<PAGE>
As filed with the Securities and Exchange Commission on April 1 , 1994
Registration No. 33-51905
AMENDMENT NO. 3
TO
FORM S-1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
SUMMIT SECURITIES, INC.
(Exact name of registrant as specified
in governing instruments)
Idaho 6799
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number)
929 W. Sprague Avenue
Spokane, WA 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.
929 W. Sprague Ave.
Spokane, WA 99204
(509) 838-3111
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933 check the following box. /X/
Total Number of Pages: 113
Exhibit at Page: 107
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until this
Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.<PAGE>
PART I
SUMMIT SECURITIES, INC.
Cross Reference Sheet
Showing Location in Prospectus of Items of the Form
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus..... Outside Front Cover
Page
2. Inside Front and Outside Back Cover Pages
of Prospectus.............................. Inside Front Cover
Page
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges......... Prospectus Summary;
Summary Financial
Data;
Certain Investment
Considerations/
Risk Factors;
4. Use of Proceeds............................ Use of Proceeds
5. Determination of Offering Price............ *
6. Dilution................................... *
7. Selling Security Holders................... *
8. Plan of Distribution....................... Plan of Distribution
9. Description of Securities to be Registered. Description of
Securities;
Description
of Certificates;
Description of
Capital
Stock; Description
of Preferred Stock
10. Interest of Named Experts and Counsel...... Legal Matters;
Experts
11. Information with Respect to Registrant..... Front Cover Page;
Prospectus
Summary; The
Company;
Capitalization;
Summary Financial
Data; Management's
Discussion and
Analysis
of Financial
Condition and
Results of
Operations;
Business;
Management;
Principal
Shareholders;
Certain
Transactions;
Financial Statements
and Supplementary
Data
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ Indemnification
*Not applicable or negative.
<PAGE>
<PAGE>
PROSPECTUS
SUMMIT SECURITIES, INC.
$40,000,000 Investment Certificates, Series A
150,000 Shares Variable Rate Cumulative Preferred Stock,
Series S-1 ($100 Per Share Offering Price
and Liquidation Preference)
The Investment Certificates, Series A ("Certificates") and the
shares of Variable Rate Cumulative Preferred Stock, Series S-1
("Preferred Stock") of Summit Securities, Inc. ("the Company") covered
by this prospectus are being offered separately and not as units on a
continuous, best efforts basis. The Certificates are unsecured
indebtedness of the Company, senior in liquidation to the outstanding
equity securities of the Company, including Preferred Stock to be
issued hereunder, subordinate to the Company's collateralized debt and
on a parity with all other outstanding Certificates issued by the
Company, unsecured accounts payable and accrued liabilities. At the
election of owners of Investment Certificates, Series A, interest will
be paid monthly, quarterly, semi-annually or annually, or will remain
with the Company to compound semi-annually. If annual payments of
interest are elected, interest will not compound. Owners may elect to
be paid monthly installments of the principal and interest pursuant to
an amortization schedule selected by the owner. Interest rates,
maturities, and minimum investment amounts, are set forth below. The
Certificates will be issued in fully registered form in fractional
denominations of $0.01 or multiples thereof at 100% of the principal
amount paid. The Company reserves the right to change prospectively the
interest rates, maturities, and minimum investment amounts on unsold
Certificates. See "Description of Certificates".
<TABLE>
<CAPTION>
MINIMUM TERM TO ANNUAL
INVESTMENT MATURITY INTEREST RATE
---------- ---------------------- -------------
(Investment Certificates, Series A)
<S> <C>
$ 1,000 60 to 120 months 8.25%
$ 1,000 48 to 59 months 7.25%
$ 1,000 36 to 47 months 6.75%
$ 100 24 to 35 months 6.50%
$ 100 12 to 23 months 6.25%
$ 1,000 6 to 11 months 6.00%
</TABLE>
Preferred Stock distributions are cumulative and are to be
declared monthly on the first business day of the month to shareholders
of record as of the fifth calendar day of each month. Distributions are
to be paid in cash on the twentieth calendar day of each month in an
amount equal to the offering price of $100 per share multiplied by the
distribution rate divided by twelve. The Board has authorized for an
indefinite period, a distribution rate on the Preferred Stock of one
percentage point above the Applicable Rate. The Applicable Rate means
the greater of the "Treasury Bill Rate," the "Ten Year Constant
Maturity Rate" or the "Twenty Year Constant Maturity Rate" plus one
half of one percentage point determined immediately prior to the
Declaration Date. In no event, will the Applicable Rate for any
distribution period be less than 6% per annum nor greater than 14% per
annum. See "Description of Preferred Stock-Distributions."
The initial distribution rate for distributions payable on the
20th day of April, 1994 is to be determined as of April 1, 1994.
Preferred Stock may be redeemed, in whole or in part, at the
option of the Company, at a price per share of $102 if redeemed prior
to January 1, 1995, and of $100 per share thereafter plus, in each
case, declared and unpaid dividends to the redemption date. Under
certain limited circumstances, the Board of Directors may, in their
sole discretion and without any obligation to do so, redeem shares
tendered for redemption by stockholders. If redeemed, the price shall
be at $97 per share during the first year after date of original
issuance and $99 per share thereafter. See "Description of Preferred
Stock-Redemption of Shares".
As of September 30, 1993, the Company had outstanding
approximately $21,959,000 (principal and compound and accrued interest)
of Certificates and similar obligations, and approximately $23,000
(principal and accrued interest) of collateralized debt. The total
liabilities of the Company ranking senior in liquidating preference to
the Preferred Stock were approximately $22,254,000. Preferred Stock is
junior to all debts of the Company including the Company's Investment
Certificates, Series A, and preferred to the Company's common stock in
liquidation.
There are no limitations on the Company's ability to incur
additional secured indebtedness. There is no trading market for the
Certificates or the Preferred Stock and none is expected to be
established in the future. See "Certain Investment Considerations-Risk
Factors". A list of persons willing to sell or purchase preferred stock
of the parent company, Metropolitan, has been maintained by the
Company's broker-dealer affiliate as a convenience to holders of the
parent company's preferred stock. The Company will use its best efforts
to make this listing available for Preferred Stock offered hereunder
following completion of this offering. This offering of Certificates
and Preferred Stock is subject to withdrawal or cancellation by the
Company without notice. No minimum amount of Certificates or Preferred
Stock must be sold.
The Certificates and Preferred Stock offered hereby involve
significant investor considerations which should be analyzed prior to
any investment decision. See "Certain Investment Considerations-Risk
Factors".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE SALES PROCEEDS TO
TO PUBLIC COMMISSIONS (1) THE COMPANY (2)
<S> <C> <C> <C>
Per
Certificate 100% .25% to 5% 99.75% to 95%
Total: $40,000,000 $100,000-$2,000,000 $38,000,000-$39,900,000
Per
Preferred
Share $100 0% to 5% 100% to 95%
Total: $15,000,000 None - $750,000 $15,000,000-$14,250,000
</TABLE>
(1) There is no sales charge to the investor. The Company will
reimburse Metropolitan Investment Securities, Inc., an affiliated
company, for commissions paid to licensed securities sales
representatives. Sales commission rates on the sale of Certificates
depend upon the terms of the sale and upon whether the sales are
renewals or new purchases. See "Plan of Distribution".
(2) Before deducting expenses estimated at $165,000.
The Certificates and Preferred Stock are being offered for sale on
a continuous, best efforts basis, directly to investors through
Metropolitan Investment Securities, Inc., which is the exclusive sales
agent for the publicly issued securities of the Company and its parent
company, Metropolitan Mortgage & Securities Co., Inc. No offering will
be made pursuant to this prospectus subsequent to January 31, 1995. The
offering is subject to Schedule E of the Bylaws of the National
Association of Securities Dealers, Inc. See "Plan of Distribution".
The date of this prospectus is April , 1994.<PAGE>
<PAGE>
INSIDE FRONT COVER PAGE OF PROSPECTUS, REFER TO GRAPH APPENDIX ITEM 1<PAGE>
<PAGE>
No person has been authorized to give any information or to make
any representations other than those contained in this Prospectus. If
given or made, such information or representations must not be relied
upon as having been authorized by the Company. This Prospectus does
not constitute an offer to sell securities in any jurisdiction to any
person to whom it is unlawful to make such offer in such jurisdiction.
Neither the delivery of this Prospectus nor any sales made hereunder
shall under any circumstances create any implication that there has
been no change in the affairs of the Company since the date hereof.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 and, in accordance therewith, files
periodic reports and other information with the Securities and Exchange
Commission. Such reports can be inspected at the public reference
facilities maintained by the Commission in Washington, D.C. at 450 5th
Street, N.W., Judiciary Plaza, Washington, DC 20549 and at the public
reference facilities in the New York Regional Office, 7 World Trade
Center, Suite 1300, New York, NY 10048, and Chicago Regional Office,
Northwest Atrium Center, Suite 1400, 500 West Madison Avenue, Chicago,
IL 60661-2511. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 5th Street N.W., Judiciary
Plaza, Washington, DC 20549 at prescribed rates.
The Company has filed with the Securities and Exchange Commission
in Washington, D.C., a Registration Statement under the Securities Act
of 1933 with respect to the securities offered hereby. This Prospectus
does not contain all of the information set forth in the Registration
Statement, as permitted by the rules and regulations of the Commission.
For further information, reference is made to the Registration
Statement, including the exhibits filed or incorporated as a part
thereof, which may be examined without charge at the Public Reference
Room of the Commission in Washington, D.C., or copies of which may be
obtained from the Commission upon payment of the prescribed fees.
<PAGE>
<PAGE>
TABLE OF CONTENTS
Page
Available Information.............................
Prospectus Summary ...............................
Summary Financial Data............................
Certain Investment Considerations-Risk
Factors...........................................
Description of Securities.........................
Description of Certificates..................
Description of Capital Stock.................
Description of Preferred Stock...............
Legal Matters.....................................
Experts...........................................
Plan of Distribution..............................
Use of Proceeds...................................
Capitalization....................................
Selected Financial Data...........................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................................
Business..........................................
Management........................................
Executive Compensation............................
Indemnification...................................
Principal Shareholders............................
Certain Transactions..............................
Index to Financial Statements.....................
<PAGE>
<PAGE>
PROSPECTUS SUMMARY
This summary is qualified in its entirety, and should be read in
conjunction with the detailed information and financial statements
appearing elsewhere in this prospectus. This offering involves certain
considerations to prospective investors which are set forth in
"Description of Securities" and "Certain Investment Considerations-Risk
Factors".
The Company
Summit Securities, Inc. (the "Company") was incorporated under the
laws of the State of Idaho on July 25, 1990. Its Articles of
Incorporation provide that its existence is perpetual. The Company is
a wholly-owned subsidiary of Metropolitan Mortgage & Securities Co.,
Inc., a Washington corporation ("Metropolitan").
The Company is engaged, nationwide, in the business of acquiring,
holding and selling real estate receivables (hereafter "Receivables").
The Company invests in Receivables using funds generated from
Receivable cash flows, and the sale of Certificates and Preferred
Stock. The Company's Receivable investments are acquired through its
parent company, Metropolitan, which performs the underwriting and
review procedures. Its Receivables are serviced through an affiliate,
Spokane Mortgage Company, doing business under the trade name MetWest
Services. The Company may also engage in other businesses or activities
without restriction in accordance with the provisions of its Articles
of Incorporation.
The Company, its parent company and C. Paul Sandifur, Jr.
(President and CEO of the Company and of Metropolitan) are currently
negotiating a possible reorganization which would involve the sale of
the Company to C. Paul Sandifur, Jr. See "Certain Transactions".
The Company's principal offices are located at 929 West Sprague
Avenue, Spokane, Washington 99204. Its telephone number is (509)
838-3111. The Company also maintains offices at 1000 Hubbard, Coeur
d'Alene, Idaho.
The Offering
INVESTMENT CERTIFICATES:
The Offering . . . . $40,000,000 of Certificates due from six months to
one hundred twenty months after date of issue, as selected by the
purchaser. See "Description of Certificates." There is no minimum
amount which must be sold.
The Certificates . . . . The Certificates are unsecured indebtedness of
the Company which will rank equally with the Company's other unsecured
obligations. At September 30, 1993, the Company had outstanding
approximately $21,959,000 (principal and compounded and accrued
interest) of certificates and similar obligations and approximately
$23,000 (principal and accrued interest) of collateralized debt. The
Certificates are not insured by any governmental or private agency nor
are they guaranteed by the Company's parent corporation, Metropolitan.
