<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended September 30, 1993.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________ to ________
Commission file number 33-36775.
SUMMIT SECURITIES, INC.
(Exact name of registrant as specified in its charter)
IDAHO 82-0438135
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
WEST 929 SPRAGUE AVENUE, SPOKANE, WASHINGTON 99204
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (509)838-3111
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X
No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [x]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant: Not Applicable
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of September 30, 1993
Single Class: 20,000
Documents incorporated by reference: None.
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PART I
BUSINESS
General
Summit Securities, Inc. (the Company) was incorporated under the
laws of the State of Idaho on July 25, 1990. The Company is a wholly
owned subsidiary of Metropolitan Mortgage & Securities Co., Inc., a
Washington corporation (Metropolitan). The Company's business
activities consist primarily of investment of the net proceeds of the
public sale of its debt securities ("Investment Certificates") and
Preferred Stock in Receivables or other investments which could be
expected to generate returns higher than the Company's cost of its
capital. There are no preestablished standards by which such
investment determinations are to be made. The Company's business also
involves the servicing of its investments and other functions related
to such activity. The Company may also engage in other businesses or
activities without restriction in accordance with the provisions of its
Articles of Incorporation.
Employees
As of September 30, 1993, the Company's personnel consisted of its
officers and directors, See "Management", an accountant and an
attorney. Each of those individuals are also employed by Metropolitan.
It is anticipated that they will continue to devote substantially all
of their time to their duties related to their respective positions
with Metropolitan and its other affiliates subject to the necessary
commitment of time to ensure that the Company fulfills its obligations
to Preferred shareholders and its duties under the Indenture pursuant
to which it issues Investment Certificates and such other duties and
responsibilities as the Company may undertake in the conduct of its
business or as may be required by law. No additional employees are
expected to be necessary or hired during the foreseeable future.
Properties
The Company owns various repossessed properties held for sale. At
September 30, 1993, two properties, acquired in satisfaction of debt,
with a combined carrying amount of approximately $61,000 were held.
The Company rents office space consisting of approximately 200 square
feet from an affiliate, at 1000 Hubbard, Coeur d'Alene, Idaho. The
rental terms are month to month at $150 per month. The Company
believes such terms to be at least as fair as those which could have
been obtained from unaffiliated third parties.
Investment In Real Estate Receivables
Receivables include contracts for the sale of real estate and
promissory notes secured by mortgages or deeds of trust on primarily
single-family residential real estate including timeshares. The
Company invests in Receivables that meet its yield requirements (as
established from time to time by its Board of Directors) and its
investment guidelines as funds become available to it from the sale of
its securities to the public. The Company's yield requirements are
expected to fluctuate depending on real estate market conditions, its
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cost of investment capital, the rate of growth of the Company and its
operating expenses. During fiscal 1993 the average initial yield
requirement was 13.75% per annum while actual average yield was
approximately 2% to 3% over the Company's initial yield projections.
The Company's investment guidelines are substantially the same as
Metropolitan's as described below. To facilitate such investments, the
Company has contracted with Metropolitan to provide a non-exclusive
means for the acquisition of Receivables. The agreement with
Metropolitan effectively permits the Company to invest in Receivables
acquired by Metropolitan in the normal course of its business at
Metropolitan's cost with no underwriting fees charged to the Company
through September 30, 1993, although underwriting fees could be charged
in the future. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations". Structured as an option
agreement, it allows the Company to purchase those Receivables which
are in excess of Metropolitan's needs. Metropolitan's Evaluation
Committee, the team of officers and employees which routinely
underwrites Metropolitan's Receivable investments, designates the
Receivables that are available to the Company for purchase. The
Company is under no obligation to purchase any specific amount or
number of such Receivables.
During fiscal 1993, the Company purchased, from an affiliate,
approximately $6.0 million of timeshare Receivables, of which
approximately $5.5 million were outstanding at September 30, 1993.
These Receivables were originated by another affiliate of Metropolitan
in connection with sales of its timeshare resort condominiums in
Hawaii. These Receivables have an approximate contractual interest
rate of 13% and were purchased at par from the affiliate. In
conjunction with the purchase, the Company withheld a 10% performance
holdback of $600,000 to cover any realized losses from these
Receivables. The holdback will be maintained at a balance of
approximately 10% of the outstanding timeshare Receivables and will be
released as principal is paid down. At September 30, 1993, the Company
held approximately $680,000 of delinquent timeshare contracts purchased
from the affiliate. The Company believes that the performance holdback
of $600,000 is adequate to cover any losses related to these certain
timeshare Receivables. At September 30, 1993, timeshare Receivables
represented approximately 27% of the total outstanding principal for
Receivables owned by the Company.
The supply of Receivables available for purchase has continued at
a relatively high level during the period since the Company's formation
and has not caused restrictions on such investments by the Company or
by Metropolitan. Accordingly, the Company is able to invest in
Receivables all of the funds available to it to the extent deemed
appropriate by the Company's management and the investment designations
made by Metropolitan's Evaluation Committee are based primarily on the
availability of such funds.
Metropolitan, through a subsidiary, has also contracted to provide
servicing for the Company's Receivables. The function of "servicing"
primarily involves the collection, application and remittance of
receipts; the maintenance of account records; and, as directed by the
Company when deemed necessary, the maintenance of foreclosure or other
legal action and the repossession or other disposition of properties
securing Receivables. The terms of the servicing contract provides
that Metropolitan will perform, on a non-exclusive basis, the servicing
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functions for all Receivables which the Company designates for a fee
equal to $6.00 per month for each Receivable. The Company is also
required to reimburse Metropolitan for its out-of-pocket expenses and
costs, including attorney fees, in the performance of collection and
foreclosure activities with respect to such Receivables. Management
believes that there would not be a material difference in the Company's
cost for such services if the servicing fee were structured as a
percentage of the unpaid balances of the serviced Receivables since the
fee, in either case, is based on an estimate of Metropolitan's actual
cost of providing the service.
The terms and conditions of the agreements with Metropolitan are
believed by management to be at least as favorable as those that could
be obtained from a non-affiliated third party. The agreements may be
terminated by either party upon a maximum of 90 days notice. No
assurance is made that the terms of these agreements will not be
modified in the future.
Metropolitan
The following discussion of Metropolitan's Receivable investment
activity is provided because the Company relies on Metropolitan's
resources and experience for its Receivable investments. Metropolitan
has been investing in Receivables for its own account for approximately
forty years. During the past ten years, it has expanded its Receivable
purchasing activity from the northwestern U.S. to the entire country to
avoid concentration of its investments in any particular state or
region. Metropolitan currently maintains twelve branch offices in
seven states in the continental U.S. supporting this activity. The
Receivable evaluation, underwriting, closing, collection and servicing
functions are performed at Metropolitan's headquarters in Spokane,
Washington. As of September 30, 1993, Metropolitan's consolidated
assets were $1,031,958,000, of which $562,440,000 were invested in
Receivables.
Sources of Receivables
Approximately 85% of Metropolitan's Receivables are acquired by it
through independent brokers around the country. These brokers
typically deal directly with individuals or organizations who wish to
sell a Receivable owned by them. These brokers contact one of
Metropolitan's offices to submit the Receivable for evaluation and
consideration by Metropolitan. In cases where a broker is not involved
in the transaction, Metropolitan is usually approached directly by a
prospective seller of a Receivable as a result of a referral or a
previous business contact. Metropolitan also actively seeks and
acquires portfolios of Receivables from banks, savings and loan
organizations, the Resolution Trust Corporation and the Federal Deposit
Insurance Corporation.
Yield and Discount Considerations
Metropolitan invests in Receivables at prices less than their
unpaid balances (i.e. at a discount). The difference between the
investment price and the unpaid balance is the "discount". The amount
of the discount will vary in any given transaction depending upon the
Receivable's characteristics and Metropolitan's yield requirements at
the time of purchase. Yield requirements are established in light of
<PAGE>
capital costs, market conditions, the characteristics of particular
classes or types of Receivables and the risk of default by the payor on
any given Receivable. The risk of default can be affected by changes
in general or local economic conditions, neighborhood values, the value
of the specific real estate collateral and by changes in zoning, land
use and environmental laws. Discounts originating at the time of
purchase, net of capitalized acquisition costs are amortized using the
level yield (interest) method. For contracts acquired after September
30, 1992, net purchase discounts are amortized on an individual
contract basis using the level yield method over the remaining
contractual term of the contract. For contracts acquired before October
1, 1992 discounted contracts are pooled by the fiscal year of purchase
and by similar contract types. The amortization period, which is
approximately 78 months, estimates a constant prepayment rate of 10-12
percent per year on scheduled payments, which is consistent with the
Company's prior experience with similar loans and Metropolitan's
expectations.
Management establishes the yield requirements for its Receivable
investments by assuming that all payments on the Receivables will be
paid as scheduled. During fiscal 1993, Metropolitan's average initial
yield requirement was 13.75%. However, to the extent that payments are
received earlier than anticipated by Metropolitan, the discount is
earned more quickly resulting in an increase in the yield. The
effective yield realized by Metropolitan as a result of actual
prepayments during the three year period ended September 30, 1993 was
2% to 3% over Metropolitan's initial yield projections.
Metropolitan can also experience greater effective yields through
negotiating amendments to the Receivable agreements. These amendments
may involve adjusting the interest rate and/or monthly payments,
extension of financing in lieu of a required balloon payment or other
adjustments in cases of delinquencies where the payor appears able to
resolve the delinquency. As a result of these amendments, the cash
flow may be maintained or accelerated, the latter of which increases
the yield realized on the Receivable.
Underwriting
When Metropolitan is offered a Receivable an initial study of the
terms of the Receivable, including any associated documents, is
performed by Metropolitan's underwriting and closing staff. If the
Receivable appears acceptable to Metropolitan, the purchase price for
the Receivable is calculated based on Metropolitan's yield requirements
at that time. If the broker and/or seller accepts the proposed
purchase price, a written agreement to purchase is executed, subject to
Metropolitan's full underwriting requirements. Metropolitan also
purchases "partial" interests in Receivables whereby it acquires the
right to receive a portion of the Receivable's balance, and where the
seller's right to the unsold portion of the Receivable is subordinated
to the interest acquired by Metropolitan. These "partials" generally
result in a reduced level of investment risk to Metropolitan than if
the entire Receivable cash flow is purchased.
The underwriting guidelines adopted by Metropolitan include a
requirement that the ratio of Metropolitan's investment in a Receivable
compared to the appraised value of the property which secures the
Receivable may not exceed 75% on Receivables secured by single family
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residences; and that the ratio of the investment to the property's
appraised value may not exceed 70% on Receivables secured by other
types of improved property; and 55% on unimproved raw land. These
higher than conventional investment to collateral ratios provide higher
than conventional levels of collateral to protect Metropolitan's
investment in the event of a default on a Receivable.
For each Receivable, a current market value appraisal of the real
estate providing security is obtained. These appraisals are obtained
through licensed independent appraisers or through one of
Metropolitan's licensed staff appraisers. These appraisals are based
on drive-by and comparative sales analysis. Each independent appraisal
is also subject to review by a staff appraiser. Metropolitan is
currently exploring the use of computerized appraisals.
Members of Metropolitan's Underwriting Committee review and
approve each Receivable prior to purchase. Additionally, every proposed
investment in a Receivable is evaluated by Metropolitan's demography
department utilizing computerized data which identifies local trends in
property values, personal income, population and other social and
economic indicators. Other underwriting functions may include
obtaining and evaluating credit reports on the Receivable payors;
evaluation of the potential for environmental risks; verifying payment
histories and current payment status; and obtaining title reports to
verify the record status of the Receivables and other matters of
record. Receivable investments which the Underwriting Committee
identifies for legal review are referred to Metropolitan's in-house
legal department which currently includes a staff of four attorneys.
All Receivable purchases which involve investments greater than
$150,000 ($100,000 or more if the real property collateral is other
than an owner-occupied single family residence) are submitted to an
additional special risk evaluation committee, are subject to legal
department review, and subject to the approval of Metropolitan's
president. In addition, transactions involving investments of more
than $500,000 are subject to approval by Metropolitan's Board of
Directors.
Upon completion of the underwriting process and the approval of
the investment, appropriate documents are executed by the seller and/or
broker transferring the Receivable to Metropolitan, and the transaction
is funded.
Management believes that the underwriting functions that are
employed in its Receivable investment activity are as thorough as
reasonably possible considering the nature of Metropolitan's business.
Metropolitan's Receivable acquisition business should be distinguished
from the conventional mortgage lending business which involves
substantial first-hand contact by lenders with each borrower and the
ability to obtain an interior inspection appraisal prior to granting a
loan.
Management continually monitors branch office activity as well as
economic and demographic conditions in all areas of the country in
order to avoid a concentration of its Receivable investments in those
areas in economic decline which could result in higher default rates
and subsequent investment losses.
<PAGE>
Additional Information Regarding Summit
The Company's investments in Receivables are secured by first or
second liens primarily on single family residential property (including
residential timeshare units). The Company believes that these
Receivables present lower credit risks than a portfolio of mortgages
secured by commercial property or raw land, and that much of the risk
in the portfolio is dissipated by the large numbers of relatively small
individual Receivables and their geographic dispersion.
The following table presents information about the Company's
investments in Receivables as of September 30, 1993 and 1992:
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Face value of discounted
receivables $14,416,037 $12,108,904
Face value of originated
and non-discounted
receivables 6,285,706 398,999
Unrealized discounts,
net of amortized
acquisition costs (1,076,488) (1,116,522)
Allowance for losses (96,654) (59,244)
Performance Holdback on
Receivable Purchase (600,000)
Accrued interest
receivable 598,624 264,593
----------- -----------
Carrying value $19,527,225 $11,596,730
=========== ===========
</TABLE>
Approximately 67% of the Company's investments in Receivables are
in first lien position Receivables with the balance in second lien
positions. The Receivables are secured by residential, timeshare,
business and commercial properties with residential and timeshare
properties securing approximately 90% of such investments. The
Receivables acquired by the Company for investment purposes are
generated primarily by private individuals or businesses and are
therefore not government insured loans.
