<PAGE>
As filed with the Securities and Exchange Commission on February 7,
1995. Registration No. __________________
FORM S-2
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)
John Trimble
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/
If the registrant elects to deliver its latest annual report to
security holders, or a complete and legible facsimile thereof,
pursuant to Item II(a)(1) of this form, check the following box / /.
Total Number of Pages: 226
Exhibit at Page: 139
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of each Amount Proposed Proposed Amount of
class of to be maximum maximum registration
securities to registered offering aggregate fee
be registered price per offering
unit price
<S> <C> <C> <C> <C>
Preferred
Stock Shares 150,000 $ 100 $15,000,000 $1,276
Investment
Certificates $40,000,000 $1 $40,000,000 $3,793
</TABLE>
The Registrant is hereby proposing to register a new offering of
Investment Certificates, Series A, in the amount of $11,000,000 and
37,000 Shares of Preferred Stock Series S-1 and is hereby amending
Registration No. 33-51905 pursuant to Rule 429 of which approximately
$29,000,000 of Investment Certificates, Series A, and 113,000 shares
of Preferred Stock Series S-1 remain unsold. The registration fee is
calculated on the amount being registered hereunder.
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;
Capitalization;
Selected Financial
Data; Management's
Discussion and
Analysis
of Financial
Condition and
Results of
Operations;
Business;
Management;
Principal
Shareholders;
Certain
Transactions;
Financial
Statements
12. Incorporation of Certain Information
by Reference............................... Available
Information
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ Indemnification
*Not applicable or negative.
<PAGE>
SUBJECT TO COMPLETION DATED FEBRUARY 7, 1995
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. ("Summit") are being
offered separately and not as units. Certificates will pay simple
interest monthly, quarterly, semi-annually or annually, or if left
with the issuer, interest will compound semi-annually; or, will pay
equal monthly installments of principal and interest until maturity
according to an amortization schedule selected by the owner. The
Certificates are unsecured, senior in liquidation to outstanding
equity securities, subordinated to collateralized debt, on a parity
with unsecured accounts payable and accrued liabilities and on parity
with all other issued and outstanding Certificates. 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.
Summit reserves the right to change prospectively the interest rates,
maturities, and minimum investment amounts on unsold Certificates.
The current provisions are set forth below. See "DESCRIPTION OF
CERTIFICATES"
<TABLE>
<CAPTION>
MINIMUM TERM TO ANNUAL
INVESTMENT MATURITY INTEREST RATE
---------- ---------------------- -------------
(Investment Certificates, Series A)
<S> <C>
$
$
$
$
$
$
(Installment Certificates)
$
</TABLE>
<TABLE>
<CAPTION> PREFERRED STOCK, SERIES S-1
PRICE DISTRIBUTION
PER SHARE FORMULA (Applicable Rate)
<S> <C>
$100.00 The greater per annum rate of the
Treasury Bill Rate, the
Ten Year Constant Maturity Rate, or the
Twenty Year Constant Maturity Rate,
plus .5% (Minimum 6%/Maximum 14%)
</TABLE>
The Preferred Stock offered hereunder will be sold in whole or
fractional units. Preferred Stock distributions are cumulative and
are to be declared and paid monthly. The Board has authorized, for
an indefinite period, a distribution payment on the Preferred Stock
of one percentage point above the Applicable Rate. See "DESCRIPTION
OF PREFERRED STOCK - Distributions."
Preferred Stock may be redeemed, in whole or in part, at the
option of Summit at the redemption prices set forth herein. 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 at the redemption prices set
forth herein. See "DESCRIPTION OF PREFERRED STOCK -Redemption of
Shares".
In liquidation, Preferred Stock is junior to all debts of Summit
including Summit's Certificates and in parity with other preferred
stock and preferred to Summit's common stock. See "DESCRIPTION OF
PREFERRED STOCK -Redemption of Shares".
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 is maintained by
Summit's broker-dealer as a convenience to holders of Summit's
preferred stock. See "DESCRIPTION OF PREFERRED STOCK-Redemption of
Shares". This offering of Certificates and Preferred Stock is
subject to withdrawal or cancellation by Summit 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) SUMMIT (2)
<S> <C> <C> <C>
Per
Certificate 100% .25% to 6% 99.75% to 94%
Total: $40,000,000 $100,000-$2,400,000 $39,900,000-$37,600,000
Per
Preferred
Share $100 0% to 6% 100% to 94%
Total: $15,000,000 None - $900,000 $15,000,000-$14,100,000
</TABLE>
(1) There is no sales charge to the investor. Summit will
reimburse Metropolitan Investment Securities, Inc., its broker-
dealer, 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 $150,000
The Certificates and Preferred Stock are being offered for sale
on a continuous, best efforts basis, directly to investors through
Metropolitan Investment Securities, Inc., a wholly-owned subsidiary
(acquired January 31, 1995), which is the exclusive sales agent for
the publicly issued securities of Summit. No offering will be made
pursuant to this prospectus subsequent to January 31, 1996. 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 February , 1995.
<PAGE>
INSIDE FRONT COVER PAGE OF PROSPECTUS, REFER TO GRAPH APPENDIX ITEM
1
<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 Summit. 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 Summit since the date
hereof.
AVAILABLE INFORMATION
Summit 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.
Summit 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.
Incorporation of Certain Documents by Reference
Summit's Annual Report on Form 10-K for the fiscal year ended
September 30, 1994, filed with the Securities and Exchange Commission
(File No. 2-63708) is hereby incorporated in this Prospectus by
reference.
Summit hereby undertakes to provide without charge to each
person, including any beneficial owner, to whom a prospectus is
delivered, upon written or oral request of such person, a copy of any
and all of the information that has been incorporated by reference in
this Prospectus (not including exhibits to the information that is
incorporated by reference into the information that the Prospectus
incorporates). Requests for such copies should be directed to
Corporate Secretary, Summit Securities Inc., PO Box 2162, Spokane, WA
99210-2162, telephone number (509) 838-3111.
<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........................................
Indemnification...................................
Principal Shareholders............................
Certain Transactions..............................
Index to Financial Statements.....................
<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".
Summit Securities Inc.
Summit Securities, Inc. was incorporated under the laws of the
State of Idaho on July 25, 1990. When Summit was founded it was a
wholly-owned subsidiary of Metropolitan Mortgage & Securities Co.,
Inc., a Washington corporation ("Metropolitan"). On September 9,
1994, Summit was acquired by National Summit Corporation, which is
wholly owned by C. Paul Sandifur, Jr. (President and controlling
shareholder of Metropolitan). Accordingly, the change in ownership
altered the form of control, but did not the change the individual in
control. See "CERTAIN TRANSACTIONS".
Summit is engaged in the business of acquiring, holding and
selling receivables (hereafter "Receivables"). These Receivables
generally consist of real estate contracts and promissory notes
secured by first lien mortgages or deeds of trust on residential real
estate. Summit also invests in Receivables consisting of real estate
contracts and promissory notes secured by second and lower position
liens, annuities, lottery prizes, and other investments. In
addition, Summit intends to provide real estate development services
through a newly acquired subsidiary, Summit Property Development
Inc. Summit invests directly in Receivables using funds generated
from Receivable cash flows and the sale of certificates and preferred
stock which Summit sells through its subsidiary Metropolitan
Investment Securities, Inc., (MIS). Summit's Receivable investments
are currently acquired through a contractual arrangement with
Metropolitan, which performs the Receivable acquisition, collection
and management services for Summit for a fee. Summit may also engage
in other businesses or activities without restriction in accordance
with the provisions of its Articles of Incorporation.
On December 15, 1994, Metropolitan and Summit entered into an
understanding that on January 31, 1995 Metropolitan Investment
Securities (MIS) would be sold by Metropolitan to Summit. Also, on
December 15, 1994, Metropolitan and Summit entered into an
understanding that Metropolitan would discontinue its property
development division, which consists of a group of employees
experienced in real estate development. On that same date, Summit
Property Development, Inc. (a subsidiary of Summit) commenced
property development operations employing those same individuals who
had previously been employed by Metropolitan. Summit Property
Development is negotiating an agreement with Metropolitan to provide
property development services to Metropolitan. See "CERTAIN
TRANSACTIONS."
In addition, Summit is currently negotiating the purchase of Old
Standard Life Insurance ("Old Standard"), a wholly owned subsidiary
of Metropolitan. It is currently anticipated that the sale of Old
Standard will occur during the first quarter of the 1995 calendar
year and that the sale price will be based upon an independent
valuation of Old Standard. See "CERTAIN TRANSACTIONS-Proposed
Acquisition of Old Standard and Financial Statements of Old Standard,
and Pro Forma Financial Statements of Summit and Subsidiaries."
Summit's principal offices are located at 929 West Sprague
Avenue, Spokane, Washington 99204. Its telephone number is (509)
838-3111. Summit also maintains offices at 1000 Hubbard, Coeur
d'Alene, Idaho.
<PAGE>
ORGANIZATIONAL CHART FOR SUMMIT SECURITIES, INC.
(as of February 1, 1995)
National Summit Corp.
|
|
|
Summit Securities, Inc.
|
|
- --------------------------------------------------------------------
| | |
Metropolitan Summit Old Standard Life Insurance
Investment Property Company (proposed acquisition.
Securities Development See "CERTAIN TRANSACTIONS -
Inc. Proposed Acquisition of Old
Standard")
National Summit - Parent Company, inactive except as owner of
Summit. Wholly Owned by C. Paul Sandifur, Jr.,
President of Metropolitan.
Summit - Invests in Receivables and other investments with proceeds
of investments and securities offerings.
MIS - Securities broker/dealer marketing securities, principally
those offered by Summit and Metropolitan (MIS was acquired by
Summit on January 31, 1995).
Summit Property Development - Will provide real estate development
services to others, with the principal initial client
being Metropolitan.
Proposed purchase of Old Standard Life Insurance Company - Summit is
currently negotiating the purchase of Old Standard from Metropolitan.
It is currently contemplated that if purchased, it will be a
subsidiary of Summit, however, it may be held directly by National
Summit or may be purchased through an additional holding company
which would be a subsidiary of Summit. See "CERTAIN TRANSACTIONS -
Proposed Purchase of Old Standard."
<PAGE>
The Offering
INVESTMENT CERTIFICATES:
The Offering . . . . This Certificate offering consists of
$40,000,000 in principal of Investment Certificates, Series A, issued
at minimum investment amounts, terms, and rates set forth on the
cover page of this Prospectus. There is no minimum amount of
Certificates which must be sold. Certificates are issued in fully
registered form. See "DESCRIPTION OF CERTIFICATES."
The Certificates . . . . The Certificates are unsecured indebtedness
of Summit. At September 30, 1994, Summit had outstanding
approximately $31,093,000 (principal and compounded and accrued
interest) of certificates and similar obligations and approximately
$120,000 (principal and accrued interest) of collateralized debt. See
"CAPITALIZATION".
Use of Proceeds . . . . The proceeds of this offering will provide
funds for Receivable investments, other investments, retiring and
renewing maturing certificates, preferred stock dividends and for
general corporate purposes which may include acquisition of other
companies, including Old Standard and the commencement of new
business ventures, including Summit Property Development. See "USE
OF PROCEEDS" and "CERTAIN TRANSACTIONS."
Principal and Interest Payments . . . . At the option of the holders
of Investment Certificates, Series A, interest is paid monthly,
quarterly, semiannually or annually (without compounding) or if left
with Summit, interest will compound semiannually; or, holders may be
paid equal monthly installments of principal and interest pursuant to
an amortization schedule. The minimum investment amounts, terms and
interest rates on unissued Certificates offered hereby may be changed
from time to time by Summit, but any such change shall not affect any
Certificates issued prior to the change. See "DESCRIPTION OF
CERTIFICATES."
PREFERRED STOCK:
Offering . . . . This Preferred Stock offering consists of 150,000
shares of Variable Rate Cumulative Preferred Stock, Series S-1 (the
Preferred Stock), offered at $100 per share, and sold in whole and
fractional shares. There is no minimum amount of Preferred Stock
which must be sold.
Distributions. . . . Distributions on Preferred Stock offered
hereunder are cumulative from the date of issuance, and, when and as
declared, are payable monthly at the annual rates described on the
cover page of the Prospectus based on the price of $100.00 per share.
All preferred stock of Summit including this Preferred Stock is
entitled to receive distributions on the same basis. See
"DESCRIPTION OF PREFERRED STOCK-Distributions". Distributions may be
classified as dividends or returns of capital for Federal Income Tax
purposes. See "DESCRIPTION OF PREFERRED STOCK - Federal Income Tax
Consequences of Distributions.
Liquidation Rights . . . . In the event of liquidation of Summit, the
Preferred Stock liquidation rights are $100 per share of Preferred
Stock, plus declared and unpaid dividends. The liquidation rights of
the Preferred Stock is senior to the common stock of Summit and
junior to all debts of Summit including Summit's Certificates. See
"DESCRIPTION OF PREFERRED STOCK - Liquidation Rights".
Redemption: Upon Call by Summit . . . . The shares of Preferred Stock
are redeemable, in whole or in part, at the option of Summit, upon
not less than 30 nor more than 60 days' notice by mail, at a
redemption price of $100 per share plus, accrued and unpaid dividends
to the date fixed for redemption. See "DESCRIPTION OF PREFERRED
STOCK-Redemption of Shares".
Redemption: Upon Request of Holder . . . . Subject to certain
limitations, Summit may, in its sole discretion and without any
obligation to do so accept share(s) of Preferred Stock for redemption
upon the receipt of unsolicited written requests for redemption of
share(s) from any holder. Redemption prices in such event will be $97
per share if the redemption occurs during the first twelve months
after the date of original issuance of the shares and $99 per share
thereafter plus, in each case, any declared but unpaid dividends.
Summit 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 Summit's financial condition, including its liquidity
position. See "DESCRIPTION OF PREFERRED STOCK - Redemption of
Shares". Summit through its broker-dealer, intends to use its best
efforts to maintain a trading list for holders of Preferred Stock.
See "DESCRIPTION OF PREFERRED STOCK - Redemption of Shares" &
"CERTAIN INVESTMENT CONSIDERATIONS-RISK FACTORS".
Voting Rights . . . . The holders of Preferred Stock have no voting
rights except (i) as expressly granted by the laws of the State of
Idaho 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 . . . . The proceeds of this offering will provide
funds for Receivables investments, other investments, retiring and
renewing maturing certificates, preferred stock dividends and for
general corporate purposes which may include the acquisition of other
companies, including Old Standard and the commencement of new
business ventures including Summit Property Development. See "USE OF
PROCEEDS" and "CERTAIN TRANSACTIONS".
Federal Income Tax Considerations. . . . In the event Summit 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.
Summit is unable to predict the future character of its
distributions. Purchasers are advised to consult their own tax
advisors with respect to the federal income tax treatment of
distributions made. See "DESCRIPTION OF PREFERRED STOCK-Federal
Income Tax Consequences of Distributions."
<PAGE>
SUMMIT SECURITIES, INC.
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
The financial data shown below as of September 30, 1994 and 1993 and for the years ended
September 30, 1994, 1993 and 1992(other than the ratio of earnings to fixed charges) have been
derived from, and should be read in conjunction with, Summit's consolidated financial
statements, related notes, and Management's Discussion and Analysis of Financial Condition and
Results of Operations appearing elsewhere herein. The financial data shown as of September 30,
1992 and 1991 and for the years ended September 30, 1992, and 1991 and the period from July 25,
1990 (date of incorporation) through September 30, 1990 (other than the ratio of earnings to
fixed charges) have been derived from audited financial statements not included herein. The
financial statements as of and for the years ended September 30, 1994 and 1993 have been
audited by Coopers & Lybrand L.L.P. The financial statements as of and for the years ended
September 30, 1992, and 1991 and for the period from July 25, 1990 (date of incorporation)
through September 30, 1990, have been audited by BDO Seidman.
July 25, 1990
(Date of
Year Ended Year Ended Year Ended Year Ended Incorporation)
September 30, September 30, September 30,September, 30 Through
September 30,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA:
Revenues $3,395,252 $ 2,815,624 $ 2,435,843 $1,026,405 $ 8,229
========== ========== ========== ========== ============
Income before
extraordinary item $ 264,879 $ 283,107 $ 611,595 $ 238,205 $ 5,345
Extraordinary item (1) -- -- 49,772 -- --
---------- ---------- ---------- ---------- ------------
Net Income 264,879 283,107 661,367 238,205 5,345
Preferred Stock Dividends (2,930) -- -- -- --
---------- ---------- ---------- ---------- ------------
Income Applicable to Common
Stockholders $ 261,949 $ 283,107 $ 661,367 $ 238,205 $ 5,345
========== ========== ========== ========== ============
Per Common Share Data:
Income before
extraordinary
item $ 13.47 $ 14.15 $ 30.58 $ 11.91 $ .27
Extraordinary item -- -- 2.49 -- --
---------- ---------- ---------- ---------- ------------
Net income $ 13.47 $ 14.15 $ 33.07 $ 11.91 $ .27
========== ========== ========== ========== ============
Weighted average number
of common shares
outstanding 19,445 20,000 20,000 20,000 20,000
========== ========== ========== ========== ============
Ratio of Earnings
to Fixed
Charges and Preferred Dividends: 1.16 1.24 1.53 1.37 --
BALANCE SHEET DATA:
Due from/(to) affiliated
companies, net -- $ 1,710,743 $ (400,365)$(5,528,617) $ (22,010)
Total Assets $35,101,988 $25,441,605 $17,696,628 $16,718,823 $2,027,355
Debt Securities
and Other
Debt Payable $31,212,718 $21,982,078 $14,289,648 $ 8,451,106 --
Stockholders' Equity $ 3,321,230 $ 3,188,024 $ 2,904,917 $ 2,243,550 $2,005,345
<FN>
(1) Benefit from utilization of net operating loss carryforwards.
</TABLE>
<PAGE>
OLD STANDARD LIFE INSURANCE COMPANY
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
The financial data shown below as of December 31, 1993 and 1992 and for the years ended
December 31, 1993, 1992 and 1991 have been derived from and should be read in conjunction with,
Old Standard's financial statements and related notes appearing elsewhere herein. The
financial data shown as of and for the year ended December 31, 1991 has been derived from
audited financial statements not included herein. The financial statements as of and for the
year ended December 31, 1993 has been audited by Coopers & Lybrand L.L.P. The financial
statements as of and for the years ended December 31, 1992 and 1991 have been audited by BDO
Seidman. The financial data as of and for the nine months ended September 30, 1994 and 1993
has been derived from unaudited financial statements.
Nine Months Nine Months
Ended Ended Year Ended Year Ended Year Ended
September 30, September 30, December 31, December 31 December 31,
1994 1993 1993 1992 1991
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA:
Revenues $ 3,069,811 $2,754,706 $3,721,664 $3,004,046 $1,465,329
=========== =========== =========== =========== ===========
Net Income $ 477,969 $ 134,407 $ 281,794 $ 874,588 $ 382,913
=========== =========== =========== =========== ===========
Per Common Share Data:
Net Income $ 11.95 $ 3.36 $ 7.04 $ 21.86 $ 9.57
=========== =========== =========== =========== ===========
Weighted Average Number of
Common Shares Outstanding 40,000 40,000 40,000 40,000 40,000
========== =========== =========== =========== ===========
BALANCE SHEET DATA:
Due from/(to) affiliated
Companies $ 210,542 $ (127,853) $ 1,456,431 $(2,374,634) $ (154,353)
Total Assets $47,488,675 $40,209,800 $42,668,424 $33,814,749 $14,903,175
Annuity Reserves $43,396,028 $36,229,519 $39,344,173 $28,055,857 $12,488,351
Stockholder's Equity $ 2,536,627 $ 2,641,961 $ 2,015,706 $ 2,493,223 $ 1,618,635
</TABLE>
<PAGE>
PRO FORMA COMBINED SELECTED FINANCIAL DATA
OF SUMMIT SECURITIES, INC. AND PROPOSED SUBSIDIARIES
The following table sets forth certain pro forma combined
financial information of Summit to illustrate the estimated effect of
the proposed business combination with Old Standard to be accounted
for as a purchase under generally accepted accounting principles.
This pro forma information should be read in conjunction with the
historical financial statements and selected financial data of Summit
and Old Standard, including the notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of
Operations, and with the pro forma combined financial statements,
including the notes thereto, included elsewhere in this document.
The pro forma combined financial information does not purport to
represent what the combined financial information actually would have
been had the combination occurred at the beginning of the period
presented or to project the combined financial position or results of
operations for any future date or period.
<TABLE>
<CAPTION>
Year Ended
September 30,
1994
<S> <C>
INCOME STATEMENT DATA:
Revenues $ 7,879,006
Net Income Applicable to
Common Stockholders $ 615,998
BALANCE SHEET DATA:
Total Assets $79,990,663
Annuity Reserves $43,396,028
Debt Securities and Other
Debt Payable $31,223,542
Stockholder's Equity $ 3,257,857
</TABLE>
<PAGE>
CERTAIN INVESTMENT CONSIDERATIONS - RISK FACTORS
General
1. Impact of Interest Rates and Economic Conditions: During
the twelve month period ending September 30, 1995, more of Summit's
financial assets, principally Receivables and fixed income
investments, are scheduled to reprice or mature than are its
financial liabilities, principally Certificates. In a rising rate
environment such as has recently been experienced, the proceeds
received from these assets will generally be reinvested at higher
rates of interest while Certificates are retained at their existing
rates of interest. This potential benefit is limited to the extent
that Receivable holders tend to reduce the level of early repayments
in a rising interest rate environment and to the extent that the
purchase yield of Receivables tends to change less rapidly than the
rate of interest paid on Certificates. Additionally, the fair value
of Summit's equity will tend to increase in a falling interest rate
environment as its longer term financial liabilities are discounted
at lower rates of interest thus reducing their present value relative
to financial assets and increasing the margin (equity) of assets over
liabilities. For a number of periods subsequent to the initial
twelve month period, financial liabilities are scheduled to reprice
or mature more quickly than financial assets. During this subsequent
time period, the conditions described above may reverse. However, as
Summit purchases the substantial majority of its Receivables at a
discount, the yield on these Receivables will be accelerated in a
falling interest rate environment to the extent that borrowers
underlying the Receivables are induced to refinance their balances.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Asset/Liability Management." A decline in
economic conditions could cause an increase in the number of
foreclosures on properties underlying Receivables and a reduction in
the probable sales prices for property obtained through such action.
Summit is currently negotiating the purchase of Old Standard Life
Insurance (Old Standard) from Metropolitan as further described
below. A combination of Summit and Old Standard would reverse the
current interest rate sensitivity position of Summit. During the
twelve month period ending September 30, 1995, more of the combined
companies financial liabilities, principally annuities and
Certificates, would be expected to reprice or mature than would its
financial assets. See "CERTAIN TRANSACTIONS - Contemplated Purchase
of Old Standard Life Insurance Company."
2. Dependence Upon Metropolitan: All decisions with respect to
the day-to-day management of Summit will be made exclusively by its
officers, who are also employees of Metropolitan. Summit has
contracted with Metropolitan, for Metropolitan to provide principally
all of the administrative services necessary for the operation of
Summit. These include the review and determination of the
acceptability of the Receivables offered for purchase, the servicing
and collections of such Receivables, the resale of repossessed
properties, and other administrative services for Summit. The
Receivable acquisitions, and all other services are subject to the
standards and guidelines established from time to time by Summit.
Metropolitan charges a fee to Summit for Metropolitan's services.
During the fiscal year ended September 30, 1994, the fee charged was
$681,911. Summit is not contractually restricted from obtaining
these services from outside sources and can terminate these
agreements at any time. However, it is anticipated that these
arrangements will continue indefinitely. See "BUSINESS & CERTAIN
TRANSACTIONS".
3. Conflicts of Interest: All of Summit's officers and
directors are also employees of Metropolitan, therefore 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 Summit. Summit may compete with Metropolitan in the
acquisition of Receivables. Recently, Summit and C. Paul Sandifur,
Jr. (President of Metropolitan) negotiated the sale of Summit to
National Summit Corporation, a holding company wholly owned by Mr.
