<PAGE> 1
As filed with the Securities and Exchange Commission on January 8, 1998.
Registration No.______________
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
METROPOLITAN MORTGAGE & SECURITIES CO., INC.
A Washington Corporation--IRS No. 91-0609840
929 West Sprague Avenue
Spokane, Washington 99201
(509) 838-3111
Agent for Service
C. Paul Sandifur, Jr., President
Metropolitan Mortgage & Securities Co., Inc.
929 West Sprague Avenue
Spokane, WA 99201
(509) 838-3111
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this Registration Statement.
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 the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this Form, 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, please 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(c)
under the Securities Act, check the following box and
<PAGE> 2
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. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
maximum maximum
Title of each class of Amount offering aggregate Amount of
securities to be to be price per offering registration
registered registered unit price fee
______________________ ___________ _________ ___________ ____________
<S> <C> <C> <C> <C>
Preferred Stock
Series E-7 Shares 250,000 $100 $25,000,000 $7,575
</TABLE>
The Registrant is hereby proposing to register 15,000 shares of
Preferred Stock, Series E-7. The amount of the filing fee associated with
such newly registered securities is $454. The Registrant is hereby amending
Registration No. 333-19755 pursuant to Rule 429 of which approximately
$235,000 of Preferred Stock, Series E-7 remains unsold. The amount of the
filing fee associated with such previously registered securities, which fee
was previously paid with prior Registration Statements, was $7,121. The
amount of the registration fee shown above is the combined fee for the
previously registered securities and for the newly registered securities.
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, as amended, or until this
Registration Statement shall become effective on such date as the Commission
acting pursuant to said Section 8(a) may determine.
<PAGE> 3
PART I
METROPOLITAN MORTGAGE & SECURITIES CO., INC.
Cross Reference Sheet
Showing Location in Prospectus of Items of the Form
<TABLE>
<CAPTION>
Item of Form Location
________________________________________ ___________________________
<S> <C> <C>
1. Forepart of the Registration
Statement and Outside Front Cover Page
of Prospectus--------------------------- Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus--------------------- Inside Front Cover Page
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed
Charges and Preferred Stock
Dividends------------------------------- Prospectus Summary;
Summary Consolidated
Financial Data; Risk
Factors
4. Use of Proceeds------------------------- Use of Proceeds
5. Determination of Offering Price--------- *
6. Dilution-------------------------------- *
7. Selling Security Holders---------------- *
8. Plan of Distribution-------------------- Plan of Distribution
9. Description of Securities to be
Registered------------------------------ Description of Securities;
Summary of Capital Stock;
Description of Preferred
Stock
10. Interests of Named Experts and Counsel-- Legal Matters; Experts
11. Information with Respect to the
Registrant------------------------------ Front Cover Page;
Prospectus Summary;
Capitalization
12. Incorporation of Certain
Information by Reference---------------- Available Information;
Incorporation of Certain
Documents by Reference
13. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities------------------------- Indemnification
<FN>
* Not applicable or negative.
</TABLE>
<PAGE> 4
SUBJECT TO COMPLETION DATED JANUARY 8, 1998.
PROSPECTUS
METROPOLITAN MORTGAGE & SECURITIES CO., INC.
250,000 Shares
Variable Rate Cumulative Preferred Stock, Series E-7
($100 Per Share Offering Price and Liquidation Preference)
<TABLE>
<CAPTION>
PRICE PER
SHARE DISTRIBUTION FORMULA (APPLICABLE RATE)
_________ ___________________________________________
<S> <C>
$100 The greater per annum rate of
the Three-Month U.S. Treasury Bill Rate, or
the Ten Year Constant Maturity Rate, or
the Twenty Year Constant Maturity Rate,
plus .5% (Minimum 6%/Maximum 14%)
</TABLE>
The shares of Variable Rate Cumulative Preferred Stock, Series E-7
("Preferred Stock") of Metropolitan Mortgage & Securities Co., Inc.
("Metropolitan") offered hereunder will be sold in whole or fractional units.
Preferred Stock distributions are cumulative and are to be declared and paid
monthly. See "DESCRIPTION OF PREFERRED STOCK-Distributions." Preferred Stock
may be redeemed, in whole or in part, at the option of Metropolitan at the
redemption prices set forth herein. Under certain limited circumstances, the
Board of Directors may, in its sole discretion and without any obligation to
do so, redeem shares tendered for redemption by stockholders. See
"DESCRIPTION OF PREFERRED STOCK-Redemption of Shares." In liquidation,
Preferred Stock is subordinate to all debts of Metropolitan including
Metropolitan's investment and installment debentures, series II and I,
respectively and on parity with other preferred stock and senior to
Metropolitan's common stock. See "DESCRIPTION OF PREFERRED STOCK-Liquidation
Rights."
There is no trading market for the Preferred Stock and none is expected
to be established in the future. See "RISK FACTORS." A list of persons
willing to sell or purchase Metropolitan's issued and outstanding shares of
preferred stock has been maintained by Metropolitan Investment Securities,
Inc. ("MIS") as a convenience to holders of Metropolitan's preferred stock.
See "DESCRIPTION OF PREFERRED STOCK-Redemption of Shares." This offering of
Preferred Stock is subject to withdrawal or cancellation by Metropolitan
without notice.
<PAGE> 5
FOR A DISCUSSION OF MATERIAL RISKS ASSOCIATED WITH THE DEBENTURES AND
PREFERRED STOCK OFFERED HEREBY, SEE "RISK FACTORS" ON PAGE ___ OF THIS
PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR ANY PRICING SUPPLEMENT
THERETO. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO ISSUER
PUBLIC COMMISSIONS(1) OR OTHER PERSONS(2)
____________ _________________ ________________________
<S> <C> <C> <C>
Per Preferred
Share $100 0% to 6% 100% to 94%
Total: $25,000,000 None-$1,500,000 $25,000,000-$23,500,000
</TABLE>
(1) There is no direct sales charge to the investor. Preferred Stock
distributions are calculated on their full respective offering prices, without
deduction for underwriting discounts or commissions. Metropolitan will
reimburse its underwriters for commissions paid to licensed securities sales
representatives. See "PLAN OF DISTRIBUTION."
(2) Before deducting other expenses estimated at $126,000.
The Preferred Stock is being offered for sale on a continuous, best
efforts basis. There are no minimum amounts of securities that must be sold.
This offering is subject to NASD Rule 2720. See "PLAN OF DISTRIBUTION." No
offering will be made pursuant to this prospectus subsequent to January 31,
1999.
The date of this Prospectus is ____________________.
<PAGE> 6
INSIDE FRONT COVER PAGE OF PROSPECTUS
No person has been authorized to give any information or to make any
representations not contained or incorporated by reference in this Prospectus
and any Pricing Supplement. Neither the delivery of this Prospectus and any
Pricing Supplement nor any sale made thereunder shall, under any
circumstances, create any implication that the information therein is correct
at any time subsequent to the date thereof. This Prospectus and any Pricing
Supplement shall not constitute an offer to sell or a solicitation of an offer
to buy any of the Preferred Stock offered hereby by anyone in any jurisdiction
in which such offer or solicitation is not authorized or in which the person
making such offer or solicitation is not qualified to do so or to any person
to whom it is unlawful to make such offer or solicitation.
<PAGE> 7
AVAILABLE INFORMATION
Metropolitan is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, (the "Exchange Act")and, in
accordance therewith, files periodic reports and other information with the
Securities and Exchange Commission (the "Commission"). Such reports and other
information filed by Metropolitan with the Commission can be inspected and
copied at the public reference facilities maintained by the Commission in
Washington, D.C. at 450 Fifth Street, N.W., Washington, DC 20549 and at
certain of its regional offices which are located in the New York Regional
Office, Seven World Trade Center, Suite 1300, New York, NY 10048, and the
Chicago Regional Office, CitiCorp Center, 500 West Madison Street, Suite 1400,
Chicago, IL 60661-2511. In addition, the Commission maintains a World Wide
Web site that contains reports, proxy statements and other information
regarding registrants such as the Issuer, that filed electronically with the
Commission at the following Internet address: (http:\\www.sec.gov).
Metropolitan has filed with the Securities and Exchange Commission in
Washington, D.C., a Registration Statement on Form S-2 under the Securities
Act of 1933, as amended, with respect to the Preferred Stock offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement, as permitted by the rules and regulations of the
Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission are incorporated
herein by reference in this Prospectus:
Annual report on Form 10-K for the fiscal year ended September 30, 1997
(filed January 8, 1998).
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein modifies or supersedes such statement. Any such statement so modified
or superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
Metropolitan will provide without charge to each person, including to
whom a Prospectus is delivered, upon written or oral request of such person, a
copy of any and all of the information that has been referenced in this
Prospectus other than exhibits to such documents. Requests for such copies
should be directed to Corporate Secretary, Metropolitan Mortgage & Securities
Co., Inc.,
<PAGE> 8
PO Box 2162, Spokane, WA 99210-2162, telephone number (509) 838-3111.
<PAGE> 9
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
____
<S> <C>
Available Information-------------------------------------
Incorporation of Certain Documents by Reference-----------
Prospectus Summary----------------------------------------
Capitalization--------------------------------------------
Summary Consolidated Financial Data-----------------------
Risk Factors----------------------------------------------
Description of Securities---------------------------------
Summary of Capital Stock--------------------------------
Description of Preferred Stock--------------------------
Transfer Agent and Registrar----------------------------
Legal Matters---------------------------------------------
Legal Opinion-------------------------------------------
Legal Proceedings---------------------------------------
Experts---------------------------------------------------
Plan of Distribution--------------------------------------
Use of Proceeds-------------------------------------------
Indemnification-------------------------------------------
</TABLE>
<PAGE> 10
PROSPECTUS SUMMARY
This summary is qualified in its entirety by reference to, and should be
read in conjunction with the detailed information appearing elsewhere in this
Prospectus. This offering involves certain considerations to prospective
investors which are set forth in "DESCRIPTION OF SECURITIES" & "RISK FACTORS."
THE METROPOLITAN CONSOLIDATED GROUP OF COMPANIES
Metropolitan was established and incorporated in the State of Washington
in January, 1953. Its principal executive offices are located at 929 West
Sprague Avenue, Spokane, WA 99201. Its mailing address is P.O. Box 2162,
Spokane, WA 99210-2162 and its telephone number is (509) 838-3111. Where
reference herein is intended to include Metropolitan and its subsidiaries,
they are jointly referred to as the "Consolidated Group." Where reference
herein is intended to refer to Metropolitan, (e.g. the parent company) it is
referred to individually as "Metropolitan."
The Consolidated Group is engaged, nationwide, in the business of
acquiring, holding, selling, originating and servicing receivables
(hereinafter "Receivables"). These Receivables include real estate contracts,
and promissory notes collateralized by first position liens on residential
real estate. The Consolidated Group also invests in Receivables consisting of
real estate contracts and promissory notes collateralized by second and lower
position liens, structured settlements, annuities, lottery prizes, and other
investments. The Receivables collateralized by real estate are typically non-
conventional in that they were originated as the result of seller financing,
or they were originated by lenders who specialize in borrowers with impaired
credit histories or non-conventional properties. In addition to Receivables,
the Consolidated Group invests in U.S. Treasury obligations, corporate bonds
and other securities.
The Consolidated Group invests in Receivables using funds generated from
the sale and securitization of Receivables, collateralized borrowing,
Receivable cash flows, the sale of annuities, the sale of debentures and
preferred stock, the sale of real estate and securities portfolio earnings.
Metropolitan provides Receivable acquisition services, for a fee, to its
insurance subsidiary, Western United Life Assurance Company ("Western
United"). Metwest Mortgage Services, Inc. ("Metwest"), a wholly owned
subsidiary of Metropolitan, services the Receivables for Metropolitan and
Western United. Metropolitan and Metwest also provide Receivable acquisition,
management and collection services, for a fee, to the following companies
which are affiliated through common control by C. Paul Sandifur, Jr.,
President of Metropolitan: Summit Securities, Inc. ("Summit"),
<PAGE> 11
Old Standard Life Insurance Company ("Old Standard") and Arizona Life
Insurance Co. ("Arizona Life").
The Consolidated Group owns various repossessed and other properties,
all of which are held for sale and/or development, including a timeshare
condominium resort in Hawaii.
At September 30, 1997, the Consolidated Group had 471 full-time
equivalent employees. No personnel are represented by any labor organization
and the Consolidated Group considers relations with its employees to be
satisfactory.
Metropolitan's principal office and its subsidiaries' principal offices,
are located in commercial buildings in downtown Spokane, Washington on
property owned by Metropolitan consisting of a full city block with an
aggregate rentable area of approximately 50,000 square feet. On November 14,
1997, Metropolitan acquired an approximately 200,000 square foot office
building located at 601 West First Avenue, Spokane, Washington, approximately
three blocks from the current headquarters. Approximately 50% of the building
is currently leased by other tenants. Metropolitan anticipates moving its
headquarters to this building in late spring 1998.
Terms
For ease of reading, the following is a compilation of several of the
defined terms which appear regularly within this document.
