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Item 10.
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Directors, Executive Officers and Corporate Governance.
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Our board of directors
currently consist of four directors of which all are serving one year terms until the next annual meeting of stockholders in 2019.
Our current board members are as follows:
Name
|
Positions
|
|
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Philip J. Myers
|
Chairman, President and Secretary
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Kirbyjon H. Caldwell
|
Director
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Dennis J. Doyle
|
Director
|
Michael G. Holmquist
|
Director
|
Philip J. Myers
,
Mr. Myers, age 63, has been our Chairman, President and Secretary since April 2001. He has also served as President, Treasurer,
stockholder and a director of our Advisor, Church Loan Advisors, Inc. since 1994, President, Secretary, majority stockholder and
a director of American Investors Group, Inc., a registered broker-dealer, since 1996, and of its parent company, Apostle Holdings
Corp. since 2000. Mr. Myers has been an officer and owner of American Investors Group, Inc. and has engaged directly in church
mortgage lending since 1989. He earned his bachelor of arts degree in political science in 1977 from the State University of New
York at Binghamton and his juris doctor degree from the State University of New York at Buffalo School of Law in 1980. From 1980
to 1982, Mr. Myers served as an attorney in the Division of Market Regulation of the U.S. Securities and Exchange Commission
in Washington, D.C. and, from 1982 to 1984, as an attorney with the Division of Enforcement of the Securities and Exchange Commission
in San Francisco. From August 1984 to January 1986, he was employed as an attorney with the San Francisco law firm of Wilson, Ryan
and Compilongo where he specialized in corporate finance, securities and broker-dealer matters. From January 1986 to January 1989,
Mr. Myers was Senior Vice President and General Counsel of Financial Planners Equity Corporation, a 400 broker securities
dealer formerly located in Marin County, California. He became affiliated with American Investors Group, Inc. in 1989. He is an
inactive member of the New York, California and Minnesota State Bar Associations. Mr. Myers holds General Securities Representative
and General Securities Principal licenses with the Financial Industry Regulation Authority (FINRA). Mr. Myers’ 29 years
of experience in church lending combined with the practice of law in the securities, corporate and regulatory arenas and his experience
as a CEO afford him a comprehensive and broad based insight into managing the direction, opportunities and challenges of the Company.
Kirbyjon H. Caldwell
,
Reverend Caldwell
,
age 65, has served as an independent director of the Company since 1994. He has been Senior Pastor of
Windsor Village United Methodist Church in Houston, Texas since January 1982. The membership of Windsor Village exceeds 17,000.
Rev. Caldwell received his B.A. degree in Economics from Carlton College (1975), an M.B.A. in Finance from the University
of Pennsylvania’s Wharton School (1977), and his Masters in Theology from Southern Methodist University School of Theology
(1981). He is Chair of the Goverance & Nominating Committee, Inc. for NRG Energy and a member of the Amegy Bank Advisory Board,
Bridgeway Capital Management Board, The Greater Houston Partnership Executive Committee, Houston Gold Assocation Executive Committee,
Baylor College of Medicine Executive Committee and M.D. Anderson-The University Cancer Foundation. He is also the founder of community
development organizations and a limited partner with the Houston Texans franchise. Pastor Caldwell brings to the Company’s
board a unique combination of talents as a former financial services professional with an MBA and a leading denominational pastor
with national recognition. He is uniquely qualified to advise management on the direction and thinking of church leaders, the principal
market of the Company.
Dennis J. Doyle
,
Mr, Doyle, age 67, has served as an independent director of the Company since 1994. He is a stockholder and co-founder of Welsh
Companies, Inc., Minneapolis, Minnesota, a full-service real estate company involved in property management, brokerage, investment
sales, construction and commercial development. Since 1977, he has held many positions within Welsh’s services business ranging
from manual laborer to licensed broker to positions in executive management. He has served as Chief Executive Officer of Welsh
since 1987. He continues to hold a real estate broker’s license in Minnesota. He is the general partner in the Wildamere
Capital Management 10 million square foot portfolio of properties. Mr. Doyle is the founder and chief executive officer of
Matter, a privately funded, not-for-profit organization established to fight poverty, hunger, and disease by utilizing corporate
surplus. Mr. Doyle is a member of the board of directors of Tradition Capital Bank. Mr. Doyle’s 30 years in real
estate and years as the CEO of a growing commercial real estate company, in addition to his 20 years of service on the Company’s
Board allows him to offer profound insight into the management of the Company’s real estate-based lending activities.