Sandifur. See "CERTAIN TRANSACTIONS." Mr. Sandifur has voting
control of Metropolitan. Previously, through Metropolitan, Mr.
Sandifur had effective control of its subsidiaries including Summit.
Following this sale, Mr. Sandifur through National Summit Corporation
continues to hold control of Summit. Following the sale, the
officers and directors of Summit resigned and new officers and
directors were elected. See "MANAGEMENT AND CERTAIN TRANSACTIONS".
It is not anticipated that this sale or the change in directors and
officers will materially effect the management or operations of
Summit.
On December 15, 1994, Metropolitan and Summit entered into an
understanding that on January 31, 1995, Metropolitan Investment
Securities (MIS) would be sold to Summit. MIS is a limited-purpose
broker/dealer and the exclusive broker/dealer for the securities sold
by Metropolitan and Summit. It is not anticipated that this sale
will materially affect the business of MIS or Summit. See "CERTAIN
TRANSACTIONS." Also on December 15, 1994, Metropolitan and Summit
entered into an understanding that on January 31, 1995, Metropolitan
would discontinue its property development division, which consists
of a group of employees experienced in real estate development. On
the same date, Summit will commence the operation of a property
development division employing those same individuals who had
previously been employed by Metropolitan. Summit Property
Development is negotiating an agreement with Metropolitan to provide
property development services to Metropolitan. See "BUSINESS" &
"CERTAIN TRANSACTIONS."
Summit is currently negotiating the purchase of Old Standard
Life Insurance a wholly owned subsidiary of Metropolitan. Old
Standard is engaged in the sale of annuities and life insurance. It
is currently anticipated that this proposed purchase may occur during
the first quarter of calendar 1995. See "BUSINESS-Contemplated
Acquisition of Old Standard", "Financial Statements", "Certain
Transactions" & "Pro Forma Financial Statements."
Conflicts of interest are not anticipated to be substantially
different from those that existed prior to these sales, such as
conflicts in the time available to devote to Summit or its
subsidiaries and conflicts with respect to the selection of
Receivables. 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 Summit's current and future
officers and directors to assure themselves that they will not abuse
their discretion in selecting Receivables for purchase through
Metropolitan, and in making other business decisions.
4. Use of Leverage and Related Indebtedness: Summit's primary
sources of new financing for its operations are the sale of
certificates and preferred stock. See "BUSINESS - Method of
Financing" & "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION" & "RESULTS OF OPERATIONS". Summit's principal sources of
cash flow include Receivable payments and proceeds from the sale of
certificates and preferred stock. To the extent Summit's cash flow is
insufficient or unavailable for the payoff of certificates which
mature during the period ending January 31, 1996, portions of the net
proceeds from this Certificate and Preferred Stock offering may be
used for such purpose. See "USE OF PROCEEDS". Approximately $
2,420,000 in principal amount of Investment Certificates will mature
between January 31, 1995 and January 31, 1996. It has been Summit's
experience that the majority of the Investment Certificates are sold
with a five year maturity. Summit has been operating for fewer than
five full fiscal years. 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 four years to satisfy the demand for payment
of maturing investment certificates. Summit'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.
5. Investments in Receivables:
Receivables Secured by Real Estate: Summit is engaged in the
purchase of Receivables which principally consist of Receivables
secured by real estate. See "BUSINESS-Receivable Investments." All
such Receivable investments are subject to a risk of payment default
and loss in the event of foreclosure. The risk of default and loss
can be affected by changes in economic conditions, property values,
changes in zoning, land use, environmental laws and other legal
restrictions, including restrictions on timing and methods of
foreclosure. There is no assurance that these Receivables will be
paid according to their terms, or that property values will be
adequate to preclude loss in the event of a foreclosure. Summit's
underwriting is currently provided through Metropolitan.
Metropolitan's investment underwriting procedure includes a review
of demographics, market values, property appraisal, economy, and
credit of the buyer. Summit buys these Receivables nationwide,
allowing it to focus its activities on areas where the market trends
and economic conditions are more favorable to this line of business.
Management believes that these procedures minimize the risk of
default or loss in the event of foreclosure. However, there is no
assurance that these procedures will be effective.
Investments in other Receivables: In addition to the purchase
of Receivables secured by real estate, Summit is engaged nationwide
in the purchase of other types of Receivables including the purchase
of annuities issued in the settlement of disputes, other types of
annuities, lottery prizes, and other investments. All such
Receivables are subject to the risk of default by the payor,
(generally an unrelated insurance company, or a state government).
Unlike Receivables secured by real estate, these Receivables are
generally not secured by a specific asset. Summit's underwriting is
currently provided through Metropolitan. Metropolitan's investment
underwriting procedures included a review of the credit rating of the
payor, a review of corresponding state laws including the existence
of a state insurance guaranty fund designed to protect annuity
holders, and/or other relevant factors designed to evaluate the risk
of the particular investment. Management believes that these
procedures minimize the risk of loss in the event of a default.
However, there is no assurance that these procedures will be
effective. See "BUSINESS - Investment Real Estate Secured Receivables
". As of September 30, 1994, Summit's Receivables investments
secured by real estate were principally located in the following
regions:
<TABLE>
<S> <C>
Percent Region
------- ------
16% Pacific Northwest (Washington, Oregon,
Idaho and Montana)
18% Pacific Southwest (California, Nevada and
Arizona)
22% Southwest (Texas and New Mexico);
14% Southeast (Florida, Georgia, North Carolina
and South Carolina).
</Table
Relative to Certificates
1. Lack of Indenture Restrictions and Related Indebtedness:
The Indenture pursuant to which the Certificates are issued does not
restrict Summit's ability to issue additional certificates or to
incur other debt. Neither does the Indenture require Summit 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 Summit, are subordinate to Summit's
collateralized debt and are on a parity with all other outstanding
certificates, unsecured accounts payable and accrued liabilities.
There are no limitations on Summit's ability to incur additional
collateralized debt. As of September 30, 1994, Summit's
collateralized debt and related accrued interest amounted to
$120,000. There was $27,987,000 of principal plus compound and
accrued interest of $3,106,000 on outstanding certificates on
September 30, 1994.
2. Absence of Insurance and Guarantees: The Certificates are
not insured by any governmental agency (as are certain investments in
financial institutions such as banks, savings and loans or credit
unions) or are they guaranteed by any public agency or private
entity. It should also be noted that Summit is not subject to any
generally applicable governmental limitations on its own borrowing.
In these respects, Summit 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
Summit 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 Summit, outstanding shares of
Preferred Stock are at parity with the liquidation preference of all
other series of preferred stock of Summit which may be outstanding,
and are subordinate to all outstanding debt of Summit including its
Certificates. Preferred Stock is preferred in liquidation to Summit's
common stock. As of September 30, 1994, total assets of Summit were
approximately $35,102,000 and the total liabilities of Summit ranking
senior in liquidation preference to Preferred Stock were
approximately $31,781,000.
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
Summit may not have current or accumulated earnings and profits as
computed for federal income tax purposes, Summit believes that
distributions made with respect to Preferred Stock would be
characterized as tax free returns of capital for federal income tax
purposes. Summit believes that the majority of the distributions on
its outstanding common and preferred stock were tax free returns of
capital for federal income tax purposes in calendar 1994. Summit 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 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. The broker/dealer for this offering,
Metropolitan Investment Securities, operates a trading list to match
buyers and sellers of Summit's preferred stock. Summit will use its
best efforts to maintain the availability of this listing for the
Preferred Stock offered hereunder. With limited exceptions, Summit
has established a policy that all preferred shareholders must place
their shares for sale on the trading list for 60 consecutive days
before Summit 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 Summit 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 Summit's
discretionary redemption provisions as assurance that such shares
could ever be sold or redeemed. There can be no assurance that this
system will continue to operate, or 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 Summit's stock carrying voting rights. Common
stockholders now hold, and upon completion of this offering will
continue to hold, effective control of Summit 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 Summit. 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 Summit, not as a short-term liquid investment. The
Preferred Stock is redeemable solely at the option of Summit, and
with limited exceptions is specifically not redeemable for 3 years
following its purchase. In addition, Summit 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". Summit 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>
DESCRIPTION OF SECURITIES
Description of Certificates
The Certificates will be issued under a Trust Indenture, as
amended, dated as of November 15, 1990, between Summit 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
Summit and will be issued in fully registered book entry 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 minimum investment amounts, maturities and the interest
rates set forth on the cover page of this Prospectus. The stated
interest rates, maturities, and minimum investment amounts of
unissued Certificates may be changed at any time by Summit. 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.
Summit 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 Summit.
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. Summit may, in its sole discretion, entertain a request
for an early payout of a Certificate upon terms mutually agreed to by
the holder of the Certificate and Summit. Such early payout
requests, when received, are reviewed on a first come first served
basis and are subject to review by Summit'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 Summit. Under the
compounding option, the Certificateholder(s), upon written notice to
Summit, 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
Summit 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.
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 bank trust account until
paid to the Certificateholder(s). Certificates do not earn interest
after the maturity date. Unless otherwise requested by the
Certificateholder, Summit will pay the principal and accumulated
interest due on the matured certificate to the Certificateholder(s)
at Summit's main office, or by mail to the address designated by 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 Summit in writing and shall be accompanied by the
Certificate and evidence satisfactory to Summit of the death of the
registered owner or joint registered owner. Before prepayment,
Summit 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 Summit'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 Summit's ability to issue additional Certificates or to
incur other debt. The Indenture does not require Summit 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 Summit.
They are subordinate to Summit'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, 1994, (including compound and accrued
interest) was $31,093,000. There are no limitations on Summit's
ability to incur collateralized debt. Collateralized debt
outstanding on that date of $120,000 (principal and accrued interest)
consisted primarily of senior liens on the real estate collateral for
Summit'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
Summit'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. Summit 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, 1994 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 Summit 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 Summit 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
Summit. 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 Summit must
furnish to the Trustee a statement of certain officers of Summit
concerning their knowledge as to whether or not Summit 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 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.
Summit may not consolidate with or merge into any other
corporation or transfer substantially all its assets unless either
Summit is the continuing corporation formed by such consolidation, or
into which Summit 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 Summit 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 Summit 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, National Summit Corp. holds
100% of the Common Stock of Summit. See "CERTAIN TRANSACTIONS"
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
Summit, 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
Summit 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 Summit.
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 Summit'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 Summit 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 Summit 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
Summit. Summit 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.
Summit'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 Summit. 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
Summit.
In the event that Summit determines in good faith that for any
reason Summit 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 Summit by at least three recognized primary U.S Government
securities dealers selected by Summit.
In the event that Summit determines in good faith that for any
reason Summit 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
Summit by at least three recognized primary U.S. Government
securities dealers selected by Summit.
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 Summit. 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
Summit.
In the event that Summit determines in good faith that for any
reason Summit 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 Summit by at least three recognized primary
U.S. Government securities dealers selected by Summit.
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 Summit. 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 Summit.
In the event Summit determines in good faith that for any reason
Summit 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 Summit by at least three recognized primary
U.S. Government securities dealers selected by Summit.
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
Summit 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, Summit 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
Summit 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 Summit ranking junior to Preferred Stock as to dividends and
upon liquidation.
Summit may make distributions ratably on the shares of Preferred
Stock and shares of any stock of Summit 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 Summit's preferred 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 Summit, the holders of shares of
Preferred Stock will be entitled to receive out of the assets of
Summit available for distribution to stockholders, before any
distribution of assets is made to holders of common stock or any
stock of Summit 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 Summit. As of September 30, 1994,
the total liabilities of Summit ranking senior in liquidation
preference to Preferred Stock were $31,781,000. See "BUSINESS -
Regulation". There are no limitations on Summit'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 Summit'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 Summit. If,
upon any voluntary or involuntary liquidation, dissolution or winding
up of Summit, the amounts payable with respect to Preferred Stock and
any other shares of stock of Summit 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 Summit 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 Summit.
Redemption of Shares
Upon call by Summit: . . . 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
Summit at a redemption price of $100 per share plus, declared and
unpaid dividends to the date fixed for redemption. In the event that
fewer than all of the outstanding shares of Preferred Stock are to be
redeemed, the number of shares to be redeemed shall be determined by
Summit and the shares to be redeemed shall be determined by such
method as Summit, 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, Summit receives an unsolicited written request for
redemption of a block of shares from any holder, Summit 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 Summit's Executive Committee. Any
shares so tendered, which Summit in its discretion, allows for
redemption shall be redeemed by Summit 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. Summit may
change such optional redemption prices at anytime with respect to
unissued shares of Series S.
There can be no assurance that Summit's financial condition will
allow it to exercise its discretion to accept any particular request
for redemption of Preferred Stock. Summit will not redeem any such
shares tendered for redemption if to do so would be unsafe or unsound
in light of Summit'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 Summit
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, Summit 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. The broker-dealer
for this offering, Metropolitan Investment Securities, operates a
trading list to match buyers and sellers of issues of preferred
stock. Summit will use its best efforts to maintain the availability
of this listing for the preferred stock offered hereunder following
completion of this offering. With limited exceptions, Summit has
established a policy that all preferred shareholders including
holders of the Preferred Shares offered herein, must place their
shares for sale on the trading list for 60 consecutive days before
Summit will entertain a request for redemption.
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 Summit'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 Summit'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 Summit 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 Summit as
calculated for federal income tax purposes. To the extent, if any,
that distributions made by Summit to the holders of Preferred Stock
exceed current and accumulated earnings and profits of Summit, 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
1994 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 1994 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 1994
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.
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.
Summit believes that the majority of the distributions on its
outstanding common and preferred stock were tax free returns of
capital for federal income tax purposes in calendar 1994. Summit is
unable to predict the future character of its distributions.
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 Summit as other payments of dividends. These
distributions are not deductible by Summit 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, Summit 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
Metropolitan acts as Transfer Agent and Registrar for Summit's
Certificates and capital stock.
<PAGE>
LEGAL MATTERS
LEGAL OPINION
The legality of the Certificates and Preferred Stock being
offered hereby is being passed upon for Summit by Susan A. Thomson,
Esq., who is Assistant Corporate counsel for Summit, and Vice
President and legal counsel for Metropolitan Investment Securities,
and also employed by Metropolitan Mortgage & Securities Co., Inc. as
its Assistant Corporate Counsel and Assistant Secretary.
LEGAL PROCEEDINGS
There are no material legal proceedings or actions pending or
threatened against Summit, or to which its property is subject.
EXPERTS
The Consolidated Financial Statements of Summit as of September
30, 1994 and 1993 and each of the years in the two-year period ended
September 30, 1994 included in this Prospectus have been included
herein in reliance on the report, which includes an explanatory
paragraph describing changes in Summit's methods of accounting for
repossessed real properties and income taxes, of Coopers & Lybrand
L.L.P., independent accountants, given on the authority of that firm
as experts in accounting and auditing. The Financial Statements of
Summit for the year 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 report appearing elsewhere herein
and in the Registration Statement, and have been so included in
reliance upon such authority of said firm as experts in auditing and
accounting.
The Financial Statements of Old Standard as of December 31, 1993
and for the year then ended included in this Prospectus have been
included herein in reliance on the report, which includes an
explanatory paragraph describing changes in Old Standard's methodof
accounting for its investment in certain debt securities of Coopers
& Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing. The Financial
Statements of Old Standard as of December 31, 1992 and for the years
ended December 31, 1992 and 1991, 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 report appearing elsewhere herein and in
the Registration Statement, and have been so included in reliance
upon such authority of said firm as experts in auditing and
accounting.
<PAGE>
PLAN OF DISTRIBUTION
The Certificates and Preferred Stock are offered directly to the
public on a continuing best efforts basis through Metropolitan
Investment Securities, Inc. (MIS) which is an affiliate of Summit.
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 Summit. 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 Summit on
most Certificate purchases ranging from 0.25% to 6% 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 6% of the offering price will
also be paid by Summit 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 Summit as determined by the Board of Directors. Summit will also
pay certain other expenses in connection with the offering. During
the three fiscal years ended September 30, 1994, MIS has received
commissions of $751,000 from Summit on sales of approximately
$26,224,000 of Summit's certificates and preferred stock. Preferred
Stock was sold for the first time in 1994.
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. Summit 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 $35,000 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 Summit 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
persons willing to sell or purchase outstanding series of preferred
stock of Summit. Summit will use its best efforts to maintain the
availability of this listing 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 6% 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 . . . . Summit expects net proceeds from this
Certificate offering of $37,600,000 to $39,900,000 before deducting
expenses estimated at $150,000 (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 $2,400,000 (0.25% to 6%) depending on
maturities of Certificates sold and whether sales are reinvestments
or new purchases. Such proceeds may be supplemented with funds
generated by Summit's operations and/or borrowings from brokers or
banks. See "BUSINESS-Method of Financing."
Preferred Stock Proceeds . . . .Summit expects net proceeds from this
Preferred Stock offering of $14,100,000 to $15,000,000 before
deducting expenses estimated at $150,000 (combined total for both
Certificates and Preferred Stock expenses) and after sales
commissions of up to $900,000 (6%), 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 Summit's operations and/or borrowings from brokers
or banks. See "BUSINESS-Method of Financing."
In conjunction with the other funds available to it, Summit 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 other companies,
including Old Standard. 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, 1996, 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 $2,420,000 in
principal amount of debt securities will mature between January 31,
1995 and January 31, 1996 with interest rates ranging from 6% to 10%
and averaging approximately 7.8% per annum. See Note 5 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 Summit'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>
CAPITALIZATION
The following table sets forth the capitalization of Summit at
September 30, 1994:
</TABLE>
<TABLE>
<CAPTION>
September 30,
1994,
<S> <C>
DEBT PAYABLE
Real estate contracts and
mortgage notes payable
7% to 10%, due 1994 to 2018 $ 119,888
-----------
INVESTMENT CERTIFICATES
Investment Certificates,
Maturing 1994 to 1999,
at 6% to 11% 27,986,535
Compound and accrued interest 3,106,295
-----------
Total Investment Certificates 31,092,830
-----------
STOCKHOLDERS' EQUITY
Preferred Stock, $10 par:
10,000,000 shares authorized;
31,719 shares issued and
outstanding (Liquidation Preference
$3,171,940) 317,194
Common Stock, $10 par:
2,000,000 shares authorized;
10,000 shares issued and
outstanding 100,000
Additional paid-in capital 1,454,063
Retained earnings 1,449,973
----------
Total Stockholders' Equity 3,321,230
----------
Total Capitalization $34,533,948
==========
</TABLE>
<PAGE>
SUMMIT SECURITIES, INC.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
The financial data shown below as of September 30, 1994 and 1993 and for the years ended
September 30, 1994, 1993 and 1992(other than the ratio of earnings to fixed charges) have been
derived from, and should be read in conjunction with, Summit's consolidated financial
statements, related notes, and Management's Discussion and Analysis of Financial Condition and
Results of Operations appearing elsewhere herein. The financial data shown as of September 30,
1992 and 1991 and for the years ended September 30, 1992, and 1991 and the period from July 25,
1990 (date of incorporation) through September 30, 1990 (other than the ratio of earnings to
fixed charges) have been derived from audited financial statements not included herein. The
financial statements as of and for the years ended September 30, 1994 and 1993 have been
audited by Coopers & Lybrand L.L.P. The financial statements as of and for the years ended
September 30, 1992, and 1991 and for the period from July 25, 1990 (date of incorporation)
through September 30, 1990, have been audited by BDO Seidman.
July 25, 1990
(Date of
Year Ended Year Ended Year Ended Year Ended Incorporation)
September 30, September 30, September 30, September, 30 Through
September 30,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA:
Revenues $3,395,252 $ 2,815,624 $ 2,435,843 $1,026,405 $ 8,229
========== ========== ========== ========== ============
Income before
extraordinary item $ 264,879 $ 283,107 $ 611,595 $ 238,205 $ 5,345
Extraordinary item (1) -- -- 49,772 -- --
---------- ---------- ---------- ---------- ------------
Net Income 264,879 283,107 661,367 238,205 5,345
Preferred Stock Dividends (2,930) -- -- -- --
---------- ---------- ---------- ---------- ------------
Income Applicable to Common
Stockholders $ 261,949 $ 283,107 $ 661,367 $ 238,205 $ 5,345
========== ========== ========== ========== ============
Per Common Share Data:
Income before
extraordinary
item $ 13.47 $ 14.15 $ 30.58 $ 11.91 $ .27
Extraordinary item -- -- 2.49 -- --
---------- ---------- ---------- ---------- ------------
Net income $ 13.47 $ 14.15 $ 33.07 $ 11.91 $ .27
========== ========== ========== ========== ============
Weighted average number
of common shares
outstanding 19,445 20,000 20,000 20,000 20,000
========== ========== ========== ========== ============
Ratio of Earnings
to Fixed
Charges and Preferred Dividends: 1.16 1.24 1.53 1.37 --
BALANCE SHEET DATA:
Due from/(to) affiliated
companies, net -- $ 1,710,743 $ (400,365) $(5,528,617) $ (22,010)
Total Assets $35,101,988 $25,441,605 $17,696,628 $16,718,823 $2,027,355
Debt Securities
and Other
Debt Payable $31,212,718 $21,982,078 $14,289,648 $ 8,451,106 --
Stockholders' Equity $ 3,321,230 $ 3,188,024 $ 2,904,917 $ 2,243,550 $2,005,345
<FN>
(1) Benefit from utilization of net operating loss carryforwards.
</TABLE>
<PAGE>
OLD STANDARD LIFE INSURANCE COMPANY
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
The financial data shown below as of December 31, 1993 and 1992 and for the years ended
December 31, 1993, 1992 and 1991 have been derived from and should be read in conjunction with,
Old Standard's financial statements and related notes appearing elsewhere herein. The
financial data shown as of December 31, 1991 has been derived from audited financial statements
not included herein. The financial statements as of and for the year ended December 31, 1993
has been audited by Coopers and Lybrand L.L.P. The financial statements as of and for the
years ended December 31, 1992 and 1991 have been audited by BDO Seidman. The financial data
as of and for the nine months ended September 30, 1994, and 1993 has been derived from
unaudited financial statements.
Nine Months Nine Months
Ended Ended Year Ended Year Ended Year Ended
September 30, September 30, December 31, December 31 December 31,
1994 1993 1993 1992 1991
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA:
Revenues $ 3,069,811 $2,754,706 $3,721,664 $3,004,046 $1,465,329
=========== =========== =========== =========== ===========
Net Income $ 477,969 $ 134,407 $ 281,794 $ 874,588 $ 382,913
=========== =========== =========== =========== ===========
Per Common Share Data:
Net Income $ 11.95 $ 3.36 $ 7.04 $ 21.86 $ 9.57
=========== =========== =========== =========== ===========
Weighted Average Number of
Common Shares Outstanding 40,000 40,000 40,000 40,000 40,000
=========== =========== =========== =========== ===========
Balance Sheet Data:
Due from/(to) affiliated
Companies $ 210,542 $ (127,853) $ 1,456,431 $(2,374,634) $ (154,353)
Total Assets $47,488,675 $40,209,800 $42,668,424 $33,814,749 $14,903,175
Annuity Reserves $43,396,028 $36,229,519 $39,344,173 $28,055,857 $12,488,351
Stockholder's Equity $ 2,536,627 $ 2,641,961 $ 2,015,706 $ 2,493,223 $ 1,618,635
</TABLE>
<PAGE>
PRO FORMA COMBINED SELECTED FINANCIAL DATA
OF SUMMIT SECURITIES, INC. AND SUBSIDIARIES
The following table sets forth certain pro forma combined financial
information of Summit to illustrate the estimated effect of the
proposed business combination with Old Standard to be accounted for
as a purchase under generally accepted accounting principles. This
pro forma information should be read in conjunction with the
historical financial statements and selected financial data of Summit
and Old Standard, including the notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of
Operations and with the pro forma combined financial statements,
including the notes thereto, included elsewhere in this document.
The pro forma combined financial information does not purport to
represent what the combined financial information actually would have
been had the combination occurred at the beginning of the period
presented or to project the combined financial position or results of
operations for any future date or period.