Consolidated Group: This term refers to the combined businesses
consisting of Metropolitan and all of its subsidiaries.
Debentures: When this term is uncapitalized, it refers to debentures
generally. When this term is capitalized, it refers to any Debentures which
may be offered contemporaneously with this Preferred Stock offering.
Metropolitan: This term refers to the parent company, Metropolitan
Mortgage & Securities, Co., Inc., exclusive of its subsidiaries.
Metwest: Metwest Mortgage Services, Inc., a subsidiary of Metropolitan.
Preferred Stock: When this term is capitalized, it refers to the Series
E-7 Preferred Stock being offered herein. When this term is not capitalized,
it refers to preferred stock generally.
<PAGE> 12
Receivables: Investments in cash flows, consisting of obligations
collateralized by real estate, structured settlements, annuities, lottery
prizes and other investments.
Western United: Western United Life Assurance Company, a subsidiary of
Metropolitan.
Affiliated Companies: The following companies are affiliated with
Metropolitan through the common control of C. Paul Sandifur, Jr. Metropolitan
and its subsidiaries provide services to these companies for a fee and engage
in various business transactions with these companies:
Arizona Life: Arizona Life Insurance Company
Summit: Summit Securities, Inc.
MIS: Metropolitan Investment Securities, Inc.
Summit PD: Summit Property Development, Inc.
Old Standard: Old Standard Life Insurance Company.
<PAGE> 13
ORGANIZATIONAL CHART
(as of September 30, 1997)
METROPOLITAN MORTGAGE & SECURITIES CO., INC.
_________________________________|________________________________
| | |
100% | 96.5%*
Metwest Mortgage | Consumers Group
Services, Inc. | Holding Co, Inc.
| |
| 100%
| Consumers Insurance
| Co., Inc.
| |
| 75.5%
24.5% -> Western United
Life Assurance Co.
The above chart lists the Consolidated Group's principal operating
subsidiaries and their ownership.
Metropolitan Mortgage & Securities Co., Inc.: Parent organization,
invests in Receivables and other investments, including real estate
development, with proceeds from Receivable investments, other investments, and
securities offerings.
Consumers Group Holding Co., Inc.: A holding company, its sole business
activity currently being that of a shareholder of Consumers Insurance Co.,
Inc.
Consumers Insurance Co., Inc.: Inactive property and casualty insurer,
its principal business activity currently being that of a shareholder of
Western United Life Assurance Company.
Western United Life Assurance Company: Metropolitan's largest
subsidiary and largest company within the Consolidated Group, is engaged in
investing in Receivables and other investments principally funded by life
insurance policy and annuity contract sales.
Metwest Mortgage Services, Inc.: Performs loan origination, collection
and servicing functions. It is an FHA/HUD licensed servicer and lender, and
is licensed as a Fannie Mae seller/servicer.
* The remaining 3.5% of Consumers Group Holding Co., Inc. is owned by
Summit.
<PAGE> 14
THE OFFERING
PREFERRED STOCK
Offering . . . . The Preferred Stock offering consists of 250,000 shares of
Variable Rate Cumulative Preferred Stock, Series E-7 (the Preferred Stock),
offered at $100 per share, and sold in whole and fractional shares. There is
no minimum amount of Preferred Stock which must be sold. Preferred stock is
issued in book entry form.
Use of Proceeds . . . . The proceeds of this Preferred Stock offering will
provide funds (in descending order of priority) for Receivable investments,
other investments (which may include investments in existing subsidiaries,
the commencement of new business ventures or the acquisition of other
companies) retiring maturing debentures, preferred stock dividends, property
development, and for general corporate purposes. See "USE OF PROCEEDS."
Distributions . . . . Distributions on the Preferred Stock offered hereunder
are cumulative from the date of issuance, and, when and as declared, are
payable monthly at the rates described on the cover page of this Prospectus
based on the price of $100 per share. All preferred stock of Metropolitan
including this Preferred Stock is entitled to receive distributions on the
same basis. See "DESCRIPTION OF PREFERRED STOCK-Distributions."
Liquidation Rights . . . . In the event of liquidation of Metropolitan, the
Preferred Stock liquidation rights are $100 per share of Preferred Stock, plus
declared and unpaid dividends. The liquidation rights of the Preferred Stock
is senior to those of the common stock of Metropolitan, on parity with the
liquidation rights of all other previously issued and outstanding preferred
stock and junior to all debts of Metropolitan, including Metropolitan's
debentures. See "DESCRIPTION OF PREFERRED STOCK-Liquidation Rights."
Redemption: Upon Call by Metropolitan . . . The shares of Preferred Stock are
redeemable, in whole or in part, at the option of Metropolitan, upon not less
than 30 nor more than 60 days' notice by mail, at a redemption price of $100
per share plus, in each case, any declared but unpaid dividends to the date
fixed for redemption. See "DESCRIPTION OF PREFERRED STOCK-Redemption of
Shares."
Redemption: Upon Request of Holder . . . Subject to certain limitations,
Metropolitan may, in its sole discretion and without any obligation to do so,
accept share(s) of Preferred Stock for
<PAGE> 15
redemption upon the receipt of unsolicited written requests for redemption of
share(s) from any holder. Redemption prices in such event will be established
by the Board of Director, in its sole discretion, plus any declared but unpaid
dividends. Metropolitan may not redeem share(s) at the holder's request
during the first three years after the initial sale of such share(s) except in
those cases involving the death or major medical emergency of the holder (as
demonstrated to the satisfaction of Metropolitan's management) or any joint
holder. Any such discretionary redemptions will also depend on Metropolitan's
financial condition, including its liquidity position. See "DESCRIPTION OF
PREFERRED STOCK-Redemption of Shares." Metropolitan, through MIS, intends to
use its best efforts to maintain a trading list for holders of Preferred
Stock. See "DESCRIPTION OF PREFERRED STOCK-Redemption of Shares" & "RISK
FACTORS."
Voting Rights . . . . The holders of Preferred Stock have no voting rights
except (i) as expressly granted by the laws of the State of Washington and
(ii) in the event distributions payable on Preferred Stock are in arrears in
an amount equal to twenty-four or more full monthly distributions, per share.
See "DESCRIPTION OF PREFERRED STOCK-Voting Rights."
Federal Income Tax Considerations. . . . In the event the Consolidated Group
has earnings and profits for federal income tax purposes in any future year,
the distributions paid on Preferred Stock in that year will constitute taxable
income, as dividends, to the recipient to the extent of such earnings and
profits. Management is unable to predict the future character of its
distributions. Purchasers are advised to consult their own tax advisors with
respect to the federal income tax treatment of distributions made. See
"DESCRIPTION OF PREFERRED STOCK-Federal Income Tax Consequences of
Distributions."
<PAGE> 16
CAPITALIZATION
The following table sets forth the capitalization of Metropolitan and
its consolidated subsidiaries at September 30, 1997.
<TABLE>
<CAPTION>
Amount
Outstanding
(Dollars in
Class Thousands)
_____ ______________
<S> <C>
Debt Payable
Reverse repurchase agreements with Seattle
Northwest, interest at 6.15% per annum;
due on October 2, 1997; collateralized by
$2,900,000 in U.S. Treasury Bonds........... $ 2,896
Real estate contracts and mortgage notes
payable, interest rates ranging from 3%
to 11.6% per annum, due through 2016........ 1,989
________
Total Debt Payable........................ 4,885
________
Debenture Bonds
Investment Debentures, Series II, maturing
1997 to 2002, at 5.5% to 11%................ 158,684
Investment Debentures Series I, maturing
in 1997 to 2007 at 7.5% to 10.25%........... 485
Compound and accrued interest................. 26,045
________
Total Debenture Bonds....................... 185,214
________
Stockholders' Equity
Preferred Stock............................... 20,954
Common Stock.................................. 293
Additional paid-in capital.................... 18,596
Net unrealized losses on investments.......... (266)
Retained earnings............................. 14,536
________
Total Stockholders' Equity.................. 54,113
________
Total Capitalization............................ $244,212
========
</TABLE>
<PAGE> 17
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
The consolidated financial data shown below as of September 30, 1997 and
1996 and for the years ended September 30, 1997, 1996 and 1995 (other than the
ratio of earnings to fixed charges and preferred stock dividends) have been
derived from, and should be read in conjunction with, Metropolitan's
consolidated financial statements, related notes, and Management's Discussion
and Analysis of Financial Condition and Results of Operations appearing in
Metropolitan's Form 10-K, which is incorporated herein by reference. The
consolidated financial data shown below as of September 30, 1995, 1994 and 1993
and for the years ended September 30, 1994 and 1993 have been derived from the
consolidated financial statements not included elsewhere herein.
Year Ended September 30,
________________________________________________________________________
1997 1996 1995 1994 1993
__________ __________ __________ __________ __________
(Dollars in Thousands Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
INCOME DATA:
Revenues $ 155,135 $ 156,672 $ 138,107 $ 138,186 $ 133,113
========== ========== ========== ========== ==========
Income before minority
interest and cumulative
effect of change in
accounting principle $ 9,791 $ 8,146 $ 6,376 $ 5,702 $ 8,558
Income allocated to
minority interests (123) (108) (73) (224) (255)
__________ __________ __________ __________ __________
Income before cumulative
effect of change in
accounting for income
taxes 9,668 8,038 6,303 5,478 8,303
Cumulative effect of
change in accounting
for income taxes(1) -- -- -- -- (4,300)
__________ __________ __________ __________ __________
Net income 9,668 8,038 6,303 5,478 4,003
<PAGE> 18
Preferred stock dividends (4,113) (3,868) (4,038) (3,423) (3,313)
__________ __________ __________ __________ __________
Income applicable to
common stockholders $ 5,555 $ 4,170 $ 2,265 $ 2,055 $ 690
========== ========== ========== ========== ==========
Ratio of earnings to fixed
charges 1.77 1.46 1.35 1.29 1.43
Ratio of earnings to fixed
charges and preferred stock
dividends(3) 1.31 1.14 1.03 1.04 1.17
PER COMMON SHARE DATA(2):
Income before cumulative
effect of change in
accounting principle $ 42,733 $ 32,073 $ 17,288 $ 14,996 $ 37,239
Cumulative effect of change
in accounting principle(1) -- -- -- -- (32,089)
__________ __________ __________ __________ __________
Income applicable to
common stockholders(4) $ 42,733 $ 32,073 $ 17,288 $ 14,996 $ 5,150
========== ========== ========== ========== ==========
Weighted average number of
common shares outstanding(2) 130 130 131 137 134
========== ========== ========== ========== ==========
Cash dividends per common
share $ -- $ -- $ 3,800 $ 675 $ 675
========== ========== ========== ========== ==========
CONSOLIDATED BALANCE SHEET
DATA:
Total assets $1,112,389 $1,282,659 $1,078,468 $1,063,290 $1,031,958
Debentures, other debt
payable and securities sold,
not owned 190,131 363,427 226,864 261,500 234,497
Stockholders' equity 54,113 46,343 40,570 32,625 32,781
<FN>
(1) Change in accounting principles reflects the adoption of Statement of
Financial Accounting Standards No. 109-"Accounting for Income Taxes."
(2) All information is displayed in whole dollars and retroactively reflects
the reverse common stock split of 2,250:1 which occurred during the fiscal
year ended September 30, 1994.
<PAGE> 19
(3) The consolidated ratio of earnings to fixed charges and preferred stock
dividends was 1.31, 1.14, 1.03, 1.04 and 1.17 for the years ended
September 30, 1997, 1996, 1995 and 1994 and 1993, respectively.
Assuming no benefit from the earnings of its subsidiaries with the
exception of direct dividend payments, the ratio of earnings to fixed
charges and preferred dividends for Metropolitan alone was 1.01, 1.11,
1.05, 1.34 and 1.06 for the years ended September 30, 1997, 1996, 1995,
1994 and 1993, respectively.
The consolidated ratio of earnings to fixed charges excluding preferred
stock dividends was as follows for the years ended September 30, 1997 -
1.77; 1996 - 1.46; 1995 - 1.35; 1994 - 1.29; and 1993 - 1.43. The ratio
of earnings to fixed charges excluding preferred stock dividends for
Metropolitan, assuming no benefit from the earnings of its subsidiaries
with the exception of direct dividend payments was 1.36, 1.48, 1.40, 1.36,
and 1.31 for the years ended September 30, 1997, 1996, 1995, 1994 and
1993, respectively.
(4) Earnings per common share are computed by deducting preferred stock
dividends from net income and dividing the result by the weighted average
number of shares of common stock outstanding. There were no common stock
equivalents or potentially dilutive securities outstanding during any year
presented.
</TABLE>
<PAGE> 20
RISK FACTORS
Investment in the Preferred Stock offered hereby involves a certain
degree of risk. Each prospective investor should carefully consider the
following risk factors inherent in and affecting the business of the
Consolidated Group and this offering before making an investment decision.
This Prospectus contains forward-looking statements which involve risks and
uncertainties. Actual events or results may differ as a result of various
factors, including without limitation, the risk factors set forth below and
the matters set forth in the Prospectus generally.