<PAGE>
The Company's receivable investments at September 30, 1993 were
secured by properties located throughout the United States with not
more than 3% (by dollar amount) in any single state except as follows:
Arizona . . . . . . 8%
California . . . . 9%
Hawaii . . . . . . 27%
Oregon . . . . . . 6%
Texas . . . . . . . 6%
Washington . . . . 14%
The Company held 1,231 Receivables as of September 30, 1993. The
average stated interest rate (weighted by principal balances) on
Receivables held by the Company on that date was approximately 10.0%.
See Note 2, to Financial Statements.
Delinquency Experience & Collection Procedures
The principal amount of Receivables held by the Company (as a
percentage of the total outstanding principal amount of Receivables)
which was in arrears for more than ninety days at September 30, 1993
was 8.0% as compared to 4.2% at September 30, 1992 and .6% at September
30, 1991. The increase in the amount for September 30, 1993 includes
approximately $680,000 of timeshare contracts purchased from an
affiliate. The Company has a performance holdback of $600,000 to cover
any losses related to certain contracts including these Receivables.
Because Receivables purchased by the Company are typically not of the
same quality as mortgages that are subsequently securitized and sold in
the secondary market with government guarantees, higher delinquency
rates are expected. However, because these Receivables are purchased
at a discount, losses on sales after repossession are generally lower
than might otherwise be expected given these higher delinquency rates.
Management believes that the Company's credit experience is within
expectations, given the yields obtained on the performing Receivables.
Payors of the Receivables which become delinquent are initially
contacted by telephone. If the default is not promptly cured then
additional collection activity, including written correspondence and
further telephone contact, is pursued. If these collection procedures
are unsuccessful then foreclosure proceedings (either judicial or
non-judicial) are generally initiated within approximately ninety days
after the initial default. Collection activity may also involve the
initiation of legal proceedings against the payor of the Receivable to
recover past due payments. If accounts are reinstated prior to
completion of the action then attorney fees, costs, expenses and late
charges are generally collected from the payor as a condition of the
reinstatement.
Allowance for Losses on Real Estate Assets
The Company establishes an allowance for losses on Receivables
based on an evaluation of delinquent Receivables. During 1992, the
Company adopted an appraisal policy to require annual appraisals on
properties securing delinquent receivables when the Receivable balances
exceed a threshold equal to 1/2% of total assets of the Company.
Biannual appraisals are required on all other delinquent Receivables
with balances in excess of $50,000. The allowance for losses was .5%,
of the face value of Receivables at September 30, 1993, 1992 and 1991.
<PAGE>
Method of Financing
The Company's continued growth is expected to depend on its
ability to market its securities to the public and to invest the
proceeds in higher-yielding investments. Financing needs are intended
to be met primarily by the sale of its Investment Certificates and
Preferred Stock. Such funds may be supplemented by short term bank
financing and borrowing from affiliates. As of the date of this
document the Company had not established any formal lines of credit
with banks or other lending institutions.
The availability of Receivables offered for investment in the
national market is believed by management to be adequate to meet the
needs of the Company which are in addition to the needs of
Metropolitan.
Competition
The Company's ability to compete for Receivable investments is
currently dependent upon its parent company. Metropolitan competes
with various real estate financing firms, real estate brokers, banks
and individual investors for the Receivables it acquires. The largest
single competitors are subsidiaries of much larger companies such as
Chrysler Financial and Fleet Mortgage while the largest number of
competitors are a multitude of individual investors. The primary
competitive factors are the amounts offered and paid to Receivable
sellers and the speed with which the processing and funding of the
transaction can be completed. Competitive advantages enjoyed by
Metropolitan include its branch office system which allows it access to
markets throughout the country; its ability to purchase long-term
Receivables; availability of funds; its reputation for reliability
established by its long history in the business; and its in-house
capabilities for processing and funding transactions. Competitive
disadvantages include the length of time required to process and fund
approved transactions (up to thirty days); an investment policy which
excludes purchases of Receivables which involve discounts of less than
$3,500; and relatively high yield requirements.
Management is unaware of any competitors with acquisition networks
and Receivable investment portfolios comparable to Metropolitan's and
believes Metropolitan to be one of the largest purchasers of such
Receivables in the United States. Marketing research performed by
Metropolitan indicates that it has approximately 6% to 8% of the
national secondary market for seller-financed real estate Receivables.
Management does not anticipate that the Company will compete directly
in the marketplace for Receivables for the foreseeable future but will
continue to be dependent on Metropolitan's activity in the field.
<PAGE>
MANAGEMENT
Directors and Executive Officers
(As of December 31, 1993)
Name Age Position
C. Paul Sandifur, Sr. 90 Chairman of the Board
C. Paul Sandifur, Jr. 52 President, Director and Chief
Executive Officer
Alton Cogert 39 Assistant Vice President and
Chief Financial Officer
Irv Marcus 69 Sr. Vice President
Reuel Swanson 55 Secretary and Director
Michael Barcelo 43 Treasurer
C. PAUL SANDIFUR, SR. has been engaged in real estate financing,
insurance and other businesses for more than fifty years. He was one
of the founders of Summit's parent corporation, Metropolitan, in 1953.
He is the Chairman of the Board of Metropolitan. C. Paul Sandifur, Jr.
is his son.
C. PAUL SANDIFUR, JR. is the Chief Executive Officer of
Metropolitan and Summit. He has been President of Metropolitan since
1981 and has served as a Director of that company since 1975. He has
been a licensed real estate broker in the State of Washington since
1978. Mr. Sandifur also serves as President of Metropolitan Investment
Securities, Inc.
ALTON COGERT joined Metropolitan as Chief Financial Officer in
January 1991. From 1988 through 1991, he was Manager, Financial
Forecasting for Washington Mutual Savings Bank. From 1984 through
1988, he was Chief Financial Officer for CU Bancorp (formerly Lincoln
Bancorp). He is a CPA with a BS from the Wharton School of the
University of Pennsylvania and a MBA from the University of Southern
California. Mr. Cogert obtained his CFA (Chartered Financial Analyst)
designation in 1991. Mr. Cogert was designated Summit's Assistant Vice
President and Chief Financial officer in January 1992.
IRV MARCUS has served as a Vice President and Director of
Metropolitan since 1974. He supervises Metropolitan's and Summits's
real estate financing operations. He became an officer of Summit in
1991.
REUEL SWANSON has been employed continuously by Metropolitan since
1960 and has been a Director since 1969. From 1976 he has served as
Metropolitan's Secretary; and from 1976-1993 he also served as
Metropolitan's Treasurer. Mr. Swanson is also Secretary-Treasurer of
Metropolitan Investment Securities, Inc. He was Secretary/Treasurer
and a Director of Summit from 1990 to August, 1993. From August, 1993
to the present, he is Secretary and Director of Summit.
MICHAEL BARCELO joined Metropolitan in August of 1992, as
<PAGE>
Portfolio Manager and was promoted to Treasurer of Metropolitan and
Summit in August of 1993. Mr. Barcelo has over 12 years of experience
in managing investment portfolios and treasury functions which he
acquired at Pacific First Bank, Great Western Federal Savings Bank and
Washington Mutual Savings Bank. Mr. Barcelo received a B.A. in
Economics in 1974 and a C.F.A. (Chartered Financial Analyst)
designation in 1992.
The directors of the Company are elected for one-year terms at
annual shareholder meetings. The officers of the Company serve at the
direction of the Board of Directors.
The Company's officers and directors will continue to hold their
respective positions with Metropolitan and do not anticipate that their
responsibilities with the Company will involve a significant amount of
time. They will, however, devote such time to the business and affairs
of the Company as may be necessary for the proper discharge of their
duties.
EXECUTIVE COMPENSATION
The officers and directors do not receive any compensation for
services rendered on behalf of the Company but they are entitled to
reimbursement for any expenses incurred in the performance of such
services. Such expenses include only items such as travel expense
incurred for attendance at corporate meetings or other business. No
such expenses have been incurred to date.
INDEMNIFICATION
The Company's Articles of Incorporation provide for
indemnification of the Company's directors, officers and employees for
expenses and other amounts reasonably required to be paid in connection
with any civil or criminal proceedings brought against such persons by
reason of their service of or position with the Company 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 duties in the conduct of his office. Such right of
indemnification is not exclusive of any other rights that may be
provided by contract of other agreement or provision of law.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to the Company's officers,
directors or controlling persons pursuant to the foregoing provisions,
the Company 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>
PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to the
beneficial owners of more than five percent of Summit's voting stock as
of September 30, 1993.
<TABLE>
<CAPTION>
SHARES OF
NAME AND ADDRESS COMMON STOCK % OF CLASS
<S> <C> <C>
Metropolitan Mortgage &
Securities Co., Inc. 20,000 100%
W. 929 Sprague Ave.,
Spokane, Washington
</TABLE>
CERTAIN TRANSACTIONS
C. Paul Sandifur, Sr., C. Paul Sandifur, Jr. and Reuel Swanson,
directors and officers of the Company, and Irv Marcus, Alton Cogert and
Michael Barcelo, officers of the Company, are also directors and/or
officers of Metropolitan. Metropolitan is a closely-held corporation in
which approximately 71% of the outstanding voting common stock is owned
or controlled by C. Paul Sandifur, Jr. and approximately 5% is owned by
C. Paul Sandifur, Sr. See also "Management".
Inter-company transactions between Metropolitan and the Company
take place in the normal course of the Company's business. Such
transactions include rental of office space, provision of
administrative and data processing support, accounting and legal
services and similar matters. Receivable acquisition and servicing
agreements have been entered into between the Company and Metropolitan
and are summarized under "Business". See Note 7, Financial Statements,
for additional information. The Company believes that such
transactions are or will be made on terms at least as favorable as
could be obtained from non-affiliated parties.
Metropolitan Investment Securities, Inc. (MIS) is a securities
broker-dealer which is wholly-owned by Metropolitan. MIS is currently
the exclusive selling agent for securities issued by Metropolitan and
its affiliates, including the Company's Investment Certificates. The
Company has entered into Selling Agreements with MIS to provide for the
sale of the Certificates and Preferred Stock pursuant to which MIS will
be paid commissions ranging from .25% to 5% of the investment amount in
each transaction. During the fiscal year ended September 30, 1993, the
Company paid or accrued commissions to MIS in the amount of $276,060
upon the sale of $9,677,843 of Certificates (there were no Preferred
Stock sales in prior years). MIS also maintains, on behalf of the
Company, certain investor files and information pertaining to
investments in the Company's Certificates.
The Company's parent company and C. Paul Sandifur, Jr. are
currently negotiating a reorganization which would involve the sale of
Summit to C. Paul Sandifur, Jr. to be followed by the sale of Old
Standard (an insurance subsidiary of Metropolitan) to Summit. The
Company considers this reorganization to be in its best interest due to
regulatory considerations and other business considerations. The sale
prices are expected to be established through an independent appraisal
<PAGE>
of the subsidiary company's values and the transaction will be subject
to approval by the Company's Board of Directors.
<PAGE>
PART I (cont.)
Item 2. Properties.
See Item 1.
Item 3. Legal Proceedings.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.
(a) There is no market for the registrant's common stock.
(b) There was one Common stockholder at September 30, 1993.
(c) See "Item 6. Selected Financial Data."
<PAGE>
Item 6. Selected Financial Data
The financial data shown below as of and for the years ended
September 30, 1993, 1992, 1991 and for the period July 25, 1990 (date
of incorporation) through September 30, 1990 have been derived from,
and should be read in conjunction with, the Company's financial
statements and related notes appearing elsewhere herein. The financial
statements as of and for the year ended September 30, 1993 have been
audited by Coopers & Lybrand. The financial statements as of and for
the years ended September 30, 1992 and 1991 and for the period July 25,
1990 (date of incorporation) through September 30, 1990 have been
audited by BDO Seidman.
<TABLE>
<CAPTION>
July 25, 1990
(Date of
Year Ended Year Ended Year Ended Incorporation)
September 30, September 30, September 30, Through
September 30,
1993 1992 1991 1990
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues $2,815,624 $ 2,435,843 $1,026,405 $ 8,229
========== =========== ========== ==========
Income before
extraordinary item 283,107 $ 611,595 $ 238,205 $ 5,345
Extraordinary item (1) --- 49,772 -- --
---------- ---------- ---------- ----------
Net Income 283,107 $ 661,367 $ 238,205 $ 5,345
========== ========== ========== ==========
Weighted average number
of common shares
outstanding 20,000 20,000 20,000 20,000
Per Common Share Data:
Income before
extraordinary
item $ 14.15 $ 30.58 $ 11.91 $ .27
Extraordinary item -- 2.49 -- --
---------- ----------- ---------- ----------
Net income $ 14.15 $ 33.07 $ 11.91 $ .27
========== =========== ========== ==========
BALANCE SHEET DATA:
Due from/(to) Parent
Company, net $ 1,710,743 $ (400,365) $(5,528,617) $ (22,010)
Total Assets 25,441,605 $17,696,628 $16,718,823 $2,027,355
Debt Securities
and Other
Debt Payable $21,982,078 $14,289,648 $ 8,451,106 --
Stockholder's Equity $3,188,024 $ 2,904,917 $ 2,243,550 $2,005,345
<FN>
(1) Benefit from utilization of net operating loss carryforwards.
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Revenues of the Company increased to $2.8 million in 1993 from
$2.4 million in 1992 and $1.0 million in 1991. The growth from 1992 to
1993 is attributable primarily to increased investment earnings on
additional outstanding Receivables and increased revenues associated
with the sale of repossessed property. The growth from 1991 to 1992
was almost entirely attributable to increased investment earnings on
additional outstanding Receivables. The Company has increased its
investment in Receivables from $8.2 million at September 30, 1991 to
$11.6 million at September 30, 1992 to $19.5 million at September 30,
1993.
The Company continued to realize net income from operations during
1993. Net income for the fiscal year ended September 30, 1993 was
$283,000 compared to $661,000 in 1992 and $238,000 in 1991. The 1993
decrease in net income is attributable to a reduced spread between
interest sensitive income and interest sensitive expense along with
increased operating expenses associated with the increased volume of
Certificate sales, Receivable investments and real estate held for
sale. The 1992 increase in net income is attributable to an increased
spread between interest sensitive income and interest sensitive expense
along with increased operating expenses associated with the increased
volume of Certificate sales, Receivable investments and real estate
held for sale.