<TABLE>
<CAPTION>
Year Ended
September 30,
1994
<S> <C>
INCOME STATEMENT DATA:
Revenues $ 7,879,006
Net Income Applicable to
Common Stockholders $ 615,998
BALANCE SHEET DATA:
Total Assets $79,990,663
Annuity Reserves $43,396,028
Debt Securities and Other
Debt Payable $31,223,542
Stockholder's Equity $ 3,257,857
</TABLE>
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
For the Three Fiscal Years Ended September 30, 1994
Results of Operations
Revenues of Summit increased to $3.4 million in 1994, from $2.8
million in 1993 and $2.4 million in 1992. The growth from 1993 to
1994 is attributable primarily to increased investment earnings on
additional outstanding Receivables along with gains realized on the
sale of a portion of the Receivable portfolio. These increases were
offset partially, in 1994 by a reduction in revenues associated with
the sale of repossessed property. 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. These increases were partially offset
by a reduction in dividends received on investments in an affiliated
company. Summit has increased its investment in Receivables from
$11.6 million at September 30, 1992 to $19.5 million at September 30,
1993 to $27.3 million at September 30, 1994.
Summit continued to realize income from operations during 1994.
Net income for the fiscal year ended September 30, 1994 was $262,000
compared to $283,000 in 1993 and $661,000 in 1992. The relatively
small decrease from 1993 to 1994 was the result of Summit being able
to realize gains on the sales of Receivables, improve other income
sources and reduce operating expenses, all of which were necessary as
Summit experienced a reduced margin between interest sensitive income
and interest sensitive expense along with increases in the provisions
for losses on real estate assets. The 1993 decrease in net income
was attributable to a reduced margin 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. Additionally,
during 1993, Summit experienced a slight increase in the loss from
the sale of real estate repossessions and also increased its
provision for losses on real estate assets.
Since the date of its incorporation through approximately the
end of calendar year 1993, Summit generally benefitted from a
declining interest rate environment with lower money costs and
relatively consistent yields on Receivables. In addition, a
declining rate environment positively impacted earnings by increasing
the value of the portfolio of predominantly fixed rate Receivables.
This was evident in 1994 as Summit was able to realize gains from the
sale of Receivables. Higher than normal prepayments in the
Receivable portfolio were experienced during 1994, 1993 and 1992,
allowing Summit to recognize unamortized discounts on Receivables at
an accelerated rate. During 1994, Metropolitan, Summit's former
parent through September 9, 1994 and the primary supplier of
Receivable investments, began charging underwriting fees associated
with Receivable acquisitions. The charging of the underwriting fee
has resulted in a slightly lower yield over the life of the new
Receivables, however, management believes this yield to be superior
to other investment opportunities. See "BUSINESS-Investment in
Receivables."
Maintaining efficient collection efforts and minimizing
delinquencies in Summit's Receivable portfolio are ongoing management
goals. During 1994, Summit realized a gain on the sale of
repossessed real estate of $12,300 compared to losses of $18,400 and
$5,300 in 1993 and 1992, respectively. In relation to the increasing
size of Summit's Receivable and real estate portfolios, Summit has
increased its provision for losses on real estate assets. Provisions
for losses have been $155,000, $51,000 and $18,800 for 1994, 1993,
and 1992, respectively. At September 30, 1994, Summit had an
allowance for losses on real estate assets of $251,000 compared to
$97,000 at September 30, 1993.
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. Summit applied the provisions of SOP 92-3 effective
October 1, 1992. The initial charge for its application was
approximately $10,000, before the application of related income
taxes, and is included in operations in 1993.
Interest Sensitive Income and Expense
Management continually monitors the interest sensitive income
and expense of Summit. Interest sensitive expense is predominantly
the interest costs of Certificates, while interest sensitive income
includes interest and earned discounts on Receivables, dividends and
other investment income.
The spread between interest sensitive income and interest
sensitive expense was $925,000 in 1992, $696,000 in 1993 and $543,000
in 1994. The decrease from 1993 to 1994 of approximately $153,000
was attributable to several factors including: (1) charging of
underwriting fees by Metropolitan which reduced 1994 interest income
by approximately $60,000; (2) the sale of $4.5 million of high
yielding, time-share Receivables to Metropolitan in February 1994;
(3) lower yields on acquired Receivables; and (4) the accumulation of
cash, which was invested in low yielding overnight investments, which
was necessary for the September 1994 payment of $3.6 million to
Metropolitan to redeem its outstanding common stock. The decrease in
interest spread 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 carrying value on
February 18, 1994. Also, Summit recognized $366,935 of dividend
income (13% dividend rate) from its preferred stock investment in its
affiliate in 1992 and paid interest to Metropolitan at prime plus 1
1/2% on the borrowings used to finance the purchase of the preferred
stock. In March 1992, Summit transferred the preferred stock to
Metropolitan in full satisfaction of the $6 million payable.
Therefore, there were no dividends received by Summit in fiscal 1994
or 1993 on the preferred stock. See Note 9 to the Consolidated
Financial Statements.
Summit's assets have tended to reprice or mature more quickly
than have its liabilities. This condition generally leads to a
reduced interest margin in a falling interest rate environment as the
cash flow from assets is reinvested at lower rates of interest.
Interest rates generally declined over the past three years, with the
exception of the last nine months of fiscal 1994. See
"Asset/Liability Management."
Other Income
Other income increased from approximately $16,600 in 1992 to
$42,700 in 1993 and $60,700 in 1994. 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 $178,300 in 1992
to $244,600 in 1993 and remained relatively stable at $231,400 in
1994. In general, the increases have been the result of increased
volume of Certificate sales and Receivable investments. During 1994,
Summit was able to improve efficiency and reduce some operating
expenses while increasing the volume of Certificate sales and
Receivable investments.
Provision for Losses on Real Estate Receivables and Repossessed Real
Estate
The provision for losses on Receivables and repossessed real
estate has increased as the size of the portfolio of Receivables and
repossessed real estate has grown. The following table summarizes
Summit's allowance for losses on Receivables and repossessed real
estate:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Beginning Balance $ 96,654 $59,244 $50,000
Provision 103,000 15,000 18,762
(Charge-offs)/
Recoveries, net 50,918 22,410 ( 9,518)
------- ------- -------
Ending Balance $250,572 $96,654 $59,244
======= ======= =======
<FN>
These allowances are in addition to unamortized discounts of $1.3
million at September 30, 1994, and $1.1 million at September 30, 1993
and 1992.
</TABLE>
Gain/Loss on Real Estate Sold
During 1994, Summit experienced a gain on the sale of real
estate of approximately $12,000. At the end of fiscal 1994, Summit
had $453,000 in real estate held for sale, less than 2% of total real
estate assets.
Effect of Inflation
During the three year period ended September 30, 1994, inflation
has had a generally positive impact on Summit'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 Summit's 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
Summit's cost of funds. Interest rates on Receivables acquired, due
to their nature, have not declined to the same extent as the cost of
Summit's borrowings. In addition, inflation has not had a material
effect on Summit'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
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, Summit is unable to quantify the
effect of inflation in this respect.
Asset/Liability Management
As most of Summit's assets and liabilities are financial in
nature, Summit is subject to interest rate risk. In fiscal 1995,
more of Summit's financial assets (primarily Receivables and fixed
income investments) will reprice or mature more quickly than its
financial liabilities (primarily Certificates). In a rising interest
rate environment, this factor will tend to increase earnings as cash
flow from assets is reinvested at higher rates of interest. However,
for a number of periods subsequent to fiscal 1995 , financial
liabilities are scheduled to reprice or mature more quickly than
financial assets. During this period, earnings will tend to decline
as funds available for investing are obtained at a higher interest
cost. Also, yields on Receivables have not been as sensitive to rate
fluctuations as have Certificate rates. Therefore, the benefit of an
increase in interest rates during the initial period would be reduced
to the extent that required yields on Receivable investments were not
increased in concert with general market rates of interest. In a
falling interest rate environment, when financial assets reprice or
mature more quickly than financial liabilities, earnings will tend to
decrease as cash flow from assets is reinvested at lower rates of
interest. This effect is mitigated to the extent that yields on
Receivables may be less sensitive to rate fluctuations than are rates
on Certificates.
Summit is authorized to use financial futures instruments for
the purpose of hedging interest rate risk relative to investments in
the securities portfolio or potential trading situations. In both
cases, the futures transaction is intended to reduce the risk
associated with price movements for a balance sheet asset.
Additionally the Company could sell securities "short" (the sale of
securities which are not currently in the portfolio and therefore
must be purchased to close out the sale agreement) as another means
of hedging interest rate risk, or to take a trading position in an
attempt to benefit from an anticipated movement in the financial
markets. The Company has not employed either strategy prior to or as
of September 30, 1994.
During fiscal 1995, approximately $6.4 million of interest
sensitive assets (cash and Receivables) are expected to reprice or
mature. For liabilities, approximately $2.6 million of Certificates
will mature during fiscal 1995, along with about $10,500 of other
debt payable. These estimates result in repricing of interest
sensitive assets in excess of interest sensitive liabilities of
approximately $3.8 million, or a ratio of interest sensitive assets
to interest sensitive liabilities of approximately 245%.
New Accounting Rules
In the fourth quarter of fiscal 1993, Summit 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 effect on Summit's financial
position. In 1992, Summit accounted for income taxes as required by
Accounting Principles Board Opinion No. 11. See Note 1 to the
Consolidated 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. Summit is required to adopt this new standard by
October 1, 1995. Summit 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 Summit's financial
statements.
Liquidity and Capital Resources
As a financial institution, Summit's liquidity is largely tied
to its ability to renew, maintain or obtain additional sources of
cash. Summit has successfully performed this task during the past
three years and has continued to invest funds generated by operations
and financing activities.
Summit has continued to generate cash from operations with net
cash provided of $2.3 million in 1994, $1.4 million in 1993 and $1.4
million in 1992. Cash utilized by Summit in its investing activities
was $6.3 million in 1994, $9.2 million in 1993 and $2.6 million in
1992. Cash provided by Summit's financing activities was $4.1
million in 1994, $5.8 million in 1993 and $5.0 million in 1992.
These cash flows have resulted in year end cash and cash equivalent
balances of $3.6 million in 1994, $3.6 million in 1993 and $5.6
million in 1992.
During 1994, the cash provided by operating activities of $2.3
million plus cash provided by financing activities of $4.1 million
was used entirely to support the net investing activities of $6.3
million. Cash from operating activities of $2.3 million resulted
primarily from net income of $.3 million, increases in compound and
accrued interest on Certificates of $1.2 million and other accrual
adjustments of $.6 million. Cash used in investing activities of
$6.3 million primarily included acquisition of Receivables, net of
payments and sales, of $8.0 million being offset by the collection of
advances from related parties of $1.7 million. Cash from financing
activities of $4.1 million resulted primarily from: (1) issuance of
Certificates, net of repayment and related debt issue costs, of $7.5
million; (2) issuance of common and preferred stock of $.2 million;
less (3) redemption of common stock, owned by its former parent, of
$3.6 million.
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
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
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.
Summit's investing activities during 1993 were supported by cash
from operations and external financing. Summit's increases in
Receivables were primarily funded by sales of 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 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 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.
During 1992, Summit's investing activities were supported by
internal cash from operations and external cash from financing.
Summit's increases in Receivables were primarily funded by sales of
Certificates.
Management believes that cash flow from operating activities and
financing activities and the liquidity provided from current
investment will be sufficient for Summit to conduct its business and
meet its anticipated obligations as they mature during fiscal 1995
including the planned acquisition of Old Standard, MIS and
commencement of operations of Summit Property Development, Inc.
Summit has not defaulted on any of its obligations since its founding
in 1990.
<PAGE>
BUSINESS
INTRODUCTION
Summit is engaged in the business of investing in Receivables
through funds provided by Receivable investment proceeds, certificate
sales, and preferred stock sales. Summit's goal is to achieve a
positive spread between the return on its Receivable investments and
its cost of funds. Summit may also engage in other businesses or
activities without restriction in accordance with the provisions of
its Articles of Incorporation.
Summit was originally organized as a wholly owned subsidiary of
Metropolitan Mortgage & Securities Co., Inc, a Washington corporation
(Metropolitan). On September 9, 1994, Summit, Metropolitan and C.
Paul Sandifur, Jr. completed a sale of the common stock of Summit to
National Summit Corporation. National Summit Corporation is a
holding company wholly owned by C. Paul Sandifur Jr. Mr. Sandifur
holds effective control over Metropolitan. Prior to the sale, Mr.
Sandifur held effective control of Summit, through Metropolitan.
Following the sale, Mr. Sandifur holds effective control of Summit
through National Summit Corporation. Prior to the sale, the officers
and directors of Summit were also officers or directors of
Metropolitan and/or its affiliates. Contemporaneously with the sale,
the officers and directors resigned and new officers and directors
were elected. The newly elected officers and directors are employees
of Metropolitan, but not officers or directors of Metropolitan or any
of its subsidiaries. There are no plans to make any material changes
in the business, operations or administration of Summit as a result
of the sale. See "CERTAIN TRANSACTIONS".
Summit has reached an agreement with Metropolitan whereby
effective January 31, 1995, Summit will acquire Metropolitan
Investment Securities, Inc. (MIS) from Metropolitan. MIS is the
broker/dealer for this offering and the offering of Metropolitan's
securities. MIS had total assets and stockholder's equity of
$380,000 and $283,000 respectively, at September 30, 1994. Also,
effective January 31, 1995, Summit Property Development, Inc. (a
subsidiary of Summit) will commence real estate development
activities previously performed by Metropolitan. Additionally,
Summit is currently negotiating the purchase of Old Standard Life
Insurance Company (Old Standard) from Metropolitan. Old Standard is
a wholly-owned subsidiary of Metropolitan. Old Standard had total
assets and stockholder's equity of $47 million and $2.5 million,
respectively, at September 30, 1994. See "CERTAIN TRANSACTIONS".
MANAGEMENT
As of September 30, 1994, Summit's personnel consisted of its
officers and directors, See "MANAGEMENT", an accountant and an
attorney. Each of those individuals is 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 Summit
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 Summit 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.
Metropolitan provides management, Receivable acquisition and
Receivable collection services for a fee to Summit pursuant to the
terms of a Management Acquisition and Servicing Agreement. The
Receivable acquisition fees are based upon a yield requirement
established by Summit. Summit pays as its Receivable acquisition
service fee the difference between the yield requirement and the
yield which Metropolitan actually negotiates when the Receivable is
acquired. In 1994, Summit paid total service fees to Metropolitan of
$497,132. Management believes that the terms and conditions of the
agreements with Metropolitan are at least as favorable to Summit as
those that could have been obtained by a non-affiliated third party.
The agreements are non-exclusive and may be terminated in whole or
part by either party upon notice to the other party.
RECEIVABLE INVESTMENTS
The Receivables consist primarily of notes secured by real
estate mortgages, deeds of trust and conditional real estate sales
contracts. To a lesser extent, Summit also acquires other types of
Receivables, including but not limited to annuities and lottery
prizes. All such Receivables are purchased at prices calculated to
provide a desired yield. Often, in order to obtain the desired
yield, the Receivables will be purchased at a discount from their
face amount. See "BUSINESS -YIELD and DISCOUNT CONSIDERATIONS".
Summit's investments in Receivables are financed primarily by
the cash flow from Receivables, the sale of Certificates, and the
sale of Preferred Stock.
<PAGE>
Sources of Receivables
Summit acquires its Receivables through the services of
Metropolitan. See "BUSINESS-Management". Metropolitan acquires
approximately 80% of the Receivables through independent brokers
located throughout the country. These brokers typically deal directly
with private individuals or organizations who own and wish to sell a
Receivable. These independent brokers contact one of Metropolitan's
branch offices to submit the Receivable for evaluation by
Metropolitan. It is the opinion of management that its
responsiveness to the independent Receivable brokers, and to
Receivable sellers has been a key to Metropolitan's ability to
attract and purchase quality Receivables at acceptable yields.
Metropolitan is also approached directly by prospective
Receivable sellers. These direct contacts are generally the result
of a referral or a previous business contact. Metropolitan also
negotiates the acquisition of portfolios of Receivables from banks,
savings and loan associations, the Resolution Trust Corporation and
the Federal Deposit Insurance Corporation. Summit has acquired
Receivables from all such sources through Metropolitan.
Yield and Discount Considerations
Summit's management establishes Summit's yield requirements
based upon its cost of funds, and market conditions. Summit's yield
requirements are provided to Metropolitan, which negotiates
Receivable purchases at prices calculated to provide a desired yield.
Often this results in a purchase price less than the Receivable's
unpaid balance. The difference between the unpaid balance and the
purchase price is the "discount." The amount of the discount will
vary in any given transaction depending upon Summit's yield
requirements at the time of the purchase and the terms and nature of
the Receivable. 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
Receivable payor. See Also "BUSINESS-RECEIVABLE INVESTMENTS-
Underwriting"
For Receivables of all types, the discounts originating at the
time of purchase, net of capitalized acquisition costs, are amortized
using the level yield (interest) method over the remaining
contractual term of the contract. For Receivables which were
acquired after September 30, 1992, these net purchase discounts are
amortized on an individual contract basis using the level yield
method over the contractual remaining life of the contract. For
those Receivables acquired before October 1, 1992, these net purchase
discounts were pooled by the fiscal year of purchase and by similar
contract types, and amortized on a pool basis using the level yield
method over the expected remaining life of the pool. For these older
Receivables, the amortization period, which is approximately 78
months, estimates a constant prepayment rate of 10-12 percent per
year on scheduled balances, which is consistent with Summit's prior
experience with similar loans and Summit's expectations.
YIELD CHART: REFER TO GRAPH APPENDIX ITEM 3
Summit's management establishes the yield requirements for
Receivable investments by assuming that all payments on the
Receivables will be made and that a certain percentage of unpaid
balances will be prepaid on an annual basis (9% for fiscal 1994) .
During fiscal 1994, Summit's average initial yield requirement was
11%-14%. However, to the extent that Receivables are purchased at a
discount and payments are received earlier than anticipated, the
discount is earned more quickly resulting in an increase in the
yield. Conversely, to the extent that payments are received later
than anticipated, the discount is earned less quickly resulting in a
lower yield.
A greater effective yield can also be achieved 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 a Receivable purchased at a discount.
Underwriting
The review of the Receivables (underwriting) is performed for
Summit by Metropolitan. 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, the purchase
price for the Receivable is calculated based on Summit'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 review. Metropolitan
also negotiates the purchases of "partial" interests in Receivables.
Partial purchases are purchases of 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 of Summit.
These "partials" generally result in a reduced level of investment
risk to the purchaser than if the entire Receivable cash flow is
purchased.
The underwriting guidelines adopted by Summit for Receivables
secured by real estate include a requirement that the ratio of
Summit'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. These more stringent than conventional
investment to collateral ratios provide higher than conventional
levels of collateral to protect Summit's investment in the event of
a default on a Receivable.
For each Receivable secured by real estate, 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.
Additionally, every proposed investment in a Receivable secured
by real estate 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 related to Receivables
secured by real estate 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 Receivable and other matters of record.
Summit also acquires Receivables from Metropolitan which are not
secured by real estate, such as annuities and lottery prizes. The
annuities often arise out of the settlement of legal disputes where
the prevailing party is awarded a sum of money payable over a period
of time. In the case of such settlement annuity purchases, the
underwriting guidelines of Summit generally require that Metropolitan
review the settlement agreement. In the case of all annuity
purchases, Summit's underwriting guidelines generally require that
Metropolitan review the annuity policy, related documents, the credit
rating of the payor (generally an insurance company), determination
of the existence of any state insurance fund designed to protect
annuity holders, and the review of other factors relevant to the risk
of purchasing a particular annuity as deemed appropriate by the
underwriting committee in each circumstance. In the case of lottery
prizes, the underwriting guidelines generally include a review of the
documents providing proof of the prize, and a review of the credit
rating of the insurance company, or other entity, making the lottery
prize payments. Where the lottery prize is from a state run
lottery, the underwriting guidelines generally include a
determination of whether the prize is backed by the general credit of
the state, and confirmation with the respective lottery commission of
the prize winners right to sell the prize, and acknowledgment from
the lottery commission of their notice of the sale. In many states,
in order to sell a state lottery prize, the winner must obtain a
court order permitting the sale. In those states, Summit requires a
certified copy of the court order.
Receivable investments which are identified for legal review are
referred to Metropolitan's in-house legal department which currently
includes a staff of five attorneys. All Receivable purchases which
involve investments greater than $150,000 ($100,000 if the real
property collateral is not an owner-occupied single family residence)
are submitted to an additional special risk evaluation committee, and
are subject to legal department review. In addition, transactions
involving investments of more than $500,000 are subject to approval
by Summit's Board of Directors.
Upon completion of the underwriting process and the approval of
the investment, appropriate closing and transfer documents are
executed by the seller and/or broker, 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 this business.
Summit's acquisition of Receivables secured by real estate 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.
Current Mix of Receivable Investment Holdings
Summit's investments in Receivables are secured by first or
second liens primarily on single family residential property. Summit
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 Summit's
investments in Receivables as of September 30, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Face value of discounted
receivables $21,931,395 $14,416,037
Face value of originated
and non-discounted
receivables 6,473,183 6,285,706
Unrealized discounts,
net of amortized
acquisition costs (1,337,365) (1,076,488)
Allowance for losses (250,572) (96,654)
Performance Holdback on
Receivable Purchase -- (600,000)
Accrued interest
receivable 466,350 598,624
----------- -----------
Carrying value $27,282,991 $19,527,225
=========== ===========
</TABLE>
As of September 30, 1994, approximately 77% of Summit's
investments in Receivables are in first lien position Receivables
with the balance in second lien positions. The Receivables are
secured by residential, business and commercial properties with
residential properties securing approximately 84% of such investments
as of September 30, 1994. The Receivables acquired by Summit are
primarily generated by private individuals or businesses and are
therefore not government insured loans.
During fiscal 1993, Summit purchased, from an affiliate of
Metropolitan, approximately $6.0 million of timeshare Receivables, of
which approximately $5.5 million were outstanding at September 30,
1994. These Receivables were originated by an affiliate of
Metropolitan in connection with sales of its timeshare resort
condominiums in Hawaii. These Receivables had an approximate
contractual interest rate of 13% and were purchased at par (eg. at
the amount of their outstanding principal balance). In conjunction
with the purchase, Summit withheld a 10% performance holdback of
$600,000 to cover any realized losses from these Receivables. The
holdback was maintained at a balance of approximately 10% of the
outstanding timeshare Receivables and was released as principal was
paid down. At September 30, 1993, Summit held approximately $680,000
of delinquent timeshare contracts purchased from the affiliate.
Summit believes that the performance holdback of $600,000 was
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 Summit. These timeshare receivables were sold to
Metropolitan at par on February 18, 1994.
Summit's receivable investments at September 30, 1994 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 . . . . . . 6%
California . . . . 11%
Oregon . . . . . . 5%
Texas . . . . . . . 20%
Washington . . . . 10%
Florida . . . . . . 3%
Georgia . . . . . . 4%
North Carolina. . . 3%
South Carolina. . . 3%
<PAGE>
SUMMIT SECURITIES, INC.
RECEIVABLES SECURED BY REAL ESTATE
September 30, 1994
<TABLE>
<CAPTION>
Less than 1% of the contracts are subject to variable interest rates. Interest rates range from
0% to 20% with rates principally (87% of face value) within the range of 7% to 12%. The
following table breaks down Summit's Receivable portfolio by type, size and lien position.