1. Risk of Fluctuation in Interest Rates: During the twelve month
period ending September 30, 1998, more of the Consolidated Group's financial
liabilities, principally annuities and debentures, are scheduled to reprice or
mature than are its financial assets, principally Receivables and fixed income
investments. Consequently, in a falling interest rate environment, the
current level of profitability and the fair value of the Consolidated Group's
equity would be expected to increase as the spread between interest revenues
and interest expense improves. Conversely, in a rising interest rate
environment, the net interest income and the fair value of equity for the
Consolidated Group would likely decline. The fair value of equity (as opposed
to book value)is the difference between the fair value of all assets less the
fair value of all liabilities. The impact of a change in rates will be
reflected to the greatest extent in the fair value of assets and liabilities
having the longest maturities or time until their scheduled repricing date.
Additionally, borrowers tend to repay Receivable loans when interest rates
decline and they may be able to refinance such loans at lower rates of
interest. This factor reduces the amount of interest to be received over time
as loans with higher rates of interest are prepaid more rapidly. The
Consolidated Group purchases the majority of its Receivables collateralized by
real estate at a discount. The yield on these Receivables may be improved
when recognition of the discount is accelerated through prepayments. While
interest rates evidenced a fairly stable to declining trend during the twelve
months preceding the date of this prospectus, management is unable to forecast
with any certainty the fluctuations in interest rates in the future.
2. Dependence Upon Securitization and Direct Sales of Receivables:
Metropolitan, Metwest and Western United sell pools of Receivables through
direct sales and through securitizations. During the years ended September
30, 1997 and 1996, gains from the sale of Receivables were approximately $21.7
million and $12.7 million, respectively. These gains substantially
contributed to the net income of the Consolidated Group for each of those two
years. Adverse changes in the markets for the Consolidated
<PAGE> 21
Group's Receivables, including but not limited to fluctuations in
interest rates, increased competition and regulatory changes could impair its
ability to sell Receivables. Any such impairment could have a material
adverse effect upon the Consolidated Group's future results of operations and
financial condition, including its future profitability and liquidity
position.
As a result of securitizations, the Consolidated Group has acquired
residual interests in the securitized loan pools aggregating, at market,
approximately $18.8 million at September 30, 1997. These residual interests
are valued by the Consolidated Group, and accrue income, based upon
assumptions regarding anticipated prepayments, defaults and losses on the
securitized Receivables. Although management believes that it has made
reasonable assumptions, actual experience may vary from its estimates. The
value of the residual interests and the amount of income accrued will have
been overstated if prepayments or losses are greater than anticipated.
3. Dependence Upon Insurance Subsidiary Earnings and Restrictions on
Subsidiary Dividends and Fees: At September 30, 1997, 85% of the Consolidated
Group's assets were held by its insurance subsidiary, Western United.
Metropolitan receives dividends from Western United. Insurance company
regulations restrict transfers of assets and the amount of dividends that
Western United may pay. Accordingly, to the extent of such restrictions,
assets and earnings of Western United are not available to Metropolitan
without special permission from the Insurance Commissioner. This restriction
on dividends could adversely affect Metropolitan's ability to pay preferred
stock distributions and meet its other obligations. The total unrestricted
statutory surplus of Western United was approximately $8,597,000 as of
September 30, 1997.
Metropolitan and its subsidiaries charge Western United for facilities
rental, general office services, and for their services in acquiring and
servicing Receivables. Services are provided pursuant to agreements that are
subject to approval by the Office of the Insurance Commissioner of the State
of Washington. To the extent that such fees could be restricted by the Office
of the Insurance Commissioner, Metropolitan's ability to pay preferred stock
distributions and meet its other obligations could be adversely affected.
4. Dependence Upon Leverage Financing: The Consolidated Group's
principal sources of cash flow include the sale and securitization of
Receivables, collateralized borrowing, Receivable payments, proceeds from the
sale of annuities, the sale of debentures and preferred stock, the sale of
real estate, and securities portfolio earnings. To the extent the
Consolidated
<PAGE> 22
Group's cash flow is insufficient or unavailable for the repayment of
debentures which mature during the period ending January 31, 1998, portions of
the net proceeds of this Preferred Stock offering may be used for such
purpose. See "USE OF PROCEEDS." Approximately $28,722,000 in principal
amount of debentures will mature between February 1, 1998 and January 31,
1999. Historically, approximately 40% to 60% of maturing debentures are
reinvested. Reinvestment levels for 1997 were approximately 50%, due in part
to an approximate four month period when no debentures could be reinvested
because Metropolitan's offering was pending registration with the Commission.
Metropolitan's ability to repay its other outstanding obligations, including
those created by the sale of the securities described herein, may be
contingent upon the success of future public offerings of debentures and
preferred stock. The amount of debentures and preferred stock that may be
issued and outstanding may be limited by the State of Washington pursuant to
the Debenture Company Act. Also See "RISK FACTORS-Government Regulations."
The following table summarizes anticipated cash requirements for
principal and interest obligations of Metropolitan's debentures and other
debts payable; and anticipated cash dividend requirements on its preferred
stock for the five-year period ending September 30, 2002 based on amounts
outstanding at September 30, 1997 and assuming no reinvestment of maturing
debentures:
<TABLE>
<CAPTION>
Fiscal Year Preferred
Ending Debenture Other Debt Stock
September 30, Bonds Payable Dividends Total
______________ __________ __________ __________ _________
(Dollars in Thousands)
<S> <C> <C> <C> <C>
1998 $ 62,507 $ 3,898 $ 4,351 $ 70,756
1999 51,782 377 4,351 56,510
2000 50,403 233 4,351 54,987
2001 8,331 269 4,351 12,951
2002 34,604 152 4,351 39,107
__________ __________ __________ _________
$ 207,627 $ 4,929 $ 21,755 $ 234,311
========== ========== ========== =========
</TABLE>
5. Risk of Fluctuation in Life Insurance and Annuity Termination Rates:
An increase in the number of life insurance and annuity contract terminations
will tend to negatively impact the insurance subsidiary's earnings (and in
turn the Consolidated Group's earnings) by requiring the expensing of
unamortized
<PAGE> 23
deferred acquisition costs related to surrendered policies. Annuity
and life policy surrenders can be impacted by, among other things, interest
rate fluctuations, competition, and changes in tax regulations and other
regulations. At September 30, 1997, deferred policy acquisition costs on
annuities were approximately 8.1% of annuity reserves. Surrender charges
typically do not exceed 9% of the annuity contract balance at the annuity
contract's inception, and such surrender charges decline annually from that
rate. Annuity termination rates, adjusted for internal rollovers (surrender
of one policy and reinvestment into another), for the calendar years 1996,
1995 and 1994 were 14.7%, 18.9%, and 21.5%, respectively. Deferred policy
acquisition costs on life insurance products were approximately 12.5% of life
reserves at September 30, 1997. Life insurance termination rates were 6.7%,
7.7% and 9.8%, respectively, in calendar 1996, 1995 and 1994.
6. Risks Related to Investments in Receivables:
Receivables Collateralized by Real Estate, Risk of Fluctuation in
Collateral Value and Economic Conditions: The Consolidated Group is engaged
in the purchase and origination of Receivables collateralized by real estate.
All such Receivable investments are subject to a risk of payment default and
loss in the event of foreclosure. The risk of default and loss can be
affected by many things including changes in local economic conditions,
property values, changes in zoning, land use, environmental laws and other
legal restrictions, including restrictions on timing and methods of
foreclosure. There is no assurance that these Receivables will be paid
according to their terms, or that property values will be adequate to preclude
loss in the event of a foreclosure. Metropolitan's investment underwriting
procedure includes a review of demographics, market trends, property value,
economy, and the buyer's credit. The Consolidated Group purchases Receivables
nationwide, allowing it to diversify its investments geographically.
Management believes that these procedures minimize the risk of default or loss
in the event of foreclosure. However, there is no assurance that these
procedures will be effective.
Investments in Other Receivables, Risks of Default: In addition to the
purchase of Receivables collateralized by real estate, the Consolidated Group
is engaged nationwide in the purchase of other types of Receivables including
the purchase of annuities issued in the settlement of disputes, other types of
annuities, lottery prizes, and other investments. All such Receivables are
subject to the risk of default by the payor (generally an unrelated insurance
company, or a state government). Unlike Receivables collateralized by real
estate, these Receivables are generally not collateralized by a specific
asset. Metropolitan's underwriting procedures vary with the type of
<PAGE> 24
investment and generally include a review of the credit rating of the
payor, and other relevant factors designed to evaluate the risk of the
particular investment. Management believes that its underwriting procedures
minimize the risk of default, and of loss in the event of a default. However,
there is no assurance that these procedures will be effective to minimize the
occurrence of any default, or loss in the event of a default.
As of September 30, 1997, the Consolidated Group's Receivable
investments as a percentage of total Receivables consisted of the following:
76% Receivables collateralized by real estate
4% Annuities
20% Lotteries and loans collateralized by lotteries
The following table demonstrates the relative concentration of the
Consolidated Group's Receivable investments collateralized by real estate and
other investments as a percentage of total assets.
<TABLE>
<CAPTION>
September 30,
_____________________________________
1997 1996 1995
___________ __________ __________
(Dollars in Thousands)
(Percentage of Total Assets)
<S> <C> <C> <C>
Carrying Value of Real
Estate Held For Sale
and/or Development $ 81,802 $ 84,333 $ 91,105
7% 7% 8%
Face Value of Real
Estate Receivables* $ 528,208 $ 681,178 $ 617,513
47% 53% 57%
Other Receivable
Investments $ 164,534 $ 107,494 $ 41,591
15% 8% 4%
Face Value of
Receivables In
Arrears for Three
Months Or More $ 36,000 $ 26,500 $ 17,500
3% 2% 2%
<PAGE> 25
Carrying Value of
Trading Securities,
Securities
Available for Sale,
and Securities
Held To Maturity $ 184,829 $ 163,303 $ 219,904
17% 13% 20%
TOTAL ASSETS $1,112,389 $1,282,659 $1,078,468
100% 100% 100%
</TABLE>
* As of September 30, 1997, 99% of the Receivables collateralized by
real estate were collateralized by first position liens on real estate and
approximately 88% of the Receivables collateralized by real estate were not
originated by a financial institution.
7. Subordination and Liquidation Rights: The offering price and
liquidation preference of Preferred Stock offered herein is $100 per share.
In the event of liquidation of Metropolitan, outstanding shares of Preferred
Stock, including shares of additional sub-series which may subsequently be
authorized and sold, are on parity with the liquidation preference of all
other outstanding series of preferred stock of Metropolitan, and are
subordinate to all outstanding debt of Metropolitan including its debentures.
In the event of liquidation of Metropolitan, the policy holders and creditors
of Metropolitan's subsidiaries would be paid in priority to all preferred
shareholders (including holders of the Preferred Stock offered herein) to the
extent of the unencumbered assets of the subsidiaries. Preferred Stock is
preferred in liquidation to Metropolitan's common stock. As of September 30,
1997, total assets of the Consolidated Group were approximately $1,112,389,000
and the total liabilities of the Consolidated Group ranking senior in
liquidation preference to Preferred Stock were approximately $1,058,277,000.
The total liquidation preference of the outstanding shares of previously
issued series of preferred stock as of September 30, 1997, was approximately
$50,729,000. Stockholders' equity of approximately $54,113,000 exceeded the
preferred stock outstanding liquidation rights by approximately $3,384,000 as
of September 30, 1997. There can be no assurance that future performance will
be sufficient to maintain stockholders' equity in excess of the preferred
stock liquidation preference.
The preference in liquidation would not necessarily be applicable to
terms afforded Preferred Stock in the event of other extraordinary corporate
events such as the sale of substantially all its assets, capital
restructuring, merger, reorganization and bankruptcy. The outcomes thereof
could be subject to negotiation among all interested parties and/or court
determinations and are not presently determinable. In such circumstances,
Preferred Stock would not necessarily enjoy any preference over terms
available to common stock, or even be as favorable.
<PAGE> 26
8. Prior Years' Net Income Insufficient to Cover Preferred Stock
Distributions and Fixed Charges: Net income in 1997, 1996, 1995, 1994 and
1993 was sufficient to cover fixed charges including preferred stock dividend
requirements, in contrast to shortfalls in 1992 and prior years. After
considering the effects of potentially non-recurring income items such as the
gains from the sale and securitization of Receivables and the sales of
investments and real estate, the fiscal 1997 income would have been
insufficient to cover fixed charges by approximately $13.0 million.
Additionally, the elimination of similar items in 1996, 1995 and 1994 would
have resulted in insufficient earnings to cover fixed charges by approximately
$9.7 million, $6.8 million, and $4.2 million, respectively. During 1997, net
income was approximately $9.7 million, from which preferred stock dividends of
approximately $4.1 million were paid, which resulted in $14.5 million of
retained earnings at September 30, 1997 compared to $8.7 million, $4.6
million, $2.7 million and $778,000 of retained earnings at September 30, 1996,
1995, 1994 and 1993, respectively.