Michael G. Holmquist
,
Mr. Holmquist, age 69, has served as an independent director of the Company since 2003. Mr. Holmquist is a Certified Public
Accountant practicing from his office in Minnetonka, Minnesota. Prior to entering the accounting field in 1977, he worked for two
years as a public school teacher and served four years in the U.S. Coast Guard. He is a graduate of St. Olaf College. Mr. Holmquist
was an original incorporator of American Investors Group and an employee of the firm from 1986-1989. Mr. Holmquist’s
experience as a CPA and tax professional qualifies him to lead our Sarbanes-Oxley accounting compliance efforts as well as regularly
evaluate our internal control and reporting procedures.
During 2018, the board
of directors had four meetings. The attendance policy of the board encourages and expects all Board members to attend all board
meetings. Last year, Mr. Myers, Mr. Doyle and Mr. Holmquist attended 100% of the meetings held while Mr. Caldwell attended three
of the meetings held. We encourage directors’ attendance at the Annual Stockholder Meeting, but have no policy regarding
attendance in light of the fact that very few shareholders attend the Annual Meeting in person. Our Directors are invited to, and
frequently one or more of our Directors are in attendance at, the Annual Meeting. Mr. Myers attended the 2018 Annual Shareholder
Meeting.
The Board has no separately-designated
standing audit committee, compensation committee, nominating or executive committee. The Company’s entire board performs
the functions of an audit committee, but the Board has not designated an “audit committee financial expert.” We believe
that several of our independent directors qualify for such a designation, but do not believe the designation of a specific individual
is necessary at this time since we are managed by its advisor.
Qualifications
of Candidates for Election to the Board
Our
directors take a critical role in guiding our strategic direction and considering the composition of the Board. Since 1994, we
have had very little turnover on the Board (one independent member resigned in 2003 and a new, independent member was added in
July 2003; one other member resigned in May 2008). As such, we do not have a separate nominating committee. When Board candidates
are considered, they are evaluated based upon their ability to qualify as independent directors under Section 3.3 of our Bylaws
and various other criteria, such as their broad-based business and professional skills and experiences, experience serving as management
or on the Board of Directors of companies similar to us, concern for the long-term interests of the shareholders, financial literacy
and personal integrity in judgment. To date, we have not taken specific diversity considerations (other than those specified) into
account when nominating or considering Board candidates and has no policy in this regard. In addition, director candidates must
have time available to devote to Board activities. Accordingly, the Board seeks to attract and retain highly qualified directors
who have sufficient time to attend to their duties and responsibilities to us
See
“Process
for Identifying and Evaluating Candidates for Election to the Board” below for further discussion of how the Board operates
in connection with nominations.
Board Leadership Structure and Role in Risk
Oversight
Mr. Myers has served as
our Chairman, as a board of director and President since April 2001. The board of directors believes it is important to select
its Chairman and the Company’s President in the manner it considers in our best interests and its stockholders’ at
any given point in time. The board of directors believes that the most effective leadership structure for us is for Mr. Myers to
serve as both as our Chairman and President because a single position reduces the need to hire and compensate additional personnel.
Moreover, the board of directors recognizes that, given Mr. Myers’ familiarity with our day-to-day operations and his long-standing
experience with us, it is valuable to have him lead board discussions. We do not have a lead independent director. Rather, the
three independent directors as a group fulfill the role of reviewing all proposed transactions that involve potential conflicts
of interest and proposing matters for consideration or action by management. The board of directors and management view this level
of independent director involvement as adequate given the nature of our business. In particular, due to the limited size of our
operations and headcount and the well-defined nature of our business and operating results, that we have not required more formal
and extensive interaction, and the board of directors has not considered it necessary to date.
With respect to the board
of directors’ role in the risk oversight of the Company, the board of directors has set forth which transactions may require
the prior approval of the board of directors (or an independent portion thereof) and which transactions may proceed with management
authorization and without any such board of directors’ prior approval. In short, 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 must be approved, in advance, by a majority of our independent directors.
Process
for Identifying and Evaluating Candidates for Election to the Board
We
have no separate nominating committee, however, our management reviews the qualifications and backgrounds of the Directors, as
well as the overall composition of the Board, and recommends to the full Board of Directors the persons to be nominated for election
at each annual meeting of our shareholders. In the case of incumbent directors, the Board reviews such directors’ overall
service, including the number of meetings attended, level of participation, quality of performance, and whether the director continues
to meet the applicable independence standards. In the case of any new director candidates, the questions of independence and financial
expertise are important to determine what roles can be performed by the candidate, and the Board determines whether the candidate
meets the applicable independence standards and the level of the candidate’s financial expertise. Any new candidates would
be interviewed by the management and, if appropriate, then by all members of the Board. The full Board will approve the final nominations.
