<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 Amount offering aggregate Amount of
of securities to be to be price per offering registration
registered registered unit price fee
___________________ ____________ _________ ____________ ____________
<S> <C> <C> <C> <C>
Investment
Debentures
Series III $100,000,000 $1 $100,000,000 $30,303
</TABLE>
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
Debentures
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.
$100,000,000 Investment Debentures, Series III
A holder of Investment Debentures, Series III of Metropolitan Mortgage &
Securities Co., Inc. ("Metropolitan") may elect to receive interest monthly,
quarterly, semi-annually or annually without compounding; or at the election
of the Debentureholder, if interest is left with Metropolitan it will compound
semi-annually until maturity; or at the election of the Debentureholder, the
Debentures will pay equal monthly installments of principal and interest until
maturity according to an amortization schedule selected by the owner.
The Debentures are unsecured debt instruments, senior in liquidation to
outstanding equity securities of Metropolitan, subordinate to collateralized
debt of the Consolidated Group (Metropolitan and its subsidiaries),
subordinate to all debt of the subsidiaries included in the Consolidated
Group, on parity with unsecured accounts payable and accrued liabilities of
Summit and on parity with all previously issued and outstanding debentures.
At September 30, 1997, the Consolidated Group had approximately $868,226,000
of debt senior to and approximately $4,837,000 of debt in parity with
approximately $185,214,000 of outstanding debentures.
Metropolitan reserves the right to change prospectively, by way of a
supplement to this Prospectus, the interest rates, maturities, and minimum
investment amounts on unsold Debentures. The current provisions are set forth
below. See "DESCRIPTION OF DEBENTURES."
<TABLE>
<CAPTION>
MINIMUM ANNUAL
INVESTMENT TERM TO MATURITY INTEREST RATE
__________ ________________ ______________
<S> <C> <C>
$ %
$ %
$ %
</TABLE>
There is no trading market for the Debentures and none is expected to be
established in the future. See "RISK FACTORS."
<PAGE> 5
This offering of Debentures is subject to withdrawal or cancellation by
Metropolitan without notice.
FOR A DISCUSSION OF MATERIAL RISKS ASSOCIATED WITH THE DEBENTURES
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 Debenture 100% 0% to 6% 100% to 94%
Total: $100,000,000 None-$6,000,000 $100,000,000-$94,000,000
</TABLE>
(1) There is no direct sales charge to the investor. Debentures earn
interest, without deduction for underwriting discounts or commissions.
Metropolitan will reimburse its underwriters for commissions paid to licensed
securities sales representatives. Sales commission rates on the sale of
Debentures depend upon the terms of the sale and upon whether the sales are
reinvestments or new purchases. See "PLAN OF DISTRIBUTION."
(2) Before deducting other expenses estimated at $205,000.
The Debentures are being offered for sale on a continuous, best efforts
basis. There are no minimum amounts of securities that must be sold. The
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 Debentures 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 Debentures 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 Debentures---------------------------------
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 DEBENTURES" & "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 capitalized, it refers to the Investment
Debentures being offered herein. When this term is not capitalized, it refers
to debentures generally.
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 uncapitalized, it refers to
preferred stock generally. When this term is capitalized, it refers to any
Preferred Stock which may be offered contemporaneously with this Debenture
offering.
<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
DEBENTURES
Offering . . . . This Debenture offering consists of $100,000,000 in principal
of Investment Debentures, Series III issued at minimum investment amounts,
terms, and rates set forth on the cover page of this Prospectus. There is no
minimum amount of Debentures which must be sold. Debentures are issued in
book entry form. See "DESCRIPTION OF DEBENTURES."
Debentures . . . . The Debentures are unsecured indebtedness of Metropolitan.
At September 30, 1997, Metropolitan had outstanding approximately $185,214,000
(principal and compounded and accrued interest) of debenture debt and
$4,918,000 (principal and accrued interest) of collateralized debt and similar
obligations. See "CAPITALIZATION."
Use of Proceeds . . . . The proceeds of this Debenture 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."
Principal and Interest Payments . . . . Debentureholders may elect to receive
interest monthly, quarterly, semi-annually or annually (without compounding);
or at the election of the Debentureholder, if interest is left with
Metropolitan it will compound semi-annually until maturity; or
Debentureholders may elect to be paid equal monthly installments of principal
and interest pursuant to an amortization schedule selected by the holder. The
minimum investment amounts, terms and interest rates on unissued Debentures
offered hereby may be changed from time to time by Metropolitan, by way of a
supplement to this Prospectus. Any such change shall not affect the rate of
interest of any Debentures issued prior to the change. See "DESCRIPTION OF
DEBENTURES-Payment of Principal and Interest."
<PAGE> 15
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> 16
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> 17
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> 18
(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, 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> 19
RISK FACTORS
Investment in the Debentures 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 these two
years. Adverse changes in the markets for the Consolidated
<PAGE> 20
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 interest,
retire debentures 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 interest, retire
debentures 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> 21
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 Debenture 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> 22
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> 23
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> 24
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. Term Investment; Absence of a Trading Market, Lack of Liquidity:
The Debentures offered hereby will be issued for specified terms and should
not be considered liquid investments. See "DESCRIPTION OF DEBENTURES."
Investors should be prepared to hold the Debentures until maturity. The
Debentures are not traded on any stock exchange and there is no independent
public market for the Debentures. At present, management does not anticipate
applying for a listing for such public trading.
