As Filed with the Securities and Exchange Commission On October 29, 2008
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM S-11
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
American Church Mortgage Company
(Exact Name of Registrant as Specified in Governing Instruments)
10237 Yellow Circle Drive
Minnetonka, MN 55343
(952) 945-9455
(Address, Including Zip Code, and Telephone Number, Including Area
Code, of Registrant's Principal Executive Offices)
Philip J. Myers, President
10237 Yellow Circle Drive
Minnetonka, MN 55343
(952) 945-9455
(Name, Address, Including Zip Code, and
Telephone Number, Including Area Code, of Agent For Service)
copies to:
Philip T. Colton, Esq.
Winthrop & Weinstine, P.A.
225 South Sixth Street, Suite 3500
Minneapolis, MN 55402
(612) 604-6400
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of 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 box 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(d)
under the Securities Act, check the following box 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 box. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of "large accelerated filer," and "accelerated filer," and
"smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
CALCULATION OF REGISTRATION FEE
=================================================================================================================
Amount Proposed Maximum Proposed Maximum
Title Of Each Class Of Securities to be Offering Price Aggregate Offering Amount Of
To Be Registered Registered Per Unit Price Registration Fee
- -----------------------------------------------------------------------------------------------------------------
Series C Secured Investor Certificates $20,000,000 $1,000(1) $20,000,000 $786
=================================================================================================================
(1) Certificates may be purchased in any multiple of $1,000.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
The information in this prospectus is not complete and may be changed. We may
not sell these securities pursuant to this prospectus until the registration
statement filed with the SEC is effective. This prospectus is not an offer to
sell these securities and it is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 29, 2008
AMERICAN CHURCH MORTGAGE COMPANY
$20,000,000 of Series C Secured Investor Certificates
----------
American Church Mortgage Company is a real estate investment trust, or
"REIT." We make mortgage loans to churches and other non-profit religious
organizations. We also purchase mortgage-secured bonds issued by such
organizations.
We are offering our Series C Secured Investors Certificates.
We may offer new certificates with maturities ranging from approximately
thirteen (13) to twenty (20) years. Depending on our capital needs, certificates
with certain terms may not always be available. We will periodically establish
and may change interest rates on the unsold certificates offered in this
prospectus. Current interest rates can be found in the "Description of the
Certificates" section of this prospectus. Investors are advised to check for
prospectus supplements as interest rates are subject to change. However, once a
certificate is sold, its interest rate will not change during its term.
The certificates are non-negotiable and may be transferred only in limited
circumstances with the consent of our advisor. There is no public market for the
certificates. The certificates will not be listed on any securities exchange or
NASDAQ. Our investors may have difficulty selling certificates.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The certificates are not certificates of deposit or similar obligations
and are not guaranteed by the FDIC or any other governmental fund or private
entity. Investing in certificates involves risks and conflicts of interest. See
"Risk Factors" beginning on p. 10 and "Conflicts of Interest" beginning on p.
20. Those risks include the following:
- If we lose our REIT status, we will be taxed as a corporation, which
could affect adversely our ability to make interest payments to
holders of certificates.
- We have conflicts of interest with the underwriter and our advisor,
which are under common control.
- You may have difficulty selling your certificates because there is
no public market and our advisor must approve all transfers of
certificates.
- Our mortgages and bonds are secured by church property, which is
typically limited purpose collateral.
The use of forecasts in this offering is prohibited. Any representations
to the contrary and any predictions, written or oral, as to the amount or
certainty of any present or future cash benefit or tax consequence which may
flow from an investment in this program is not permitted.
===================================================================================================
Selling Commission and
Series C Secured Investor Certificates Price to Public Offering Expenses (2) Proceeds to Us
- ---------------------------------------------------------------------------------------------------
Minimum Purchase $1,000(1) $46.00 $954
- ---------------------------------------------------------------------------------------------------
Total $20,000,000 $920,000 $19,080,000
===================================================================================================
(1) Certificates may be purchased in any multiple of $1,000.
(2) Assumes the sale of all certificates offered hereby, of which there can be
no assurance. Estimated for purposes of this table based on a 2.75%
underwriter's commission, a .75% underwriter's management fee, a $120,000
non-accountable expense fee payable to the underwriter, and $100,000 in
other offering expenses.
AMERICAN INVESTORS GROUP, INC.
Minnetonka, Minnesota
_________ ___, 2008
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Table of Contents
PROSPECTUS SUMMARY ......................................................... 4
RISK FACTORS ............................................................... 10
WHO MAY INVEST ............................................................. 16
USE OF PROCEEDS ............................................................ 17
COMPENSATION TO ADVISOR AND AFFILIATES ..................................... 18
CONFLICTS OF INTEREST ...................................................... 20
DISTRIBUTIONS .............................................................. 21
CAPITALIZATION ............................................................. 23
OUR BUSINESS ............................................................... 24
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE ... 39
FEDERAL INCOME TAX CONSEQUENCES ASSOCIATED WITH THE CERTIFICATES ........... 41
FEDERAL INCOME TAX CONSEQUENCES ASSOCIATED WITH REITS ...................... 42
ERISA CONSIDERATIONS ....................................................... 43
DESCRIPTION OF THE CERTIFICATES ............................................ 44
SUMMARY OF THE ORGANIZATIONAL DOCUMENTS .................................... 50
PLAN OF DISTRIBUTION ....................................................... 53
COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES ...... 55
LEGAL MATTERS .............................................................. 55
EXPERTS .................................................................... 55
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE ............................ 55
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PROSPECTUS SUMMARY
This summary highlights some information from the prospectus. It may not
be all the information that is important to you. To understand this offering
fully, you should read the entire prospectus carefully, including the risk
factors and the financial statements. In this prospectus, American Church
Mortgage Company refers to itself as "we," "us, " and "our." Our prospective
investors are sometimes referred to as "you" or "your."
American Church Mortgage Company
American Church Mortgage Company is a real estate investment trust, or
REIT. We make mortgage-backed loans from $100,000 to $2,000,000 to churches and
other non-profit religious organizations for the purchase, construction or
refinancing of real estate and improvements. As of June 30, 2008 we had 74
mortgage loans outstanding in the original aggregate principal amount of
$35,802,175, and own church bonds having a face value of $11,966,000. The
principal balance of our loan and bond portfolios outstanding at June 30, 2008,
were $33,064,694 and $11,966,224, respectively. We intend to continue to lend
funds pursuant to our business plan as funds from the sale of our securities
become available and as funds become otherwise available, for example through
the repayment of loans.
American Church Mortgage Company was incorporated in the State of
Minnesota on May 27, 1994. Our executive offices and those of our advisor are
located at 10237 Yellow Circle Drive, Minnetonka (Minneapolis), Minnesota 55343.
Our telephone number is (952) 945-9455.
Our Advisor
We are managed by Church Loan Advisors, Inc. Church Loan Advisors, Inc. is
referred to in this prospectus as our advisor. Our advisor manages our business
activities, provides our office space, personnel, equipment and support
services. Our advisor assumes most of the normal operating expenses we would
otherwise incur if we had our own employees and directly managed our business
activities. Pursuant to the advisory agreement between us and our advisor, we
pay our advisor advisory fees based on our average invested assets and certain
expenses. In addition, our advisor receives up to one-half of any origination
fees associated with a mortgage loan made or renewed by us. Our advisor is
affiliated by common ownership with American Investors Group, Inc., which is the
underwriter of this offering (the "Underwriter").
More Information
We have filed a registration statement on Form S-11 with the Securities
and Exchange Commission (the "SEC") with respect to the secured investor
certificates to be issued in the offering. This prospectus is a part of that
registration statement and, as allowed by SEC rules, does not include all of the
information you can find in the registration statement or the exhibits to the
registration statement. Rather, we have elected to "incorporate by reference"
certain information into this prospectus. By incorporating by reference, we are
disclosing important information to you by referring you to documents we have
filed separately with the SEC. Such information includes, for example, our
financial statements.
The registration statement is, and all of our filings with the SEC (some
of which include our financial statements) are, available to the public over the
Internet at the SEC's web site at http://www.sec.gov. You can also access
documents that are incorporated by reference into this prospectus at the web
site we maintain at http://www.church-loans.net under the heading "Regulatory
Filings." See also "Incorporation of Certain Documents By Reference" at p. 56
herein.
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The Certificates Offered
Issuer ...................... American Church Mortgage Company
Trustee ..................... Herring Bank, Amarillo, Texas
Securities Offered .......... Series C Secured Investor Certificates
Offering Price .............. 100% of the principal amount per certificate; multiples of $1,000 per certificate.
Maturity .................... 13, 14, 15, 16, 17, 18, 19 and 20-year maturities. Each certificates will mature on the
anniversary of the last day of the fiscal quarter in which the certificate is purchased. We may
cease offering specified maturities, and begin re-offering any unavailable maturity, at any time.
Interest Rates .............. As of the offering date, the interest rates we will pay for each maturity of certificates are set
forth in the section entitled "Description of the Certificates" to this prospectus. However,
investors are advised to check for prospectus supplements as interest rates are subject to change.
Interest Payments ........... Interest will be paid quarterly.
Principal Payment ........... Unless you renew your certificate, we will pay the entire principal amount of the certificate at
maturity.
Redemption .................. We generally will not be required to redeem outstanding certificates. We may redeem outstanding
certificates in the following cases:
o In our sole discretion, at any time upon 30 days' notice.
o If you die, your representative may require us to redeem your certificate, subject to an
aggregate limit of $25,000 in any calendar quarter for all redemptions.
o If we terminate our advisory agreement with Church Loan Advisors, Inc., our current advisor,
for any reason, we will be required to offer to redeem all outstanding certificates (but are
permitted to redeem fewer than all).
If we redeem any certificate, we will pay the holder an amount equal to the outstanding principal
amount of the redeemed certificate plus accrued but unpaid interest.
Collateral .................. To secure payment of the certificates, we will assign to the trustee as collateral non-defaulted
mortgage-secured promissory notes and church bonds with an aggregate outstanding principal balance
equal to at least 100% of the aggregate outstanding principal amount of the certificates. We may,
in our discretion, substitute cash or cash equivalents. Unless there is an event of default, we
will not assign underlying mortgages securing the assigned promissory notes. To the extent not
collateralized, the certificates will constitute a subordinated claim against the issuer.
Transferability ............. The certificates are non-negotiable and may be transferred only in limited circumstances with the
consent of our advisor.
Absence of Public Market .... There is no market for the certificates. We do not believe that a public market will develop. You
may not be able to sell your certificates.
Sales Commission, Fees ...... We will pay the underwriter a commission for assisting us in selling the certificates. The
underwriter will receive a sales commission of up to 2.75% and an underwriting management fee
equal to .75% of
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the principal amount of certificates sold. We will also pay to the underwriter a non-accountable
expense fee of up to $120,000, as further described herein at the section entitled "Use of
Proceeds."
Outstanding Indebtedness .... Our bylaws prohibit us from borrowing in excess of 300% of shareholders' equity, except under
certain circumstances.
On September 12, 2008, we entered into a Loan and Security agreement with Beacon Bank as lender,
and a Revolving Note evidencing an $8 million revolving loan. Approximately $4.2 million was
advanced under the Revolving Note at closing. Of this amount, approximately $4.2 million was used
to pay off the Company's previous credit facility with KeyBank National Association. Advances
under the Loan and Security Agreement are based upon, among other things, a borrowing base
calculation and are available to the Company for use in connection with its general business
purposes. Total availability under the Revolving Note is initially limited to $4.5 million, which
amount shall be increased to $8 million at such time as one or more participants purchase an
interest in the Revolving Note.
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Use of Proceeds
We will use the proceeds received from the sale of the certificates
principally to fund mortgage loans we make to churches and other non-profit
religious organizations and to purchase bonds issued by those organizations.
Some of the proceeds may be used to pay down our line of credit, redeem our
equity securities and repay maturing certificates.
Our REIT Status
The Company has operated as a Real Estate Investment Trust ("REIT") since
its formation in 1994. As a REIT, we generally are not subject to federal income
tax on income that we distribute to our shareholders. Under the Internal Revenue
Code, we are subject to numerous organizational and operational requirements,
including a requirement that we distribute to our shareholders at least 90% of
our taxable income as calculated on an annual basis. If we fail to qualify for
taxation as a REIT in any year, our taxable income will be taxed at regular
corporate rates, and we may not be able to qualify for treatment as a REIT for
that year and the next four years. Even if we qualify as a REIT for federal
income tax purposes, we may be subject to federal, state and local taxes on our
income and property and to federal income and excise taxes on our undistributed
income.
Risk Factors
An investment in our certificates involves a degree of risk. See "Risk
Factors" for a more complete discussion of factors you should consider before
purchasing certificates. Some of the significant risks include:
- As a "best efforts" offering, all or a material amount of the
certificates may not be sold, and consequently, some or all of the
additional funds we are seeking may not be available to us.
- As a "no minimum" offering, there is no minimum number of principal
amount of certificates that must be sold. We will receive the
proceeds from the sale of certificates as they are sold.
- If we fail to maintain our REIT status, we will be taxed as a
corporation, which could adversely affect our ability to make
interest payments to holders of certificates.
- Conflicts of interest with the underwriter and our advisor in
connection with this offering and our on-going business operations
could affect decisions made by our advisor on our behalf.
- There is no public trading market for the certificates. It is not
likely that a market for the certificates will develop after this
offering.
- Fluctuations in interest rates or default in repayment of loans by
borrowers could adversely affect our ability to make interest
payments on and repay certificates as they mature.
Conflicts of Interest
A number of potential conflicts exist between us and our advisor and its
principals. These conflicts include:
- Our President is the President of both our advisor and the
underwriter and thus is in a position of control of both entities.
- The underwriter for this offering and our advisor are also under
common control.
- Agreements between us and our advisor and the underwriter were not
negotiated at arm's-length.
- We and the underwriter have common business interests.
- Negotiations between us and our advisor during the organization and
structuring of our operations were not at arm's length.
- The advisory agreement was not negotiated at arm's-length, but is
subject to annual renewal by our Board of Directors.
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- We share operations facilities with our advisor and the underwriter.
Our advisor and its affiliates may engage in businesses similar to ours.
We compensate our advisor and its affiliates for services rendered and pay an
annual advisory fee equal to 1.25% of average invested assets.
Our Investment Objectives
Our investment objectives are to provide our certificate holders with:
- a higher level of distributable income or interest rate than is
available in guaranteed or government-backed fixed-income
investments;
- preservation of their investment capital through portfolio
diversification (lending funds to many different borrowers and
purchasing bonds issued by numerous issuers);
- greater security for our portfolio through investment only in
mortgage-backed loans and securities (providing us with collateral
in the event of a borrower's default); and
- greater security for our certificate holders by our pledging
mortgage-secured promissory notes or debt securities that we hold to
secure our obligations under the certificates (providing certificate
holders with a stream of revenue and potential sale proceeds in the
event of our default).
Business Objectives and Policies
We make mortgage loans from $100,000 to $2,000,000 to churches and other
non-profit religious organizations throughout the United States. We seek to:
- find qualified borrowers and make loans in accordance with out
Lending Guidelines;
- lend at rates of interest in excess of our cost of funds;
- offer competitively attractive mid-term (5-15 years) loans and
long-term (20-30 year) loans (although there is no limit on the term
of our loans);
- charge origination fees (i.e. "points") from the borrower at the
outset of a loan and upon any renewal of a loan;
- make a limited amount of higher-interest rate and increased risk
second mortgage loans and short-term construction loans to qualified
borrowers; and
- purchase a limited amount of mortgage-secured debt securities issued
by churches and other non-profit religious organizations, typically
at par value.
Our policies limit the amount of second mortgage loans to 20% of our
average invested assets on the date any second mortgage loan is closed and limit
the amount of mortgage-secured debt securities to 30% of our average invested
assets on the date of their purchase. All other mortgage loans we make are
secured by a first mortgage (or deed of trust). We may make fixed-interest rate
loans having maturities of three to thirty years. We may borrow up to 300% of
our shareholders' equity, unless greater amounts are permitted under certain
circumstances.
Lending Guidelines
We follow specified lending guidelines and criteria in evaluating the
creditworthiness of potential borrowers. These guidelines and criteria include:
- Loans we make cannot exceed 75% of the appraised value of the real
property and improvements securing the loan.
- We may not loan more than $2,000,000 to a single borrower.
- We require appraisals of the property securing our loans.
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- The borrower must furnish us with a mortgagee title policy insuring
our interest in the collateral.
- The borrower's long-term debt (including the proposed loan) as of
the date of the mortgage loan may not exceed four times the
borrower's gross income for its most recent twelve (12) months.
- The borrower must furnish us with financial statements (balance
sheet and income and expense statement) for its last three (3)
complete fiscal years and current financial statements for the
period within ninety (90) days of the loan closing date. A borrower
must have the last complete fiscal year financial statements
reviewed by a certified public accountant (CPA) engaged by the
borrower and who is independent of the borrower. On loans in excess
of $500,000 our advisor may require the last complete fiscal year be
audited by a CPA engaged by the borrower and who is independent of
the borrower. In lieu of the above requirement, we or our advisor
may employ a qualified accountant. The qualified accountant we
employ would be required to be independent of the borrower. Our
employed qualified accountant would not be independent of us.
Compiled financial statements of the borrower are acceptable from
our employed qualified accountant. Along with the compiled financial
statements of the borrower, our employed qualified accountant would
perform partial and targeted review examination procedures for
borrowers. On loans in excess of $500,000 the advisor may require
partial and targeted audit examination procedures for borrowers.
- Borrowers in existence for less than three (3) fiscal years must
provide financial statements since inception. No loan will be
extended to a borrower in operation less than two (2) calendar years
absent express approval by our Board of Directors.
Who May Invest
You may purchase up to $5,000 of certificates only if you have either (i)
a minimum annual gross income (without regard to your investment in our shares
or certificates) of at least $30,000 and a net worth (exclusive of home, home
furnishings and automobiles) of $30,000; or (ii) a net worth (determined with
the foregoing exclusions) of at least $100,000. You may purchase more than
$5,000 of certificates only if you have either: (i) a minimum annual gross
income (without regard to your investment in our shares or certificates) of at
least $45,000 and a net worth (exclusive of home, home furnishings and
automobiles) of at least $45,000; or (ii) a net worth (determined with the
foregoing exclusions) of at least $150,000. Suitability standards may be higher
in certain states.
In addition to the above suitability standards, it is recommended that
Kansas investors limit their investment to no more than 10% of their net worth
(exclusive of home, home furnishings and automobiles).
In addition to the above suitability standards, residents of Texas are
limited to investing no more than 10% of their net worth (exclusive of home,
home furnishings and automobiles) in our shares or certificates.
In the case of fiduciary accounts, these minimum standards must be met by
the beneficiary of the fiduciary account or by the donor or grantor who directly
or indirectly supplies the funds to purchase the shares or certificates if the
donor or grantor is the fiduciary.
The account application to be signed by all purchasers of the Series C
Secured Investors Certificates contains an arbitration agreement. By this
agreement, each purchaser agrees that all controversies relating to the
Certificates will be determined by arbitration before the Financial Industry
Regulatory Authority ("FINRA") (f/k/a the National Association of Securities
Dealers, Inc. or "NASD").
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RISK FACTORS
An investment in our certificates involves various risks. In addition to
the other information set forth in the prospectus, you should consider the
following factors before making a decision to purchase certificates.
This prospectus contains statements of a forward-looking nature relating
to future events or our future performance. These forward-looking statements are
based on our current expectations, assumptions, estimates and projections about
us and our industry. When used in this prospectus, the words "expects,"
"believes," "anticipates," "estimates," "intends," "will" and similar
expressions are intended to identify forward-looking statements. These
statements include, but are not limited to, statements of our plans, strategies
and prospects contained in this prospectus.
These forward-looking statements are only predictions and are subject to
risks and uncertainties that could cause actual events or results to differ
materially from those projected. The cautionary statements made in this
prospectus should be read as being applicable to all related forward-looking
statements wherever they appear in this prospectus. We assume no obligation to
update these forward-looking statements publicly for any reason. Actual results
could differ materially from those anticipated in these forward-looking
statements.
Risks Related to Method and Terms of This Offering
This is a Best Efforts Offering. The underwriter's obligation to sell the
certificates requires only its best efforts to locate purchasers on our behalf.
The underwriter is not obligated to purchase any certificates. Less than all of
the certificates offered may be sold. If less than all the certificates offered
are sold, we will have less cash for working capital and to loan to churches and
other non-profit religious organizations.
This is a No Minimum Offering. The distribution agreement does not require
that a minimum number of certificates be sold before we receive proceeds from
their sale. We will receive proceeds from the sale of certificates when and if
they are sold.
We Will Incur Expenses in This Offering. Expenses incurred in connection
with this offering will reduce our assets that will be available for working
capital and investment.
Risks Related to Us
Our Failure to Qualify as a Real Estate Investment Trust Could Reduce the
Funds We Have Available for Investment. We operate as a real estate investment
trust. As a REIT, we are allowed a deduction for dividends paid to our
shareholders in computing our taxable income. Thus, only our shareholders are
taxed on our taxable income that we distribute. This treatment substantially
eliminates the "double taxation" of earnings to which most corporations and
their shareholders are subject. Qualification as a REIT involves the application
of highly technical and complex Internal Revenue Code provisions.
To qualify and maintain our status as a REIT, we must meet certain share
ownership, income, asset and distribution tests on a continuing basis. No
assurance can be given that we will satisfy these tests at all times. Further,
the requirements for a REIT may substantially affect day-to-day decision-making
by our advisor. Our advisor may be forced to take action it would not otherwise
take or refrain from action which might otherwise be desirable in order to
maintain our REIT status.
If we fail to qualify as a REIT in any taxable year, then we would be
subject to federal income tax on our taxable income at regular corporate rates
and not be allowed a deduction for distributions to shareholders. We would be
disqualified from treatment as a REIT for the four taxable years following the
year of losing our REIT status. We intend to continue to operate as a REIT.
However, future economic, market, legal, tax or other consequences may cause our
board of directors to revoke the REIT election. Loss of REIT status from either
our disqualification as a REIT or our revocation of REIT status would not affect
whether we may deduct interest paid to certificate holders for United States
federal income tax purposes. To generate funds with which to pay federal income
taxes because of the loss of REIT status, however, could reduce our funds that
are available for investment, could cause us to incur additional indebtedness,
or could cause us to liquidate investments, each of which could affect adversely
our ability to make interest payments to holders of certificates.