The ratios of earnings to fixed charges and preferred stock dividends
for the Consolidated Group were as follows for the periods indicated:
1997:1.31, 1996:1.14, 1995:1.03 and 1994:1.04. Accordingly, adjusted earnings
(income before extraordinary items plus interest expense and income tax
expense) were sufficient to cover fixed charges in 1997, 1996, 1995, and 1994,
respectively. No assurance can be given that earnings will be sufficient to
cover preferred stock dividend requirements in the future.
9. Federal Income Tax Considerations: To the extent that the
Consolidated Group has no current or accumulated earnings and profits as
computed for federal income tax purposes, Metropolitan believes that
distributions made with respect to Preferred Stock would be characterized as
tax free returns of capital for federal income tax purposes. Metropolitan
believes that distributions on its outstanding common and preferred stock in
1984 through 1992 and 1994 were tax free returns of capital, but were taxable
in 1993, 1995, 1996 and 1997. Prior years' tax treatment should not be
considered indicative of future years' tax treatment. Management is unable to
predict the future character of its preferred stock distributions, but will
report annually to shareholders regarding the tax character of the prior
year's distributions. In addition, as each Preferred Shareholder's individual
tax circumstance is unique, Preferred Shareholders are advised to consult
their own tax advisors with respect to the federal income tax treatment of
distributions made. See "DESCRIPTION OF PREFERRED STOCK-Federal Income Tax
Consequences of Distributions."
<PAGE> 27
10. Risk Relating to Lack of Liquidity and Limited Marketability of
Shares: The Preferred Stock is not expected to be traded on any National or
Regional Stock Exchange and no independent public market for Preferred Stock
is anticipated. At present, management does not anticipate applying for a
listing for such public trading. In order to potentially provide shareholders
with some liquidity, MIS has operated a trading list to match buyers and
sellers of preferred stock. With limited exceptions, Metropolitan has
established a policy that all preferred shareholders must place their shares
for sale on the MIS trading list for 60 consecutive days before Metropolitan
will entertain a request for redemption. During fiscal 1997, the average
waiting time for a Metropolitan shareholder wishing to sell Metropolitan
preferred shares on this trading list was 42 days. However, there can be no
assurance that the shares will be sold within similar time periods in the
future. There is no assurance that Metropolitan will redeem the shares if
they have not sold within the 60 day period. There can be no assurance that
this system will continue to operate, nor that it will provide liquidity
comparable to securities traded on recognized public stock exchanges. See
"DESCRIPTION OF PREFERRED STOCK-Redemption of Shares."
11. Control by C. Paul Sandifur/Lack of Voting Rights: The Class A
Common Stock is the only class of Metropolitan's stock carrying voting rights.
Class A Common stockholders now hold, and upon completion of this offering
will continue to hold, effective control of Metropolitan except as described
below. C. Paul Sandifur, Jr., effectively controls Metropolitan through
ownership and voting control. The Board resolution authorizing the Preferred
Stock provides that in the event distributions payable on any shares of
preferred stock (including the Preferred Stock offered herein) are in arrears
in an amount equal to twenty-four or more full monthly dividends per share,
then the holders of Preferred Stock and all other outstanding preferred stock
shall be entitled to elect a majority of the Board of Directors of
Metropolitan. Preferred Stock shareholders may also become entitled to
certain other voting rights as required by law. See "DESCRIPTION OF PREFERRED
STOCK-Voting Rights."
12. Possible Redemption/Call of Preferred Shares by Metropolitan: The
Preferred Stock is redeemable by Metropolitan, in its sole discretion, at any
time at a price of $100 per share plus any declared and unpaid dividends. If
fewer than all of the outstanding shares are redeemed, Metropolitan may
determine the Shares to redeem in its sole discretion. See "DESCRIPTION OF
PREFERRED STOCK-Redemption of Shares."
<PAGE> 28
13. Limitations on Redemption and Restrictions on Distributions:
Preferred Stock is designed as a long-term investment in the equity of
Metropolitan, not as a short-term, liquid investment. The Preferred Stock is
redeemable solely at the option of Metropolitan, and with limited exceptions
is specifically not redeemable for three years following its purchase. In
addition, Metropolitan may not purchase or acquire any shares of Preferred
Stock in the event that cumulative dividends thereon have not been paid in
full except pursuant to a purchase or exchange offer made on the same terms to
all holders of Preferred Stock. See "DESCRIPTION OF PREFERRED STOCK-
Redemption of Shares." Metropolitan is restricted from making distributions
on Preferred Stock in the event that any distributions to which the holders of
other series of preferred stock are entitled to have not been paid. See
"DESCRIPTION OF PREFERRED STOCK-Distributions."
14. Risks Related to Environmental Conditions and Regulations: In the
course of its business, the Consolidated Group acquires properties, generally
through foreclosure. Various state and federal laws and regulations impose
liability upon the owner and previous owner of property on account of
hazardous waste or substances released onto or disposed of on property. As a
result, the owner or former owner may be liable to the government or a third
party for the clean up costs. The costs of investigation, remediation and
removal can be substantial. While the Consolidated Group endeavors to avoid
the acquisition of Receivables or properties which may be contaminated, there
can be no assurance that significant losses could not be incurred due to
environmental contamination.
15. Conflicts of Interest: Metropolitan and various of its subsidiaries
and affiliates engage in similar business activities which include investing
in Receivables and other related activities. As a result, certain conflicts
of interest may arise between or among these companies. A common management
group directs the activities of all of the companies in the Consolidated
Group. Metropolitan provides general management and Receivable acquisition
services to Western United. Metwest provides receivable servicing and
collection services to Metropolitan and Western United. Metropolitan and
Metwest also provide these services to Summit, Old Standard, and Arizona Life.
Summit is controlled by C. Paul Sandifur Jr., President of Metropolitan and
President of most of the companies within the Consolidated Group. On January
31, 1995, Summit purchased MIS from Metropolitan, and acquired the
Metropolitan property development division. Also on May 31, 1995,
Metropolitan sold Old Standard to one of Summit's subsidiaries. As a result
of these affiliated relationships, certain conflicts of interest may now exist
and may arise between
<PAGE> 29
or among the Consolidated Group, Summit, Old Standard and Arizona Life.
Investors in Metropolitan's securities must rely on the integrity and
corporate responsibilities of Metropolitan and its subsidiaries' officers and
directors in making business decisions and directing the operations of
Metropolitan and its subsidiaries.
16. Government Regulations: The Consolidated Group's business
activities are subject to extensive regulation, including regulation of its
Receivable origination, acquisition and servicing activities. Metropolitan's
sale of debentures is regulated by the State of Washington pursuant to the
Debenture Company Act. During the securities offering which expired January
31, 1998, Metropolitan's ability to sell securities was restricted by the
state of Washington to an aggregate outstanding amount of debentures and
preferred stock (at liquidation preference) of $295,800,000, pending
improvement in Metropolitan's ratio of earnings to fixed charges and preferred
stock dividends. For the purposes of this calculation, the earnings of
subsidiaries are excluded unless actually paid to Metropolitan as dividends.
This limitation was sufficiently above the amount of debentures and preferred
stock that Metropolitan had outstanding during the offering period that it did
not restrict Metropolitan's ability to sell debentures and preferred stock
during the twelve month period ending January 31, 1998. Management is unable
to predict with any degree of certainty whether the state of Washington will
impose similar or additional restrictions during this offering or future
securities offerings or whether any such restrictions would impact the
financial condition, including the liquidity, of Metropolitan.
<PAGE> 30
DESCRIPTION OF SECURITIES
SUMMARY OF CAPITAL STOCK
The authorized capital stock of Metropolitan consists of 222 shares of
Class A Common Stock ($2,250 par value), 222 shares of Class B Common Stock
($2,250 par value), 750,000 shares of Preferred Stock, Series A ($1 par
value), 200,000 shares of Preferred Stock, Series B ($10 par value), 1,000,000
shares of Preferred Stock, Series C ($10 par value), 1,375,000 of Preferred
Stock, Series D ($10 par value), 5,000,000 shares of Preferred Stock, Series E
($10 par value), and 1,000,000 shares of Subordinate Preferred Stock, no par
value.
DESCRIPTION OF PREFERRED STOCK
This offering consists of 250,000 shares of Variable Rate Cumulative
Preferred Stock, Series E-7 (hereinafter referred to as "Preferred Stock").
All of the outstanding shares of preferred stock and the shares of Preferred
Stock offered by Metropolitan hereby, when issued and sold, will be validly
issued, fully paid and nonassessable. The relative rights and preferences of
Preferred Stock have been fixed and determined by the Board of Directors of
Metropolitan and are set forth in the Preferred Stock Authorizing Resolution
(the Authorizing Resolution). Preferred Stock is issued in book entry form.
The following statements relating to the Preferred Stock are summaries,
do not purport to be complete and are qualified in their entirety by reference
to the Authorizing Resolution a copy of which is filed with the Commission as
an exhibit to the Registration Statement and is also available for inspection
at the principal office of Metropolitan.
Distributions
Distributions on Preferred Stock are cumulative and are to be declared
monthly on the first business day of the month payable to the shareholders of
record as of the fifth calendar day of each month. Distributions are to be
paid in cash on the twentieth calendar day of each month in an amount equal to
the offering price of $100 per share multiplied by the distribution rate
divided by twelve. The distribution rate will be the "Applicable Rate" as
defined herein subject to the authority of Metropolitan's Board of Directors
to authorize, by resolution, a higher rate.
The Applicable Rate for any monthly distribution period cannot be less
than 6% or greater than 14% per annum. The Applicable Rate for any monthly
distribution period shall be (i) the highest of the Three-Month U.S. Treasury
Bill Rate, the Ten
<PAGE> 31
- -Year Constant Maturity Rate and the Twenty-Year Constant Maturity Rate (each
as more fully described in the Authorizing Resolution), plus (ii) one half of
one percentage point. Each of the above rates shall be calculated as the
arithmetic average of the two most recent weekly per annum yields as published
weekly by the Federal Reserve Board during the Calendar Period immediately
prior to the ten calendar days immediately preceding the first day of the
distribution period for which the distribution rate on the Preferred Stock is
being determined. Should Metropolitan determine in good faith that one or
more of such rates cannot be determined for any distribution period, then the
Applicable Rate of such period shall be the higher of whichever of such rates
can be so determined, plus one half of one percentage point. Should
Metropolitan determine in good faith that none of such rates can be determined
for any distribution period, then the Applicable Rate in effect for the
preceding distribution period shall be continued for such distribution period.
The distribution rate for each monthly distribution period shall be calculated
as promptly as practicable by Metropolitan. Metropolitan will cause notice of
the distribution rate to be enclosed with the next mailed distribution payment
check. In making such calculation, the Three-Month U.S. Treasury Bill Rate,
Ten-Year Constant Maturity Rate and Twenty-Year Constant Maturity Rate shall
each be rounded to the nearest five hundredths of a percentage point.
Prior to the effective date of this prospectus, Metropolitan's Board of
Directors adopted a resolution to authorize a distribution rate on the
Preferred Stock at one percentage point higher than the Applicable Rate. Such
higher distribution rate will continue from month to month until the Board
elects to terminate it. The Board may increase, decrease or eliminate the
additional percentage point at any time, in its sole discretion.
Restrictions on Distributions
Metropolitan may not declare or pay a distribution on any share of
Preferred Stock offered herein for any distribution period unless, at the same
time, a like distribution shall be declared or paid on all shares of preferred
stock previously issued and outstanding and entitled to receive distributions.
See "CAPITALIZATION."
So long as any shares of the Preferred Stock offered herein are
outstanding, and unless the full cumulative distributions on all previously
issued outstanding preferred shares, including the Preferred Stock offered
herein, shall have been paid or declared and set apart for all past
distribution periods, Metropolitan may not: (i) declare or pay or set aside
for payment any distribution (other than a distribution in common stock or in
any other stock
<PAGE> 32
ranking junior to Preferred Stock as to distributions and upon liquidation
and other than as provided in the foregoing paragraph); (ii) declare or pay
any other distribution upon common stock or upon any other stock ranking
junior to or on a parity with Preferred Stock as to distributions or upon
liquidation; or (iii) redeem, purchase or otherwise acquire common stock or
any other stock of Metropolitan ranking junior to or on a parity with
Preferred Stock as to distributions or upon liquidation for any consideration
(or pay or make available any funds for a sinking fund for the redemption of
any shares of any such stock) except by conversion into or exchange for stock
of Metropolitan ranking junior to Preferred Stock as to distributions and upon
liquidation.
Metropolitan may make distributions ratably on the shares of Preferred
Stock and shares of any stock of Metropolitan ranking on a parity therewith
with regard to the payment of distributions, in accordance with the sums which
would be payable on such shares if all distributions, including accumulations,
if any, were declared and paid in full. As of the date hereof, no
distributions on Metropolitan's preferred stock are in arrears. No interest
will be paid for or on account of any unpaid distributions.