8. Lack of Indenture Restrictions and Ability to Incur Additional
Indebtedness: The Debentures are issued pursuant to an Indenture which does
not restrict Metropolitan's ability to issue additional debentures or to incur
other debt. The Indenture does not require Metropolitan to maintain any
specified financial ratios, minimum net worth or minimum working capital.
Debenture holders should not rely on the terms of the Indenture for protection
of their investments, but should look rather to the creditworthiness of
Metropolitan and its ability to satisfy its obligations. Debentures will not
be guaranteed or insured by any governmental agency. There is no sinking fund
for the retirement of Debentures. On September 30, 1997, Metropolitan had
outstanding approximately $185,214,000 (principal and compounded and accrued
interest) of debenture debt and $4,918,000 (principal and accrued interest) of
collateralized debt and similar obligations. The Debentures are senior in
liquidation to all outstanding equity securities of Metropolitan. Debentures
are subordinate in liquidation only to Metropolitan's collateralized debt and
are on parity with all other outstanding debentures, unsecured accounts
payable and unsecured accrued liabilities. In the event of liquidation of the
Consolidated Group, the policyholders and creditors of Metropolitan's
subsidiaries would be paid prior to Debentureholders to the extent of the net
assets of the subsidiaries.
9. 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
<PAGE> 25
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.
10. 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 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.
11. 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 expires 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
<PAGE> 26
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> 27
DESCRIPTION OF DEBENTURES
General
The Debentures will be issued under an Indenture dated as of July 6,
1979 and a supplement thereto dated as of December 31, 1997. The following
statements relating to the Debentures and the Indenture are summaries and do
not purport to be complete. Such summaries are subject to the detailed
provisions of the Indenture and are qualified in their entirety by reference
to the Indenture, a copy of which is filed as an exhibit to the Registration
Statement and is also available for inspection at the office of the Trustee.
The Debentures will represent unsecured general obligations of
Metropolitan and will be issued in book entry form without coupons, in
fractional denominations of $0.01 or more subject to the stated minimum
investment amount requirements. The Debentures will be sold at 100% of the
principal amount. The Debentures will have the minimum investment amounts,
maturities and interest rates set forth on the cover page of this Prospectus.
The stated interest rates, maturities, and minimum investment amounts may be
changed at any time by Metropolitan by way of a supplement to this Prospectus.
Any such change will have no effect on the terms of the previously sold
Debentures.
Debentures may be transferred or exchanged for other Debentures of the
same series of a like aggregate principal amount subject to the limitations
set forth in the Indenture. No service charge will be made for any transfer
or exchange of Debentures. Metropolitan may require payment of taxes or other
governmental charges imposed in connection with any such transfer or exchange.
Interest will accrue at the stated rate from the date of issue until maturity.
The Debentures are not convertible into capital stock or other securities of
Metropolitan.
The Debentures are not subject to redemption prior to maturity, but may
be prepaid pursuant to the prepayment on death provision described below.
Also, in limited circumstances involving an investor's demonstrated financial
hardship, subject to regulatory restrictions affecting redemptions and
exchanges of securities during an offering, Metropolitan may, in its sole
discretion, entertain a request for an early payout of a Debenture upon terms
mutually agreed to by the holder of the Debenture and Metropolitan. Such
early payout requests, when received, are reviewed in the order received.
Payment of Principal and Interest
<PAGE> 28
Interest will be payable to Debentureholders under one of several plans.
The purchaser may elect to have interest paid on a monthly, quarterly, semi-
annual or annual basis, without compounding; or may elect to leave the accrued
interest with Metropolitan in which case it will compound semi-annually at the
stated interest rate. Debentureholders may change the interest payment
election at any time by written notice to Metropolitan. Under the compounding
option, upon written notice to Metropolitan, the Debentureholder(s) may
withdraw the interest accumulated during the last two completed semiannual
compounding periods as well as the interest accrued from the end of the last
compounding period to the date Metropolitan receives the notice. Amounts
compounded prior to the last two semi-annual compounding periods are available
only at maturity.
Alternatively, at the election of the Debentureholder, at the time of
investment, and subject to the minimum term and investment requirements set
forth on the cover page of this Prospectus, level monthly installments
comprised of principal and interest will be paid to the Debentureholder
commencing 30 days from the issue date of the Debenture until maturity. The
amount of each installment will be determined by the amortization term
designated by the Debentureholder at the time the Debenture is purchased.
Debentureholders are notified in writing between 15 and 45 days prior to
the date their Debentures will mature. The amounts due on maturity are placed
in a separate bank trust account until paid to the registered owner(s).
Debentures do not earn interest after the maturity date. Metropolitan will
pay the principal and accumulated interest due on matured Debentures to the
registered owner(s) in cash at Metropolitan's main office in Spokane,
Washington or by check mailed to the address designated by the registered
owner.
Prepayment on Death
In the event of the death of a Debentureholder, any party entitled to
receive some or all of the proceeds of the Debenture may elect to have his or
her portion of the principal and any accrued but unpaid interest prepaid in
full in five consecutive equal monthly installments. Interest will continue
to accrue on the declining principal balance of such portion. No interest
penalty will be assessed. Any request for prepayment shall be made to
Metropolitan in writing and shall be accompanied by evidence satisfactory to
Metropolitan of the death of the registered owner or joint registered owner.
Before prepayment, Metropolitan may require the submission of additional
documents or other material which it may consider necessary to determine the
portion of the proceeds the requesting party is entitled to
<PAGE> 29
receive, or assurances which, in Metropolitan's discretion, it considers
necessary to fulfill its obligations.