Use of Proceeds . . . . To provide funds for Receivable investments,
other investments, retiring maturing certificates, preferred stock
dividends and for general corporate purposes which may include
acquisition of affiliates as part of a corporate reorganization. See
"Use of Proceeds" and "Certain Transactions."
Principal and Interest Payments . . . . Interest will be paid monthly,
quarterly, semiannually or annually (without compounding) or if
remaining with the Company to compound semiannually, as selected by the
holder of the Certificates. Holders may elect to be paid equal monthly
installments of principal and interest pursuant to an amortization
schedule selected by the holder. The stated rates of interest on
unissued Certificates offered hereby may be changed from time to time
by the Company, but any such change shall not affect the rate of
interest on any Certificates issued prior to the change. See
"Description of Certificates."
Trustee . . . . West One Bank, Idaho, N.A. See "Description of
Certificates".
PREFERRED STOCK:
Offering . . . . 150,000 shares of Variable Rate Cumulative Preferred
Stock, $10 par value, Series S-1, (the "Preferred Stock"), being
offered on a continuous basis at $100 per share.
Distributions. . . . Distributions (which may be classified as
dividends or returns of capital for federal income tax purposes) on
Preferred Stock offered hereunder are cumulative from the date of issue
and, when and as declared, are payable monthly at the rates described
on the cover page of the Prospectus based on the price of $100 per
share. See "Description of Preferred Stock-Distributions".
Liquidation Rights . . . . $100 per share of Preferred Stock, plus
declared and unpaid dividends and junior to all debts of the Company.
See "Description of Preferred Stock - Liquidation Rights".
Redemption Upon Call by the Company . . . . The shares of Preferred
Stock are redeemable, in whole or in part, at the option of the
Company, upon not less than 30 nor more than 60 days' notice by mail,
at a redemption price of $102 per share, if redeemed prior to January
1, 1995 and $100 per share if redeemed thereafter, plus, in each case,
accrued and unpaid dividends to the date fixed for redemption. See
"Description of Preferred Stock-Redemption of Shares".
Discretionary Redemption Upon Request of Holder . . . . Subject to
certain limitations, the Company may, in its sole discretion, accept
shares of Preferred Stock for redemption upon the receipt of
unsolicited written requests for redemption of blocks of shares from
any holder. Redemption prices in such event will be $97 per share if
the redemption occurs during the first year after the date of original
issuance of the shares and $99 per share thereafter plus, in each case,
any declared but unpaid dividends. The Company will not redeem shares
at the holder's request during the first three years after the initial
sale of such shares except in those cases involving the death or major
medical emergency of the holder or any joint holder. Any such
discretionary redemptions will also depend on the Company's financial
condition, including its liquidity position. See "Description of
Preferred Stock - Redemption of Shares". The Company, through its
affiliated broker/dealer, intends to use its best efforts to maintain
an in-house trading list for holders of Preferred Stock following the
termination of the offering. See "Certain Investment
Considerations-Risk Factors".
Voting Rights . . . . The holders of Preferred Stock have no voting
rights except (i) as expressly granted by the State of Idaho law and
(ii) in the event distributions payable on Preferred Stock are in
arrears in an amount equal to twenty-four or more full monthly
distributions, or more per share. See "Description of Preferred
Stock-Voting Rights".
Use of Proceeds . . . . Provide funds for Receivables investments,
other investments, retiring maturing certificates, preferred stock
dividends and for general corporate purposes which may include the
acquisition of affiliates as part of a corporate reorganization. See
"Use of Proceeds" and "Certain Transactions".
Federal Income Tax Considerations. . . . In the event the Company has
earnings and profits for federal income tax purposes in any future
year, the distributions paid in that year will constitute taxable
income to the recipient to the extent of such earnings and profits. The
Company is unable to predict the future character of its distributions.
The Company will treat distributions made with respect to Preferred
Stock in a manner similar to other dividends and distributions. Under
current income tax law, such items are not deductible to the Company in
computing taxable income. The Company believes that distributions made
with respect to Preferred Stock will be characterized as tax free
returns of capital for federal income tax purposes to the extent that
the Company has no current or accumulated earnings and profits as
computed for federal income tax purposes. Such distributions are tax
free to both corporate and individual holders to the extent of their
basis in the stock. Distributions in excess of the holder's basis are
considered capital gain income. In the event a holder of Preferred
Stock disposes of the stock in a taxable sale or exchange, taxable gain
may be recognized by the holder to the extent prior distributions were
a tax-free return of capital. Corporations generally can exclude 70%
of taxable dividends received in any year (which may be reduced if it
uses debt to acquire or continue to carry the Preferred Stock).
Purchasers are advised to consult their own tax advisors with respect
to the federal income tax treatment of distributions made. See
"Description of Preferred Stock-Federal Income Tax Consequences of
Distributions."
<PAGE>
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
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 (other than
the Ratio of Earnings to Fixed Charges) 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. The financial data shown below as of December 31, 1993 and for the three
month periods ended December 31, 1993 and 1992 (other than the Ratio of Earnings to fixed
charges) have been derived from and should be read in conjunction with the Company's unaudited
condensed financial statements and related notes appearing elsewhere herein.
July 25, 1990
(Date of
Three Months Ended Year Ended Year Ended Year Ended Incorporation)
December 31, September 30, September 30, September 30, Through
1993 1992 September 30,
1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA:
Revenues $743,156 $528,283 $ 2,815,624 $ 2,435,843 $1,026,405 $ 8,229
======== ======== ========== ========== ========== ==========
Income before
extraordinary item $ 42,384 $ 13,157 $ 283,107 $ 611,595 $ 238,205 $ 5,345
Extraordinary item (1) -- -- -- 49,772 -- --
-------- -------- ---------- ---------- ---------- ----------
Net Income $ 42,384 $ 13,157 $ 283,107 $ 661,367 $ 238,205 $ 5,345
======== ======== ========== ========== ========== ==========
Weighted average number
of common shares
outstanding 20,000 20,000 20,000 20,000 20,000 20,000
Per Common Share Data:
Income before
extraordinary
item $ 2.12 $ .66 $ 14.15 $ 30.58 $ 11.91 $ .27
Extraordinary item -- -- -- 2.49 -- --
------- ------- ---------- ---------- ---------- ----------
Net income $ 2.12 $ .66 $ 14.15 $ 33.07 $ 11.91 $ .27
======= ======= ========== ========== ========== ==========
Ratio of Earnings
to Fixed
Charges: 1.11 1.05 1.24 1.53 1.37 --
BALANCE SHEET DATA:
Due from/(to) Parent
Company, net $ 1,115,081 $ 1,710,743 $ (400,365) $(5,528,617) $ (22,010)
Total Assets $27,985,426 $25,441,605 $17,696,628 $16,718,823 $2,027,355
Debt Securities
and Other
Debt Payable $24,488,991 $21,982,078 $14,289,648 $ 8,451,106 --
Stockholder's Equity $ 3,230,408 $ 3,188,024 $ 2,904,917 $ 2,243,550 $2,005,345
<FN>
(1) Benefit from utilization of net operating loss carryforwards.
</TABLE>
<PAGE>
<PAGE>
CERTAIN INVESTMENT CONSIDERATIONS - RISK FACTORS
General
1. Limited Operating History: The Company was incorporated on
July 25, 1990, and has been engaged in profitable business operations
since December 1990. Due to such limited operating history no
assurances can be given as to the continued profitability of the
Company, nor are there any guarantees of performance of the Receivables
described herein, although the Company's officers who are also officers
and/or directors of Metropolitan have had extensive experience in the
purchase and servicing of such Receivables. See "Business",
"Management", and "Certain Transactions". The Company's ability to pay
the principal and interest on the Certificates as they become due and
dividends on Preferred Stock will depend on the Company's continued
profitability, measured principally by its ability to maintain a
positive interest spread between the rates on the Certificates and the
returns on its investments.
2. Impact of Interest Rates and Economic Conditions: The results
of operations for financial institutions, including the Company, may be
materially and adversely affected by changes in prevailing economic
conditions, including changes in interest rates. Rates paid on
certificates tend to rise more quickly in a rising interest rate
environment than do rates on Receivables. Presently, however, the
Company's interest sensitive assets will reprice more quickly in 1994
than its interest sensitive liabilities. Additionally, the extent to
which borrowers prepay loans is affected by prevailing interest rates.
When interest rates increase, borrowers are less likely to prepay
loans, whereas when interest rates decrease, borrowers are more likely
to prepay loans. Prepayments may or may not adversely affect the
levels of Receivables retained in the Company's portfolio, as well as
its net interest income. See "Business - Real Estate Receivable
Investments - Yield and Discount Considerations". Recently, the
interest rate environment has been one of declining rates and a steep
"yield curve". That is, long-term rates are significantly higher than
short-term rates. This environment has had a positive effect on the
Company's profitability. It is unlikely, however, that this favorable
interest rate environment will continue indefinitely. The Company is
exposed to the risk that its interest expense may rise more quickly
than its interest income. Currently, the Company's assets reprice
sooner than do its liabilities and, therefore, the Company's net
interest margin may increase if interest rates increase. Conversely,
if interest rates decrease, the Company's net interest income would
likely decrease. See "Management's Discussion and Analysis of
Financial Conditions and Results of Operations - Asset/Liability
Management."
3. Dependence Upon Parent Corporation and Management: All
decisions with respect to the day-to-day management of the Company will
be made exclusively by its officers, who are also officers and/or
directors of Metropolitan, the Company's parent, which is responsible
for the selection and acquisition of Receivables, the servicing and
management of such Receivables, and other administrative services for
the Company. These arrangements are expected to continue indefinitely.
See "Certain Transactions." However, the Company is not contractually
restricted from obtaining these services from outside sources. The
Receivables acquired through Metropolitan consist of those considered
acceptable by Metropolitan for its own portfolio but considered excess
to Metropolitan's needs. See "Business". Through September 30, 1993,
the Receivables were purchased by the Company at Metropolitan's cost of
acquisition. Metropolitan may charge an underwriting fee to the Company
for underwriting services in connection with such transactions in the
future.
4. Conflicts of Interest: Since the Company and Metropolitan are
affiliated and all of the Company's officers and directors are also
officers and directors of Metropolitan, certain conflicts of interest
may arise between the companies. The officers and directors expect to
devote as much time as necessary to the affairs of the Company. See
Note 7, Financial Statements. The Company may compete with
Metropolitan in the acquisition of Receivables. Metropolitan will also
be entitled to receive dividends from the Company except to the extent
that applicable corporate law prohibits the payment of dividends if the
effect would be the insolvency of the Company. There is otherwise no
legal obligation for Metropolitan to maintain the Company's net worth
or to support the Company's operations. Currently, the Company, its
parent company and C. Paul Sandifur, Jr. are negotiating a
reorganization which would involve the sale of the Company to C. Paul
Sandifur, Jr. See "Certain Transactions." Currently, Mr. Sandifur has
effective control over Metropolitan and through Metropolitan has
effective control of its subsidiaries including the Company. Following
this proposed reorganization, Mr. Sandifur would have direct control of
the Company. If this transaction is consummated, it is anticipated that
there would be no change in the directors. If this transaction is
consummated, it is anticipated that the current officers of the Company
would resign and new officers, who would not be officers of
Metropolitan would be elected. It is anticipated that these newly
elected officers would continue to be employees of Metropolitan. It is
not anticipated that this proposed reorganization or change in officers
would materially effect the management, or operations. If this proposed
sale occurs, conflicts of interest, are not anticipated to be
substantially different from those that currently exist, such as
conflicts in the time available to devote to the Company and conflicts
with respect to the selection of Receivables as described above. Other
conflicts may arise in the normal course of business transactions.
Such potential additional conflicts cannot currently be identified with
any certainty and therefore cannot be quantified at this time. The
purchasers of the Certificates and Preferred Stock must, to a great
extent, rely on the integrity and corporate fiduciary responsibilities
of the Company's current and future officers and directors to assure
themselves that they will not abuse their discretion in selecting
Receivables for purchase from Metropolitan, and in making other
business decisions.
5. Use of Leverage and Related Indebtedness: The Company's
primary sources of new financing for its operations are the sale of
certificates and preferred stock. See Business - Method of Financing
and Management's Discussion and Analysis of Financial Condition and
Results of Operations. The Company's principal sources of cash flow
include Receivable payments and proceeds from the sale of certificates
and preferred stock. To the extent the Company's cash flow is
insufficient or unavailable for the payoff of certificates which mature
during the period ending January 31, 1995, portions of the net proceeds
from this Certificate and Preferred Stock offering may be used for such
purpose. See "Use of Proceeds". Approximately $1,918,000 in principal
amount of Investment Certificates will mature between January 31, 1994
and January 31, 1995. It has been the Company's experience that the
majority of the Investment Certificates are sold with a five year
maturity. The Company was established less than five years ago.