Conflicts of Interest Arise From Our Relationship with Our Advisor and the
Underwriter. The terms of transactions involving our formation and the formation
of our advisor, and our contractual relationship with our advisor, were not
negotiated at arm's-length. Our non-independent directors and officers may have
conflicts of interest in enforcing agreements between us and our advisor or the
underwriter. Future business arrangements and agreements between us and our
advisor or
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the underwriter and their affiliates must be approved by our board of directors,
including a majority of our independent directors.
Risks Related to the Certificates
We May Incur More Indebtedness. We may incur additional indebtedness in
the future. We may assign or pledge some of our mortgage-secured promissory
notes or other collateral in connection with incurring this additional
indebtedness. Our ability to incur additional indebtedness is limited to 300% of
our Shareholders' Equity by our bylaws, unless an increased amount is approved
by a majority of our Independent Directors and disclosed and justified to our
shareholders. Once the threshold is reached (or if approval is not obtained), we
will not be able to incur additional indebtedness unless we raise additional
equity capital. This limitation could restrict our growth or affect our ability
to repay the certificates as they mature.
There Are Potential Adverse Effects Associated with Lending Borrowed
Funds. We intend to deploy the proceeds from this offering to make loans to
churches and other non-profit religious organizations. We have also used our
line of credit to fund loans, and intend to use our line of credit in this way
in the future. Lending borrowed funds is subject to greater risks than in
unleveraged lending. The profit we realize from lending borrowed funds is
largely determined by the difference, or "spread," between the interest rates we
pay on the borrowed funds and the interest rates that our borrowers pay us. Our
spread may be materially and adversely affected by changes in prevailing
interest rates. Furthermore, the financing costs associated with lending
borrowed funds could decrease the effective spread in lending borrowed funds,
which could adversely affect our ability to pay interest on and repay the
certificates as they mature.
Fluctuations in Interest Rates May Affect Our Ability to Sell
Certificates. If the interest rates we offer on certificates become less
attractive due to changes in interest rates for similar investments, our ability
to sell certificates could be adversely affected or certificate holders could
choose not to renew their certificates upon maturity. Since we will rely on the
proceeds from the sales of certificates and renewals of certificates, in part,
to pay maturing certificates, a decline in sales of certificates could adversely
affect our ability to pay your certificate upon maturity. We may change the
interest rates at which we are currently offering certificates in response to
fluctuations in interest rates.
There Is No Public Market for the Certificates. There is no market for
certificates issued by the Company. It is unlikely that a market will develop.
The certificates will not be listed on any exchange and will not be qualified
for quotation on any NASDAQ market. In addition, the market for REIT securities
historically has been less liquid than other types of publicly-traded
securities. It may be impossible for you to recoup your investment prior to
maturity of the certificates.
There Will Not Be a Sinking Fund, Insurance or Guarantee Associated with
the Certificates. We will not contribute funds to a separate account, commonly
known as a sinking fund, to repay principal or interest on the certificates upon
maturity or default. The certificates are not certificates of deposit or similar
obligations of, or guaranteed by, any depository institution. Further, no
governmental or other entity insures or guarantees payment on the certificates
if we do not have enough funds to make principal or interest payments.
Therefore, if you purchase certificates, you will have to rely on our revenue
from operations, along with the security provided by the collateral for the
certificates, for repayment of principal and interest on the certificates.
The Collateral for the Certificates May Not Be Adequate if We Default. The
certificates will at all times be secured by mortgage-secured promissory notes
and church bonds having an outstanding principal balance or cash equal to at
least 100% of the outstanding principal balance of the certificates. If we
default in the repayment of the certificates, or another event of default
occurs, the trustee will not be able to foreclose on the mortgages securing the
promissory notes and bonds in order to obtain funds to repay certificate
holders. Rather, the trustee will need to look to the revenue stream associated
with our borrowers' payments on or repayment of the promissory notes and bonds
or revenue derived from sale of the promissory notes or bonds to repay
certificate holders. If the trustee chooses to rely on revenues received from
our borrowers, certificate holders may face a delay in payment on certificates
in the event of default, as borrowers will repay their obligations to us in
accordance with amortization schedules associated with their promissory notes or
bonds. If the trustee chooses to sell promissory notes or bonds in the event of
our default, the proceeds from the sales may not be sufficient to repay our
obligations on all outstanding or defaulted certificates.
The Certificates Are Not Negotiable Instruments and Are Subject to
Restrictions on Transfer. The certificates are not negotiable debt instruments.
Rights of record ownership of the certificates may be transferred only with our
advisor's prior written consent. You will not be able to freely transfer the
certificates.
We Are Obligated to Redeem Certificates Only in Limited Circumstances. You
will have no right to require us to prepay or redeem any certificate prior to
its maturity date, except in the case of your death or if we replace our current
advisor.
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Further, even in the event of your death, we will not be required to redeem your
certificates if we have redeemed at least $25,000 of principal amount of Series
C certificates for all holders during the calendar quarter in which your
representative notifies us of your death and requests redemption.
We Are Able to Redeem Certificates at Any Time. While we are obligated to
redeem certificates in limited circumstances, we are permitted to redeem all or
a portion of the outstanding certificates at any time upon thirty (30) days'
notice. While we have no current plans to redeem certificates, and possibly may
not redeem any prior to maturity (except in the case of death), there is no
guarantee that investors will be able to hold their certificates until maturity.
We May Not Have Sufficient Available Cash to Redeem Certificates if We
Terminate Our Advisory Agreement with Our Current Advisor. We will be required
to offer to redeem all outstanding certificates if we terminate our advisory
agreement with Church Loan Advisors, Inc., our current advisor, for any reason.
If the holders of a significant principal amount of certificates request that we
redeem their certificates, we may be required to sell a portion of our mortgage
loan and church bond portfolio to satisfy the redemption requests. Any such sale
would likely be at a discount to the recorded value of the mortgage loans and
bonds being sold. Further, if we are unable to sell loans or church bonds in our
portfolio, we may be unable to satisfy the redemption obligations.
The Indenture Contains Limited Protection for Holders of Certificates. The
indenture governing the certificates contains only limited events of default
other than our failure to pay principal and interest on the certificates on
time. Further, the indenture provides for only limited protection for holders of
certificates upon a consolidation or merger between us and another entity or the
sale or transfer of all or substantially all of our assets. If we default in the
repayment of the certificates or under the indenture, you will have to rely on
the trustee to exercise your remedies on your behalf. You will not be able to
seek remedies against us directly.
Risks Related to Management
We Are Dependent upon Our Advisor. Our advisor, Church Loan Advisors,
Inc., manages us and selects our investments subject to general supervision by
our board of directors and compliance with our lending policies. We depend upon
our advisor and its personnel for most aspects of our business operations. Our
success depends on the success of our advisor in locating borrowers and
negotiating loans upon terms favorable to us. Among others, our advisor performs
the following services for us:
o mortgage loan marketing and procurement
o bond portfolio selection and investment
o mortgage loan underwriting
o mortgage loan servicing
o money management
o developing and maintaining business relationships
o maintaining "goodwill"
o managing relationships with our accountants and attorneys
o corporate management including payment of office rent, etc.
o bookkeeping
o reporting to state, federal, tax and other regulatory authorities
o reports to shareholders and shareholder relations
Certificate holders will have no right to participate in our management. You
should not purchase certificates unless you are willing to entrust our
management to our advisor and our board of directors.
Our directors may not be held personally liable for certain actions, which
could discourage shareholder suits against them. Minnesota law and our articles
of incorporation and bylaws provide that our directors shall not be personally
liable to us or our shareholders for monetary damages for breach of fiduciary
duty as a director, with certain exceptions. These provisions may discourage
shareholders from bringing suit against a director for breach of fiduciary duty
and may reduce the likelihood of derivative litigation brought by shareholders
on behalf of us against a director. In addition, our bylaws provide for
mandatory indemnification of directors and officers to the fullest extent
permitted by Minnesota law.
We Have Conflicts of Interest with Our Advisor and the Underwriter.
Affiliations and conflicts of interests exist among our officers and directors
and the owner and officers and directors of our advisor and the underwriter. Our
President, Philip Myers is the President of our advisor and the underwriter and
thus could be considered to be in a position of control of both entities. Our
President and the officers and directors of our advisor are involved in the
church financing business through their affiliations with the underwriter. The
underwriter originates, offers and sells first mortgage bonds for churches. We
may purchase first mortgage bonds issued by churches through the underwriter in
its capacity as underwriter for the issuing church, or as broker or dealer on
the secondary market. In such event, the underwriter would receive commissions
(paid by the issuing church) on original issue bonds, or "mark-ups" in
connection with any secondary transactions. If we sell church bonds in our
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portfolio, the bonds will be sold through the underwriter. We would pay the
underwriter commissions in connection with such transactions.
Our bylaws limit the amount of all commissions, mark-downs or mark-ups
paid to the underwriter. Our business dealings with our advisor and its
affiliates other than transactions outside of the ordinary course, and as
reflected in our annually approved Advisory Agreement, also must be approved by
a majority of our board of directors, including a majority of our independent
directors.
Generally, mortgage loans we originate are smaller than the bond
financings originated by the underwriter. However, there may be circumstances
where our advisor and the underwriter could recommend either type of financing
to a prospective borrower. The decisions of our advisor and the underwriter
could affect the credit quality of our portfolio.
Redemption Obligations Relating to the Certificates May Affect Our Ability
to Replace our Advisor. We will be required to offer to redeem all outstanding
certificates if we terminate our advisory agreement with Church Loan Advisors,
Inc. Our independent directors are required to review and approve the agreement
with our advisor on an annual basis. The redemption provision relating to the
certificates may have the effect of reducing our ability to replace our current
advisor.
Risks Related to Mortgage Lending
We Are Subject to the Risks Generally Associated with Mortgage Lending.
Mortgage lending involves various risks, many of which are unpredictable and
beyond our control and foresight. It is not possible to identify all potential
risks associated with mortgage lending. Some of the more common risks
encountered may be summarized as follows:
o low demand for mortgage loans
o interest rate and real estate valuation fluctuations
o changes in the level of consumer confidence
o availability of credit-worthy borrowers
o national and local economic conditions
o demographic and population patterns
o zoning regulations
o taxes and tax law changes
o availability of alternative financing and competitive conditions
o factors affecting specific borrowers
o losses associated with default, foreclosure of a mortgage, and sale of the
mortgaged property
o state and federal laws and regulations
o bankruptcy or insolvency of a borrower
o borrower misrepresentation(s) and/or fraud
Second Mortgage Loans Pose Additional Risks. Our Lending Guidelines allow
us to make second mortgage loans. The principal amount of such loans may not
exceed 20% of our average invested assets. Second mortgage loans entail more
risk than first mortgage loans, as foreclosure of senior indebtedness or liens
could require us to pay the senior debt or risk losing our mortgage.
Fixed-Rate Debt Can Result in Yield Fluctuations. Fixed-rate debt
obligations carry certain risks. A general rise in interest rates could make the
yield on a particular mortgage loan lower than prevailing rates. This could
negatively affect our value and consequently the value of the certificates.
Neither we nor our advisor can predict changes in interest rates. We attempt to
reduce this risk by borrowing through the issuance of intermediate and long term
certificates with set interest rates and making loans with this capital for
intermediate and long terms that lock in certain target interest rate spreads.
We do not intend to borrow funds or sell certificates if the cost of such
borrowing exceeds the income we believe we can earn from lending the funds.
The Mortgage Banking Industry Is Highly Competitive. We compete with a
wide variety of lenders, including banks, savings and loan associations, credit
unions, insurance companies, pension funds and fraternal organizations for
mortgage loans. Many competitors have greater financial resources, access to
lower-cost capital, larger staffs and longer operating histories than we have,
and thus may be a more attractive lender to potential borrowers. We compete in
this industry by limiting our business "niche" to lending to churches and other
non-profit religious organizations, offering loans with competitive and flexible
terms, and emphasizing our expertise in the specialized industry segment of
lending to churches and other non-profit religious organizations.
Fluctuations in Interest Rates May Affect Our Ability to Repay the
Certificates. Prevailing market interest rates impact borrower decisions to
obtain new loans or to refinance existing loans, possibly having a negative
effect upon our ability to originate mortgage loans. If interest rates decrease
and the economic advantages of refinancing mortgage loans increase, then
prepayments of higher interest mortgage loans in our portfolio would likely
reduce our portfolio's overall rate of return (yield).
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We Are Subject to the Risks Associated with Fluctuations in National and
Local Economic Conditions. The mortgage lending industry is subject to increased
credit risks and rates of foreclosures during economic downturns. In addition,
because we provide mortgages to churches and other religious organizations who
generally receive financing through charitable contributions, our financial
results are subject to fluctuations based on a lack of consumer confidence or a
severe or prolonged national or regional recession. As a result of these and
other circumstances, our potential borrowers may decide to defer or terminate
plans for financing their properties. In addition, during such economic times we
may be unable to locate as many credit-worthy borrowers.
Our Business May Be Adversely Affected if Our Borrowers Become Insolvent
or Bankrupt. If any of our borrowers become insolvent or bankrupt, the
borrower's mortgage payments will be delayed and may cease entirely. We may be
forced to foreclose on the mortgage and take legal title to the real estate and
incur expenses related to the foreclosure and disposition of the property.
We Have Fluctuating Earnings. As mortgage lenders, we make provision for
losses relating to our loan portfolio and sometimes take impairment charges due
to our borrowers defaulting or declaring bankruptcy. Recent increases in the
occurrence of such events have resulted in greater fluctuation of our earnings,
which can reduce our net income.
Risks Related to Mortgage Lending to Churches
Churches Rely on Member Contributions to Repay Our Loans. Churches rely on
member contributions for their primary source of income. Member contributions
are used to repay our loans. The membership of a church or the per capita
contributions of its members may not increase or remain constant after a loan is
funded. A decrease in a church's income could result in its inability to pay its
obligation to us, which may affect our ability to pay interest due on or repay
the certificates. We have no control over the financial performance of a
borrowing church after a loan is funded.
Churches Depend upon Their Senior Pastors. A church's senior pastor
usually plays an important role in the management, spiritual leadership and
continued viability of that church. A senior pastor's absence, resignation or
death could have a negative impact on a church's operations, and thus its
continued ability to generate revenues sufficient to service its obligations to
us.
The Limited Use Nature of Church Facilities Limits the Value of Our
Mortgage Collateral. Our loans are secured principally by first mortgages upon
the real estate and improvements owned or to be owned by churches and other
religious and non-profit organizations. Although we will require an appraisal of
the premises as a pre-condition to making a loan, the appraised value of the
premises cannot be relied upon as being the actual amount which might be
obtained in the event of a default by the borrower. The actual liquidation value
of church, school or other institutional premises could be adversely affected
by, among other factors: (i) its limited use nature; (ii) the availability on
the market of similar properties; (iii) the availability and cost of financing,
rehabilitation or renovation to prospective buyers; (iv) the length of time the
seller is willing to hold the property on the market; or (v) the availability in
the area of the mortgaged property of congregations or other buyers willing to
pay the fair value for a church facility.
Expenses of Foreclosure May Prevent Us from Recovering the Full Value of a
Loan. If we foreclose on a mortgage and take legal title to a church's real
estate, real estate taxes could be levied and assessed against the property
since the property would no longer be owned by a non-profit entity. The property
may also incur operating expenses pending its sale, such as property insurance,
security, repairs and maintenance. These expenses would be our financial
responsibility, and could be substantial in relation to our prior loan if we
cannot readily dispose of the property. Such expenses could prevent us from
recovering the full value of a loan in the event of foreclosure.
Risks Related to Environmental Laws
We May Face Liability under Environmental Laws. Under federal, state and
local laws and regulations, a secured lender (like us) may be liable, under
certain limited circumstances, for the costs of removal or remediation of
certain hazardous or toxic substances and other costs (including government
fines and injuries to persons and adjacent property). Liability may be imposed
whether or not the owner or lender knew of, or was responsible for, the presence
of hazardous or toxic substances. The costs of remediation or removal of
hazardous or toxic substances, or of fines for personal or property damages, may
be substantial and material to our business operations. The presence of
hazardous or toxic substances, or the failure to promptly remediate such
substances, may adversely affect our ability to resell real estate collateral
after foreclosure or could cause us to forego foreclosure. This is a changing
area of the law. The courts have found both in favor and against lender
liability in this area under various factual scenarios. We require an
environmental database check on all properties to be used as collateral for our
mortgage loans.
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The Collateral for Our Loans and Our Lenders May Be Subject to
Environmental Claims. If there are environmental problems associated with the
real estate securing any of our loans, the associated remediation or removal
requirements imposed by federal, state and local laws could affect our ability
to realize value on our collateral or our borrower's ability to repay its loan.
Future Changes in Tax Laws May Affect Our REIT Status
In this prospectus, we discuss our tax treatment as a REIT based on
existing provisions of the Internal Revenue Code, existing and proposed
regulations, existing administrative interpretations and existing court
decisions. New legislation, regulations, administrative interpretations or court
decisions may significantly change the tax laws. Therefore, continuing
qualification as a REIT may vary substantially from the treatment we describe in
this prospectus, which may impact the consequences of purchasing certificates.
- 15 -
WHO MAY INVEST
Who May Purchase Certificates. You should purchase certificates only if
you are prepared to hold the certificates until maturity, only if you have
significant financial means, and only if you have no immediate need for
liquidity of your investment. We have established financial suitability
standards for investors desiring to purchase certificates. You may purchase up
to $5,000 of certificates only if you have either (i) a minimum annual gross
income (without regard to your investment in shares or certificates) of at least
$30,000 and a net worth (exclusive of home, home furnishings and automobiles) of
$30,000; or (ii) a net worth (determined with the foregoing exclusions) of at
least $100,000. You may purchase more than $5,000 of certificates only if you
have either: (i) a minimum annual gross income of (without regard to your
investment in shares or certificates) at least $45,000 and a net worth
(exclusive of home, home furnishings and automobiles) of $45,000; or (ii) a net
worth (determined with the foregoing exclusions) of at least $150,000.
Suitability standards may be higher in some states. You must represent in your
subscription agreement that you satisfy any applicable suitability standards.
In addition to the above suitability standards, it is recommended that
Kansas investors limit their investment to no more than 10% of their net worth
(exclusive of home, home furnishings and automobiles).
In addition to the above suitability standards, residents of Texas are
limited to investing no more than 10% of their net worth (exclusive of home,
home furnishings and automobiles) in our certificates.
We may not complete a sale of certificates until five days after you have
received a prospectus. We will refund your investment upon your request, which
we must receive within five days after you subscribe, if you received a
prospectus only at the time of subscription.
Fiduciary Accounts. In the case of fiduciary accounts, these minimum
standards must be met by the beneficiary of the fiduciary account or by the
donor or grantor who directly or indirectly supplies the funds to purchase the
shares or certificates if the donor or grantor is the fiduciary.
- 16 -
USE OF PROCEEDS
The following represents our estimate of the use of the offering proceeds
from the sale of the certificates, assuming that all the offered certificates
are sold.
Total Percent
------------ -------
Gross Offering Proceeds (1) $ 20,000,000 100.00%
Less Expenses
Selling Commissions (2) 700,000 3.50%
Underwriter's Expense Allowance (3) 120,000 .60%
Offering Expenses (4) 100,000 .50%
Total Public Offering-Related Expenses 920,000 4.60%
Amount Available for Investment (5) $ 19,080,000 95.40%
- ----------
(1) We are offering the certificates on a "best efforts" basis through the
underwriter. There is no assurance that any shares or certificates will be
sold.
(2) We will pay the underwriter a sales commission of 2.75% and an
underwriting management fee equal to .75% of the principal amount of
certificates sold.
(3) We will pay the underwriter a non-accountable expense allowance of up to
$120,000, if all of the certificates are sold, payable as follows: (i)
$10,000 is payable upon the sale of each $1,000,000 of certificates up to
the sale of $10,000,000 of certificates; and (ii) $2,000 is payable upon
the sale of each additional $1,000,000 of certificates up to completion of
the sale of all certificates offered hereby or the termination of this
offering, whichever is first.
(4) These figures are our best estimates of the legal, accounting, printing,
filing fees and other expenses attendant to this offering, all of which
have been or will be paid to independent professionals and service
providers.
(5) Principally all of the net proceeds from the sale of certificates will be
used to make mortgage loans to churches and other non-profit religious
organizations and purchase mortgage bonds issued by churches. Until the
net proceeds are utilized as such, some may be used for general working
capital purposes including, but not limited to: paying down our line of
credit, redeeming our equity securities and repaying maturing
certificates. We will use no more that 15% of the gross proceeds of this
offering to pay interest on certificates and repay principal to
certificate holders. Pending application of the proceeds as outlined
above, the net proceeds of this offering may be invested in permitted
temporary investments.
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COMPENSATION TO ADVISOR AND AFFILIATES
This table discloses all the compensation our advisor and its affiliates
can receive either directly or indirectly. In accordance with applicable state
law, the total of all acquisition fees and expenses we pay in connection with
our business cannot exceed 6% of the amount loaned, unless a majority of the
directors (including a majority of our independent directors) not otherwise
interested in the transaction approve the transaction as being commercially
competitive, fair and reasonable to us. Our total operating expenses cannot (in
the absence of a satisfactory showing to the contrary) in any fiscal year exceed
the greater of: (a) 2% of our average invested assets; or (b) 25% of our net
income for the year. Our independent directors may, upon a finding of unusual
and nonrecurring factors which they deem sufficient, determine that a higher
level of expenses is justified in any given year.
ADVISOR COMPENSATION
ITEM OF
COMPENSATION RECIPIENT AMOUNT OR METHOD OF COMPENSATION
- ------------ --------- --------------------------------
Advisory Fee Advisor 1.25% annually, paid monthly, of our average invested assets up to $35 million. This fee is reduced to
1.00% on assets from $35 million to $50 million and to .75% on assets over $50 million. Our advisor
received advisory fees in the amount of $382,112 for the year ended December 31, 2005, $386,461 for
the year ended December 31, 2006, $413,007 for the year ended December 31, 2007, and $197,959 for the
six months ended June 30, 2008. Assuming all of the certificates are sold and our average invested
assets were $50,000,000, the advisory fee would be $587,500 per year.