Related Indebtedness
The Indenture pursuant to which the Debentures are issued does not
restrict Metropolitan's ability to issue additional debentures or to incur
other debt. The Indenture does not require Metropolitan to maintain any
specified financial ratios, minimum net worth or minimum working capital.
There is no sinking fund for the redemption of the Debentures. Debentures
will not be guaranteed or insured by any governmental agency. The State of
Washington regulates the amount of debt securities Metropolitan may issue, its
debt to equity ratio, certain of its investments and various other aspects of
its business. At September 30, 1997, Metropolitan had outstanding
approximately $185,214,000 (principal and compounded and accrued interest) of
debenture debt and $4,918,000 (principal and accrued interest) of
collateralized debt and similar obligations. The Debentures offered hereby
are senior in liquidation to all outstanding equity securities of
Metropolitan. They are subordinate to Metropolitan's collateralized debt as
set forth above and are on a parity with unsecured accounts payable and
accrued liabilities. There are no limitations on Metropolitan's ability to
incur additional collateralized debt. Debentureholders should not rely on the
terms of the Indenture for protection of their investment, but should look
rather to the creditworthiness of Metropolitan and its ability to satisfy its
obligations.
Concerning the Trustee
Seattle First National Bank (Seafirst) was the Indenture Trustee until
March 8, 1996 when Seafirst sold its trust activities to First Trust National
Association ("First Trust" or the "Trustee") which assumed all of the duties
of the Trustee pursuant to the terms of the Trust Indenture, as amended. The
Trustee is obligated under the Indenture to oversee and, if necessary, to take
action to enforce fulfillment of Metropolitan's obligations to
Debentureholders. The Trustee is a national banking association, with a
combined capital and surplus in excess of $100 million. Metropolitan and
certain of its subsidiaries may maintain deposit accounts and from time to
time, may borrow money from the Trustee and conduct other banking transactions
with it. At September 30, 1997, and as of the date of this Prospectus, no
loans from the Trustee were outstanding. In the event of default, the
Indenture permits the Trustee to become a creditor of Metropolitan and its
subsidiaries, and does not preclude the Trustee from enforcing its rights as a
creditor, including rights as a holder of collateralized indebtedness.
<PAGE> 30
Rights and Procedures in the Event of Default
Events of default include the failure of Metropolitan to pay interest on
any Debenture for a period of 30 days after it becomes due and payable; the
failure to pay the principal or any required installment thereof of any
Debenture when due; the failure to perform any other covenant in the Indenture
for 60 days after notice; and certain events in bankruptcy, insolvency or
reorganization with respect to Metropolitan. Upon the occurrence of an event
of default, either the Trustee or the holders of 25% or more in principal
amount of Debentures then outstanding may declare the principal of all the
Debentures to be due and payable immediately.
The Trustee must give the Debentureholders notice by mail of any default
within 90 days after the occurrence of the default, unless it has been cured
or waived. The Trustee may withhold such notice if it determines in good
faith that such withholding is in the best interest of the Debentureholders,
except if the default consists of failure to pay principal or interest on any
Debenture.
Subject to certain conditions, any such default, except failure to pay
principal or interest when due, may be waived by the holders of a majority (in
aggregate principal amount) of the Debentures then outstanding. Such holders
will have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or of exercising any power
conferred on the Trustee, except as otherwise provided in the Indenture. The
Trustee may require reasonable indemnity from holders of Debentures before
acting at their direction.
Within 120 days after the end of each fiscal year, Metropolitan must
furnish to the Trustee a statement of certain officers of Metropolitan
concerning their knowledge as to whether or not Metropolitan is in default
under the Indenture.
Modification of the Trust Indenture
Debentureholders' rights may be modified with the consent of the holders
of 66 2/3% of the outstanding principal amounts of Debentures, and 66 2/3% of
those series specifically affected. In general, no adverse modification of
the terms of payment and no modifications reducing the percentage of
Debentures required for modification is effective against any Debentureholder
without his or her consent.
Restrictions on Consolidation, Merger, etc.
Metropolitan may not consolidate with or merge into any other
corporation or transfer substantially all its assets unless either
<PAGE> 31
Metropolitan is the continuing corporation or the corporation formed by such
consolidation, or into which Metropolitan is merged, or the person acquiring
by conveyance or transfer of such assets shall be a corporation organized and
existing under the laws of the United States or any state thereof which
assumes the performance of every covenant of Metropolitan under the Indenture
and certain other conditions precedent are fulfilled.
Transfer Agent and Registrar
Metropolitan acts as its own transfer agent and registrar of the
Debentures.
LEGAL MATTERS
LEGAL OPINION
The legality of the Debentures 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 Debentures are 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
<PAGE> 32
be paid by the purchasers of the Debentures. A commission will, however, be
paid by Metropolitan on most Debenture purchases up to a maximum amount of 6%
of the Debenture price, depending on the term of the Debenture and whether or
not the transaction is a reinvestment or new purchase. Debentures are offered
only for cash or cash equivalents. MIS will transmit such funds directly to
Metropolitan by noon of the next business day after receipt. During the three
fiscal years ended September 30, 1997, MIS has received commissions of
$2,816,616 from Metropolitan on sales of approximately $100,756,000 of
Metropolitan's debentures.