Therefore, it has not yet experienced significant levels of maturities
of outstanding Investment Certificates. The cash flow from the existing
assets has been adequate during the past three years to satisfy the
demand for payment of maturing investment certificates. The Company's
ability to repay its other outstanding obligations, including those
created by the sale of the securities described herein, may be
contingent upon the success of future public offerings of certificates
and preferred stock.
The Company, its parent company and C. Paul Sandifur, Jr. are
currently negotiating a possible reorganization which would involve the
sale of the Company to C. Paul Sandifur, Jr. followed by the sale of
Old Standard to the Company. The proposed transaction is in formative
stages, however, it is not currently anticipated that the sale of the
Company to Mr. Sandifur would materially effect the leverage of the
Company. It is currently anticipated that the second step in the
proposed transaction, which involves the sale of Old Standard to the
Company would approximately double the leverage of the Company on a
consolidated basis. No assurance is made that the transaction will
occur as currently proposed. See "Certain Transactions."
6. Concentration of Investments in Real Estate Receivables:
Approximately 77% of the Company's assets at September 30, 1993 were
invested in Receivables. As of that date approximately 67% of such
investments were secured by first position liens with 33% secured by
second or lower position liens. Although there exists a generally
inherent greater risk of loss with respect to non-first position lien
receivables, generally higher yields are required for such investments.
See "Business - Investment in Real Estate Secured Receivables." As of
September 30, 1993, approximately 21% of the Receivable portfolio was
collateralized by real estate located in the Pacific Northwest
(Washington, Oregon, Idaho and Montana) and approximately 9% by
property located in California and approximately 27% by property
located in Hawaii. The receivables located in Hawaii are principally
timeshare receivables which were purchased from an affiliate in
December, 1992. These receivables were subsequently sold to
Metropolitan on February 18, 1994. The original purchase and subsequent
sale were at a price equal to 100% of the face amount of the
outstanding receivables at the respective sale dates. See Note 2,
Financial Statements, and "Business-Plan of Operation-Method of
Financing." All such Receivable investments are subject to a risk of
the obligor's default on the obligation and loss in the event of
foreclosure. The risk of default or loss on resale can be affected by
changes in general or local economic conditions, property values,
changes in zoning, land use, environmental laws and other legal
restrictions including restriction and timing on methods of
foreclosure.
Relative to Certificates
1. Lack of Indenture Restrictions and Related Indebtedness: The
Indenture pursuant to which the Certificates are issued does not
restrict the Company's ability to issue additional certificates or to
incur other debt. Neither does the Indenture require the Company to
maintain any specified financial ratios, minimum net worth or minimum
working capital. The Certificates are senior in liquidation to all
outstanding equity securities of the Company, are subordinate only to
the Company's collateralized debt and are on a parity with all other
outstanding certificates, unsecured accounts payable and accrued
liabilities. There are no limitations on the Company's ability to
incur collateralized debt. As of September 30, 1993, the Company's
collateralized debt and related accrued interest amounted to $23,000.
There was $20,082,000 of principal plus compounded and accrued interest
of $1,877,000 on outstanding certificates on September 30, 1993.
2. Absence of Insurance and Guarantees: The Certificates are
neither insured by the Company's parent, nor any governmental agency
(as are certain investments in financial institutions such as banks,
savings and loans or credit unions) nor are they guaranteed by any
public agency or private entity. It should also be noted that the
Company is not subject to any generally applicable governmental
limitations on its own borrowing. In these respects, the Company is
similar to most other commercial enterprises which sell debt to public
investors, but dissimilar to those financial institutions providing
insurance against the risk of loss to investors. The investment risk
in the Certificates is thus higher than the risk incurred by investors
in such insured financial institutions. There are no provisions for a
sinking fund for repayment of the Certificates.
3. Absence of Trading Market/Liquidity: It is not anticipated
that a trading market for the Certificates will develop. The
Certificates are not subject to redemption prior to maturity.
Prepayments pursuant to the "prepayment on death" provision described
in "Description of Certificates" or upon mutual agreement between the
Company and the Certificateholders will not constitute redemptions.
Prospective investors should carefully consider their needs for
liquidity before investing in the Certificates and upon investing,
should be prepared to hold the Certificates until maturity. See
"Description of Securities".
Relative to Preferred Stock
1. Effect of Certain Subordination and Liquidation Rights: The
liquidation preference of Preferred Stock offered herein is $100 per
share. In the event of liquidation of the Company, outstanding shares
of Preferred Stock are at parity with the liquidation preference of all
other series of preferred stock of the Company which may be
outstanding, and are subordinate to all outstanding debt of the Company
including its Certificates. Preferred Stock is preferred in liquidation
to the Company's common stock. As of September 30, 1993, total assets
of the Company were approximately $25,442,000 and the total liabilities
of the Company ranking senior in liquidation preference to Preferred
Stock were approximately $22,254,000.
The preference in liquidation would not necessarily be applicable
to terms afforded Preferred Stock in the event of other extraordinary
corporate events such as the sale of substantially all its assets,
capital restructuring, merger, reorganization and bankruptcy. The
outcomes thereof could be subject to negotiation among all interested
parties and/or court determinations and are not presently determinable.
In such circumstances Preferred Stock would not necessarily enjoy any
preference over terms available to common stock, or even be as
favorable.
2. Federal Income Tax Considerations: To the extent that the
Company may not have current or accumulated earnings and profits as
computed for federal income tax purposes, the Company believes that
distributions made with respect to Preferred Stock would be
characterized as tax free returns of capital for federal income tax
purposes. A tax free distribution reduces a shareholder's basis to the
extent of the distribution received. Such distributions are tax free to
both corporate and individual holders to the extent of their basis in
the stock. Distributions in excess of the holder's basis are
considered capital gain income. In the event a holder of Preferred
Stock disposes of the stock in a taxable sale or exchange, taxable gain
may be recognized by the holder to the extent prior distributions were
a tax-free return of capital. In the event the Company has earnings
and profits for federal income tax purposes in any future year, the
distributions paid in that year will constitute taxable income to the
recipient to the extent of such earnings and profits. Corporate
holders generally can exclude 70% of taxable dividends received in any
year (which will be reduced if it has debt that is directly
attributable to the holder's investment in the Preferred Stock). The
Company is unable to predict the future character of its distributions.
Purchasers are advised to consult their own tax advisors with respect
to the federal income tax treatment of distributions made. See
"Description of Preferred Stock-Federal Income Tax Consequences of
Distributions."
3. Limited Marketability of Shares: The Preferred Stock has no
sinking fund, mandatory redemption or maturity date, nor any other
provision for retirement or redemption or pay off apart from preference
over common stock in a final liquidation of the Company. Also See
"Limitations on Redemptions and Distributions".The Preferred Stock is
not expected to be traded on any National or Regional Stock Exchange
and no independent public market for Preferred Stock is anticipated.
At present, management does not anticipate applying for a listing for
such public trading. In order to provide the parent company's
preferred shareholders with some liquidity, the Company's broker/dealer
affiliate has operated an in-house trading list to match buyers and
sellers of the parent company's preferred stock. The Company will use
its best efforts to make this listing available for the Preferred Stock
offered hereunder following completion of this offering. With limited
exceptions, the Company has established a policy that all preferred
shareholders must place their shares for sale on the in-house trading
list for 60 consecutive days before the Company will entertain a
request for redemption. There is no assurance that the shares will be
sold within the 60 day period. There is no assurance that the Company
will redeem the shares if they have not sold within the 60 day period.
Therefore, a prospective purchaser should not rely on this in-house
trading list or the Company's discretionary redemption provisions as
assurance that such shares could ever be sold or redeemed. The Company
may discontinue this system at anytime. There can be no assurance that
this system will continue to operate, nor that it will provide
liquidity comparable to securities traded on recognized public stock
exchanges. See "Description of Preferred Stock-Redemption of Shares".
4. Control by Common Shareholders: The Common Stock is the only
class of the Company's stock carrying voting rights. Common
stockholders now hold, and upon completion of this offering will
continue to hold, effective control of the Company except as described
below. The Board resolution authorizing the Preferred Stock provides
that in the event distributions payable on any shares of preferred
stock, including the Preferred Stock offered hereunder, are in arrears
in an amount equal to twenty four full monthly dividends or more per
share, then the holders of Preferred Stock and all other outstanding
preferred stock shall be entitled to elect a majority of the Board of
Directors of the Company. Preferred Stock shareholders may also become
entitled to certain other voting rights as required by law. See
"Description of Preferred Stock-Voting Rights".
5. Limitations on Redemption and Restrictions on Distributions:
Preferred Stock is designed as a long term investment in the equity of
the Company, not as a short-term liquid investment. The Preferred
Stock is redeemable solely at the option of the Company, and with
limited exceptions is specifically not redeemable for 3 years following
its purchase. In addition, the Company may not purchase or acquire any
shares of Preferred Stock in the event that cumulative dividends
thereon have not been paid in full except pursuant to a purchase or
exchange offer made on the same terms to all holders of Preferred
Stock. See "Description of Preferred Stock-Redemption of Shares". The
Company is restricted from making distributions on Preferred Stock in
the event that any distributions to which the holders of other series
of preferred stock are entitled to have not been paid. See "Description
of Preferred Stock-Distributions."
<PAGE>
<PAGE>
DESCRIPTION OF SECURITIES
Description of Certificates
The Certificates will be issued under a Trust Indenture, as
amended, dated as of November 15, 1990, between the Company and West
One Bank, Idaho, N.A. as Trustee (the "Trustee"). The following
statements under this caption relating to the Certificates and the
Indenture are summaries and do not purport to be complete. Such
summaries are subject to the detailed provisions of the Indenture and
are qualified in their entirety by reference to the Indenture. A copy
of the Indenture is filed as an exhibit to the Registration Statement
of which this Prospectus is a part and is incorporated in this
Prospectus by reference.
General
The Certificates will represent general unsecured obligations of
the Company and will be issued in fully registered form without
coupons, in fractional denominations of $0.01 or more. The Certificates
will be sold at 100% of the principal amount, subject to the stated
minimum investment amount requirements. The Certificates will have the
maturities and the interest rates set forth on the cover page of this
Prospectus. The stated interest rates, maturities, minimum investment
amounts and incremental denominations of unissued Certificates may be
changed at any time by the Company. Any such change will have no effect
on the terms of the previously sold certificates.
Certificates may be transferred or exchanged for other
Certificates of the same series of a like aggregate principal amount,
subject to the limitations provided in the Indenture. No service
charge will be made for any transfer or exchange of Certificates. The
Company may require payment of taxes or other governmental charges
imposed in connection with any such transfer or exchange. Interest
will accrue at the stated rate from date of issue until maturity. The
Certificates are not convertible into capital stock or other securities
of the Company.
The Certificates are not subject to redemption prior to maturity,
but may be prepaid pursuant to the prepayment on death provision
described below or in limited circumstances involving an investor's
demonstrated financed hardship, and subject to regulatory restrictions
affecting redemptions and exchanges of securities during an offering,
the Company may, in its sole discretion, entertain a request for an
early payout of a Debenture upon terms mutually agreed to by the holder
of the Debenture and the Company. Such early payout requests, when
received, are reviewed on a first come first served basis and are
subject to review by the Company's Executive Committee.
Payment of Principal and Interest
Interest will be payable in cash to the Certificateholder(s) under
one of several plans of interest payment. The purchaser may elect to
have interest paid on a monthly, quarterly, semiannual or annual basis,
without compounding or elect to accumulate interest with compounding
semiannually at the stated interest rate. Certificateholders make the
interest payment election at the time of purchase of the Certificates.
The interest payment election may be changed at any time by written
notice to the Company. Under the compounding option, the
Certificateholder(s), upon written notice to the Company, may withdraw
the interest accumulated during the last two completed semiannual
compounding periods as well as the interest accrued from the end of the
last compounding period to the date the Company receives the notice.
Amounts compounded prior to the last two compounding periods are
available only at maturity.
At the election of the Certificateholder at the time of
investment, and subject to the minimum term and investment requirements
set forth on the cover page of this Prospectus, level monthly
installments comprised of principal and interest will be paid to the
Certificateholder commencing 30 days from the issue date of the
Certificate until maturity. The amount of each installment will be
determined by the amortization term designated by the Certificateholder
at the time the Certificate is purchased. The minimum amortization
term is 60 months.