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 > $75,000 46 7%-12% 1994-2024 $5,069,495 $331,928 3
First Mortgage > $40,000 122 7%-12% 1994-2024 6,554,375 303,003 5
First Mortgage < $40,000 338 9%-14% 1994-2023 7,190,121 250,572 33
Second or Lower> $75,000 4 8%-12% 1996-2014 405,950 -- --
Second or Lower> $40,000 23 7%-11% 1994-2020 1,240,937 155,577 3
Second or Lower< $40,000 155 9%-12% 1994-2024 3,387,961 43,920 2
COMMERCIAL
First Mortgage > $75,000 6 9%-11% 1998-2009 544,561 -- --
First Mortgage > $40,000 19 9%-10% 1995-2003 1,078,666 -- --
First Mortgage < $40,000 21 8%-10% 1995-2004 427,103 -- --
Second or Lower> $75,000 2 8%-10% 1999-2005 192,254 -- --
Second or Lower> $40,000 6 9%-11% 1997-2009 341,703 -- --
Second or Lower< $40,000 12 9%-11% 1996-2015 296,589 -- --
FARM, LAND AND OTHER
First Mortgage > $75,000 1 12% 1995 495,405 -- --
First Mortgage > $40,000 2 7%-10% 2004-2014 101,366 -- --
First Mortgage < $40,000 26 9%-12% 1995-2010 475,705 -- --
Second or Lower> $75,000 1 0% 1994 245,279 -- --
Second or Lower> $40,000 4 5%-12% 1998-2007 239,751 -- --
Second or Lower< $40,000 7 10%-12% 1996-2014 117,357 -- --
Unrealized discounts, net
of unamortized acquisition
costs, on receivables
purchased at a discount (1,337,365)
Accrued Interest Receivable 466,350
Allowance for Losses (250,572)
-----------
TOTAL $ 27,282,991 $ 1,085,000
=========== ===========
<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 1994 - September 1997 $ 2,324,000 $ 721,000 $ 777,000 $ 3,822,000
October 1997 - September 1999 2,425,000 816,000 92,000 3,333,000
October 1999 - September 2001 1,470,000 374,000 220,000 2,064,000
October 2001 - September 2004 2,220,000 362,000 109,000 2,691,000
October 2004 - September 2009 3,290,000 580,000 300,000 4,170,000
October 2009 - September 2014 2,744,000 -- 176,863 2,920,863
October 2014 - Thereafter 9,375,839 27,876 -- 9,403,715
---------- ---------- ---------- ----------
$23,848,839 $2,880,876 $1,674,863 $28,404,578
=========== ========== ========== ==========
</TABLE>
<PAGE>
Summit held 795 Receivables as of September 30, 1994. The
average stated interest rate (weighted by principal balances) on
Receivables held by Summit on that date was approximately 10%. See
Note 2, to Consolidated Financial Statements.
Delinquency Experience & Collection Procedures
The principal amount of Receivables held by Summit (as a
percentage of the total outstanding principal amount of Receivables)
which was in arrears for more than ninety days at September 30, 1994
was 3.8% compared to 8.0% and 4.2% at September 30, 1993 and 1992,
respectively. The decrease in 1994 is attributable to the sale of the
timeshare receivables to Metropolitan and improved collection
efforts. The increase in the amount for September 30, 1993 includes
approximately $680,000 of timeshare contracts purchased from an
affiliate. Without the effect of the delinquent timeshare
receivables, the 1993 delinquency rate would have been 6.5%. Summit
had a performance holdback of $600,000 to cover any losses related to
certain contracts including these Receivables. Because Receivables
purchased by Summit 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.
Receivable collection services are performed for Summit by
Metropolitan, pursuant to the following guidelines. When a
Receivable becomes delinquent, the payor is initially contacted by
telephone (generally on the 17th day following the payment due date).
If the default is not promptly cured (generally within three to six
days after the initial call), then additional collection activity,
including written correspondence and further telephone contact, is
pursued. If these collection procedures are unsuccessful, then the
account is referred to a committee who analyzes the basis for
default, the economics of the situation and the potential for
environmental risks. When appropriate, a phase I environmental study
is obtained prior to foreclosure. Based upon this analysis, the
Receivable is considered for a workout arrangement, further
collection activity, or foreclosure of any property providing
security for the Receivable. Collection activity may also involve
the initiation of legal proceedings against the payor of the
Receivable payments. Such legal proceedings, when necessary are
generally initiated within approximately ninety days after the
initial default. If accounts are reinstated prior to completion of
the legal action, then attorney fees, costs, expenses and late
charges are generally collected from the payor, or added to the
receivable balance, as a condition of reinstatement.
Allowance for Losses on Real Estate Assets
Summit establishes an allowance for losses on Receivables and
repossessed real estate based on an evaluation of delinquent
Receivables and appraisals for real estate held. During 1992, Summit
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 Summit.
Biannual appraisals are required on all other delinquent Receivables
with balances in excess of $50,000. The allowance for losses was
.9%, .5% and .5% of the face value of Receivables at September 30,
1994, 1993 and 1992, respectively.
Properties
Summit owns various repossessed properties held for sale. At
September 30, 1994, eight properties, acquired in satisfaction of
debt, with a combined carrying amount of approximately $453,000 were
held.
Method of Financing
Summit'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,
Summit 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 Summit which are in addition to the needs of Metropolitan.
Competition
Summit's ability to compete for Receivable investments is
currently dependent upon Metropolitan. 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
Associates First Capital Corporation, a subsidiary of Ford Motor
Company, 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 Summit include access to
Metropolitan's branch office system which allows it access to markets
throughout the country; its ability to purchase long-term
Receivables; availability of funds; 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 $2,500;
and relatively high yield requirements.
<PAGE>
MANAGEMENT
Directors and Executive Officers
(As of December 31, 1994)
Name Age Position
John Trimble 64 President/Director
J. Evelyn Sandifur 81 Vice President/Director
Philip Sandifur 23 Vice President/Director
Tom Turner 44 Secretary/Treasurer/Director
Ernest Jurdana 50 Chief Financial Officer
John Trimble was elected President on September 28, 1994. He
has been an employee of Metropolitan since 1980. From 1980-1985 he
served as a loan officer for Metropolitan. From 1985-1994, he was an
officer of Metropolitan. From 1985, to the present, he has been a
member of the Receivable Evaluation Committee.
J. Evelyn Sandifur is the wife of C. Paul Sandifur Sr., founder
of Metropolitan Mortgage & Securities Co., Inc, and mother of C. Paul
Sandifur Jr., who is the controlling shareholder of Metropolitan, and
also the controlling shareholder of the parent company of Summit,
National Summit Corp. She is not active in the day to day operations
of Summit except to the extent necessary to carry out duties as Vice
President and Director.
Philip Sandifur is the son of C. Paul Sandifur Jr., who is the
sole controlling shareholder of National Summit Corp., the parent
company of Summit Securities and also the controlling shareholder of
Metropolitan Mortgage & Securities Co., Inc. Philip graduated in 1993
from Santa Clara University receiving a BA in Business. He is not
active in the day to day operations of Summit except to the extent
necessary to carry out his duties as Vice President and Director.
Tom Turner was elected Secretary/Treasurer of Summit on
September 28, 1994. He has been an employee of Metropolitan since
1985, as a financial analyst. From 1983-1985, Mr. Turner was employed
by Olsten Temporary Services. Prior to 1983, Mr. Turner was self-
employed, principally doing business in the real estate industry.
Ernest Jurdana joined Metropolitan as Chief Financial Officer
in June of 1994. Since that date he has also been the Chief
Financial Officer for Summit. From 1990 to June 1994 he was Senior
Vice President and Chief Financial Officer for Continental Savings of
America. Prior to that time, he was Senior Vice President for
Financial Management with Washington Mutual Savings Bank where he
served in various accounting and financial positions from 1966. He
received a MBA designation from City University, and was licensed as
a Certified Public Accountant in 1986.
The directors of Summit are elected for one-year terms at
annual shareholder meetings. The officers of Summit serve at the
direction of the Board of Directors.
Summit's officers and directors will continue to hold their
respective positions with Metropolitan and do not anticipate that
their responsibilities with Summit will involve a significant amount
of time. They will, however, devote such time to the business and
affairs of Summit 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 Summit 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
Summit's Articles of Incorporation provide for indemnification
of Summit'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 Summit 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 Summit's officers,
directors or controlling persons pursuant to the foregoing
provisions, Summit has been informed that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is therefore unenforceable.
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to the
beneficial owners of more than five percent of Summit's voting stock
as of September 30, 1994.
<TABLE>
<CAPTION>
SHARES OF
NAME AND ADDRESS COMMON STOCK % OF CLASS
<S> <C> <C>
National Summit Corporation 10,000 100%
W. 929 Sprague Ave.,
Spokane, Washington
</TABLE>
CERTAIN TRANSACTIONS
Summit was originally organized as a wholly owned subsidiary of
Metropolitan. On September 9, 1994, the controlling interest in
Summit was acquired by National Summit Corp., a Delaware corporation
which is wholly owned by C. Paul Sandifur, Jr. The change in control
was made pursuant to a reorganization wherein Summit redeemed all the
common shares held by its former parent company, Metropolitan, which
consisted of 100% of the outstanding common stock of Summit.
Contemporaneously with this redemption, Summit issued 10,000 shares
of common stock to National Summit Corp., a Delaware Corporation, for
$100,000. In addition, various investors in Metropolitan's common
and preferred stock, including members of Mr. Sandifur's immediate
family acquired 30,224 shares of Summit's Preferred Stock Series S-1
for $100 per share in exchange for preferred and common shares of
Metropolitan with a value of approximately $3 million dollars.
Following this sale, Metropolitan will continue to provide, for a
fee, principally all the manangement services to Summit. See
"BUSINESS-RECEIVABLE INVESTMENTS."
Mr. Sandifur holds effective control of Metropolitan. Prior to
the sale, Mr. Sandifur held effective control of Summit through
Metropolitan. Following the sale, Mr. Sandifur holds effective
control of Summit through National Summit.
Prior to the sale, the officers and directors of Summit, were
also officers or directors of Metropolitan and/or its affiliates.
Contemporaneously with the sale, the officers and directors resigned
and new officers and directors were elected. The newly elected
officers and directors are employees of Metropolitan but not officers
or directors of Metropolitan or any of its subsidiaries.
Summit considered the sale to be in its best interest due to
regulatory considerations and other business considerations. The
regulatory considerations include the impact of regulations imposed
upon Metropolitan by its state of domicile. In the opinion of
management these regulations penalized Summit in its prior corporate
structure.
On December 15, 1994, Metropolitan and Summit entered into an
understanding that on January 31, 1995 Metropolitan Investment
Securities (MIS) would be sold to Summit. MIS is a limited-purpose
broker dealer and the exclusive broker/dealer for the securities sold
by Metropolitan and Summit. It is not anticipated that this sale
will materially affect the business of MIS. See "CERTAIN INVESTMENT
CONSIDERATIONS-RISK FACTORS." Also on December 15, 1994,
Metropolitan and Summit entered into an understanding that on January
31, 1995, Metropolitan would discontinue its property development
division, which consists of a group of employees experienced in real
estate development. On the same date, Summit will commenced the
operation of a property development division employing those same
individuals who had previously been employed by Metropolitan. Summit
Property Development is negotiating an agreement with Metropolitan to
provide property development services to Metropolitan. See "BUSINESS"
& "CERTAIN INVESTMENT CONSIDERATIONS-RISK FACTORS."
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 Summit. Summit 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 6% of the investment amount in each transaction. During the
fiscal year ended September 30, 1994, Summit paid or accrued
commissions to MIS in the amount of $299,748 upon the sale of
$10,539,684 of Certificates and commissions of $7,552 upon the sale
of $149,512 of preferred stock. MIS also maintains, on behalf of
Summit, certain investor files and information pertaining to
investments in Summit's Certificates.
Transactions between Metropolitan and Summit take place in the
normal course of Summit'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 Summit and Metropolitan and are summarized under
"Business". See Also "CERTAIN INVESTMENT CONSIDERATIONS-RISK
FACTORS" & Note 9 to Consolidated Financial Statements, for
additional information. Summit believes that such transactions are
and will continue to be made on terms at least as favorable as could
be obtained from non-affiliated parties.
Contemplated Purchase of Old Standard Life Insurance Co.
Summit is currently negotiating the acquisition of Old Standard
Life Insurance (Old Standard) from Summit's former parent company,
Metropolitan. It is currently anticipated that this sale will occur
during the first quarter of calendar 1995. The purchase price is
currently estimated at $2.6 million, the approximate net book value
of Old Standard, with future contingency payments based on the
earnings of Old Standard. See Note 1 to Pro Forma Financial
Statements of Summit and Old Standard. The final purchase price will
be established based upon an actuarial valuation of Old Standard.
The source of funds will be cash or cash equivalents transferred from
Summit to Metropolitan in exchange for all the common stock of Old
Standard.
Metropolitan and Summit are currently negotiating whether the
purchase of Old Standard will be a direct purchase by Summit, or
purchased through a new subsidiary of Summit which subsidiary would
operate initially as an insurance holding company. This
determination is not anticipated to materially impact the purchase
price or operations of Summit.
Old Standard is engaged in the business of acquiring Receivables
using funds derived from the sale of annuities, and funds derived
from Receivable cash flows. Old Standard was a sister corporation of
Summit when both companies were subsidiaries of Metropolitan.
Metropolitan and its subsidiaries provide substantially all of Old
Standard's Receivable management and servicing support through a
Management, Receivable Acquisition and Servicing Agreement, which
agreement functions substantially similar to the Management,
Receivable Acquisitions and Servicing Agreement between Metropolitan
and Summit. See "RECEIVABLE INVESTMENTS".
For pro forma financial data related to this proposed
transaction See "Selected Financial Data, and Financial Statements of
Summit and Old Standard, and Pro Forma Financial Statements and
related footnotes thereto.
<PAGE>
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
Summit Securities, Inc. and Subsidiary:
Historical:
Reports of Independent Certified
Public Accountants................................
Consolidated Balance Sheets.........................
Consolidated Statements of Income...................
Consolidated Statements of Stockholders' Equity.....
Consolidated Statements of Cash Flows...............
Notes to Consolidated Financial Statements..........
Pro Forma Unaudited Financial Statements:
Condensed Consolidated Balance Sheet...............
Condensed Consolidated Statementof Income.........
Notes to Condensed Consolidated Balance Sheet
and Statement of Income...........................
Old Standard Life Insurance Company Historical
Financial Statements:
Reports of Independent Certified Public
Accountants.......................................
Balance Sheets......................................
Statements of Income................................
Statements of Stockholder's Equity..................
Statements of Cash Flows............................
Notes to Financial Statements.......................
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Directors and Stockholders
Summit Securities, Inc.
We have audited the accompanying consolidated balance sheets of
Summit Securities, Inc. and subsidiary as of September 30, 1994 and
1993, and the related consolidated statements of income,
stockholders' equity and cash flows for the years 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 audits.
We conducted our audits 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 audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the consolidated
financial position of Summit Securities, Inc. and subsidiary as of
September 30, 1994 and 1993 and the consolidated results of their
operations and their cash flows for the years 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 L.L.P.
COOPERS & LYBRAND L.L.P.
Spokane, Washington
November 21, 1994, except for
Note 9 as to which the date is
December 15, 1994
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
Summit Securities, Inc.
We have audited the accompanying statements of income, stockholders'
equity and cash flows of Summit Securities, Inc. (a wholly-owned
subsidiary of Metropolitan Mortgage & Securities Co., Inc.) for the
year 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 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 results of operations and cash
flows for the year ended September 30, 1992 of Summit Securities,
Inc. in conformity with generally accepted accounting principles.
/s/ BDO Seidman
BDO SEIDMAN
Spokane, Washington
December 7, 1992
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
September 30, 1994 and 1993
____________
<TABLE>
<CAPTION>
ASSETS 1994 1993
______ ______
<S> <C> <C>
Cash and cash equivalents $ 3,608,764 $ 3,594,472
Investments in affiliated company 3,022,425
(Note 3)
Real estate contracts and mortgage
notes receivable, net
(Notes 2, 4 and 9) 27,282,991 19,527,225
Real estate held for sale (Note 4) 452,700 60,816
Deferred costs (Note 6) 705,994 524,376
Advances to parent and affiliated
companies (Note 9) 1,710,743
Other assets 29,114 23,973
----------- -----------
Total assets $35,101,988 $25,441,605
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Investment certificates and accrued
interest (Note 5) $31,092,830 $21,959,425
Debt payable (Note 4) 119,888 22,653
Accounts payable and accrued expenses
(Note 9) 416,262 49,353
Deferred income taxes (Note 7) 151,778 222,150
----------- -----------
Total liabilities 31,780,758 22,253,581
----------- -----------
Stockholders' equity (Note 8):
Preferred stock, $10 par (liquidation
preference $3,171,940) 317,194
Common stock, $10 par 100,000 200,000
Additional paid-in capital 1,454,063 1,800,000
Retained earnings 1,449,973 1,188,024
----------- -----------
Total stockholders' equity 3,321,230 3,188,024
----------- -----------
Total liabilities and
stockholders' equity $35,101,988 $25,441,605
=========== ===========
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended September 30, 1994, 1993 and 1992
____________
<TABLE>
<CAPTION>
1994 1993 1992
__________ __________ __________
<S> <C> <C> <C>
Revenues:
Interest on receivables $2,422,484 $1,938,206 $1,319,825
Dividends (Note 9) 366,935
Earned discount on receivables373,003 428,482 542,047
Other investment interest 275,180 120,998 87,447
Real estate sales 88,000 280,500 103,000
Realized net gains on sales
of investment securities 4,252 4,724
Realized net gains on sales
of receivables 171,756
Other income 60,677 42,714 16,589
--------- --------- ---------
Total revenues 3,395,352 2,815,624 2,435,843
--------- --------- ---------
Expenses:
Interest expense 2,527,945 1,792,059 1,390,968
Cost of real estate sold 75,656 298,900 108,256
Provision for losses on
real estate assets 155,042 51,012 18,762
Operating expenses (Note 9) 231,423 244,595 178,273
--------- --------- ---------
Total expenses 2,990,066 2,386,566 1,696,259
--------- --------- ---------
Income before income taxes and
extraordinary item 405,286 429,058 739,584
Income tax provision (Note 7)(140,407) (145,951) (127,989)
--------- --------- ---------
Income before extraordinary item264,879 283,107 611,595
Extraordinary item - utilization
of net operating loss
carryforwards (Note 7) 49,772
--------- --------- ---------
Net income 264,879 283,107 661,367
Preferred stock dividends (2,930)
--------- --------- ---------
Income applicable to common
stockholders$ 261,949 $ 283,107 $ 661,367
========= ========= =========
Net income per common share:
Before extraordinary item $ 13.47 $ 14.15 $ 30.58
Extraordinary item 2.49
--------- --------- ---------
Net income per common share $ 13.47 $ 14.15 $ 33.07
========= ========= =========
Weighted average number of
shares of common stock
outstanding 19,445 20,000 20,000
========= ========= =========
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended September 30, 1994, 1993 and 1992
____________
<TABLE>
<CAPTION>
Additional
PreferredCommon Paid-In Retained
Stock Stock Capital Earnings Total
______ _______ __________ _________ _____
<S> <C><C> <C> <C> <C>
Balance, October 1, 1991 $200,000 $1,800,000 $ 243,550 $2,243,550
Net income 661,367 661,367
---------------- ---------- ---------- ----------
Balance, September 30, 1992 200,000 1,800,000 904,917 2,904,917
Net income 283,107 283,107
---------------- ---------- ---------- ----------
Balance, September 30, 1993 200,000 1,800,000 1,188,024 3,188,024
Net income 264,879 264,879
Cash dividends on preferred
stock (variable rate) (2,930) (2,930)
Common stock redeemed and
retired (20,000 shares)
(Note 1) (200,000)(3,400,000) (3,600,000)
Sale of common stock
(10,000 shares)
(Note 1) 100,000 100,000
Sale of variable rate
preferred stock, net
of offering costs
(1,495 shares) $14,952 127,008 141,960
Issuance of variable rate
preferred stock
(30,224 shares)
(Note 1) 302,242 2,720,183 3,022,425
Income tax benefit
associated with
disaffiliation
(Note 1) 206,872 206,872
---------------- ---------- ---------- ----------
Balance, September 30, 1994$317,194$100,000$1,454,063$1,449,973$3,321,230
================ ==================== ==========
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended September 30, 1994, 1993 and 1992
____________
<TABLE>
<CAPTION>
1994 1993 1992
______ ______ ______
<S> <C> <C> <C>
Operating activities:
Net income$264,879 $ 283,107 $ 661,367
Adjustments to reconcile net
income to net cash provided
by operating activities:
Proceeds from sale of
trading securities 20,077,343 2,052,187
Purchase of trading
securities (20,073,050) (2,047,812)
Gain on sale of investment
securities (4,252) (4,724)
Gain on sale of receivables(171,756)
(Gain) loss on sale of
real estate (12,344) 18,400 5,256
Provision for losses on
real estate assets 155,042 51,012 18,762
Amortization of deferred
costs 262,484 151,763 144,647
Deferred income tax
provision 136,500 145,951 76,300
Changes in:
Compound and accrued
interest on investment
certificates
and debt payable 1,229,371 955,322 689,014
Accrued interest
receivable 107,423 (175,460) (153,709)
Other 312,110 7,383 (19,054)
---------- ---------- -----------
Net cash provided by
operating activities 2,283,750 1,437,129 1,422,583
---------- ---------- ----------
Investing activities:
Advances to parent and
affiliated companies (1,710,743)
Collection of advances to
parent and affiliated
companies 1,710,743 471,383
Principal payments on real
estate contracts and
and mortgage notes receivable1,829,515 4,039,074 2,245,740
Purchases of real estate
contracts and mortgage
notes receivable (20,177,705) (15,667,120) (5,274,528)
Proceeds from real estate sales 6,200 75,008 6,283
Additions to real estate held (82,135) (24,155) (8,400)
Proceeds from sale of
receivables 10,393,131 4,044,423
---------- ---------- -----------
Net cash used in
investing activities (6,320,251) (9,243,513) (2,559,522)
__________ __________ ___________
</TABLE>
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
CONSOLIDATED CASH FLOWS, Continued
For the Years Ended September 30, 1994, 1993 and 1992
____________
<TABLE>
<CAPTION>
1994 1993 1992
______ ______ ______
<S> <C> <C> <C>
Financing activities:
Repayment of amounts due to
parent company $(400,365)
Borrowings from parent company $ 400,365
Proceeds from investment
certificates $10,539,684 9,677,843 5,864,051
Repayments of investment
certificates (2,635,649) (2,300,088) (903,226)
Repayments to banks and others(48,170) (890,247) (99,182)
Debt issuance costs (444,102) (333,489) (240,490)
Issuance of preferred stock 141,960
Issuance of common stock 100,000
Redemption and retirement
of common stock (3,600,000)
Dividends paid on preferred
stock (2,930)
---------- ---------- ---------
Net cash provided by
financing activities 4,050,793 5,753,654 5,021,518
---------- ---------- ---------
Net increase (decrease) in
cash and cash
equivalents 14,292 (2,052,730) 3,884,579
Cash and cash equivalents,
beginning of year 3,594,472 5,647,202 1,762,623
---------- ---------- ----------
Cash and cash equivalents,
end of year $3,608,764 $3,594,472 $5,647,202
========== ========== ==========
<FN>
See Note 10 for supplemental cash flow information.
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
____________
1. Summary of Accounting Policies
Business and Reorganization
Summit Securities, Inc., d/b/a National Summit Securities,
Inc. in the states of New York and Ohio ("Summit" or "the
Company"), was incorporated on July 25, 1990. Prior to
September 9, 1994, Summit was a wholly-owned subsidiary of
Metropolitan Mortgage & Securities Co., Inc. ("Metropolitan").
On September 9, 1994, the controlling interest in Summit was
acquired by National Summit Corp., a Delaware corporation
which is wholly-owned by C. Paul Sandifur, Jr. The change in
control was made pursuant to a reorganization wherein Summit
redeemed all the common shares held by its former parent
company, Metropolitan, which consisted of 100% of the
outstanding common stock of Summit for $3,600,000 cash, which
approximated the net book value of Summit at the transaction
date. Contemporaneously with this redemption, Summit issued
10,000 shares of common stock to National Summit Corp. for
$100,000 cash. In addition, various investors holding
Metropolitan's common and preferred stock, including members
of Mr. Sandifur's immediate family, acquired 30,224 shares of
Summit's preferred stock Series S-1 for $100 per share in
exchange for preferred and common shares of Metropolitan. The
preferred shares issued for the Metropolitan shares were
recorded at their face value which approximated recent
issuances to unrelated parties. The face value of the
preferred shares approximates fair value due to the variable
dividend rate associated with such shares (see Note 3).