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 interest rates to be paid on the Debentures offered
through this Prospectus. Accordingly, MIS has obtained an opinion from South
Coast Financial Securities, Inc., a NASD member, ("South Coast") that the
interest rates on the Debentures using a formula tied to corresponding
interest rates paid by the U.S. Treasury and regional financial institutions
meets this fairness objective based on conditions and circumstances existing
as of the date of the Prospectus. Metropolitan undertakes to maintain the
interest rates on Debentures no lower than those recommended by South Coast
based on the formula. Accordingly, the yield at which the Debentures will be
distributed will be no lower than that recommended by South Coast. 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 Debentures offered hereunder, South Coast is to be paid $65,000 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 Debentures in the future. MIS does not intend
to make a market for the Debentures. See "RISK FACTORS-Term Investment;
Absence of a Trading Market, Lack of Liquidity."
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 Debentures sold by such dealers.
<PAGE> 33
USE OF PROCEEDS
Debenture Proceeds . . . . If all the Debentures offered are sold,
Metropolitan expects net proceeds from this Debenture offering of $100,000,000
to $94,000,000 before deducting other expenses estimated at $205,000 and after
sales commissions. There can be no assurance, however, that any of the
Debentures can be sold. Sales commissions will range up to a maximum of
$6,000,000 (6%) depending on maturities of Debentures sold and whether sales
are reinvestments or new purchases.
In conjunction with the other funds available to it through operations
and/or borrowings, Metropolitan will utilize the proceeds of the Debenture
offerings 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 Debentures 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
<PAGE> 34
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 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> 35
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.......................... $ 30,303
NASD Filing Fee............................... 10,500
* Blue Sky Qualification Fees and Expenses.... 3,000
Independent Underwriter Fee and Expenses...... 70,000
* Accounting Fees and Expenses................ 50,000
* Legal Fees and Disbursements................ 20,000
* Trustee's Fees and Expenses................. 5,000
* Printing Expenses........................... 15,000
* Miscellaneous Expenses...................... 1,197
Total Expenses................................ $205,000
* 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). Form of Selling Agreement between Metropolitan and
Metropolitan Investment Securities, Inc. regarding
Investment Debentures, Series III.
<PAGE> 36
*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 Debentures to be
registered.
*1(c). Form of Pricing Opinion of South Coast Financial
Securities, Inc. with respect to Debentures to be
registered.
4(a). Indenture, dated as of July 6, 1979, between
Metropolitan and Seattle-First National Bank, Trustee
(Exhibit 3 to Metropolitan's Annual Report on Form 10-
K for fiscal 1979).
4(b). First Supplemental Indenture, dated as of October 3,
1980, between Metropolitan and Seattle-First National
Bank, Trustee (Exhibit 4 to Metropolitan's Annual
Report on Form 10-K for fiscal 1980).
4(c). Second Supplemental Indenture, dated as of November
12, 1984, between Metropolitan and Seattle-First
National Bank, Trustee (Exhibit 4(d) to Registration
No. 2-95146).
4(d). Third Supplemental Indenture, dated as of December 31,
1997, between Metropolitan and First Trust National
Association, successor Trustee (Exhibit 4(d) to Form
10-K filed January 8, 1998).
*5. Opinion of Susan A. Thomson, Attorney at Law, as to
validity of Investment Debentures.
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).
<PAGE> 37
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.
*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(a).
*25. Statement on Form T-1 of First Trust National
Association. (Exhibits to this Exhibit have been
filed in paper pursuant to a continuing hardship
exemption granted January 24, 1994).
27. Financial Data Schedule (Exhibit 27 to Form 10-K filed
January 8, 1998).
* Filed herewith.
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
<PAGE> 38
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.
(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)
<PAGE> 39
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> 40
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> 41
_________________________ 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 SELLING AGREEMENT
This Agreement made as of the ____ day of _______________, 19___ by and
between METROPOLITAN MORTGAGE & SECURITIES CO., INC., an Washington
corporation ("Metropolitan") and METROPOLITAN INVESTMENT SECURITIES, INC., a
Washington corporation (the "Selling Agent").
WITNESSETH:
WHEREAS, Metropolitan proposes to issue and sell $100,000,000 principal
amount of its Investment Debentures, Series III (the "Debentures") pursuant to
a Registration Statement (or Registration Statements) and a Prospectus (or
Prospectuses) filed under the Securities Act of 1933; and
WHEREAS, the Selling Agent, an affiliate of Metropolitan, for good and
valuable consideration the receipt of which is hereby acknowledged, desires to
assist in the sale of the Debentures upon the terms and in reliance upon the
representations, warranties and agreements set forth herein;
NOW, THEREFORE, the parties hereto agree as follows:
1. Appointment of Selling Agent.
Metropolitan hereby appoints the Selling Agent as its managing
agent to offer and sell the Debentures at the prices and in the
manner described in the Registration Statement and the Prospectus
and in compliance with the terms and conditions thereof.
Metropolitan agrees to provide the Selling Agent with such number
of Registration Statements and Prospectuses as it reasonably
requests to enable it to offer the Debentures and authorizes the
Selling Agent to distribute the Registration Statements and
Prospectuses.
2. Undertaking of Selling Agent.
The Selling Agent agrees to use its best efforts to sell the
Debentures on the terms stated herein and in the Registration
Statement and Prospectus and to notify Metropolitan of the number
of Debentures with respect to which subscription agreements have
been executed by
<PAGE> 43
subscribers. It is understood that the Selling Agent has no
commitment to sell the Debentures other than to use its best
efforts. The Selling Agent will deliver all cash and checks
received from the subscribers to Metropolitan by noon of the next
business day. All checks received by the Selling Agent from
subscribers shall be made payable to Metropolitan. The Selling
Agent will not maintain discretionary customer accounts and
undertakes that it will not, in any event make discretionary
purchases for the accounts of customers.
