any such
Event of Default or an acquiescence therein. Every right and remedy given
by this Agreement or by law to the Trustee or to the Holders may be
exercised from time to time, and as often as may be deemed expedient, by
the Trustee or by the Holders, as the case may be.
Section K. Waiver of Past Defaults
Before any judgment or decree for payment of money due has been
obtained by the Trustee as provided in this Article, the Holders of not
less than a Majority in Principal Amount of the Outstanding Class A-1 Notes
may, by Act of such Holders delivered to the Trustee and the Company, on
behalf of the Holders of all the Notes waive any past default hereunder and
its consequences and settle or compromise any claim related to the payment
of principal and interest on the Outstanding Class A-1 Notes, provided the
terms of such settlement or compromise have been made known to all Holders
of Outstanding Class A-1 Notes and the approval of the Majority in Interest
has been made in a signed written document. If and only if required by
law, the Trustee may provide a procedure for any Holder so desiring to
remove itself from the group settlement and to allow the Holder opting out
of the group settlement to proceed to enforce its rights individually and
as it sees fit.
Upon any such waiver, such default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Agreement; but no such waiver shall extend to any
subsequent or other Default or impair any right consequent thereon.
Section L. Notice of Defaults
As soon as practicable after the occurrence of any Event of Default
hereunder, the Company shall transmit notice thereof by mail to all Holders
of Class A-1 Notes, as their names and addresses appear on the books and
records of the Company.
ARTICLE IV
THE TRUSTEE
Section A. Certain Duties and Responsibilities
1. The Trustee shall, in the exercise of the rights and powers
vested in it by this Agreement, use the same degree of care and skill in
its exercise as a reasonable person would exercise or use.
2. No provision of this Agreement shall be construed to relieve
the Trustee from liability for its own grossly negligent action, its own
grossly negligent failure to act, or its own willful misconduct, except
that:
a. The Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with
the direction of the Holders of a Majority in Principal Amount of the
Outstanding Class A-1 Notes relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee, under this
Agreement;
b. No provision of this Agreement shall require the Trustee
to advance, expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers;
c. The Trustee shall be presumed to have acted without
negligence if it acted, or omitted to act, in good faith and in reliance
upon an opinion of counsel obtained by it.
Section B. Certain Rights of Trustee
Except as otherwise provided below:
1. The Trustee may consult with counsel, accountants and other
experts and the advice or opinion of such counsel, accountants and other
experts shall be full and complete authorization and protection in respect
of any action taken, suffered or omitted by the Trustee hereunder in good
faith and in reliance thereon and the Trustee shall have the right at any
time to seek instructions from a court of competent jurisdiction;
2. The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Agreement at the request or direction
of any of the Holders pursuant to this Agreement, unless such Holders shall
have offered to the Trustee security or indemnity reasonably acceptable to
the Trustee against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
3. The Trustee may execute any of the powers hereunder or perform
any duties hereunder either directly or by or through agents or attorneys
and the Trustee shall not be responsible for any misconduct or negligence
on the part of any agent or attorney appointed by it hereunder with the
care required below; and
4. Anything to the contrary contained herein notwithstanding, the
Trustee shall have no duty to take any action whatsoever if it believes in
good faith that the taking of such action may expose the Trustee to
personal liability.
Section C. May Hold Class A-1 Notes
The Trustee in its individual or any other capacity may become the
owner or pledgee of Class A-1 Notes and may otherwise deal with the Company
with the same rights it would have if it were not Trustee.
Section D. Compensation, Reimbursement and Security Therefor
The Company agrees:
1. To pay to the Trustee from time to time reasonable compensation
for all services rendered by it hereunder;
2. To reimburse the Trustee upon its request for all reasonable
expenses, disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Agreement, including reasonable fees
and expenses of counsel for the Trustee, except as such expense,
disbursement or advance may be attributable to the Trustee's gross
negligence or bad faith;
3. To indemnify the Trustee for, and to hold it harmless against
any loss, liability or expense incurred without gross negligence or bad
faith on its part, arising out of or in connection with the acceptance or
administration of this trust, including the costs and expenses of defending
itself against any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder.
Section E. Trustee Eligibility
The Trustee may not be an Affiliate of the Company.