Liquidation Rights
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of Metropolitan, the holders of shares of Preferred Stock will be
entitled to receive out of the assets of Metropolitan available for
distribution to stockholders, before any distribution of assets is made to
holders of common stock or any stock of Metropolitan ranking, upon
liquidation, junior to Preferred Stock, liquidating distributions in the
amount of $100 per share plus declared and unpaid regular monthly
distributions. Preferred Stock is junior in liquidation to outstanding debt
of Metropolitan and on parity with all other issued and outstanding preferred
stock to the extent of its liquidation preference of $100 per share. As of
September 30, 1997, the total liabilities of Metropolitan (consolidated)
ranking senior in liquidation preference to Preferred Stock were approximately
$1,058,277,000. Obligations ranking on a parity with Preferred Stock upon
liquidation (i.e. the total liquidation preference of the outstanding shares
of all previous series of preferred stock) as of September 30, 1997 were
approximately $50,729,000. The amount of additional unsecured indebtedness
that Metropolitan may incur is regulated by Washington state law. There are
no limitations on Metropolitan's ability to incur additional secured
indebtedness. See "CAPITALIZATION" & "RISK FACTORS."
The Preferred Stock Authorizing Resolution provides that, without
limitation, the voluntary sale, lease or conveyance of all
<PAGE> 33
or substantially all of Metropolitan's property or assets to, or its
consolidation or merger with any other corporation shall not be deemed to be a
liquidation, dissolution or winding up of Metropolitan. If upon any voluntary
or involuntary liquidation, dissolution or winding up of Metropolitan, the
aggregate liquidation preference payable with respect to Preferred Stock and
any other shares of stock of Metropolitan ranking as to any such distribution
on a parity with Preferred Stock are not paid in full, the holders of
Preferred Stock and of such other shares will share ratably in any such
distribution of assets of Metropolitan in proportion to the full respective
preferential amounts to which they are entitled. After payment of the full
amount of the liquidating distribution to which they are entitled, the holders
of shares of Preferred Stock will not be entitled to any further participation
in any distribution of assets by Metropolitan.
Redemption of Shares
Upon call by Metropolitan: Subject to regulatory restrictions affecting
redemptions during an offering, the shares of Preferred Stock are redeemable,
in whole or in part, only at the option of Metropolitan at a redemption price
of $100 per share plus declared and unpaid dividends to the date fixed for
redemption. In the event that fewer than all of the outstanding shares of
Preferred Stock are to be redeemed, the number of shares to be redeemed shall
be determined by Metropolitan and the shares to be redeemed shall be
determined by such method as Metropolitan in its sole discretion deems to be
equitable.
Discretionary Redemption Upon Request of the Holder: Preferred Stock is
not redeemable at the option of the holder. If, however, Metropolitan
receives an unsolicited written request for redemption of shares from any
holder, Metropolitan may, in its sole discretion, subject to regulatory
restrictions affecting redemptions during an offering, and subject to the
limitations described below, consider such shares for redemption. Such
redemption requests, when received, are reviewed in the order received. Any
shares so tendered, which Metropolitan in its discretion allows for
redemption, shall be redeemed by Metropolitan directly, (and not from or
through a broker dealer), at a price established by the Board of Directors,
from time to time, in its sole discretion.
There can be no assurance that Metropolitan's financial condition will
allow it to exercise its discretion to accept any particular request for
redemption of Preferred Stock. Metropolitan will not redeem any such shares
tendered for redemption if to do so would, in the opinion of Metropolitan's
management, be unsafe or unsound in light of Metropolitan's financial
condition (including its liquidity position); if payment
<PAGE> 34
of interest or principal on any outstanding instrument of indebtedness is in
arrears or in default; or if payment of any dividend on Preferred Stock or
share of any stock of Metropolitan ranking at least on a parity therewith is
in arrears as to dividends. In the event that cumulative dividends on
Preferred Stock have not been paid in full, Metropolitan may not purchase or
acquire any shares of Preferred Stock otherwise than pursuant to a purchase or
exchange offer made on the same terms to all holders of Preferred Stock.
As provided in the Preferred Stock Authorizing Resolution, for a period
of three years from the date of initial sale of each share of Preferred Stock,
any redemption of such share, at the sole discretion of Metropolitan, shall
occur only upon the death or major medical emergency, (as demonstrated to the
satisfaction of Metropolitan's management) of the holder or any joint holder
of the share requested to be redeemed. As further provided in the Authorizing
Resolution, any optional redemption of a share in any calendar year after the
third year from the date of sale of the share, not arising from the death or
medical emergency of the holder or any joint holder shall occur only when the
sum of all optional redemptions (including those arising out of the death or
medical emergency of the holder or any joint holder) of shares of Preferred
Stock during that calendar year shall not exceed ten percent of the number of
shares of Preferred Stock outstanding at the end of the preceding calendar
year. In the event the ten percent limit is reached in any calendar year, the
only redemptions which may be considered during that calendar year shall be
those arising from the death or medical emergency of the holder or any joint
holder; provided, however, that to the extent that total optional redemptions
in any calendar year do not reach the ten percent limit, the amount by which
such optional redemptions shall fall short of the ten percent limit may be
carried over into ensuing years; and provided further that to the extent that
all redemptions, including those involving the death or medical emergency of
the holder or any joint holder, exceed the ten percent limit in any year, the
amount by which such redemptions exceed the ten percent limit shall reduce the
limit in the succeeding year for limiting redemptions not involving the death
or medical emergency of a holder or any joint holder. In no event, shall such
optional redemptions of all types in any single calendar year exceed 20% of
the number of shares of Preferred Stock outstanding at the end of the
preceding calendar year.
The Preferred Stock is not expected to be traded on any National or
Regional Stock Exchange and no independent public market for Preferred Stock
is anticipated. Management does not anticipate applying for a listing for
such public trading. In order to potentially provide shareholders with some
liquidity, MIS operates a trading list to match buyers and sellers of
<PAGE> 35
Metropolitan's preferred stock. Metropolitan does not participate as a buyer
or seller on the trading list. With limited exceptions, Metropolitan has
established a policy that all preferred shareholders (including holders of the
Preferred Shares offered hereunder) must place their shares for sale on the
trading list for 60 consecutive days before Metropolitan will entertain a
request for redemption. During 1997, the average waiting time for a
Metropolitan shareholder wishing to sell Metropolitan preferred shares on this
trading list was 42 days. However, there can be no assurance that the shares
will be sold within similar time periods in the future. There is no assurance
that the shares will be sold within the 60 day period. There is no assurance
that Metropolitan will redeem the shares if they have not sold within the 60
day period. There can be no assurance that this system will continue to
operate nor that it will provide liquidity comparable to securities traded on
recognized public stock exchanges. See "RISK FACTORS."
Voting Rights
The Preferred Stock has no voting rights except as provided in the
Authorizing Resolution and except as required by Washington State law
regarding amendments to Metropolitan's Articles of Incorporation which
adversely affect holders of such shares as a class and requires approval of 66
2/3% of the outstanding shares entitled to vote.
The Authorizing Resolution provides that holders of Preferred Stock,
together with the holders of Metropolitan's other outstanding preferred stock
and any other preferred stock thereafter authorized, voting separately and as
a single class, shall be entitled to elect a majority of the Board of
Directors of Metropolitan in the event that distributions payable on any
shares of Preferred Stock shall be in arrears in an amount equal to twenty-
four or more full monthly dividends per share. Such right will continue until
all distributions in arrears have been paid in full.
Federal Income Tax Consequences of Distributions
The following discussion of the federal income tax consequences of
distributions is based upon the Internal Revenue Code of 1986 as amended (the
"Code"), existing Treasury regulations, current published administrative
positions of the Internal Revenue Service (the "Service") contained in revenue
rulings, revenue procedures and notes and existing judicial decisions. No
assurance can be given that legislative or administrative changes or court
decisions may not be forthcoming that could significantly modify the
statements in this discussion.
<PAGE> 36
Any such changes may or may not be retroactive with respect to transactions
effected prior to the date of such changes.
Distributions made to the holders of Preferred Stock will either be
taxable or not depending, in part, on the extent to which they are made out of
current or accumulated earnings and profits of Metropolitan as calculated for
federal income tax purposes. To the extent, if any, that distributions made
by Metropolitan to the holders of Preferred Stock exceed current and
accumulated earnings and profits of Metropolitan, such distributions will be
treated first as a tax-free return of capital, reducing the holder's basis in
Preferred Stock (not below zero), and thereafter, as capital gains (or
ordinary gains if the Preferred Stock is not held by the holder as a capital
asset).
Metropolitan believes that distributions with respect to Metropolitan's
preferred stock paid during the calendar years 1984 through 1992 and 1994 were
a return of capital under Section 301 of the Code. Metropolitan has filed a
Report of Nontaxable Distributions for the years 1984 through 1992 and 1994
with the Service. Metropolitan believes that distributions paid during 1993,
1995, 1996 and 1997 were taxable. Metropolitan is currently unable to predict
the character of its distribution for future years, but as required by the
Code, will report annually to shareholders regarding the tax character of the
prior year's distributions.
Each preferred shareholder's individual tax circumstances is unique;
accordingly, preferred shareholders are advised to consult their own tax
advisor with respect to the income tax treatment or any distribution made with
respect to the Preferred Stock.
Distributions paid with respect to Preferred Stock, whether deemed to be
dividends, return of capital, or capital gains for federal income tax
purposes, will result in the same federal income tax consequences to
Metropolitan as other payments of dividends. These distributions are not
deductible by Metropolitan under current tax law. Additionally, distributions
to foreign taxpayers are subject to special rules not discussed herein.
Summary of Preferred Stock Attributes
The following table sets forth several of the primary differences and
relative rights of the various series of outstanding preferred stock of
Metropolitan as of the date of this prospectus including the Preferred Stock,
Series E-7 offered herein:
<TABLE>
<CAPTION>
<PAGE> 37
Offering Liquidation Redemption
Series Price Preference Price(1) Dividend Rate(4)
______ ________ ___________ __________ _________________
<S> <C> <C> <C> <C>
C $ 10 $ 10 $ 9.90 Applicable Rate
D $ 10 $ 10 $ 9.90 Applicable Rate
E-1 $ 10 $ 10 $ 9.90 Applicable Rate
E-2 $100 $ 10(2) $99 Applicable Rate
plus .5%
E-3 $100 $ 10(2) $99 Applicable Rate
plus .5%
E-4 $100 $100 $99(3) Applicable Rate
plus .5%
E-5 $100 $100 $99(3) Applicable Rate
plus .5%
E-6 $100 $100 (3) Applicable Rate
plus .5%
E-7 $100 $100 (3) Applicable Rate
plus .5%
<FN>
(1) The Redemption Price shown, is for redemptions at the request of the
shareholder. Redemption of such shares is at the sole discretion of
Metropolitan. In the event of a redemption at the request of
Metropolitan, the redemption price per share for authorized shares of
Series C, D, and E-1 preferred stock is $10 and for Series E-2 through E-
7 preferred stock is $100.
(2) The liquidation preference for classes E-2 and E-3 is $10. In addition,
Metropolitan's Articles of Incorporation, as amended, provide that the E-
2 and E-3 shareholders will receive liquidation distributions of up to
$90 per share prior to any distribution to the common shareholders.
(3) E-4, E-5, E-6 and E-7 stock are not redeemable during the first three
years after their respective issuance except for instances of death or
medical emergency. See "DESCRIPTION OF PREFERRED STOCK-Redemption of
Shares." If redeemed during the first year after initial issuance, the
redemption price is $97, and thereafter it is $99.
(4) The Board has authorized, for an indefinite period, a distribution
payment on all series of Preferred Stock of an additional one percentage
point above the Applicable Rate. The Board may at its sole discretion
eliminate the additional percentage point above the Applicable Rate.
</TABLE>
TRANSFER AGENT AND REGISTRAR
<PAGE> 38
Metropolitan acts as its own transfer agent and registrar of
Metropolitan's capital stock.
LEGAL MATTERS
LEGAL OPINION
The legality of the Preferred Stock offered hereby is being passed upon
for Metropolitan by Susan A. Thomson, who is employed by Metropolitan as its
Assistant Corporate Counsel and Vice President.
LEGAL PROCEEDINGS
There are no material legal proceedings or actions pending or threatened
against any of the companies within the Consolidated Group or to which its
property is subject.
EXPERTS
The consolidated balance sheets of Metropolitan and its subsidiaries as
of September 30, 1997 and 1996 and the consolidated statements of income,
stockholders' equity, and cash flows for each of the three years in the period
ended September 30, 1997, incorporated by reference in this Prospectus, have
been incorporated herein in reliance on the report, which includes an
explanatory paragraph describing changes in the methods of accounting for the
transfer and servicing of financial assets in 1997 and impaired loans in 1996,
of Coopers & Lybrand L.L.P., independent accountants, given on the authority
of that firm as experts in accounting and auditing.
PLAN OF DISTRIBUTION
The Preferred Stock is offered directly to the public on a continuing
best efforts basis through MIS, which is affiliated with Metropolitan through
the common control of C. Paul Sandifur Jr. See "RISK FACTORS-Conflicts of
Interest." Accordingly, the offering has not received the independent selling
agent review customarily made when an unaffiliated selling agent offers
securities. No commission or other expense of the offering will be paid by
the purchasers of the Preferred Stock. A commission in the maximum amount of
6% of the offering price will be paid by Metropolitan on most Preferred Stock
purchases. Preferred Stock is offered for cash or other consideration
(tangible or intangible property) which is acceptable to Metropolitan as
determined in good faith by the Board of Directors. MIS will transmit such
funds or other consideration directly to Metropolitan by noon of the next
business day after receipt. During the three fiscal
<PAGE> 39
years ended September 30, 1997, MIS has received commissions of $160,643 from
Metropolitan on sales of approximately $8,945,000 of Metropolitan's preferred
stock.