3. Amendment of the Registration Statement and Prospectus.
Metropolitan agrees, at its expense, to amend or supplement the
Registration Statement or the Prospectus and to provide the
Selling Agent with sufficient copies thereof for distribution as
contemplated in the Registration Statement or the Prospectus or
otherwise for purposes contemplated by federal and state
securities laws, if (i) the Selling Agent advises Metropolitan
that in its opinion and that of its counsel, such amendment or
supplement is necessary or advisable, or (ii) such amendment or
supplement is necessary to comply with federal or state securities
laws or the rules or regulations promulgated thereunder or is
necessary to correct any untrue statement therein or eliminate any
material omissions therein or any omissions therein which make any
of the statements therein misleading. The representations,
warranties and obligations to indemnify all parties hereto
contained herein relating to the Registration Statement or the
Prospectus shall attach to any such amendment or supplement.
4. Undertakings of Metropolitan.
Metropolitan will promptly notify the Selling Agent in the event
of the issuance by the Securities and Exchange Commission ("SEC")
of any stop order or other order suspending the Registration of
the Debentures, or in the event of the institution or intended
institution of any action or proceeding for that purpose. In the
event that the SEC shall enter a stop order suspending or
otherwise suspend the Registration of the Debentures, Metropolitan
will make every reasonable effort to obtain as promptly as
possible the entry of an appropriate order setting aside such stop
order or otherwise reinstating the Registration of the Debentures.
5. Representations and Warranties.
<PAGE> 44
Metropolitan represents and warrants to the Selling Agent that:
(i) The Registration Statement and the Prospectus comply as to
form in all material respects with the Securities Act of
1933 and the rules and regulations of the SEC thereunder,
accurately describe the operations of Metropolitan and do
not contain any misleading or untrue statements of a
material fact or omit to state a material fact which is
necessary to prevent the statements therein from being
misleading.
(ii) Metropolitan is a corporation duly organized and validly
existing under the laws of the State of Washington with
full corporate power to perform its obligations as
described in the Registration Statement and the Prospectus.
(iii) The Debentures, when issued and sold pursuant to the terms
hereof and of the Registration Statement, Prospectus and
subscription agreements, will constitute valid, binding and
legal outstanding obligations of Metropolitan, in
accordance with their terms.
(iv) This Agreement has been duly and validly authorized,
executed and delivered on behalf of Metropolitan and is a
valid and binding agreement in accordance with its terms.
6. Indemnification.
Metropolitan and the Selling Agent each (a) agree to indemnify and
hold harmless the other (and each person, if any, who controls the
other) against any loss, claim, damage, charge or liability to
which the other (or such controlling persons) may become subject,
insofar as such loss, claim, damage, charge or liability (or
actions in respect thereof) (i) arises out of or is based upon any
misrepresentation or breach of warranty of such party herein or
any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement or the Prospectus (or
any amendment or supplement thereto) which relates to or was
supplied by such party, or (ii) arises out of or is based upon the
omission or alleged omission to state therein a material fact
relating to such party required to be stated therein or necessary
to make the statements therein not misleading, including
liabilities under the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as
<PAGE> 45
amended, and (b) agree to reimburse such other party (and any
controlling persons) for any legal or other fees or expenses
reasonably incurred in connection with investigating or defending
any action or claim arising out of or based upon any of the
foregoing.
7. Fees and Expenses.
Metropolitan will pay all expenses incurred in connection with the
offering and sale of the Debentures, including without limitation,
fees and expenses of counsel, blue sky fees and expenses
(including legal fees), printing expenses, accounting fees and
expenses, and fees and expenses of First Trust, as Trustee.
In the event of termination of the offering, Selling Agent will be
reimbursed only for its actual accountable out-of-pocket expenses.
The maximum commissions payable upon sale of the Debentures shall
be 6% of the investment amount.
8. Governing Law.
This Agreement shall be deemed to be made under and governed by
the laws of the State of Washington.
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
FORM OF AGREEMENT TO ACT AS "QUALIFIED INDEPENDENT UNDERWRITER"
METROPOLITAN MORTGAGE & SECURITIES CO., INC.
Investment Debentures, Series III
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 ("South Coast").
WITNESSETH:
WHEREAS, Metropolitan intends to offer $100,000,000 in Investment
Debentures Series III (hereinafter referred to as "Debentures"), which will be
offered in reliance on a registration statement filed on Form S-2, bearing SEC
file number ___________________; and,
WHEREAS, MIS, a wholly owned broker/dealer and a member of the National
Association of Securities Dealers ("NASD"), will be engaged as the sole
selling agent for Metropolitan; and,
WHEREAS, pursuant to subparagraph (c) of Rule 2720 of the NASD, MIS, as
a NASD member, may participate in such underwriting only if the yield at which
the Debentures offered to the public is not lower than the yield recommended
by a "Qualified Independent Underwriter" as that term is defined in Rule 2720
subparagraph (b)(15) 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 Debentures;
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:
DEFINITIONS
<PAGE> 47
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 debentures 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. SCHEDULE E REQUIREMENT.