Acquisition
Fees/Expenses Advisor In connection with mortgage loans we make, borrowers may be required to pay our advisor's expenses for
closing and other loan-related expenses, such as accounting fees and appraisal fees paid by our
advisor to independent service providers. Our advisor may retain payments made by the borrower in
excess of costs, but our bylaws limit the total of all acquisition fees and acquisition expenses to a
reasonable amount and in no event in excess of six percent (6%) of the funds advanced to the borrower.
Advisor Loan
Origination Fee Advisor Up to one-half of the origination fees collected from the borrower at closing in connection with each
mortgage loan we make. Our advisor received origination fees in the amount of $78,820 for the year
ended December 31, 2005, $187,021 for the year ended December 31, 2006, $36,514 for the year ended
December 31, 2007, and $0 for the six months ended June 30, 2008. We cannot estimate the total amount
of loan origination fees that may be realized by our advisor, but assuming all of the certificates are
sold and we invest in that one-year period net proceeds of $19,080,000 in mortgage loans with an
average origination fee of 3%, the loan origination fees payable to our advisor in such year could be
up to $286,200. As our loans mature or are otherwise repaid, we may make new loans to borrowers. Loan
origination fees would be payable to our advisor in with these loans.
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AFFILIATE COMPENSATION
ITEM OF
COMPENSATION RECIPIENT AMOUNT OR METHOD OF COMPENSATION
- ------------ --------- --------------------------------
Commissions on the Underwriter 2.75% of the principal amount of the certificates. The underwriter may re-allow all or a
Sale of Certificates portion of this amount to other participating broker-dealers who are members of the
in this Offering Financial Industry Regulatory Authority ("FINRA").
Non-Accountable Underwriter Up to $120,000 to cover the underwriter's costs and expenses relating to the offer and sale
Expense Allowance of the certificates in this offering, payable as follows: (i) $10,000 paid upon the sale of
Relating to the Sale each $1,000,000 of certificates up to the sale of $10,000,000 of certificates, and (ii)
of Certificates in this $2,000 payable upon the sale of each additional $1,000,000 of certificates up to the
Offering completion of sale of all certificates offered hereby or the termination of this offering,
whichever occurs first.
Underwriter's Underwriter .75% of the principal amount of the certificates, payable only upon original issuance.
Management Fee
Commissions and Underwriter Customary mark-ups and mark-downs on first mortgage church bonds we purchase and sell
Expenses on First through the underwriter on the secondary market, and commissions earned through the
Mortgage Bonds underwriter on church bonds we purchase in the primary market.
Purchased
- 19 -
CONFLICTS OF INTEREST
We are subject to various conflicts of interest arising from our
relationship with our advisor and the underwriter. Our President, Philip J.
Myers, is the President of both our advisor and the underwriter and thus is in a
position of control of both entities. In addition, Mr. Myers owns 20% of the
underwriter. Our advisor, its affiliates, our directors and the directors of our
advisor are not restricted from engaging for their own accounts in business
activities similar to ours. Occasions may arise when our interests would be in
conflict with those of one or more of the directors, our advisor or their
affiliates. Our directors, a majority of whom are independent, will endeavor to
exercise their fiduciary duties in a manner that will preserve and protect our
rights and the interests of the shareholders in the event any conflicts of
interest arise. Any transactions between us and any director, our advisor or any
of their affiliates, other than the purchase or sale, in the ordinary course of
our business, of church bonds from or through the underwriter, will require the
approval of a majority of the directors who are not interested in the
transaction.
Transactions with Affiliates and Related Parties
We compensate our advisor and its affiliates for services they provide to
us. Our board of directors has the responsibility to ensure that such services
are provided on terms no less favorable than we could obtain from unrelated
persons or entities. The underwriter may receive commissions from our
transactions in church bonds, and our principals and our advisor may receive a
benefit in connection with such transactions due to their affiliation with the
underwriter.
Compensation to Our Advisor and Conflicts of Interest
We pay our advisor an annual advisory fee equal to a 1.25% of our average
invested assets up to $35 million. This fee is reduced to 1.0% on assets from
$35 million to $50 million and to .75% on assets over $50 million. The fee is
not dependent on our advisor's performance. Our advisor receives a portion of
the fees we make when we make or renew a mortgage loan based upon a percentage
of the amount paid by a mortgage borrower as "points," or origination fees.
Accordingly, a conflict of interest could arise since the retention, acquisition
or disposition of a particular loan could be advantageous to our advisor, but
detrimental to us, or vice-versa. Because origination fees are payable upon the
closing of the loan or its renewal, and the amount is dependent upon the size of
the mortgage loan, our advisor may have a conflict of interest in negotiating
the terms of the loan and in determining the appropriate amount of indebtedness
to be incurred by the borrower.
We and our advisor believe that it would not be possible, as a practical
matter, to eliminate these potential conflicts of interest. However, the
advisory agreement must be renewed annually by the affirmative vote of a
majority of the independent directors. The independent directors may determine
not to renew the advisory agreement if they determine that our advisor is not
satisfactorily performing its duties. In connection with the performance of
their fiduciary responsibilities, the existence of possible conflicts of
interest will be one of the factors for the directors to consider in determining
the action we will take.
Compensation to the Underwriter and Conflicts of Interest
We will pay the underwriter commissions based on the gross amount and
maturities of the certificates it sells on our behalf in this offering. A
conflict of interest could arise from this compensation arrangement, as the
underwriter may be incented to sell certificates at a time when we may not be
able to immediately deploy the resulting proceeds to fund mortgage loans or
purchase church bonds.
Our Affiliates May Compete with Us
Any of our directors or officers may have personal business interests that
conflict with our interests and may engage in the church lending business or any
other business. A director or officer may have an interest in an entity we
engage to render advice or services, and may receive compensation from such
entity in addition to compensation received from us.
The underwriter provides financing to churches and other not-for-profit
religious organizations. Therefore, a conflict could arise if the underwriter
were to pursue and secure a lending opportunity otherwise available to us.
However, the average size of first mortgage bond financings undertaken by the
underwriter is approximately $1.75 million, with $1,000,000 being its stated
(but not required) minimum financing. We focus on financings ranging from
$100,000 to $1,000,000 in size. Conflicts of interest between the underwriter
and us likely will be reduced by virtue of the targeted size of loans pursued by
each. We have agreed with the underwriter that financing prospects of less than
$1,000,000 will be first directed to us for consideration. If we determine that
the loan is not suitable or decline to make the loan for any reason, or if the
prospective borrower independently declines to accept our lending, then the
underwriter or its affiliates will have the opportunity to provide financing to
that prospective borrower.
- 20 -
Neither our advisor nor its affiliates are prohibited from providing the
same services to others, including competitors. These relationships may produce
conflicts in our advisor's and its affiliates' allocation of time and resources
among various projects.
Non Arm's-Length Agreements
Many agreements and arrangements we have with our advisor and its
affiliates, including those relating to compensation, were not negotiated at
arm's-length. The conflicts or potential conflicts arising from these agreements
and arrangements are mitigated by the following factors: (i) our bylaws limit
our operating expenses to an amount that does not exceed the greater of 2% of
our average invested assets or 25% of our net income unless the independent
directors approve a higher amount and disclose the justification for the higher
expenses to our investors; (ii) our advisor seeks to structure its business
relationships so as to be competitive with other programs in the marketplace;
and (iii) the agreements and arrangements are subject to approval by a majority
of our independent directors.
Lack of Separate Legal Representation
The law firm of Winthrop & Weinstine, P.A., Minneapolis, Minnesota, is
counsel to us in connection with this offering and may in the future act as
counsel to us, the underwriter, our advisor, our affiliates, and various
affiliates of our advisor with respect to other matters. There is a possibility
that in the future the interests of the various parties may become adverse. In
the event that a dispute were to arise between us and the underwriter, our
advisor or any of its affiliates, or our affiliates, separate counsel for such
matters will be retained as and when appropriate.
Shared Operations Facilities
We are located in the leased offices of the underwriter, American
Investors Group, Inc., in Minnetonka (Minneapolis), Minnesota. We expect to
continue to be housed in these or similar leased premises along with the
underwriter and its affiliates. We are not separately charged for rent or
related expenses. Our advisor incurs our occupancy expense and many of our
operating expenses in exchange for the advisory fee.
DISTRIBUTIONS
In order to qualify for the beneficial tax treatment afforded real estate
investment trusts by the Internal Revenue Code, we are required to pay dividends
in annual amounts which are equal to at least 90% of our "real estate investment
trust taxable income." We intend to make distributions that meet this
requirement. Annual distributions will be estimated for the first three quarters
of each fiscal year and adjusted annually based upon our audited year-end
financial report.
Note: Investors who purchase certificates in this offering will not be
entitled to receive dividends from us as they will not own any of our common
stock.
- 21 -
We began making regular quarterly distributions to our shareholders for
the period of operations ended June 30, 1996. Distributions for prior years, and
the period ended June 30, 2008, and the yield and annualized yield,
respectively, represented by such distributions (assuming shares were purchased
for $10.00 per share), are as follows:
Dollar Amount Yield
Distributed Per Share
For Year Ended: Per Share(1): Represented:
--------------------- ------------- ------------
December 31, 1996 0.6646 9.375%
December 31, 1997 0.9475 9.475%
December 31, 1998 0.8906 8.906%
December 31, 1999 0.8500 8.50%
December 31, 2000 0.8250 8.25%
December 31, 2001 0.8313 8.3125%
December 31, 2002 0.7688 7.6875%
December 31, 2003 0.6500 6.50%
December 31, 2004 0.6688 6.6875%
December 31, 2005 0.6188 6.1875%
December 31, 2006 0.5875 5.875%
December 31, 2007 0.2625 2.625%
June 30, 2008 0.20 4.00%(2)
- ----------
(1) Yield for shares purchased for $10.00 per share.
(2) Represents annualized yield for the six months ended June 30, 2008.
- 22 -
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 2007 and
June 30, 2008 and as of December 31, 2007 and June 30, 2008 as adjusted to give
effect to the sale of all of the certificates offered hereby, of which there can
be no assurance.
December 31, December 31, June 30, June 30,
2007 2007 2008 2008
Actual As Adjusted Actual As Adjusted
------------ ------------ ------------ ------------
Long Term Debt $ 20,634,000 $ 40,634,000 $ 19,922,000 $ 39,922,000
Current Liabilities 5,799,055 5,799,055 6,521,747 6,521,747
Deferred Income 596,164 596,164 586,823 586,823
Shareholder's Equity 24,936 24,936 24,721 24,721
Common Stock, $.01 par value per
share; 30,000,000 shares
authorized; issued and outstanding
2,493,595 shares at December 31,
2007 and 2,472,081 shares at June
30, 2008
Additional Paid-In Capital 22,927,644 22,927,644 22,814,911 22,814,911
Accumulated Deficit (1,699,000) (1,699,000) (1,834,003) (1,834,003)
Total Shareholder's Equity 21,253,580 21,253,580 21,005,629 21,005,629
Total Capitalization $ 48,282,799 $ 68,282,799 $ 48,036,199 $ 68,036,199
- 23 -
OUR BUSINESS
General
American Church Mortgage Company was established by American Investors
Group, Inc. (the "underwriter" or "American") to service demand that the
principals of American identified through the course of its business for
mortgage lending to church borrowers in the amount of $100,000 to $2,000,000.
Because of the regulatory and administrative expenses associated with bond
financing, the economic feasibility of bond financing diminishes for financings
under $750,000. As a result, American believed that many churches were forced to
either forego the project for which their financing request was made, fund their
project from cash flow over a period of time and at greater expense, or seek
bank financing on terms which were not always favorable or available to them. We
were incorporated in Minnesota on May 27, 1994 to provide a lending source to
this segment of the industry, capitalizing on a lack of significant competition
in the specialized business of making smaller church loans, the experienced
human resources available at American and our advisor, and the marketing,
advertising and general goodwill of American. We began making loans in April
1996. We make loans throughout the United States in principal amounts limited in
range from $100,000 to $2,000,000. We may invest up to 30% of our average
invested assets in mortgage-secured debt securities (bonds) issued by churches
and other non-profit religious organizations. We intend to lend funds and
acquire mortgage secured investments pursuant to our business plan as additional
funds become available from this offering, and thereafter as funds from loan
repayments, bond maturities and other resources become available.
We utilize American's unique specialization in procuring, qualifying and
servicing church loans to enhance our operations. American has underwritten
first mortgage bonds for churches throughout the United States since 1987. In
underwriting church bonds, American reviews financing applications, analyzes
prospective borrowers' financial capability, and structures, markets and sells,
mortgage-backed bond securities to the investing public. Since its inception,
American has underwritten approximately 235 church bond financings, in which
approximately $476,030,000 in first mortgage bonds have been sold to public
investors. The average size of church bond financings underwritten by American
since its inception is approximately $2,026,000.
Since our establishment, we have funded 165 mortgage loans to churches for
a total amount of $83,340,954. As of June 30, 2008, we had 74 mortgage loans
outstanding in the original aggregate principal amount of $35,802,175 and own
church bonds having a face value of $11,966,000.
Financing Business
We make first mortgage loans in amounts ranging from $100,000 to
$2,000,000, to churches and other non-profit religious organizations, and invest
in mortgage-secured debt instruments issued by churches and other non-profit
religious organizations, called church bonds. We apply essentially all of our
working capital (after adequate reserves determined by our advisor) toward
making mortgage loans and investing in church bonds. We seek to:
o find qualified borrowers and make loans in accordance with our
Lending Guidelines;
o lend at rates of interest in excess of our cost of funds;
o offer competitively attractive mid-term (5-15 years) loans and
long-term (20-30 year) loans (although there is no limit on the term
of our loans);
o charge origination fees, or "points," from the borrower at the
outset of a loan and upon any renewal of a loan;
o make a limited amount of higher-interest rate second mortgage loans
and construction loans to qualified borrowers; and
o purchase a limited amount of mortgage-secured debt securities issued
by churches and other non-profit religious organizations, typically
at par value.
Our policies limit the amount of second mortgage loans to 20% of our
average invested assets on the date any second mortgage loan is closed, and
limit the amount of mortgage-secured debt securities to 30% of average invested
assets on the date of their purchase. All other mortgage loans we make (or
church bonds purchased for investment) will be secured by a first mortgage or
deed of trust on the borrower's real property. As of June 30, 2008, the
percentage of average invested assets in second mortgage loans, and the
percentage of average invested assets in mortgage-secured debt securities, was
less than 1% and 26.6% respectively. As we attempt to make mortgage loans that
maximize interest income, we may make longer-term fixed-rate loans in our
discretion in order to reduce the risk of downward interest rate fluctuations.
Our lending and investing decisions, including determination of a
prospective borrower's or church bond issuer's financial credit worthiness, are
made for us by our advisor. We have no employees. Employees and agents of our
advisor conduct all aspects of our business, including (i) marketing and
advertising; (ii) communication with prospective borrowers;
- 24 -
(iii) processing loan applications; (iv) closing loans; (v) servicing loans; and
(vi) administering our day-to-day business activities. In consideration of its
services, the advisor is entitled to receive a fee equal to 1.25% annually of
the Company's average invested assets, plus one-half of any origination fee
charged to borrowers on mortgage loans we make. The advisor's management fees
are computed and payable monthly.
Current First Mortgage Loan Terms
We offer prospective borrowers a selection of loan types, which include a
choice of fixed or variable rates of interest indexed to the prime rate, the
U.S. Treasury 10-Year Notes, or another generally recognized reference index,
and having various terms to maturity, origination fees and other terms and
conditions. The terms of loans we offer may be changed by our advisor as a
result of such factors as (i) the credit quality and experience of the
borrowers; (ii) the terms of loans in our portfolio; (iii) competition from
other lenders; (iv) anticipated need to increase the overall yield on our
mortgage loan portfolio; (v) local and national economic factors; and (vi)
actual experience in borrowers' demand for the loans. We currently make the loan
types described in the table below. This table describes material terms of loans
available from us. The table does not purport to identify all possible terms,
rates, and fees we may offer. We may modify the terms identified below or offer
loan terms different than those identified below. Many loans are individually
negotiated and differ from the terms described below.
Loan Type Interest Rate (1) Origination Fee (2)
- ------------------------ --------------------------------- -------------------
25/30 Year Term(3) Fixed @ 8.75%/8.95% respectively 3.5%
20 Year Term(3) Variable Annually @ Prime + 2.50% 3.5%
3 Year Renewable Term(4) Fixed @ 8.25% 3.0%
Construction 1 Year Term Fixed @ 9.00% 2.0%
(1) "Prime" means the prime rate of interest charged to preferred customers,
as published by a federally chartered bank chosen by us. We may also tie
our offered interest rates to other indexes.
(2) These are "target" fees; however, negotiation of these fees with borrowers
often occurs. Origination fees are generally based on the original
principal amount of the loan and are collected from the borrower at the
origination and renewal of loans, one-half of which is payable directly to
our advisor.
(3) Fully amortized repayment term. Amortization terms may vary, as may other
loan terms, depending on individual loan negotiations and competitive
forces.
(4) Renewable term loans are repaid based on a 25-year amortization schedule,
and are renewable at the conclusion of their initial term for additional
like terms up to an aggregated maximum of 25 years. We charge a fee of 1%
upon the date of each renewal. If renewed by the borrower, the interest
rate is adjusted upon renewal to Prime plus a specified percentage
"spread."
- 25 -
Property Portfolio of the Company
As of June 30, 2008, we had 74 first mortgage loans aggregating
$35,802,175 in original principal amount, and purchased $11,966,000 original
principal amount first mortgage bonds issued by churches. The table below
identifies the borrowing institutions and certain key terms of the loans
comprising our loan portfolio as of June 30, 2008.
Loan Loan Interest Collateral Appraised
Borrowing Church Amount Term Rate Value Funding Date
- ------------------------------------------------- ---------- -------- -------- -------------------- ------------
Praise Chapel International(1) $115,000 5 years 10.00% $ 175,000 03/02/99
Greater Hill Zion Baptist Church $500,000 20 years 9.75% $1,040,000 05/20/99
Freewill Christian Center $596,000 20 years 10.00% $ 797,000 06/22/99
Bethel Temple of Longview $500,000 20 years 10.25% $1,550,000 06/04/99
Greater Fort Lauderdale $605,000 20 years 9.75% $ 900,000 07/08/99
Old Morning Star Church (2) $280,000 20 years 9.85% $ 356,000 12/21/99
Praise Christian Center $500,000 20 years 9.85% $ 926,000 01/21/00
St. Paul AME Church $200,000 20 years 10.25% $ 325,000 11/02/00
Second Missionary Baptist Church $225,000 20 years 10.25% $ 370,000 06/19/01
True Vine Gospel Church $350,000 25 years 9.95% $ 500,000 11/15/01
Nehemiah Christian Center (3) $115,000 3 years 8.50% $ 140,000 05/30/02
Eagle Vision Community Church $165,000 20 years 9.25% $ 215,000 07/19/02
Holly Grove Missionary Baptist Church $205,000 20 years 9.25% $ 461,900 09/19/02
House of Joy & Praise Outreach Center $435,000 20 years 9.25% $ 780,000 12/30/02
Bread of Life Baptist Church $763,000 20 years 9.25% $1,160,000 02/21/03
Life Changing Faith Christian Church $460,000 20 years 9.00% $ 690,000 03/12/03
Zion Hill Baptist Church $255,000 20 years 8.65% $ 365,000 5/30/03
Bend Christian Center $445,000 25 years 8.65% $ 1,010,00 6/19/03
Believers New Life Ministries(4) $280,000 5 years 7.95% $ 395,000 6/26/03
Pembroke Park Church of Christ $520,000 20 years 8.65% $ 880,000 6/26/03
Glad Tidings Community Church $663,000 25 years 8.75% $ 900,000 6/30/03
The Apostolic Church of New York $335,000 20 years 9.25% $ 537,000 8/18/03
All Faiths Christian Center $645,000 20 years 8.65% $ 922,000 9/11/03
Landmark Apostolic Church $400,000 20 years 8.65% $ 750,000 9/19/03
Ekklesia Fellowship Ministries $227,500 20 years 8.65% $ 335,000 9/25/03
- 26 -
Loan Loan Interest Collateral Appraised
Borrowing Church Amount Term Rate Value Funding Date
- ------------------------------------------------- ---------- -------- -------- -------------------- ------------
All Saints Community Church $ 210,000 20 years 8.65% $ 300,000 11/25/03
Praise Tabernacle Jamaica $ 600,000 20 years 8.65% $ 950,143 11/25/03
The Word of the Living God Ministries, Inc. $ 650,000 20 years 8.65% $1,125,000 12/16/03
Praise Tabernacle Deliverance Baptist Church $ 500,000 25 years 8.35% $1,058,000 12/19/03
Faith Christian Center $ 475,000 20 years 8.65% $ 746,000 04/21/04
Shiloh Temple House of God $ 500,000 20 years 8.25% $ 710,000 04/29/04
Fun Family Christian Center $ 873,406 25 years 9.25% $1,290,850 05/22/04
The Lord Jesus Christ Church on the Rock $ 195,000 20 years 8.25% $ 300,000 07/09/04
New Covenant Christian Fellowship $ 375,000 20 years 8.25% $ 700,000 08/30/04
Holy Deliverance Ministries $ 238,830 20 years 9.85% $ 360,000 09/14/04
Holy Tabernacle Ministries $ 325,000 25 years 8.50% $ 500,000 09/16/04
First Church of the Spirit and Truth $ 530,000 20 years 8.25% $ 750,000 09/30/04
Bethany Uniting Faith $ 235,000 20 years 8.25% $ 330,000 10/11/04
Manifestations Worldwide $1,240,000 20 years 8.25% $1,800,000 10/27/04
Christ Wonderful World Outreach $ 543,000 20 years 8.25% $ 725,000 11/03/04
Covenant Love Christian Center $ 785,000 20 years 8.25% $1,200,000 11/10/04
Faith Christian Ministry $ 150,000 20 years 8.25% $ 220,000 11/15/04
New Life Community Church of Truth $ 570,000 20 years 8.25% $ 790,000 11/30/04
Lincoln Heights Missionary Baptist Church $ 620,000 20 years 8.25% $1,000,000 12/30/04
Zion Mission $ 410,000 25 years 8.50% $ 800,000 02/04/05
God's Praise & Worship Center $ 372,737 25 years 8.75% $ 600,000 02/10/05
Inter-Denominational Fellowship Ministries $ 315,000 25 years 8.75% $ 491,000 04/06/05
Mt. Ararat Baptist Church (5) $ 215,000 25 years 8.95% $1,000,000 04/24/05
True Vine Baptist Church $ 198,500 25 years 8.75% $ 265,000 06/01/05
Calvary Baptist Church of Houston $ 250,000 25 years 8.95% $ 350,000 06/29/05
International Deliverance Center $ 500,000 25 years 8.95% $ 738,000 06/30/05
Unity of Faith Worship Center $ 424,915 30 years 8.75% $ 835,150 06/30/05
- 27 -
Loan Loan Interest Collateral Appraised
Borrowing Church Amount Term Rate Value Funding Date
- ------------------------------------------------- ---------- -------- -------- -------------------- ------------
Iglesia de Dios Pentecostal $ 775,000 25 years 8.75% $1,008,484 07/13/05
Defenders Faith Center $ 260,000 25 years 8.95% $ 470,000 11/29/05
Abundant Faith Baptist Church $ 206,000 25 years 8.75% $ 500,000 02/15/06
Grace Christian Church $1,600,000 25 years 8.50% $2,225,000 03/30/06
Living Water Seventh-Day Adventist Church $ 640,000 30 years 8.75% $ 855,000 05/23/06
Serenity Church $ 250,000 30 years 8.95% $ 370,909 06/13/06
Evangel Temple $1,195,000 30 years 8.50% $2,485,000 06/16/06
Calvary United Methodist Church of Holly $ 395,000 30 years 8.95% $1,600,000 06/23/06
Trinity Family Church $ 625,000 30 years 8.75% $1,007,000 06/23/06
Iglesia Nueva Vida en Cristo $ 195,000 30 years 8.75% $ 233,000 06/28/06
Grace Evangelical Free Church $ 400,787 25 years 8.95% $ 900,000 08/11/06
Norman Quintero Ministries $ 275,000 25 years 9.00% $ 383,000 08/15/06
Centro Cristiano Carismatico $1,325,000 25 years 8.75% $2,640,000 09/29/06
Church of God of Prophecy of the Last Days $ 497,000 30 years 8.95% $ 710,000 12/07/06
Sword of the Word Evangelistic Ministry $ 800,000 25 years 8.75% $1,650,000 12/20/06
Church of the Living God - Full Gospel Ministries $1,055,000 30 years 8.75% $1,875,000 12/21/06
Anchored in Faith Ministries $ 675,000 25 years 9.25% $ 900,000 09/19/07
New Maranatha-Karibu SDA Church $ 427,500 30 years 8.95% $ 570,000 10/18/07
Greater St. Andrew's AME Church $ 440,000 30 years 8.95% $1,250,000 11/01/07
Burning Bush Worship Center $ 450,000 30 years 8.95% $ 600,000 12/03/07
Rock Spring Church $ 780,000 30 years 8.50% $1,425,000 12/12/07
Hope for You Family Life & Worship Center $ 450,000 3 years 7.50% $ 637,000 12/17/07
(1) Renewed for an additional five (5)year period in March 2004.