The Company, during 1993, experienced a slight increase in the
loss from sale of real estate repossessions and also increased its
provision for losses on Receivables.
Since the date of its incorporation, the Company has benefitted
from a declining interest rate environment with lower money costs and
relatively consistent yields on Receivables acquired through
Metropolitan. In addition, a declining rate environment has positively
impacted earnings by increasing the value of the portfolio of
predominantly fixed rate Receivables. Higher than normal prepayments
in the Receivable portfolio were experienced during 1993 and 1992,
allowing the Company to recognize unamortized discounts on Receivables
at an accelerated rate. It is anticipated that Metropolitan may begin
charging the Company underwriting fees associated with Receivables
acquired from Metropolitan. Management anticipates that any such
underwriting fee that may be charged by Metropolitan in the future will
result in a slightly lower yield over the life of the Receivables.
Management is unable to predict the specific impact of any such
underwriting fee because no specific fee has been proposed or suggested
to date. See "Business-Investment in Real Estate Receivables."
Maintaining efficient collection procedures and minimizing
delinquencies in the Company's Receivable portfolio are ongoing
management goals. During 1993, the Company experienced a loss on sale
of repossessed real estate of $18,400. Management believes that yields
received on Receivables, which currently range from 12-15%
(approximately 6-9% in excess of the Treasury, or risk-free, rate),
will more than compensate the Company for such risk of loss.
<PAGE>
In April 1992, the Accounting Standards Division of the American
Institute of Certified Public Accountants issued Statement of Position
(SOP) No. 92-3, "Accounting for Foreclosed Assets," which provides
guidance on determining the accounting treatment for foreclosed assets.
SOP 92-3 requires that foreclosed assets be carried at the lower of (a)
fair value minus estimated costs to sell, or (b) cost. The Company
applied the provisions of SOP 92-3 effective October 1, 1992. The
initial charge for its application is estimated to be approximately
$10,000, before the application of related income taxes, and is
included in continuing operations in 1993.
Interest Sensitive Income and Expense
Management continually monitors the interest sensitive income and
expense of the Company. Interest sensitive expense is predominantly
the interest costs of Investment Certificates, while interest sensitive
income includes interest on Receivables, earned discount on
Receivables, dividends and other investment income.
The spread between interest sensitive income and interest
sensitive expense was $362,300 in 1991, $925,300 in 1992 and $695,600
in 1993. The decrease from 1992 to 1993 of approximately $230,000 was
the result of management's decision to accumulate cash to fund a
contract purchase commitment in excess of $7 million from an affiliate
in December 1992. Also, the Company recognized $366,935 of dividend
income (13% dividend rate) from its preferred stock investment in its
affiliate in 1992 and paid interest to its parent company at prime plus
1 1/2% on the borrowings used to finance the purchase of the preferred
stock. In March 1992, the Company transferred the preferred stock to
Metropolitan in full satisfaction of the $6 million payable. Therefore,
there were no dividends received by the Company in fiscal 1993 on the
preferred stock. See Note 7 to Financial Statements.
Other Income
Other income increased from approximately $500 in 1991 to $16,600
in 1992 to $42,700 in 1993. Other income is predominantly
miscellaneous fees and charges related to Receivables, thus its growth
is primarily due to the growth in Receivables.
Other Expenses
Operating expenses increased from approximately $100,600 in 1991
to $178,300 in 1992 to $244,600 in 1993 largely due to the increased
volume of Investment Certificate sales and Receivable investments.
Provision for Losses on Real Estate Receivables
The provision for losses on Receivables has increased as the size
of the portfolio of Receivables has grown. The following table
summarizes the Company's allowance for losses on Receivables:
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Beginning Balance $59,244 $50,000 $ -
Provision 15,000 18,762 50,000
<PAGE>
(Charge-offs)
/Recoveries,net 22,410 ( 9,518) -
------- ------- -------
Ending Balance $96,654 $59,244 $50,000
======= ======= =======
<FN>
These allowances are in addition to unamortized purchase discounts of
$1.1 million in 1993, 1992 and 1991.
</TABLE>
Gain/Loss on Real Estate Sold
During 1993, the Company experienced a loss on the sale of real
estate of approximately $18,400. At the end of fiscal 1993, the
Company had $61,000 in real estate held for sale, less than 1% of total
real estate assets.
Effect of Inflation
During the three year period ended September 30, 1993, inflation
has had a generally positive impact on the Company's operations. This
impact has primarily been indirect in that the level of inflation tends
to influence inflation expectations, which tends to impact interest
rates on both Company assets and liabilities. Thus, with lower
inflation rates over the past three years, interest rates have been
generally declining during this period, which has reduced the Company's
cost of funds. Interest rates on Receivables acquired, due to their
nature, have not declined to the same extent as the cost of the
Company's borrowings. In addition, inflation has not had a material
effect on the Company's operating expenses. The main reason for the
increase in operating expenses has been an increase in the number of
Receivables acquired and serviced and increased sales of Investment
Certificates.
Revenues from real estate sold are influenced in part by
inflation, as, historically, real estate values have fluctuated with
the rate of inflation. However, the Company is unable to quantify the
effect of inflation in this respect.
Asset/Liability Management
As most of the Company's assets and liabilities are financial in
nature, the Company is subject to interest rate risk. Currently, the
Company's financial assets (primarily Receivables and fixed income
investments) reprice faster than its financial liabilities (primarily
Investment Certificates). In a rising rate environment, this will tend
to increase earnings, while in a falling rate environment, earnings
will decrease. However, yields on Receivables have not been as
sensitive to rate fluctuations as have Investment Certificate rates.
During fiscal 1994, approximately $5.8 million of interest
sensitive assets (cash and Receivables) are expected to reprice or
mature.
For liabilities, approximately $2.0 million of Investment
Certificates will mature during fiscal 1994, along with about $5,000 of
other debt payable.
These estimates result in a one year interest rate mismatch
<PAGE>
(interest sensitive assets less interest sensitive liabilities) of
approximately $3.8 million, or a ratio of interest sensitive assets to
interest sensitive liabilities of approximately 290%.
New Accounting Rules
In the fourth quarter of fiscal 1993, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS No. 109), retroactive to October 1,
1992 and resulted in no significant affect on the Company's financial
position. SFAS No. 109 requires a company to recognize deferred tax
assets and liabilities for the expected future income tax consequences
of events that have been recognized in a company's financial
statements. Under this method, deferred tax liabilities and assets are
determined based on the temporary differences between the financial
statement carrying amounts and tax bases of assets and liabilities
using enacted tax rates in effect in the years in which the temporary
differences are expected to reverse. In 1992 and 1991, the Company
accounted for income taxes as required by Accounting Principles Board
Opinion No. 11. See Note 1 to Financial Statements.
In May, 1993, Statement of Financial Accounting Standards No. 114
(SFAS No. 114) "Accounting by Creditors for Impairment of a Loan" was
issued. SFAS No. 114 requires that certain impaired loans be measured
based on the present value of expected future cash flows discounted at
the loans' effective interest rate or the fair value of the collateral.
The Company is required to adopt this new standard by October 1, 1995.
The Company does not anticipate that the adoption of SFAS No. 114 will
have a material effect on the financial statements.
In December 1991, Statement of Financial Accounting Standards No.
107 (SFAS No. 107), "Disclosures about Fair Value of Financial
Instruments," was issued. SFAS No. 107 requires disclosures of fair
value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to
estimate that value. SFAS No. 107 is effective for financial statements
issued for fiscal years ending after December 31, 1995 (Summit's fiscal
year ending September 30, 1996) for entities with less than $150
million in total assets. This pronouncement does not change any
requirements for recognition, measurement or classification of
financial instruments in the Company's financial statements.
Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" and SFAS
No. 112 "Employers' Accounting for Postretirement Benefits" are not
applicable because the Company maintains no programs designed to
provide employees with post-retirement or post-employment benefits.
Liquidity and Capital Resources
As a financial institution, the Company's liquidity is largely
tied to its ability to renew, maintain or obtain additional sources of
cash. The Company has successfully performed this task during the past
three years and has continued to invest funds generated by operations
and financing activities.
The Company has continued to generate cash from operations with
net cash provided of $1.4 million in 1993; $1.4 million in 1992; and
<PAGE>
$.5 million in 1991. Cash utilized by the Company in its investing
activities increased to $9.2 million in 1993 from $2.6 million in 1992
and $14.1 million in 1991. Cash provided by the Company's financing
activities was $5.8 million in 1993 compared to $5.0 million in 1992
and $13.4 million in 1991. These cash flows have resulted in year end
cash and cash equivalent balances of $3.6 million in 1993; $5.6 million
in 1992; and $1.8 million in 1991. Management considers the cash
balance at September 30, 1993 of $3.6 million to be adequate to finance
any required debt retirements or planned asset additions.
During 1993, the $2.1 million decrease in cash and cash
equivalents resulted from cash provided by operating activities of $1.4
million less cash used in investing activities of $9.2 million plus
cash provided by financing activities of $5.7 million. Cash from
operating activities resulted primarily from net income of $.3 million
and the increase in compound and accrued interest on Investment
Certificates of $1.0 million. Cash used in investing activities
primarily included: (1) acquisition of real estate Receivables net of
payments and sales, of $7.6 million; and (2) an advance to its parent
company of $1.7 million for the purchase of Receivables. Cash provided
by financing activities included: (1) issuance of Investment
Certificates, net of repayments and related debt issue costs, of $7.0
million; less (2) repayment of amounts due its parent of $.4 million;
and (3) repayment to banks and others of $.9 million.
The Company's investing activities during 1993 were supported by
cash from operations and external financing. The Company's increases
in Receivables were primarily funded by sales of Investment
Certificates. During 1992, the $3.9 million increase in cash and cash
equivalents resulted from cash provided by operating activities of $1.4
million less cash used in investing activities of $2.5 million plus
cash provided by financing activities of $5.0 million. Cash from
operating activities resulted primarily from net income of $.7 million
and the increase in compound and accrued interest on Investment
Certificates of $.7 million. Cash used in investing activities
primarily included the acquisition of real estate Receivables net of
payments and sales, of $3.0 million less $.5 million advance repaid by
its parent. Cash provided by financing activities included: (1)
issuance of Investment Certificates, net of repayments and related debt
issue costs, of $4.7 million; (2) borrowings from its parent of $.4
million; less (3) repayment to banks and others of $.1 million.
Thus, during 1992, the Company's investing activities were
supported by internal cash from operations and external cash from
financing. The Company's increases in Receivables were primarily
funded by sales of Investment Certificates.
During 1991, the $.2 million decrease in cash and cash equivalents
resulted from cash provided by operating activities of $.5 million less
cash used in investing activities of $14.1 million plus cash provided
by financing activities of $13.4 million. Cash from operating
activities resulted primarily from net income of $.2 million and the
increase in compound and accrued interest on Investment Certificates of
$.2 million. Cash used in investing activities primarily included the
acquisition of real estate Receivables net of payments, of $7.7
million, while the total advanced to or invested in affiliates was $6.5
million. Cash provided by financing activities included: (1) issuance
of Investment Certificates, net of repayments and related debt issue
<PAGE>
costs, of $7.4 million; and (2) borrowings from parent of $6.0 million.
Thus, during 1991 as in 1992 and 1993, the Company's investing
activities were supported by internal cash from operations and external
cash from financing. The Company's increases in Receivables were
primarily funded by sales of Investment Certificates.
Management believes that cash flow from operating activities and
financing activities will be sufficient for the Company to conduct its
business and meet its anticipated obligations as they mature during
fiscal 1994. The Company has not defaulted on any of its obligations
since its founding in 1990.
<PAGE>
Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1993, 1992 AND 1991
Page
Reports of Independent Certified
Public Accountants...................................
Balance Sheets..........................................
Statements of Income....................................
Statements of Stockholder's Equity......................
Statements of Cash Flows................................
Notes to Financial Statements...........................
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Directors and Stockholder
Summit Securities, Inc.
We have audited the accompanying balance sheet of Summit
Securities, Inc. (a wholly-owned subsidiary of Metropolitan Mortgage &
Securities Co., Inc.) as of September 30, 1993, and the related
statements of income, stockholder's equity and cash flows for the year
then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Summit
Securities, Inc. as of September 30, 1993 and the results of its
operations and its cash flows for the year then ended in conformity
with generally accepted accounting principles.
As discussed in Note 1, the Company changed its methods of
accounting for repossessed real property and income taxes in 1993.
/S/ COOPERS & LYBRAND
COOPERS & LYBRAND
Spokane, Washington
December 13, 1993
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
Summit Securities, Inc.
We have audited the accompanying balance sheet of Summit Securities,
Inc. (a wholly-owned subsidiary of Metropolitan Mortgage & Securities
Co., Inc.) as of September 30, 1992 and the related statements of
income, stockholder's equity, and cash flows for each of the two years
in the period ended September 30, 1992. These financial statements are
the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Summit
Securities, Inc. at September 30, 1992, and the results of its
operations and its cash flows for each of the two years in the period
ended September 30, 1992, in conformity with generally accepted
accounting principles.
/s/ BDO Seidman
BDO SEIDMAN
Spokane, Washington
December 7, 1992
<PAGE>
SUMMIT SECURITIES, INC.
BALANCE SHEETS
September 30, 1993 and 1992
____________
<TABLE>
<CAPTION>
ASSETS 1993 1992
______ ______
<S> <C> <C>
Cash and cash equivalents $ 3,594,472 $ 5,647,202
Real estate contracts and mortgage
notes receivable, net
(Notes 2, 3 and 7) 19,527,225 11,596,730
Real estate held for sale (Note 3) 60,816 95,000
Deferred costs (Note 5) 524,376 342,650
Advances to parent and affiliated
companies (Note 7) 1,710,743
Other assets 23,973 15,046
------------- -------------
Total assets $ 25,441,605 $ 17,696,628
============= =============
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Investment certificates and accrued
interest (Note 4) $ 21,959,425 $ 13,622,634
Debt payable (Note 3) 22,653 667,014
Accounts payable and accrued expenses 49,353 25,398
Accrued income taxes due parent
company (Note 6) 222,150 76,300
Advances and note payable to parent
and affiliated companies (Note 7) 400,365
------------ -------------
Total liabilities 22,253,581 14,791,711
------------- -------------
Stockholder's equity:
Common stock, $10 par; 2,000,000
shares authorized; 20,000 shares
issued and outstanding 200,000 200,000
Additional paid-in capital 1,800,000 1,800,000
Retained earnings 1,188,024 904,917
------------- -------------
Total stockholder's equity 3,188,024 2,904,917
------------- -------------
Total liabilities and
stockholder's equity $ 25,441,605 $ 17,696,628
============= =============
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
SUMMIT SECURITIES, INC.