Metropolitan is effectively controlled by C. Paul Sandifur,
Jr. through his common stock ownership and voting control.
National Summit Corp. is wholly-owned by C. Paul Sandifur, Jr.
through ownership of 100% of the voting stock. National
Summit Corp. did not have any operations or activities other
than the acquisition of Summit. The consolidated financial
statements include the accounts of Summit and its wholly-owned
subsidiary, Summit Property Development, Inc. All significant
intercompany transactions and balances have been eliminated in
consolidation.
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.
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
____________
1. Summary of Accounting Policies, Continued
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.
Investments in Affiliated Companies
Investments in equity securities of Metropolitan are carried
at cost, which approximates market.
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.
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.
<PAGE>
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
____________
1. Summary of Accounting Policies, Continued
Real Estate Held for Sale
Real estate is valued at the lower of cost or market. The
Company principally acquires real estate through foreclosure
or forfeiture. Cost is determined by the purchase price of
the real estate or, for real estate acquired by foreclosure,
at the lower of (a) the fair value of the property at the 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 the lower of cost or 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>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED 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 delinquency and loss
experience, for currently performing receivables and smaller
delinquent receivables. Allowances for losses are determined
on the 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.
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
____________
1. Summary of Accounting Policies, Continued
Income Taxes
The Company was included in the group of companies which file
a consolidated income tax return with Metropolitan, its former
parent through September 9, 1994. Subsequent to that date,
the Company is included in the group of companies which file
a consolidated income tax return with National Summit Corp.
The Company is allocated a current and deferred tax provision
from Metropolitan or National Summit Corp. 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, Metropolitan and the Company
accounted for income taxes as required by Accounting
Principles Board Opinion No. 11. In association with the
disaffiliation with Metropolitan in 1994, the Company received
certain income tax benefits, principally associated with the
allocation of the Metropolitan consolidated group's net
operating loss carryforwards and reduction in amounts payable
to Metropolitan, which resulted in a reduction of deferred
taxes of approximately $207,000. This benefit has been
recorded as additional paid-in capital due to the affiliation
between Metropolitan and the Company.
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.
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
____________
1. Summary of Accounting Policies, Continued
Reclassifications
Certain amounts in the 1993 and 1992 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, 1994, the Company held first
position liens associated with contracts and mortgage notes
receivable with a face value of approximately $21,900,000 and
second position liens of approximately $6,500,000.
Approximately 22% of the face value of the Company's real estate
contracts and mortgage notes receivable are collateralized by
property located in the Southwest (Texas and New Mexico),
approximately 18% by property located in the Pacific Southwest
(California, Nevada and Arizona), approximately 16% by property
located in the Pacific Northwest (Washington, Idaho, Montana and
Oregon) and approximately 14% by property located in the
Southeast (Florida, Georgia, North Carolina and South Carolina).
Contracts totaling approximately $6,000,000 which were
collateralized by property in Hawaii were purchased from a
Metropolitan affiliated company during fiscal 1993. At September
30, 1993, approximately $5,500,000 of these contracts were
outstanding. These contracts relate to the sale of timeshare
units in a condominium resort development which is owned by a
Metropolitan affiliated company. On February 18, 1994, the
Company sold its remaining timeshare contracts at their carrying
values to Metropolitan.
The face value of the Company's real estate contracts and
mortgage notes receivable as of September 30, 1994 and 1993 are
grouped by the following dollar ranges:
<TABLE>
<CAPTION>
1994 1995
<S> <C> <C>
Under $15,001 $ 1,262,236 $ 5,210,788
$15,001 to $40,000 10,555,623 7,649,859
$40,001 to $80,000 9,970,820 4,609,278
$80,001 to $150,000 4,684,026 2,324,242
Greater that $150,000 1,931,873 907,576
----------- -----------
$28,404,578 $20,701,743
=========== ===========
</TABLE>
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
____________
2. Real Estate Contracts and Mortgage Notes Receivable, Continued
Contractual interest rates on the face value of the Company's
real estate contracts and mortgage notes receivable as of September
30, 1994 and 1993 are as follows:
<TABLE>
<S> <C> <C>
Less than 8.00% $3,072,262 1,433,022
8.00% to 8.99% 3,682,307 1,664,066
9.00% to 9.99% 6,489,889 3,232,543
10.00% to 10.99% 10,242,985 6,342,842
11.00% to 11.99% 2,868,603 1,799,826
12.00% to 12.99% 1,533,520 2,189,840
13% or higher 515,012 4,039,604
----------- -----------
$28,404,578 $20,701,743
=========== ===========
</TABLE>
The weighted average contractual interest rate on these receivables
at September 30, 1994 is approximately 10%. Maturity dates range
from 1994 to 2024. The constant effective yield on contracts
purchased in fiscal 1994 and 1993 was approximately 11.5% and 12%,
respectively.
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED 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 at September 30, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
______ ______
<S> <C> <C>
Face value of discounted
receivables $21,931,395 $14,416,037
Face value of originated and
non-discounted receivables 6,473,183 6,285,706
Unrealized discounts, net
of unamortized acquisition
costs (1,337,365) (1,076,488)
Allowance for losses (250,572) (96,654)
Performance holdback on
receivable purchase (600,000)
Accrued interest receivable 466,350 598,624
------------ ------------
Carrying value $27,282,991 $19,527,225
============ ============
</TABLE>
The principal amount of receivables with required principal or
interest payments being in arrears for more than three months
was approximately $1,085,000 and $1,662,000 at September 30,
1994 and 1993, respectively. Included in the amount for
September 30, 1993 was approximately $680,000 of delinquent
contracts purchased from an affiliate during 1993. The Company
had a performance holdback of $600,000 to cover any losses
related to certain timeshare unit contracts, including these
delinquent contracts. On February 18, 1994, the Company sold
the remaining timeshare receivables, related to the holdback
provisions, at their carrying value to Metropolitan. During the
year ended September 30, 1994, the Company sold approximately
$10,400,000 of receivables without recourse and recognized a
gain of approximately $172,000.
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
____________
2. Real Estate Contracts and Mortgage Notes Receivable, Continued
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>
1995 $ 2,835,000
1996 2,708,000
1997 2,591,000
1998 2,483,000
1999 2,382,000
Thereafter 15,405,578
-----------
Total $28,404,578
===========
</TABLE>
3. Investments in Affiliated Companies
At September 30, 1994, the Company owns the following preferred
and common shares of Metropolitan:
Cost and
Type Number Carrying
of Shares of Shares Value
_________ _________ _______
Class A common 9 $ 420,205
Preferred:
Series C 116,094 1,160,942
Series D 24,328 243,278
Series E-1 105,800 1,058,000
Series E-4 1,400 140,000
---------
$ 3,022,425
==========
Class A common stock is the only voting class of Metropolitan's
stock. Class A common stock is junior to Class B common stock
as to liquidation preference. At September 30, 1994, Summit
owned 7.12% of the outstanding Class A common stock.
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
____________
3. Investments in Affiliated Companies, Continued
The preferred stock have a par value of $10 per share and have
liquidation preferences equal to their issue price. They are
non-voting and are senior to the common shares as to dividends.
Dividends are cumulative and at variable rates; however,
dividends shall be no less than 6% or greater than 14% per anum.
At September 30, 1994, the preferred Series C, D and E-1 had
dividend rates of 8.612%. The preferred Series E-4 had a
dividend rate of 9.112%. Neither the common or preferred shares
are traded in a public market; however, the preferred stock
trades at face value on a trading list maintained by
Metropolitan.
4. Debt Payable
At September 30, 1994 and 1993, debt payable consists of:
<TABLE>
<CAPTION>
1994 1993
______ ______
<S> <C> <C>
Real estate contracts and
mortgage notes payable,
interest rates ranging
from 7% to 10%, due in
installments through 2018,
collateralized by senior
liens on certain of the
Company's real estate
contracts, mortgage notes
and real estate held for sale $ 119,573 $ 22,653
Accrued interest payable 315
--------- ---------
$ 119,888 $ 22,653
========= =========
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
____________
4. Debt Payable, Continued
<CAPTION>
Aggregate amounts of principal payments due on debt payable at
September 30, 1994 are as follows:
Fiscal year ending
September 30,
_____________
<S> <C>
1995 $ 10,522
1996 10,656
1997 11,574
1998 12,572
1999 11,799
Thereafter 62,765
---------
Total $ 119,888
=========
</TABLE>
5. Investment Certificates
At September 30, 1994 and 1993, investment certificates consist
of:
<TABLE>
<CAPTION>
Annual
Interest Principally
Rates Maturing In 1994 1993
________ ___________ ______ ______
<S> <C> <C> <C>
6% to 7% 1995, 1996
and 1997 $ 1,732,000 $ 1,265,000
7% to 8% 1995 and
1996 1,083,000 1,018,000
8% to 9% 1998 and
1999 15,808,000 7,947,000
9% to 10% 1995, 1996
and 1997 3,202,000 3,624,000
10% to 11% 1996 6,161,535 6,228,501
----------- -----------
27,986,535 20,082,501
Compound
and accrued
interest 3,106,295 1,876,924
----------- -----------
Total $31,092,830 $21,959,425
=========== ===========
<PAGE>
SUMMIT SECURITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
____________
5. Investment Certificates, Continued
<CAPTION>
The weighted average interest rate on outstanding investment
certificates at September 30, 1994 and 1993 was approximately
8.8% and 9.1%, respectively.
Investment certificates and compound and accrued interest at
September 30, 1994 mature as follows:
Fiscal year ending
September 30,
_____________
<S> <C>
1995 $ 2,559,000
1996 8,466,000
1997 4,036,000
1998 8,241,000
1999 7,468,000
Thereafter 322,830
-----------
Total $ 31,092,830
===========
</TABLE>
6. Deferred Costs
An analysis of unamortized commissions and other capitalized
expenses incurred in connection with the sale of investment
certificates for the years ended September 30, 1994 and 1993 is
as follows:
<TABLE>
<CAPTION>
1994 1993
______ ______
<S> <C> <C>
Balance at the beginning of
the year $524,376 $342,650
Deferred during the year:
Commissions 299,748 276,060
Other expenses 144,354 57,429
-------- --------
Total deferred costs 968,478 676,139
Amortized during the year (262,484) (151,763)
-------- --------
Balance at the end of the year $705,994 524,376
======== ========
<PAGE>
<CAPTION>
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
____________
7. 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, 1994 and 1993 is as follows:
1994 Asset Liability
_______ _________
<S> <C> <C>
Management fee payable $ 20,400
Allowance for losses on real
estate $ 17,102
Allowance for losses on
receivables 86,573
Deferred acquisition costs $ 619,716
Net operating loss carryforwards 343,863
-------- --------
Total deferred income taxes $467,938 $ 619,716
======== ========
1993 Asset Liability
_______ _________
<S> <C> <C>
Allowance for losses on real
estate $ 2,277
Allowance for losses on
receivables 32,862
Deferred acquisition costs $ 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, 1994, the
Company's net operating loss carryforwards of approximately
$1,011,000 expire in 2006.
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
____________
7. 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>
1994 1993 1992
______ ______ ______
<S> <C> <C> <C>
Federal income tax at
statutory rate $ 137,797 $ 145,880 $ 251,458
Affiliate corporate
dividend received
deduction (124,758)
Other 2,610 71 1,289
-------- --------- --------
Income tax provision $ 140,407 $ 145,951 $ 127,989
======== ========= ========
<CAPTION>
The components of the provision for income taxes are as follows:
1994 1993 1992
______ ______ ______
<S> <C> <C> <C>
Current $ 3,907 $ 1,917
Deferred 136,500 $ 145,951 126,072
-------- --------- ---------
$140,407 $ 145,951 $127,989
======== ========= ========
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
____________
7. Income Taxes, Continued
<CAPTION>
The deferred provision for income taxes for each of the fiscal
years ended September 30, 1994, 1993 and 1992 results from the
following:
1994 1993 1992
______ ______ ______
<S> <C> <C> <C>
Earned discounts $ 938 $ 69,081 $ 200,532
Contract acquisition
costs 130,225 15,400 52,342
Allowance for losses (68,536) (13,976) (3,127)
Accrued management fees (20,400)
Net operating losses used
to reduce deferred tax
credits (123,675)
Realization of net
operating loss
carryforward to
reduce current
taxes payable 94,273 75,446
-------- -------- --------
$136,500 $ 145,951 $ 126,072
======== ======== ========
</TABLE>
During the year ended September 30, 1992, the Company recognized
an extraordinary credit of $49,772 by the utilization of net
operating loss carryforwards of approximately $146,000.
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
____________
8. Stockholders' Equity
A summary of preferred and common shares at September 30, 1994
and 1993 is as follows:
Issued and Outstanding Shares
_________________________________
1994 1993
Authorized
Shares Amount Shares Amount Shares
__________ ________ ______ ________ ________
Registered
preferred
stock,
Series S-1 150,000 $ 317,194 31,719 $ -- --
========= ======== ====== ======== ======
Common stock 2,000,000 $ 100,000 10,000 $ 200,000 20,000
========= ======== ====== ======== ======
In addition to the shares above, the Company has authorized
10,000,000 total shares of Series S preferred stock, of which
150,000 shares were registered at September 30, 1994.
Series S-1 preferred stock is cumulative and the holders thereof
are entitled to receive monthly dividends at an annual rate
equal to the highest of the "Treasury Bill Rate," the "Ten Year
Constant Maturity Rate" or the "Twenty Year Constant Maturity
Rate" as defined in the Series S-1 offering prospectus
determined immediately prior to declaration date. The board of
directors may, at its sole option, declare a higher dividend
rate; however, dividends shall be no less than 6% or greater
than 14% per annum.
Series S-1 preferred stock has a par value of $10 per share and
was sold to the public at $100 per share. Series S-1 shares are
callable at the sole option of the board of directors at $102
per share prior to January 1, 1995 and $100 per share
thereafter.
All preferred stock has liquidation preferences equal to their
issue price, are non-voting and are senior to the common shares
as to dividends. All preferred stock dividends are based upon
the original issue price.
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
____________
9. Related Party Transactions
Through September 9, 1994, the date of disaffiliation, Summit
received accounting, data processing, contract servicing and
other administrative services from Metropolitan. Charges for
these services were approximately $58,000 in fiscal 1994,
$97,000 in fiscal 1993 and $50,000 in fiscal 1992 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, were 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. Currently,
management anticipates that Metropolitan will continue to supply
these services in the future.
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
____________
9. Related Party Transactions, Continued
Summit had the following related party transactions with
Metropolitan and affiliates during fiscal years 1994, 1993 and
1992:
<TABLE>
<CAPTION>
1994 1993 1992
______ ______ ______
<S> <C> <C> <C>
Real estate contracts
and mortgage notes
receivable purchased
through Metropolitan
or affiliates $ 19,495,714 $15,423,706 $4,792,398
Contract acquisition
costs charged to
Summit on purchased
real estate contracts
and mortgage notes
receivable, including
management under-
writing fees 681,991 243,414 347,021
----------- ----------- ----------
Total cost of real
estate contracts
and mortgage notes
receivable
purchased from
Metropolitan $ 20,177,705 $15,667,120 $5,139,419
=========== =========== ==========
Real estate contracts
and mortgage notes
receivable sold to
Metropolitan or
affiliates $ 10,122,544 $4,044,423
Interest expense
paid to parent and
affiliated companies $ 11,684 $ 6,000 $ 243,306
Commissions capitalized
as deferred costs,
paid to an affiliate
on sale of investment
certificates $ 299,748 $ 276,060 $ 168,089
Commissions deducted
from additional
paid-in capital,
paid to an affiliate
on sale of preferred
stock $ 7,552
Dividends received from
Western United Life
Assurance Company $ 366,935
</TABLE>
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
____________
9. Related Party Transactions, Continued
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 due Metropolitan of $267,735 at September 30, 1994
represent real estate contracts and mortgage notes and related
costs advanced by Metropolitan on behalf of Summit and are
included in accounts payable.
In December 1994, the Company reached an agreement with
Metropolitan whereby it will acquire Metropolitan
Investment Securities, Inc. (MIS) effective January 31,
1995. Additionally, the Company is negotiating the
purchase of Old Standard Life Insurance Company (Old
Standard) from Metropolitan. Both MIS and Old Standard are
wholly-owned subsidaries of Metropolitan.
10. Supplemental Disclosures for Statements of Cash Flows
Supplemental information on interest and income taxes paid
during the years ended September 30, 1994, 1993 and 1992 is as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
______ ______ ______
<S> <C> <C> <C>
Interest paid $1,298,248 $ 836,737 $ 701,955
Income taxes paid 3,907 101 1,917
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
____________
10. Supplemental Disclosures for Statements of Cash Flows, Continued
<CAPTION>
Non-cash investing and financing activities of the Company
during the years ended September 30, 1994, 1993 and 1992 are as
follows:
1994 1993 1992
______ ______ ______
<S> <C> <C> <C>
Assumption of other debt
payable in conjunction
with purchase of real
estate contracts and
mortgage notes
receivable $ 81,451 $ 235,374 $ 259,116
Assumption of other debt
payable in conjunction
with acquisition of
real estate held
for sale 63,650 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 437,448 276,573 194,856
Loans to facilitate
the sale of
real estate 81,800 205,492 96,717
Exchange of Summit
Securities, Inc.
preferred stock
as full consideration
for Metropolitan
preferred and
common stock 3,022,425
Additional paid-in
capital resulting
from income tax
benefits associated
with disaffiliation 206,872
</TABLE>
<PAGE>
SUMMIT SECURITIES, INC. AND OLD STANDARD LIFE INSURANCE COMPANY
PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following pro forma condensed consolidated balance sheet and
income statement and related notes thereto reflect the purchase of
all of the outstanding common stock of Old Standard Life Insurance
Company by Summit Securities, Inc. Due to the entities being under
common control, the business combination will be accounted for using
the purchase method, but will retain the historical cost bases of the
assets and liabilities of Old Standard Life Insurance Company.
<PAGE>
SUMMIT SECURITIES, INC. AND OLD STANDARD LIFE INSURANCE COMPANY
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
September 30, 1994
<TABLE>
<CAPTION>
Purchase of Consolidation Consolidation
Summit Old Standard of Adjustments Pro
Historical Dr.(Cr.) Old Standard Dr.(Cr.) Forma
--------- --------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents $3,608,764 $(2,600,000) (a) $5,829,278 $6,838,042
Investments:
Investments in
affiliated
company 3,022,425 2,600,000 (a) (2,600,000) (b)3,022,425
Held-to-maturity
securities, at
amortized cost 9,283,204 9,283,204
Accrued interest on
investments 52,557 52,557
Real estate contracts
and mortgage notes
receivable, net 27,282,991 28,916,961 56,199,952
Real estate held
for sale 452,700 447,413 900,113
Deferred costs 705,994 2,539,587 3,245,581
Office equipment, net of
accumulated depreciation 14,235 14,235
Advances to affiliated
companies 210,542 210,542
Other assets 29,114 194,898 224,012
---------- --------- ---------- ---------- ----------
Total Assets $35,101,988 $ 0 $47,488,675 $(2,600,000) $79,990,663
========== ========= ========== ========== ==========
<PAGE>
LIABILITIES AND STOCKHOLDERS'
EQUITY
Liabilities:
Life insurance and
annuity reserves $43,396,028 $43,396,028
Investment certificates
and accrued interest $31,092,830 31,092,830
Debt payable 119,888 10,824 130,712
Accounts payable and
accrued expenses 416,262 515,179 931,441
Income taxes payable 254,435 254,435
Deferred income
taxes 151,778 775,582 927,360
---------- ---------- ---------- ---------- ----------
Total Liabilities 31,780,758 44,952,048 76,732,806
----------- ---------- ---------- ---------- ----------
Stockholders' equity:
Preferred Stock,
$10 par (liquidation
preference
$3,171,940) 317,194 317,194
Common stock,
$10 par 100,000 400,000 (400,000) (b) 100,000
Additional paid-in
capital 1,454,063 800,000 (800,000) (b)1,454,063
Retained earnings 1,449,973 1,352,986 (1,400,000) (b)1,402,959
Net unrealized
losses on investments,
net of deferred income
taxes (16,359) (16,359)
---------- ---------- ---------- ---------- ----------
Total Stockholders'
Equity 3,321,230 0 2,536,627 (2,600,000) 3,257,857
---------- ---------- ---------- ---------- ----------
Total Liabilities and
Stockholders' Equity $35,101,988 $ 0 $47,488,675 $(2,600,000) $79,990,663
========== ========== ========== ========== ==========
The accompanying notes are an integral part of this pro forma balance sheet.
</TABLE>
<PAGE>
SUMMIT SECURITIES, INC. AND OLD STANDARD LIFE INSURANCE COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
For the Year Ended September 30, 1994
<TABLE>
<CAPTION>
Reduction Consolidation
Summit in Earnings of Pro
Historical Dr.(Cr.) Old Standard Forma
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Interest on receivables$2,422,484 $(286,000) (c) $2,890,198 $5,026,682
Earned discount on
receivables 373,003 482,951 855,954
Other investment
income 275,180 626,989 902,169
Real estate sales 88,000 621,950 709,950
Realized net gains on
sales of investment
securities 4,252 33,143 37,395
Realized net gains on
sales of receivables 171,756 51,842 223,598
Other income 60,677 62,581 123,258
---------- ---------- ---------- ----------
Total Revenues 3,395,352 (286,000) 4,769,654 7,879,006
---------- ---------- ---------- ----------
Expenses:
Insurance policy and
annuity benefits 2,643,783 2,643,783
Interest expense 2,527,945 280 2,528,225
Cost of real estate
sold 75,656 606,821 682,477
Provision for losses
on real estate assets 155,042 192,714 347,756
Salaries and benefits 42,630 42,630
Commissions to agents 500,134 500,134
Other operating and
underwriting expenses 231,423 247,759 479,182
Less amount capitalized
as deferred costs,
net of amortization (418,125) (418,125)
---------- ---------- ---------- ----------
Total Expenses 2,990,066 3,815,996 6,806,062
---------- ---------- ---------- ----------
Income before income
taxes 405,286 (286,000) 953,658 1,072,944
Income tax provision (140,407) 97,240 (d) (328,302) (371,469)
---------- ---------- ---------- ----------
Net income 264,879 (188,760) 625,356 701,475
Preferred stock dividends (2,930) (2,930)
---------- ---------- ---------- ----------
Income applicable to
common stockholders $ 261,949 $ (188,760) $ 625,356 $ 698,545
========== ========== ========== ==========
The accompanying notes are an integral part of this pro forma statement of income.
</TABLE>
<PAGE>
SUMMIT SECURITIES, INC. AND OLD STANDARD LIFE INSURANCE COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET AND STATEMENT OF INCOME
NOTE 1:
The pro forma condensed consolidated balance sheet at September 30,
1994 assumes the purchase of all of the outstanding common stock of
Old Standard Life Insurance Company (OSL) as if it occurred on
September 30, 1994 through the payment of $2,600,000 to Metropolitan.
As additional consideration for the purchase of OSL, it is
anticipated that the Company will agree to pay an estimated 20% of
the net income of OSL to Metropolitan for each of the next three to
five years. Each future year's calculation of amounts owing under
this provision will be independently calculated. Due to the fact
that these entities are under common control, any amounts paid under
this provision will be accounted for as dividends. Due to the fact
that the Company, Metropolitan and OSL are all entities under the
common control of one individual, this business combination will be
accounted for using the purchase method, but will retain the
historical cost bases of the assets and liabilities of OSL. Thus,
the excess of the purchase price of OSL, over its net book value has
been treated as if it were a dividend and has been charged against
retained earnings.
NOTE 2:
The pro forma condensed consolidated statement of income reflects the
above described transaction as if the purchase of OSL occurred at
the beginning of the period presented.
NOTE 3:
The following adjustments have been made to the pro forma
consolidated condensed balance sheet and statement of income to
reflect the acquisition of OSL:
Pro Forma Balance Sheet:
(a) To record the acquisition of OSL by the Company through the
payment of $2,600,000 to Metropolitan.