Section F. Termination of Trust and Removal of Trustee, Appointment of
Successor
1. Upon the moment all Defaults or Events of Defaults are cured or
deemed cured pursuant to this Agreement, the appointment of the Trustee and
the operation of the Trust will terminate and the powers and the rights of
the Trustee hereunder shall cease forthwith.
2. No resignation or removal of the Trustee and no appointment of
a successor Trustee pursuant to this Article shall become effective until
the acceptance of appointment by the successor Trustee as provided herein.
3. The Trustee may resign as Trustee hereunder at any time by
giving written notice thereof to the Company and the Holders. Upon
delivery of an instrument of acceptance by a successor Trustee duly
appointed by a Majority in Interest of the Holders the resignation will
become effective.
4. The Trustee may be removed as Trustee hereunder at any time by
Act of the Holders of a Majority in Principal Amount of the Class A-1
Notes, delivered to the Trustee and to the Company.
5. If at any time:
a. The Trustee shall cease to be eligible as Trustee and
shall fail to resign after written request therefor by the Company or by
any Holder, or
b. The Trustee shall be adjudged incompetent, bankrupt or
insolvent or a receiver of the Trustee or of its property shall be
appointed or any public officer shall take charge or control of the Trustee
or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation;
then in any such case, any Holder may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
Section G. Acceptance of Appointment by Successor
Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an
instrument accepting such appointment, and thereupon the resignation or
removal of the retiring Trustee shall become effective and such successor
Trustee, without any further act, deed or conveyance, shall become vested
with all the rights, powers and duties of the retiring Trustee under this
Agreement.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible
under this Article.
ARTICLE V
HOLDER'S LISTS AND REPORTS BY TRUSTEE AND THE COMPANY
Section A. The Company to Furnish Trustee Lists of Holders
The Company will furnish or cause to be furnished to the Trustee not
more than five (5) days after its appointment and acceptance as Trustee,
and at such other times as the Trustee may reasonably request in writing,
within ten (10) business days after receipt by the Company of any such
request, a list in such form as the Trustee may reasonably request
containing all the information in the possession or control of the Company,
or any of its paying agents, as to the names and addresses of the Holders
of Class A-1 Notes, obtained since the date as of which the next previous
list, if any, was furnished, and the status of the amount of principal and
interest paid or outstanding in respect of each Class A-1 Notes.
ARTICLE VI
SUPPLEMENTAL AGREEMENTS
Section A. Supplement Agreement Without Consent of Holders
Without the consent of the Holder of any Class A-1 Note, the Company,
when authorized by a board resolution, and the Trustee may from time to
time enter into one or more agreements supplemental hereto, in form
satisfactory to the Trustee, for any of the following purposes:
1. To add to the conditions, limitations and restrictions on the
authorized amount or purposes of issue, authentication and delivery of
Class A-1 Notes, as herein set forth, additional conditions, limitations
and restrictions thereafter to be observed; provided that any such
modification does not adversely affect the rights and interests of the
Holders.
2. To evidence the succession of another corporation or entity to
the Company and the assumption by any such successor of the covenants of
the Company contained herein; or
3. To add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the
Company; or
4. To cure any ambiguity, to amend any provision herein which may
be inconsistent with any other provision herein or to make any other
provisions, with respect to matters or questions arising under this
Agreement, which shall not be inconsistent with the provisions of this
Agreement, provided such action shall not adversely affect the rights and
interests of the Holders.
Section B. Supplemental Agreements with Consent of Holders
With the consent of the Holders of not less than a Majority in
Principal Amount affected by such agreement or supplemental agreement, by
Act of such Holders delivered to the Company and the Trustee, the Company
and the Trustee may enter into an agreement or agreements supplemental
hereto for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of this Agreement or of
modifying in any manner the rights of the Holders of the Class A-1 Notes
under this Agreement. Such agreement or supplemental agreement may, with
the consent of a Majority in Interest of the Holders of each Outstanding
Class A-1 Notes affected thereby, effect a compromise or settlement
affecting the term, interest rate and other terms of all the Class A-1
Notes; provided that any such compromise or settlement must be ratable and
proportionate in effect on all Outstanding Class A-1 Note Holders based on
the aggregate amount of principal and interest and penalty payments due
them under the terms of their respective Class A-1 Notes as of the date of
settlement.