MIS is a member of the National Association of Securities Dealer's, Inc.
(NASD). As such, NASD Rule 2720 applies and requires, in part, that a
qualified independent underwriter be engaged to render an opinion regarding
the fairness of the pricing of the Preferred Stock offered through this
Prospectus. Accordingly, MIS has obtained an opinion from South Coast
Financial Securities, Inc., a NASD member, ("South Coast") that the offering
price of the Preferred Stock meets the fairness objective based on conditions
and circumstances existing as of the date of the Prospectus. Accordingly, the
price offered for the Preferred Stock will be no higher than South Coast would
have independently recommended. South Coast has assumed the responsibilities
of acting as the qualified independent underwriter in pricing the offering and
conducting due diligence. For performing its functions as a qualified
independent underwriter with respect to the Preferred Stock offered hereunder,
South Coast is to be paid $25,000 in fees and a maximum of $5,000 in
accountable expenses.
The Registrant has agreed to indemnify South Coast against, or make
contributions to South Coast with respect to certain liabilities under the
Securities Act of 1933, as amended and the Securities Exchange Act of 1934, as
amended.
There is not now and Metropolitan does not expect that there will be a
public trading market for the Preferred Stock in the future. MIS does not
intend to make a market for the Preferred Stock. Metropolitan, through MIS,
undertakes to maintain a list of holders of preferred stock who wish to sell
their preferred stock and buyers who wish to purchase previously issued and
outstanding shares of preferred stock. See "RISK FACTORS-Risk Related to Lack
of Liquidity and Limited Marketability of Shares" & "DESCRIPTION OF PREFERRED
STOCK-Redemption of Shares."
MIS may enter into selected dealer agreements with and reallow to
certain dealers, who are members of the NASD, and certain foreign dealers who
are not eligible for membership in the NASD, a commission of up to 6% of the
principal amount of Preferred Stock sold by such dealers.
USE OF PROCEEDS
Preferred Stock Proceeds . . . .If all the Preferred Stock offered is
sold, Metropolitan expects net proceeds from this Preferred Stock offering of
$25,000,000 to $23,500,000 before deducting other expenses estimated at
$126,000 and after sales
<PAGE> 40
commissions of up to $1,500,000 (6%). There can be no assurance, however,
that any of the Preferred Stock can be sold.
In conjunction with the other funds available to it through operations
and/or borrowings, Metropolitan will utilize the proceeds of the Preferred
Stock offering for the following purposes, shown in their descending order of
priority: funding investments in Receivables and other investments, which may
include investments in existing subsidiaries, the commencement of new business
ventures; or the acquisition of other companies, and development of real
estate now held or which may be acquired. The Consolidated Group continues to
evaluate possible acquisition candidates. Presently there are no commitments
or agreements for material acquisitions. To the extent internally generated
funds are insufficient or unavailable for the retirement of maturing
debentures through the period ending January 31, 1998, proceeds of this
offering may be used for retiring maturing debentures, preferred stock
dividends and for general corporate purposes (debt service and other general
operating expenses.) Approximately $28.7 million in principal amount of debt
securities will mature between February 1, 1998 and January 31, 1999 with
interest rates ranging from 6.25% to 10.25% and averaging approximately 7.7%
per annum. See "RISK FACTORS-Dependence Upon Leverage Financing."
Management anticipates that some of the proceeds of this offering will
be invested in money market funds, bank repurchase agreements, commercial
paper, U.S. Treasury Bills and similar securities investments while awaiting
use as described above. Due to Metropolitan's inability to accurately
forecast the total amount of Preferred Stock to be sold pursuant to this
offering, no specific amounts have been allocated for any of the foregoing
purposes.
In the event substantially less than the maximum proceeds are obtained,
Metropolitan does not anticipate any material changes to its planned use of
proceeds from those described above.
INDEMNIFICATION
Metropolitan's Articles of Incorporation provide for indemnification of
Metropolitan's directors, officers and employees for expenses and other
amounts reasonably required to be paid in connection with any civil or
criminal proceedings brought against such persons by reason of their service
of or position with Metropolitan unless it is adjudged in such proceedings
that the person or persons are liable due to willful malfeasance, bad faith,
gross negligence or reckless disregard of his or her duties in the conduct of
his or her office. Such right of indemnification is not exclusive of any
other rights that may be
<PAGE> 41
provided by contract or other agreement or provision of law. Such
indemnification is not currently covered by insurance.
As of the date of this Prospectus, no contractual or other agreements
providing for indemnification of officers, directors or employees were in
existence other than as set forth above. Pursuant to Washington State law,
Metropolitan is required to indemnify any director for his or her reasonable
expenses incurred in the successful defense of any proceeding in which such
director was a party because he or she was a director of Metropolitan.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to Metropolitan's officers, directors or
controlling persons pursuant to the foregoing provisions, Metropolitan has
been informed that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
<PAGE> 42
PART II
METROPOLITAN MORTGAGE & SECURITIES CO., INC.
Form S-2 Registration Statement
Information Not Required in Prospectus
Item 14: Other Expenses of Issuance and Distribution
SEC Registration Fee.......................... $ 7,575
NASD Filing Fee............................... 3,000
* Blue Sky Qualification Fees and Expenses.... 3,000
Independent Underwriter Fee and Expenses....... 25,000
* Accounting Fees and Expenses................ 50,000
* Legal Fees and Disbursements................ 20,000
* Printing Expenses........................... 15,000
* Miscellaneous Expenses...................... 2,425
Total Expenses................................ $126,000
* Estimated
Item 15: Indemnification of Directors and Officers
Article X of the registrant's Articles of Incorporation provides as
follows:
Metropolitan has no contractual or other arrangement with its
controlling persons, directors or officers regarding indemnification,
other than as set forth in its Articles of Incorporation.
Metropolitan's Articles of Incorporation permits indemnification of a
director, officers or employee up to the indemnification limits
permitted by Washington state law which permits indemnification for
judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with an action, suit or proceeding if the
indemnified person acted in good faith and in a manner reasonable
believed to be in and not opposed to the best interest of the
corporation.
Item 16. Exhibits
(a) Exhibits
1(a). Selling Agreement between Metropolitan and
Metropolitan Investment Securities, Inc. with respect
to Preferred Stock, Series E-7 (Exhibit 1(f)(ii) to
Amendment 1 to Registration No. 333-19755).
<PAGE> 43
*1(b). Form of Agreement to Act as "Qualified Independent
Underwriter," between Metropolitan, Metropolitan
Investment Securities, Inc. and South Coast Financial
Securities, Inc. with respect to Preferred Stock,
Series E-7.
*1(c). Form of Pricing Opinion of South Coast Financial
Securities, Inc. with respect to Preferred Stock,
Series E-7.
4. Statement of Rights, Designations and Preferences of
variable rate cumulative Preferred Stock, Series E-7
(Exhibit 4(d) to Amendment 1 to Registration No. 333-
19755).
*5. Opinion of Susan A. Thomson, Attorney at Law, as to
validity of Preferred Stock.
7. Opinion regarding liquidation preference. (See
Exhibit 5.)
9. Irrevocable Trust Agreement (Exhibit 9(b) to
Registration No. 2-81359).
10(a). Employment Agreement between Metropolitan Mortgage &
Securities Co., Inc. and Bruce Blohowiak (Exhibit
10(a) to Form 10-K filed January 8, 1998).
10(b). Employment Agreement between Metropolitan Mortgage &
Securities Co., Inc. and Michael Kirk (Exhibit 10(b)
to Form 10-K filed January 8, 1998).
10(c). Employment Agreement between Metropolitan Mortgage &
Securities Co., Inc. and Jon McCreary (Exhibit 10(c)
to Form 10-K filed January 8, 1998).
10(d). Reinsurance Agreement between Western United Life
Assurance Company and Old Standard Life Insurance
Company (Exhibit 10(d) to Form 10-K filed January 8,
1998).
*11. Statement indicating computation of earnings per
common share.
<PAGE> 44
*12. Statement of computation of ratio of earnings to fixed
charges.
*23(a). Consent of Coopers & Lybrand, Independent Accountants.
23(b). Consent of counsel. Reference is made to Exhibit 5.
27. Financial Data Schedule (Exhibit 27 to Form 10-K filed
January 8, 1998).
Item 17. Undertakings
(a) 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:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
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;
(iii) 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.
<PAGE> 45
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers,
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or
paid by a director, officer, or controlling persons of the
Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
(c) For the purpose 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.
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.
<PAGE> 46
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-2 and has duly caused this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Spokane, State of Washington, on
this 8th day of January, 1998.
METROPOLITAN MORTGAGE & SECURITIES CO., INC.
/s/ C. PAUL SANDIFUR, JR.
_____________________________________________
C. Paul Sandifur, Jr., Chief Executive Officer
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.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ C. PAUL SANDIFUR, JR.
_________________________ President, 1/8/98
C. Paul Sandifur, Jr. Chief Executive Officer,
Chairman of the Board
/s/ BRUCE J. BLOHOWIAK
_________________________ Executive Vice President, 1/8/98
Bruce J. Blohowiak Chief Operating Officer,
Director
/s/ STEVEN CROOKS
_________________________ Vice President, 1/8/98
Steven Crooks Principal Financial
Officer, Principal
Accounting Officer
/s/ REUEL SWANSON
_________________________ Secretary and Director 1/8/98
Reuel Swanson
/s/ IRV MARCUS
<PAGE> 47
_________________________ Director 1/8/98
Irv Marcus
/s/ HAROLD ERFURTH
_________________________ Director 1/8/98
Harold Erfurth
/s/ JOHN TRIMBLE
_________________________ Director 1/8/98
John Trimble
</TABLE>
FORM OF AGREEMENT TO ACT AS "QUALIFIED INDEPENDENT UNDERWRITER"
METROPOLITAN MORTGAGE & SECURITIES CO., INC.
Preferred Stock, Series E-7
This agreement made as of the ____ day of _________, by and between
Metropolitan Mortgage & Securities Co., Inc., a Washington corporation
("Metropolitan"), Metropolitan Investment Securities, Inc., a Washington
corporation ("MIS"), and South Coast Financial Securities, Inc., a California
corporation.
WITNESSETH:
WHEREAS, Metropolitan intends to offer 250,000 shares of Preferred
Stock, designated as "Variable Rate Cumulative Preferred Stock, Series E-7,"
(hereinafter referred to as the "Preferred Stock"), which will be offered in
reliance on a registration statement filed on Form S-2, bearing SEC file
number __________________;and,
WHEREAS, MIS, a broker/dealer and affiliate of Metropolitan and a member
of the National Association of Securities Dealers ("NASD"), will be engaged as
the managing selling agent for Metropolitan, and MIS may enter into Selected
Dealer Agreements with other qualified broker/dealers; and,
WHEREAS, pursuant to subparagraph (c) of Rule 2720 of the Bylaws of the
NASD, MIS, as a NASD member, may participate in such underwriting only if the
price at which the Preferred Stock is offered to the public is no higher than
the price recommended by a "Qualified Independent Underwriter" as that term is
defined in subparagraph (b)(15) of Rule 2720 to the Bylaws of the NASD, and
who participates in the preparation of the registration statement and
prospectus relating to the offering and exercises customary standards of due
diligence, with respect thereto; and,
WHEREAS, this agreement ("Agreement") describes the terms on which
Metropolitan is retaining South Coast to serve as such a "Qualified
Independent Underwriter" in connection with this offering of Preferred Stock;
NOW, THEREFORE, in consideration of the recitations set forth above, and
the terms, promises, conditions, and covenants herein contained, the parties
hereby contract and agree as follows:
<PAGE> 49
DEFINITIONS
As hereinafter used, except as the context may otherwise require, the
term "Registration Statement" means the registration statement on Form S-2
(including the related preliminary prospectus, financial statements, exhibits
and all other documents to be filed as a part thereof or incorporated therein)
for the registration of the offer and sale of the Preferred Stock under the
Securities Act of 1933, as amended, and the rules and regulations thereunder
(the "Act") filed with the Securities and Exchange Commission (the
"Commission"), and any amendment thereto, and the term "Prospectus" means the
prospectus including any preliminary or final prospectus (including the form
of prospectus to be filed with the Commission pursuant to Rule 424(b) under
the Act) and any amendment or supplement thereto, to be used in connection
with the offering.
1. RULE 2720.
South Coast hereby confirms its agreement as set forth in sub-
paragraph 15(g) of Rule 2720 of the Bylaws of the NASD and
represents that, as appropriate, South Coast satisfies or at the
times designated in such paragraph (l5) satisfies the other
requirements set forth therein or will receive an exemption from
such requirements from the NASD.