(b) To consolidate the balance sheet of OSL with the Company
and to charge the excess of the purchase price over OSL's net book
value of approximately $47,000 to retained earnings.
Pro Forma Statement of Income:
(c) To reflect the reduction in investment income associated
with the $2,600,000 purchase price paid to Metropolitan, calculated
at an assumed net yield of 11% per annum.
(d) To record the income tax effects of adjustment (c) .
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Directors and Stockholder
Old Standard Life Insurance Company
We have audited the accompanying balance sheet of Old Standard Life
Insurance Company, a wholly-owned subsidiary of Metropolitan Mortgage
& Securities Co., Inc., as of December 31, 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 Old
Standard Life Insurance Company as of December 31, 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 method of accounting
for its investment in certain debt securities in 1993.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Spokane, Washington
January 12, 1995
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Directors and Stockholder
Old Standard Life Insurance Company
We have audited the accompanying balance sheet of Old Standard Life
Insurance Company, a wholly owned subsidiary of Metropolitan Mortgage
& Securities Co., Inc. as of December 31, 1992 and the related
statements of income, stockholder's equity, and cash flows for the
years ended December 31, 1992 and 1991. 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 Old
Standard Life Insurance Company as of December 31, 1992, and the
results of its operations and its cash flows for the years ended
December 31, 1992 and 1991 in conformity with generally accepted
accounting principles.
/s/ BDO Seidman
BDO SEIDMAN
Spokane, Washington
March 19, 1993
<PAGE>
OLD STANDARD LIFE INSURANCE COMPANY
BALANCE SHEETS
____________
<TABLE>
<CAPTION>
December 31,
September 30, ___________________________
1994 1993 1992
_____________ ____________ ____________
(Unaudited)
<S> <C> <C> <C>
ASSETS
Invested assets:
Investments (Note 2):
Held-to-maturity securities, at
amortized cost $ 9,283,204 $ 3,323,735 $ 200,000
Available-for-sale securities, at
market 5,908,968
Real estate contracts and mortgage notes
receivable, net (Note 3) 28,506,656 23,542,397 25,282,727
Real estate held for sale (Note 4) 447,413 372,301
Policy loans 14,614 5,468
Cash and cash equivalents 5,829,278 5,051,110 6,328,775
------------ ------------ -----------
Total invested assets 44,081,165 38,203,979 31,811,502
------------ ------------ -----------
Receivables 23,245 34,127 10,752
------------ ------------ -----------
Other assets:
Deferred acquisition costs (Note 5) 2,539,587 2,283,615 1,667,623
Accrued investment income 462,921 515,613 273,314
Furniture and equipment, net 14,235 15,179 16,948
Due from affiliated companies (Note 8) 210,542 1,456,431
Other 156,980 159,480 34,610
------------ ------------ -----------
Total other assets 3,384,265 4,430,318 1,992,495
------------ ------------ -----------
Total assets $ 47,488,675 $ 42,668,424 $ 33,814,749
============ ============ ============
</TABLE>
<PAGE>
OLD STANDARD LIFE INSURANCE COMPANY
BALANCE SHEETS, Continued
____________
<TABLE>
<CAPTION>
December 31,
September 30, ___________________________
1994 1993 1992
_____________ ____________ ____________
(Unaudited)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Annuity reserves (Note 6) $ 43,396,028 $ 39,344,173 $ 28,055,857
Due to affiliated companies (Note 8) 2,374,634
Income taxes payable (Note 7) 254,435
Deferred income taxes (Note 7) 775,582 801,650 688,950
Advance annuity deposit funds 7,532 14,222 195,943
Accounts payable and accrued expenses 518,471 492,673 6,142
------------ ------------ ------------
Total liabilities 44,952,048 40,652,718 31,321,526
------------ ------------ ------------
Stockholder's equity (Notes 9 and 10):
Common stock, $10 par value, 250,000
shares authorized; 40,000 shares
issued and outstanding 400,000 400,000 400,000
Additional paid-in capital 800,000 800,000 800,000
Retained earnings 1,352,986 875,017 1,293,223
Net unrealized losses on investments,
net of deferred income taxes of $8,429
at September 30, 1994 and $30,554 at
December 31, 1993 (Note 2) (16,359) (59,311)
------------ ------------ ------------
Total stockholder's equity 2,536,627 2,015,706 2,493,223
------------ ------------ ------------
Total liabilities and
stockholder's equity $ 47,488,675 $ 42,668,424 $ 33,814,749
============ ============ ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
OLD STANDARD LIFE INSURANCE COMPANY
STATEMENTS OF INCOME
____________
<TABLE>
<CAPTION>
Nine Months
Ended September 30,Year Ended December 31,
____________________________ _____________________________________________
1994 1993 1993 1992 1991
____________________________________________________________
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Net investment income $2,964,109$2,689,494$3,615,585$2,922,996$1,450,478
Net realized investment gains (Note 2) 66,378 45,200 77,936 55,454 8,867
Other insurance revenues 39,324 20,012 28,143 25,596 5,984
------------------------------------------------------------
Total revenues 3,069,8112,754,7063,721,6643,004,0461,465,329
------------------------------------------------------------
Benefits and expenses:
Annuity benefits 2,040,2861,726,8832,377,8351,655,550 714,624
Commissions (Note 5) 316,012 467,956 652,077 856,090 491,877
General expenses (Note 8) 90,276 68,360 96,529 87,120 78,357
Provision for losses (recoveries) on real estate
contracts and mortgage notes 166,476 237,460 263,697 (23,762) 110,000
Insurance taxes, licenses and fees (17,338) 502,875 518,920 11,548 5,694
Increase in deferred acquisition costs
(Note 5) (255,972)(453,839)(615,992)(907,488)(540,036)
------------------------------------------------------------
Total benefits and expenses 2,339,7402,549,6953,293,0661,679,058 860,516
------------------------------------------------------------
Income before income taxes 730,071 205,011 428,5981,324,988 604,813
Provision for income taxes (Note 7) 252,102 70,604 146,804 450,400 221,900
------------------------------------------------------------
Net income $477,969 $134,407 $281,794 $874,588 $382,913
============================================================
Net income per share $ 11.95 $ 3.36 $ 7.04 $ 21.86 $ 9.57
============================================================
Weighted average number of shares outstanding 40,000 40,000 40,000 40,000 40,000
============================================================
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
OLD STANDARD LIFE INSURANCE COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY
for the years ended December 31, 1993, 1992 and 1991
and for the nine months ended September 30, 1994
____________
<TABLE>
<CAPTION>
Additional Net Unrealized
Common Paid-in RetainedLosses on
Stock Capital EarningsInvestments
__________ __________________________________
<S> <C> <C> <C> <C>
Balance, January 1, 1991$400,000 $800,000 $35,722 $ --
Net income 382,913
---------- ---------------------------------
Balance, December 31, 1991400,000 800,000 418,635
Net income 874,588
---------- ---------------------------------
Balance, December 31, 1992400,000 800,000 1,293,223
Net income 281,794
Cash dividends (700,000)
Adoption of SFAS No. 115, net of
deferred income taxes of $30,544
(Notes 2 and 7) (59,311)
---------- ---------------------------------
Balance, December 31, 1993400,000 800,000 875,017 (59,311)
Net income (unaudited) 477,969
Net change in unrealized losses
on available-for-sale securities,
net of deferred income taxes of
$22,125 (Notes 2 and 7)
(unaudited) 42,952
---------- ---------- -----------------------
Balance, September 30, 1994
(unaudited) $400,000 $800,000 $1,352,986$(16,359)
========== ==================================
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
OLD STANDARD LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
____________
<TABLE>
<CAPTION>
Nine Months
Ended September 30,Year Ended December 31,
--------------------------------------------------------------------------
1994 1993 1993 1992 1991
____________________________________________________________
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $477,969 $134,407 $281,794 $874,588 $382,913
Adjustments to reconcile net income to net cash provided by
operating activities:
Net realized investment gain (66,378) (45,200) (77,936) (55,454) (8,867)
Provision for losses (recoveries) on real estate contracts
and mortgage notes 166,476 237,460 263,697 (23,762) 110,000
Depreciation and amortization 944 1,454 1,769 3,151 2,312
Deferred income tax provision (benefit) (48,194) 67,304 143,254 449,600 221,900
Changes in assets and liabilities:
Deferred acquisition costs (255,972)(453,839)(615,992)(907,488)(540,036)
Accrued investment income 52,692 (143,878)(242,299)(157,366)(100,960)
Other accruals and adjustments 236,173 431,313 348,678 (24,173) (17,536)
Annuity reserves 2,000,9621,707,0182,349,8391,679,807 714,624
----------------------------------------------------------
Net cash provided by operating activities2,564,6721,936,0392,452,8041,838,903 764,350
---------------------------------------------------------
Cash flows from investing activities:
Principal payments on real estate contracts and mortgage notes receivable4,034,4233,220,8034,554,8272,637,228471,202
Proceeds from sale of real estate contracts and mortgage notes receivable633,650
Proceeds from sale of real estate held for sale77,218 31,560 56,378 12,050
Acquisition of furniture and equipment (172) (185)
Purchase of held-to-maturity investments (3,030,000)(4,083,594)
Proceeds from sales of trading investments 3,076,1724,092,461
Proceeds from maturities of held-to-maturity investments200,000 200,000
Purchase of available-for-sale investments (28,766,401)(58,768,357)
Proceeds from sales of available-for-sale investments19,494,68849,529,844
Purchase of real estate contracts and mortgage notes receivable(9,776,499)(3,350,581)(3,473,576)(16,053,302)(10,527,664)
Net increase in policy loans (9,146) (5,822) (5,468)
Change in due from affiliated companies 1,245,889(2,246,782)(3,831,065)2,220,281(160,864)
Additions to real estate held for sale (36,242) (32,902) (49,808) (18,378)
------------------------------------------------------------
Net cash used in investing activities (3,830,707)(11,455,437)(11,787,225)(11,156,121)(10,208,644)
-----------------------------------------------------------
</TABLE>
<PAGE>
OLD STANDARD LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS, Continued
____________
<TABLE>
<CAPTION>
Nine Months
Ended September 30,Year Ended December 31,
--------------------------------------------------------------------------
1994 1993 1993 1992 1991
____________________________________________________________
(Unaudited ) (Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from financing activities:
Receipts from annuity products $5,902,105$8,832,023$12,228,314$15,484,747$9,333,100
Withdrawals on annuity products (3,851,212)(2,365,379)(3,289,837)(1,597,048)(671,638)
Change in advance annuity deposits (6,690)(144,260)(181,721)(202,452) 343,902
Dividends paid (700,000)
------------------------------------------------------------
Net cash provided by financing activities2,044,2036,322,3848,056,75613,685,2479,005,364
------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents778,168(3,197,014)(1,277,665)4,368,029(438,930)
Cash and cash equivalents:
Beginning of period 5,051,1106,328,7756,328,7751,960,7462,399,676
------------------------------------------------------------
End of period $5,829,278$3,131,761$5,051,110$6,328,775$1,960,746
============================================================
See Note 11 for supplemental cash flow information.
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
OLD STANDARD LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(All information as of September 30, 1994
and for the nine months ended September 30,
1994 and 1993 is unaudited)
____________
1. SUMMARY OF ACCOUNTING POLICIES:
Nature of Business
Old Standard Life Insurance Company (Old Standard or the
Company), a wholly-owned subsidiary of Metropolitan
Mortgage & Securities Co., Inc. (Metropolitan), is engaged
primarily in the offering, issuance and sale of variable
rate annuity contracts and life insurance policies.
Investments
The Company adopted the provisions of Statement of Financial
Accounting Standards No. 115 (SFAS No. 115), "Accounting for
Certain Investments in Debt and Equity Securities," on
December 31, 1993. The effect of applying this new standard
was to decrease stockholder's equity at December 31, 1993 by
$59,311, which is net of $30,554 of deferred income tax
effect (see Note 8). The Company has classified its
investments in debt and equity securities as either
"available-for-sale" or "held-to-maturity." The accounting
policies related to these investments are as follows:
Available-for-Sale Securities: Available-for-sale
securities, consisting primarily of government-backed
securities and corporate bonds, are carried at market value.
Realized gains and losses on the sale of these securities
are recognized on a specific identification basis in the
statement of income in the period the securities are sold.
Unrealized gains and losses are presented as a separate
component of stockholder's equity, net of related deferred
income taxes.
Held-to-Maturity Securities: Held-to-maturity securities,
consisting primarily of government-backed securities and
corporate bonds having fixed maturities, are carried at
amortized cost. The Company has the ability and intent to
hold these investments until maturity.
<PAGE>
1. SUMMARY OF ACCOUNTING POLICIES, Continued:
Real Estate Contracts and Mortgage Notes Receivable
Real estate contracts and mortgage notes receivable
(contracts) 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 (interest) 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.
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 the
carrying value of 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 January 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
The Company holds real estate, stated at the lower of cost
or market, for purposes of resale. The Company acquires
real estate through foreclosure. Cost is determined by the
lower of (a) the fair value of the property at date of
foreclosure less estimated selling costs, or (b) cost
(unpaid contract carrying value). 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 the lower of cost or net realizable value, as
necessary. Occasionally, properties are rented, with the
revenue being included in other income and holding costs are
charged to expense.
1. SUMMARY OF ACCOUNTING POLICIES, Continued:
Real Estate Held for Sale, Continued
Profit on sales of real estate is recognized when the
buyers' initial and continuing investment is adequate to
demonstrate (1) a commitment to fulfill the terms of the
transaction, (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.
The Company records foreclosed assets at the lower of (a)
fair value minus estimated costs to sell, or (b) cost.
Allowance for Losses on Real Estate Assets
The established allowance for losses on real estate assets
include amounts for estimated probable losses on both real
estate held for sale and receivables. 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
historic delinquency and loss experience, for currently
performing receivables and smaller delinquent receivables.
Allowances for losses are determined based upon the net
carrying values of the contracts, including accrued
interest. Accordingly, the Company continues to accrue
interest on delinquent loans until foreclosure, unless the
principal and accrued interest on the loan exceeds the fair
value of the collateral, net of the estimated selling costs.
The Company obtains new or updated appraisals on appropriate
delinquent receivables, and adjusts the allowances for
losses as necessary, such that the net carrying value does
not exceed estimated net realizable value.
<PAGE>
1. SUMMARY OF ACCOUNTING POLICIES, Continued:
Cash and Cash Equivalents
For purposes of the balance sheet 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 depository financial institutions.
Substantially all cash and cash equivalents are on deposit
with one financial institution and exceed the FDIC insurance
limit.
Deferred Acquisition Costs
Sales commissions and other sales costs related to sales of
annuity contracts are deferred. For annuities, the portion
of the deferred policy acquisition cost that is estimated
not to be recoverable from surrender charges is amortized as
a constant proportion of the estimated gross profits
associated with the policies in force.
Annuity Reserves
Annuity reserves are equal to the sum of the individual
account accumulation values. Deposits and interest credited
to annuity account balances are not reported as insurance
revenues, but as annuity reserves.
Recognition of Annuity Revenues
Premiums for annuities are not reported as revenue, but as
annuity reserves. Revenues for these annuities consist of
the charges assessed against the account balance. These
charges include expense and surrender charges. Charges
designed to compensate the insurer for future services are
not recognized in the period assessed; instead, they are
deferred and recognized in income over the period benefited
using the same assumptions as are used to amortize deferred
acquisition costs.
<PAGE>
1. SUMMARY OF ACCOUNTING POLICIES, Continued:
Income Taxes
The Company adopted the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes"
(SFAS No. 109), effective January 1, 1993. There was no
cumulative effect of adopting SFAS No. 109. SFAS No. 109
requires deferred tax liabilities and assets to be
determined based on the temporary differences between the
financial statement carrying amounts and tax bases of assets
and liabilities and tax attributes 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.
Earnings Per Share
Earnings per share are computed by dividing net income by
the weighted average number of shares of common stock
outstanding.
Reclassifications
Certain 1992 and 1991 amounts have been reclassified to
conform with the 1993 presentation. These reclassifications
had no effect on net income or retained earnings as
previously reported.
Interim Financial Information
In the opinion of the Company, the accompanying unaudited
interim financial information contains all adjustments
necessary to present fairly the financial position as of
September 30, 1994 and the results of operations and changes
in cash flows for the nine month periods ended September 30,
1994 and 1993. The results of operations for the nine month
period ended September 30, 1994 and 1993 are not necessarily
indicative of the results to be expected for the full year.
<PAGE>
2. INVESTMENTS:
As discussed in Note 1, effective December 31, 1993, the
Company adopted the provisions of SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities."
Accordingly, securities are classified as "Held-to-Maturity"
or "Available-for-Sale". Additionally, to facilitate the
adoption of SFAS No. 115, the Company restructured its
investment portfolio to better match the average terms of its
investments in debt securities with those of its annuities.
Prior to the adoption of SFAS No. 115, the Company classified
and accounted for its debt securities as "Trading" or
"Investment." Securities classified as Trading were recorded
at market value, similar to the treatment of Available-for-
Sale securities. Securities classified as Investment were
recorded at amortized cost, similar to the treatment of Held-
to-Maturity securities. Accordingly, the 1992 balance sheet
presentation of investments has been reclassified to conform
with the 1993 presentation.
The Company has not invested in "derivative products" that
have been structured to perform in a way that magnifies the
normal impact of changes in interest rates or in a way
dissimilar to the movement in value of the underlying
securities. At September 30, 1994, the Company was not a
party to any derivative financial instruments.
<PAGE>
2. INVESTMENTS, Continued:
A summary of carrying and estimated market values of
investments at September 30, 1994 and December 31, 1993 and
1992 is as follows:
<TABLE>
<CAPTION>
<S>
Held-to-Maturity 1994
____________________________________________________________________
<C> <C> <C> <C>
Amortized Gross Gross
Cost UnrealizedUnrealized Estimated
(Carrying Value) Gains Losses Market Values
_________________________________________________
Government-backed bonds$5,223,122$--$389,995 $4,833,127
Corporate bonds4,060,082 -- 186,479 3,873,603
-------------------------------------------------
Total $9,283,204 $ -- $576,474 $8,706,730
=================================================
Available-for-Sale 1993
___________________________________________________________________
Gross Gross Estimated
Amortized UnrealizedUnrealizedMarket Values
Cost Gains Losses(Carrying Values)
_________________________________________________
Government-backed bonds$5,000,000$--$81,250 $4,918,750
Corporate bonds 998,833 -- 8,615 990,218
-------------------------------------------------
Total $5,998,833 $ -- $89,865 $5,908,968
=================================================
Held-to-Maturity 1993
____________________________________________________________________
Amortized Gross Gross
Costs UnrealizedUnrealized Estimated
(Carrying Value) Gains Losses Market Values
__________________________________________________
Government-backed bonds$255,351 $3,867 $ 251,484
Corporate bonds2,005,008 $3,237 1,225 2,007,020
Utility bonds 1,063,376 1,624 1,065,000
-------------------------------------------------
Total $3,323,735 $4,861 $5,092 $3,323,504
===================================================
<PAGE>
2. INVESTMENTS, Continued:
Held-to-Maturity 1992
____________________________________________________________________
Amortized Gross Gross
Costs UnrealizedUnrealized Estimated
(Carrying Value) Gains Losses Market Values
___________________________________________________
Government-backed bonds$200,000$4,000$ -- $ 204,000
=============== ===================================
</TABLE>
The government-backed securities above include investments on
deposit for regulatory authorities (as required by law) of
$250,000, $250,000 and $200,000 at September 30, 1994,
December 31, 1993 and 1992.
There were no sales or maturities of bonds for the nine months
ended September 30, 1994. Proceeds from sales and maturities
of bonds for the year ended December 31, 1993 were
$49,729,844. Gross gains of $122,866 and gross losses of
$26,805 were realized on those transactions. Proceeds from
the sale of trading bonds for the years ended December 31,
1992 and 1991 were $3,076,172 and $4,092,461. Gross gains of
$47,190 and $18,242 were realized during 1992 and 1991. Gross
losses of $9,375 were realized on those sales in 1991.
Net unrealized gains and losses on the available-for-sale
portfolio at September 30, 1994 and December 31, 1993 are
reported as a separate component of stockholder's equity, net
of deferred federal income taxes. During the year ended
December 31, 1993 and the nine months ended September 30,
1994, the Company transferred $3,250,000 and $6,000,000,
respectively, of investments from the available-for-sale
portfolio to the held-to-maturity portfolio. At the date of
transfer, these investments had net unrealized losses of
approximately $29,000 before deferred income taxes. These
unrealized losses are being amortized over the term of the
investments transferred using the interest method. During the
year ended December 31, 1993 and the nine months ended
September 30, 1994, $0 and $4,563, respectively, of these
losses were amortized. At September 30, 1994, the remaining
unamortized loss, net of deferred income taxes of $8,429, of
$16,359 is reported as a reduction of stockholder's equity.
<PAGE>
2. INVESTMENTS, Continued:
The amortized costs and estimated market values of debt
securities at September 30, 1994 and December 31, 1993, by
contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without
call or prepayment penalties.
Held-to-maturity debt securities at September 30, 1994:
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Values
_________ _________
<S> <C> <C>
Due after one year
through five years $9,283,204 $8,706,730
========== ==========
Available-for-sale debt securities at December 31, 1993:
Estimated
Amortized Market
Cost Values
_________ _________
Due after one year
through five years $4,972,375 $4,918,750
Due after five years
through 10 years 995,904 990,218
---------- ----------
$5,968,279 $5,908,968
========== ==========
Held-to-maturity debt securities at December 31, 1993:
Estimated
Amortized Market
Cost Values
_________ _________
Due after one year
through five years $3,323,735 $3,323,504
========== ==========
</TABLE>
3. REAL ESTATE CONTRACTS AND MORTGAGE NOTES RECEIVABLE:
Real estate contracts and mortgage notes receivable consist of
first lien mortgages collateralized by property primarily
located in the Pacific Northwest (Washington and Northern
Idaho). The face value of the real estate contracts and
mortgage notes range principally from $15,000 to $150,000 with
no single amount in the excess of $300,000. Interest rates
principally range from 5% to 13.125%. The weighted average
interest rate on these receivables at December 31, 1993 is
approximately 9.8%. Maturity dates range from 1994 to 2021.
The following is a reconciliation of the face value of the
real estate contracts and mortgage notes to the Company's
carrying value.
<TABLE>
<CAPTION>
December 31,
September 30,_________________________________
1994 1993 1992
________________________________________
<S> <C> <C> <C>
Face value $29,870,460 $25,325,877 $27,070,726
Unrealized discounts, net
of unamortized
acquisition costs(1,135,582)(1,537,425)(1,702,761)
Allowance for losses(228,222)(246,055) (85,238)
---------------------------------------
Carrying value $28,506,656 $23,542,397 $25,282,727
========================================
</TABLE>
The principal amount of contracts and notes subject to
delinquent principal or interest, defined as payment being in
arrears for more than three months, totaled approximately
$1,010,000 at September 30, 1994, $1,139,000 at December 31,
1993 and $1,162,000 at December 31, 1992.
<PAGE>
4. REAL ESTATE HELD FOR SALE:
Real estate held for sale consists of the following at
September 30, 1994 and December 31, 1993:
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
_____________ ____________
<S> <C> <C>
Single-family
dwelling $218,700 $372,301
Land - Residential
Improved 202,500
Commercial 26,213
-------- --------
$447,413 $372,301
======== ========
</TABLE>
5. DEFERRED ACQUISITION COSTS:
An analysis of deferred costs related to policy and annuity
acquisitions is as follows:
<TABLE>
<CAPTION>
December 31,
September 30,_________________________________
1994 1993 1992
_________________________________________
<S> <C> <C> <C>
Balance at beginning
of period $2,283,615 $1,667,623 $760,135
Deferred during period:
Commissions 316,012 652,076 856,001
General expenses 62,035 96,097 81,787
--------------------------------------
Total deferred 2,661,662 2,415,796 1,697,923
Amortized during period(122,075) (132,181) (30,300)
---------------------------------------
Balance at end of period$2,539,587 $2,283,615 $1,667,623
========================================
</TABLE>
<PAGE>
6. ANNUITY RESERVES:
Annuity reserves are based on the annuity contract terms.