The Trustee may in its discretion determine whether or not any Class
A-1 Notes would be affected by any supplemental agreement and any such
determination shall be conclusive upon the Holders of all Class A-1 Notes,
whether theretofore or thereafter authenticated and delivered hereunder.
The Trustee shall not be liable for any such determination made in good
faith.
It shall not be necessary for any Act of Holders under this section
to approve the particular form of any proposed supplemental agreement, but
it shall be sufficient if such Act shall approve the substance thereof.
Section C. Effect of Supplemental Agreements
Upon the execution of any supplemental agreements under this Article,
this Agreement shall be modified in accordance therewith and such
supplemental agreement shall form a part of this Agreement for all
purposes; and every Holder of Class A-1 Notes theretofore or thereafter
authenticated and delivered hereunder shall be bound thereby.
ARTICLE VII
DEFEASANCE
Section A. Payment of Indebtedness, Satisfaction and Discharge of
Agreement.
Whenever the Company has paid or caused to be paid all amounts then
currently due and payable pursuant to the terms of the Class A-1 Notes then
this Agreement and the rights and interests created hereby shall cease and
become null and void (except as to any surviving rights of transfer or
exchange of Class A-1 Notes herein or therein provided for and except as
otherwise stated in the next paragraph) and the Trustee then acting as such
hereunder shall, at the expense of the Company, execute and deliver such
instruments of satisfaction and discharge as may be necessary.
Notwithstanding anything to the contrary herein contained, the
obligations of the Company to pay or reimburse the Trustee as provided
herein shall survive the termination, satisfaction and discharge of this
Agreement.
ARTICLE VIII
MISCELLANEOUS
Section A. Counterparts
This Agreement may be executed in several counterparts, all of which
together shall constitute one agreement binding on all parties hereto,
notwithstanding that all the parties have not signed the same counterpart.
The Holders have consented hereto and are bound hereto by executing an
agreement to be bound hereby contained in the subscription document related
to the offering of the Class A-1 Notes.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
MINISTRY PARTNERS INVESTMENT
CORPORATION, a California corporation
By: __________________________
TRUSTEE
By: ___________________________
___________________________
Print Name
Date: _________________________
CLASS A-1 NOTE
SUBORDINATION AGREEMENT
THIS AGREEMENT is dated on and as of the date last shown below
between EVANGELICAL CHRISTIAN CREDIT UNION (the "Lender") and MINISTRY
PARTNERS INVESTMENT CORPORATION (the "Company").
Section I. SUBORDINATION OF CREDIT LINE
The Lender hereby agrees to subordinate to the payment of the
Company's Class A Notes and Class A-1 Notes, as set forth herein, the
repayment of loans by Lender under that certain Business Loan Agreement
dated, June 1, 1994, as it has or may be extended, renewed or modified and
any other loans as the Lender may from the date hereof, continue, or in the
future make, to the Company (together herein referred to as the "Credit
Line"). Pursuant to the Credit Line, and subject to the terms and
conditions set forth therein, the Company shall repay to the Lender any
amounts loaned under the Credit Line, including interest and such other
charges provided for therein (the "Advances") on such dates as therein set
forth or on such other times as the Company may choose and the Lender may
accept (any of which dates shall be referred to as a "Payment Date"). The
Lender and the Company hereby irrevocably agree that up to an aggregate of
$2,100,000 of any Advances by the Lender to the Company under the Credit
Line shall be subject to this Agreement.
Any Advance by the Lender to the Company under the Credit Line shall
be used and dealt with by the Company as part of its capital and shall be
subject to the risks of its business. The Company shall have the right to
deposit any cash proceeds of any Advance in an account or accounts in its
own name in any financial institution, including the Lender.
The obligations of the Company under the Credit Line with respect to
the repayment to the Lender of, and with respect to, any payment in
connection therewith (a "Payment") shall, as provided herein, be and is
subordinate in right of payment and subject to the prior payment or
provision for payment in full of all claims of all other present and future
holders of the Company's Class A-1 Notes , as such class may be authorized
from time to time by the Board of Directors of the Company, arising out of
any occurrence prior to the date on which a Payment is, or is to be, made.
For the purposes of this Agreement, however, Class A-1 Notes shall not
include any such notes then held by the Lender, or the officers or
directors of the Lender or of the Company.