The Chairman of the Board, acting on behalf of the full Board, will extend the formal invitation to become a nominee of the Board
of Directors.
Executive Officers
Since inception, we have
not had any employees, and until the November 2009 appointment of Scott J. Marquis as Chief Financial Officer and Treasurer, the
Company had only one executive officer, Philip J. Myers, who serves in several capacities.
General
Ours and the Advisor’s
activities are governed, in part, by our 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
above, all future transactions between us and our officers, directors and affiliates must be approved, in advance, by a majority
of our independent directors.
Our Advisor
Subject to the supervision
of the Board of Directors, our business is managed by Church Loan Advisors, Inc. (our “Advisor”), which provides investment
advisory and administrative services. Church Loan Advisors, Inc. is a Minnesota corporation and has acted as our Advisor since
our inception in 1994. Our Advisor provides lending and advisory services solely to us, and administers our business affairs and
operations.
The following table sets
forth certain information regarding our executive officers.
Name
|
Age
|
Position
|
|
|
|
Philip J. Myers
|
63
|
Chairman, President and Secretary
|
Scott J. Marquis
|
61
|
Chief Financial Officer and Treasurer
|
Philip J. Myers
,
Mr. Myers, see board of directors table above.
Scott J. Marquis
,
Mr. Marquis,
is our Chief Financial Officer and Treasurer. He was appointed to this position
in November 2009 by our Board of Directors. He is also currently employed full-time as Chief Financial and Operating Officer
of American Investors Group, Inc., a registered broker-dealer, where he has been employed since February 1987. Prior to his employment
with American Investors Group, Inc., Mr. Marquis was employed for approximately seven years with the Minneapolis-based broker
dealer, Piper Jaffray Companies in various capacities within its operations department. Mr. Marquis attended the University of
Minnesota in Minneapolis, Minnesota and served in the United States Coast Guard Reserve (Retired). Mr. Marquis is a licensed
financial principal and registered representative of American Investors Group, Inc., holds his Series 7, 63 and 27 licenses from
FINRA.
Mr. Marquis’ knowledge of and experience in operating a public REIT company allow him to provide valuable insights
to the Board in its oversight of the Company’s operations as a REIT.
Item 13. Certain Relationships and Related
Transactions, and Director Independence.
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 may use 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, by 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 ending on April 18, 2020. We may terminate the Advisory Agreement
without cause 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 services to us including, but not limited
to, personnel expenses, rental and other office expenses of officers of the Advisor (except out-of-pocket expenses of such persons
who are our Directors or Officers), 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 fees 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 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. For purposes of the Advisory
Agreement, the Company’s Invested Assets means outstanding church loans and church bonds and does not include cash or equivalent
temporary investments. As defined in the Advisory Agreement, we remit to the Advisor 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, 2018 and 2017, we paid
our Advisor approximately $312,000 and $325,000, respectively.
American Investors Group, Inc.
In the course of our business,
we have purchased and may continue to purchase church bonds being underwritten and sold by American Investors Group, Inc., an affiliate
of our Advisor. Mr. Myers owns American Investors Group, Inc. and has been President, Treasurer and a director of this securities
brokerage firm since 1996. Although we have not and will not pay any commissions on purchases of church bonds from American Investors
Group, Inc. American Investors Group, Inc. benefits from such purchases as a result of commissions paid to it by the issuer of
the bonds. It 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 purchase church bonds for investment
purposes
only, and only at the public offering price. Church bonds we purchase in the secondary market, if any, are purchased at the best
price available, subject to customary mark-ups (or in the case of sales – mark-downs), on terms no less favorable than those
applied to other customers of American Investors Group, Inc. Our principals and our Advisor may receive a benefit in connection
with such transactions due to their affiliation with the underwriter.
Director Independence
Our board of directors
has determined that each of Dennis J. Doyle, Kirbyjon H. Caldwell and Michael G. Holmquist are “independent,” as that
term is defined in NASAA REIT Guidelines and in Rule 4200(a)(15) of the NASDAQ Marketplace Rules. Accordingly, the board is composed
of a majority of independent directors. There are no transactions with the Directors which were evaluated in connection with the
board’s determination of the independence which have not already been disclosed elsewhere in this 10K/A.