STATEMENTS OF INCOME
For the Years Ended September 30, 1993, 1992 and 1991
____________
<TABLE>
<CAPTION>
1993 1992 1991
______ ______ ______
<S> <C> <C> <C>
Revenues:
Interest on receivables $ 1,938,206 $ 1,319,825 $ 334,164
Dividends (Note 7) 366,935 390,000
Earned discount on receivables 428,482 542,047 118,531
Other investment interest 120,998 87,447 159,930
Real estate sales 280,500 103,000
Realized net gains on sales
of investment securities 4,724 23,320
Other income 42,714 16,589 460
----------- ----------- -----------
Total revenues 2,815,624 2,435,843 1,026,405
----------- ----------- -----------
Expenses:
Interest expense 1,792,059 1,390,968 640,318
Cost of real estate sold 298,900 108,256
Provision for losses on
real estate assets 51,012 18,762 50,000
Operating expenses (Note 7) 244,595 178,273 100,571
----------- ----------- -----------
Total expenses 2,386,566 1,696,259 790,889
----------- ----------- -----------
Income before income taxes and
extraordinary item 429,058 739,584 235,516
Income tax (provision) benefit
(Note 6) (145,951) (127,989) 2,689
----------- ----------- -----------
Income before extraordinary item 283,107 611,595 238,205
Extraordinary item - utilization
of net operating loss
carryforwards (Note 6) 49,772
----------- ----------- -----------
Net income $ 283,107 $ 661,367 $ 238,205
=========== =========== ===========
Net income per common share:
Before extraordinary item $ 14.15 $ 30.58 $ 11.91
Extraordinary item 2.49
----------- ----------- -----------
Net income per common share $ 14.15 $ 33.07 $ 11.91
=========== =========== ===========
Weighted average number of
shares of common stock
outstanding 20,000 20,000 20,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
SUMMIT SECURITIES, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
For the Years Ended September 30, 1993, 1992 and 1991
____________
<TABLE>
<CAPTION>
Additional
Common Paid-In Retained
Shares Stock Capital Earnings Total
______ ______ __________ ________ ________
<S> <C> <C> <C> <C> <C>
Balance, October 1, 1990 20,000 $200,000 $1,800,000 $ 5,345 $2,005,345
Net income 238,205 238,205
------ -------- ---------- ---------- ----------
Balance, September 30, 1991 20,000 200,000 1,800,000 243,550 2,243,550
Net income 661,367 661,367
------ -------- ---------- ---------- ----------
Balance, September 30, 1992 20,000 200,000 1,800,000 904,917 2,904,917
Net income 283,107 283,107
------ -------- ---------- ---------- ----------
Balance, September 30, 1993 20,000 $200,000 $1,800,000 $1,188,024 $3,188,024
====== ======== ========== ========== ==========
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
SUMMIT SECURITIES, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended September 30, 1993, 1992 and 1991
____________
<TABLE>
<CAPTION>
1993 1992 1991
______ ______ ______
<S> <C> <C> <C>
Operating activities:
Net income $ 283,107 $ 661,367 $ 238,205
Adjustments to reconcile net
income to net cash provided
by operating activities:
Gain on sale of investment
securities (4,724) (23,320)
Loss on sale of real estate 18,400 5,256
Provision for losses on
real estate assets 51,012 18,762 50,000
Amortization of deferred
costs 151,763 144,647 67,939
Changes in:
Compound and accrued
interest on investment
certificates
and debt payable 955,322 689,014 232,576
Accrued interest
receivable (175,460) (153,709) (110,884)
Accrued income taxes 145,850 76,300
Other 7,484 (19,054) 19,888
------------ ------------- ------------
Net cash provided by
operating activities 1,432,754 1,422,583 474,404
------------ ------------- ------------
Investing activities:
Investment in affiliate (6,000,000)
Advances to parent and
affiliated companies (1,710,743) (471,383)
Collection of advances to
parent company 471,383
Principal payments on real
estate contracts and
and mortgage notes receivable 8,083,497 2,245,740 92,144
Purchases of real estate
contracts and mortgage
notes receivable (15,667,120) (5,274,528) (7,760,198)
Proceeds from real estate sales 75,008 6,283
Additions to real estate held (24,155) (8,400)
Purchase of investment
securities (2,047,812) (5,630,039)
Proceeds from sale of
investment securities 2,052,187 5,653,359
------------ ------------ ------------
Net cash used in
investing activities (9,239,138) (2,559,522) (14,116,117)
------------ ------------- ------------
</TABLE>
<PAGE>
SUMMIT SECURITIES, INC.
STATEMENTS OF CASH FLOWS, Continued
For the Years Ended September 30, 1993, 1992 and 1991
____________
<TABLE>
<CAPTION>
1993 1992 1991
______ ______ ______
<S> <C> <C> <C>
Financing activities:
Repayment of amounts due to
parent company $ (400,365) $ (22,010)
Borrowings from parent company $ 400,365 6,000,000
Proceeds from investment
certificates 9,677,843 5,864,051 8,070,558
Repayments of investment
certificates (2,300,088) (903,226) (326,637)
Repayments to banks and others (890,247) (99,182) (30,184)
Debt issuance costs (333,489) (240,490) (295,620)
------------ ------------- ------------
Net cash provided by
financing activities 5,753,654 5,021,518 13,396,107
------------ ------------- ------------
Net increase (decrease) in
cash and cash
equivalents (2,052,730) 3,884,579 (245,606)
Cash and cash equivalents,
beginning of year 5,647,202 1,762,623 2,008,229
------------ ------------- ------------
Cash and cash equivalents,
end of year $ 3,594,472 $ 5,647,202 $ 1,762,623
============ ============= ============
<FN>
See Note 8 for supplemental cash flow information.
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
SUMMIT SECURITIES, INC.
NOTES TO FINANCIAL STATEMENTS
____________
1. Summary of Accounting Policies
Business
Summit Securities, Inc., d/b/a National Summit Securities, Inc. in
the states of New York and Ohio ("Summit" or "the Company"), a
wholly-owned subsidiary of Metropolitan Mortgage & Securities Co.,
Inc. ("Metropolitan") was incorporated on July 25, 1990. Summit
purchases contracts and mortgage notes collateralized by real
estate, with funds generated from the public issuance of debt
securities in the form of investment certificates, cash flow from
receivables and sales of real estate.
Cash and Cash Equivalents
For purposes of balance sheet classification and the statement of
cash flows, the Company considers all highly liquid debt
instruments purchased with a remaining maturity of three months or
less to be cash equivalents. Cash includes all balances on hand
and on deposit in banks and financial institutions. The Company
periodically evaluates the credit quality of its financial
institutions. Substantially all cash and cash equivalents are on
deposit with one financial institution and balances periodically
exceed the FDIC insurance limit.
Real Estate Contracts and Mortgage Notes Receivable
Real estate contracts and mortgage notes held for investment
purposes are carried at amortized cost. Discounts originating at
the time of purchase net of capitalized acquisition costs are
amortized using the level yield (interest) method. For contracts
acquired after September 30, 1992, net purchase discounts are
amortized on an individual contract basis using the level yield
method over the remaining contractual term of the contract. For
contracts acquired before October 1, 1992, the Company accounts
for its portfolio of discounted loans using anticipated prepayment
patterns to apply the level yield (interest) method of amortizing
discounts. Discounted contracts are pooled by the fiscal year of
purchase and by similar contract types. The amortization period,
which is approximately 78 months, estimates a constant prepayment
rate of 10-12 percent per year and scheduled payments, which is
consistent with the Company's prior experience with similar loans
and the Company's expectations.
<PAGE>
SUMMIT SECURITIES, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
____________
1. Summary of Accounting Policies, Continued
Real Estate Contracts and Mortgage Notes Receivable, Continued
In May 1993, Statement of Financial Accounting Standards No. 114
(SFAS No. 114), "Accounting by Creditors for Impairment of a
Loan," was issued. SFAS No. 114 requires that certain impaired
loans be measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate or the
fair value of the collateral. The Company is required to adopt
this new standard by October 1, 1995. The Company does not
anticipate that the adoption of SFAS No. 114 will have a material
effect on the financial statements.
Real Estate Held for Sale
Real estate is valued at the lower of cost or market. The Company
principally acquires real estate through foreclosure or
forfeiture. Cost is determined by the purchase price of the real
estate or, for real estate acquired by foreclosure, at the lower
of (a) the fair value of the property at date of foreclosure less
estimated selling costs, or (b) cost (unpaid contract carrying
value).
Profit on sales of real estate is recognized when the buyers'
initial and continuing investment is adequate to demonstrate that
(1) a commitment to fulfill the terms of the transaction exists,
(2) collectibility of the remaining sales price due is reasonably
assured, and (3) the Company maintains no continuing involvement
or obligation in relation to the property sold and transfers all
the risks and rewards of ownership to the buyer.
In April 1992, the Accounting Standards Division of the American
Institute of Certified Public Accountants issued Statement of
Position (SOP) No. 92-3, "Accounting for Foreclosed Assets," which
provides guidance on determining the accounting treatment of
foreclosed assets. SOP 92-3 requires that foreclosed assets be
carried at the lower of (a) fair value minus estimated costs to
sell, or (b) cost. The Company applied the provisions of SOP 92-3
effective October 1, 1992. The application of SOP 92-3, estimated
to be approximately $10,000 before the application of related
income taxes, is included in continuing operations for the year
ended September 30, 1993.
<PAGE>
SUMMIT SECURITIES, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
____________
1. Summary of Accounting Policies, Continued
Allowance for Losses on Real Estate Assets
The established allowances for losses on real estate assets
include amounts for estimated probable losses on both real estate
held for sale and real estate contracts and mortgage notes
receivable. Specific allowances are established for all
delinquent contract receivables with net carrying values in excess
of $100,000. Additionally, the Company establishes general
allowances, based on prior actual delinquency and loss experience,
for currently performing receivables and smaller delinquent
receivables. Allowances for losses are determined on net carrying
values of the contracts, including accrued interest. Accordingly,
the Company continues interest accruals on delinquent loans until
foreclosure, unless the principal and accrued interest on the loan
exceed the fair value of the collateral, net of estimated selling
costs.
Deferred Costs
Commission and other expenses incurred in connection with the
registration and public offering of investment certificates are
capitalized and amortized using the interest method over the
estimated life of the related investment certificates, which range
from 6 months to 5 years.
Income Taxes
The Company is included in the group of companies which file a
consolidated income tax return with Metropolitan. The Company is
allocated a current and deferred tax provision from Metropolitan
as if the Company filed a separate tax return. Effective
October 1, 1992, Metropolitan adopted the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS No. 109). Under this method, deferred tax
liabilities and assets are determined on temporary differences
between the financial statement carrying amounts and tax bases of
assets and liabilities using enacted tax rates in effect in the
years in which the temporary differences are expected to reverse.
There was no effect on the Company's financial statements of
adopting SFAS No. 109. In 1992 and 1991, Metropolitan and the
Company accounted for income taxes as required by Accounting
Principles Board Opinion No. 11.
<PAGE>
SUMMIT SECURITIES, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
____________
1. Summary of Accounting Policies, Continued
Financial Instruments
In December 1991, Statement of Financial Accounting Standards No.
107 (SFAS No. 107), "Disclosures about Fair Value of Financial
Instruments," was issued. SFAS No. 107 requires disclosures of
fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to
estimate that value. SFAS No. 107 is effective for financial
statements issued for fiscal years ending after December 31, 1995
(Summit's fiscal year ending September 30, 1996) for entities with
less than $150 million in total assets. This pronouncement does
not change any requirements for recognition, measurement or
classification of financial instruments in the Company's financial
statements.
Reclassifications
Certain amounts in the 1992 and 1991 financial statements have
been reclassified to conform with the current year's presentation.
These reclassifications had no effect on net income or retained
earnings as previously reported.
2. Real Estate Contracts and Mortgage Notes Receivable
Real estate contracts and mortgage notes receivable include
mortgages collateralized by property located throughout the United
States. At September 30, 1993, the Company held first position
liens associated with contract and mortgage notes receivable with
a face value of approximately $13,800,000 and second position
liens of approximately $6,900,000. Approximately 21% of the face
value of the Company's real estate contracts and mortgage notes
receivable are collateralized by property located in the Pacific
Northwest (Washington, Idaho, Montana and Oregon), approximately
9% by property located in California and approximately 27% by
property located in Hawaii.
<PAGE>
SUMMIT SECURITIES, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
____________
2. Real Estate Contracts and Mortgage Notes Receivable, Continued
Contracts totaling approximately $6,000,000 which are
collateralized by property in Hawaii were purchased from a
Metropolitan affiliated company during fiscal 1993. At September
30, 1993, approximately $5,500,000 of these contracts were
outstanding. These contracts relate to the sale of time share
units in a condominium resort development which is owned by a
Metropolitan affiliated company.
The face value of the Company's real estate contracts and mortgage
notes receivable as of September 30, 1993 and 1992 are grouped by
the following dollar ranges:
<TABLE>
<CAPTION>
1993 1992
______ ______
<S> <C> <C>
Under $15,001 $ 5,210,788 $ 734,335
$15,001 to $40,000 7,649,859 6,543,583
$40,001 to $80,000 4,609,278 4,701,063
$80,001 to $150,000 2,324,242 528,922
Greater than $150,000 907,576
----------- -----------
$ 20,701,743 $ 12,507,903
=========== ===========
</TABLE>
Contractual interest rates on the face value of the Company's real
estate contracts and mortgage notes receivable as of September 30,
1993 and 1992 are as follows:
<TABLE>
<CAPTION>
1993 1992
______ ______
<S> <C> <C>
Less than 8.00% $ 1,433,022 $ 785,094
8.00% to 8.99% 1,664,066 958,637
9.00% to 9.99% 3,232,543 2,480,986
10.00% to 10.99% 6,342,842 5,682,197
11.00% to 11.99% 1,799,826 1,369,142
12.00% to 12.99% 2,189,840 1,046,802
13% or higher 4,039,604 185,045
----------- -----------
$ 20,701,743 $ 12,507,903
=========== ===========
</TABLE>
The weighted average contractual interest rate on these
receivables at September 30, 1993 is approximately 10.5%.