South Coast hereby confirms its agreement as set forth in
subparagraph 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 yields
below which Metropolitan's Debentures may not be offered based on
the pricing formula that is set forth in Schedules "A" and "B,"
copies of which are 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
<PAGE> 48
offered on a continuous, best efforts basis by MIS, as the sole
selling agent of Metropolitan pursuant to the selling agreement in
effect between MIS and Metropolitan which are filed as exhibits to
the Registration Statement referred to above. Metropolitan,
through MIS, will continue to offer the debt securities according
to the terms and conditions of said agreement, including, without
limitation, Schedules "A" and B" 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 expenses on an accountable basis in the maximum amount $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 $65,000 at the time the pricing opinion and
pricing formula are 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 Debentures 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 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
<PAGE> 49
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 necessary; the authorized and
outstanding capitalization of Metropolitan is as set forth
in the Prospectus and the description in the
<PAGE> 50
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 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
<PAGE> 51
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 Debentures in accordance with the pricing formula
that is set forth in Schedules "A" and "B" which are
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 cause to be delivered
to South Coast copies of all certificates, opinions, letters and
reports to be
<PAGE> 52
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
jurisdiction in order to qualify the Debentures under the
securities or Blue Sky laws thereof, or
<PAGE> 53
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 in any such
action include both the Indemnified Person and Metropolitan
or any corporation
<PAGE> 54
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 expenses reasonably incurred in
connection with investigating or defending same) to which
<PAGE> 55
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> 56
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, Attention: Robert E. Witt, 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
SOUTH COAST FINANCIAL SECURITIES, INC.
<PAGE> 57
By: _____________________________________________
Robert E. Witt, Chairman and CEO
<PAGE> 58
SCHEDULE A
Metropolitan Mortgage & Securities Co., Inc.
The opinion of South Coast is conditioned upon Metropolitan's
undertaking to maintain the rates on its Debentures at least equal to an
"assumed floor." Based upon the pricing formula described below:
1. The interest rate to be paid on the Debentures shall be fixed by
Metropolitan from time to time. However, the rate shall not be lower
than the computation made per the worksheet on Schedule B, which is
attached and incorporated by reference herein.
2. The "assumed floor" for 6 to 11 month Debentures shall be at least 1.0%
above the lesser of the interest rate on the 6 month U.S. Treasury
Bills, on a discount basis, based upon the auction average (which is
published widely in newspapers throughout the country, normally on the
day following the auction) and a composite average of the offering rates
on 6 month certificates of deposit currently being offered by banks and
savings institutions in the northwestern section of the United States.
For purposes of this composite average of certificate of deposit rates,
the rates being offered by the following institutions shall be
considered initially:
a. Seattle First National Bank
b. Security State Bank
c. U.S. Bank of Washington
d. Wells Fargo Bank
e. Washington Trust Bank
f. Washington Mutual Savings Bank
South Coast and Metropolitan agree to review on an ongoing basis the
group which comprises the composite average, and may substitute another
institution in the composite group from time-to-time by mutual
agreement, as the case may be.
3. The "assumed floor" for 60 to 120 month Debentures shall be computed in
like manner as that described in paragraph "2" above, except that the
latest auction average on 5 year U.S. Treasury Notes shall be considered
in place of the 6 month U.S. Treasury Bills, and 5 year certificates of
deposit currently offered in the composite group shall be considered in
lieu of the 6 month rate.
4. Rates on 12 to 23 month, 24 to 35 month, 36 to 47 month and 48 to 59
month Debentures shall be at least equal to the interpolated differences
between the computation of the "assumed floor" of 6 to 11 month
Debentures and 60 to 120 month Debentures, based upon the computation
set forth in Schedule B.
<PAGE> 59
5. Rates on Debentures payable in installments of principal and interest
shall be no lower than .25% below the "assumed floor" for 60 to 120
month Debentures.
6. The computation of the "assumed floor" shall be made monthly, as of the
first Tuesday of each month, or at such other times during any month
that Metropolitan causes the offering rates to change from those in
effect on the first Tuesday of each month ("the computation date").
Metropolitan agrees to furnish South Coast with a computation of the
"assumed floor" by completing the worksheet on Schedule B. Should the
offering rates at that time on Metropolitan's Debentures be less than
the "assumed floor" as computed, Metropolitan agrees to raise the rates
on its Debentures to at least the "assumed floor" within 10 calendar
days of the computation date. Should Metropolitan fail to raise its
offering rates within the 10 day period referred to above, South Coast
reserves the right, in its uncontrolled discretion, to withdraw its
opinion regarding the offering rates on the Debentures.
<PAGE> 60
SCHEDULE B
Metropolitan Mortgage & Securities Co., Inc.
PRICING FORMULA
C.D. RATE
Average rate between a composite of 8 selected Banks and Savings and Loans as of
the 1st Tuesday of each month.
GOVERNMENT RATE
Most current of 8 selected auction rates available on the 1st Tuesday of each
month.