2. CONSENT.
South Coast hereby consents to be named in the Registration
Statement and Prospectus as having acted as a "Qualified
Independent Underwriter" solely for the purposes of Rule 2720
referenced herein. Except as permitted by the immediately
preceding sentence or to the extent required by law, all
references to South Coast in the Registration Statement or
Prospectus or in any other filing, report, document, release or
other communication prepared, issued or transmitted in connection
with the offering by Metropolitan or any corporation controlling,
controlled by or under common control with Metropolitan, or by any
director, officer, employee, representative or agent of any
thereof, shall be subject to South Coast's prior written consent
with respect to form and substance.
3. PRICING FORMULA AND OPINION.
South Coast agrees to render a written opinion as to the price
above which Metropolitan's Preferred Stock may not be offered
based on the computation of dividends to be declared on those
shares that is set
<PAGE> 50
forth in Schedule "A," a copy of which is attached hereto, and
incorporated herein by reference. It is understood and agreed by
South Coast that the securities to which this Agreement relates
will be offered on a continuous best efforts basis by MIS, as the
managing selling agent of Metropolitan pursuant to the Selling
Agreement in effect between MIS and Metropolitan which is an
exhibit to the Registration Statement referred to above.
Metropolitan, through MIS, will continue to offer the Preferred
Stock according to the terms and conditions of said agreement, and
in accordance with this Agreement. South Coast reserves the right
to review and amend its opinion upon the filing of any post-
effective amendment to this Registration Statement or upon
occurrence of any material event which may or may not require such
an amendment to be filed, or at such time as the offering under
this registration shall terminate or otherwise lapse under
operation of law.
4. FEES AND EXPENSE.
It is understood that Metropolitan shall reimburse South Coast for
its actual expenses on an accountable basis in the maximum amount
of $5,000. Such expenses shall not include payment for salaries,
supplies, or similar expenses of South Coast incurred in the
normal conduct of business. It is further agreed that South Coast
shall be paid an additional amount of $25,000 at the time the
pricing opinion is rendered, concurrent with the closing. South
Coast agrees to pay all fees and expenses to any legal counsel
whom it may employ to represent it separately in connection with
or on account of its actions contemplated herein.
5. MATERIAL FACTS.
Metropolitan represents and warrants to South Coast that at the
time the Registration Statement and, at the time the Prospectus is
filed with the Commission (including any preliminary prospectus
and the form of prospectus filed with the Commission pursuant to
Rule 424(b)) and at all times subsequent thereto, to and including
the date on which payment for, and delivery of, the Preferred
Stock to be sold in the Offering is made by the underwriter or
underwriters, as the case may be, participating in the Offering
and by Metropolitan (such date being referred to herein as the
"Closing Date"), the Prospectus (as amended or supplemented if it
shall have been so amended or supplemented) will contain all
material statements which are required to be stated therein in
accordance
<PAGE> 51
with the Act and will conform to all other requirements of the
federal securities laws, and will not, on such date include any
untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading and that all contracts and
documents required by the Act to be filed or required as exhibits
to said registration statement have been filed. Metropolitan
further represents and warrants that any further filing, report,
document, release or communication which in any way refers to
South Coast or to the services to be performed by South Coast
pursuant to this Agreement will not contain any untrue or
misleading statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make
the statements therein not misleading.
Metropolitan further warrants and represents that:
(a) All leases, contracts and agreements referred to in or
filed as exhibits to the Registration Statement to which
Metropolitan or its subsidiaries is a party or by which it
is bound are in full force and effect.
(b) Metropolitan has good and marketable title, except as
otherwise indicated in the Registration Statement and
Prospectus, to all of its assets and properties described
therein as being owned by it, free and clear of all liens,
encumbrances and defects except such encumbrances and
defects which do not, in the aggregate, materially affect
or interfere with the use made and proposed to be made of
such properties as described in the Registration Statement
and Prospectus; and Metropolitan has no material leased
properties except as disclosed in the Prospectus.
(c) Metropolitan is duly organized under the laws of the State
of Washington and, as of the effective date of the
Registration Statement and at Closing Metropolitan will be
validly existing and in good standing under the laws of the
State of Washington with full corporate power and authority
to own its properties and conduct its business to the
extent described in the Registration Statement and
Prospectus; Metropolitan is duly qualified to do business
as a foreign corporation and is in good standing in all
jurisdictions in which the nature of the business
transacted by it or its ownership of properties or assets
makes qualification
<PAGE> 52
necessary; the authorized and outstanding capitalization of
Metropolitan is as set forth in the Prospectus and the
description in the Prospectus of the capital stock of
Metropolitan conforms with and accurately describes the
rights set forth in the instruments defining the same;
(d) Metropolitan is not in violation of its Certificate of
Incorporation or Bylaws or in default in the performance or
observance of any material obligation, agreement, covenant
or condition contained in any bond, debenture, note, or
other evidence of indebtedness, contract or lease or in any
indenture or loan agreement to which it is a party or by
which it is bound.
(e) The execution, delivery and performance of this Agreement
has been duly authorized by all necessary corporate action
on the part of Metropolitan and MIS and performance of the
foregoing agreement and the consummation of the
transactions contemplated thereby, will not conflict with
or result in a breach of any of the terms or constitute a
violation of the respective Certificates of Incorporation
or Bylaws of Metropolitan or MIS, or any deed of trust,
lease, sublease, indenture, mortgage, or other agreement or
instrument to which Metropolitan or MIS is a party or by
which either of them or their property is bound, or any
applicable law, rule, regulation, judgment, order or decree
of any government, governmental instrumentality or court,
domestic or foreign, having jurisdiction over Metropolitan
or MIS or their properties or obligations; and no consent,
approval, authorization or order of any court or
governmental agency or body is required for the
consummation of the transactions contemplated herein and in
the other agreements previously referred to in this
paragraph except as may be required under the Act or under
any state securities or laws.
(f) Any certificate signed by an officer of Metropolitan and
delivered to South Coast pursuant to this Agreement shall
be deemed a representation and warranty by Metropolitan to
South Coast, to have the same force and effect as stated
herein, as to the matters covered thereby.
(g) If any event relating to or affecting Metropolitan shall
occur as a result of which it is necessary, in South
Coast's opinion, to amend or supplement
<PAGE> 53
the Prospectus in order to make the Prospectus not misleading in
the light of the circumstances existing at the time it is
delivered to a purchaser, Metropolitan undertakes to inform
South Coast of such events within a reasonable time
thereafter, and will forthwith prepare and furnish to South
Coast, without expense to them, a reasonable number of
copies of an amendment or amendments or a supplement or
supplements to the Prospectus (in form and substance
satisfactory to South Coast) which will amend or supplement
the Prospectus so that as amended or supplemented it will
not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements
therein in light of the circumstances existing at the time
the Prospectus is delivered to a purchaser, not misleading.
(h) Metropolitan hereby warrants and represents that it will
offer the Preferred Stock in accordance with the pricing
formula set forth in Schedule "A" which is incorporated by
reference herein.
(i) All representations, warranties and agreements contained in
this Agreement, or contained in certificates of officers of
Metropolitan submitted pursuant hereto, shall remain
operative and in full force and effect, surviving the date
of this Agreement.
6. AVAILABILITY OF INFORMATION.
Metropolitan hereby agrees to provide South Coast, at its expense,
with all information and documentation with respect to its
business, financial condition and other matters as South Coast may
deem relevant based on the standards of reasonableness and good
faith and shall request in connection with South Coast's
performance under this Agreement, including, without limitation,
copies of all correspondence with the Commission, certificates of
its officers, opinions of its counsel and comfort letters from its
auditors. The above-mentioned certificates, opinions of counsel
and comfort letters shall be provided to South Coast as South
Coast may request on the effective date of the Registration
Statement and on the Closing Date. Metropolitan will make
reasonably available to South Coast, its auditors, counsel, and
officers and directors to discuss with South Coast any aspect of
Metropolitan which South Coast may deem relevant. In addition,
Metropolitan, at South Coast's request, will
<PAGE> 54
cause to be delivered to South Coast copies of all certificates,
opinions, letters and reports to be delivered to the underwriter
or underwriters, as the case may be, pursuant to any underwriting
agreement executed in connection with the Offering or otherwise,
and shall cause the person issuing such certificate, opinion,
letter or report to authorize South Coast to rely thereon to the
same extent as if addressed directly to South Coast. Metropolitan
represents and warrants to South Coast that all such information
and documentation provided pursuant to this paragraph 6 will not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statement therein not
misleading. In addition, Metropolitan will promptly advise South
Coast of all telephone conversations with the Commission which
relate to or may affect the Offering.
7. INDEMNIFICATION.
(a) Subject to the conditions set forth below, and in addition
to any rights of indemnification and contribution to which
South Coast may be entitled pursuant to any agreement among
underwriters, underwriting agreement or otherwise, and to
the extent allowed by law, Metropolitan hereby agrees that
it will indemnify and hold South Coast and each person
controlling, controlled by or under common control with
South Coast within the meaning of Section 15 of the Act or
Section 20 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or the rules and regulations
thereunder (individually, an "Indemnified Person") harmless
from and against any and all loss, claim, damage,
liability, cost or expense whatsoever to which such
Indemnified Person may become subject under the Act, the
Exchange Act, or other federal or state statutory law or
regulation, at common law or otherwise, arising out of,
based upon, or in any way related or attributed to (i) this
Agreement, (ii) any untrue statement or alleged untrue
statement of a material fact contained in the Registration
Statement or Prospectus or any other filing, report,
document, release or communication, whether oral or
written, referred to in paragraph 5 hereof or the omission
or alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, (iii) any application or
other document executed by Metropolitan or based upon
written information furnished by Metropolitan filed in any
<PAGE> 55
jurisdiction in order to qualify the Preferred Stock under the
securities or Blue Sky laws thereof, or the omission or
alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading, or (iv) the breach of any
representation or warranty made by Metropolitan in this
Agreement. Metropolitan further agrees that upon demand by
an Indemnified Person at any time or from time to time, it
will promptly reimburse such Indemnified Person for, or
pay, any loss, claim, damage, liability, cost or expense as
to which Metropolitan has indemnified such person pursuant
hereto. Notwithstanding the foregoing provisions of this
paragraph 7, any such payment or reimbursement by
Metropolitan of fees, expenses or disbursement incurred by
an Indemnified Person in any proceeding in which a final
judgment by a court of competent jurisdiction (after all
appeals or the expiration of time to appeal) is entered
against such Indemnified Person as a direct result of such
person's negligence, bad faith or willful misfeasance will
be promptly repaid to Metropolitan. In addition, anything
in this paragraph 7 to the contrary notwithstanding,
Metropolitan shall not be liable for any settlement of any
action or proceeding effected without its written consent.
(b) Promptly after receipt by an Indemnified Person under sub-
paragraph (a) above of notice of the commencement of any
action, such Indemnified Person will, if a claim in respect
thereof is to be made against Metropolitan under paragraph
(a), notify Metropolitan in writing of the commencement
thereof; but the omission to so notify Metropolitan will
not relieve Metropolitan from any liability which it may
have to any Indemnified Person otherwise than under this
paragraph 7 if such omission shall not have materially
prejudiced Metropolitan's ability to investigate or to
defend against such claim. In case any such action is
brought against any Indemnified Person, and such
Indemnified Person notifies Metropolitan of the
commencement thereof, Metropolitan will be entitled to
participate therein and, to the extent that it may elect by
written notice delivered to the Indemnified Person promptly
after receiving the aforesaid notice from such Indemnified
Person, to assume the defense thereof with counsel
reasonably satisfactory to such Indemnified Person;
PROVIDED, HOWEVER, that if the defendants
<PAGE> 56
in any such action include both the Indemnified Person and
Metropolitan or any corporation controlling, controlled by
or under common control with Metropolitan, or any director,
officer, employee, representative or agent of any thereof,
or any other "Qualified Independent Underwriter" retained
by Metropolitan in connection with the Offering and the
Indemnified Person shall have reasonably concluded that
there may be legal defenses available to it which are
different from or additional to those available to such
other defendant, the Indemnified Person shall have the
right to select separate counsel to represent it. Upon
receipt of notice from Metropolitan to such Indemnified
Person of its election so to assume the defense of such
action and approval by the Indemnified Person of counsel,
Metropolitan will not be liable to such Indemnified Person
under this paragraph 7 for any fees of counsel subsequently
incurred by such Indemnified Person in connection with the
defense thereof (other than the reasonable costs of
investigation subsequently incurred by such Indemnified
Person) unless (i) the Indemnified Person shall have
employed separate counsel in accordance with the provision
of the next preceding sentence (it being understood,
however, that Metropolitan shall not be liable for the
expenses of more than one separate counsel in any one
jurisdiction representing the Indemnified Person, which
counsel shall be approved by South Coast), (ii)
Metropolitan, within a reasonable time after notice of
commencement of the action, shall not have employed counsel
reasonably satisfactory to the Indemnified Person to
represent the Indemnified Person, or (iii) Metropolitan
shall have authorized in writing the employment of counsel
for the Indemnified Person at the expense of Metropolitan,
and except that, if clause (i) or (iii) is applicable, such
liability shall be only in respect of the counsel referred
to in such clause (i) or (iii).