Maturity dates range from 1993 to 2023. The constant effective
yield on contracts purchased in fiscal 1993 and 1992 was
approximately 12% and 15%, respectively.
<PAGE>
SUMMIT SECURITIES, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
____________
2. Real Estate Contracts and Mortgage Notes Receivable, Continued
The following is a reconciliation of the face value of the real
estate contracts and mortgage notes receivable to the Company's
carrying value:
<TABLE>
<CAPTION>
1993 1992
______ ______
<S> <C> <C>
Face value of discounted
receivables $ 14,416,037 $ 12,108,904
Face value of originated and
non-discounted receivables 6,285,706 398,999
Unrealized discounts, net
of unamortized acquisition
costs (1,076,488) (1,116,522)
Allowance for losses (96,654) (59,244)
Performance holdback on
receivable purchase (600,000)
Accrued interest receivable 598,624 264,593
----------- -----------
Carrying value $ 19,527,225 $ 11,596,730
=========== ===========
</TABLE>
The principal amount of receivables with required principal or
interest payments being in arrears for more than three months was
approximately $1,662,000 and $529,000 at September 30, 1993 and
1992, respectively. Included in the amount for September 30, 1993
is approximately $680,000 of delinquent contracts purchased from
an affiliate during 1993. The Company has a performance holdback
of $600,000 to cover any losses related to certain timeshare unit
contracts, including these delinquent contracts.
Aggregate amounts of receivables (face amount) expected to be
received, based upon prepayment patterns, are as follows:
<TABLE>
<CAPTION>
Fiscal year ending
September 30,
________________
<S> <C>
1994 $ 2,216,000
1995 2,124,000
1996 2,039,000
1997 1,961,000
1998 1,889,000
Thereafter 10,472,743
-----------
$ 20,701,743
===========
</TABLE>
<PAGE>
SUMMIT SECURITIES, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
____________
3. Debt Payable
At September 30, 1993 and 1992, debt payable consists of:
<TABLE>
<CAPTION>
1993 1992
______ ______
<S> <C> <C>
Real estate contracts and
mortgage notes payable,
interest rates ranging
from 7% to 11%, due in
installments through 2002;
collateralized by senior
liens on the Company's
real estate contracts,
mortgage notes and
real estate held for sale $ 22,653 $ 663,312
Accrued interest payable 3,702
------- --------
$ 22,653 $ 667,014
======= ========
<CAPTION>
Aggregate amounts of principal payments due on debt payable at
September 30, 1993 are as follows:
Fiscal year ending
September 30,
_______________
<S> <C>
1994 $ 5,440
1995 1,958
1996 2,100
1997 2,251
1998 2,414
Thereafter 8,490
-------
Total $ 22,653
=======
</TABLE>
<PAGE>
SUMMIT SECURITIES, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
____________
4. Investment Certificates
At September 30, 1993 and 1992, investment certificates consist
of:
<TABLE>
<CAPTION>
Annual
Interest Principally
Rates Maturing In 1993 1992
_________ ___________ _______ ______
<S> <C> <C> <C>
6% to 7% 1994 $ 1,265,000 $ 388,288
7% to 8% 1995 and
1996 1,018,000 166,832
8% to 9% 1998 7,947,000 2,009,301
9% to 10% 1995, 1996
and 1997 3,624,000 3,869,389
10% to 11% 1996 6,228,501 6,270,936
------------- -------------
20,082,501 12,704,746
Compound
and accrued
interest 1,876,924 917,888
------------- -------------
Total $ 21,959,425 $ 13,622,634
============= =============
<CAPTION>
The weighted average interest rate on outstanding investment
certificates at September 30, 1993 and 1992 was approximately 9.1%
and 9.5%, respectively.
Investment certificates and compound and accrued interest at
September 30, 1993 mature as follows:
Fiscal year ending
September 30,
________________
<S> <C>
1994 $ 1,988,000
1995 988,000
1996 7,792,000
1997 3,725,000
1998 7,181,000
Thereafter 285,425
------------
Total $ 21,959,425
============
</TABLE>
<PAGE>
SUMMIT SECURITIES, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
____________
5. Deferred Costs
Unamortized commissions and other capitalized expenses incurred in
connection with the sale of investment certificates aggregated
$524,376 and $342,650 at September 30, 1993 and 1992,
respectively, and are shown as deferred costs on the balance
sheets.
An analysis of such deferred costs is as follows:
<TABLE>
<CAPTION>
1993 1992
______ ______
<S> <C> <C>
Balance at the beginning of
the year $ 342,650 $ 246,807
Deferred during the year:
Commissions 276,060 168,089
Other expenses 57,429 72,401
--------- ---------
Total deferred 676,139 487,297
Amortized during the year (151,763) (144,647)
--------- ---------
Balance at the end of the year $ 524,376 $ 342,650
========= =========
<CAPTION>
6. Income Taxes
The tax effect of the primary temporary differences giving rise to
the Company's deferred tax assets and liabilities as of September
30, 1993 is as follows:
Asset Liability
_______ _________
<S> <C> <C>
Allowance for losses on real
estate assets $ 35,139
Deferred loan fees $ 481,472
Net operating loss carryforwards 224,183
-------- --------
Total deferred income taxes $ 259,322 $ 481,472
======== ========
</TABLE>
No valuation allowance has been established to reduce the deferred
tax assets, as it is more likely than not that these assets will
be realized due to the future reversals of existing taxable
temporary differences. As of September 30, 1993, the Company's
share of the consolidated group's net operating loss carryforwards
was approximately $659,000, which expires in 2005.
<PAGE>
SUMMIT SECURITIES, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
____________
6. Income Taxes, Continued
The provision for income taxes is computed by applying the
statutory federal income tax rate to income before income taxes as
follows:
<TABLE>
<CAPTION>
1993 1992 1991
______ ______ ______
<S> <C> <C> <C>
Computed federal tax $ 145,880 $ 251,458 $ 80,075
Affiliate corporate
dividend received
deduction (124,758) (92,820)
Other 71 1,289 10,056
-------- --------- --------
Income tax expense
(benefit) $ 145,951 $ 127,989 $ (2,689)
======== ========= ========
<CAPTION>
The components of the allocated provision for income taxes from
Metropolitan are as follows:
1993 1992 1991
______ ______ ______
<S> <C> <C> <C>
Current $ 1,917 $ (2,689)
Deferred $ 145,951 126,072
-------- --------- ---------
$ 145,951 $ 127,989 $ (2,689)
======== ========= ========
<CAPTION>
The deferred provision for income taxes for each of the fiscal
years ended September 30, 1993, 1992 and 1991 results from the
following:
1993 1992 1991
______ ______ ______
<S> <C> <C> <C>
Earned discounts $ 69,081 $ 200,532 $ 54,284
Contract acquisition
costs 15,400 52,342 199,185
Allowance for possible
losses (13,976) (3,127) (17,000)
Net operating losses used
to reduce deferred tax
credits (123,675) (236,469)
Realization of net
operating loss
carryforwards to
reduce current
taxes payable 75,446
-------- --------- --------
$ 145,951 $ 126,072 $ 0
======== ========= ========
</TABLE>
<PAGE>
SUMMIT SECURITIES, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
____________
6. Income Taxes, Continued
During the year ended December 31, 1992, the Company recognized an
extraordinary credit of $49,772 by the utilization of net
operating loss carryforwards of approximately $146,000.
7. Related Party Transactions
Summit receives accounting, data processing, contract servicing
and other administrative services from Metropolitan. Charges for
these services were approximately $97,000 in fiscal 1993, $50,000
in fiscal 1992 and $0 in fiscal 1991 and were assessed based on
the number of real estate contracts and mortgage notes receivable
serviced by Metropolitan on Summit's behalf. Other indirect
services provided by Metropolitan to Summit, such as management
and regulatory compliance, are not directly charged to Summit.
Management believes that this allocation is reasonable and results
in the reimbursement to Metropolitan of all significant direct
expenses incurred on behalf of Summit. Management does not
believe that Summit could obtain these services from outside
sources for less than the allocated costs, or that these costs
would be significantly higher if Summit operated alone.
<PAGE>
SUMMIT SECURITIES, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
____________
7. Related Party Transactions, Continued
Summit had the following related party transactions with
Metropolitan and affiliates during fiscal 1993 and 1992:
<TABLE>
<CAPTION>
1993 1992
______ ______
<S> <C> <C>
Real estate contracts and mortgage
notes purchased through
Metropolitan or affiliates $ 15,423,706 $ 4,792,398
Contract acquisition costs
charged to Summit on
purchased real estate
contracts and mortgage notes 243,414 347,021
------------ -----------
Total cost of real estate contracts
and mortgage notes purchased
through Metropolitan $ 15,667,120 $ 5,139,419
============ ===========
Dividends received from Western
United Life Assurance Company $ 366,935
Interest expense paid to parent
and affiliated companies $ 6,000 $ 243,306
Commissions capitalized as
deferred costs, paid to an
affiliate on sale of
investment certificates $ 276,060 $ 168,089
</TABLE>
Advances to parent of $1,710,743 at September 30, 1993 represent
advances to Metropolitan for the purchase of Summit's investments
in real estate contracts and mortgage notes receivable. Advances
from parent of $400,365 at September 30, 1992 represent real
estate contracts and mortgage notes and related costs advanced by
Metropolitan on behalf of Summit. These advances to and from
Metropolitan are non-interest bearing.
On March 31, 1991, the Company borrowed $6,000,000 from
Metropolitan, which was payable on demand and required monthly
interest-only payments. The stated note rate was equal to the
prime rate as quoted monthly by the Seattle-First National Bank
plus 1.5%. Summit used the funds borrowed from Metropolitan to
purchase preferred stock issued by Western United Life Assurance
Company ("Western"), a full service life insurance company.
Metropolitan also owns approximately 96% of the outstanding stock
of Western. In March 1992, the Company repaid the $6,000,000 note
payable to Metropolitan through the transfer of the Company's
preferred stock investment in Western to Metropolitan.
<PAGE>
SUMMIT SECURITIES, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
____________
8. Supplemental Disclosures for Statements of Cash Flows
Supplemental information on interest and income taxes paid during
the years ended September 30, 1993, 1992 and 1991 is as follows:
<TABLE>
<CAPTION>
1993 1992 1991
______ ______ ______
<S> <C> <C> <C>
Interest paid $ 836,737 $ 701,955 $ 407,742
Income taxes paid 101 1,917 61
<CAPTION>
Non-cash investing and financing activities of the Company during
the years ended September 30, 1993, 1992 and 1991 are as follows:
1993 1992 1991
______ ______ _____
<S> <C> <C> <C>
Assumption of other debt
payable in conjunction
with purchase of real
estate contracts and
mortgage notes
receivable $ 235,374 $ 259,116 $ 504,793
Assumption of other debt
payable in conjunction
with acquisition of
real estate held
for sale 14,225 28,769
Transfer of investment
in affiliate as full
consideration for
amount due on
note payable to
parent company 6,000,000
Real estate held for sale
acquired through
foreclosure 276,573 194,856
Loans to facilitate
the sale of
real estate 205,492 96,717
</TABLE>
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
N/A. The Company reported a change in accountants in its
Form 8-K dated June 25, 1993.
PART III
Item 10. Directors and Executive Officers of Registrant.
See "Management" under Item 1.
Item 11. Executive Compensation.
See "Executive Compensation" under Item 1.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
See "Principal Shareholders" under Item 1.
Item 13. Certain Relationships and Related Transactions.
See "Certain Transactions" under Item 1.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K.
(a) 1. Financial Statements
Included in Part II, Item 8 of this report:
Reports of Independent Certified Public Accountants
Balance Sheets at September 30, 1993, and 1992
Statements of Income for the Years Ended
September 30, 1993, 1992 and 1991.
Statements of Stockholder's Equity for the
years Ended September 30, 1993, 1992 and 1991
Statements of Cash Flows for the Years Ended
September 30, 1993, 1992 and 1991
Notes to Financial Statements
(b) 2. Financial Statements Schedules
Included in Part IV of this report:
Reports of Independent Certified Public Accountants
on Financial Statement Schedules.
Schedule I -- Summary of Investments other than
Investments in Related Parties
Schedule VIII -- Valuation and Qualifying Accounts
and Reserves
Schedule XII -- Loans on Real Estate
Other Schedules are omitted because of the absence
of conditions under which they are required or
because the required information is given in the
financial statements or notes thereto. Columns may
have been omitted from schedules filed because the
information is not applicable.
(c) 3. Exhibits
3(a). Articles of Incorporation of the Company. (Exhibit 3(a)
to (Registration No. 33-36775).
3(b). Bylaws of the Company. (Exhibit 3(b) to Registration No.
33-36775).
4(a). Indenture dated as of November 15, 1990 between Summit
and West One Bank, Idaho, N.A., Trustee. (Exhibit 4(a) to
Registration No. 33-36775).
4(b). Amendment to Indenture dated as of November 15, 1990
between Summit and West One Bank, Idaho, N.A., Trustee.
(Exhibit 4(b) to Registration No. 33-36775).
*4(c). Form of Statement of Rights, Designations and Preferences
of Variable Rate Cumulative Preferred Stock Series S-1.
*4(d). Form of Variable Rate Cumulate Preferred Stock
Certificate.
<PAGE>
*4(e). Form of Investment Certificate.
10(a). Receivable Purchase Option Agreement between Summit and
Metropolitan Mortgage & Securities Co., Inc. dated
November 15, 1990. (Exhibit 10(a) to Registration No.
33-36775).
10(b). Service Contract between Summit and Metropolitan Mortgage
& Securities Co., Inc. dated November 15, 1990. (Exhibit
10(b) to Registration No. 33-36775).
10(c). Promissory Note dated March 31, 1991 between Summit and
Metropolitan Mortgage & Securities Co., Inc. (Exhibit 10
to registrant's Annual Report on Form 10-K for the year
ended September 30, 1991.)