(2) Includes an initial loan in the amount of $250,000 and an additional
supplemental loan of $30,000 funded April 2001.
(3) The Church's rate has not been adjusted or changed.
(4) Refinanced to a twenty-five (25) year fully amortized fixed rate loan in
July 2008.
(5) New promissory note signed.
- 28 -
The following church bonds, which are secured by mortgages, were held by the
Company as of June 30, 2008. Each of these bonds is callable at anytime by the
issuer at par.
Company Original
Principal Purchase Face Yield Yield to Current Maturity Issue
Issuer Amount Price of Bonds Maturity Yield Date Date
- ------------------------------------------- ---------- ---------- ---------- -------- ------- ------------- --------
From the Heart Ministries, Inc. $ 13,000 $ 13,000 10.40% 10.40% 10.40% From 02/15/19 02/15/01
to 08/15/19
Abundant Life Family Worship $ 3,000 $ 2,760 10.15% 11.65% 11.03% 02/15/10 10/15/95
From the Heart $ 3,000 $ 3,000 10.40% 10.40% 10.40% 02/15/19 02/15/01
From the Heart $ 1,000 $ 1,000 10.00% 10.00% 10.00% 08/15/08 02/15/01
From the Heart $ 1,000 $ 1,000 10.15% 10.15% 10.15% 02/15/11 02/15/01
Greater Holy Trinity $ 781,000 $ 781,000 From 8.25% N/A 9.30% Serially to 12/15/01
to 9.75% 12/15/21
Swope Parkway Church of Christ $ 8,000 $ 7,440 9.95% 11.20% 10.70% 11/01/11 11/01/97
Harvest Baptist Church $ 10,000 $ 5,073.95 From 5.00% N/A N/A 04/01/19 04/28/03
to 12.00%
Harvest Baptist Church $ 6,000 $ 3,031.14 From 5.00% N/A N/A 04/01/19 04/28/03
to 12.00%
Greater St. Matthew's Baptist $ 372,000 $ 372,000 9.00% 9.00% 9.00% From 01/15/23 07/15/03
to 07/15/23
St. Agnes Missionary Baptist Church $2,000,000 $2,000,000 From 5.35% N/A 6.71% From 05/15/10 05/15/03
to 7.25% to 05/15/22
Morning Star Missionary Baptist Church $ 10,000 $ 7,500 9.80% 14.40% 13.07% 09/15/14 09/15/94
New Life Tabernacle $ 20,000 $ 20,000 7.35% 7.35% 7.35% 01/15/19 01/15/04
New Life Tabernacle $ 40,000 $ 40,000 7.75% 7.75% 7.75% 07/15/21 01/15/04
New Life Tabernacle $ 1,000 $ 1,000 7.50% 7.50% 7.50% 01/15/21 01/15/04
Chapel Hill Harvester Church $1,965,000 $1,965,000 From 7.25% N/A 7.70% From 03/01/18 03/01/04
to 8.00% to 03/01/29
New Life Tabernacle $ 48,000 $ 48,000 7.50% 7.50% 7.50% 01/15/21 01/15/04
New Life Tabernacle $ 68,000 $ 68,000 8.00% 8.00% 8.00% 01/15/27 01/15/04
New Life Tabernacle $ 3,000 $ 3,000 6.75% 6.75% 6.75% 01/15/15 01/15/04
New Life Tabernacle $ 3,000 $ 3,000 7.00% 7.00% 7.00% 01/15/16 01/15/04
New Life Tabernacle $ 8,000 $ 8,000 7.00% 7.00% 7.00% 07/15/16 01/15/04
New Life Tabernacle $ 10,000 $ 10,000 7.35% 7.35% 7.35% 01/15/19 01/15/04
- 29 -
Company Original
Principal Purchase Face Yield Yield to Current Maturity Issue
Issuer Amount Price of Bonds Maturity Yield Date Date
- ------------------------------------------- ---------- ---------- ---------- -------- ------- ------------- --------
Chapel Hill Harvester Church $ 472,000 $ 472,000 7.75% 7.75% 7.75% From 03/01/23 03/01/04
to 09/01/23
Chapel Hill Harvester Church $ 59,000 $ 59,000 8.00% 8.00% 8.00% From 03/01/24 03/01/04
to 03/01/29
Chapel Hill Harvester Church $ 17,000 $ 17,000 8.00% 8.00% 8.00% 03/01/24 03/01/04
Chapel Hill Harvester Church $ 1,000 $ 1,000 8.00% 8.00% 8.00% 03/01/28 03/01/04
Chapel Hill Harvester Church $ 1,000 $ 1,000 8.00% 8.00% 8.00% 09/01/27 03/01/04
Chapel Hill Harvester Church $ 1,000 $ 1,000 8.00% 8.00% 8.00% 03/01/25 03/01/04
Chapel Hill Harvester Church $ 10,000 $ 10,000 8.00% 8.00% 8.00% 03/01/27 03/01/04
Chapel Hill Harvester Church $ 8,000 $ 8,000 8.00% 8.00% 8.00% 03/01/28 03/01/04
Full Gospel Holy Temple $ 25,000 $ 23,500 7.25% 7.98% 7.71% 02/15/18 02/15/03
Chapel Hill Harvester Church $ 796,000 $ 796,000 From 5.75% N/A 6.09% From 09/01/11 03/01/04
to 7.50% to 03/01/21
Chapel Hill Harvester Church $ 30,000 $ 28,200 7.75% 8.41% 8.24% 03/01/22 03/01/04
St. Agnes Missionary Baptist Church $ 30,000 $ 27,300 7.00% 8.18% 7.69% 11/15/16 05/15/03
Agape Assembly Baptist Church $ 400,000 $ 400,000 9.00% 9.00% 9.00% From 06/15/29 12/15/04
to 12/15/29
Original Holy Ark $ 2,000 $ 2,000 10.00% 10.00% 10.00% 10/15/13 04/15/97
Missionary Baptist Church
Agape Assembly Baptist Church $ 97,000 $ 97,000 9.00% 9.00% 9.00% From 12/15/28 12/15/04
to 06/15/29
Agape Assembly Baptist Church $ 248,000 $ 248,000 7.75% 7.75% 7.75% From 12/15/20 12/15/04
to 06/15/21
Agape Assembly Baptist Church $ 150,000 $ 150,000 7.50% 7.50% 7.50% From 12/15/18 12/15/04
to 06/15/19
United Apostolic Church $ 1,000 $ 1,000 6.00% 6.00% 6.00% 05/15/14 05/15/05
United Apostolic Church $ 3,000 $ 3,000 6.50% 6.50% 6.50% 05/15/16 05/15/05
United Apostolic Church $ 5,000 $ 5,000 6.75% 6.75% 6.75% 05/15/17 05/15/05
- 30 -
Company Original
Principal Purchase Face Yield Yield to Current Maturity Issue
Issuer Amount Price of Bonds Maturity Yield Date Date
- ------------------------------------------- ---------- ---------- ---------- -------- ------- ------------- --------
United Apostolic Church $ 13,000 $ 13,000 7.00% 7.00% 7.00% From 11/15/17 05/15/05
to 11/15/19
United Apostolic Church $ 12,000 $ 12,000 7.25% 7.25% 7.25% 11/15/21 05/15/05
United Apostolic Church $ 4,000 $ 4,000 7.50% 7.50% 7.50% 05/15/23 05/15/05
Agape Assembly Baptist Church $ 24,000 $ 24,000 6.25% 6.25% 6.25% 06/15/12 12/15/04
Agape Assembly Baptist Church $ 76,000 $ 76,000 6.50% 6.50% 6.50% From 06/15/13 12/15/04
to 12/15/13
Agape Assembly Baptist Church $ 119,000 $ 119,000 6.75% 6.75% 6.75% From 06/15/14 12/15/04
to 12/15/14
Agape Assembly Baptist Church $ 5,000 $ 5,000 7.25% 7.25% 7.25% 12/15/16 12/15/04
Christ Bible Teaching Center $ 36,000 $ 36,000 From 5.00% N/A 6.14% From 01/15/10 07/15/05
to 6.75% to 01/15/17
Brea Baptist Church $ 543,000 $ 543,000 From 4.50% N/A 5.98% From 04/01/09 10/01/05
to 6.75% to 04/01/19
Grace Community Church $ 214,000 $ 214,000 8.00% 8.00% 8.00% From 08/15/30 02/15/06
to 08/15/32
Christ Fellowship Baptist Church $ 25,000 $ 25,000 7.50% 7.50% 7.50% 12/01/21 06/01/06
Christ Fellowship Baptist Church $ 25,000 $ 25,000 7.75% 7.75% 7.75% 12/01/23 06/01/06
Greater New Macedonia Miss. Baptist Church $ 1,000 $ 1,000 10.15% 10.15% 10.15% 01/15/11 07/15/00
Greater New Macedonia Miss. Baptist Church $ 1,000 $ 1,000 10.15% 10.15% 10.15% 07/15/11 07/15/00
St. Agnes Missionary Baptist Church $ 5,000 $ 4,850 8.00% 8.30% 8.25% 11/15/27 05/15/03
Redeemed Christian Church of God $ 60,000 $ 60,000 9.00% 9.00% 9.00% 11/01/36 11/01/06
Oak Grove Missionary Baptist Church $ 993,000 $ 993,000 8.50% 8.50% 8.50% From 02/01/33 08/01/06
to 08/01/36
Christ Fellowship Baptist Church $ 157,000 $ 157,000 8.00% 8.00% 8.00% From 02/01/10 06/01/06
to 06/01/14
- 31 -
Company Original
Principal Purchase Face Yield Yield to Current Maturity Issue
Issuer Amount Price of Bonds Maturity Yield Date Date
- ------------------------------------------- ---------- ---------- ---------- -------- ------- ------------- --------
Chapel Hill Harvester Church $ 10,000 $ 8,900 8.00% 9.27% 8.99% 09/01/24 03/01/04
Grace Community Church $ 4,000 $ 3,560 7.75% 8.87% 8.71% 12/15/29 12/15/04
United Baptist Church $ 3,000 $ 2,670 5.25% 9.06% 5.90% 06/01/10 06/01/05
United Baptist Church $ 3,000 $ 2,670 5.50% 8.53% 6.18% 06/01/11 06/01/05
United Baptist Church $ 1,000 $ 890 5.75% 8.12% 6.46% 12/01/12 06/01/05
First Love Fellowship $ 5,000 $ 4,450 7.75% 9.02% 8.71% 01/15/24 07/15/06
His Tabernacle Family Church $ 240,000 $ 240,000 From 8.25% N/A 8.74% From 09/01/15 03/01/07
to 9.00% to 03/01/22
New Beginnings Cathedral of Worship $ 281,000 $ 281,000 7.00% 7.00% 7.00% 09/15/36 09/15/06
Redeemed Christian Church of God $ 151,000 $ 151,000 8.25% 8.25% 8.25% From 05/01/34 11/01/06
to 11/01/35
Calvary Tabernacle $ 277,000 $ 277,000 8.90% 8.90% 8.90% From 12/15/33 06/15/07
to 06/15/34
New Life Tabernacle $ 2,000 $ 1,880 7.25% 8.08% 7.71% 07/15/18 01/15/04
Abundant Life Family Worship Center $ 1,000 $ 940 10.35% 11.49% 11.01% 08/15/15 08/15/96
Abundant Life Family Worship Center $ 15,000 $ 13,800 10.30% 12.00% 11.20% 08/15/14 08/15/96
The House of Refuge Apostolic Church $ 113,000 $ 113,000 8.75% 8.75% 8.75% From 02/15/37 08/15/07
to 08/15/37
Full Gospel Holy Temple $ 5,000 $ 4,400 5.25% 12.88% 5.97% 08/15/09 02/15/03
The New York Dong Yang Church $ 2,000 $ 1,760 6.00% 8.96% 6.82% 12/01/12 12/01/03
Redeemed Christian Church of God $ 211,000 $ 211,000 9.00% 9.00% 9.00% From 11/15/36 11/15/07
to 11/15/37
Morning Star Missionary Baptist Church $ 5,000 $ 4,100 9.80% 14.23% 11.95% 03/15/14 09/15/94
Morning Star Missionary Baptist Church $ 5,000 $ 4,400 9.50% 22.04% 10.80% 03/15/09 09/15/94
Abundant Life Family Worship Center $ 3,000 $ 2,670 10.20% 15.56% 11.46% 08/15/10 08/15/96
Bethlehem Missionary Church $ 3,000 $ 2,655 9.20% 11.07% 10.40% 08/15/18 09/14/99
- 32 -
Company Original
Principal Purchase Face Yield Yield to Current Maturity Issue
Issuer Amount Price of Bonds Maturity Yield Date Date
- ------------------------------------------- ---------- ---------- ---------- -------- ------- ------------- --------
Copperas Cove Unity $ 113,000 $ 113,000 8.50% 8.50% 8.50% From 02/15/38 02/15/08
Missionary Baptist Church to 02/15/39
The Church of the Pentecost USA $ 495,000 $ 495,000 From 6.00% N/A 8.19% From 08/15/08 02/15/08
to 8.75% to 02/15/38
New Community Baptist $ 5,000 $ 5,000 8.25% 8.25% 8.25% 08/15/35 02/15/08
Church of Pine Bluff, AR
Mortgage Loan Processing and Underwriting
Our advisor's personnel process and verify mortgage loan applications.
Verification procedures are designed to assure a borrower's qualification under
our Lending Guidelines. Verification procedures include obtaining:
o applications containing key information concerning the prospective
borrower
o project description
o financial statements of the prospective borrower
o organizational documents and history of the borrower
o preliminary title report or commitment for mortgagee title insurance
o a real estate appraisal in accordance with our Lending Guidelines
We require that appraisals and financial statements be prepared by
independent third-party professionals who are pre-approved based on their
experience, reputation and education. Completed loan applications, together with
a written summary are presented by a loan analyst to our loan committee for
consideration. Our loan committee is usually comprised of both our advisor's
president and our advisor's vice-president, but at times items also includes our
advisor's loan officer/administrator and other officers and employees of the
Advisor and the Advisor's affiliates. Once the loan committee has met and
evaluated and discussed a potential loan, the loan is approved or denied,
typically by consensus. If accepted, the loan, the terms of which may have been
revised by the committee, is then presented to the potential borrower, who may,
from time to time, be permitted to negotiate additional revisions. Once a
borrower has accepted a loan proposal, however, it must submit a good faith
deposit. At that point, a loan officer of our advisor may begin the loan
preparation process by arranging for certain services on behalf of the borrower,
in order to achieve pricing and timing efficiencies. Such services may include,
but are not limited to: the provision of mortgage title insurance and for the
services of professional independent third-party accountants and appraisers
regarding delivery of title commitments, preliminary title reports, title
policies, environmental evaluations, financial statements, and appraisals
meeting our loan lending criteria. Our advisor may arrange for the direct
payment for professional services and for the direct reimbursement to it of
related expenditures by borrowers and prospective borrowers. Upon closing and
funding of mortgage loans, an origination fee based on the original principal
amount of each loan is generally charged, of which one-half is payable to us and
one-half is payable to our advisor.
Loan Commitments
Subsequent to approval by our loan committee, and prior to funding a loan,
we issue a loan commitment to qualified applicants. We may charge a loan
commitment fee, but typically do not. Commitments indicate the loan amount,
origination fees, closing costs, underwriting expenses (if any), funding
conditions, approval expiration dates, interest rate and other terms.
Commitments generally set forth a "prevailing" interest rate that is subject to
change in accordance with market interest rate fluctuations until the final loan
closing documents are prepared. In certain cases we may establish ("lock-in")
interest rate
- 33 -
commitments up to sixty days from the commitment to closing. Interest rate
commitments beyond sixty days will not normally be issued unless we receive a
fee premium based upon the assessment of the risk associated with a longer
"lock-in" period.
Loan Portfolio Management
Our advisor manages and services our portfolio of mortgage loans in
accordance with an advisory agreement. Our advisor is responsible for all
aspects of our mortgage loan business, including:
o closing and recording of mortgage documents
o collecting principal and interest payments
o enforcing loan terms and other borrower's requirements
o periodic review of each mortgage loan file
o determination of reserve classifications
o exercising our remedies in connection with defaulted or non-performing
loans
Fees and costs of attorneys, insurance, bonds and other direct expenses
incurred in connection with the exercise of remedies in connection with a loan
default are our responsibility, although they may be recouped from the borrower
in the process of pursuing our remedies. Our advisor will not receive any
additional compensation for services rendered in connection with on-going loan
portfolio management or exercising our remedies in the event of a loan default.
Loan Funding and Borrowing
Our mortgage loans and purchases of church bonds are funded with available
cash resources. Historically, we have obtained cash resources from the sale of
our common stock, the repayment of our investments in loans and bonds, the sale
of certificates and from our line of credit. We will use the proceeds of the
sale of certificates to fund mortgage loans and purchase church bonds. We may
borrow up to 300% of shareholders' equity, unless greater amounts are permitted
under certain circumstances. We have a $4,500,000 secured line of credit with
Beacon Bank, Shorewood, Minnesota. We intend to use this loan facility to enable
us to close loans on schedule while we may not otherwise have adequate funds on
hand. The Beacon Bank line of credit is secured by church bonds owned by us.
This line of credit is used periodically to fund loans when we do not otherwise
have sufficient capital to do so. Historically, the line has been paid as soon
as additional capital becomes available to us. We pay Beacon Bank a rate of
interest equal to the prime interest rate up to a prime rate of 6.00%, and when
above 6.00%, a rate equal to the prime rate less 1/2% but not less than 6.00%,
in addition to a nominal annual renewal fee.
Lending Guidelines
Our business of mortgage lending to churches and other non-profit
religious organizations is managed in accordance with and subject to our Lending
Guidelines. Our Lending Guidelines identify our general business guidelines and
the parameters of our lending business.
- Loans we make are limited to churches and other non-profit religious
organizations and are secured by mortgages. The total principal amount of
our second mortgage loans is limited to 20% of our average invested
assets. All other loans and bonds will be secured by first mortgages.
- The total principal amount of mortgage-secured debt securities we purchase
from churches and other non-profit religious organizations is limited to
30% of our average invested assets.
- The loan amount cannot exceed 75% of the appraised value of the real
estate and improvements securing each loan. On all loans, we require a
written appraisal certified by a member of the Appraisal Institute or a
state-certified appraiser.
- The borrower must furnish us with an ALTA (American Land Title
Association) or equivalent mortgagee title policy insuring our mortgage
interest.
- 34 -
- The borrower's long-term debt (including the proposed loan) cannot exceed
four times the borrower's gross income for the previous 12 months.
- The borrower must furnish us with financial statements (balance sheet and
income and expense statement) for its last three (3) complete fiscal years
and current financial statements for the period within ninety (90) days of
the loan closing date. A borrower must have the last complete fiscal year
financial statements reviewed by a certified public accountant (CPA)
engaged by the borrower and who is independent of the borrower. On loans
in excess of $500,000 our advisor may require the last complete fiscal
year be audited by a CPA engaged by the borrower and who is independent of
the borrower. In lieu of the above requirement, we or our advisor may
employ a qualified accountant. The qualified accountant we employ would be
required to be independent of the borrower. Our employed qualified
accountant would not be independent of us. Compiled financial statements
of the borrower are acceptable from our employed qualified accountant.
Along with the compiled financial statements of the borrower, our employed
qualified accountant would perform partial and targeted review examination
procedures for borrowers. On loans in excess of $500,000, the advisor may
require partial and targeted audit examination procedures for borrowers.
- Borrowers in existence for less than three (3) fiscal years must provide
financial statements since their inception. No loan will be extended to a
borrower in operation less than two (2) calendar years absent express
approval by our Board of Directors.