(c) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in
paragraph 7 is due in accordance with its terms but is for
any reason held by a court to be unavailable from
Metropolitan to South Coast on grounds of policy or
otherwise, Metropolitan and South Coast shall contribute to
the aggregate losses, claims, damages and liabilities
(including legal or other
<PAGE> 57
expenses reasonably incurred in connection with investigating or
defending same) to which Metropolitan and South Coast may
be subject in such proportion so that South Coast is
responsible for that portion represented by the percentage
that its fee under this Agreement bears to the public
offering price appearing on the cover page of the
Prospectus and Metropolitan is responsible for the balance,
except as Metropolitan may otherwise agree to reallocate a
portion of such liability with respect to such balance with
any other person, including, without limitation, any other
"Qualified Independent Underwriter"; PROVIDED, HOWEVER,
that (i) in no case shall South Coast be responsible for
any amount in excess of the fee set forth in paragraph 4
above and (ii) no person guilty of fraudulent
misrepresentation within the meaning of Section 11(f) of
the Act shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this paragraph (c), any person controlling,
controlled by or under common control with South Coast, or
any partner, director, officer, employee, representative or
any agent of any thereof, shall have the same rights to
contribution as South Coast and each person who controls
Metropolitan within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, each officer of
Metropolitan who shall have signed the Registration
Statement and each director of Metropolitan shall have the
same rights to contribution as Metropolitan, subject in
each case to clause (i) of this paragraph (c). Any party
entitled to contribution will, promptly after receipt of
notice of commencement of any action, suit or proceeding
against such party in respect of which a claim for
contribution may be made against the other party under this
paragraph (c), notify such party from whom contribution may
be sought, but the omission to so notify such party shall
not relieve the party from whom contribution may be sought
from any other obligation it or they may have hereunder or
otherwise than under this paragraph (c). The indemnity and
contribution agreements contained in this paragraph 7 shall
remain operative and in full force and effect regardless of
any investigation made by or on behalf of any Indemnified
Person or termination of this Agreement.
8. AUTHORIZATION BY METROPOLITAN.
<PAGE> 58
Metropolitan represents and warrants to South Coast that this
Agreement has been duly authorized, executed and delivered by
Metropolitan and constitutes a valid and binding obligation of
Metropolitan.
9. AUTHORIZATION BY MIS.
MIS represents and warrants to South Coast that this Agreement has
been duly authorized, executed and delivered by MIS and
constitutes a valid and binding obligation of MIS.
10. AUTHORIZATION BY SOUTH COAST.
South Coast represents and warrants to Metropolitan that this
Agreement has been duly authorized, executed and delivered by
South Coast and constitutes a valid and binding obligation of
South Coast.
11. NOTICE.
Whenever notice is required to be given pursuant to this
Agreement, such notice shall be in writing and shall be mailed by
first class mail, postage prepaid, addressed (a) if to South Coast
Financial Securities, Inc., at 3333 Michelson Drive, Suite 430,
Irvine, CA 92612-1684, and (b) if to Metropolitan, at 929 West
Sprague Avenue, Spokane, Washington 99201, Attention: C. Paul
Sandifur,Jr.
12. GOVERNING LAW.
This Agreement shall be construed (both as to validity and
performance) and enforced in accordance with and governed by the
laws of the State of Washington applicable to agreements made and
to be performed wholly within such jurisdiction.
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the day and year first above mentioned.
METROPOLITAN MORTGAGE & SECURITIES CO., INC.
By: ______________________________________________
C. Paul Sandifur, Jr., President
METROPOLITAN INVESTMENT SECURITIES, INC.
By: ______________________________________________
Reuel Swanson, Secretary
<PAGE> 59
SOUTH COAST FINANCIAL SECURITIES, INC.
By: _____________________________________________
Robert E. Witt, Chairman and CEO
<PAGE> 60
SCHEDULE A
Metropolitan Mortgage & Securities Co., Inc.
The opinion of South Coast is conditioned upon Metropolitan's
undertaking to maintain the distribution rate of the Preferred Stock in
accordance with the formula set forth below:
Notwithstanding anything to the contrary herein the Applicable Rate for
any monthly distribution period shall not, in any event, be less than 6% or
greater than 14% per annum. The Board of Directors may, however, by
resolution, authorized distributions in excess of the Applicable Rate. The
Applicable Rate for any monthly distribution period shall be the highest of
the Treasury Bill Rate, the Ten Year Constant Maturity Rate and the Twenty
Year Constant Maturity Rate (each as defined in the Preferred Stock
Authorizing Resolution) plus one half of one percentage point for such
dividend period. In the event that the Company determines in good faith that
for any reason one or more of such rates cannot be determined for any
distribution period, then the Applicable Rate for such period shall be the
higher of whichever of such rates can be so determined.
<PAGE> 61
SCHEDULE B
Metropolitan Mortgage & Securities Co., Inc.
VARIABLE RATE, CUMULATIVE PREFERRED STOCK,
SERIES E-2, E-3, E-4, E-5, E-6 and E-7 PRICING
For Distributions Payable On: _________________________________
Distributions Record Date: ____________________________________
<TABLE>
<CAPTION>
Applicable Effective Resultant
Date Date Average Rate Rate* Rate
<S> <C> <C> <C> <C> <C> <C>
3 Mo Treasury Bill _____________________ +.5% +2% _________
10 Yr Constant Rate _____________________ +.5% +2% _________
20 Yr Constant Rate _____________________ +.5% +2% _________
</TABLE>
HIGHEST RESULTANT RATE: ___________________________
MONTHLY DISTRIBUTION PER SHARE: ____________________
(Highest applicable rate divided by 12)
As resolved by the Board of Directors, distribution will be deemed
declared on the 1st day of each month, payable on the 20th of each month to
the holders of record on the 5th of each month.
* Includes any distribution authorized by the Board in excess of the
Applicable Rate.
_______________________________________________________
Authorized Signature
Date:__________________
C. Paul Sandifur, Jr., President
Metropolitan Investment Securities, Inc.
917 W. Sprague Avenue
Spokane, Washington 99201
Re: Pricing Opinion of South Coast Financial Securities, Inc.
Metropolitan Mortgage & Securities Co., Inc. Offering of
$25,000,000 Variable Rate Cumulative Preferred Stock, Series E-7
Dear Mr. Sandifur:
This letter will serve to confirm our engagement as a "qualified
independent underwriter" as that term is defined in subparagraph (b)(15)of
Rule 2720 to the NASD bylaws, as amended ("Rule 2720").
Based upon our review of the registration statement, and the performance
of "due diligence" as required in subparagraph (c)(3)to Rule 2720, it appears
that the price of $100.00 per share on the Variable Rate Cumulative Preferred
Stock, Series E-7 (provided that the manner in which the computation of
dividends are those set forth in Schedules A and B to the Agreement to Act as
"Qualified Independent Underwriter" dated __________________, which is filed
as Exhibit _____ to the registration statement), is no higher than that which
we would recommend.
We hereby consent to the use of our name as a "qualified independent
underwriter," to the Registration Statement (SEC File No. ________________).
Very truly yours,
SOUTH COAST FINANCIAL SECURITIES, INC.
By:__________________________________
cc: National Association of Securities Dealers, Inc.
OPINION OF SUSAN A. THOMSON
January 8, 1998
The Directors and Stockholders
Metropolitan Mortgage & Securities Co., Inc.
929 West Sprague Avenue
Spokane, WA 99201
Gentlemen:
I have acted as counsel to Metropolitan Mortgage & Securities Co., Inc.
(the "Company") in connection with the proceedings for the authorization and
issuance of 250,000 shares of Variable Rate Cumulative Preferred Stock, Series
E-7 ("Preferred Stock, Series E") including the preparation of a Registration
Statement (Form S-2) under the Securities Act of 1933, as amended, which has
been filed with the Securities and Exchange Commission. (SEC Registration No.
________________).
I have examined the Registration Statement referred to above and such
other documents and records as I have deemed necessary for the purpose of this
opinion.
Based upon the foregoing, and subject to the Board of Directors'
adoption of Articles of Amendment to the Company's Article of Incorporation
which incorporate the Statement of Rights, Designation and Preferences of
variable Rate Cumulative Preferred Stock, Series E-7, and the filing of same
with the Secretary of State of the State of Washington in accordance with RCW
23B.06.020, I am of the opinion that:
(1) the Preferred Stock, Series E-7 of the Company which is being
registered, when issued and sold in the manner and for the consideration
contemplated by the Registration Statement, will be legally issued,
fully paid and non-assessable; and
(2) in the event of dissolution, liquidation or winding up of the affairs of
the Company, whether voluntary or involuntary, the holders of Preferred
Stock, Series E-7 will be entitled to receive, on parity with all other
issued and outstanding preferred stock, before any payment or
distribution is made on the Company's Class A or Class B Common Stock,
the amount of ($100.00 per share plus an amount equal to all accrued and
<PAGE> 64
unpaid dividends thereon to the date of distribution or payment); and
(3) The liquidation preference of the preferred stock exceeds the par value
thereof. There are no restrictions upon surplus by reason of such
excess and there are no remedies available to security holders by reason
of such excess before or after payment of any dividend that would reduce
surplus to an amount less than the amount of such excess and which
remedies arise by reason of such excess.
This opinion is furnished pursuant to the requirements of Item 601(b)(5)
of Regulation S-K.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to me in the Prospectus under the
caption "Legal Opinion."
Sincerely,
/s/ SUSAN A. THOMSON
Susan A. Thomson
Assistant Corporate Counsel
METROPOLITAN MORTGAGE & SECURITIES CO., INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Year ended September 30,
1997 1996 1995 1994 1993
__________ __________ _________ _________ _________
<S> <C> <C> <C> <C> <C>
Earnings:
Net income $ 9,668 $ 8,038 $ 6,303 $ 5,478 $ 4,003
Preferred dividends (4,113) (3,868) (4,038) (3,423) (3,313)
__________ __________ _________ _________ _________
Net income available to
common stockholders $ 5,555 $ 4,170 $ 2,265 $ 2,055 $ 690
========== ========== ========= ========= =========
Weighted average number
of common shares
outstanding (1) 130 130 131 137 134
========== ========== ========= ========= =========
Net income per common
share $ 42,733 $ 32,073 $ 17,288 $ 14,996 $ 5,150
========== ========== ========= ========= =========
<FN>
(1) All information retroactively reflects the reverse common stock split of
2,250:1 which occurred during the fiscal year ended September 30, 1994.
</TABLE>
METROPOLITAN MORTGAGE & SECURITIES CO., INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
The ratio of adjusted earnings to fixed charges and preferred stock
dividends was computed using the following tabulations to compute adjusted
earnings and the defined fixed charges and preferred stock dividends.
<TABLE>
<CAPTION>
Year Ended September 30
________________________________________________
(Dollars in Thousands)
1997 1996 1995 1994 1993
_______ _______ _______ _______ _______
<S> <C> <C> <C> <C> <C>
Net income $ 9,668 $ 8,038 $ 6,303 $ 5,478 $ 8,303
Add:
Interest 19,375 18,788 16,381 19,895 19,442
Taxes on income 5,073 4,235 3,108 4,422 1,871
_______ _______ _______ _______ _______
Adjusted earnings $34,116 $31,061 $25,792 $28,365 $32,167
======= ======= ======= ======= =======
Preferred stock dividend
requirements $ 4,113 $ 3,868 $ 4,038 $ 3,423 $ 3,313
Ratio factor of income after
provision for income taxes
to income before provision
for income taxes 66% 66% 67% 66% 66%
Preferred stock dividend
factor on pretax basis 6,244 5,880 6,006 5,220 5,020
Fixed charges
Interest 19,375 18,788 16,381 19,895 19,442
Capitalized interest 521 2,468 2,730 2,152 3,013
_______ _______ _______ _______ _______
Fixed charges and
preferred stock
dividends $26,140 $27,136 $25,117 $27,267 $27,475
======= ======= ======= ======= =======
Ratio of adjusted earnings
to fixed charges and
preferred stock dividends 1.31 1.14 1.03 1.04 1.17
======= ======= ======= ======= =======
</TABLE>
CONSENT OF
INDEPENDENT ACCOUNTANTS
Metropolitan Mortgage & Securities Co., Inc.
Spokane, Washington
We consent to the incorporation by reference in this Registration
Statement on Form S-2 (File No. _______________) of our reports, which include
an explanatory paragraph describing changes in the methods of accounting for
the transfer and servicing of financial assets in 1997 and impaired loans in
fiscal 1996, dated November 21, 1997 on our audits of the consolidated
financial statements and financial statement schedules of Metropolitan
Mortgage & Securities Co., Inc. and subsidiaries as of September 30, 1997 and
1996 and for each of the three years in the period ended September 30, 1997,
which report is included in the Annual Report on Form 10-K.
We also consent to the reference to our firm under the caption
"Experts."
/s/ COOPERS & LYBRAND L.L.P.
____________________________
COOPERS & LYBRAND L.L.P.
Spokane, Washington
January 6, 1998