Section II. PERMISSIVE PREPAYMENTS
The Company may make a Payment of its obligation under the Credit
Line only after the first (1st) day and before the sixteenth (16th) day of
a calendar month and only if after giving effect thereto (and to all
payments under any other subordination agreements then outstanding, the
maturity or accelerated maturity of which are scheduled to fall due within
30 days after the date such Payment is to occur), without reference to any
projected profit or loss of the Company, the Tangible Net Worth of the
Company would not be less than two million, one hundred thousand dollars
($2,100,000) or sixteen and sixty-seven one-hundredths percent (16.67%) of
the Company's Tangible Net Worth, whichever is less, as shown on the
balance sheet of the Company prepared by the Company in its customary
manner on a consistent basis according to the generally accepted accounting
principles applied by the Company's independent auditors in connection with
the preparation of the Company's year-end audited financial statements,
dated as of the last day of the month immediately preceding the month in
which the Payment is sought to be made. For the purposes of this
Agreement, "Tangible Net Worth" shall mean the greater amount thereof
within the meaning set forth in the Loan and Standby Trust Agreement
relating to the Class A Notes or the Class A-1 Notes (the "Loan
Agreement").
Section III. SUSPENDED PAYMENTS
In the event the foregoing conditions in Section II cannot be
satisfied, the Payment shall be suspended. The Company agrees that if its
obligation to make a Payment is Suspended in whole or in part for a period
of two years, the Company will, unless otherwise directed in writing by the
Lender, thereupon commence a rapid and orderly complete liquidation of its
business. The date on which the liquidation commences shall be the
maturity date for the balance owed on the Credit Line.
Section IV. LENDER'S RIGHT TO ACCELERATE THE MATURITY OF THE PAYMENT
OBLIGATION (OPTIONAL)
By written notice to the Company at its principal office, the Lender
may accelerate maturity of the balance owed under the Credit Line in
accordance with the terms thereof. However, the right of the Lender to
receive payment together with accrued interest or compensation shall remain
subordinate as required by the provisions hereof.
In the event of the appointment of a receiver or trustee of the
Company or in the event of its insolvency, liquidation pursuant to
bankruptcy, assignment for the benefit of creditors, reorganization whether
or not pursuant to bankruptcy laws, or any other marshaling of the assets
and liabilities of the Company, all amounts owed under the Credit Line
shall mature, and the holder thereof shall not be entitled to participate
or share, ratably or otherwise, in the distribution of the assets of the
Company until all claims of all holders of the Class A Notes and the Class
A-1 Notes, whose claims are senior hereto, have been fully satisfied.
Section V. ACCELERATED MATURITY UPON THE OCCURRENCE OF AN EVENT OF DEFAULT
If the liquidation of the business of the Company has not already
commenced, the amounts owed under the Credit Line shall mature, together
with accrued interest or compensation upon the occurrence of an Event of
Default, as hereinafter defined. Further, if liquidation of the business
of the Company has not already commenced, the rapid and orderly liquidation
of the business of the Company shall then commence upon the happening of an
Event of Default, and the date of said Event of Default shall be the date
on which such obligations of the Company with respect to all other
subordination agreements then outstanding shall mature. Events of Default
which may be included shall be limited to:
(a) Default on more than 35% of the outstanding principal balance
of the Class A Notes or the Class A-1 Notes for a continuous period of
fifteen (15) days or more; or
(b) Receivership, insolvency, liquidation pursuant to bankruptcy,
assignment for the benefit of creditors reorganization whether or not
pursuant to bankruptcy laws, or any other marshaling of the assets and
liabilities of the Company.
Section VI. MISCELLANEOUS
This Agreement shall not be subject to cancellation by either the
Lender or the Company, nor may this Agreement be terminated, rescinded or
modified by mutual consent or otherwise except as may be required of Lender
in order to continue its activities as a credit union in good standing
under federal and applicable state laws or as may be approved by a Majority
Vote of the Holders of the Class A-1 Notes.
The provisions of this Agreement shall be binding upon the Lender,
its administrators, successors and assigns. This instrument embodies the
entire agreement between the Company and Lender and no other evidence of
such agreement has been or will be executed. This Agreement shall be
deemed to have been made under, and shall be governed by, the laws of the
State of California in all respects.