11. Computation of Earnings Per Common Share. (See Financial
Statements.)
* Filed herewith
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
The Directors and Stockholder
Summit Securities, Inc.
In connection with our audit of the financial statements of Summit
Securities, Inc. as of September 30, 1993 and for the year then ended,
included herein, we have issued our report thereon, which includes an
explanatory paragraph describing changes in the Company's methods of
accounting for repossessed real property and income taxes, which
financial statements are included in the Form 10-K. We have also
audited the 1993 financial statement schedules listed in Item 16
herein.
In our opinion, these 1993 financial statement schedules, when
considered in relation to the basic 1993 financial statements taken as
a whole, present fairly, in all material respects, the information
required to be included therein.
/s/ COOPERS & LYBRAND
Coopers & Lybrand
Spokane, Washington
December 13, 1993
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
The Directors and Stockholders
Summit Securities, Inc.
The audits referred to in our report dated December 7, 1992, relating
to the financial statements of Summit Securities, Inc., as of September
30, 1992 and for the two years in the period then ended, which is
contained in Item 8 of this Form 10-K included the audits of the
financial statement schedules listed in the accompanying index for each
of the two years in the period ended September 30, 1992. These
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statement schedules based upon our audits.
In our opinion, such financial statement schedules present fairly, in
all material respects, the information set forth therein.
/s/ BDO SEIDMAN
BDO Seidman
Spokane, Washington
December 7, 1992
<PAGE>
SCHEDULE I
SUMMIT SECURITIES, INC.
SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
SEPTEMBER 30, 1993
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D
Amount at
Which Shown
Market on Balance
Cost Value Sheet
__________ __________ __________
<S> <C> <C> <C>
Type of Investment:
Real Estate
Contracts
and Mortgage Notes
Receivables $19,623,879 $19,623,879
Less Allowance for
Losses -- (96,654)
----------- -----------
TOTAL INVESTMENTS $19,623,879 $19,527,225
=========== ===========
</TABLE>
<PAGE>
SCHEDULE VIII
SUMMIT SECURITIES, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED SEPTEMBER 30, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
Additions
(Reductions) Deductions
Balance at Charged to and Balance
Beginning Costs and Accounts at end of
Description of Year Expenses Written Year
Off
(Recovery)
__________ __________ __________ __________
Allowance for Losses
Deducted from Real
Estate Contracts and
Mortgage Notes Receivable
on Balance Sheet
<S> <C> <C> <C> <C>
1993 $59,244 $15,000 $(22,410) $96,654
1992 50,000 18,762 9,518 59,244
1991 -- 50,000 -- 50,000
<CAPTION>
Allowances for Losses
Deducted from Real
Estate Held for Sale
on Balance Sheet
<S> <C> <C> <C> <C>
1993 $ -- $36,012 $29,255 $ 6,757
1992 -- -- -- --
1991 -- -- -- --
</TABLE>
<PAGE>
Schedule XII
SUMMIT SECURITIES, INC.
LOANS ON REAL ESTATE
September 30, 1993
<TABLE>
<CAPTION>
Real estate contracts and mortgage notes ("Receivables) are located throughout the United
States. Approximately 21% of the Company's Receivables are collateralized by property located
in the Pacific Northwest (Washington, Idaho, Montana and Oregon), approximately 9% by property
located in California and approximately 27% by property located in Hawaii. Less than 1% of the
Contracts are subject to variable interest rates. Interest rates range from 4% to 15%.
Carrying Delinquent
Interest Maturity Amount of Principal
Description Rates Dates Receivables Amount
-------- -------- ----------- ----------
RESIDENTIAL Principally
<S> <C> <C> <C> <C>
First Mortgage > $ 50,000 9% to 12% 1993-2023 $ 3,725,561 $ 121,001
First Mortgage > $ 25,000 9% to 12% 1993-2023 2,508,012 113,233
First Mortgage < $ 25,000 9% to 12% 1993-2023 6,747,806 848,667
Second or Lower> $ 50,000 9% to 12% 1993-2023 1,199,410 ---
Second or Lower> $ 25,000 9% to 12% 1993-2023 3,016,995 48,886
Second or Lower< $ 25,000 9% to 12% 1993-2023 1,480,524 68,514
COMMERCIAL
First Mortgage > $ 50,000 9% to 12% 1993-2023 253,291 ---
First Mortgage > $ 25,000 9% to 12% 1993-2023 46,942 46,942
First Mortgage < $ 25,000 9% to 12% 1993-2023 23,021 ---
Second or Lower> $ 50,000 9% to 12% 1993-2023 148,720 ---
Second or Lower> $ 25,000 9% to 12% 1993-2023 363,431 31,596
Second or Lower< $ 25,000 9% to 12% 1993-2023 40,323 ---
FARM, LAND AND OTHER
First Mortgage > $ 50,000 9% to 12% 1993-2023 64,052 ---
First Mortgage > $ 25,000 9% to 12% 1993-2023 268,595 ---
First Mortgage < $ 25,000 9% to 12% 1993-2023 145,371 46,425
Second or Lower> $ 50,000 9% to 12% 1993-2023 568,615 326,433
Second or Lower> $ 25,000 9% to 12% 1993-2023 -- --
Second or Lower< $ 25,000 9% to 12% 1993-2023 101,074 10,303
Unrealized discounts, net
<PAGE>
of unamortized acquisition
costs, on receivables
purchased at a discount (1,076,488)
Accrued Interest Receivable 598,624
Performance Holdback on Receivable
Purchase (600,000)
Allowance for Losses (96,654)
----------- -----------
TOTAL $ 19,527,225 $1,662,000
=========== ===========
<FN>
The principal amount of Receivables subject to delinquent principal or interest is defined as being in
arrears for more than three months. Included in the delinquent principal amounts for September 30, 1993
is approximately $680,000 of timeshare contracts purchased form an affiliate during the current year. The
Company has a performance holdback of $600,000 to cover losses related to certain contracts including these
contracts.
</TABLE>
<PAGE>
Schedule XII Continued
SUMMIT SECURITIES, INC.
LOANS ON REAL ESTATE
September 30, 1993
<TABLE>
<CAPTION>
For the Years Ended
September 30,
1993 1992 1991
<S> <C> <C> <C>
Balance at beginning
of period $11,596,730 $ 8,233,732 $ ---
----------- ---------- ----------
Additions during period
New receivables - cash 15,667,120 5,274,528 7,760,199
Loans to facilitate the
sale of real estate
held - non cash 205,492 96,717 ---
Assumption of other debt
payable in conjunction
with acquisition
of new receivables
- non cash 235,374 259,116 504,793
Increase in Accrued
Interest 154,034 153,709 110,884
---------- ---------- ----------
Total Additions 16,262,020 5,784,070 8,375,876
---------- ---------- ----------
Deductions During Period
Collections of Principal
- cash 8,083,497 2,245,741 92,144
Foreclosures - non
cash 210,618 166,087 ---
Increase in Allowances
for Losses 37,410 9,244 50,000
---------- ---------- ----------
Total Deductions 8,331,525 2,421,072 142,144
---------- ---------- ----------
Balance at End of Period $19,527,225 $11,596,730 $8,233,732
=========== ========== ==========
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SUMMIT SECURITIES, INC.
/S/ C. PAUL SANDIFUR, JR.
By_______________________________________________
C. Paul Sandifur, Jr., President, Director
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons in the
capacities and on the dates indicated:
Signature Title Date
/S/ C. PAUL SANDIFUR, SR.
1/13/94
_________________________ Chairman of the Board _________
C. Paul Sandifur, Sr.
/S/ C. PAUL SANDIFUR, Jr.
President, Director and 1/13/94
_________________________ Chief Executive Officer _________
C. Paul Sandifur, Jr.
/S/ REUEL SWANSON
Secretary and 1/13/94
_________________________ Director _________
Reuel Swanson
/S/ MICHAEL BARCELO
1/13/94
________________________ Treasurer _________
Michael Barcelo
/S/ STEVEN CROOKS
Controller and Principal 1/13/94
________________________ Accounting Officer _________
Steven Crooks
/S/ ALTON R. COGERT
Chief Financial Officer 1/13/94
________________________ and Assistant Vice President _________
Alton R. Cogert
<PAGE>
As filed with the Securities and Exchange Commission on January 13,
1994.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________________
FORM 10-K
ANNUAL REPORT
Under
THE SECURITIES EXCHANGE ACT OF 1934
__________________________
(Exact name of registrant as specified in charter)
__________________________
Idaho 6799
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization Classification Code Number)
West 929 Sprague Avenue
Spokane, Washington 99204
82-0438135 (509) 838-3111
(I.R.S. Employer (Address, including zip code
Identification No.) and telephone number, including
area code, of registrant's
principal executive offices)
C. Paul Sandifur, Jr.
President
Summit Securities, Inc.
W. 929 Sprague Avenue
Spokane, WA 99204
Telephone No. (509) 838-3111
_____________________________________
(Name, address, including zip code,
and telephone number, including area
code, of agent for service)
_____________________________________
EXHIBIT VOLUME
<PAGE>
EXHIBIT INDEX
Page
Number
*4(c). Form of Statement of Rights, Designations
and Preferences of Variable Rate Cumulative
Preferred Stock Series S-1.
*4(d). Form of Variable Rate Cumulate Preferred
Stock Certificate.
*4(e). Form of Investment Certificate.
* Filed herewith
<PAGE>
Exhibit 4(c)
FORM OF
STATEMENT OF RIGHTS, DESIGNATIONS AND PREFERENCES OF VARIABLE RATE
CUMULATIVE PREFERRED STOCK, SERIES S-1 PURSUANT TO
1.Name of Corporation: Summit Securities, Inc.
2. Copy of resolution establishing and designating Variable Rate
Cumulative Preferred Stock, Series S-1, and determining the
relative rights and preferences thereof: Attached hereto.
3. The undersigned does hereby certify that the attached
resolution was duly adopted by the Board of Directors of the
corporation on January , 1994.
______________________________________
Reuel Swanson, Secretary
<PAGE>
Exhibit 4(c) continued
SUMMIT SECURITIES, INC.
PREFERRED STOCK SERIES S-1 AUTHORIZING RESOLUTION
Resolved, that pursuant to the authority expressly granted and
vested in the Board of Directors (the "Board") of this Corporation by
its Articles of Incorporation, as amended, a sub-series of Preferred
Stock, Series S-1 of the Corporation be, and is hereby, established
which will consist of 150,000 shares of the par value of $10.00 per
share ($15,000,000), shall be designated "Variable Rate Cumulative
Preferred Stock, Series S-1" (hereafter called "Preferred Stock"),
shall be offered at $100.00 per share and which shall have rights,
preferences, qualifications and restrictions as follows:
1. DIVIDENDS.
a) Dividends (or other distributions deemed dividends for
purposes of this resolution) on the issued and outstanding shares of
Preferred Stock shall be declared and paid monthly at a percentage rate
per annum of the liquidation preference of $100.00 per share equal to
the "Applicable Rate," as hereinafter defined, or such greater rate as
may be determined by the Board. Notwithstanding the foregoing, the
Applicable Rate for any monthly dividend period shall, in no event, be
less than 6% per annum or greater than 14% per annum. Such dividends
shall be cumulative from the date of original issue of such shares and
shall be payable, when and as declared by the Board, on such dates as
the Board deems advisable, but at least once a year, commencing June 1,
1993. Each such dividend shall be paid to the holders of record of
shares of Preferred Stock as they appear on the stock register of the
Corporation on such record date as shall be fixed by the Board in
advance of the payment date thereof. Dividends on account of arrears
for any past Dividend Periods may be declared and paid at any time,
without reference to any regular dividend payment date, to holders of
record on such date as shall be fixed by the Board in advance of the
payment date thereof.
b) Except as provided below in this section, the Applicable
Rate for any monthly dividend period shall be the highest of the
Treasury Bill Rate, the Ten Year Constant Maturity Rate and the Twenty
Year Constant Maturity Rate (each as defined in Exhibit A attached
hereto and incorporated by reference herein) plus one half of one
percentage point. In the event that the Board determines in good faith
that for any reason one or more of such rates cannot be determined for
any dividend period, than the Applicable Rate for such dividend period
shall be the higher of whichever of such rates can be so determined.
In the event that the Board determines in good faith that none of such
rates can be determined for any dividend period, then the Applicable
Rate in effect for the preceding dividend period shall be continued for
such dividend period. The Treasury Bill Rate, the Ten Year Constant
Maturity Rate and the Twenty Year Constant Maturity Rate shall each be
rounded to the nearest five hundredths of a percentage point.
c) No dividend shall be paid upon, or declared or set apart
for, any share of Preferred Stock for any Dividend Period unless at the
same time a like dividend shall be paid upon, or be declared and set
apart for, all shares of Preferred Stock then issued and outstanding
<PAGE>
and all shares of all other series of preferred stock then issued and
outstanding and entitled to receive dividends. Holders of Preferred
Stock shall not be entitled to any dividend, whether payable in cash,
property or stock, in excess of full cumulative dividends as herein
provided. No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments which may be in
arrears on Preferred Stock.
d) Dividends payable for each full monthly Dividend Period
shall be computed by dividing the Applicable Rate for such monthly
Dividend Period by twelve and applying such rate against the
liquidation preference of $100.00 per share. Dividends shall be
rounded to the nearest whole cent. Dividends payable for any period
less than a full monthly Dividend Period shall be computed on the basis
of 30 day months and a 360 day year. The Applicable Rate with respect
to each monthly Dividend Period shall be calculated as promptly as
practicable by the Corporation according to the method provided herein.
The Corporation will cause notice of such Applicable Rate to be
enclosed with the dividend payment check next mailed to the holders of
shares of Preferred Stock.
e) So long as any shares of Preferred Stock are outstanding,
(i) no dividend (other than a dividend in common stock or in any other
stock ranking junior to Preferred Stock as to dividends and upon
liquidation and other than as provided in the foregoing section 1(c))
shall be declared or paid or set aside for payment; (ii) no other
distribution shall be declared or made upon common stock or upon any
other stock ranking junior to or on a parity with Preferred Stock as to
dividends or upon liquidation; and (iii) no common stock or any other
stock of the Corporation ranking junior to or on a parity with
Preferred Stock as to dividends or upon liquidation shall be redeemed,
purchased or otherwise acquired by the Corporation for any
consideration (or any monies paid to or made available for a sinking
fund for the redemption of any shares of any such stock) except by
conversion into or exchange for stock of the Corporation ranking junior
to Preferred Stock as to dividends and upon liquidation unless, in each
case, the full cumulative dividends on all outstanding shares of
Preferred Stock shall have been paid or declared and set apart for all
past dividend payment periods.
f) The holders of Preferred Stock shall be entitled to
receive, when and as declared by the Board, dividend distributions out
of the funds of the Corporation legally available therefor. Any
distribution made which may be deemed to have been made out of the
capital surplus of Preferred Stock shall not reduce either the
redemption process or the liquidation rights as hereafter specified.