- Our advisor typically requires the borrower to arrange for automatic
electronic or drafting of monthly payments.
- Our advisor may require (i) key-person life insurance on the life of the
senior pastor of a church; (ii) personal guarantees of church members
and/or affiliates; and (iii) other security enhancements for our benefit.
- The borrower must agree to provide us with annual financial statements
within 120 days of each fiscal year end during the term of the loan.
- Our advisor may require the borrower to grant to us a security interest in
all personal property located and to be located upon the mortgaged
premises (excluding property leased by the borrower).
- We may make fixed-interest rate loans having maturities of three to thirty
years.
- We may borrow up to 300% of shareholders' equity, unless greater amounts
are permitted under certain circumstances.
We require borrowers to maintain a general perils and liability coverage
insurance policy naming us as the loss-payee in connection with damage or
destruction to the property of the borrower which typically includes
weather-related damage, fire, vandalism and theft. In its discretion, our
advisor may require the borrower to provide flood, earthquake and/or other
special coverage.
These Lending Guidelines are in addition to the prohibited investments and
activities set forth in our bylaws, which are discussed in the next section.
Prohibited Investments and Activities
Our bylaws impose certain prohibitions and restrictions on our investment
practices and activities, including prohibitions against:
- Investing more than 10% of our total assets in unimproved real property or
mortgage loans on unimproved real property;
- Investing in commodities or commodity futures contracts other than
"interest rate futures" contracts intended only for hedging purposes;
- Investing in mortgage loans (including construction loans) on any one
property which in the aggregate with all other mortgage loans on the
property would exceed 75% of the appraised value of the property unless
substantial justification exists because of the presence of other
underwriting criteria;
- 35 -
- Investing in mortgage loans that are subordinate to any mortgage or equity
interest of our advisor or our directors or any of their affiliates;
- Investing in equity securities;
- Engaging in any short sales of securities or in trading, as distinguished
from investment activities;
- Issuing redeemable equity securities;
- Engaging in underwriting or the agency distribution of securities issued
by others;
- Issuing options or warrants to purchase our shares at an exercise price
less than the fair market value of the shares on the date of the issuance
or if the issuance thereof would exceed 10% in the aggregate of our
outstanding shares;
- Issuing debt securities unless the debt service coverage for the most
recently completed fiscal year, as adjusted for known changes, is
sufficient to properly service the higher level of debt;
- Investing in real estate contracts of sale unless such contracts are in
recordable form and are appropriately recorded in the chain of title;
- Selling or leasing to our advisor, a director or any affiliate thereof
unless approved as being fair and reasonable by a majority of directors
(including a majority of independent directors), not otherwise interested
in such transaction;
- Acquiring property from our advisor or any director, or any affiliate
thereof (other than church bonds from American Investors Group, Inc. in
the ordinary course of our investing activities), unless a majority of our
directors (including a majority of our independent directors) not
otherwise interested in such transaction approve the transaction as being
fair and reasonable and at a price no greater than the cost of the asset
to our advisor, director or any affiliate thereof, or if the price is in
excess of such cost, that substantial justification for such excess exists
and such excess is reasonable. In no event shall the cost of such asset
exceed its current appraised value;
- Investing or making mortgage loans unless a mortgagee's or owner's title
insurance policy or commitment as to the priority of the mortgage or
condition of title is obtained; or
- Issuing our shares on a deferred payment basis or other similar
arrangement.
We do not intend to invest in the securities of other issuers for the
purpose of exercising control, to engage in the purchase and sale of investments
other than as described in this prospectus, to offer securities in exchange for
property unless deemed prudent by a majority of our directors, to repurchase or
otherwise reacquire our shares or to make loans to other persons except in the
ordinary course of our business as described herein.
We will not make loans to or borrow from, or enter into any contract,
joint venture or transaction with, any director or officer of ours, our advisor
or any affiliate of any of the foregoing unless a majority of our directors,
including a majority of the independent directors, approves the transaction as
fair and reasonable to us and the transaction is on terms and conditions no less
favorable to us than those available from unaffiliated third parties. If we
invest in any property, mortgage or other real estate interest pursuant to a
transaction with our advisor or any directors or officers thereof, then the
investment will be based upon a current appraisal of the underlying property
from an independent qualified appraiser selected by the independent directors
and will not be made at a price greater than fair market value as determined by
such appraisal.
Policy Changes
Our bylaw relating to policies, prohibitions and restrictions referred to
under "Our Business - Prohibited Investments and Activities" may not be changed
(except in certain immaterial respects by a majority approval of the board of
directors) without the approval of a majority of the independent directors and
the approval of the holders of a majority of our shares, at a duly held meeting
for that purpose.
Competition
The business of making loans to churches and non-profit religious
organizations is competitive. We compete with a wide variety of investors,
including banks, savings and loan associations, insurance companies, pension
funds and fraternal
- 36 -
organizations which may have investment objectives similar to ours. Many
competitors have greater financial resources, larger staffs and longer operating
histories than we have. We compete by offering loans with competitive and
flexible terms, and emphasizing our expertise in this specialized industry
segment.
Allowance for Mortgage Loans Receivable
The Company records loans receivable at their estimated net realizable
value, which is the unpaid principal balance less the allowance for mortgage
loans. The Company's loan policy provides an allowance for estimated
uncollectible loans based on an evaluation of the current status of the loan
portfolio. This policy reserves for principal amounts outstanding on a
particular loan if cumulative interruptions occur in the normal payment schedule
of a loan. The Company reserves for the outstanding principal amount of a loan
in the Company's portfolio if the amount is in doubt of collection.
Additionally, no interest income is recognized on non-performing loans that are
in the foreclosure process. At December 31, 2007, the Company reserved
approximately $72,000 for fourteen mortgage loans, of which four were three or
more mortgage payments in arrears, and three were in the foreclosure process, of
which one has declared bankruptcy. At June 30, 2008, the Company reserved
approximately $68,000 for nine mortgage loans, of which three churches are three
or more mortgage payments in arrears and two churches are in the foreclosure
process.
The total outstanding principal amount of non-performing loans, which are loans
that are in the foreclosure process or are no longer performing, was
approximately $621,000 and $1,156,000 at June 30, 2008 and December 31, 2007,
respectively.
Loan Loss Provision
Of our significant accounting policies, described in the notes to our
financial statements incorporated by reference hereto, we believe that the
estimation of fair value of our mortgage loans receivable, bond portfolio and
real estate held for sale involve a high degree of judgment. We estimate the
fair value of our mortgage loans receivable based on the average interest rate
for special purpose commercial mortgage rates extracted from the most recent
edition of www.RealtyRates.com. The carrying value of the bond portfolio
approximates amortized cost since our bonds are callable at any time by the
issuer at par and the bond portfolio yield is currently higher than interest
rates on similar instruments. We do consider the interest rate or the yield rate
of a loan or bond in estimating fair value. We do not consider the availability
of a market for a loan in estimating fair value. The value of real estate held
for sale is based on management's estimate, real estate appraisals and similar
property market comparisons.
Our loan loss policy results in reserves based on a percentage of the
principal amount outstanding on a loan if cumulative interruptions occur in the
normal payment schedule of a loan. The amount reserved under our loan loss
policy on delinquent loans ranges from 1% to 5% of the outstanding principal
amount of the loan, depending on the number of payments that are delinquent.
Management reviews the amount reserved on payments that are in arrears on an
ongoing basis and may increase the amount reserved to adequately reflect the
amount that is believed to be collectible.
Real Estate Held for Sale/Description of Property Acquired through Foreclosure
As of June 30, 2008, we have five properties acquired through foreclosure.
Each property is valued based on its current listing price less any anticipated
selling costs, including, for example, realtor commissions. The fair value of
our real estate held for re-sale is approximately $1,656,000 and $1,567,000 as
of June 30, 2008 and December 31, 2007, respectively. We sold one of our
properties in January 2008. A description of each property we have acquired
through foreclosure is listed below.
Foreclosure was completed on a church located in Battle Creek, Michigan.
The church congregation disbanded and the church property is currently
unoccupied. The Company owns and has taken possession of the church and has
listed the property for sale through a local realtor.
Foreclosure was also completed on a church located in Tyler, Texas. The
church congregation is now meeting in a different location and the church
property is currently unoccupied. The Company owns and has taken possession of
the church and has listed the property for sale through a local realtor.
A deed in lieu of foreclosure was received from a church located in
Cleveland, Ohio. The Company took possession of the church and listed the
property for sale through a local realtor. The sale of the property was
completed on January 18, 2008. The property sold for approximately $215,000 and
the Company received proceeds of approximately $182,000 from the sale of the
property after closing costs and realtor fees. The Company realized a tax
deductible loss on the property totaling approximately $221,000.
- 37 -
Foreclosure was completed on a church located in Dayton, Ohio. The church
congregation is now meeting in a different location and the church property is
currently unoccupied. The Company took possession of the church and listed the
property for sale through a local realtor.
Foreclosure was also completed on a church located in Anderson, Indiana.
The Company took possession of the property in May 2008, and has listed it for
sale. The Company recorded the real estate held for sale at fair value, which is
anticipated net proceeds related to the sale of the real estate.
Foreclosure was also completed on a church located in Dallas, Texas. The
Company took possession of the property. The Company received an earnest money
deposit from a buyer who is currently in the process of obtaining a certificate
of occupancy. When the certificate of occupancy is obtained, the sale of the
property will be completed.
Employees
We have no employees. Subject to the supervision of our board of
directors, our business is managed by our advisor, which provides investment
advisory and administrative services to us. Our advisor is controlled by Philip
J. Myers, our president and one of our directors. Mr. Myers also controls the
underwriter; both our advisor and the underwriter are under common ownership. At
present, certain officers and directors of the underwriter and our advisor are
providing services to us at no charge. These services include, among others,
legal and analytic services relating to the implementation of our business plan,
preparation of this prospectus (and registration statement of which this
prospectus is a part) and development and drafting of documents utilized by our
advisor in connection with our business operations.
Our advisor employs two individuals on a full-time basis and indirectly
utilizes the services of nine individuals who are employed by the underwriter.
We do not expect to directly employ any persons in the foreseeable future, since
all administrative functions and operations are contracted for through our
advisor. Legal and accounting services are provided by outside professionals. We
pay for these services directly.
- 38 -
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Our advisor, Church Loan Advisors, Inc., manages our business subject to
the supervision of our board of directors. Our advisor provides us with lending,
marketing, management and administrative services. Our President, Philip J.
Myers, is the President of both our advisor and American Investors Group, Inc.,
the underwriter of this offering, and thus is in a position of control of both
entities. In addition, Mr. Myers owns 20% of the underwriter. Our advisor
employs, among others, two key persons on a full-time basis, including Scott J.
Marquis, Vice President and Kristen S. Hurley, our loan officer. Our advisor, on
our behalf, regularly uses the services of personnel employed by American
Investors Group, Inc., including our President, Philip J. Myers. We incur no
direct cost for such services, except for the advisory fee we pay to our
advisor.
Transactions With Our Advisor
We pay our advisor advisory fees and expenses. In addition, our advisor
receives a portion of any origination fees associated with a mortgage loan made
or renewed by us. The Company paid the advisor management and origination fees
of approximately $198,000 and $226,000 for the six months ended June 30, 2008
and 2007, respectively. For the year ended December 31, 2007, we paid our
advisor advisory fees in the amount of $413,000 and our advisor received loan
origination fee income of $37,000. In 2006, we paid our advisor advisory fees in
the amount of $386,000 and our advisor received loan origination fee income of
$187,000. We believe that the terms of the advisory agreement are no less
favorable to us had we entered into the agreement with an independent third
party as advisor.
Transactions with the Underwriter
Effective as of _________ __, 2008, we have entered into a distribution
agreement with the underwriter. Pursuant to the agreement, we will pay the
underwriter a commission based on the gross principal amount and maturity of
certificates sold in this offering and an underwriter's management fee based on
the principal amount and term of certificates sold in this offering. We will
also pay the underwriter a non-accountable expense reimbursement of up to
$120,000, assuming all of the certificates are sold. The underwriter is an
affiliate of our advisor. We believe that the terms of the distribution
agreement are no less favorable to us than if we had entered into the agreement
with an independent third party. The following table sets forth the name and
positions of certain officers and all directors of the underwriter:
Name Position
---- --------
Philip J. Myers President, Treasurer and Director
Scott J. Marquis Chief Financial and Operating Officer
In the course of our business, we may purchase church bonds being
underwritten and sold by American Investors Group, Inc., ("American"). Although
we would not pay any commissions, American will benefit from such purchases as a
result of commissions paid to it by the issuer of the bonds. American also may
benefit from mark-ups on bonds we buy from it and mark-downs on bonds we sell
through it on the secondary market. We will purchase church bonds for investment
purposes only, and only at the public offering price. Church bonds we purchase
in the secondary market, if any, will be purchased at the best price available,
subject to customary markups (or in the case of sales - markdowns), on terms no
less favorable than those applied to other customers of American. Principals of
ours and our advisor may receive a benefit in connection with such transactions
due to their affiliation with the underwriter. Other than with respect to the
purchase and sale of church bonds for our portfolio in the ordinary course of
business, all future transactions between us and our officers, directors and
affiliates will be approved, in advance, by a majority of our independent and
disinterested directors.
THE ADVISOR AND OUR ADVISORY AGREEMENT
Church Loan Advisors, Inc.
The Company's and the advisor's activities are governed by the Company's
Bylaws and the Advisory Agreement. Both of these documents substantially comply
with the NASAA REIT Guidelines, which include substantive limitations on, among
other things, conflicts of interest and related party transactions. Other than
with respect to the purchase and sale of church bonds for our portfolio in the
ordinary course of business, as described below, all future transactions between
us and our officers, directors and affiliates must be approved, in advance, by a
majority of our independent directors.
- 39 -
Our Advisor
Subject to the supervision of the Board of Directors, our business is
managed by our advisor, Church Loan Advisors, Inc., which provides investment
advisory and administrative services. Church Loan Advisors, Inc. is a Minnesota
corporation and has acted as our advisor since inception in 1994. Our advisor
renders lending and advisory services solely to us, and administers our business
affairs and operations. The following table sets forth the names and positions
of the officers and directors of the advisor:
Name Position
---- --------
Philip J. Myers President, Treasurer and Director
Scott J. Marquis Vice President, Secretary
Our Advisory Agreement
We have entered into a contract with our advisor (the "Advisory
Agreement") under which our advisor furnishes advice and recommendations
concerning our affairs, provides administrative services to us, and manages our
day-to-day affairs. In performing its services under the Advisory Agreement, our
advisor uses facilities, personnel and support services of its affiliates.
Expenses, such as legal and accounting fees, director fees, stock transfer agent
and registrar and paying agent fees, are our direct expenses and are not
provided for by our advisor as part of its services.
The Advisory Agreement is renewable annually by us for one-year periods,
subject to a determination, including a majority of our independent directors,
that our advisor's performance has been satisfactory and that the compensation
paid by us to our Advisor has been reasonable. The Advisory Agreement was
reviewed and renewed for a one-year period on April 24, 2008. We may terminate
the Advisory Agreement without cause or penalty on 60 days' written notice. Upon
termination of the Advisory Agreement by either party, the advisor may require
us to change our name to a name that does not contain the word "American,"
"America" or the name of the advisor or any approximation or abbreviation
thereof. However, we may continue to use the word "church" in our name. Our
directors must determine that any successor advisor possesses sufficient
qualifications to perform the advisory function for us and justify the
compensation provided for in its contract with us.
Pursuant to the Advisory Agreement, our advisor is required to pay all of
the expenses it incurs in providing us services including, but not limited to,
personnel expenses, rental and other office expenses of officers and employees
of the advisor, and all of its overhead and miscellaneous administrative
expenses relating to performance of its functions under the Advisory Agreement.
We are required to pay all other expenses, including the costs and expenses of
reporting to various governmental agencies and our shareholders and of
conducting our operations as a mortgage lender, fees and expenses of appraisers,
directors, auditors, outside legal counsel and transfer agents, and costs
directly relating to the closing of loan transactions.
In the event that our total operating expenses exceed in any calendar year
the greater of (a) 2% of our average invested assets or (b) 25% of our net
income (before interest expense), the advisor is obligated to reimburse us, to
the extent of its fees for such calendar year, for the amount by which the
aggregate annual operating expenses paid or incurred by us exceed the
limitation. Our independent directors may, upon a finding of unusual and
non-recurring factors which they deem sufficient, determine that a higher level
of expenses is justified in any given year.
Our Bylaws provide that our independent directors are to determine, at
least annually, the reasonableness of the compensation which we pay to our
advisor. Factors to be considered in reviewing the advisory fee include the size
of the fees of the advisor in relation to the size and composition of our
assets, our profitability, the rates charged by other investment advisors
performing comparable services, the success of our advisor in generating
opportunities that meet our investment objectives, the amount of additional
revenues realized by our advisor for other services performed, the quality and
extent of service and advice furnished by our advisor, the quality of our
investments in relation to investments generated by our advisor for its own
account, if any, and the performance of our investments.
Pursuant to the Advisory Agreement, we pay our advisor an annual base
management fee of 1.25% of average invested assets on the first $35 million of
such assets, 1.00% on assets from $35 million to $50 million, and .75% on assets
in excess of $50 million. Although entitled to do so, the advisor does not
assess its management fee on the church bond portion of our portfolio, but
rather only on the church loan portion of our portfolio. For purposes of the
Advisory Agreement, the Company's Invested Assets means outstanding church
loans, and does not include church bonds or cash equivalent temporary
investments. As defined in the Advisory Agreement, we remit to the advisor up to
one-half of any origination fee collected from a borrower in connection with
mortgage loans made or renewed by us. For the years ended December 31, 2007 and
2006, we paid our advisor $456,000 and $573,000, respectively.
- 40 -
FEDERAL INCOME TAX CONSEQUENCES ASSOCIATED WITH THE CERTIFICATES
The following discussion summarizes the material United States federal
income tax consequences relating to the acquisition, ownership and disposition
of the certificates, and it is not exhaustive of all possible tax
considerations. This discussion does not provide a discussion of any estate,
state, local, or foreign tax considerations.
The information in this summary is based on the Internal Revenue Code (the
"Code"), current, temporary, and proposed Treasury regulations promulgated under
the Code, the legislative history of the Code, current administrative
interpretations and practices of the Internal Revenue Service ("IRS"), and court
decisions, all as of the date of this prospectus. The administrative
interpretation and practices of the IRS upon which this summary is based
includes the practices and policies as expressed in private letter rulings,
which are not binding on the IRS, except with respect to taxpayers who request
and receive such rulings. No assurance can be given that future legislation,
Treasury regulations, administrative interpretations and practices, and court
decisions will not significantly change current law, or adversely affect the
existing interpretations of current law, on which the information in this
summary is based. Even if there is no change in applicable law, no assurance can
be provided that the statements made in the following summary will not be
challenged by the IRS or will be sustained by a court if so challenged, and we
will not seek a ruling with respect to any part of the information discussed in
this summary. This summary is qualified in its entirety by the applicable Code
provisions, Treasury regulations, and administrative and judicial
interpretations of the Code.
The discussion applies only to original purchasers of certificates at par
value. The discussion is included for general information purposes only and does
not deal with persons in special situations, such as banks or other financial
institutions, insurance companies, regulated investment companies, dealers in
securities or currencies, tax-exempt entities, persons holding certificates in a
tax-deferred or tax-advantaged account, traders in securities that elect to use
a mark-to-market accounting method for securities holdings, expatriates, persons
holding certificates as a hedge against currency or interest-rate risks, as a
position in a "straddle," or as part of a "hedging," "conversion," or integrated
transaction for federal income tax purposes consisting of the certificates and
one or more other investments, holders who are U.S. persons for federal income
tax purposes whose functional currency for federal income tax purposes is not
the U.S. dollar, holders who are not U.S. persons for federal income tax
purposes, trusts and estates, and pass-through entities, any equity holder of
which is any of the foregoing. This discussion also assumes that the
certificates are held as "capital assets" within the meaning of Section 1221 of
the Code.
YOU ARE ADVISED TO CONSULT WITH YOUR OWN TAX ADVISOR TO DETERMINE THE
IMPACT OF YOUR PERSONAL TAX SITUATION ON THE ANTICIPATED TAX CONSEQUENCES OF THE
ACQUISITION, OWNERSHIP, AND DISPOSITION OF THE CERTIFICATES. THIS INCLUDES THE
FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF THE ACQUISITION,
OWNERSHIP, AND DISPOSITION OF THE CERTIFICATES AND POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
Tax Classification of the Certificates
We believe that the certificates will be classified as debt of our company
for federal income tax purposes. By your acceptance of a certificate, and by
virtue of any person's acquisition of a beneficial interest in a certificate,
you and or any such beneficial owner agree to treat the certificates as debt for
all tax purposes.
Our characterization of the certificates as debt is not binding on the
IRS, and the IRS could assert that the certificates represent an ownership
interest in the equity of the company or in the mortgage collateral. The IRS's
treatment of the certificates as equity interests could adversely affect our
ability to maintain our REIT status, and could result in collateral tax
consequences to certificate holders, including changes in the characterization
and timing of income received with respect to the certificates and could
adversely affect our cash flow. The remainder of this discussion assumes that
the certificates are treated as debt for federal income tax purposes.
Interest Income on the Certificates
We will pay interest on the certificates quarterly. Interest paid on the
certificates will generally be taxable to you as ordinary income as the interest
is paid to you if you are a cash-method taxpayer or as the interest accrues if
you are an accrual method taxpayer.
Treatment of Dispositions of Certificates
Upon the sale, exchange, retirement or other taxable disposition of a
certificate, you will recognize gain or loss in an amount equal to the
difference between the amount realized on the disposition (other than any
amounts attributable to, and
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taxable as, accrued interest) and your adjusted tax basis in the certificate.
Your adjusted tax basis of a certificate generally will equal your original cost
for the certificate, increased by any accrued but unpaid interest you previously
included in income with respect to the certificate and reduced by any principal
payments you previously received with respect to the certificate. Any gain or
loss will be capital gain or loss, except for gain representing accrued interest
not previously included in your income. This capital gain or loss will be
long-term or capital gain or loss if the certificate had been held for more than
one year and otherwise short-term capital gain or loss.
Reporting and Backup Withholding
We will report annual interest income paid and any other information that
is required to be reported with respect to the certificates, to the Internal
Revenue Service and to holders of record that are not excepted from the
reporting requirements.