Certificateholders will be notified in writing approximately 30
days prior to the date their Certificates will mature. The amounts due
on maturity are placed in a separate non interest-bearing bank trust
account until paid to the Certificateholder(s). Certificates do not
earn interest after the maturity date. Unless otherwise requested by
the Certificateholder, the Company will pay the principal and
accumulated interest due on the matured certificate to the
Certificateholder(s) in cash at the Company's main office, or by check
mailed to the address of the Certificateholder(s).
Prepayment on Death
In the event of the death of a registered owner of a Certificate,
any party entitled to receive some or all of the proceeds of the
Certificate may elect to have his or her portion of the principal and
any accrued but unpaid interest prepaid in full in five consecutive
equal monthly installments. Interest will continue to accrue on the
declining principal balance of such portion. No interest penalties
will be assessed. Any request for prepayment shall be made to the
Company in writing and shall be accompanied by the Certificate and
evidence satisfactory to the Company of the death of the registered
owner or joint registered owner. Before prepayment, the Company may
require the submission of additional documents or other material which
it may consider necessary to determine the portion of the proceeds the
requesting party is entitled to receive, or assurances which, in the
Company's discretion, it considers necessary to the fulfillment of its
obligations.
Related Indebtedness
The Indenture pursuant to which the Certificates are issued does
not restrict the Company's ability to issue additional Certificates or
to incur other debt. The Indenture does not require the Company to
maintain any specified financial ratios, minimum net worth or minimum
working capital. Certificates will not be guaranteed or insured by any
governmental or private agency. The Certificates offered hereby are
senior in liquidation to all outstanding equity securities of the
Company. They are subordinate to the Company's collateralized debt and
are on a parity with all other outstanding certificates, unsecured
accounts payable and accrued liabilities. The amount of outstanding
certificates on September 30, 1993, (including compounded and accrued
interest) was $21,959,000. There are no limitations on the Company's
ability to incur collateralized debt. Collateralized debt outstanding
on that date of $23,000 (principal and accrued interest) consisted
primarily of senior liens on the real estate collateral for the
Company's real estate receivables.
West One Bank, the Trustee, is obligated under the Indenture to
oversee and, if necessary, to take action to enforce fulfillment of the
Company's obligations to Certificateholders. The Trustee is a national
banking association headquartered in Boise, Idaho, with a combined
capital and surplus in excess of $200,000,000. The Company and certain
of its affiliates maintain deposit accounts with and expect to, from
time to time, borrow money from the bank and conduct other banking
transactions with it. At September 30, 1993 and as of the date of this
Prospectus, no loans from the Trustee were outstanding. In the event
of default, the Indenture permits the Trustee to become a creditor of
the Company and does not preclude the Trustee from enforcing its rights
as a creditor, including rights as a holder of collateralized
indebtedness.
Rights and Procedures in the Event of Default
Events of Default include the failure of the Company to pay
interest on any Certificate for a period of 30 days after it becomes
due and payable; the failure to pay the principal or any required
installment thereof of any Certificate when due; the failure to perform
any other covenant in the Indenture for 60 days after notice; and
certain events in bankruptcy, insolvency or reorganization with respect
to the Company. Upon the occurrence of an Event of Default, either the
Trustee or the holders of 25% or more in principal amount of
Certificates then outstanding may declare the principal of all the
Certificates to be due and payable immediately.
The Trustee must give the Certificateholders notice by mail of any
default within 90 days after the occurrence of the default, unless it
has been cured or waived. The Trustee may withhold such notice if it
determines in good faith that such withholding is in the best interest
of the Certificateholders, except if the default consists of failure to
pay principal or interest on any Certificate.
Subject to certain conditions, any such default, except failure to
pay principal or interest when due, may be waived by the holders of a
majority (in aggregate principal amount) of the Certificates then
outstanding. Such holders will have the right to direct the time,
method and place of conducting any proceeding for any remedy available
to the Trustee, or of exercising any power conferred on the Trustee,
except as otherwise provided in the Indenture. The Trustee may require
reasonable indemnity from holders of Certificates before acting at
their direction.
Within 120 days after the end of each fiscal year the Company must
furnish to the Trustee a statement of certain officers of the Company
concerning their knowledge as to whether or not the Company is in
default under the Indenture.
Modification of the Trust Indenture
Certificateholders' rights may be modified with the consent of the
holders of 66 2/3% of the outstanding principal amounts of
Certificates, and 66 2/3% of each series specially affected. In
general, no adverse modification of the terms of payment and no
modification reducing the percentage of Certificates required for
modification is effective against any Certificateholder without his or
her consent.
Restrictions on Consolidation, Merger, etc.
The Company may not consolidate with or merge into any other
corporation or transfer substantially all its assets unless either the
Company is the continuing corporation formed by such consolidation, or
into which the Company is merged, or the person acquiring by conveyance
or transfer of such assets shall be a corporation organized and
existing under the laws of the United States or any state thereof which
assumes the performance of every covenant of the Company under the
Indenture and certain other conditions precedent are fulfilled. The
Indenture contains no other provisions or covenants which afford
holders of the Certificates special protection in the event of a highly
leveraged buyout transaction.
DESCRIPTION OF CAPITAL STOCK
Holders of shares of Common Stock are entitled to one vote per
share on all matters to be voted on by the shareholders. Subject to
the rights of holders of outstanding shares of Preferred Stock, if any,
the holders of Common Stock are entitled to receive such dividends, if
any, as may be declared from time to time by the Board of Directors in
its discretion from funds legally available, and upon liquidation or
dissolution of the Company are entitled to receive all assets available
for distribution to common shareholders. The Common Stock has no
preemptive or other subscription rights, and there are no conversion
rights or redemption or sinking fund provisions with respect to such
shares. All outstanding shares of Common Stock are fully paid and
nonassessable. Currently, Metropolitan holds 100% of the Common Stock
of the Company.
DESCRIPTION OF PREFERRED STOCK
This offering consists of 150,000 shares of Variable Rate
Cumulative Preferred Stock, Series S-1 (hereinafter referred to as
"Preferred Stock"). All of the shares of Preferred Stock offered by
the Company, hereby, when issued and sold against the consideration set
forth in the prospectus will be validly issued, fully paid and
nonassessable. The relative rights and preferences of Preferred Stock
have been fixed and determined by the Board of Directors of the Company
and are set forth in the Preferred Stock Authorizing Resolution (the
"Authorizing Resolution").
The following statements relating to the Preferred Stock are
summaries and do not purport to be complete and are qualified in their
entirety by reference to the Preferred Stock Authorizing Resolution, a
copy of which has been filed with the Commission as an exhibit to the
Registration Statement and is also available for inspection at the
principal office of the Company.
Distributions
Distributions on Preferred Stock are cumulative and are to be
declared monthly on the first business day of the month payable to the
shareholders of record as of the fifth calendar day of each month
commencing on the month following commencement of the offering.
Distributions are to be paid in cash on the twentieth calendar day of
each month in an amount equal to the offering price of $100 per share
multiplied by the distribution rate divided by twelve. The
distribution rate will be the "Applicable Rate" as defined herein
subject to the authority of the Company's Board of Directors to
authorize, by resolution, a higher rate.
The Applicable Rate for any monthly distribution period cannot be
less than 6% or greater than 14% per annum. The Applicable Rate for any
monthly distribution period shall be (i) the highest of the Treasury
Bill Rate, the Ten-Year Constant Maturity Rate and the Twenty-Year
Constant Maturity Rate (each as hereinafter defined), (ii) plus one
half of one percentage point. Should the Company determine in good
faith that one or more of such rates cannot be determined for any
distribution period, then the Applicable Rate of such period shall be
the higher of whichever of such rates can be so determined, plus one
half of one percentage point. Should the Company determine in good
faith that none of such rates can be determined for any distribution
period, then the Applicable Rate in effect for the preceding
distribution period shall be continued for such distribution period.
The distribution rate for each monthly distribution period shall be
calculated as promptly as practical by the Company. The Company will
cause notice of the distribution rate to be enclosed with the next
mailed distribution payment check. In making such calculation, the
Treasury Bill Rate, Ten-Year Constant Maturity Rate and Twenty-Year
Constant Maturity Rate shall each be rounded to the nearest five
hundredths of a percentage point.
The Company's Board of Directors has adopted a resolution to
authorize a distribution rate on the Preferred Stock at one percentage
point higher than the Applicable Rate. Such higher distribution rate
will continue from month to month until the Board elects to terminate
it.
Treasury Bill Rate
Except as provided below in this paragraph, the "Treasury Bill
Rate" for each distribution 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 weekly Calendar Period (as defined
below)) for the 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
distribution period for which the distribution rate on Preferred Stock
is being determined. In the event that Federal Reserve Board does not
publish such weekly per annum market discount rate during any such
Calendar Period, then the Treasury Bill Rate for the related
distribution 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 the 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
the 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 distribution 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 the 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 the
Company cannot determine the Treasury Bill Rate for any distribution
period as provided above in this paragraph, the Treasury Bill Rate for
such distribution 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 noninterest
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 distribution period as provided above in
this paragraph, the Treasury Bill Rate for such distribution 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.
Ten-year Constant Maturity Rate
Except as provided below in this paragraph, the "Ten-Year Constant
Maturity Rate" for each distribution 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 distribution period for
which the distribution rate on Preferred Stock 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 distribution 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
distribution 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 than 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 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 Ten Year Constant Maturity Rate for
any distribution period as provided above in this paragraph, then the
Ten-Year Constant Maturity Rate for such distribution 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 or more then twelve years from the date of each
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 distribution 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 distribution period for which the
distribution rate on Preferred Stock is being determined. In the event
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 distribution 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 distribution 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 the Company determines in good faith that for any
reason the Company cannot determine the Twenty-Year Constant Maturity
rate for any distribution period as provided above, then the
Twenty-Year Constant Maturity Rate for such distribution 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
of not less than eighteen or 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 of maturities for actively traded
marketable U.S. treasury fixed interest rate securities (adjusted to
constant maturities of 20 years).
Restrictions on Distributions
The Company may not declare or pay a distribution on any share of
Preferred Stock for any distribution period unless, at the same time a
like distribution shall be declared or paid on all shares of preferred
stock then issued and outstanding and entitled to receive
distributions. See "Capitalization".
So long as any shares of Preferred Stock are outstanding, and
unless the full cumulative dividends on all outstanding preferred
shares shall have been paid or declared and set apart for all past
dividend periods, the Company may not: (i) declare or pay or set aside
for payment any 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
paragraph); (ii) declare or pay any other distribution upon common
stock or upon any other stock ranking junior to or on a parity with
Preferred Stock as to dividends or upon liquidation; or (iii) redeem,
purchase or otherwise acquire common stock or any other stock of the
Company ranking junior to or on a parity with Preferred Stock as to
dividends or upon liquidation for any consideration (or pay or make
available any funds for a sinking fund for the redemption of any shares
of any such stock) except by conversion into or exchange for stock of
the Company ranking junior to Preferred Stock as to dividends and upon
liquidation.
The Company may make distributions ratably on the shares of
Preferred Stock and shares of any stock of the Company ranking on a
parity therewith with regard to the payment of dividends, in accordance
with the sums which would be payable on such shares if all dividends,
including accumulations, if any, were declared and paid in full. As of
the date hereof, no dividends on the Company's common stock are in
arrears. No interest will be paid for or on account of any unpaid
dividends.
Liquidation Rights
In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company, the holders of shares of
Preferred Stock will be entitled to receive out of the assets of the
Company available for distribution to stockholders, before any
distribution of assets is made to holders of common stock or any stock
of the Company ranking, upon liquidation, junior to Preferred Stock,
liquidating distributions in the amount of $100 per share plus declared
and unpaid dividends. Preferred Stock is junior in liquidation to
outstanding debt of the Company. As of September 30, 1993, the total
liabilities of the Company ranking senior in liquidation preference to
Preferred Stock were $22,254,000. There were no previous series of
preferred stock issued and outstanding as of September 30, 1993. See
"Business - Regulation". There are no limitations on the Company's
ability to incur additional secured indebtedness. See "Capitalization
and Certain Investment Considerations - Risk Factors".