2. REDEMPTION.
a) The Corporation, at its option, may redeem shares of
Preferred Stock, in whole or in part, at any time or from time to time,
at redemption prices hereafter set forth plus accrued and unpaid
dividends to the date fixed for redemption.
i) In the event of a redemption of shares pursuant to
this subsection prior to January 1, 1995, the redemption price shall be
$102.00 per share; and the redemption price shall be $100.00 per share
in the event of redemption anytime after December 31, 1994.
<PAGE>
ii) In the event that fewer than all of the outstanding
shares of Preferred Stock are to be redeemed, the number of shares to
be redeemed shall be determined by the Corporation and the shares to be
redeemed shall be determined by lot, or pro rata, or by any other
method, as may be determined by the Corporation in its sole discretion
to be equitable.
iii) In the event that the Corporation shall redeem
shares hereunder, notice of such redemption shall be given by first
class mail, postage prepaid, mailed not less than 30 days or more than
60 days prior to he redemption date, to each holder of record of the
shares to be redeemed, at such holder's address as it appears on the
stock register of the Corporation. Each such notice shall state: (i)
the redemption date; (ii) the number of shares to be redeemed and, if
fewer than all shares held by such holder are to be redeemed, the
number of such shares to be redeemed from such holder; (iii) the
redemption price; (iv) the place or places where certificates for such
shares are to be surrendered for payment of the redemption price; and
(v) that dividends on the shares to be redeemed will cease to accrue on
such redemption date.
iv) Notice having been mailed as aforesaid, from and
after the redemption date (unless default shall be made by the
Corporation in providing money for the payment of the redemption
price), dividends on the shares so called for redemption shall no
longer be deemed to be outstanding, and all rights of the holders
thereof as stockholders of the Corporation (except the right to receive
from the Corporation the redemption price) shall cease. Upon surrender
in accordance with said notice of the certificates representing shares
redeemed (properly endorsed or assigned for transfer, if the Board
shall so require and the notice shall so state), such shares shall be
redeemed by the Corporation at the redemption price aforesaid. In case
fewer than all of the shares represented by any such certificate are
redeemed, a new certificate shall be issued representing the unredeemed
shares without cost to the holder thereof.
b) Discretionary Redemption Upon Request of the Holder: The
shares of Preferred Stock are not redeemable at the option of the
holder. If, however, the Corporation receives an unsolicited written
request for redemption of a block of shares from any holder, the
Corporation may, in its sole discretion and subject to the limitations
described below, accept such shares for redemption. Any shares so
tendered, which the Corporation in its discretion, allows for
redemption, shall be redeemed by the Corporation directly, and not from
or through a broker or dealer, at a price equal to $97 per share, plus
any declared but unpaid dividends to date if redeemed during the first
year after the date of original issuance and $99 per share plus any
declared but unpaid dividends if redeemed thereafter. The Corporation
may change such optional redemption prices at any time with respect to
unissued shares.
For a period of three years from the date of initial sale of each
share of Preferred Stock, any such optional redemption of such share
shall occur only upon the death or major medical emergency of the
holder or any joint holder of the share requested to be redeemed. Any
optional redemption of a share in any calendar year after the third
year from the date of sale of the share, not arising from the death or
medical emergency of the holder or any joint holder shall occur only
<PAGE>
when the sum of all optional redemptions (including those arising out
of the death or medical emergency of the holder or any joint holder) of
shares of Preferred Stock during that calendar year shall not exceed
10% of the number of shares of Preferred Stock outstanding at the end
of the preceding calendar year. In the event the 10% limit is reached
in any calendar year, the only redemption which may thereafter occur
during that calendar year shall be those arising from the death or
medical emergency of the holder or any joint holder; provided, however,
that to the extent that total optional redemptions in any calendar year
do not reach the 10% limit, the amount by which such optional
redemptions shall fall short of the 10% limit may be carried over into
ensuing years; and provided further that to the extent that all
redemptions, including those involving the death or medical emergency
of the holder or any joint holder, exceed the 10% in any year, the
amount by which such redemptions exceed the 10% limit shall reduce the
limit in the succeeding year for limiting redemptions not involving the
death or medical emergency of a holder or any joint holder. In no
event shall such optional redemptions of all types in a single calendar
year exceed 20% of the number of shares of Preferred Stock outstanding
at the end of the preceding calendar year.
The Corporation may not redeem any such shares tendered for
redemption if to do so would be unsafe or unsound in light of the
Corporation's financial condition (including its liquidity position);
if payment of interest or principal on any outstanding instrument of
indebtedness is in arrears or in default; or if payment of any dividend
on Preferred Stock or share of any stock of the Company ranking at
least on a parity therewith is in arrears as to dividends.
c) Any shares of Preferred Stock which shall at any time have
been redeemed shall, after such redemption, have the status of
authorized but unissued shares of Preferred Stock, without designation
as to series until such shares are designated as part of a particular
series by the Board.
d) Notwithstanding the foregoing provisions of this Section
2, if any dividends on Preferred Stock are in arrears, no shares of
Preferred Stock shall be redeemed unless all outstanding shares of
Preferred Stock are simultaneously redeemed, and the Corporation shall
not purchase or otherwise acquire any shares of Preferred Stock;
provided, however, that the foregoing shall not prevent the purchase or
acquisition of shares of Preferred Stock pursuant to a purchase or
exchange offer made on the same terms to holders of all of the
outstanding shares of Preferred Stock.
3. CONVERSION OR EXCHANGE. The holders of shares of Preferred
Stock shall not have any rights to convert such shares into or exchange
such shares for shares of any other class or series of any class of
securities of the Corporation.
4. VOTING. Except as required from time to time by law, the
shares of Preferred Stock shall have no voting powers. Provided,
however, not withstanding the foregoing, that whenever and as often as
dividends payable on any shares of Preferred Stock shall be in arrears
in an amount equal to twenty four full monthly dividends or more per
share, the holders of Preferred Stock together with the holders of any
other preferred stock hereafter authorized, voting separately and as a
single class shall be entitled to elect a majority of the Board of
<PAGE>
Directors of the Corporation. Such right shall continue until all
dividends in arrears on preferred stock have been paid in full.
5. LIQUIDATION RIGHTS.
a) Upon the dissolution, liquidation or winding up of the
Corporation, the holders of the shares of Preferred Stock shall be
entitled to receive out of the assets of the Corporation, before any
payment or distribution shall be made on the Common Stock, or on any
other class of stock ranking junior to Preferred Stock, upon
liquidation, the amount of $100.00 per share, plus a sum equal to all
dividends (whether or not earned or declared) on such shares accrued
and unpaid thereon to the date of final distribution.
b) Neither the sale, lease or conveyance of all or
substantially all the property or business of the Corporation, nor the
merger or consolidation of the Corporation into or with any other
corporation or the merger or consolidation of any other corporation
into or with the Corporation, shall be deemed to be a dissolution,
liquidation or winding up, voluntary or involuntary, for the purposes
of this Section.
c) After the payment to the holders of the shares of
Preferred Stock of the full preferential amounts provided for in this
Section, the holders of Preferred Stock as such shall have no right or
claim to any of the remaining assets of the Corporation.
d) In the event the assets of the Corporation available for
distribution to the holders of shares of Preferred Stock upon any
dissolution, liquidation or winding up of the Corporation, whether
voluntary or involuntary, shall be insufficient to pay in full all
amounts to which such holders are entitled pursuant to this Section, no
such distribution shall be made on account of any shares or any other
series of Preferred Stock or any other class of stock ranking on a
parity with the shares of Preferred Stock upon such dissolution,
liquidation or winding up, unless proportionate distributive amounts
shall be paid on account of the shares of Preferred Stock, ratably in
accordance with the sums which would be payable in such distribution if
all sums payable in respect of the shares of all series of Preferred
Stock and any such other class of stock as aforesaid were discharged in
full.
6. PRIORITIES. For purposes of this Resolution, any stock of any
class or classes of the Corporation shall be deemed to rank:
a) Prior to the shares of Preferred Stock, either as to
dividends or upon liquidation if the holders of such class or classes
shall be entitled to the receipt of dividends or of amounts
distributable upon dissolution, liquidation or winding up of the
Corporation, as the case may be, in preference or priority to the
holders of shares of Preferred Stock.
b) On a parity with shares of Preferred Stock, either as to
dividends or upon liquidation, whether or not the dividend rates,
dividend payment dates or redemption or liquidation prices per share or
sinking fund provisions, if any, are different from those of Preferred
Stock, if the holder of such stock shall be entitled to the receipt of
dividends or of amounts distributable upon dissolution, liquidation or
<PAGE>
winding up of the Corporation, as the case may be, in proportion to
their respective dividend rates or liquidation prices, without
preference or priority, one over the other, as between the holder of
such stock and the holders of Preferred Stock; and
c) Junior to shares of Preferred Stock, either as to
dividends or upon liquidation, if the holders of shares of Preferred
Stock shall be entitled to receipt of dividends or of amounts
distributable upon dissolution, liquidation or winding up of the
Corporation, as the case may be, in preference or priority to the
holders of shares of such class or classes.
7. SHARES NON-ASSESSABLE. Any and all shares of Preferred Stock
issued, and for which the full consideration has been paid or
delivered, shall be deemed fully paid stock and the holder of such
shares shall not be liable for any further call or assessment or any
other payment thereon.
8. PRE-EMPTIVE RIGHTS. Holders of Preferred Stock shall have no
pre-emptive rights to acquire additional shares of Preferred Stock.
<PAGE>
EXHIBIT A
Treasury Bill Rate
Except as provided below in this paragraph, the "Treasury Bill
Rate" for each dividend period will be the arithmetic average of the
two most recent weekly per annum market discount rates (or the one
weekly per annum market discount rate, if only one such rate shall be
published during the relevant Calendar Period (as defined below)) for
three-month U.S. Treasury bills, as published weekly by the Federal
Reserve Board during the Calendar Period immediately prior to the ten
calendar days immediately preceding the first day of the dividend
period for which the dividend rate on Preferred Stock Series E-5, is
being determined. In the event that the Federal Reserve Board does not
publish such a weekly per annum market discount rate during any such
Calendar Period, then the Treasury Bill Rate for the related dividend
period shall be the arithmetic average of the two most recent weekly
per annum market discount rates (or the one weekly per annum market
discount rate, if only one such rate shall be published during the
relevant Calendar Period) for three-month U.S. Treasury bills, as
published weekly during such Calendar Period by any Federal Reserve
Bank or by any U.S. Government department or agency selected by the
Company. In the event that a per annum market discount rate for
three-month U.S Treasury bills shall not be published by the Federal
Reserve Board or by any Federal Reserve Bank or by any U.S. Government
department or agency during such Calendar Period, then the Treasury
Bill Rate for such dividend period shall be the arithmetic average of
the two most recent weekly per annum market discount rates (or the one
weekly per annum market discount rate, if only one such rate shall be
published during the relevant Calendar Period) for all of the U.S.
Treasury bills then having maturities of not less than 80 nor more than
100 days, as published during such Calendar Period by the Federal
Reserve Board or, if the Federal Reserve Board shall not publish such
rates, by any Federal Reserve Bank or by any U.S. Government department
or agency selected by the Company. In the event that the Company
determines in good faith that for any reason no such U.S. Treasury bill
rates are published as provided above during such Calendar Period, then
the Treasury Bill Rate for such dividend period shall be the arithmetic
average of the per annum market discount rates based upon bids during
such Calendar Period for each of the issues of marketable non-interest
bearing U.S. Treasury securities with a maturity of not less than 80
nor more than 100 days from the date of each such quotation, as quoted
daily for each business day in New York City (or less frequently if
daily quotations shall not be generally available) to the Company by at
least three recognized primary U.S. Government securities dealers
selected by the Company. In the event that the Company determines in
good faith that for any reason the Company cannot determine the
Treasury Bill Rate for any dividend period as provided above in this
paragraph, the Treasury Bill Rate for such dividend period shall be the
arithmetic average of the per annum market discount rates based upon
the closing bids during such Calendar Period for each of the issues of
marketable interest-bearing U.S. Treasury securities with a maturity of
not less than 80 nor more than 100 days from the date of each such
quotation, as quoted daily for each business day in New York City (or
less frequently if daily quotations shall not be generally available)
to the Company by at least three recognized primary U.S. Government
securities dealers selected by the Company.
<PAGE>
Ten Year Constant Maturity Rate
Except as provided below in this paragraph, the "Ten Year Constant
Maturity Rate" for each dividend period shall be the arithmetic average
of the two most recent weekly per annum Ten Year Average Yields (or the
one weekly per annum Ten Year Average Yield, if only one such Yield
shall be published during the relevant Calendar Period as provided
below, as published weekly by the Federal Reserve Board during the
Calendar Period immediately prior to the ten calendar days immediately
preceding the first day of the dividend period for which the dividend
rate on Preferred Stock, Series E-5 is being determined. In the event
that the Federal Reserve Board does not publish such a weekly per annum
Ten Year Average Yield during such Calendar Period, then the Ten Year
Constant Maturity Rate for such dividend period shall be the arithmetic
average of the two most recent weekly per annum Ten Year Average Yields
(or the one weekly per annum Ten Year Average Yield, if only one such
Yield shall be published during such Calendar Period), as published
weekly during such Calendar Period by any Federal Reserve Bank or by
any U.S. Government department or agency selected by the Company. In
the event that a per annum Ten Year Average Yield shall not be
published by the Federal Reserve Board or by any Federal Reserve Bank
or by any U.S. Government department or agency during such Calendar
Period, then the Ten Year Constant Maturity Rate for such dividend
period shall be the arithmetic average of the two most recent weekly
per annum average yields to maturity (or the one weekly average yield
to maturity, if only one such yield shall be published during the
relevant Calendar Period) for all of the actively traded marketable
U.S. Treasury fixed interest rate securities (other than Special
Securities (as defined below)) then having maturities of not less tan
eight nor more than twelve years, as published during such Calendar
Period by the Federal Reserve Board or, if the Federal Reserve Board
shall not publish such yields, by any Federal Reserve Bank o by any
U.S. Government department or agency selected by the Company. In the
event that the Company determines in good faith that for any reason the
Company cannot determine the Ten Year Constant Maturity Rate for any
dividend period as provided above in this paragraph, then the Ten Year
Constant Maturity Rate for such dividend period shall be the arithmetic
average of the per annum average yields to maturity based upon the
closing bids during such Calendar Period for each of the issues of
actively traded marketable U.S. Treasury fixed interest rate securities
(other than Special Securities) with a final maturity date not less
than eight nor more than twelve years from the date of each such
quotation, as quoted daily for each business day in New York City (or
less frequently if daily quotations shall not be generally available)
to the Company by at least three recognized primary U.S. Government
securities dealers selected by the Company.