Under certain circumstances, as a holder of a certificate, you may be
subject to "backup withholding." Backup withholding may apply to you if you are
a United States person and, among other circumstances, you fail to furnish your
Social Security Number or other taxpayer identification number to us. Backup
withholding may apply, under certain circumstances, if you are a foreign person
and fail to provide us with the statement necessary to establish an exemption
from federal income and withholding tax on interest on the certificates. Backup
withholding is not an additional tax and may be refunded against your United
States federal income tax liability provided that you furnish the Internal
Revenue Service with certain required information.
FEDERAL INCOME TAX CONSEQUENCES ASSOCIATED WITH REITS
The discussion of federal income tax treatment of real estate investment
trusts ("REITs") set forth below is a summary. It does not address all potential
consequences of whether we qualify as a REIT.
Qualification as a Real Estate Investment Trust
General. We operate as a REIT under the Code. Our ability to qualify as a
REIT depends, in part, on the timing and nature of our investments. There can be
no assurance that we will continue to qualify as a REIT. Qualification as a REIT
is dependent on future events. No assurance can be given that our business or
that the actual results of our operation for any particular taxable year will
satisfy the REIT requirements. The anticipated income tax treatment described in
this prospectus may be changed, perhaps retroactively, by legislative,
administrative or judicial action at any time.
The following is a general summary of the provisions that govern the
federal income tax treatment of a REIT. This summary is qualified in its
entirety by the applicable Code provisions, rules and regulations promulgated
thereunder, and administrative and judicial interpretations thereof.
Benefits of Qualification as a REIT. The Code provides special tax
treatment for organizations that qualify as REITs. An entity that qualifies as a
REIT generally is not subject to federal corporate income taxes on its net
income that is currently distributed to shareholders. This treatment
substantially eliminates the "double taxation" that generally results from
investment in a corporation. "Double taxation" means being subject to tax once
at the corporate level when income is earned, and once again at the shareholder
level when the income is distributed to shareholders.
Even if we qualify as a REIT, we will be subject to federal income tax as
follows:
o We will be taxed at regular corporate rates on any undistributed REIT
taxable income, including undistributed net capital gains.
o Under certain circumstances, we may be subject to the "alternative minimum
tax" on our items of tax preference.
o If we have (i) net income from the sale or other disposition of
"foreclosure property" which is held primarily for sale to customers in
the ordinary course of business or (ii) other nonqualifying income from
foreclosure property, it will be subject to tax at the highest regular
corporate rate on such income.
o If we have net income from "prohibited transactions" (which are, in
general, certain sales or other dispositions of property (other than
foreclosure property) held primarily for sale to customers in the ordinary
course of our business (i.e., when we are acting as a dealer)), such
income will be subject to a 100% tax.
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o If we fail to distribute by the end of each year at least the sum of (i)
90% of our REIT ordinary income for such year, (ii) 90% of our REIT
capital gain net income for such year, and (iii) any undistributed taxable
income from prior periods, we will be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually
distributed.
Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (i) which is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by transferable shares, or
by transferable certificates of beneficial interest; (iii) which would be
taxable, but for Sections 856 through 859 of the Code, as a domestic
corporation; (iv) which is neither a financial institution nor an insurance
company subject to certain provisions of the Code; (v) the beneficial ownership
of which is held by 100 or more persons; (vi) during the last half of each
taxable year not more than 50% of the outstanding stock of which is owned,
directly or indirectly, by five or fewer individuals (which term includes
certain entities); and (vii) which meets certain other tests, described below.
Conditions (i) to (iv) must be met during the entire taxable year. Condition (v)
must be met during at least 335 days of a taxable year of 12 months, or during a
proportionate part of a taxable year of less than 12 months.
To qualify as a REIT for a taxable year, we must elect or previously have
elected to be so treated and must meet other requirements, including percentage
tests relating to the sources of its gross income, the nature and
diversification of our assets and the distribution of our income to our
shareholders.
The Effect of Failure to Qualify as a Real Estate Investment Trust
If we fail to qualify as a REIT in any taxable year and the relief
provisions described above do not apply, then we will be subject to a tax
(including any applicable minimum tax) on our taxable income computed in the
usual manner for corporate taxpayers without any deduction for dividends paid.
In such event, to the extent of current and accumulated earnings and profits,
all distributions to shareholders will be taxable to us at the corporate level
as ordinary income, and, subject to certain limitations in the Code, corporate
distributees may be eligible for the dividends received deduction. Unless
entitled to relief under specific statutory provisions, we will also be
prohibited from electing to be taxed as a REIT for the four taxable years
following the year during which qualification is lost. To renew our REIT
qualifications at the end of such a four-year period, we would be required to
distribute all of our current and accumulated earnings and profits before the
end of the period. Loss of REIT status from either our disqualification as a
REIT or our revocation of REIT status would not affect whether we may deduct
interest paid to certificate holders for United States federal income tax
purposes. To generate funds with which to pay federal income taxes because of
the loss of REIT status, however, could reduce our funds that are available for
investment, could cause us to incur additional indebtedness, or could cause us
to liquidate investments, each of which could affect adversely our ability to
make interest payments to holders of certificates.
ERISA CONSIDERATIONS
Certain employee benefit plans and individual retirement accounts and
individual retirement annuities (collectively, "Plans"), are subject to various
provisions of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") and the Internal Revenue Code. Before investing in the certificates, a
Plan fiduciary should ensure that such investment is in accordance with ERISA's
fiduciary standards and that the investment will comply with the
diversification, prudence, liquidity, and composition requirements of ERISA. A
Plan fiduciary also should consider the prohibitions under ERISA on improper
delegation of control over, or responsibility for "plan assets" and ERISA's
imposition of co-fiduciary liability on a fiduciary who participates in, or
permits, by action or inaction, the occurrence of, or fails to remedy, a known
breach of duty by another fiduciary with respect to "plan assets," and a Plan
fiduciary should consider the need to value the assets of the Plan annually. A
Plan fiduciary also should ensure that the investment is in accordance with the
governing instruments and the overall policy of the Plan. In addition,
provisions of ERISA and the Code prohibit certain transactions in Plan assets
that involve persons who have specified relationships with a Plan. The
consequences of such prohibited transactions include excise taxes,
disqualifications of IRAs and other liabilities. A Plan fiduciary should ensure
that any investment in the certificates will not constitute a prohibited
transaction. A Plan fiduciary also should consider the illiquid nature of an
investment in our certificates and that no secondary market will exist for them.
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DESCRIPTION OF THE CERTIFICATES
General. The certificates we are offering by this prospectus are secured
debt obligations of American Church Mortgage Company. We will issue the
certificates under an indenture between us and Herring Bank, as trustee. The
terms and conditions of the certificates include those stated in the indenture
and those made part of the indenture by reference to the Trust Indenture Act of
1939. The following is a summary of some, but not all, provisions of the
certificates, the indenture and the Trust Indenture Act. For a complete
understanding of the certificates, you should review the terms and conditions
contained in the global certificate that we will issue to the trustee, the
indenture and the Trust Indenture Act, which include definitions of certain
terms used below. Copies of the form of the certificates and the indenture are
available from us at no charge upon request.
The certificates are secured by our assignment to the trustee of mortgage
backed promissory notes or mortgage secured bonds issued by churches and other
not-for profit religious organizations, which we own or will receive as a result
of loans we make to churches and other nonprofit religious organizations and
bonds we purchase. The mortgages securing the promissory notes will not be
assigned to the trustee nor will any bonds be re-registered to the trustee.
Further, we are not required to establish or maintain a sinking fund to provide
for payment of maturing certificates.
You may determine the amount (any multiple of $1,000) and term (13, 14,
15, 16, 17, 18, 19 or 20 years) of the certificates you would like to purchase
when you subscribe, subject to availability. However, we may not always offer
certificates of each maturity, depending on market conditions and our capital
requirements. Each certificate will mature on the anniversary of the last day of
the fiscal quarter in which the certificate is purchased. We will set interest
rates based on current market conditions and our need for capital. Interest
rates will not be derived from any reference or published interest rate.
The interest rate will be fixed for the term of your certificate and paid
quarterly. As of the date of this prospectus, rates we will pay for each
maturity of certificates are set forth below. The interest rate will vary based
on the term to maturity of the certificate you purchase.
Certificate Term Interest Rate %
- ------------------------------------- ---------------------------------------
13 Year 6.25%
14 Year 6.25%
15 Year 6.35%
16 Year 6.50%
17 Year 6.65%
18 Year 6.75%
19 Year 7.00%
20 Year 7.25%
Upon acceptance of your subscription to purchase certificates, the
trustee, who is also acting as our servicing agent, will create an account in
our book-entry registration system for you and credit the principal amount of
your subscription to your account. Our trustee will send you a book-entry
receipt that will indicate our acceptance of your subscription. If we reject
your subscription, all funds deposited will be promptly returned to you without
any interest. Investors whose subscriptions for certificates have been accepted
and anyone who subsequently acquires certificates in a qualified transfer are
referred to as "holders" or "registered holders" in this document and in the
indenture.
We may modify or supplement the terms of the certificates described in
this prospectus from time to time in a supplement to this prospectus. Except as
set forth under "Amendment, Supplement and Waiver" below, any modification or
amendment will not affect then-outstanding certificates. However, investors are
advised to check for prospects supplements as interest rates are subject to
change.
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Denomination. You may purchase certificates in principal amount of
multiples of $1,000. You will determine the original principal amount of each
certificate you purchase when you subscribe.
Term and Maturity. We are offering certificates with terms ranging from
thirteen to twenty years as follows:
o thirteen (13) years
o fourteen (14) years
o fifteen (15) years
o sixteen (16) years
o seventeen (17) years
o eighteen (18) years
o nineteen (19) years
o twenty (20) years.
You will select the term of each certificate you purchase when you
subscribe, depending on availability. You may purchase multiple certificates
with different terms by filling in investment amounts for more than one term.
The maturity date will be the anniversary of the last day of the fiscal
quarter in which you purchase your certificate. For example, if you purchase a
thirteen (13) year certificate on November 10, 2008, the certificate will mature
on December 31, 2021. We may cease offering specified maturities, and
re-continue their offering, at any time during the offering period. We may
change the interest rate offered on any unsold certificates without prior
notice.
Collateral. We will assign to the trustee to secure the certificates
mortgage-secured promissory notes and bonds issued by churches and other
nonprofit religious organizations evidencing loans made by us which have an
aggregate unpaid principal balance of at least 100% of the aggregate outstanding
principal amount of the certificates. Unless there is an event of default, we
will not assign the mortgages securing the assigned promissory notes and bonds
to the trustee.
We will be obligated to replace a promissory note or bond that we have
assigned to the trustee if the church obligor prepays the promissory note or
bond or if it defaults in the payment of principal or interest on the promissory
note or bond and the default continues for at least 90 consecutive days. We will
assign additional promissory notes and bonds to the trustee as necessary to
maintain the aggregate outstanding principal balance of the assigned notes at a
level of at least 100% of the outstanding principal balance of the certificates
sold in this offering.
We will furnish the following to the trustee in connection with our
assigning mortgage-secured promissory notes to the trustee:
o An opinion of counsel to the effect that all necessary action has
been taken to create and perfect a first lien and security interest
in favor of the trustee in the assigned promissory notes and bonds.
o Annual opinions of counsel to the effect that all necessary action
has been taken to maintain a first lien and security interest in
favor of the trustee in the assigned promissory notes and bonds.
o Annual certification of our officers that all provisions of the
indenture relating the deposit, release and substitution of
collateral have been complied with.
Generally, neither we, nor the trustee will be required to provide reports
to holders concerning the deposit, release or substitution of promissory notes
and bonds securing the certificates. However, the trustee will be required to
report to holders if we default in our obligations to maintain the 100%
collateral coverage requirement and that default has not been cured within 90
days.
Interest Rate. The interest rate on a particular certificate will be the
interest rate for the particular term of the certificate at the time of
subscription or renewal. Please see the "Interest Rate" chart above. The
interest rate will remain fixed for the original or renewal term of the
certificate. We will set interest rates based on current market conditions and
our need for capital. Interest rates will not be derived from any reference or
published interest rate. We will establish and may change the interest rates
payable for unsold certificates of various terms in a supplement to this
prospectus.
Computation of Interest. We will compute interest on certificates on the
basis of an actual calendar year. Interest will accrue from the date of
purchase, but will not be compounded. The date of purchase will be the first
business day
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immediately following the date we receive funds. Our business days are Monday
through Friday, except for legal holidays recognized by FINRA.
Interest Payment Dates. Interest will be payable quarterly and interest
checks will be mailed to certificate holders on the last day of each calendar
quarter (i.e., March 31, June 30, September 30 and December 31). If the last day
of a quarter falls on a weekend or a holiday, we will pay interest on the next
business day.
Place and Method of Payment. We will pay principal and interest on the
certificates through the trustee, who will act as our paying agent, by check
mailed on each interest payment date to your address appearing in the
certificate register. If the foregoing payment method is not available,
principal and interest on the certificates will be payable at our principal
executive office or at such other place as we may designate for payment
purposes. We will not wire interest payments to holders of certificates.
Servicing Agent. We have engaged Herring Bank, who is also acting as the
trustee in this offering, to act as our servicing agent for the certificates.
The trustee's responsibilities as servicing agent will include serving as our
registrar and transfer agent and fulfilling certain of our responsibilities to
the holders.
You may contact the trustee as follows with any questions about the
certificates:
Herring Bank
1608 S. Polk St.
Amarillo, TX 79102
(806) 378-6655
Book-Entry Registration and Transfer. You will not receive or be entitled
to receive physical delivery of a certificate. The issuance and transfer of
certificates will be accomplished exclusively through the crediting and debiting
of the appropriate accounts in our book-entry registration and transfer system.
However, you will receive a book-entry acknowledgement from the trustee that
will show all pertinent information regarding your certificate, including the
principal amount of your certificate, its interest rate and maturity, and
verification of its registration. The trustee will maintain our book-entry
system.
The holders of the accounts established upon the purchase or transfer of
certificates will be deemed to be the owners of the certificates under the
indenture. The holders of certificates must rely upon the procedures established
by the trustee to exercise any rights of a holder of certificates under the
indenture. The servicing agent will determine the interest payments to be made
to the book-entry accounts and maintain, supervise and review any records
relating to book-entry beneficial interests in the certificates.
Book-entry notations in the accounts evidencing ownership of the
certificates are exchangeable for actual certificates only if: (i) we, at our
option, advise the trustee in writing of our election to terminate the
book-entry system, or (ii) after the occurrence of an event of default under the
indenture, holders of the certificates aggregating more than 50% of the
aggregate outstanding amount of the certificates advise the trustee in writing
that the continuation of a book-entry system is no longer in the best interests
of the holders of certificates and the trustee notifies all registered holders
of the occurrence of any such event and the availability of definitive
certificates. Subject to the exceptions described above, the book-entry
interests in these securities will not be exchangeable for fully registered
certificates. The trustee will also issue fully registered certificates if
required by the administrator of an Individual Retirement Account or similar tax
deferred account in which a holder has acquired a certificate. The trustee may
charge a $10 fee per certificate issuance.
Right to Reject Applications. We may reject any application for
certificates in our sole discretion.
Renewal or Payment on Maturity. Approximately 30 days prior to maturity of
your certificate, you will be notified that your certificate is about to mature
and whether we will allow you to renew the certificate. If we are offering
renewal of certificates, we will provide you with a schedule of interest rates
then in effect, which will apply if you elect to renew your certificate, along
with a form on which you may elect to renew or not to renew your certificate.
You will have until 10 days prior to the maturity date to exercise one of the
following options:
o You can inform us in writing on or before 10 days prior to the scheduled
maturity date that you would like to renew the certificate, in which case
the principal amount of your certificate will be renewed for the same term
at the interest rate we are offering at the time of renewal and we will
pay you accrued interest through the maturity date of your certificate.
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o You can do nothing or inform us that you would like us to pay the
certificate in full; in either case we will pay the principal amount and
accrued interest when due.
We reserve the right to stop offering the option to renew certificates and
to refuse to renew any certificate in our complete discretion. Interest will
accrue from the first day of each renewed certificate term. Each renewed
certificate will continue in all its provisions, including provisions relating
to payment, except that the interest rate payable during any renewed term will
be the interest rate that we are then offering at the time of renewal.
If your certificate is not renewed for any reason, no interest will accrue
after the stated date of maturity and we will pay you the principal and unpaid
accrued interest on your certificate within 5 business days of the stated
maturity date.
Redemption Prior to Stated Maturity. The certificates may be redeemed
prior to stated maturity only as set forth below. You will have no right to
require us to prepay any certificate prior to its maturity date except as
indicated below.
Discretionary Redemption by Us on Thirty Days' Notice. We have the option
to redeem all or a portion of the outstanding certificates at any time, in our
sole discretion. If we exercise this option, we will give affected certificate
holders 30 days' notice that we intend to redeem their outstanding certificates.
Offer to Redeem by Us upon a Change of Our Advisor. Our advisor is
currently Church Loan Advisors, Inc. If we terminate our advisory agreement with
our current advisor for any reason, we are required to offer to redeem all
certificates outstanding as of the date of such termination. In such case,
certificates will be redeemable at the option of the holders. If we terminate
our advisory agreement with our current advisor, we will provide our certificate
holders with notices offering to redeem all outstanding certificates within 10
days of the termination. Holders of outstanding certificates will have 30 days
after the date of the notice to inform us in writing whether they will require
us to redeem their certificates. The redemption price will be the principal
amount of the certificate, plus interest accrued and not previously paid up to
the date of redemption.
Redemption by the Holder upon Death. Certificates may be redeemed upon the
death of a holder who is a natural person (including certificates held in an
individual retirement account), by his or her estate giving us written notice
within 45 days following his or her death. The redemption price will be the
principal amount of the certificate, plus interest accrued and not previously
paid up to the date of redemption. Subject to the limitations described below,
we will pay the redemption price within 10 days of receiving notice of the
holder's death. If spouses are joint registered holders of a certificate, the
election to redeem will apply when either registered holder dies. If the
certificate is held by a person who is not a natural person such as a trust,
partnership, corporation or other similar entity, the right of redemption upon
death does not apply. In addition, we will not be required to redeem any
certificates at the request of the holder in excess of $25,000 aggregate
principal amount for all holders per calendar quarter. For purposes of the
$25,000 limit, redemption requests will be honored in the order in which they
are received and any redemption request not honored in a calendar quarter will
be honored, to the extent possible, in the next calendar quarter. Redemptions in
the next calendar quarter are also subject to the $25,000 limitation. We will
not redeem certificates in connection with a holder's death if an uncured event
of default exists with respect to the outstanding certificates.
Discretionary Redemption. If you request us to redeem your certificate
prior to maturity, we may do so and charge you early redemption penalties, both
at our complete discretion.
Transfers. The certificates are not negotiable debt instruments and,
subject to certain exceptions, will be issued only in book-entry form. The
book-entry receipt issued upon our acceptance of a subscription is not a
negotiable instrument, and no rights of record ownership can be transferred
without our advisor's prior written consent. Transfers of certificates will
generally be prohibited. However, our advisor intends to approve transfers of
certificates upon a demonstrated need for liquidity, such as upon the death or
bankruptcy of a certificates holder, or to facilitate estate planning
objectives. Ownership of certificates may be transferred on our register only as
follows:
o The holder must deliver written notice requesting a transfer to the
trustee signed by the holder(s) or such holder's duly authorized
representative on a form to be supplied by our servicing agent.
o Our advisor must provide its written consent to the proposed
transfer.
o The trustee may require a signature guarantee in connection with
such transfer.
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Upon transfer of a certificate, the trustee will provide the new holder of
the certificate with a book-entry receipt which will evidence the transfer of
the account on our records. The record date of any transfer will be the last day
of the quarter in which the transfer is made. The transferee will be entitled to
all interest accruing in the quarter in which the transfer is made.
No Sinking Fund. We will not contribute funds to a separate account,
commonly known as a sinking fund, to repay principal or interest on the
certificates upon maturity or default.
Restrictive Covenants. The indenture contains certain covenants that
require us to maintain certain financial standards and restrict us from certain
actions as set forth below.
Maintenance of Certain Financial Standards. The indenture provides that,
so long as the certificates are outstanding:
o we will maintain a positive net worth, which includes shareholders'
equity and subordinated debt; and
o our long-term liabilities, will not exceed 300% of our shareholders'
equity at the end of any fiscal year, or such higher amount as
authorized by our bylaws from time to time.
Prohibition on Certain Actions. The indenture provides that, so long as
the certificates are outstanding:
o we will not pay any dividends on our common or preferred stock if
there is an uncured event of default with respect to the
certificates;
o we will not allow any other lien to be created or maintained on the
collateral securing the certificates; and
o we will not guarantee, endorse or otherwise become liable for any
obligations of any of our control persons, or other parties
controlled by or under common control with any of our control
persons.
Consolidation, Merger Or Sale. The indenture generally permits a
consolidation or merger between us and another entity. It also permits the sale
or transfer by us of all or substantially all of our property and assets. These
transactions are permitted if:
o the resulting or acquiring entity, if other than us, is organized
and existing under the laws of a domestic jurisdiction and assumes
all of our responsibilities and liabilities under the indenture,
including the payment of all amounts due on the certificates and
performance of the covenants in the applicable indenture; and
o immediately after the transaction, and giving effect to the
transaction, no event of default under the indenture exists.
If we consolidate or merge with or into any other entity or sell or lease
all or substantially all of our assets, according to the terms and conditions of
the indenture, the resulting or acquiring entity will be substituted for us in
the indenture with the same effect as if it had been an original party to the
indenture. As a result, such successor entity may exercise our rights and powers
under the indenture, in our name and, except in the case of a lease, we will be
released from all our liabilities and obligations under the indenture and under
the certificates.
Events Of Default. The indenture provides that each of the following
constitutes an event of default:
o any default for thirty days in the payment of interest when due on
the certificates;
o any default for thirty days in payment of principal when due on the
certificates;
o if we default in our obligations to maintain the 100% collateral
coverage requirement and that default has not been cured within 90
days;
o our failure to observe or perform any material covenant or our
breach of any material representation or warranty, but only after we
have been given notice of such failure or breach and such failure or
breach is not cured within 30 days after our receipt of notice;
o defaults in certain of our other financial obligations; and
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o certain events of bankruptcy or insolvency with respect to us.