These terms call for reserves covering all principal paid plus
accrued interest. Annuity contract interest rates ranged from
5% to 9% during the nine months ended September 30, 1994; 5%
to 9% during the year ended December 31, 1993, 5.5% to 8.5%
during the year ended December 31, 1992 and 7.5% to 9.2%
during the year ended December 31, 1991.
7. INCOME TAXES:
The Company files a separate tax return from Metropolitan
under specific provisions which require newly formed life
insurance entities to file a separate federal income tax
return for the first five years of their existence. The
Company is taxed as a life insurance company under Part I of
Subchapter L of the Internal Revenue Code.
<PAGE>
7. INCOME TAXES, Continued:
The components of the provision for income taxes are as
follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
___________________________________________________________
1994 1993 1993 1992 1991
__________________________________________________
<S> <C> <C> <C> <C> <C>
Current $300,296$3,300 $3,550 $ 800 $ --
Deferred (48,194) 67,304 143,254 449,600 221,900
--------------------------------------------------
$252,102$70,604 $146,804$450,400$221,900
==================================================
</TABLE>
The effective income tax rate differs from the statutory
income tax rate due to state income taxes.
The deferred income tax provision (benefit) results from the
following:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
___________________________________________________________
1994 1993 1993 1992 1991
__________________________________________________
<S> <C> <C> <C> <C> <C>
Deferred policy
acquisition costs$80,518$140,998$180,304$252,630$136,211
Reserves on
repossessed real
estate (4,815)(14,664)(14,707)
Amortization of
discounts on
purchased real
estate contracts,
net of contract
acquisition costs
and underwriting
fees 16,135 93,983 (64,481)819,036 304,537
Annuity reserves(74,683)(166,254)(281,460)(247,901)(102,731)
Allowance for losses761(58,945)(69,266)8,419(37,400)
Operating loss
carryover(165,573)251,404433,362(382,584)(78,717)
Guaranty fund(30,059)(167,221)(160,609)
Other 129,522 (11,997)120,111
------------------------------------------------
Provision (benefit) for
income taxes$(48,194)$67,304$143,254$449,600$221,900
================================================
</TABLE>
<PAGE>
7. INCOME TAXES, Continued:
The income tax effect of the temporary differences giving rise
to the Company's deferred tax assets and liabilities as of
September 30, 1994 and December 31, 1993 is as follows:
<TABLE>
<CAPTION>
1994 1993
__________________________________________________
AssetLiability AssetLiability
<S> <C> <C> <C> <C>
Allowance or
contract losses$97,485 $98,246
Reserves on
repossessed real
estate 19,522 14,707
Deferred loan fees $1,105,983 $1,089,848
Deferred acquisition
costs 730,753 650,235
Annuity reserves706,776 632,093
Guaranty fund reserve190,688 160,609
Investments and other46,683 132,795
Net operating loss
carryforwards 165,573
------------------------------------------------
$1,061,154$1,836,736$1,071,228$1,872,878
================================================
</TABLE>
No valuation allowance has been established at December 31,
1993 to reduce 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.
At December 31, 1993, the Company had unused net operating
loss carryforwards, for income tax purposes, of approximately
$487,000. These carryforwards have been utilized to reduce
the current income tax provision for the nine months ended
September 30, 1994.
<PAGE>
8. RELATED PARTY TRANSACTIONS:
The Company had the following related party transactions with
Metropolitan:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
_____________________________________________________________
1994 1993 1993 1992 1991
__________________________________________________
<S> <C> <C> <C> <C> <C>
Real estate
contracts and
mortgage notes
purchased
through
Metropolitan$9,827,000$528,724$603,465$13,620,522$9,820,458
Contract
acquisition cost
and underwriting
fees charged to
the Company on
purchases of
real estate
contracts and
mortgage notes52,72930,86133,5752,432,780 707,206
Investment and
general expenses
paid to
Metropolitan95,95547,742 62,677 53,496 --
</TABLE>
Additionally, the Company paid commissions of $31,332 and
$12,803 during 1993 and 1992, respectively, to Beacon
Properties, Inc. (Beacon) for acting as broker on real estate
sold throughout 1993. The Company also received rent from
Summit Securities, Inc. (Summit) of $1,800 during 1993.
Beacon and Summit were wholly-owned subsidiaries of
Metropolitan in 1993. Old Standard declared a common stock
dividend of $700,000 to Metropolitan during 1993.
In 1993, the Company purchased a government bond with a value
of $5,124,197 and mortgage loans worth $2,865,000 from Western
United Life Assurance Company, a subsidiary of Metropolitan.
<PAGE>
9. STOCKHOLDER'S EQUITY:
Old Standard is required to file statutory financial
statements with state insurance regulatory authorities.
Accounting principles used to prepare these statutory
financial statements differ from generally accepted accounting
principles. Stockholder's equity, as reported in Old
Standard's statutory financial statements, was approximately
$2,527,500 as of September 30, 1994, $2,069,000 as of December
31, 1993 and $2,078,000 as of December 31, 1992.
The payment of dividends by Old Standard is subject to certain
restrictions imposed by statute. Dividends can only be paid
out of earned surplus. Earned surplus includes surplus
arising from unrealized capital gains or revaluation of
assets.
<PAGE>
10. RECONCILIATION OF GAAP AND STATUTORY ACCOUNTING:
A reconciliation from the basis of accounting followed by the
Company as prescribed or permitted by state insurance
regulations to the basis of generally accepted accounting
principles is as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
__________________________________________________________________
1994 1993 1993 1992 1991
___________________________________________________________
<S> <C> <C> <C> <C> <C>
Net income per statutory
statements $515,235 $777,142 $900,085 $809,272$334,119
Adjustments for:
Change in annuity
reserves (175,563)(407,672) (682,476)(561,297)(160,142)
Change in deferred
acquisition costs255,972453,839 615,992 907,488 540,036
Deferred tax expense48,194(67,304)(143,254)(449,600)(221,100)
Interim current tax
adjustment (258,296)
State guaranty fund
provision 71,070 (488,573) (472,379)
Interest maintenance
reserves 45,337 37,942 58,642 14,867
Policy contract benefits(31,703)73,353180,604129,096
Adjustment to loss reserves(6,649)(142,463)
Unrealized gains (losses) on
mortgage loans and real
estate contracts(25,521)(94,997)(173,420) 24,762(110,000)
Other expense adjustments39,893(6,860)(2,000)
-----------------------------------------------------------
Net income in accordance
with GAAP $477,969 $134,407 $281,794 $874,588$382,913
===========================================================
Stockholder's Equity September 30,December 31,
1994 1993 1992
____________________________________
Stockholder's equity per
statutory statements $2,527,464$2,069,030$2,077,808
Adjustments for:
Deferred acquisition costs2,539,5872,283,6151,667,623
Annuity reserves (1,603,336)(1,427,803)(745,342)
Deferred income taxes (775,582) (801,650)(688,950)
Interim current tax adjustment(258,296)
Nonadmitted assets 16,204 5,442 (8,516)
Interest maintenance reserve104,31073,510 14,867
Asset valuation reserve 218,910 188,548 47,437
State guaranty fund provision(401,309)(472,379)
Adjustment of real estate related assets
to statutory values (70,129) (130,650)
Securities valuation reserves(16,359)(59,311)
Policy and contract benefits283,640309,700129,096
Other (28,477) (22,346) (800)
---------------------------------
Stockholder's equity
in accordance
with GAAP $2,536,627$2,015,706$2,493,223
====================================
</TABLE>
<PAGE>
11. SUPPLEMENTAL DISCLOSURES FOR STATEMENTS OF CASH FLOWS:
The following table summarizes income taxes paid during the
periods:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
_____________________________________________________________
1994 1993 1993 1992 1991
__________________________________________________
<S> <C> <C> <C> <C> <C>
Income taxes$45,860 $3,300 $3,550 $ 800 $ --
</TABLE>
Non-cash investing and financing activities of the Company
during the periods are as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
_____________________________________________________________
1994 1993 1993 1992 1991
__________________________________________________
<S> <C> <C> <C> <C> <C>
Loans to facilitate
the sale of real
estate held$370,732$291,190$440,372$170,850$ --
Real estate held
for sale and
development
acquired through
foreclosure615,260808,794976,668 64,000 92,258
Debt assumed upon
foreclosure of
real estate
contracts 10,598 -- -- -- --
<PAGE>
INSIDE BACK COVER PAGE: REFER TO APPENDIX ITEM 4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. 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 .................... $ 5,069
NASD Filing Fee ......................... 6,000
Independent Underwriter Fee.............. 45,000
*Printing ............................... 10,000
*Legal Fees and Expenses ................ 10,000
*Accounting Fees and Expenses .......... 45,000
*Trustee's Fees and Expenses ............ 5,000
*Blue Sky Fees and Expenses ............. 20,000
*Miscellaneous .......................... 3,931
TOTAL .............................$150,000
--------
*Estimated
Item 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Summit's Articles of Incorporation provide for indemnification
of Summit'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 Summit 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 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 Summit. (Exhibit
3(a) to Registration No. 33-36775).
3.b. Bylaws of Summit. (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 Cumulative Preferred Stock
Certificate.
4.e. Form of Investment Certificate.
*5.a. Form of Opinion of Susan A. Thomson, Attorney at
Law, as to validity of Investment Certificates.
(Includes consent.)
*5.b. Form of Opinion of Susan A. Thomson, Attorney at
Law, as to validity of Preferred Stock. (Includes
consent.)
*10.a. Management Receivable Acquisition and Servicing
Agreement between Summit Securities Inc. and
Metropolitan Mortgage & Securities Co., Inc. dated
September 9, 1994
*10.b. Stock Purchase Agreement between Summit and
Metropolitan regarding the purchase of
Metropolitan Investment Securities, dated January
31, 1995.
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 L.L.P., Independent
Certified Public Accountants.
*23.b.i. Consent of BDO Seidman, Independent Certified
Public Accountants, regarding Summit.
*23.b.ii Consent of BDO Seidman, Independent Certified
Public Accountants, regarding Old Standard.
*25. Statement on Form T-1 of West One Bank. (The
Exhibitis to this Exhibit have been file din paper
pursuant to a continuing hardship exemption
granted January 24, 1994.)
*27. Financial Data Schedule. See Exhibit 27 to Form
10-K filed January 12, 1995.
*Filed herewith
Item 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or
sales are being made, a post-effective
amendment to this registration statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of
the registration statement (or the most
recent post-effective amendment thereof)
which, individually or in the aggregate,
represent a fundamental change in the
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>
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
February 7, 1995.
SUMMIT SECURITIES, INC.
/S/ JOHN TRIMBLE
By:
_________________________________________________
John Trimble,
President/Director
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/ JOHN TRIMBLE
2/6/95
_________________________ President/Director/ ________
John Trimble
/S/PHILIP SANDIFUR
2/6/95
_________________________ Vice President/Director ________
Philip Sandifur
/S/ TOM TURNER
2/6/95
_________________________ Secretary/Treasurer ________
Tom Turner Director
/S/ERNEST JURDANA
2/6/95
_________________________ Chief Financial Officer _________
Ernest Jurdana
<PAGE>
GRAPHS APPENDIX
1. INSIDE FRONT COVER PAGE: Full color page with Summit's name
and logo on top of page. The page contains a background image of
a mountain which matches the image to be used on the outside cover
of Summit'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 and 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 and B. The Company receives
C as income.
4. INSIDE BACK COVER: Full cover page with Summit's name and
logo on the top of the page with a background of the mountain scene
which is also set forth on the inside front cover. The page
contains a color map of the United States and indicates the
location of Metropolitan's branch offices. The following text is
set forth above the graph: The Source for Summit Securities'
Receivable Investments is: The Metropolitan Receivable Acquisition
Network. Location of Home and Branch Offices: Metropolitan
Mortgage & Securities Co., Inc. *Home Office, Branch Office
Information as of December 31, 1994.
</TABLE>
<PAGE>
SELLING AGREEMENT
This Agreement made as of the , by and
between SUMMIT SECURITIES, INC., an Idaho corporation ("Summit") and
METROPOLITAN INVESTMENT SECURITIES, INC., a Washington corporation
(the "Selling Agent").
WITNESSETH:
WHEREAS, Summit proposes to issue and sell $40,000,000 principal
amount of its Investment Certificates, Series A (the "Certificates")
pursuant to a Registration Statement (or Registration Statements) and
a Prospectus (or Prospectuses) filed under the Securities Act of
1933; and
WHEREAS, the Selling Agent, an affiliate of Summit, for good and
valuable consideration the receipt of which is hereby acknowledged,
desires to assist in the sale of the Certificates upon the terms and
in reliance upon the representations, warranties and agreements set
forth herein;
NOW, THEREFORE, the parties hereto agree as follows:
1. Appointment of Selling Agent.
Summit hereby appoints the Selling Agent as its managing agent
to offer and sell the Certificates at the prices and in the manner
described in the Registration Statement and the Prospectus and in
compliance with the terms and conditions thereof. Summit agrees to
provide the Selling Agent with such number of Registration Statements
and Prospectuses as it reasonably requests to enable it to offer the
Certificates and authorizes the Selling Agent to distribute the
Registration Statements and Prospectuses.
2. Undertaking of Selling Agent.
The Selling Agent agrees to use its best efforts to sell the
Certificates on the terms stated herein and in the Registration
Statement and Prospectus and to notify Summit of the number of
Certificates with respect to which subscription agreements have been
executed by subscribers. It is understood that the Selling Agent has
no commitment to sell the Certificates other than to use its best
efforts. The Selling Agent will deliver all cash and checks received
from the subscribers to Summit by noon of the next business day. All
checks received by the Selling Agent from subscribers shall be made
payable to Summit. The Selling Agent will not maintain discretionary
customer accounts and undertakes that it will not, in any event make
discretionary purchases for the accounts of customers.
3. Amendment of the Registration Statement and Prospectus.
Summit agrees, at its expense, to amend or supplement the
Registration Statement or the Prospectus and to provide the Selling
Agent with sufficient copies thereof for distribution as contemplated
in the Registration Statement or the Prospectus or otherwise for
purposes contemplated by federal and state securities laws, if (i)
the Selling Agent advises Summit that in its opinion and that of its
counsel, such amendment or supplement is necessary or advisable, or
(ii) such amendment or supplement is necessary to comply with federal
or state securities laws or the rules or regulations promulgated
thereunder or is necessary to correct any untrue statement therein or
eliminate any material omissions therein or any omissions therein
which make any of the statements therein misleading. The
representations, warranties and obligations to indemnify all parties
hereto contained herein relating to the Registration Statement or the
Prospectus shall attach to any such amendment or supplement.
4. Undertakings of Summit.
Summit will promptly notify the Selling Agent in the event of
the issuance by the Securities and Exchange Commission ("SEC") of any
stop order or other order suspending the Registration of the
Certificates, or in the event of the institution or intended
institution of any action or proceeding for that purpose. In the
event that the SEC shall enter a stop order suspending or otherwise
suspend the Registration of the Certificates, Summit will make every
reasonable effort to obtain as promptly as possible the entry of an
appropriate order setting aside such stop order or otherwise
reinstating the Registration of the Certificates.
5. Representations and Warranties.
Summit represents and warrants to the Selling Agent that:
(i) The Registration Statement and the Prospectus comply as
to form in all material respects with the Securities Act of 1933 and
the rules and regulations of the SEC thereunder, accurately describe
the operations of Summit and do not contain any misleading or untrue
statements of a material fact or omit to state a material fact which
is necessary to prevent the statements therein from being misleading.
(ii) Summit is a corporation duly organized and validly
existing under the laws of the State of Idaho with full corporate
power to perform its obligations as described in the Registration
Statement and the Prospectus.
(iii) The Certificates, when issued and sold pursuant to the
terms hereof and of the Registration Statement, Prospectus and
subscription agreements, will constitute valid, binding and legal
outstanding obligations of Summit, in accordance with their terms.
(iv) This Agreement has been duly and validly authorized,
executed and delivered on behalf of Summit and is a valid and binding
agreement in accordance with its terms.
6. Indemnification.
Summit and the Selling Agent each (a) agree to indemnify and
hold harmless the other (and each person, if any, who controls the
other) against any loss, claim, damage, charge or liability to which
the other (or such controlling persons) may become subject, insofar
as such loss, claim, damage, charge or liability (or actions in
respect thereof) (i) arises out of or is based upon any
misrepresentation or breach of warranty of such party herein or any
untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement or the Prospectus (or any
amendment or supplement thereto) which relates to or was supplied by
such party, or (ii) arises out of or is based upon the omission or
alleged omission to state therein a material fact relating to such
party required to be stated therein or necessary to make the
statements therein not misleading, including liabilities under the
Securities Act of 1933, as amended, and the Securities Exchange Act
of 1934, as amended, and (b) agree to reimburse such other party (and
any controlling persons) for any legal or other fees or expenses
reasonably incurred in connection with investigating or defending any
action or claim arising out of or based upon any of the foregoing.
7. Fees and Expenses.
Summit will pay all expenses incurred in connection with the
offering and sale of the Certificates, including without limitation,
fees and expenses of counsel, blue sky fees and expenses (including
legal fees), printing expenses, accounting fees and expenses, and
fees and expenses of West One Bank, Idaho, N.A., as Trustee.
In the event of termination of the offering, Selling Agent will
be reimbursed only for its actual accountable out-of-pocket expenses.
The maximum commissions payable upon sale of the Certificates
shall be 5% of the investment amount.
8. Governing Law.
This Agreement shall be deemed to be made under and governed by
the laws of the State of Idaho.
IN WITNESS WHEREOF, this Agreement has been executed by the
parties hereto as of the day and year first above mentioned.
SUMMIT SECURITIES, INC.
/S/ JOHN TRIMBLE
By:___________________________________
John Trimble, President
METROPOLITAN INVESTMENT SECURITIES, INC.
/S/ SUSAN A. THOMSON
By_____________________________________
Susan A. Thomson, Vice President
<PAGE>
FORM OF
VARIABLE RATE CUMULATIVE PREFERRED STOCK
SELLING AGREEMENT
This Agreement made as of , by
and between SUMMIT SECURITIES, INC., an Idaho corporation ("Summit")
and METROPOLITAN INVESTMENT SECURITIES, INC., a Washington
corporation (the "Selling Agent").
WHEREAS, Summit proposes to issue and sell 150,000 shares of
WITNESSETH:
Variable Rate Cumulative Preferred Stock, Series S-1 (par value
$10.00 per share) ("Preferred Stock") pursuant to a Registration
Statement (or Registration Statements) and a Prospectus (or
Prospectuses) filed under the Securities Act of 1933; and
WHEREAS, the Selling Agent, an affiliate of Summit, for good and
valuable consideration the receipt of which is hereby acknowledged,
desires to assist in the sale of the Preferred Stock upon the terms
and in reliance upon the representations, warranties and agreements
set forth herein;
NOW, THEREFORE, the parties hereto agree as follows:
1. APPOINTMENT OF SELLING AGENT.
Summit hereby appoints the Selling Agent as its exclusive agent
to offer and sell the Preferred Stock at the prices and in the manner
described in the Registration Statement and the Prospectus and in
compliance with the terms and conditions thereof. Summit agrees to
provide the Selling Agent with such number of Registration Statements
and Prospectuses as it reasonably requests to enable it to offer the
Preferred Stock and authorizes the Selling Agent to distribute the
Registration Statements and Prospectuses.
2. UNDERTAKING OF SELLING AGENT.
The Selling Agent agrees to use its best efforts to sell the
Preferred Stock on the terms stated herein and in the Registration
Statement and Prospectus and to notify Summit of the number of shares
of Preferred Stock with respect to which subscription agreements have
been executed by subscribers. It is understood that the Selling
Agent has no commitment to sell the Preferred Stock other than to use
its best efforts. The Selling Agent will deliver all cash and checks
received from subscribers to Summit by noon of the next business day.
All checks received by the Selling Agent from subscribers shall be
made payable to Summit.
The Selling Agent will not maintain discretionary customer
accounts and undertakes that it will not in any event make
discretionary purchases of the Preferred Stock for the accounts of
customers.
3. AMENDMENT OF THE REGISTRATION STATEMENT AND PROSPECTUS.
Summit agrees, at its expense, to amend or supplement that
Registration Statement or the Prospectus and to provide the Selling
Agent with sufficient copies thereof for distribution as contemplated
in the Registration Statement or the Prospectus or otherwise for
purposes contemplated by federal and state securities laws, it (i)
the Selling Agent advises Summit that in its opinion and that of its
counsel, such amendment or supplement is necessary or advisable, or
(ii) such amendment or supplement is necessary to comply with federal
or state securities laws or the rules or regulations promulgated
thereunder or is necessary to correct any untrue statement therein or
eliminate any material omissions therein which make any of the
statement s therein misleading. The representation, warranties, and
obligations to indemnify all parties thereto contained herein
relating to the Registration Statement or the Prospectus shall attach
to any such amendment or supplement.
4. UNDERTAKINGS OR SUMMIT.
Summit will promptly notify the Selling Agent in the event of
the issuance by the Securities and Exchange Commission ("SEC") of any
stop order or other orders us pending the Registration of the
Preferred Stock, or in the event of the institution or intended
institution of any action or preceding for that purpose. In the
event that the SEC shall enter a stop order suspending or otherwise
suspend the Registration of the Preferred Stock, Summit will make
every reasonable effort to obtain as promptly as possible the entry
of an appropriate order setting aside such stop order or otherwise
reinstate the Registration of the Preferred Stock.
5. REPRESENTATIONS AND WARRANTIES.
Summit represents and warrants to the Selling Agent that:
(i) The Registration Statement and the Prospectus comply as to
form in all material respects with the Securities Act of
1933; and the rules and regulations of the SEC thereunder,
accurately describe the operations of Summit and do not
contain any misleading or untrue statements of a material
fact or omit to state a material fact which is necessary
to prevent the statements therein from being misleading.
(ii) Summit is a corporation duly organized and validly
existing under the Washington Business Corporation Act
with full corporate power to perform its obligations as
described int he Registration Statement and the
Prospectus.
(iii) The Preferred Stock, when issued and sold pursuant to the
terms hereof and of the Registration Statement, Prospectus
and subscription agreements, will be legally issued, fully
paid and nonassessable.
(iv) This Agreement has been duly and validly authorized,
executed, and delivered on behalf of Summit and is a valid
and binding agreement of Summit in accordance with its
terms.
6. INDEMNIFICATION.
Summit and the Selling Agent each (a) agree to indemnify and
hold harmless the other (and each person, if any, who controls the
other) against any loss, claim, damage, charge or liability to which
the other or such charge or liability (or actions in respect thereof)
(i) arises out of or is based upon any misrepresentation or breach of
warranty of such party herein or any untrue statement or alleged
untrue statement of any material fact contained in the Registration
Statement or the Prospectus (or any amendment or supplement thereto)
which relates to or was supplied by such party, or (i) arises out of
or is based upon the omission or alleged omission to state therein a
material fact relating to such party required to be stated therein or
necessary to make the statements therein not misleading, including
liabilities under the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, and (b) agree to
reimburse such other party (and any controlling persons) for any
legal or other fees or expenses reasonably incurred in connection
with investigating or defending any action or claim arising out of or
based upon any of the foregoing.
7. FEES AND EXPENSES.
Summit will pay all expenses incurred in connection with the
offering and sale of the Preferred Stock, including without
limitation, fees and expenses of counsel, blue sky fees and expenses
(including legal fees), printing expenses, and accounting fees and
expenses. Provided, however, that in the event of termination of the
offering, Selling Agent will only be reimbursed for its actual,
accountable, out-of-pocket expenses.
The maximum commissions payable upon sale of the Preferred Stock
shall be 5% of the investment amount.
8. This agreement shall not in any way affect, modify or
change the terms of that certain Selling Agreement, dated
between the parties hereto which
provides for the sale of Investment Certificates.