The Preferred Stock Authorizing Resolution provides that, without
limitation, the voluntary sale, lease or conveyance of all or
substantially all of the Company's property or assets to, or its
consolidation or merger with, any other corporation shall not be deemed
to be a liquidation, dissolution or winding up of the Company. If,
upon any voluntary or involuntary liquidation, dissolution or winding
up of the Company, the amounts payable with respect to Preferred Stock
and any other shares of stock of the Company ranking as to any such
distribution on a parity with Preferred Stock are not paid in full, the
holders of Preferred Stock and of such other shares will share ratably
in any such distribution of assets of the Company in proportion to the
full respective preferential amounts to which they are entitled. After
payment of the full amount of the liquidating distribution to which
they are entitled, the holders of shares of Preferred Stock will not be
entitled to any further participation in any distribution of assets by
the Company.
Redemption of Shares
Upon call by the Company: . . . Subject to regulatory restrictions
affecting redemptions during an offering, the shares of Preferred Stock
are redeemable, in whole or in part, only at the option of the Company
at a redemption price of $102 per share if redeemed prior to January 1,
1995 and $100 per share if redeemed thereafter plus, in each case,
declared and unpaid dividends to the date fixed for redemption. In the
event that fewer than all of the outstanding shares of Preferred Stock
are to be redeemed, the number of shares to be redeemed shall be
determined by the Corporation and the shares to be redeemed shall be
determined by such method as the Company, in its sole discretion, deems
to be equitable.
Discretionary Redemption Upon Request of the Holder: . . . As
provided in the Preferred Stock Authorizing Resolution, the shares of
Preferred Stock are not redeemable at the option of the holder. If,
however, the Company receives an unsolicited written request for
redemption of a block of shares from any holder, the Company may, in
its sole discretion, subject to regulatory restrictions, and subject to
the limitations described below, accept such shares for redemption.
Such redemption requests are reviewed on a first come first served
basis, and are subject to review by the Company's Executive Committee.
Any shares so tendered, which the Company in its discretion, allows for
redemption shall be redeemed by the Company 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 Company may
change such optional redemption prices at anytime with respect to
unissued shares of Series S.
There can be no assurance that the Company's financial condition
will allow it to exercise its discretion to accept any particular
request for redemption of Preferred Stock. The Company will not redeem
any such shares tendered for redemption if to do so would be unsafe or
unsound in light of the Company'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. In the event that cumulative dividends on Preferred Stock
have not been paid in full, the Company may not purchase or acquire any
shares of Preferred Stock otherwise than pursuant to a purchase or
exchange offer made on the same terms to all holders of Preferred
Stock.
As provided in the Preferred Stock Authorizing Resolution, for a
period of three years from the date of initial sale of each share of
Preferred Stock, any 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.
The Preferred Stock is not expected to be traded on any National
or Regional Stock Exchange and no independent public market for
Preferred Stock is anticipated. Management does not anticipate
applying for a listing for such public trading. In order to provide
shareholders with some liquidity, the Company's broker/dealer
subsidiary operates an in-house trading list to match buyers and
sellers of issues of the parent company's preferred stock. The parent
company and the Company do not participate as a buyer or seller on the
in-house trading list. The Preferred Stock offered hereunder will not
be eligible for sale on the trading list until after this offering is
completed. With limited exceptions, the parent company has established
a policy that all preferred shareholders must place their shares for
sale on the in-house trading list for 60 consecutive days before the
Company will entertain a request for redemption. Following termination
of the offering, the Company may also require that holders of Preferred
Stock attempt to sell their shares on the in-house trading list prior
to tendering the shares for redemption to the Company.
Voting Rights
The Preferred Stock has no voting rights except as provided in the
Preferred Stock Authorizing Resolution and except as required by Idaho
State Law regarding amendments to the Company's Articles of
Incorporation which adversely affect holders of such shares as a class
and requires approval of a majority of the outstanding shares entitled
to vote.
The Preferred Stock Authorizing Resolution provides that holders
of Preferred Stock, together with the holders of the Company's other
preferred stock thereafter authorized, voting separately and as a
single class, shall be entitled to elect a majority of the Board of
Directors of the Company in the event that distributions payable on any
shares of Preferred Stock shall be in arrears in an amount equal to
twenty-four full monthly dividends per share. Such right will continue
until all distributions in arrears have been paid in full.
Federal Income Tax Consequences of Distributions
The following discussion of the federal income tax consequences of
distributions is based upon the present Internal Revenue Code of 1986
as amended (the "Code"), existing Treasury regulations, current
published administrative positions of the Internal Revenue Service (the
"Service") contained in revenue rulings revenue procedures and notes
and existing judicial decisions. No assurance can be given that
legislative or administrative changes or court decisions may not be
forthcoming that could significantly modify the statements in this
discussion. Any such changes may or may not be retroactive with respect
to transactions effected prior to the date of such changes.
Distributions made to the holders of Preferred Stock will either
be taxable or not depending, in part, on the extent to which they are
made out of current or accumulated earnings and profits of the Company
as calculated for federal income tax purposes. To the extent, if any,
that distributions made by the Company to the holders of Preferred
Stock exceed current and accumulated earnings and profits of the
Company, such distributions will be treated first as a tax-free return
of capital, reducing the holder's basis in Preferred Stock (not below
zero) and thereafter as capital gains (provided Preferred Stock is held
by the holder as a capital asset).
Distributions treated as capital gains result in (1) federal
income tax to a corporate holder at a maximum federal rate of 35% for
1993 and thereafter (exclusive of the impact, if any, of the
alternative minimum tax imposed by Section 55 of the Code) and (2)
federal income tax to a noncorporate holder on any amount treated as a
long-term capital gain at a maximum rate of 28% for 1993 and thereafter
(exclusive of the impact, if any, of the alternative minimum tax
imposed by Section 55 of the Code). Under certain circumstances,
distributions could be taxed as short-term capital gains which are
subject to the same tax rates as dividends. For 1993 and later years,
the maximum tax rate of noncorporate holders on such ordinary income is
39.6% which may be higher pursuant to certain statutory adjustments.
Although the Company believes that distributions made to the
holders of Preferred Stock may initially constitute nontaxable
distributions for federal income tax purposes, as described above,
certain events may cause the distributions to be treated as taxable
dividends. For example, the Company may generate taxable earnings and
profits, as computed for federal income tax purposes in future years,
the Service may challenge the Company's tax accounting methods, or
legislative enactments may cause a change in either the Company's tax
accounting methods or the manner in which earnings and profits are
computed for federal income tax purposes.
If, and to the extent, distributions made to the holders of
Preferred Stock constitute dividends for federal income tax purposes,
any corporate holder of Preferred Stock otherwise entitled to the 70%
dividends received deduction permitted by Section 243 of the Code will
be entitled to such deduction with respect to such dividends. If such
holder is entitled to the full dividends-received deduction, the
maximum effective federal income tax rate on such dividends will be
10.5% based on existing federal income tax rates applicable to
corporations generally (exclusive of the alternative minimum tax).
However, a corporate holder should be aware that, under Code Section
246A, the 70% dividends received deduction will be reduced if the
holder has debt that is directly attributable to the holder's
investment in Preferred Stock. In addition, corporate shareholders may
be required under Code Section 1059 to treat the amount of dividends as
an extraordinary dividend and reduce the remaining basis and recognize
capital gain if no basis remains when the stock is sold. Noncorporate
taxpayers are not entitled to such a dividends received deduction.
The corporate dividends received deduction, pursuant to Section
246(b)(1) of the Code, cannot exceed 70% of the corporate shareholder's
taxable income computed without regard to the dividends received
deduction, net operating loss deduction, and certain other deductions
and adjustments. Code Section 246(b)(2) provides that the 246(b)(1)
limitation does not apply for any taxable year for which there is a net
operating loss and, for purposes of determining whether there is a net
operating loss, the dividends received deduction is allowed without
regard to the 246(b)(1) limit. In addition, Section 246(c)(2)
mandates, in the case of preferred stock, that the stock on which the
dividend is paid be held for at least 91 days in order for the
corporate shareholder to qualify for the dividends received deduction.
This rule applies if the holder receives dividends on that stock which
were attributable to a period or periods more than 366 days. Special
rules prescribed by Section 246(c)(3) apply for determining holding
periods.
At this time, the Company is unable to determine the
characterization of distributions to be made during calendar 1994 or
any future year.
In the event the holder of Preferred Stock disposes of the stock
by redemption or otherwise in a taxable sale or exchange, the holder
will recognize gain equal to the excess of the amount received over the
holder's basis in the stock. The basis is equal to the holder's cost of
acquiring the stock, which is anticipated to be the $100 per share
offering price. This amount is reduced (not below zero) by the return
of capital distributions previously received by the holder. Provided
the stock is held by such holder as a capital asset, such gain would be
capital gain.
Thus, the basis in the Preferred Stock may ultimately be reduced
to zero assuming distributions are a return of a capital and that the
holder received aggregate distributions at least equal to the holder's
basis. In that event, the entire amount received by the holder from
redemption or otherwise in a taxable sale or exchange would be
recognized as gain.
Prospective purchasers are advised to consult their own tax
advisor with respect to the income tax treatment or any distribution
made with respect to the Preferred Stock.
Distributions paid with respect to Preferred Stock, whether deemed
to be dividends, return of capital, or capital gains for federal income
tax purposes will result in the same federal income tax consequences to
the Company as other payments of dividends. These distributions are not
deductible by the Company under current tax law. Additionally,
distributions to foreign taxpayers are subject to special rules not
discussed herein.
TAX WITHHOLDING WITH RESPECT TO CERTIFICATES AND PREFERRED STOCK
The Code generally requires reporting of all distributions on
capital stock and inclusion of dividends as income to the stockholder.
In addition, the Code requires the reporting of interest income earned
on investment certificates, and inclusion of interest as income to the
certificate holder. The Code will, in certain instances, require 31%
backup withholding by the payor of such dividends and interest.
In general, the Company is required to file with the Service each
year a Form 1099-DIV and Form 1099-INT information return (with a copy
to the holder) reporting the amount of dividends and interest paid to
the applicable holder during each calendar year. The holder must report
dividends, capital gain distributions or interest as income on the
holder's federal income tax return for that year. In addition,
nontaxable distributions on capital stock may be subject to tax if the
stockholder has no remaining tax basis in the stock.
Backup withholding on dividends and interest generally will be
imposed if:
(1) the taxpayer fails to furnish a taxpayer identification
number to the payor;
(2) the Service notifies the payor twice within three calendar
years that the taxpayer furnished an incorrect taxpayer identification
number;
(3) the taxpayer is notified that he is subject to backup
withholding because he failed to report taxable dividends or interest
applicable;
(4) the taxpayer fails to certify to the payor that the taxpayer
is not subject to backup withholding; or
(5) the taxpayer fails to certify his taxpayer identification
number.
Transfer Agent and Registrar
The Company acts as its own Transfer Agent and Registrar for its
Certificates and capital stock.
<PAGE>
<PAGE>
LEGAL MATTERS
LEGAL OPINION
The legality of the Certificates and Preferred Stock being offered
hereby is being passed upon for the Company by Susan A. Thomson, Esq.,
who is employed by Metropolitan as its Assistant Corporate Counsel and
Assistant Secretary, is a Vice President and legal counsel for
Metropolitan Investment Securities, Inc. and is Assistant Corporate
Counsel for the Company.
LEGAL PROCEEDINGS
There are no material legal proceedings or actions pending or
threatened against the Company, or to which its property is subject.
EXPERTS
The Financial Statements of the Company as of September 30, 1993
and for the year ended September 30, 1993 included in this Prospectus
have been included herein in reliance on the report, which includes an
explanatory paragraph describing changes in the Company's methods of
accounting for repossessed real properties and income taxes, of Coopers
& Lybrand, independent accountants given on the authority of that firm
as experts in accounting and auditing. The Financial Statements and
schedules of the Company as of September 30, 1992 and for each of the
years in the two-year period ended September 30, 1992 included in this
Prospectus and in the Registration Statement have been audited by BDO
Seidman, independent certified public accountants, to the extent and
for the periods set forth in their reports appearing elsewhere herein,
and in the Registration Statement, and are included in reliance upon
such reports given upon the authority of said firm as experts in
auditing and accounting. <PAGE>
<PAGE>
PLAN OF DISTRIBUTION
The Certificates and Preferred Stock are offered directly to the
public on a continuing best efforts basis through the Company's
affiliate, Metropolitan Investment Securities, Inc. (MIS).
Accordingly, the offering has not received the independent selling
agent review customarily made when an unaffiliated selling agent offers
securities. MIS is the exclusive selling agent for the publicly issued
securities of the Company and its parent company, Metropolitan Mortgage
& Securities Co., Inc. No commission or other expense of the offering
will be paid by the purchasers of the Certificates or Preferred Stock.