Twenty Year Constant Maturity Rate
Except as provided below in this paragraph, the "Twenty Year
Constant Maturity Rate" for each dividend period shall be the
arithmetic average of the two most recent weekly per annum Twenty Year
Average Yields (or the one weekly per annum Twenty year Average Yield,
if only one such Yield shall be published during the relevant Calendar
Period), as published weekly by the Federal Reserve Board during the
Calendar Period immediately prior to the ten calendar days immediately
preceding the first day of the dividend period for which the dividend
rate on Preferred Stock, Series E-5 is being determined. In the event
<PAGE>
that the Federal Reserve Board does not publish such a weekly per annum
Twenty Year Average Yield during such Calendar Period, then the Twenty
Year Constant Maturity Rate for such dividend period shall be the
arithmetic average of the two most recent weekly per annum Twenty Year
Average Yields (or the one weekly per annum Twenty Year Average Yield,
if only one such Yield shall be published during such Calendar Period),
as published weekly during such Calendar Period by any Federal Reserve
Bank or by any U.S. Government department or agency selected by the
Company. In the event that a per annum Twenty Year Average Yield shall
not be published by the Federal Reserve Board or by any Federal Reserve
Bank or by any U.S. Government department or agency during such
Calendar Period, then the Twenty Year Constant Maturity Rate for such
dividend period shall be the arithmetic average of the two most recent
weekly per annum average yields to maturity (or the one weekly average
yield to maturity, if only one such yield shall be published during
such Calendar Period) for all of the actively traded marketable U.S.
Treasury fixed interest rate securities (other than Special Securities)
then having maturities of not less than eighteen nor more than
twenty-two years, as published during such Calendar Period by the
Federal Reserve Board or, if the Federal Reserve Board shall not
publish such yields, by any Federal Reserve Bank or by any U.S.
Government department or agency selected by the Company. In the event
that the Company determines in good faith that for any reason the
Company cannot determine the Twenty Year Constant Maturity Rate for any
dividend period as provided above in this paragraph, then the Twenty
Year Constant Maturity Rate for such dividend period shall be the
arithmetic average of the per annum average yields to maturity based
upon the closing bids during such Calendar Period for each of the
issues of actively traded marketable U.S. Treasury fixed interest rate
securities (other than Special Securities) with a final maturity date
not less than eighteen nor more than twenty-two years from the date of
each such quotation, as quoted daily for each business day in New York
City (or less frequently if daily quotations shall not be generally
available) to the Company by at least three recognized primary U.S.
Government securities dealers selected by the Company.
As used herein, the term "Calendar Period" means a period of 14
calendar days; the term "Special Securities" means securities which
may, at the option of the holder, be surrendered at face value in
payment of any federal estate tax or which provide tax benefits to the
holder and are priced to reflect such tax benefits or which were
originally issued at a deep or substantial discount; the term "Ten Year
Average Yield" means the average yield to maturity for actively traded
marketable U.S. Treasury fixed interest rate securities (adjusted to
constant maturities of ten years); and the term "Twenty Year Average
Yield" means the average yield to maturity for actively traded
marketable U.S. Treasury fixed interest rate securities (adjusted to
constant maturities of 20 years).
<PAGE>
Exhibit 4(d)
(FORM OF VARIABLE RATE CUMULATIVE
PREFERRED STOCK CERTIFICATE)
Certificate No. Shares
SUMMIT SECURITIES, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF IDAHO
VARIABLE RATE CUMULATIVE PREFERRED STOCK
SERIES
(Par Value: $10.00 per share;
Liquidation Preference: $100.00 per share)
This certifies that is the
registered holder of shares of Variable Rate
Cumulative Preferred Stock, Series of Summit Securities, Inc.
transferable only on the books of the Corporation upon surrender of
this certificate properly endorsed by the holder hereof in person or by
attorney-in-fact.
The Corporation will provide to any registered holder of stock of
the Corporation, upon request and without charge, a full statement of
the designations, preferences, limitations and relative rights of the
shares of each class of stock authorized to be issued by the
Corporation, the variations in the relative rights and preferences
between the shares of each series of each class of stock so far as the
same have been fixed and determined, and the authority of the Board of
Directors to fix and determine the rights and preferences of subsequent
series.
In witness whereof the Corporation has caused this certificate to
be signed by its duly authorized officers and the facsimile of its
corporate seal imprinted hereon.
Issue Date:
________________________________ ________________________________
Secretary or Assistant Secretary President or Vice President
<PAGE>
Exhibit 4(e)
SUMMIT SECURITIES,INC.
HARBOR CENTER, 1000 WEST HUBBARD, SUITE 140
COEUR D' ALENE, ID 83814-2276
INVESTMENT CERTIFICATE, SERIES A
Principal Issue Maturity Interest Certificate
Amount Date Date Rate Number
Interest:
Amortization Term:
Months:
Issued To:
THE CERTIFICATE
This is a duly authorized Certificate of Summit Securities, Inc.
("Summit"). This Certificate is issued under an Indenture dated July
25, 1990 ("Indenture") between Summit and West One Bank, Idaho, N.A. as
Trustee ("Trustee"). The Indenture permits Summit to issue an unlimited
amount of Certificates, the terms of which may vary according to
series. This Certificate is of the series stated above; that series is
not limited in aggregate principal amount as stated in the Indenture
(or supplemental indentures). The Indenture (and supplemental
indentures) contains statements of the rights of the
Certificateholders, Summit and the Trustee and provision concerning
authentication and delivery of the Certificates. Definitions of
certain terms used in the Certificate are also found in the Indenture
(and supplemental indentures).
PAYMENT OF PRINCIPAL
For value received, Summit promises to pay the principal amount of
this Certificate at the maturity date stated above. Payment will be
made to the Person to whom this Certificate is issued or registered
assigns.
PAYMENT OF INTEREST
Summit promises to pay interest on the principal amount of this
Certificate from the issue date until the principal amount is paid or
made available for payment. Interest will be computed at the annual
interest rate stated above. Interest will be payable or compounded as
stated above or as otherwise elected by the Person entitled to payment
of interest. Summit will pay interest to the Person in whose name this
Certificate (or one or more Predecessor Certificates) is registered at
the close of business on the Regular Record Date for the payment of
interest. The Regular Record Date is the 15th date of the calendar
month immediately preceding an Interest Payment Date.
COMPOUNDING OF INTEREST
If the Person entitled to payment of interest so elects, Summit
will compound interest rather than pay interest in installments.
Interest will be compounded on a semiannual basis at the interest rate
<PAGE>
stated above from the Interest Payment Date immediately preceding
receipt by Summit of the compounding election. Interest will be
compounded from the issue date of the Certificate if Summit receives
the compounding election prior to the first Interest Payment Date.
Interest will be compounded until the maturity date stated above and
will be paid on such date. Prior to maturity, however, Summit will pay
at the Certificateholder's request the interest accumulated in the last
two semiannual compounding periods before Summit receives the request,
together with the interest accrued from the end of the last such
semiannual period. Interest compounded prior to the last two
semiannual compounding periods is payable only onthe maturity date
stated above.
ALTERNATIVE INSTALLMENT PAYMENTS OF PRINCIPAL AND INTEREST
If so elected by the Person to whom this Certificate is originally
issued, Summit promises, in lieu of the foregoing provisions for
payment of principal and interest, to pay equal monthly installments of
principal and interest, commencing thirty days from the issue date,
until the maturity date, at which time the remaining principal amount,
if any, together with all unpaid accrued interest, shall be paid. The
amount of each monthly installment shall be the amount necessary to
amortize the principal amount at the specified interest rate during the
specified amortization term.
PREPAYMENT ON DEATH
In the event of a Certificateholder's death, any person entitled
to receive some or all of the proceeds of this Certificate may elect to
have his or her share of the principal and any unpaid interest prepaid
in full in five consecutive equal monthly installments. Interest on
the declining principal balance of that share will continue to accrue
at the interest rate stated above. Any request for prepayment must be
made in writing to Summit. The request must be accompanied by the
Certificate and evidence, satisfactory to Summit, of the
Certificateholder's death. Before Summit prepays the Certificate, it
may require additional documents or other material it considers
necessary to establish the Persons entitled to receive some or all of
the proceeds of the Certificate. Metropolitan may also require proof
of other facts relevant to its obligation to prepay the Certificate in
the event of death.
MISCELLANEOUS
The provisions on the reverse are part of this Certificate.
This Certificate is not entitled to any benefit under the Indenture
nor is this Certificate valid or obligatory for any purpose unless the
certificate of authentication below has been executed by the Trustee by
manual signature.
This Certificate is not insured by the United States government,
the State of Idaho nor any agency thereof.
In witness whereof, Summit has caused this Certificate to be duly
executed under its corporate seal.
SUMMIT SECURITIES, INC.
Attest:_________________________ By:_______________________________
Secretary or Assistant Secretary Chairman of the Board,
President or Vice President
<PAGE>
CERTIFICATE OF AUTHENTICATION
This is one of the Certificates referred to
in the within-mentioned Indenture
WEST ONE BANK, IDAHO, N.A.
as Trustee
By:_____________________________________
Authorized Signature
<PAGE>
(reverse of Certificate)
TRANSFER AND EXCHANGE
Transfer and exchange of this Certificate are conditioned by
certain provisions in the Indenture. To effect a transfer, the Holder
must surrender this Certificate at Summit's office or agency in Coeur
d'Alene, Idaho or such other place as may be designated by Summit. This
Certificate must be duly endorsed or accompanied by a written
instrument of transfer satisfactory to Summit. Upon transfer, one or
more new Certificates of the same series of authorized denominations
and for the same aggregate principal amount will be issued to the
designated transferee or transferrers. Prior to due presentment for
registration of transfer, Summit, the Trustee or any of their agents
may treat any Person in whose name this Certificate is registered as
the owner of this Certificate, regardless of notice to the contrary or
whether this Certificate might be overdue.
This Certificate is issuable only as a registered Certificate; it
does not bear coupons. As provided in the Indenture, this Certificate
is exchangeable for the other Certificates of the same series of
authorized denominations with the same aggregate principal amount. To
effect an exchange, the Holder must surrender this Certificate at
Summit's office or agency in Coeur d' Alene, Idaho or such other place
as may be designated by Summit. The Certificate must be duly endorsed
or accompanied by a written instrument of exchange satisfactory to
Summit.
No service charge will be made for a transfer or exchange, but
Summit may require payment of a sum sufficient to cover any
governmental charge in connection with such transaction.
AMENDMENT OF THE INDENTURE; WAIVER OF RIGHTS
With certain exceptions, the Indenture may be amended, the
obligations and rights of Summit may be modified and the rights of the
Certificateholders may be modified by Summit at any time with the
consent of the Holders of 66-2/3% in aggregate principal amount of the
Certificates at the time Outstanding. The Indenture allows the Holders
of specified percentages in aggregate principal amount of the
Certificates of a particular series to waive compliance by Summit with
certain indenture provisions and to waive past defaults and their
consequences on behalf of all the Holders of Certificates of that
series. Any such consent or waiver by the Holder of this Certificate
will be binding upon that Holder. The consent or waiver will also be
binding upon all future Holders of this Certificate and of any
Certificate issued upon the transfer of, or in exchange for or in lieu
of this Certificate, whether or not that consent or waiver is noted
upon the Certificate.
FAILURE TO PAY INTEREST OR INSTALLMENTS; EVENTS OF DEFAULT
If interest or any installment of principal and interest is not
punctually paid or duly provided for, it shall cease to be payable to
the registered Holder of this Certificate on the applicable Regular
Record Date. Instead, the Trustee will fix a Special Record Date for
payment of the Defaulted Interest or installments. The Trustee will
give the Certificateholders notice of the Special Record Date at lease
10 days prior to the Special Record Date. The Person in whose name
this Certificate (or one or more Predecessor Certificates) is
registered at the close of business on the Special Record Date will be
entitled to payment of the Defaulted Interest or installment. If the
Certificates are listed on a securities exchange, however, the
<PAGE>
Defaulted Interest or installment may be paid at any time and in any
lawful manner consistent with the requirements of the exchange.
If an Event of Default occurs, the principal of all the
Certificates may be declared due and payable as provided in the
Indenture.
FORM OF PAYMENT
Payment of principal and interest will be made at the office or
agency of Summit maintained for that purpose in Coeur d'Alene, Idaho or
such other place as may be designated by Summit. Payment will be made
in coin or currency of the United States of America that is legal
tender for payment of public and private debts at the time of payment.
At Summit's option, however, payment of interest may be made by check
mailed to the Person entitled to the interest at that Person's address
as it appears in the Certificate Register.
BUSINESS DAYS
Whenever any interest Payment Date, the Stated Maturity of this
Certificate or any date on which any Defaulted Interest or installment
is proposed to be paid is not a business day, the appropriate payment
or compounding of interest or principal may be made on the next
succeeding Business Day without accrual of additional interest.
CERTAIN DEFINITIONS
Summit is an Idaho corporation. The term "Summit" includes any
successor corporation under the Indenture. The term "Trustee: includes
any successor Trustee under the Indenture.