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Certificate of
Deposit (CD) Government Rate Enter Lesser of Metropolitan's
Calculation Calculation Column A or B Assumed Floor Current Rate
____________________ _______________________ _______________ _____________ ______________
<S> <C> <C> <C> <C>
5 yr CD rate = _____ 5 yr Gov't Rate = _____
6 mo CD rate = _____ 6 mo Gov't Rate = _____
DIFFERENCE = _____ DIFFERENCE = _____
x .20 X .20
_____ _____
Differential = _____ Differential = _____
(enter in (a) below) (enter in (a) below)
6 mo (actual) 6 mo (actual)
rate = _____ rate = _____ _______________ + 1%___________ _______________
(a) + (a) + 6-11 months
_____ _____
1 yr rate = _____ 1 yr rate = _____ _______________ + 1%___________ _______________
(a) + (a) + 12-23 months
_____ _____
2 yr rate = _____ 2 yr rate = _____ _______________ + 1%___________ _______________
(a) + (a) + 24-35 months
<PAGE> 61
_____ _____
3 yr rate = _____ 3 yr rate = _____ _______________ + 1%___________ _______________
(a) + (a) + 36-47 months
_____ _____
4 yr rate = _____ 4 yr rate = _____ _______________ + 1%___________ _______________
(a) + (a) + 48-59 months
_____ _____
5 yr (actual) 5 yr (actual)
rate = _____ rate = _____ _______________ + 1%___________ _______________
(a) + (a) + 60-120 months
_____ _____
</TABLE>
INSTALLMENT PAYMENTS (Floor equal to yearly _______ _______ ____________
rate MINUS .50) (yearly -.50
rate)
Date: __________________
C. Paul Sandifur, Jr., President
Metropolitan Investment Securities, Inc.
917 West Sprague Avenue
Spokane, Washington 99201
Re: Pricing Opinion of South Coast Financial Securities, Inc.
Metropolitan Mortgage & Securities Co., Inc., Offering of
$100,000,000 in Principal Amount of Investment Debentures,
Series III
Dear Mr. Sandifur:
This letter will serve to confirm our engagement as a "qualified
independent underwriter" as that term is defined 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 yields on the Investment Debentures, Series III (which are based upon
the computation 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), are no lower than those which we
would recommend.
We hereby consent to the use of our name as a "qualified independent
underwriter," in 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 you in connection with the proceedings for
the authorization and issuance of $100,000,000 principal amount of Investment
Debentures, Series III of the Company and the preparation of a Registration
Statement (Form S-2) under the Securities Act of 1933, as amended, which you
have filed with the Securities and Exchange Commission with respect to the
Debentures. (SEC Registration No._______________).
I have examined the Registration Statement referred to above and such
documents and records of the Company and other documents as I have deemed
necessary for the purpose of this opinion.
Based upon the foregoing, I am of the opinion that upon the happening of
the following events,
(a) due action by the Board of Directors of the Company authorizing
the issuance and sale of the Debentures pursuant to the Indenture
dated as of July 6, 1979, between the Company and Seattle-First
National Bank, as Trustee, as amended and supplemented by a First
Supplemental Indenture dated as of October 3, 1980, and a Second
Supplemental Indenture dated as of December 12, 1984, and with
First Trust National Association as successor Trustee as of March
8, 1996, and a Third Supplemental Indenture dated as of December
31, 1997 (the "Indenture");
(b) the Registration Statement referred to above becoming effective;
(c) compliance with the terms and conditions of the Indenture with
respect to the creation, authentication and delivery of the
Debentures, the due execution by
<PAGE> 64
the Company and authentication and delivery by the Trustee of the
Debentures, and the sale thereof by the Company as contemplated in
the Registration Statement and in accordance with the above-
mentioned corporate and governmental authorizations,
The Debentures will constitute in the hands of the holders thereof
valid, binding and legal outstanding obligations of the Company, in accordance
with their terms, subject to applicable bankruptcy and insolvency laws.
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
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Statement of Eligibility Under the Trust Indenture Act of 1939
of a Corporation Designated to Act as Trustee
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE
PURSUANT TO SECTION 305(b)(2) ______
FIRST TRUST NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
91-1587893
(I.R.S. Employer Identification No.)
601 UNION STREET, SUITE 2120, SEATTLE, WA 98101
(Address of principal executive offices) (Zip code)
METROPOLITAN MORTGAGE & SECURITIES CO., INC.
(Exact name of obligor as specified in its charter)
WASHINGTON 91-0609840
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
929 WEST SPRAGUE AVENUE, SPOKANE, WA (509)838-3111 99201
(Address & phone no. of principal executive offices) (Zip code)
INVESTMENT DEBENTURES, SERIES III
(Title of the indenture securities)
<PAGE> 69
1. General information. Furnish the following information as to the
trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
Comptroller of the Currency, Washington D.C. 20521.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with the obligor. If the obligor is an affiliate of the
trustee, describe each such affiliation.
No such affiliation exists with the trustee, First Trust National
Association.
3. Voting securities of the trustee. Furnish the following information as
to each class of voting securities of the trustee:
<TABLE>
<CAPTION>
As of December 1, 1997
Col. A Col. B
Title of class Amount outstanding
______________ __________________
<S> <C>
Common Stock 1,000 Shares
</TABLE>
4. Trusteeships under other indentures. If the trustee is a trustee under
another indenture under which any other securities, or certificates of
interest or participation in any other securities, of the obligor are
outstanding, furnish the following information:
(a) Title of securities outstanding under each such other indenture:
None.
(b) A brief statement of the facts relied upon as a basis for the
claim that no conflicting interest within the meaning of Section
310(b)(1) of the Act arises as a result of the trusteeship under
any such other indenture, including a statement as to how the
<PAGE> 70
indenture securities will rank as compared with the securities issued
under such other indenture.
Not applicable.
5. Interlocking directories and similar relationships with the obligor or
underwriters. If the trustee or any of the directors or executive
officers of the trustee is a director, officer, partner, employee,
appointee, or representative of the obligor or of any underwriter for
the obligor, identify each such person having any such connection and
state the nature of each such connection.
None.