If any event of default occurs and is continuing, the trustee or the
holders of at least a majority in principal amount of the then-outstanding
certificates may declare the unpaid principal of and any accrued interest on the
certificates to be due and payable immediately. In the case of an event of
default arising from certain events of bankruptcy or insolvency, with respect to
us, all outstanding certificates will become due and payable without further
action or notice. Holders of the certificates may not enforce the indenture or
the certificates except as provided in the indenture. Subject to certain
limitations, holders of a majority in principal amount of the then-outstanding
certificates may direct the trustee in its exercise of any trust or power. The
trustee may withhold from holders of the certificates notice of any continuing
default or event of default (except a default or event of default relating to
the payment of principal or interest) if the trustee determines that withholding
notice is in the interest of the holders.
The holders of a majority in aggregate principal amount of the
certificates then outstanding by notice to the trustee may, on behalf of the
holders of all of the certificates, waive any existing default or event of
default and its consequences under the indenture, except a continuing default or
event of default in the payment of interest on, or the principal of, the
certificates.
Amendment, Supplement and Waiver. Except as provided in this prospectus or
the indenture, the terms of the certificates then outstanding may be amended or
supplemented with the consent of the holders of at least a majority in principal
amount of the certificates then outstanding, and any existing default or
compliance with any provision of the indenture or the certificates may be waived
with the consent of the holders of a majority in principal amount of the then
outstanding certificates.
Notwithstanding the foregoing, without the consent of any holder of the
certificates, we or the trustee may amend or supplement the indenture or the
certificates:
o to cure any ambiguity, defect or inconsistency;
o to provide for assumption of our obligations to holders of the
certificates in the case of a merger or consolidation;
o to make any change that would provide any additional rights or
benefits to the holders of the certificates or that does not
materially adversely affect the legal rights under the indenture of
any such holder, including an increase in the aggregate dollar
amount of certificates which may be outstanding under the indenture;
o to modify our policy regarding redemptions elected by a holder of
certificates and our policy regarding redemptions of the
certificates upon the death of any holder of the certificates, but
such modifications shall not materially adversely affect any then
outstanding certificates;
o to comply with requirements of the SEC in order to effect or
maintain the qualification of the indenture under the Trust
Indenture Act; or
o to maintain our status as a REIT.
The Trustee. Herring Bank has agreed to be the trustee under the
indenture. The indenture contains certain limitations on the rights of the
trustee, should it become one of our creditors, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
claim as security or otherwise. The trustee will be permitted to engage in other
transactions with us and our affiliates.
The indenture provides that in case an event of default specified in the
indenture shall occur and not be cured, the trustee will be required, in the
exercise of its power, to use the degree of care of a reasonable person in the
conduct of his own affairs. Subject to such provisions, the trustee will be
under no obligation to exercise any of its rights or powers under the indenture
at the request of any holder of certificates, unless the holder has offered to
the trustee security and indemnity satisfactory to it against any loss,
liability or expense.
Resignation Or Removal Of The Trustee. The trustee may resign at any time,
or may be removed by the holders of a majority of the principal amount of
then-outstanding certificates. In addition, upon the occurrence of contingencies
relating generally to the insolvency of the trustee or the trustee's
ineligibility to serve as trustee under the Trust Indenture Act of 1939, as
amended, we may remove the trustee or a court of competent jurisdiction may
remove the trustee upon petition of a holder of certificates. However, no
resignation or removal of the trustee may become effective until a successor
trustee has been appointed.
- 49 -
No Personal Liability Of Directors, Officers, Employees, Shareholders and
Servicing Agent. No director, officer, employee, incorporator or shareholder of
ours or our servicing agent, will have any liability for any of our obligations
under the certificates, the indenture or for any claim based on, in respect to,
or by reason of, these obligations or their creation. Each holder of the
certificates waives and releases these persons from any liability. The waiver
and release are part of the consideration for issuance of the certificates. We
have been advised that the waiver may not be effective to waive liabilities
under the federal securities laws since it is the view of the Securities and
Exchange Commission that such a waiver is against public policy.
Service Charges. We and the trustee may assess service charges for
changing the registration of any certificate to reflect a change in name of the
holder or transfers (whether by operation of law or otherwise) of a certificate.
Variations By State. We may offer different securities and vary the terms
and conditions of the offer (including, but not limited to, different interest
rates and maturity dates) depending upon the state where the purchaser resides.
Interest Withholding. We or the trustee will withhold the required portion
of any interest paid to any investor who has not provided us with a Social
Security Number, Employer Identification Number, or other satisfactory
equivalent in the account application (or another document) or where the
Internal Revenue Service has notified us that back-up withholding is otherwise
required.
Liquidity. THERE IS NO MARKET FOR THE CERTIFICATES. We do not believe that
a public market will develop for the certificates. You may not be able to sell
your certificates. You should be prepared to hold any certificates you purchase
until maturity.
Reports. We have published and filed with the Securities and Exchange
Commission annual reports on Form 10-KSB, and will publish and file annual
reports on Form 10-K, containing financial statements, and have published and
filed quarterly reports on Forms 10-QSB and 10-Q, and will publish and file
quarterly reports on Forms 10-Q, containing financial information for the first
three quarters of each fiscal year. See "Incorporation of Certain Documents by
Reference." We will send copies of our reports at no charge to any certificate
holder who requests them in writing.
SUMMARY OF THE ORGANIZATIONAL DOCUMENTS
The following is a summary of certain provisions of our organizational
documents, which consist of our Amended and Restated Articles of Incorporation
("Articles") and the Third Amended and Restated Bylaws ("Bylaws"). This summary
is qualified in its entirety by specific reference to the organizational
documents filed as exhibits to the registration statement of which this
prospectus is a part.
Certain Articles of Incorporation and Bylaws Provisions
Shareholders' rights and related matters are governed by the Minnesota
Business Corporation Act, our Articles and our Bylaws. Certain provisions of our
Articles and Bylaws, which are summarized below, may make it more difficult to
change the composition of our board and may discourage an attempt by a person or
group to obtain control of us through acquisitions of shares.
Shareholder Meetings
Our Bylaws provide for annual meetings of shareholders. We typically hold
our annual meeting of shareholders during the second quarter of each year.
Special meetings of shareholders may be called by (i) our Chief Executive
Officer, (ii) a majority of the members of our board of directors or a majority
of our independent directors, or (iii) shareholders holding at least 10% of the
outstanding shares of common stock entitled to vote at the meeting.
Board of Directors
Our Bylaws provide that our board establishes the number of our directors,
which may not be fewer than three (3) nor more than nine (9), and a majority of
which must be independent directors. Any vacancy will be filled by a majority of
the remaining directors, except that a vacancy of an independent director
position must follow a nomination by the remaining independent directors. The
directors may leave a vacancy unfilled until the next regular meeting of the
shareholders.
- 50 -
Limitations on Director Actions
Without concurrence of a majority of the outstanding shares, the directors
may not: (i) amend our Articles or Bylaws, except for amendments which do not
adversely affect the rights, preferences and privileges of shareholders
including amendments to provisions relating to, director qualifications,
fiduciary duty, liability and indemnification, conflicts of interest, investment
policies or investment restrictions; (ii) sell all or substantially all of our
assets other than in the ordinary course of our business or in connection with
liquidation and dissolution; (iii) cause us to merge with another entity or
otherwise reorganize; or (iv) cause us to dissolve or liquidate.
A majority of the then outstanding shares may, without the necessity for
concurrence by our directors, vote to: (i) amend the Bylaws; (ii) terminate the
corporation; or (iii) remove the directors.
Minnesota Anti-Takeover Law
We are governed by the provisions of Sections 302A.671 and 302A.673 of the
Minnesota Business Corporation Act. In general, Section 302A.671 provides that
the shares of a corporation acquired in a "control share acquisition" have no
voting rights unless voting rights are approved in a prescribed manner. A
"control share acquisition" is an acquisition, directly or indirectly, of
beneficial ownership of shares that would, when added to all other shares
beneficially owned by the acquiring person, entitle the acquiring person to have
voting power of 20% or more in the election of directors. In general, Section
302A.673 prohibits a public Minnesota corporation from engaging in a "business
combination" with an "interested shareholder" for a period of four years after
the date of the transaction in which the person became an interested
shareholder, unless the business combination is approved in a prescribed manner.
"Business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested shareholder. An "interested
shareholder" is a person who is the beneficial owner, directly or indirectly, of
10% or more of the corporation's voting stock or who is an affiliate or
associate of the corporation and at any time within four years prior to the date
in question was the beneficial owner, directly or indirectly, of 10% or more of
the corporation's stock.
Restrictions on Roll-Ups
"Roll-up" means a transaction involving our acquisition, merger,
conversion, or consolidation (either directly or indirectly) and the issuance of
securities of a roll-up entity. Such term does not include: (i) a transaction
involving our securities that have been for at least 12 months listed on a
national securities exchange or traded through the NASDAQ National Market
System; or (ii) a transaction involving the conversion to corporate, trust, or
association form if, as consequence of the transaction, there will be no
significant adverse change in any of the following: (a) shareholders' voting
rights; (b) our term of existence; (c) sponsor or advisor compensation; (d) our
investment objectives. "Roll-up entity" means a partnership, real estate
investment trust, corporation, trust, or other entity created or surviving after
the completion of a roll-up transaction.
In connection with a roll-up, an appraisal of all of our assets would be
required to be obtained from a competent independent expert. The appraiser would
evaluate all relevant information, indicate the value of the assets as of a date
immediately prior to the announcement of the roll-up and assume an orderly
liquidation of the assets over a 12-month period. Notwithstanding the foregoing,
we may not participate in any proposed roll-up which would:
- result in our shareholders having rights to meeting less frequently
or which are more restrictive to shareholders than those provided in
our Bylaws;
- result in our shareholders having voting rights that are less than
those provided in our Bylaws;
- result in our shareholders having greater liability than as provided
in our Bylaws;
- result in our shareholders having rights to receive reports that are
less than those provided in our Bylaws;
- result in our shareholders having access to records that are more
limited than those provided in our Bylaws;
- include provisions which would operate to materially impede or
frustrate the accumulation of shares by any purchaser of the
securities of the roll-up entity (except to the minimum extent
necessary to preserve the tax status of the roll-up entity);
- 51 -
- limit the ability of an investor to exercise the voting rights of
its securities in the roll-up entity on the basis of the number of
the shares held by that investor;
- result in investors in the roll-up entity having rights of access to
the records of the roll-up entity that are less than those provided
in our Bylaws; or
- place upon us any of the costs of the transaction if the roll-up is
not approved by the shareholders.
Nothing prevents our participation in any proposed roll-up resulting in
shareholders having rights and restrictions comparable to those contained in our
Bylaws, with the prior approval of a majority of our shareholders.
Shareholders voting against a proposed roll-up have the choice of (i)
accepting the securities of the roll-up entity offered in the proposed roll-up;
or (ii) one of either: (a) remaining as our shareholders and preserving their
interests therein on the same terms and conditions as previously existed, or (b)
receiving cash in an amount equal to the shareholders' pro rata share of the
appraised value of our net assets. We do not intend to participate in a roll-up
transaction.
Limitation on Total Operating Expenses
Our Bylaws provide that, subject to the conditions described in this
paragraph, our annual total operating expenses cannot exceed the greater of 2%
of our average invested assets or 25% our net income, computed before interest
expense. The independent directors have a fiduciary responsibility to limit our
annual total operating expenses to amounts that do not exceed the foregoing
limitations. The independent directors may determine that a higher level of
operating expenses is justified for such period because of unusual and
non-recurring expenses. Any such finding by the independent directors and the
reasons in support thereof must be recorded in the minutes of the meeting of the
board of directors. We will send a written disclosure to our shareholders within
60 days after the end of any fiscal quarter for which operating expenses (for
the 12 months then ended) exceed 2% of the average invested assets or 25% of net
income. In the event the operating expenses exceed the limitations described
above and if our directors are unable to conclude that such excess was justified
then within 60 days after the end of our fiscal year, our advisor must reimburse
us for the amount by which the aggregate annual total operating expenses paid or
incurred by us exceed the limitation.
Transactions with Affiliates
Our Bylaws restrict our dealings with our advisor, sponsor and any
director or affiliates thereof. In approving any transaction or series of
transactions with such persons or entities, a majority of our directors not
otherwise interested in such transaction, including a majority of the
independent directors must determine that:
(a) the transaction as contemplated is fair and reasonable to us and our
shareholders and its terms and conditions are not less favorable to
us than those available from unaffiliated third parties;
(b) if the transaction involves compensation to any advisor or its
affiliates for services rendered in a capacity other than
contemplated by the advisory arrangements, such compensation is not
greater than the customary charges for comparable services generally
available from other competent unaffiliated persons and is not in
excess of compensation paid to any advisor and its affiliates for
any comparable services;
(c) if the transaction involves the making of loans (other than in the
ordinary course of our business) or the borrowing of money, the
transaction is fair, competitive, and commercially reasonable and no
less favorable to us than loans between unaffiliated lenders and
borrowers under the same circumstances; and
(d) if the transaction involves the investment in a joint venture, the
transaction is fair and reasonable and no less favorable to us than
to other joint venturers.
If the proposed transaction involves a loan to any advisor, director or
any affiliate thereof, or to a wholly-owned subsidiary of ours, a written
appraisal of the underlying property must be obtained from an independent
expert. The appraisal must be maintained in our records for at least five years
and be available for inspection and duplication by any shareholder. Such loan is
subject to all requirements of our Financing Policy.
We cannot borrow money from any advisor, director or any affiliate
thereof, unless a majority of our directors (including a majority of the
independent directors) not otherwise interested in the transaction approve the
transaction as being
- 52 -
fair, competitive, and commercially reasonable and no less favorable to us than
loans between unaffiliated parties under the same circumstances.
We cannot make or invest in any mortgage loans subordinate to any mortgage
or equity interest of our advisor, directors, sponsors or any of our affiliates.
Restrictions on Investments
The investment policies and restrictions set forth in our Bylaws have been
approved by a majority of our independent directors. In addition to other
investment restrictions imposed by the directors consistent with our objective
to qualify as a REIT, we will observe the guidelines and prohibitions on our
investments set forth in our Bylaws. These guidelines and prohibitions are
discussed at the section headed "Our Business-Prohibited Investments and
Activities."
PLAN OF DISTRIBUTION
General
The underwriter is offering the certificates pursuant to the terms and
conditions of a distribution agreement (a copy of which is filed as an exhibit
to the Registration Statement of which this prospectus is a part). The
underwriter is offering $20,000,000 principal amount of certificates on our
behalf on a "best efforts" basis. "Best efforts" means that the underwriter is
not obligated to purchase any certificates. This is a "no minimum" offering. No
minimum principal amount of certificates must be sold, and we will receive the
proceeds from the sale of certificates as they are sold. This offering will be
conducted on a continuous basis pursuant to applicable rules of the Securities
and Exchange Commission and will terminate upon completion of the sale of all
certificates. We may terminate this offering at any time.
Compensation
We will pay to the underwriter a commission based on the principal amount
of certificates sold. The amount of this commission is 2.75% for sales of new
certificates sold. We will also pay the underwriter a .75% management fee upon
the original issuance of each certificate.
We have agreed to pay the underwriter a non-accountable expense allowance
of up to $120,000 to reimburse the underwriter for certain expenses incurred by
it in connection with the offer and sale of the shares, $10,000 of which is
payable upon the sale of each $1,000,000 of certificates up to $10,000,000 of
certificates, and $2,000 for each additional $1,000,000 of certificates offered
hereby up to the completion or termination of this offering, whichever occurs
first. In no event or circumstance will the compensation paid to the underwriter
in connection with the offer and sale of the certificates exceed ten percent
(10%) commission and a one-half of one percent (.5%) due diligence fee.
Other Compensation Information. We will not pay or award any commissions
or other compensation to any person engaged by a potential investor for
investment advice to induce such person to advise the investor to purchase
certificates. This provision does not prohibit the normal sales commission
payable to a registered broker-dealer or other properly licensed person for
selling certificates.
Subscription Process
Our certificates will be offered to the public through the underwriter and
soliciting dealers. The certificates are being sold when, and if we receive and
accept account applications. We have the right to accept or reject any
application. If we reject your application, your funds will be returned to you,
without interest. We will not accept applications for less than $1,000 for each
maturity term of certificates.
The underwriter may offer the certificates through its own registered
representatives and broker-dealers who are members of the FINRA ("soliciting
dealers"). The underwriter may re-allow to soliciting dealers a portion of its
commissions, fees and reimbursable expenses payable to it under the distribution
agreement. In no event will the compensation re-allowed by the underwriter to
soliciting dealers exceed the total of compensation payable to the underwriter
under the distribution agreement.
- 53 -
Clients of soliciting dealers who wish to purchase certificates must remit
payment for the purchase of certificates directly to the underwriter payable to
"American Investors Group, Inc." and will receive a confirmation of their
purchase directly from the underwriter.
A sale will be deemed to have been made on the date reflected in the
written confirmation. The confirmation will be sent to each purchaser by the
underwriter on the first business day following the date upon which we advise
the underwriter in writing that an application has been accepted. Generally,
payment for certificates should accompany the account application. You may
rescind your purchase of certificates for up to five (5) business days after you
have received a final prospectus.
The distribution agreement provides for reciprocal indemnification between
us and the underwriter against certain liabilities in connection with this
offering, including liabilities under the Securities Act of 1933.
The foregoing discussion of the material terms and provisions of the
distribution agreement is qualified in its entirety by reference to the detailed
terms and provisions of the distribution agreement, a copy of which has been
filed as an exhibit to the Registration Statement of which this prospectus is a
part.
Determination of Investor Suitability
We, the underwriter and each soliciting dealer will make reasonable
efforts to determine that those persons being offered or sold the certificates
are appropriate in light of the suitability standards set forth herein and are
appropriate to such investor's investment objectives and financial situation.
The soliciting dealer must ascertain that you can reasonably benefit from an
investment in our certificates. The following shall be relevant to such
determination: (i) you are capable of understanding the fundamental aspects of
our business, which capacity may be evidenced by the following: (a) employment
experience; (b) educational level achieved; (c) access to advice from qualified
sources, such as attorneys, accountants, tax advisors, etc.; and (d) prior
experience with similar investments; (ii) you have apparent understanding of (a)
the fundamental risk and possible financial hazards of this type of investment;
(b) the lack of liquidity of this investment; (c) that the investment will be
directed and managed by the Advisor; and (d) the tax consequences of the
investment; and (iii) you have the financial capability to invest in our
certificates.
By executing your account application, each soliciting dealer acknowledges
its determination that the certificates are a suitable investment for you, and
will be required to represent and warrant its compliance with the applicable
laws requiring the determination of the suitability of the certificates as an
investment for you. In addition to the foregoing, we will coordinate the
processes and procedures utilized by the underwriter and soliciting dealers and,
where necessary, implement additional reviews and procedures deemed necessary to
determine that you meet the suitability standards set forth herein. The
underwriter and/or the soliciting dealers must maintain for at least six (6)
years a record of the information obtained to determine that you meet the
suitability standards imposed on the offer and sale of certificates and your
representation that you are investing for your own account or, in lieu of such
representation, information indicating that you met the suitability standards.
Suitability of the Investment
Our certificates are suitable only for investment by persons who have
adequate financial means and can commit their investment for the full term of
the certificates purchased. You will be required to provide us with certain
financial information in your account application. You may purchase up to $5,000
of certificates if you meet one of the following standards: (i) a net worth
(excluding home, home furnishings and automobiles) of at least $30,000 and a
minimum gross income (without regard to investment in the certificates) of at
least $30,000; or (ii) a net worth (excluding home, home furnishings and
automobiles) of at least $100,000. To purchase in excess of $5,000 of
certificates, you must meet one of the following standards: (i) a net worth
(excluding home, home furnishings and automobiles) of at least $45,000 and a
minimum gross income (without regard to investment in the certificates) of at
least $45,000; or (ii) a net worth (excluding home, home furnishings and
automobiles) of at least $150,000. In the case of gifts to minors or purchases
in trusts, the suitability standards must be met by the custodian or the
grantor. By acceptance of the confirmation of purchase or delivery of the
certificates, you will represent satisfaction of the applicable suitability
standards and acknowledge receipt of this prospectus.
Suitability standards may be higher in certain states. You must meet all
of the applicable requirements set forth in the account application.
The account application to be signed by all purchasers of the Series C
Secured Investors Certificates contains an arbitration agreement. By this
agreement, each purchaser agrees that all controversies relating to the
Certificates will be determined by arbitration before the FINRA (formerly NASD).
- 54 -
COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or controlling persons pursuant to
our bylaws, or otherwise, we have been informed 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.
LEGAL MATTERS
Certain legal matters, including the legality of the certificates being
offered hereby and certain federal income tax matters, are being passed upon for
us by Winthrop & Weinstine, P.A., Minneapolis, Minnesota.
EXPERTS
The financial statements incorporated by reference in this prospectus from
American Church Mortgage Company's Annual Report on Form 10-KSB for the year
ended December 31, 2007 have been audited by Boulay, Heutmaker, Zibell and
Company, P.L.L.P., independent registered public accountants, as set forth in
the report thereon appearing elsewhere herein, which is incorporated herein by
reference and has been so incorporated in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We have filed a registration statement on Form S-11 with the SEC with
respect to the secured investor certificates to be issued in the offering. This
prospectus is a part of that registration statement and, as allowed by SEC
rules, does not include all of the information you can find in the registration
statement or the exhibits to the registration statement. For additional
information relating to us, we refer you to the registration statement and the
exhibits to the registration statement. Statements contained in this prospectus
as to the contents of any contract or document referred to are necessarily
summaries of such contract or document and in each instance, if the contract or
document is filed as an exhibit to the registration statement, we refer you to
the copy of the contract or document filed as an exhibit to the registration
statement.
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. We furnish our shareholders by mail with annual
reports containing our financial statements certified by an independent
registered public accounting firm. The registration statement is, and all of
these filings with the SEC are, available to the public over the Internet at the
SEC's web site at http://www.sec.gov. You may also read and copy any filed
document at the SEC's public reference room in Washington, D.C. at 100 F.
Street, N.E., Room 1580, Washington D.C. Please call the SEC at (800) SEC-0330
for further information about the public reference room. You can also access
documents that are incorporated by reference into this prospectus at the web
site we maintain at http://www.church-loans.net under the heading "Regulatory
Filings." There is additional information about us and our affiliates at our web
site, but unless specifically incorporated by reference herein as described in
the paragraphs below, the contents of that site are not incorporated by
reference in or otherwise a part of this prospectus.