A commission will, however, be paid by the Company on most Certificate
purchases ranging from 0.25% to 5% of the Certificate price, depending
on the term of the Certificate and whether or not the transaction is a
reinvestment or new purchase. A commission in the maximum amount of 5%
of the offering price will also be paid by the Company on most
Preferred Stock purchases. Certificates are offered only for cash or
cash equivalents. Preferred Stock is offered for cash or other
consideration acceptable to the Company as determined by the Board of
Directors. The Company will also pay certain other expenses in
connection with the offering. During the three fiscal years ended
September 30, 1993, MIS has received commissions of $667,000 from the
Company on sales of approximately $23,612,000 of the Company's
certificates. Preferred Stock was not sold in previous years.
MIS is a member of the National Association of Securities
Dealer's, Inc. (NASD). As such Schedule E of the By-laws of the NASD
applies and requires, in part, that a qualified independent underwriter
be engaged to render an opinion regarding the fairness of the interest
rates to be paid on the Certificates and the fairness of the pricing of
the Preferred Stock offered through this Prospectus. Accordingly, MIS
has obtained an opinion from Welco Securities, Inc., an NASD member,
("Welco") that the interest rates on the Certificates using a formula
tied to corresponding interest rates paid by the U.S. Treasury and
regional financial institutions meets this fairness objective based on
conditions and circumstances existing as of the date of the Prospectus.
A similar opinion has been obtained from Welco, which states that the
offering price of the Preferred Stock meets the fairness objective
based on conditions and circumstances, existing as of the date of the
Prospectus. The Company undertakes to maintain the interest rates on
Certificates no lower than those recommended by Welco based on the
formula. Accordingly, the yield at which the Certificates will be
distributed will be no lower than that recommended by Welco and the
price offered for the Preferred Stock will be no higher than Welco
would have independently recommended. Welco has assumed the
responsibilities of acting as the qualified independent underwriter in
pricing the offering and conducting due diligence. For performing its
functions as a qualified independent underwriter with respect to the
Certificates and Preferred Stock offered hereunder, Welco is to be paid
$33,500 in fees and $10,000 in non-accountable expenses plus its
accountable expenses, which are not expected to exceed $2,500.
There is not now and the Company does not expect that there will
be a public trading market for the Certificates or Preferred Stock in
the future. MIS does not intend to make a market for the Certificates
or Preferred Stock. However, MIS maintains a list of its parent
company's, Metropolitan's, preferred stock holders who wish to sell
Metropolitan's preferred stock. The Company will use its best efforts
to make this listing available for Preferred Stock offered hereunder
following completion of this offering. See "Certain Investment
Considerations -Risk Factors-Limited Marketability of Shares."
MIS may enter into selected dealer agreements with and reallow to
certain dealers who are members of the NASD, and certain foreign
dealers who are not eligible for membership in the NASD, a commission
of up to 5% of the principal amount of Certificates and Preferred Stock
sold by such dealers. After the commencement of the offering the
commissions and reallowances, if any, may be lowered.
USE OF PROCEEDS
Certificate Proceeds . . . . The Company expects net proceeds from this
Certificate offering of $38,000,000 to $39,900,000 before deducting
expenses estimated at $165,000 (combined total for both Certificates
and Preferred Stock expenses) and after sales commissions, assuming all
of the Certificates are sold. There can be no assurance, however, that
any of the Certificates can be sold. Sales commissions will range
between $100,000 and $2,000,000 (0.25% to 5%) depending on maturities
of Certificates sold and whether sales are reinvestments or new
purchases. Such proceeds may be supplemented with funds generated by
the Company's operations and/or borrowings from brokers or banks. See
"Business-Method of Financing."
Preferred Stock Proceeds . . . .The Company expects net proceeds from
this Preferred Stock offering of $14,250,000 to $15,000,000 before
deducting expenses estimated at $165,000 (combined total for both
Certificates and Preferred Stock expenses) and after sales commissions
of up to $750,000 (5%), assuming all of the Preferred Stock is sold.
There can be no assurance, however, that any of the Preferred Stock can
be sold. Such proceeds may be supplemented with funds generated by
the Company's operations and/or borrowings from brokers or banks. See
"Business-Method of Financing."
In conjunction with the other funds available to it, the Company
will utilize the proceeds of the Certificates and Preferred Stock
offerings for funding investments in Receivables, and other
investments, which may include the acquisition of affiliates as part of
a corporate reorganization. See "Certain Transactions". To the extent
internally generated funds are insufficient or unavailable for the
retirement of maturing certificates through the period ending January
31, 1995, and for payment of operational expenses and preferred stock
dividend requirements, portions of the net proceeds of this offering
may also be used for such purposes. Approximately $1,918,000 million
in principal amount of debt securities will mature between January 31,
1994 and January 31, 1995 with interest rates ranging from 6% to 10%
and averaging approximately 7.7% per annum. See Note 4 to the
Consolidated Financial Statements and "Certain Investment
Considerations - Risk Factors".
Management anticipates that some of the proceeds of this offering
will be invested in money market funds, bank repurchase agreements,
commercial paper, U.S. Treasury Bills and similar short term
investments until used as stated above. Due to the Company's inability
to accurately forecast the total amount of Certificates or Preferred
Stock to be sold pursuant to this offering, no specific amounts have
been allocated for any of the foregoing purposes.
CIRCULAR DIAGRAM OF USE OF PROCEEDS REFER TO GRAPH APPENDIX ITEM 2
<PAGE>
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company
at September 30, 1993 and December 31, 1993:
<TABLE>
<CAPTION>
September 30, December 31,
1993 1993
<S> <C> <C>
DEBT PAYABLE
Real estate contracts and
mortgage notes payable
7% to 10%, due 1993 to 2002 $ 22,653 $ 84,656
----------- -----------
INVESTMENT CERTIFICATES
Investment Certificates,
Maturing 1993 to 1998,
at 6% to 11% 20,082,501 22,207,458
Compound and accrued interest 1,876,924 2,196,877
----------- -----------
Total Investment Certificates 21,959,425 24,404,335
----------- -----------
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 1,230,408
----------- ----------
Total Stockholder's Equity 3,188,024 3,230,408
----------- ----------
Total Capitalization $25,170,102 $27,719,399
=========== ==========
</TABLE>
<PAGE>
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
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 (other than
the Ratio of Earnings to Fixed Charges) 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. The financial data shown below as of December 31, 1993 and for the three
month periods ended December 31, 1993 and 1992 (other than the Ratio of Earnings to fixed
charges) have been derived from and should be read in conjunction with the Company's unaudited
condensed financial statements and related notes appearing elsewhere herein.
July 25, 1990
(Date of
Three Months Ended Year Ended Year Ended Year Ended Incorporation)
December 31, September 30, September 30, September 30, Through
1993 1992 September 30,
1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA:
Revenues $743,156 $528,283 $ 2,815,624 $ 2,435,843 $1,026,405 $ 8,229
======== ======== ========== ========== ========== ==========
Income before
extraordinary item $ 42,384 $ 13,157 $ 283,107 $ 611,595 $ 238,205 $ 5,345
Extraordinary item (1) -- -- -- 49,772 -- --
-------- -------- ---------- ---------- ---------- ----------
Net Income $ 42,384 $ 13,157 $ 283,107 $ 661,367 $ 238,205 $ 5,345
======== ======== ========== ========== ========== ==========
Weighted average number
of common shares
outstanding 20,000 20,000 20,000 20,000 20,000 20,000
Per Common Share Data:
Income before
extraordinary
item $ 2.12 $ .66 $ 14.15 $ 30.58 $ 11.91 $ .27
Extraordinary item -- -- -- 2.49 -- --
------- ------- ---------- ---------- ---------- ----------
Net income $ 2.12 $ .66 $ 14.15 $ 33.07 $ 11.91 $ .27
======= ======= ========== ========== ========== ==========
Ratio of Earnings
to Fixed
Charges: 1.11 1.05 1.24 1.53 1.37 --
BALANCE SHEET DATA:
Due from/(to) Parent
Company, net $ 1,115,081 $ 1,710,743 $ (400,365) $(5,528,617) $ (22,010)
Total Assets $27,985,426 $25,441,605 $17,696,628 $16,718,823 $2,027,355
Debt Securities
and Other
Debt Payable $24,488,991 $21,982,078 $14,289,648 $ 8,451,106 --
Stockholder's Equity $ 3,230,408 $ 3,188,024 $ 2,904,917 $ 2,243,550 $2,005,345
<FN>
(1) Benefit from utilization of net operating loss carryforwards.
</TABLE>
<PAGE>
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
For the Three Fiscal Years Ended September 30, 1993
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, Receivables 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.
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. Included in the receivables purchased were
approximately $6.0 million of timeshare receivables, which were
collateralized by timeshares located at a single project in Hawaii.
These receivables were sold to Metropolitan at par on February 18,
1994. 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
(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. In
periods of increasing interest rates, the effect of the Company's
current mismatch would be beneficial as the Company's assets would
reprice faster than its liabilities and at increasing rates, thereby
increasing the Company's interest spread. In periods of declining
interest rates, the effect of this mismatch would be detrimental as the
Company's assets, which are repricing faster, would be repricing at
lower rates, thereby decreasing the Company's interest spread. While
the Company's current mismatch will be favorable in an increasing
interest rate environment, it is unable to determine the extent of the
increased interest spread on the results of operations.
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
(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
$.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
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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE INTERIM PERIODS ENDED DECEMBER 31, 1992 AND 1993
Financial Condition:
As of December 31, 1993, the Company had cash or cash equivalents
of over $7.6 million as compared to $3.6 million at September 30, 1993.
These cash and cash equivalents are considered by management to be
adequate to finance any required debt retirements or planned asset
additions. At December 31, 1993, the real estate receivable portfolio
totaled $18.6 million as compared to $19.5 million at September 30,
1993. This receivable portfolio included approximately $6.0 million of
timeshare receivables which were collateralized by timeshares located
at a single project in Hawaii. On February 18, 1994 these receivables
were sold to Metropolitan for cash, at par, which at that date was $4.6
million. These proceeds will be principally used to acquire additional
Receivables. Real estate held for sale, acquired through receivable
foreclosures, totaled $120,000 at December 31, 1993 as compared to
$61,000 at September 30, 1993. Sales of Investment Certificates
generated approximately $2.1 million net cash flow during the three
months ended December 31, 1993, while cash flows from real estate
receivable investments provided additional liquidity as principal
payments received exceeded new investments by approximately $760,000.
The cash flows from Investment Certificate sales, real estate
receivables investments, and the approximately $600,000 reduction in
advances to its parent accounted for the majority of the $4.0 million
increase in cash and cash equivalents during the three months ended
December 31, 1993.
Results of Operations:
Net income was $42,384 on revenues of $743,156 for the three
months ended December 31, 1993. For the similar period in the prior
year, the Company reported net income of $13,157 on revenues of
$528,283. The increase in net income resulted primarily from: (1) an
increase in spread between interest sensitive income and interest
sensitive expense; (2) gains realized on the sale of investment
securities; (3) gains realized from the sale of foreclosed real estate
in the current year's period as compared to losses in the prior year's
period; (4) and a reduction in other operating expenses; which were
partially offset by (5) an increase in the provision for losses on real
estate contracts and real estate held.
For the three months ended December 31, 1993 the interest spread
was $112,700 while in the prior year's period the spread was $96,700.
This increase was primarily the result of management's decision to
accumulate cash liquidity in the prior year in order to fund a contract
purchase commitment in excess of $7 million. This purchase commitment
was completed in late December 1992. Included in the receivables
purchased were approximately $6.0 million of timeshare receivables.
All of the receivables were collateralized by property in a single time
share project in Hawaii which had been developed by its parent and an
affiliated company. At time of purchase, the Company held an
approximate $600,000 performance holdback to cover any losses related
to these certain timeshare receivables. On February 18, 1994 these
timeshare receivables were sold to Metropolitan at par, which at that
date was $4.6 million. Again at December 31, 1993, the Company has
accumulated excess cash and cash equivalents through the sale of
investment certificates and accelerated prepayments of real estate
receivables. The Company is currently in the process of acquiring
additional real estate receivable investments which should enable the
Company to maintain or improve its interest spread.
During the three months ended December 31, 1993, the Company
realized gains on the sale of investment securities of $4,300 with no
sales being recorded in the prior year. Gains on the sale of
foreclosed real estate of $11,000 were realized as compared to losses
of $9,700 in the prior year. The Company, through various cost cutting
measures, was able to reduce other operating expenses by approximately
$14,000, primarily through the reduction of advertising expenses by
$37,000 offset by increases in various expenses related to both the
real estate contract portfolio and to its real estate held for sale.