6. Voting securities of the trustee owned by the obligor or its officials.
Furnish the following information as to the voting securities of the
trustee owned beneficially by the obligor and each director, partner and
executive officer of the obligor:
<TABLE>
<CAPTION>
As of December 1, 1997
Col. A Col. B Col. C Col. D
Percentage of
voting
securities
represented by
Amount owned amount given
Name of owner Title of class beneficially in Col. C
_____________ ______________ ____________ ______________
<S> <C> <C> <C>
None.
</TABLE>
7. Voting securities of the trustee owned by underwriters or their
officials. Furnish the following information as to the voting
securities of the trustee owned beneficially by each underwriter for the
obligor and each director, partner and executive officer of each such
underwriter.
<TABLE>
<CAPTION>
As of December 1, 1997
Col. A Col. B Col. C Col. D
<PAGE> 71
Percentage of
voting
securities
represented by
Amount owned amount given
Name of owner Title of class beneficially in Col. C
_____________ ______________ ____________ ______________
<S> <C> <C> <C>
None.
</TABLE>
8. Securities of the obligor owned or held by the trustee. Furnish the
following information as to securities of the obligor owned beneficially
or held as collateral security for obligations in default by the
trustee:
<TABLE>
<CAPTION>
As of December 1, 1997
Col. A Col. B Col. C Col. D
Amount owned
beneficially
Whether the or held as Percentage of
securities are collateral class
voting or security for represented by
nonvoting obligations in amount given
Title of class securities default in Col. C
______________ ______________ ______________ ______________
<S> <C> <C> <C>
None.
</TABLE>
9. Securities of underwriters owned or held by the trustee. If the trustee
owns beneficially or holds as collateral security for obligations in
default any securities of an underwriter for the obligor, furnish the
following information as to each class of securities of such underwriter
any of which are so owned or held by the trustee.
<TABLE>
<CAPTION>
As of December 1, 1997
Col. A Col. B Col. C Col. D
Amount owned
beneficially
or held as
collateral Percentage of
security for class
Title of obligations in represented by
issuer and Amount default by amount given
title of class outstanding trustee in Col. C
______________ ______________ ______________ ______________
<S> <C> <C> <C>
None.
<PAGE> 72
</TABLE>
10. Ownership or holdings by the trustee of voting securities of certain
affiliates or security holders of the obligor. If the trustee owns
beneficially or holds as collateral security for obligations in default
voting securities of a person who, to the knowledge of the trustee (1)
owns 10% or more of the voting securities of the obligor or (2) is an
affiliate, other than a subsidiary, of the obligor, furnish the
following information as to the voting securities of such person.
<TABLE>
<CAPTION>
As of December 1, 1997
Col. A Col. B Col. C Col. D
Amount owned
beneficially
or held as
collateral Percentage of
security for class
Title of obligations in represented by
issuer and Amount default by amount given
title of class outstanding trustee in Col. C
______________ ______________ ______________ ______________
<S> <C> <C> <C>
None.
</TABLE>
11. Ownership or holdings by the trustee of any securities of a person
owning 50% or more of the voting securities of the obligor. If the
trustee owns beneficially or holds as collateral security for
obligations in default any securities of a person who, to the knowledge
of the trustee, owns 50% or more of the voting securities of the
obligor, furnish the following information as to each class of
securities of such person any of which are so owned or held by the
trustee.
<TABLE>
<CAPTION>
As of December 1, 1997
Col. A Col. B Col. C Col. D
Amount owned
beneficially
or held as
collateral Percentage of
security for class
Title of obligations in represented by
issuer and Amount default by amount given
title of class outstanding trustee in Col. C
<PAGE> 73
______________ ______________ ______________ ______________
<S> <C> <C> <C>
None.
</TABLE>
12. Indebtedness of the obligor to the trustee. Except as noted in the
instructions, if the obligor is indebted to the trustee, furnish the
following information:
<TABLE>
<CAPTION>
As of December 1, 1997
Col. A Col. B Col. C
Nature of indebtedness Amount outstanding Date due
______________________ __________________ ________
<S> <C> <C>
None.
</TABLE>
13. Defaults by the obligor.
(a) State whether there is or has been a default with respect to the
securities under this indenture. Explain the nature of any such
default.
Not applicable.
(b) If the trustee is a trustee under another indenture under which
any other securities, or certificates of interest or participation
in any other securities, of the obligor are outstanding, or is
trustee for more than one outstanding series of securities under
the indenture, state whether there has been a default under any
such indenture or series, identify the indenture or series
affected, and explain the nature of any such default.
Not applicable.
14. Affiliations with the underwriters. If any underwriter is an affiliate
of the trustee, describe each such affiliation.
None.
15. Foreign trustee. Identify the order or rule pursuant to which the
foreign trustee is authorized to act as sole trustee under indentures
qualified or to be qualified under the Act.
Not applicable.
<PAGE> 74
16. List of exhibits. List below all exhibits filed as part of this
statement of eligibility and qualification.
1. Articles of association of First Trust National Association
(attached).
2. Certificate of authority of First Trust National Association to
commence business (attached).
3. Authorization of the trustee to exercise corporate trust powers
(attached).
4. Bylaws of First Trust National Association (attached).
5. Not applicable.
6. Consent of First Trust National Association required by Section
321(b) of the Act (attached).
7. Latest report of condition of First Trust National Association
(attached).
8. Not applicable.
9. Not applicable.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, First Trust National Association, a national banking association
organized under the laws of the United States, has duly caused this statement
of eligibility and qualification to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Seattle, and State
of Washington, on the 1st day of December, 1997.
FIRST TRUST NATIONAL ASSOCIATION
/s/ D. Huhta
By____________________________________