We have elected to "incorporate by reference" certain information into
this prospectus. By incorporating by reference, we are disclosing important
information to you by referring you to documents we have filed separately with
the SEC. The information incorporated by reference is deemed to be part of this
prospectus, except for information incorporated by reference that is superseded
by information contained in this prospectus. The following documents filed with
the SEC are incorporated by reference in this prospectus (Commission File No.
333-______), except for any document or portion thereof deemed to be "furnished"
and not filed in accordance with SEC rules:
o Annual Report on Form 10-KSB for the fiscal year ended December 31,
2007 filed with the SEC on March 28, 2008, including the information
specifically incorporated by reference into our Form 10-KSB from our
definitive proxy statement for our 2008 Annual Meeting of
Shareholders;
o Annual Report on Form 10-KSB/A for the fiscal year ended December
31, 2007 filed with the SEC on April 29, 2008, including the
information specifically incorporated by reference into our Form
10-KSB from our definitive proxy statement for our 2008 Annual
Meeting of Shareholders;
- 55 -
o Definitive Proxy Statement filed with the SEC on May 14, 2008 in
connection with our Annual Meeting of Stockholders held on June 11,
2008, and adjourned and reconvened on July 16, 2008;
o Quarterly Report on Form 10-Q for the quarter ended June 30, 2008
filed with the SEC on August 14, 2008;
o Quarterly Report on Form 10-Q/A for the quarter ended June 30, 2008
filed with the SEC on August 20, 2008;
o Quarterly Report on Form 10-Q for the quarter ended March 31, 2008
filed with the SEC on May 15, 2008;
o Current Report on Form 8-K filed with the SEC on May 22, 2008;
o Current Report on Form 8-K filed with the SEC on June 11, 2008; and
o Current Report on Form 8-K filed with the SEC on September 17, 2008.
We will provide to each person to whom this prospectus is delivered, upon
request, a copy of any or all of the information that we have incorporated by
reference into this prospectus but not delivered with this prospectus. To
receive a free copy of any of the documents incorporated by reference in this
prospectus, other than exhibits, unless they are specifically incorporated by
reference in those documents, call or write us at 10237 Yellow Circle Drive,
Minnetonka (Minneapolis), Minnesota 55343; our telephone number is (952)
945-9455. The information relating to us contained in this prospectus does not
purport to be comprehensive and should be read together with the information
contained in the documents incorporated or deemed to be incorporated by
reference in this prospectus.
- 56 -
Exhibit A
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[LOGO] AMERICAN INVESTORS GROUP, INC. Account Application Account Number:
[ ] New Account (check one) ____________________
10237 Yellow Circle Drive [ ] Update Years Known: _______
Minnetonka, MN 55343
------------------------------------------------------------------------------
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1. Account Registration: (Check One):
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[ ] Individual [ ] Joint Tenants with Rights of Survivorship [ ] Corporate* [ ] Non-Profit*
[ ] Custodial [ ] Community Property [ ] Partnership* [ ] Trust*
[ ] Investment Club* [ ] Pension/Profit Sharing Plan* [ ] Sole Proprietorship* [ ] Estate*
[ ] IRA* [ ] Joint Tenants in Common (50%/50% unless otherwise noted ______% _____%) [ ] TOD/POD
* Additional Paperwork May Be Required
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
2. Account Registration:
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
___________________________________________________________________________________________________________________________________
Full Legal Name: Individual/Corporation/Trust/IRA Trustee Social Security Number
___________________________________________________________________________________________________________________________________
Full Legal Name: Co-Applicant/Minor/Trustees Social Security Number
___________________________________________________________________________________________________________________________________
Home Address: (P.O. Box Unacceptable) City State Zip Length at Residence
___________________________________________________________________________________________________________________________________
Alternate Mailing Address (P.O. Box Acceptable) City State Zip
__________________ ____________________________ __________________________ ____________________________________
Date of Birth Date of Birth (Co-Applicant) Daytime Phone Evening Phone
_________________________ ________________________________________________________ ____________________________________
Fax Number E-mail Address Name of your Bank
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3. Customer Identification Program (CIP)
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To help the United States fight the funding of terrorism and money laundering activities, Federal law requires us to obtain, verify
and record information that identifies each person who opens an account with us.
Individuals: [ ] Driver's License [ ] Govt. or State Issued I.D. [ ] Passport Entities: [ ] Trust Agreement Dated: __________
Issuer: ______________________________________________________________________ [ ] Articles of Incorporation
I.D. Number: _________________________________________________________________ [ ] Partnership Agreement
Date of Issuance: _________________ Date of Expiration ______________________ Other: _________________________________________
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4. Investor Information
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Marital Status: [ ] Single [ ] Married [ ] Divorced [ ] Widowed Number of Dependents: ____________ U.S. Citizen? [ ] Yes [ ] No*
Employment Information: (Please specify if unemployed, retired, homemaker or student. If unemployed or retired please indicate your
former occupation)
___________________________________________________________________________________________________________________________________
Employer (If self-employed, please specify name of business.) Occupation or former Occupation
____________________________
Length of current Employment
Co-Applicant's Employment Information: (Please specify if unemployed, retired, homemaker or student. If unemployed or retired please
indicate your former occupation)
___________________________________________________________________________________________________________________________________
Employer (If self-employed, please specify name of business.) Occupation or former Occupation
____________________________
Length of Current Employment
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Office Use Only: ACCT.#: _________________ CONS. ACCT #: _________________ LAST NAME: ______________________________
FIRST NAME: ___________________ REP NO. __________ REP. LAST NAME: _______________________________
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American Investors Group, Inc. (10/07/03)
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[LOGO] AMERICAN INVESTORS GROUP, INC. Account Application Account Number:
(Continued) ____________________
10237 Yellow Circle Drive
Minnetonka, MN 55343 ------------------------------------------------------------------------------
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4. Investor Information (Continued):
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Investment Objectives (Check all that apply):
[ ] Capital Preservation: Preserving the value of your existing assets by investing in securities with a smaller degree of risk of
loss of principal.
[ ] Income: Generating current income rather than generating capital appreciation.
[ ] Growth: Generating capital appreciation by investing in securities with a higher degree of volatility and risk of loss of
principal, which will generate little if any current income.
[ ] Speculation: Trading volatile securities with a higher than average possibility of loss of principal with the hope of achieving
significant capital appreciation.
Financial Information - Primary Applicant: [ ] Check Here If You Are Combining Financial Information
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Estimated Liquid Net Worth
Investment Experience (Cash, Bank C.D.'s,
(# of Years) Estimated Annual Income Estimated Net Worth Liquid Securities) Tax Bracket
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[ ] Stocks ______ [ ] Under $25,000 [ ] Under $50,000 [ ] Under $50,000 [ ] 10%
[ ] Bonds ______ [ ] $25,001 - $50,000 [ ] $50,000 - $100,000 [ ] $50,000 - $100,000 [ ] 15%
[ ] Mutual Funds ______ [ ] $50,001 - $75,000 [ ] $100,001 - $150,000 [ ] $100,001 - $150,000 [ ] 25%
[ ] Municipal Bonds ______ [ ] $75,001 - $100,000 [ ] $150,001 - $250,000 [ ] $150,001 - $250,000 [ ] 28%
[ ] Limited Partnerships ______ [ ] $100,001 - $175,000 [ ] $250,001 - $500,000 [ ] $250,001 - $500,000 [ ] 33%
[ ] $175,001 - $250,000 [ ] $500,001 - $1,000,000 [ ] $500,001 - $1,000,000 [ ] 35%
[ ] $250,001 - $500,000 [ ] Over $1,000,000 [ ] Over $1,000,000
[ ] Over $500,001
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Financial Information - Co-Applicant (If Applicable):
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Estimated Liquid Net Worth
Investment Experience (Cash, Bank C.D.'s,
(# of Years) Estimated Annual Income Estimated Net Worth Liquid Securities) Tax Bracket
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[ ] Stocks ______ [ ] Under $25,000 [ ] Under $50,000 [ ] Under $50,000 [ ] 10%
[ ] Bonds ______ [ ] $25,001 - $50,000 [ ] $50,000 - $100,000 [ ] $50,000 - $100,000 [ ] 15%
[ ] Mutual Funds ______ [ ] $50,001 - $75,000 [ ] $100,001 - $150,000 [ ] $100,001 - $150,000 [ ] 25%
[ ] Municipal Bonds ______ [ ] $75,001 - $100,000 [ ] $150,001 - $250,000 [ ] $150,001 - $250,000 [ ] 28%
[ ] Limited Partnerships ______ [ ] $100,001 - $150,000 [ ] $250,001 - $500,000 [ ] $250,001 - $500,000 [ ] 33%
[ ] $150,001 - $250,000 [ ] $500,001 - $1,000,000 [ ] $500,001 - $1,000,000 [ ] 35%
[ ] $250,001 - $500,000 [ ] Over $1,000,000 [ ] Over $1,000,000
[ ] Over $500 001
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5. Account Agreement (Please read and sign)
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Certification of Taxpayer ID Number (Substitute W-9): Under penalty of perjury, you certify that (1) the number shown on this form
is your correct taxpayer identification number and (2) you are not subject to backup withholding because (i) you are exempt from
backup withholding, or (ii) you have not been notified by the Internal Revenue Service (IRS) that you are subject to backup
withholding as a result of a failure to report all interest and dividends, or (iii) the IRS has notified you that you are no longer
subject to backup withholding and (3) you are a U.S. person (including a U.S. resident alien).
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Arbitration Agreement: The customer agrees, and by carrying an account for the customer, American Investors Group, Inc. agrees that
all controversies which may arise between us concerning any transaction or the construction, performance, or breach of this or any
other agreement between us pertaining to securities, whether entered into prior, on or subsequent to the date hereof, shall be
determined by arbitration. Any arbitration under this agreement shall be conducted pursuant to the federal arbitration act before
the National Association of Securities Dealers, Inc. in accordance with the rules then prevailing at the organization. Both parties
agree that (i) arbitration is final and binding on the parties. (ii) The parties are waiving their right to seek remedies in court,
including the right to jury trial. (iii) Pre-arbitration discovery is generally more limited than and different from court
proceedings. (iv) The arbitrators' award is not required to include factual findings or legal reasoning and the party's right to
appeal or seek modification of rulings by the arbitrators is strictly limited. (v) The panel of arbitrators will typically include a
minority of arbitrators who were or are affiliated with the securities industry.
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X _______________________________________________________________ X _______________________________________________________________
Applicant's Signature (Date) Co-Applicant's Signature (Date)
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FOR BROKER USE ONLY
Rep Last Name: ________________________ Rep #: ________________
X _______________________________________________________________ X _______________________________________________________________
Registered Representative Signature (Date) Principal's Signature (Date)
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Office Use Only: ACCT.#: _________________ CONS. ACCT #: _________________ LAST NAME: ______________________________
FIRST NAME: ___________________ REP NO. __________ REP. LAST NAME: _______________________________
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American Investors Group, Inc. (10/07/03)
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Prospective investors may rely only on the information contained in this
prospectus. Neither American Church Mortgage Company nor the Underwriter has
authorized anyone to provide any other information. This prospectus is not an
offer to sell to - nor is it seeking an offer to buy securities from - any
person in any jurisdiction in which it is illegal to make an offer or
solicitation. The information here is correct only on the date of this
prospectus, regardless of the time of the delivery of this prospectus or any
sale of these securities.
TABLE OF CONTENTS
Prospectus Summary ....................................................... 4
Risk Factors ............................................................. 10
Who May Invest ........................................................... 16
Use of Proceeds .......................................................... 17
Compensation to Advisor and Affiliates ................................... 18
Conflicts of Interest .................................................... 20
Distributions ............................................................ 21
Capitalization ........................................................... 23
Our Business ............................................................. 24
Certain Relationships and Related Transactions and Director
Independence .......................................................... 39
Federal Income Tax Consequences Associated with the Certificates ......... 41
Federal Income Tax Consequences Associated with REITS .................... 42
ERISA Considerations ..................................................... 43
Description of the Certificates .......................................... 44
Summary of the Organizational Documents .................................. 50
Plan of Distribution ..................................................... 53
Commission Position on Indemnification for Securities Act Liabilities .... 55
Legal Matters ............................................................ 55
Experts .................................................................. 55
Incorporation of Certain Documents by Reference .......................... 55
Until [______ __, 200_], all dealers effecting transactions in the securities
offered by this prospectus, whether or not participating in the offering, may be
required to deliver a prospectus. Dealers may also be required to deliver a
prospectus when acting as underwriters and for their unsold allotments or
subscriptions.
================================================================================
================================================================================
American Church
Mortgage Company
[LOGO]
$20,000,000 of Series C Investor Certificates
--------------
PROSPECTUS
--------------
American Investors Group, Inc.
_______ __, 2008
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 31. Other Expenses of Issuance and Distribution.
Item Estimated Cost
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SEC Registration Fee........................ $ 786
FINRA Filing Fee............................ $ 2,500
Blue Sky Qualification Fees and Expenses*... $ 15,000
Underwriter's Expense Allowance** $ 120,000
Printing and Engraving*..................... $ 2,000
Legal Fees and Expenses*.................... $ 50,000
Accounting Fees and Expenses*............... $ 12,000
Miscellaneous*.............................. $ 17,714
--------------
Total................................... $ 220,000
==============
* Estimated
** Assumes sale of all securities offered
Item 32. Sales to Special Parties.
None.
Item 33. Recent Sales of Unregistered Securities.
None.
Item 34. Indemnification of Directors and Officers.
Our Articles require us to indemnify and pay or reimburse reasonable
expenses to any individual who is our present or former director, advisor or
affiliate, provided that: (i) the director, advisor or affiliate seeking
indemnification has determined, in good faith, that the course of conduct which
caused the loss or liability was in our best interest; (ii) the director,
advisor or affiliate seeking indemnification was acting on our behalf or
performing services on our behalf; (iii) such liability or loss was not the
result of negligence or misconduct on the part of the indemnified party, except
that in the event the indemnified party is or was an independent director, such
liability or loss shall not have been the result of gross negligence or willful
misconduct; and (iv) such indemnification or agreement to be held harmless is
recoverable only out of our assets and not from our shareholders directly.
We may advance amounts to persons entitled to indemnification for legal
and other expenses and costs incurred as a result of legal action instituted
against or involving such person if: (i) the legal action relates to the
performance of duties or services by the indemnified party for or on our behalf;
(ii) the legal action is initiated by a third party who is not a shareholder, or
the legal action is initiated by a shareholder acting in his or her capacity as
such and a court specifically approves such advancement; and (iii) the
indemnified party receiving such advances undertakes, in writing, to repay the
advanced funds, with interest at the rate we determined, in cases in which such
party would not be entitled to indemnification.
Notwithstanding the foregoing, we may not indemnify our directors,
advisor, or affiliates and any persons acting as a broker-dealer for any losses,
liabilities or expenses arising from or out of an alleged violation of federal
or state securities by such party unless one or more of the following conditions
are met: (i) there has been a successful adjudication on the merits of each
count involving alleged securities law violations as to the particular
indemnitee; (ii) such claims have been dismissed with prejudice on the merits by
a court of competent jurisdiction as to the particular indemnitee; or (iii) a
court of competent jurisdiction approves a settlement of the claims against a
particular indemnitee and finds that indemnification of the settlement and the
related costs should be made, and the court considering the request for
indemnification has been advised of the position of the Securities and Exchange
Commission and of the published position of any state securities regulatory
authority in which our securities were offered or sold as to indemnification for
violations of securities laws.
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Subject to the limitations described above, we have the power to purchase
and maintain insurance on behalf of an indemnified party. We may procure
insurance covering our liability for indemnification. The indemnification
permitted by our Articles is more restrictive than permitted under the Minnesota
Business Corporation Act.
Item 35. Treatment of Proceeds From Stock Being Registered.
None.
Item 36. Financial Statements and Exhibits.
(a) Financial Statements:
The financial statements of American Church Mortgage Company
are incorporated into this registration and the prospectus
included herein by reference to American Church Mortgage
Company's Annual Report on Form 10-KSB for the year ended
December 31, 2007 and to American Church Mortgage Company's
Quarterly Reports on Form 10-Q for the quarterly periods ended
March 31 and June 30, 2008.
(b) Exhibits:
See attached exhibit index.
Item 37. Undertakings.
The undersigned registrant hereby undertakes:
1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
a. To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
b. To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
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 volume and price
represent no more than 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
c. To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
2) That, for the purpose 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.
4) That, for the purpose of determining liability under the Securities Act of
1933 to any purchaser:
a. If the registrant is relying on Rule 430B:
i. Each prospectus filed by the registrant pursuant
to Rule 424(b)(3) shall be deemed to be part of
the registration statement as of the date the
filed prospectus was deemed part of and included
in the registration statement; and
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ii. Each prospectus required to be filed pursuant to
Rule 424(b)(2), (b)(5), or (b)(7) as part of a
registration statement in reliance on Rule 430B
relating to an offering made pursuant to Rule
415(a)(1)(i), (vii), or (x) for the purpose of
providing the information required by section
10(a) of the Securities Act of 1933 shall be
deemed to be part of and included in the
registration statement as of the earlier of the
date such form of prospectus is first used after
effectiveness or the date of the first contract of
sale of securities in the offering described in
the prospectus. As provided in Rule 430B, for
liability purposes of the issuer and any person
that is at that date an underwriter, such date
shall be deemed to be a new effective date of the
registration statement relating to the securities
in the registration statement to which that
prospectus relates, and the offering of such
securities at that time shall be deemed to be the
initial bona fide offering thereof. Provided,
however, that no statement made in a registration
statement or prospectus that is part of the
registration statement or made in a document
incorporated or deemed incorporated by reference
into the registration statement or prospectus that
is part of the registration statement will, as to
a purchaser with a time of contract of sale prior
to such effective date, supersede or modify any
statement that was made in the registration
statement or prospectus that was part of the
registration statement or made in any such
document immediately prior to such effective date;
or
b. If the registrant is subject to Rule 430C, each prospectus
filed pursuant to Rule 424(b) as part of a registration
statement relating to an offering, other than registration
statements relying on Rule 430B or other than prospectuses
filed in reliance on Rule 430A, shall be deemed to be part of
and included in the registration statement as of the date it
is first used after effectiveness. Provided, however, that no
statement made in a registration statement or prospectus that
is part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the
registration statement will, as to a purchaser with a time of
contract of sale prior to such first use, supersede or modify
any statement that was made in the registration statement or
prospectus that was part of the registration statement or made
in any such document immediately prior to such date of first
use.
5) That, for the purpose of determining liability of the registrant under the
Securities Act of 1933 to any purchaser in the initial distribution of the
securities: The undersigned registrant undertakes that in a primary
offering of securities of the undersigned registrant pursuant to this
registration statement, regardless of the underwriting method used to sell
the securities to the purchaser, if the securities are offered or sold to
such purchaser by means of any of the following communications, the
undersigned registrant will be a seller to the purchaser and will be
considered to offer or sell such securities to such purchaser:
a. Any preliminary prospectus or prospectus of the undersigned
registrant relating to the offering required to be filed
pursuant to Rule 424;
b. Any free writing prospectus relating to the offering prepared
by or on behalf of the undersigned registrant or used or
referred to by the undersigned registrant;
c. The portion of any other free writing prospectus relating to
the offering containing material information about the
undersigned registrant or its securities provided by or on
behalf of the undersigned registrant; and
d. Any other communication that is an offer in the offering made
by the undersigned registrant to the purchaser.
6) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
7) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
8) The undersigned registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance
with the rules and regulations prescribed by the Commission under Section
305(b)(2) of the Act.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-11 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Minnetonka, state of Minnesota, on October 29, 2008.
AMERICAN CHURCH MORTGAGE COMPANY
By /s/ Philip J. Myers
---------------------------------
Philip J. Myers, President,
Chief Executive Officer and
Chief Financial Officer
II-4
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Philip J. Myers and Scott J. Marquis, or either of them, such person's true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution for such person and in such person's name, place and stead, in
any and all capacities, to sign the Registration Statement on Form S-11 of
American Church Mortgage Company and any and all amendments (including
post-effective amendments) to the Registration Statement, and to file same, with
all exhibits hereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as such person might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or either of them, or their substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Director, President,
Secretary and Treasurer
(principal executive officer; principal
/s/ Philip J. Myers financial and accounting officer October 29, 2008
- ---------------------------------------
Philip J. Myers
/s/ Kirbyjon H. Caldwell Director October 29, 2008
- ---------------------------------------
Kirbyjon H. Caldwell
/s/ Dennis J. Doyle Director October 29, 2008
- ---------------------------------------
Dennis J. Doyle
/s/ Michael G. Holmquist Director October 29, 2008
- ---------------------------------------
Michael G. Holmquist
II-5
INDEX TO EXHIBITS
Exhibit
No. Title
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1 Form of Distribution Agreement by and between the Company and American Investors Group, Inc. 1
3.1 Amended and Restated Articles of Incorporation 2
3.2 Third Amended and Restated Bylaws 3
4.1 Form of Trust Indenture 1
5 Form of Opinion Letter of Winthrop & Weinstine, P.A. as to the legality of the securities 1
8 Form of Opinion Letter of Winthrop & Weinstine, P.A. as to certain tax matters relating to the securities 1
10.1 Amended and Restated REIT Advisory Agreement by and between the Company and Church Loan Advisory, Inc. dated
January 22, 2004 4
10.2 Form of Loan and Security Agreement by and between the Company and Beacon Bank 5
10.3 Form of Revolving Note 5
10.4 Form of Securities Account Control Agreement by and among the Company, Herring Bank, as Trustee and Beacon Bank 5
10.5 Form of Security Agreement by and between the Company and Herring Bank, as Trustee 1
21 Subsidiaries of the Registrant 1
23.1 Consent of Counsel (included in Exhibit 5 and 8) 1
23.2 Consent of Independent Registered Public Accounting Firm 1
24 Power of Attorney (included on signature page) 1
25 Statement of Eligibility of Trustee 1
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(1) Filed herewith.
(2) Incorporated herein by reference to the Company's Registration Statement
on Form 8-A filed April 30, 1999 (Commission File No. 000-25919).
(3) Incorporated herein by reference to the Company's Current Report on Form
8-K filed July 3, 2007.
(4) Incorporated herein by reference to the Company's Current Report on Form
8-K filed August 1, 2007.
(5) Incorporated herein by reference to the Company's Current Report on Form
8-K filed September 17, 2008.
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