Additionally, during the three months ended December 31, 1993, the
Company provided approximately $11,600 for losses on real estate
receivables and real estate held for sale as compared to a recovery of
approximately $2,800 in the comparable period of the prior year. <PAGE>
<PAGE>
BUSINESS
General
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.
Currently, the Company, its parent company and C. Paul Sandifur,
Jr. are negotiating a reorganization which would involve the sale of
the Company to C. Paul Sandifur, Jr. See "Certain Transactions".
Currently, Mr. Sandifur has effective control over Metropolitan and
through Metropolitan has effective control of its subsidiaries
including the Company. Following this proposed transaction, Mr.
Sandifur would have direct control of the Company. If this transaction
is consummated, it is not anticipated that it would materially effect
the management or operations of the Company.
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
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. No underwriting fees were charged to the Company
through September 30, 1993, although under the terms of the Agreement
underwriting fees could be charged in the future in amounts mutually
agreed to by the Company and Metropolitan. 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, which need is principally driven by cash flow. Therefore, the
Receivables offered to the Company are of comparable value and
creditworthiness as those retained by Metropolitan. 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.
<PAGE>
<PAGE>
SUMMIT SECURITIES, INC.
LOANS ON REAL ESTATE
FEBRUARY 28, 1994
<TABLE>
<CAPTION>
Real estate contracts and mortgage notes ("Receivables) are located throughout the United States.
Approximately 26% of the Company's Receivables are collateralized by property located in the
Pacific Northwest (Washington, Idaho, Montana and Oregon), approximately 24% by property located
in Pacific Southwest (New Mexico, Arizona, Nevada, and California) and approximately 14% by
property located in Southeast (North Carolina, South Carolina, Georgia and Florida). Less than
1% of the Contracts are subject to variable interest rates. Interest rates range from 5% to 12%.
Number Carrying Delinquent Number of
of Interest Maturity Amount of Principal Delinquent
Description Receivables Rates Dates Receivables Amount Receivables
---------- -------- -------- ----------- ---------- -----------
RESIDENTIAL Principally
<S> <C> <C> <C> <C> <C> <C>
First Mortgage > $ 50,000 55 8% to 11% 1996-2023 $ 4,865,564 $ 125,512 1
First Mortgage > $ 25,000 115 9% to 12% 1996-2023 4,038,965 -- --
First Mortgage < $ 25,000 164 9% to 12% 1994-2018 2,333,828 180,332 32
Second or Lower> $ 50,000 16 9% to 12% 1994-2023 984,663 -- --
Second or Lower> $ 25,000 78 9% to 11% 1995-2020 2,751,138 144,797 4
Second or Lower< $ 25,000 99 9% to 11% 1997-2019 1,490,005 55,722 4
COMMERCIAL
First Mortgage > $ 50,000 2 9% to 11% 1999-2003 193,181 -- --
First Mortgage > $ 25,000 1 10% 2001 49,688 -- --
First Mortgage < $ 25,000 1 11.5% 2012 22,883 -- --
Second or Lower> $ 50,000 2 8% to 9% 1997-2005 141,706 -- --
Second or Lower> $ 25,000 11 10% to 12% 1997-2018 386,414 -- --
Second or Lower< $ 25,000 2 9% to 10% 1995-2008 30,817 -- --
FARM, LAND AND OTHER
First Mortgage > $ 50,000 1 7% 2002 62,176 -- --
First Mortgage > $ 25,000 10 9% to 12% 2003-2014 293,566 -- --
First Mortgage < $ 25,000 8 7% to 12% 1995-2005 101,598 19,956 1
Second or Lower> $ 50,000 4 5% to 12% 2000-2003 447,625 248,378 1
Second or Lower> $ 25,000 1 10% 1998 49,763 -- --
Second or Lower< $ 25,000 7 10% to 12% 1995-2013 98,033 10,303 1
Unrealized discounts, net
of unamortized acquisition
costs, on receivables
purchased at a discount (1,091,163)
Accrued Interest Receivable 311,449
Allowance for Losses (120,979)
----------- -----------
TOTAL $ 17,440,920 $785,000
=========== ===========
<FN>
The principal amount of Receivables subject to delinquent principal or interest is defined as
being in arrears for more than three months.
</TABLE>
<TABLE>
<CAPTION>
The contractual maturities of the aggregate amounts of Receivables (face amount) are as follows:
Residential Commercial Farm, Land, Other Total
Principal Principal Principal Principal
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
October 1993 - September 1996 $ 2,134,921 $ 59,298 $ 284,421 $ 2,478,640
October 1996 - September 1998 1,005,418 51,832 30,259 1,087,509
October 1998 - September 2000 2,759,219 142,054 72,213 2,973,486
October 2000 - September 2003 2,069,032 264,651 148,205 2,481,888
October 2003 - September 2008 2,632,777 175,022 275,387 3,083,186
October 2008 - September 2013 1,804,410 55,504 130,908 1,990,822
October 2013 - Thereafter 4,058,386 76,328 111,368 4,246,082
---------- ---------- ---------- ----------
$16,464,163 $824,689 $1,052,761 $18,341,613
========== ========== ========== ==========
</TABLE>
<PAGE>
<PAGE>
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 (eg. at the amount of their
outstanding principal balance) 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. These timeshare receivables were sold
to Metropolitan at par on February 18, 1994.
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
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
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.
YIELD CHART: REFER TO GRAPH APPENDIX ITEM 3
<PAGE>
<PAGE>
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. As an example Metropolitan
may pay $45,000 for the right to receive $50,000 on a receivable with
an outstanding principal balance of $70,000, and secured by property
with a value of $100,000. Metropolitan would be assigned the full
security interest in the property. Metropolitan would receive the
receivable's principal and interest payments until Metropolitan had
received $50,000 in principal. At that time, the remaining payments
are reassigned to the original receivable seller. As this example
demonstrates, 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
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. For
receivables secured by second or lower lien positions the amount of the
indebtedness of all liens with priority over the receivable to be
purchased, combined with the receivable to be purchased may not exceed
the above stated loan to value ratios. 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. All of these criteria are evaluated and weighed in the
underwriting process, subject to the required loan to value ratio.
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.
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.
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.
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>
<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 Director of Summit from 1990 to August, 1993. From August, 1993 to
the present, he is Secretary and Director.
MICHAEL BARCELO joined Metropolitan in August of 1992, as
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>
<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, to 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
of the subsidiary company's values and the transaction will be subject
to approval by the Company's Board of Directors. The Company considers
this reorganization to be in its best interest due to certain
regulations imposed by Metropolitan's state of domicile. In the
opinion of management, these regulations unduly penalize the Company
for its current corporate structure. These include, excluding
subsidiary earnings from an earnings to fixed charges ratio requirement
unless those subsidiary earnings are actually paid to the parent
company. It is the opinion of management that such dividend payment
decisions should be based upon sound business reasons and not forced by
regulatory constraints. Removing these subsidiaries from the parent's
corporate group is therefore in the best interest of all companies
involved.
The proposed transaction is still in its formative stages. As
currently envisioned, the first stage of the transaction would not
increase the leverage of the Company, while the second stage, the
purchase of Old Standard would approximately double the Company's
leverage position. No assurances can be made that the transaction will
be consummated as currently envisioned or at all. Factors which are
under consideration by the parties involved include the cost, the tax
and accounting consequences, and the availability of funds.
Currently, principally all of the Company's management, servicing
and underwriting and securities sales activities are performed by
Metropolitan and its affiliates under the terms of Underwriting,
Servicing and Selling Agreements. It is not anticipated that these
Agreements will be modified, amended, or canceled as a result of the
proposed reorganization. Under the terms of the Underwriting
Agreement, Metropolitan may charge an underwriting fee. Such a fee has
not been charged in the past. It is anticipated that this fee may be
charged in the future irrespective of whether the proposed
reorganization occurs. Due to the anticipated continuation of these
Agreements, it is not anticipated that the proposed reorganization will
materially affect the management of the Company or the business
relationship between the companies. It is not anticipated that there
will be a change in the directors. It is anticipated that the officers
of the Company, who are currently officers of Metropolitan will resign
and that new officers who are not also officers of Metropolitan will be
elected. It is anticipated that the newly elected officers will be
employees of Metropolitan. Also, See "Certain Investment Considerations
- - Risk Factors".<PAGE>
<PAGE>
INDEX TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1993, 1992 AND 1991
AND THREE MONTH PERIODS ENDED DECEMBER 31, 1993
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............................
Management's Responsibility for Interim
Financial Statements.................................
Condensed Financial Statements (unaudited)...............
Notes to Condensed Financial Statements..................
<PAGE>
<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>
<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>
<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>
<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>
<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>
<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>
<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>
<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>
<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, as determined by
appraisal, at date of foreclosure less estimated selling costs,
or (b) cost (unpaid contract carrying value).Periodically, the
Company reviews its carrying values of real estate held for sale
by obtaining new or updated appraisals, and adjusts its carrying
values to net realizable value, as necessary.
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>
<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. The Company obtains
new or updated appraisals on appropriate delinquent receivables,
and adjusts the allowance for losses as necessary, such that the
net carrying value does not exceed net realizable value.
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>
<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>
<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 Receivables are
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>
<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>
<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>
<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>
<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>
<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>
<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>
<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>
<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>
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR INTERIM FINANCIAL STATEMENTS
The interim condensed financial statements for the Company as of
December 31, 1993 and for the three months ended December 31, 1993 and
1992 are prepared by management of the Company, and reflect all
adjustments which, in the opinion of management, are necessary for a
fair presentation of the results of operations and cash flows for the
three-months periods ended December 31, 1993 and 1992, as well as the
financial position as of December 31, 1993.<PAGE>
<PAGE>
SUMMIT SECURITIES, INC.
CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
1993 1993
<S> <C> <C>
ASSETS
Cash and Cash Equivalents $ 7,580,174 $ 3,594,472
Real Estate Contracts and Mortgage
Notes, Net of Unrealized Discounts
and Allowance For Losses 18,575,313 19,527,225
Real Estate Held For Sale 120,458 60,816
Deferred Costs 557,552 524,376
Advances to Parent and Affiliated
Companies 1,115,081 1,710,743
Other Assets 36,848 23,973
---------- ----------
TOTAL ASSETS $27,985,426 $25,441,605
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Investment Certificates and Accrued
Interest $ 24,404,335 $ 21,959,425
Debt Payable 84,656 22,653
Accounts Payable and Accrued Expenses 22,047 49,353
Accrued Income Taxes Due Parent 243,980 222,150
---------- -----------
TOTAL LIABILITIES 24,755,018 22,253,581
---------- -----------
STOCKHOLDER'S EQUITY:
Common Stock, $10 Par Value:
2,000,000 Shares Authorized:
20,000 Shares Issued and Outstanding 200,000 200,000
Preferred Stock, $10 Par Value:
10,000,000 Shares Authorized: - -
None Issued and Outstanding
Additional Paid-In Capital 1,800,000 1,800,000
Retained Earnings 1,230,408 1,188,024
---------- ----------
TOTAL STOCKHOLDER'S EQUITY 3,230,408 3,188,024
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDER'S
EQUITY $27,985,426 $25,441,605
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
<PAGE>
SUMMIT SECURITIES INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1993 1992
<S> <C> <C>
REVENUES:
Interest and Earned Discounts $ 685,751 $ 480,700
Realized Net Gains on Sales of
Investment Securities 4,252 -
Real Estate Sales 39,000 37,500
Other Income 14,153 10,083
--------- ---------
TOTAL REVENUES 743,156 528,283
--------- ---------
EXPENSES:
Interest 573,021 384,025
Cost of Real Estate Sold 27,882 47,167
Provision for Losses on Real
Estate Contracts and Real
Estate Held 11,627 (2,845)
Operating Expenses 66,025 80,029
--------- ---------
TOTAL EXPENSES 678,555 508,376
--------- ---------
Income Before Income Taxes 64,601 19,907
Provision for Income Taxes (22,217) (6,750)
--------- ---------
NET INCOME $ 42,384 $ 13,157
========= =========
Net Income Per Common Share $ 2.12 $ .66
========= =========
Weighted Average Number of Shares of
Common Stock Outstanding 20,000 20,000
========= =========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
<PAGE>
SUMMIT SECURITIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1993 1992
<S> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES $ 560,890 $ 221,830
---------- ----------
INVESTING ACTIVITIES:
Repayment of Advances to Parent
and Affiliate Companies 595,662 -
Principal Payments on Real Estate
Contracts and Mortgage Notes 1,378,789 520,206
Purchase of Real Estate Contacts
And Mortgage Notes (619,380) (7,505,625)
Proceeds From Real Estate Sales 39,000 7,500
Additions to Real Estate Held (2,295) (5,262)
Purchase of Investment Securities (20,073,050) -
Proceeds from Sale of Investment
Securities 20,077,343 -
---------- -----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 1,396,069 (6,983,181)
---------- ----------
FINANCING ACTIVITIES:
Proceeds From Sale of Investment
Certificates 2,625,722 1,729,900
Repayment of Investment Certificates (500,765) (417,542)
Repayment to Banks and Others (1,642) (142,336)
Borrowings From Parent - 3,210,659
Debt Issuance Costs (94,572) (55,612)
---------- ----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 2,028,743 4,325,069
---------- ----------
NET INCREASE (DECREASE)IN CASH
EQUIVALENTS 3,985,702 (2,436,282)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 3,594,472 5,647,202
--------- ----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 7,580,174 $ 3,210,920
========== ==========
NON CASH INVESTING AND FINANCING
ACTIVITIES OF THE COMPANY:
Assumption of Other Debt Payable in
Conjunction With Purchase of Real
Estate Contracts and Mortgage Notes $ - $ 235,880
Real Estate Held for Sale and
Development Acquired Through
Foreclosure $ 91,856 $ 101,000
Loans to Facilitate the Sale of
Real Estate $ - $ 30,000
Assumption of Other Debt Payable in
Conjunction with Acquisition of
Real Estate Held for Sale $ 63,650 $ -
</TABLE>
The accompanying notes are an integral part of these financial
statements.<PAGE>
<PAGE>
SUMMIT SECURITIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. The principal amount of receivables as to which payments were in
arrears more than three months was $1,110,000 at December 31, 1993
and $1,662,000 at September 30, 1992. Included in the amount for
December 31, 1993 is approximately $320,000 of delinquent
contracts purchased from an affiliate during 1993. The Company
has a performance hold back of approximately $482,500 to cover
losses related to these delinquent contracts. At September 30,
1993, the delinquent contracts purchased from the affiliate were
approximately $680,000 with a performance holdback of $600,000.