IN WITNESS WHEREOF, the parties have executed this Agreement on this
19th day of November, 1997.
"LENDER"
EVANGELICAL CHRISTIAN CREDIT UNION
By: /s/ Mark G. Holbrook
Mark G. Holbrook,
President/CEO
"COMPANY"
MINISTRY PARTNERS INVESTMENT CORPORATION
By: /s/ John C. Garmo
John C. Garmo,
President
November 18, 1997
MINISTRY PARTNERS INVESTMENT CORPORATION
1150 No. Magnolia Ave.
Anaheim, CA 92801
Re: Registration Statement on Form SB-2
Legality of Class A-1 Notes
Gentlemen:
You have requested that we, as special legal counsel to Ministry
Partners Investment Corporation (the "Corporation") render our opinion as
to the validity of the Corporation's issuance of up to $15,000,000 in
principal amount of its Class A-1 Notes (the "Notes") which are to be
issued in Series 1, 5, 10, 25, 50, 100, C10 and C25 in the manner described
in the Corporation's Registration Statement on Form SB-2 filed with the
Securities and Exchange Commission, as part of which this letter is being
submitted (the "Registration Statement").
Based upon our review of the form of Class A-1 Note, the Loan and
Standby Trust Agreement incorporated therein, Registration Statement, the
Corporation's books and records and such other documents as we have deemed
necessary, it is our opinion that the Notes have been duly authorized and,
when (a) the Notes have been executed and authenticated in the manner set
forth in the Registration Statement, and (b) the Notes have been issued,
sold, and delivered in the manner set forth in the Registration Statement
against payment therefor, the Notes will have been validly executed,
authenticated, issued, sold and delivered, will constitute the legal,
valid, and binding obligations of the Corporation, will (subject to
applicable bankruptcy, insolvency, and other laws affecting the
enforceability of creditors' rights generally) be enforceable as to the
Corporation in accordance with their terms and the terms of the Note and
the Loan and Standby Trust Agreement, and will be entitled to the benefits
provided therein.
In rendering the opinion expressed herein, we have assumed without
investigation that, with respect to each offer, award, issuance, sale, and
delivery by the Corporation of the Notes in the manner described in the
Registration Statement and each purchase of the Notes by the purchaser
thereof; (i) the offer, issuance, sale, delivery, and purchase, the
execution, and delivery of documents relating thereto, as to the
Corporation or any other party thereto, will not violate or result in a
breach of any law, statute, ordinance, rule, regulation, award, order,
decree, or judgment, in each case whether then or subsequently in effect;
(ii) at the time thereof and at all times subsequent thereto, the persons
authorizing each such offer, issuance, sale, delivery, purchase, execution,
performance, or transaction for the Corporation or for any such other
party, did not violate any fiduciary or other duty owed by them; (iii) no
event has taken place subsequent to any such offer, issuance, sale,
delivery, purchase, execution, performance, or transaction or will take
place which would cause any such offer, issuance, sale, delivery, purchase,
execution, performance or transaction not to comply with any such law,
statute, ordinance, rule, regulation, order, decree, judgment, or duty, or
which would permit the Corporation or any such other party at any time
thereafter to cancel, rescind, or otherwise avoid any such offer, issuance,
sale, delivery, purchase, execution, performance, transaction, document or
oral agreement; (iv) there was no misrepresentation, omission, or deceit by
the Corporation, any such other party, or any other person or entity in
connection with any such offer, issuance, sale, delivery, purchase,
execution, or performance; and (v) each other party to such offer,
issuance, sale, delivery, purchase, execution, performance, or transaction
had the power, authority, and capacity to consummate such purchase.
We have assumed without investigation the authenticity of any
documents submitted to us as an original, the conformity to the originals
of any documents submitted to us as a copy, the genuineness of all
signatures, and the legal capacity of natural persons.
This opinion is furnished by us as special counsel to you and is
solely for your benefit. Neither this opinion nor copies hereof may be
relied upon by, delivered to, or quoted in whole or in part to any
governmental agency or other person without our prior written consent,
except that we hereby consent to the use of our opinion herein in the
Registration Statement.
Very truly yours,
/s/ Bruce J. Rushall
BRUCE J. RUSHALL
for the firm of
RUSHALL & McGEEVER
BJR:cjd