The total outstanding contracts, both current and delinquent,
backed by the performance holdback were approximately $4.5 million
at December 31, 1993 and $5.5 million at September 30, 1993. On
February 18, 1994, the Company sold the remaining receivables
related to the holdback provision at net book value to its parent
company.
2. Summit Securities, Inc. is a wholly-owned subsidiary of
Metropolitan Mortgage & Securities Co., Inc. The Company files
consolidated federal income tax returns with its parent. The
Company has 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). There was no effect on the
Company's financial statements of adopting SFAS No. 109. In prior
years, Metropolitan and the Company accounted for income taxes as
required by Accounting Principles Board Opinion No. 11.
3. Summit Securities, Inc. had no outstanding legal proceedings other
than normal proceedings associated with receivable foreclosures.
4. Certain amounts in the prior years' condensed financial statements
have been reclassified to conform with the current years'
presentation.
<PAGE>
<PAGE>
INSIDE BACK COVER PAGE: REFER TO APPENDIX ITEM 4<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses in
connection with the issuance and distribution of the Certificates,
other than selling commissions:
SEC Registration Fee .................... $ 12,068.97
NASD Filing Fee ......................... 6,000.00
Independent Underwriter Fee.............. 43,500.00
*Printing ............................... 10,000.00
*Legal Fees and Expenses ................ 10,000.00
*Accounting Fees and Expenses ........... 10,000.00
*Trustee's Fees and Expenses ............ 5,000.00
*Blue Sky Fees and Expenses ............. 20,000.00
*Miscellaneous .......................... 3,431.03
TOTAL ............................. $165,000.00
-----------
*Estimated
Item 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
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 or other agreement or provision of law.
Item 15. RECENT SALES OF UNREGISTERED SECURITIES.
None.
Item 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a). Exhibits:
1(a)(i). Form of Selling Agreement between Summit and
Metropolitan Investment Securities, Inc. with respect
to Certificates.
1(a)(ii). Form of Selling Agreement between Summit and
Metropolitan Investment Securities, Inc. with respect
to Preferred Stock Series S-1.
1(b)(i). Form of Agreement to Act as Qualified Independent
Underwriter between Summit, Metropolitan Investment
Securities, Inc. and Welco Securities, Inc. with
respect to Certificates to be registered.
1(b)(ii). Form of Agreement to Act as Qualified Independent
Underwriter between Summit, Metropolitan Investment
Securities, Inc. and Welco Securities, Inc. with
respect to Preferred Stock to be registered.
1(c)(i). Form of Pricing Opinion of Welco Securities, Inc. with
respect to Certificates to be registered.
1(c)(ii). Form of Pricing Opinion of Welco Securities, Inc. with
respect to Preferred Stock to be registered.
1(d). Form of Selected Dealer's Agreement.
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.
4(e). Form of Investment Certificate.
5(a). Opinion of Susan A. Thomson, Attorney at Law, as to
validity of Investment Certificates. (Includes
consent.)
5(b). Opinion of Susan A. Thomson, Attorney at Law, as to
validity of Preferred Stock. (Includes consent.)
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.)
12. Computation of Ratio of Earnings to Fixed Charges.
*23(a)(i). Consent of Coopers & Lybrand, Independent Certified
Public Accountants.
*23(a)(ii). Consent of BDO Seidman, Independent Certified Public
Accountants.
*Filed herewith
(b) Financial Statement Schedules:
Reports of Independent Certified Public
Accountants on Financial Statement Schedules
I Summary of Investments Other Than Investments in Related
Parties
VIII Valuation and Qualifying Accounts and Reserves
XII Loans on Real Estate
Schedules other than those listed above are omitted for the reason that
they are not required or are not applicable, or the required
information is shown in the financial statements or notes thereto.
Columns omitted from schedules filed have been omitted because the
information is not applicable.
Item 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or
sales are being made, a post-effective amendment
to this registration statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the
registration statement (or the most recent
post-effective amendment thereof) which,
individually or in the aggregate, represent a
fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect
to the plan of distribution not previously
disclosed in the registration statement or any
material change to such information in the
registration statement;
(2) That, for the purpose of determining any
liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to
be a new registration statement relating to the
securities offered therein, and the offering of
such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities
being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be
permitted to directors, officers, and controlling
persons of the Registrant pursuant to the
provisions described in Item 15 or otherwise, the
Registrant has been advised that in the opinion
of the Securities and Exchange Commission such
indemnification is against public policy as
expressed in the Act and is, therefore,
unenforceable. In the event that a claim for
indemnification against such liabilities (other
than the payment by the Registrant of expenses
incurred or paid by a director, officer, or
controlling persons of the Registrant in the
successful defense of any action, suit, or
proceeding) is asserted by such director, officer
or controlling person in connection with the
securities being registered, the
Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the registrant has duly caused this Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Spokane, State of Washington, on April 1 , 1994.
SUMMIT SECURITIES, INC.
/S/ C. PAUL SANDIFUR, JR.
By:
_________________________________________________
C. Paul Sandifur, Jr., President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment to Registration Statement has been signed by
the following persons in the capacities and on the dates indicated:
Signature Title Date
/S/ C. PAUL SANDIFUR, SR.
4/1/94
_________________________ Chairman of the Board ________
C. Paul Sandifur, Sr.
/S/ C. PAUL SANDIFUR, JR.
4/1/94
_________________________ President, Director and ________
C. Paul Sandifur, Jr. Chief Executive Officer
/S/ REUEL SWANSON
4/1/94
_________________________ Director and Secretary ________
Reuel Swanson
/S/ ALTON COGERT
4/1/94
_________________________ Chief Financial Officer ________
Alton Cogert and Assistant Vice President
/S/ STEVEN CROOKS
4/1/94
_________________________ Controller and Principal ________
Steven Crooks Accounting Officer
<PAGE>
<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 the Prospectus constituting part of this
Registration Statement, included the audits of the financial statement
schedules listed under Item 16(b) 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>
<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 Prospectus. 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>
<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>
<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>
<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
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>
<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>
<PAGE>
GRAPHS APPENDIX
1. INSIDE FRONT COVER PAGE:
A full color page with the registrants name and logo. the full color
back ground is the image of a mountain range which matches the cover of
the company's annual report.
2. A circular diagram with an arrow from one paragraph to the next,
depicting how the investor's proceeds are used. The graphic contains
the following introductory statement: "The following diagram depicts
a standard model for how an investor's money is used by the Company for
investment in Receivables. This model is for illustrative purposes,
and is not intended to be exhaustive. It is qualified in its entirety
and should be read in conjunction with the detailed information
provided elsewhere in the prospectus."
The graphic includes the following paragraphs within the circular
diagram. The diagram contains an arrow from one paragraph to the next:
Election is made to invest/reinvest in Preferred Stock. The Company
invests the money in Receivables secured by real estate. The Receivable
obligors make principal and interest payments to the Company. Some of
the money received as payment is used to finance the cost of doing
business. Dividend payments are paid or reinvested at the direction of
the investor.
The graphic contains the following statement in bold in the center of
the circular diagram: DIAGRAM SHOWING HOW INVESTORS' MONEY IS USED IN
THE PURCHASE OF RECEIVABLES.
3. Two graphs depicting how the Company earns a greater yield on a
Receivable through purchasing the Receivables at a discount from the
face amount. Both graphs have a vertical axis which show the Company's
investment in the receivable, the face value and the interest earned.
The horizontal axis shows years. A line is drawn from each of the
three points on the vertical axis, sloping down to the 15 year mark on
the horizontal axis. The areas between these lines are identified as
A, B and C.
The first graph contains the following explanatory heading: Receivable
Purchased At a Discount - Example of a $50,000 Receivable purchased
at a discount. Interest rate is 10%, term is 15 years. The Company
pays A and receives B &C as income.
The second graph contains the following explanatory heading:
Receivable Purchased Without a Discount - Example of a $50,000
Receivable purchased without a discount. Interest rate if 10%, term is
15 years. The Company pays A & B. The Company receives C as income.
4. INSIDE BACK COVER:
A full color page containing the company name and logo. The center of
the page contains a color map of the U.S. and indicates the locations
of the headquarters and branch offices of Metropolitan. The copy reads:
The source for Summit Securities' Receivables Investments is: The
Metropolitan Receivable Acquisition Network. Location of home and
branch offices: Metropolitan Mortgage & Securities Co., Inc.
*home office. Branch office.
The full color back ground is the image of a mountain range which
matches the cover of the Company's annual report.<PAGE>
<PAGE>
As filed with the Securities and Exchange Commission on April 1,
, 1994. Registration No. 33-51905
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________________
AMENDMENT NO. 3 TO
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
- ----------------------------------
(Exact name of registrant as specified in charter)
SUMMIT SECURITIES, INC.
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>
<PAGE>
EXHIBIT INDEX
Page
Number
*23(a)(i). Consent of Coopers & Lybrand, Independent Certified Public
Accountants.
*23(a)(ii). Consent of BDO Seidman, Independent Certified Public
Accountants.
*Filed herewith
<PAGE>
<PAGE>
<PAGE>
Exhibit 23(a)(i)
CONSENT OF
INDEPENDENT PUBLIC ACCOUNTANTS
Summit Securities, Inc.
Spokane, Washington
We consent to the inclusion in this Registration Statement on Form
S-1 (File No. 33-51905) of our report dated December 13, 1993 which
includes an explanatory paragraph describing changes in the Company's
method of accounting for repossessed real property and income taxes
relating to our audit of the financial statements and financial
statement schedules of Summit Securities, Inc.
We also consent to the reference to our firm under the caption
"Experts".
/s/ COOPERS & LYBRAND
COOPERS & LYBRAND
Spokane, Washington
March 31 , 1994
<PAGE>
<PAGE>
Exhibit 23 (a)(ii)
CONSENT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Summit Securities, Inc.
Spokane, Washington
We hereby consent to the use in the Prospectus constituting a part
of this Registration Statement of our report dated December 7, 1992,
relating to the financial statements of Summit Securities, Inc., which
is contained in that Prospectus, and of our report dated December 7,
1992, relating to the schedules, which is contained in Part II of the
Registration Statement.
We also consent to the reference to us under the caption
"Experts", Summary of Financial Data and Selected Financial Data in the
Prospectus.
/s/ BDO SEIDMAN
BDO SEIDMAN
Spokane, Washington
March 31 , 1994