9. GOVERNING LAW.
This Agreement shall be deemed to be made under and governed by
the laws of the State of Washington.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the
parties hereto as of the day and year first above mentioned.
SUMMIT SECURITIES, INC.
/S/ JOHN TRIMBLE
By ______________________________________________
John Trimble, President
METROPOLITAN INVESTMENT SECURITIES, INC.
/S/ SUSAN A. THOMSON
By ______________________________________________
Susan A. Thomson, Vice President
<PAGE>
FORM OF
AGREEMENT TO ACT AS "QUALIFIED INDEPENDENT UNDERWRITER"
This agreement made as of the , by
and between Summit Securities, Inc., an Idaho corporation ("Summit"),
Metropolitan Investment Securities, Inc., a Washington corporation
("MIS"), and Welco Securities, Inc., a Nevada Corporation ("Welco").
WITNESSETH:
WHEREAS, Summit intends to offer $40,000,000 of Investment
Certificates Series A (hereinafter referred to as "Certificates"),
which will be offered in reliance on registration statement filed on
Form S-1, bearing SEC file number ; and,
WHEREAS, MIS, an affiliate of Summit and a member of the
National Association of Securities Dealers ("NASD"), will be engaged
as the managing sales agent for Summit; and,
WHEREAS, pursuant to Section 3 of Schedule E of the Bylaws of
the NASD, MIS, as a NASD member, may participate in such underwriting
only if the yield at which the Certificates offered to the public is
not lower than the yield recommended by a "Qualified Independent
Underwriter" as that term is defined in Section 2(l) (1) through 2(l)
(7) of Schedule E to the Bylaws of the NASD, and who participates in
the preparation of the registration statement and prospectus relating
to the offering and exercises customary standards of due diligence,
with respect thereto; and,
WHEREAS, this agreement ("Agreement") describes the terms on
which Summit is retaining Welco to serve as such a "Qualified
Independent Underwriter" in connection with this offering of
Certificates;
NOW, THEREFORE, in consideration of the recitations set forth
above, and the terms, promises, conditions, and covenants herein
contained, the parties hereby contract and agree as follows:
DEFINITIONS
As hereinafter used, except as the context may otherwise
require, the term "Registration Statement" means the registration
statement on Form S-1 (including the related preliminary prospectus,
financial statements, exhibits and all other documents to be filed as
a part thereof or incorporated therein) for the registration of the
offer and sale of the Certificates under the Securities Act of 1933,
as amended, and the rules and regulations thereunder (the "Act")
filed with the Securities and Exchange Commission (the "Commission"),
and any amendment thereto, and the term "Prospectus" means the
prospectus including any preliminary or final prospectus (including
the form of prospectus to be filed with the Commission pursuant to
Rule 424(b) under the Act) and any amendment or supplement thereto,
to be used in connection with the offering.
1. SCHEDULE E REQUIREMENT. Welco hereby confirms its
agreement as set forth in clause (6) of paragraph (l) of Section 2 of
Schedule E of the Bylaws of the NASD and represents that, as
appropriate, Welco satisfies or at the times designated in such
paragraph (l) will satisfy the other requirements set forth therein
or will receive an exemption from such requirements from the NASD.
2. CONSENT. Welco hereby consents to be named in the
Registration Statement and Prospectus as having acted as a "Qualified
Independent Underwriter" solely for the purposes of Schedule E
referenced herein. Except as permitted by the immediately preceding
sentence or to the extent required by law, all references to Welco in
the Registration Statement or Prospectus or in any other filing,
report, document, release or other communication prepared, issued or
transmitted in connection with the offering by Summit or any
corporation controlling, controlled by or under common control with
Summit, or by any director, officer, employee, representative or
agent of any thereof, shall be subject to Welco's prior written
consent with respect to form and substance.
3. PRICING FORMULA AND OPINION. Welco agrees to render a
written opinion as to the yields below which Summit's Certificates
may not be offered based on the pricing formula that is set forth in
Exhibits "A" and "B," attached hereto and incorporated herein by
reference. It is understood and agreed that the securities to which
this Agreement relates will be offered on a continuous, best efforts
basis by MIS, as the managing sales agent of Summit pursuant to the
Selling Agreement in effect between MIS and Summit which is filed as
an exhibit to the Registration Statement referred to above. Summit,
will continue to offer the Certificates according to the terms and
conditions of said Selling Agreement in accordance with this
Agreement, including, without limitation, Exhibits "A" and "B".
Welco reserves the right to review and amend its opinion upon the
filing of any post-effective amendment to the Registration Statement
or upon occurrence of any material event which may or may not require
such an amendment to be filed, or at such time as the offering shall
terminate or otherwise lapse under operation of law.
4. FEES AND EXPENSE. It is understood that Summit shall
reimburse Welco for its expenses on a nonaccountable basis in the
amount of $5,000 the receipt of which is hereby acknowledged. It is
further agreed that Welco shall be paid an additional amount of
$20,000 at the time the pricing opinion and pricing formula are
rendered, concurrent with the closing. Welco agrees to pay all fees
and expenses to any legal counsel whom it may employ to represent it
separately in connection with or on account of its actions
contemplated herein. All mailing, telephone, travel, hotel, meals,
clerical, or other office costs incurred or to be incurred by Welco
in conjunction with Summit's proposed offering which is the subject
of this Agreement shall be reimbursed to Welco by Summit at closing
on an accountable basis upon receipt of an itemization of said
expenses.
5. MATERIAL FACTS. Summit represents and warrants to Welco
that at the time the Registration Statement or any amendment thereto
becomes effective, the Registration Statement and, at the time the
Prospectus is filed with the Commission (including any preliminary
prospectus and the form of prospectus filed with the Commission
pursuant to Rule 424(b)) and at all times subsequent thereto, the
Prospectus (as amended or supplemented if it shall have been so
amended or supplemented) will contain all material statements which
are required to be stated therein in accordance with the Act and will
conform to all other requirements of the federal securities laws, and
will not, on such date include any untrue statement of a material
fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading and that
all contracts and documents required by the Act to be filed or
required as exhibits to said registration statement have been filed.
Summit further represents and warrants that any further filing,
report, document, release or communication which in any way refers to
Welco or to the services to be performed by Welco pursuant to this
Agreement will not contain any untrue or misleading statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading.
Summit further warrants and represents that:
(a) All leases, contracts and agreements referred to in or
filed as exhibits to the Registration Statement to which Summit is a
party or by which it is bound are in full force and effect.
(b) Summit has good and marketable title, except as otherwise
indicated in the Registration Statement and Prospectus, to all of its
assets and properties described therein as being owned by it, free
and clear of all liens, encumbrances and defects except such
encumbrances and defects which do not, in the aggregate, materially
affect or interfere with the use made and proposed to be made of such
properties as described in the Registration Statement and Prospectus;
and that Summit has no material leased properties except as disclosed
in the Prospectus.
(c) Summit is duly organized under the laws of the State of
Idaho and, as of the effective date of the Registration Statement,
Summit will be validly existing and in good standing under the laws
of the State of Idaho with full corporate power and authority to own
its properties and conduct its business to the extent described in
the Registration Statement and Prospectus; Summit is duly qualified
to do business as a foreign corporation and is in good standing in
all jurisdictions in which the nature of the business transacted by
it or its ownership of properties or assets makes qualification
necessary; the authorized and outstanding capitalization of Summit is
as set forth in the Prospectus and the description in the Prospectus
of the capital stock of Summit conforms with and accurately describes
the rights set forth in the instruments defining the same;
(d) Summit is not in violation of its certificate of
incorporation or Bylaws or in default in the performance or
observance of any material obligation, agreement, covenant or
condition contained in any bond, debenture, note, or other evidence
of indebtedness, contract or lease or in any indenture or loan
agreement to which it is a party or by which it is bound.
(e) The execution, delivery and performance of this Agreement
has been duly authorized by all necessary corporate action on the
part of Summit and MIS and performance of the foregoing agreement and
the consummation of the transactions contemplated thereby, will not
conflict with or result in a breach of any of the terms or constitute
a violation of the respective certificates of incorporation or Bylaws
of Summit or MIS, or any deed of trust, lease, sublease, indenture,
mortgage, or other agreement or instrument to which Summit or MIS is
a party or by which either of them or their property is bound, or any
applicable law, rule, regulation, judgment, order or decree of any
government, governmental instrumentality or court, domestic or
foreign, having jurisdiction over Summit or MIS or their properties
or obligations; and no consent, approval, authorization or order of
any court or governmental agency or body is required for the
consummation of the transactions contemplated herein and in the other
agreements previously referred to in this paragraph except as may be
required under the Act or under any state securities or Blue Sky
Laws.
(f) Any certificate signed by an officer of Summit and
delivered to Welco pursuant to this Agreement shall be deemed a
representation and warranty by Summit to Welco, to have the same
force and effect as stated herein, as to the matters covered thereby.
(g) If any event relating to or affecting Summit shall occur as
a result of which it is necessary, in Welco's opinion, to amend or
supplement the Prospectus in order to make the Prospectus not
misleading in the light of the circumstances existing at the time it
is delivered to a purchaser, Summit undertakes to inform MIS of such
events within a reasonable time thereafter, and will forthwith
prepare and furnish to MIS, without expense to them, a reasonable
number of copies of an amendment or amendments or a supplement or
supplements to the Prospectus (in form and substance satisfactory to
Welco) which will amend or supplement the Prospectus so that as
amended or supplemented it will not contain any untrue statement of
a material fact or omit to state a material fact necessary to make
the statements therein in light of the circumstances existing at the
time the Prospectus is delivered to a purchaser, not misleading.
(h) Summit hereby warrants and represents that it will offer
the Certificates described herein in accordance with the pricing
formula set forth in Exhibits "A" and "B" hereto.
(i) All representations, warranties and agreements contained in
this Agreement, or contained in certificates of officers of Summit
submitted pursuant hereto, shall remain operative and in full force
and effect, surviving the date of this Agreement.
6. AVAILABILITY OF INFORMATION. Summit hereby agrees to
provide
Welco, at its expense, with all information and documentation with
respect to its business, financial condition and other matters as
Welco may deem relevant based on the standards of reasonableness and
good faith and shall request in connection with Welco's performance
under this Agreement, including, without limitation, copies of all
correspondence with the Commission, certificates of its officers,
opinions of its counsel and comfort letters from its auditors. The
above-mentioned certificates, opinions of counsel and comfort letters
shall be provided to Welco as Welco may request on the effective date
of the Registration Statement. Summit will make reasonably available
to Welco, its auditors, counsel, and officers and directors to
discuss with Welco any aspect of Summit which Welco may deem
relevant. In addition, Summit, at Welco's request, will cause to be
delivered to Welco copies of all certificates, opinions, letters and
reports to be delivered to the underwriter or underwriters, as the
case may be, pursuant to any underwriting agreement executed in
connection with the Offering or otherwise, and shall cause the person
issuing such certificate, opinion, letter or report to authorize
Welco to rely thereon to the same extent as if addressed directly to
Welco. Summit represents and warrants to Welco that all such
information and documentation provided pursuant to this paragraph 6
will not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statement therein not
misleading. In addition, Summit will promptly advise Welco of all
telephone conversations with the Commission which relate to or may
affect the Offering.
7. INDEMNIFICATION.
(a) Subject to the conditions set forth below, and in
addition to any rights of indemnification and contribution to which
Welco may be entitled pursuant to any agreement among underwriters,
underwriting agreement or otherwise, and to the extent allowed by
law, Summit hereby agrees that it will indemnify and hold Welco and
each person controlling, controlled by or under common control with
Welco within the meaning of Section 15 of the Act or Section 20 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
or the rules and regulations thereunder (individually, an
"Indemnified Person") harmless from and against any and all loss,
claim, damage, liability, cost or expense whatsoever to which such
Indemnified Person may become subject under the Act, the Exchange
act, or other federal or state statutory law or regulation, at common
law or otherwise, arising out of, based upon, or in any way related
or attributed to (i) this Agreement, (ii) any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement or Prospectus or any other filing, report,
document, release or communication, whether oral or written, referred
to in paragraph 5 hereof or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, (iii) any application or
other document executed by Summit or based upon written information
furnished by Summit filed in any jurisdiction in order to qualify the
Certificates under the securities or Blue Sky laws thereof, or the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or (iv) the breach of any representation or
warranty made by Summit in this Agreement. Summit further agrees
that upon demand by an Indemnified Person at any time or from time to
time, it will promptly reimburse such Indemnified Person for, or pay,
any loss, claim, damage, liability, cost or expense as to which
Summit has indemnified such person pursuant hereto. Notwithstanding
the foregoing provisions of this paragraph 7, any such payment or
reimbursement by Summit of fees, expenses or disbursement incurred by
an Indemnified Person in any proceeding in which a final judgment by
a court of competent jurisdiction (after all appeals or the
expiration of time to appeal) is entered against such Indemnified
Person as a direct result of such person's negligence, bad faith or
willful misfeasance will be promptly repaid to Summit. In addition,
anything in this paragraph 7 to the contrary notwithstanding, Summit
shall not be liable for any settlement of any action or proceeding
effected without its written consent.
(b) Promptly after receipt by an Indemnified Person under
sub- paragraph (a) above of notice of the commencement of any action,
such Indemnified Person will, if a claim in respect thereof is to be
made against Summit under paragraph (a), notify Summit in writing of
the commencement thereof; but the omission to so notify Summit will
not relieve Summit from any liability which it may have to any
Indemnified Person otherwise than under this paragraph 7 if such
omission shall not have materially prejudiced Summit's ability to
investigate or to defend against such claim. In case any such action
is brought against any Indemnified Person, and such Indemnified
Person notifies Summit of the commencement thereof, Summit will be
entitled to participate therein and, to the extent that it may elect
by written notice delivered to the Indemnified Person promptly after
receiving the aforesaid notice from such Indemnified Person, to
assume the defense thereof with counsel reasonably satisfactory to
such Indemnified Person; PROVIDED, HOWEVER, that if the defendants in
any such action include both the Indemnified Person and Summit or any
corporation controlling, controlled by or under common control with
Summit, or any director, officer, employee, representative or agent
of any thereof, or any other "Qualified Independent Underwriter"
retained by Summit in connection with the Offering and the
Indemnified Person shall have reasonably concluded that there may be
legal defenses available to it which are different from or additional
to those available to such other defendant, the Indemnified Person
shall have the right to select separate counsel to represent it.
Upon receipt of notice from Summit to such Indemnified Person of its
election so to assume the defense of such action and approval by the
Indemnified Person of counsel, Summit will not be liable to such
Indemnified Person under this paragraph 7 for any fees of counsel
subsequently incurred by such Indemnified Person in connection with
the defense thereof (other than the reasonable costs of investigation
subsequently incurred by such Indemnified Person) unless (i) the
Indemnified Person shall have employed separate counsel in accordance
with the provision of the next preceding sentence (it being
understood, however, that Summit shall not be liable for the expenses
of more than one separate counsel in any one jurisdiction
representing the Indemnified Person, which counsel shall be approved
by Welco), (ii) Summit, within a reasonable time after notice of
commencement of the action, shall not have employed counsel
reasonably satisfactory to the Indemnified Person to represent the
Indemnified Person, or (iii) Summit shall have authorized in writing
the employment of counsel for the Indemnified Person at the expense
of Summit, and except that, if clause (i) or (iii) is applicable,
such liability shall be only in respect of the counsel referred to in
such clause (i) or (iii).
(c) In order to provide for just and equitable
contribution in circumstances in which the indemnification provided
for in paragraph 7 is due in accordance with its terms but is for any
reason held by a court to be unavailable from Summit to Welco on
grounds of policy or otherwise, Summit and Welco shall contribute to
the aggregate losses, claims, damages and liabilities (including
legal or other expenses reasonably incurred in connection with
investigating or defending same) to which Summit and Welco may be
subject in such proportion so that Welco is responsible for that
portion represented by the percentage that its fee under this
Agreement bears to the public offering price appearing on the cover
page of the Prospectus and Summit is responsible for the balance,
except as Summit may otherwise agree to reallocate a portion of such
liability with respect to such balance with any other person,
including, without limitation, any other "Qualified Independent
Underwriter"; PROVIDED, HOWEVER, that (i) in no case shall Welco be
responsible for any amount in excess of the fee set forth in
paragraph 4 above and (ii) no person guilty of fraudulent
misrepresentation within the meaning of Section 11(f) of the Act
shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. For purposes of this paragraph
(c), any person controlling, controlled by or under common control
with Welco, or any partner, director, officer, employee,
representative or any agent of any thereof, shall have the same
rights to contribution as Welco and each person who controls Summit
within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, each officer of Summit who shall have signed the
Registration Statement and each director of Summit shall have the
same rights to contribution as Summit, subject in each case to clause
(i) of this paragraph (c). Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit
or proceeding against such party in respect of which a claim for
contribution may be made against the other party under this paragraph
(c), notify such party from whom contribution may be sought, but the
omission to so notify such party shall not relieve the party from
whom contribution may be sought from any other obligation it or they
may have hereunder or otherwise than under this paragraph (c). The
indemnity and contribution agreements contained in this paragraph 7
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Indemnified Person or
termination of this Agreement.
8. AUTHORIZATION BY SUMMIT. Summit represents and warrants to
Welco that this Agreement has been duly authorized, executed and
delivered by Summit and constitutes a valid and binding obligation of
Summit.
9. AUTHORIZATION BY MIS. MIS represents and warrants to Welco
that this Agreement has been duly authorized, executed and delivered
by MIS and constitutes a valid and binding obligation of MIS.
10. AUTHORIZATION BY WELCO. Welco represents and warrants to
Summit that this Agreement has been duly authorized, executed and
delivered by Welco and constitutes a valid and binding obligation of
Welco.
11. NOTICE. Whenever notice is required to be given pursuant
to this Agreement, such notice shall be in writing and shall be
mailed by first class mail, postage prepaid, addressed (a) if to
Welco, at 101 West City Avenue, Suite 2130, Bala Cynwyd, PA
19004-9967, Attention: Kenneth S. Shapiro, and (b) if to Summit, at
W. 929 Sprague Ave., Spokane, WA 99204 Attention: Susan A. Thomson.
12. GOVERNING LAW. This Agreement shall be construed (both as
to validity and performance) and enforced in accordance with and
governed by the laws of the State of Idaho applicable to agreements
made and to be performed wholly within such jurisdiction.
IN WITNESS WHEREOF, this Agreement has been executed by the
parties hereto as of the day and year first above mentioned.
SUMMIT SECURITIES, INC.
/S/ JOHN TRIMBLE
By: ______________________________________________
John Trimble, President
/S/ TOM TURNER
By: ______________________________________________
Tom Turner, Secretary
METROPOLITAN INVESTMENT SECURITIES, INC.
/S/ SUSAN A. THOMSON
By: ______________________________________________
Susan A. Thomson, Vice President
/S/ REUEL SWANSON
By: ______________________________________________
Reuel Swanson, Secretary
WELCO SECURITIES, INC.
/S/ KENNETH S. SHAPIRO
By: _____________________________________________
Kenneth S. Shapiro, President
<PAGE>
EXHIBIT A
The opinion of Welco is conditioned upon Summit's undertaking to
maintain the rates on its Certificates at least equal to an "assumed
floor." Based upon the pricing formula described below:
1. The interest rate to be paid on the Certificates shall be
fixed by Summit from time to time. However, the rate shall
not be lower than the computation made per the worksheet on
Exhibit B, which is attached and incorporated by reference
herein.
2. The "assumed floor" for 6 to 11 month Certificates shall be
at least 1.0% above the lesser of the interest rate on the
6 month U.S. Treasury Bills, on a discount basis, based
upon the auction average (which is published widely in
newspapers throughout the country, normally on the day
following the auction) and a composite average of the
offering rates on 6 month certificates of deposit currently
being offered by banks and savings institutions in the
northwestern section of the United States. For purposes of
this composite average of certificate of deposit rates, the
rates being offered by the following institutions shall be
considered initially:
a. First Interstate Bank of Washington
b. Great American Bank
c. West One Bank, Idaho, N.A.
d. U.S. Bank of Washington
e. Security Pacific Bank of Washington
f. Seattle First National Bank
g. Washington Mutual Savings Bank
h. Washington Trust Bank
Welco and Summit agree to review on an ongoing basis the
group which comprises the composite average, and may
substitute another institution in the composite group from
time-to-time by mutual agreement, as the case may be.
3. The "assumed floor" for 60 to 120 month Certificates shall
be computed in like manner as that described in paragraph
"2" above, except that the latest auction average on 5 year
U.S. Treasury Notes shall be considered in place of the 6
month U.S. Treasury Bills, and 5 year certificates of
deposit currently offered in the composite group shall be
considered in lieu of the 6 month rate.
4. Rates on 12 to 23 month, 24 to 35 month, 36 to 47 month and
48 to 59 month Certificates shall be at least equal to the
interpolated differences between the computation of the
"assumed floor" of 6 to 11 month Certificates and 60 to 120
month Certificates, based upon the computation set forth in
Exhibit B.
5. Rates on Certificates payable in installments of principal
and interest shall be no lower than .25% below the "assumed
floor" for 60 to 120 month Certificates.
6. The computation of the "assumed floor" shall be made
monthly, as of the first Tuesday of each month, or at such
other times during any month that Summit causes the
offering rates to change from those in effect on the first
Tuesday of each month ("the computation date"). Summit
agrees to furnish Welco with a computation of the "assumed
floor" by completing the worksheet on Exhibit B. Should
the offering rates at that time on Summit's Certificates be
less than the "assumed floor" as computed, Summit agrees to
raise the rates on its Certificates to at least the
"assumed floor" within 10 calendar days of the computation
date. Should Summit fail to raise its offering rates
within the 10 day period referred to above, Welco reserves
the right, in its uncontrolled discretion, to withdraw its
opinion regarding the offering rates on the Certificates.
<PAGE>
EXHIBIT B
VARIABLE RATE, CUMULATIVE
PREFERRED STOCK, SERIES E-2, E-3, E-4, E-5 and E-6
PRICING
For Distributions Payable On:
________________________________________
Distributions Record Date:
________________________________________
Effective
Date Date Average Rate
3 Mo. Treasury Bill _____________________________ +1.5%
10 Yr Constant Rate _____________________________ +1.5%
20 Year Alternative as provided for
in the Prospectus
_____________________________ +1.5%
HIGHEST EFFECTIVE RATE:
_______________________________
MONTHLY DISTRIBUTION PER SHARE:
_______________________
As resolved by the Board of Directors, distribution will be deemed
declared on the 1st day of each month, payable on the 20th of each
month to the holders of record on the 5th of each month.
_______________________________________________________
Tom Turner, Secretary
<PAGE>
FORM OF
AGREEMENT TO ACT AS "QUALIFIED INDEPENDENT UNDERWRITER"
This agreement made as of the day of January, 1994, by
and between Summit Securities, Inc., an Idaho corporation ("Summit"),
Metropolitan Investment Securities, Inc., a Washington corporation
("MIS"), and Welco Securities, Inc., a Nevada Corporation ("Welco").
WITNESSETH:
WHEREAS, Summit intends to offer 150,000 shares of Preferred
Stock, designated as "Variable Rate Cumulative Preferred Stock,
Series S-1," (hereinafter referred to as the "Preferred Stock"),
which will be offered in reliance on a post-effective amendment to a
registration statement filed on Form S-1, bearing SEC file number 33-
; and,
WHEREAS, MIS, a wholly-owned broker/dealer an affiliate of
Summit and a member of the National Association of Securities Dealers
("NASD"), will be engaged as the sole selling agent for its
affiliate, Summit,
WHEREAS, pursuant to Section 3 of Schedule E of the Bylaws of
the NASD, MIS, as a NASD member, may participate in such underwriting
only if the price at which the Preferred Stock is offered to the
public is no higher than the price recommended by a "Qualified
Independent Underwriter" as that term is defined in Section 2(l) (1)
through 2(l) (6) of Schedule E to the Bylaws of the NASD, and who
participates in the preparation of the registration statement and
prospectus relating to the offering and exercises customary standards
of due diligence, with respect thereto; and,
WHEREAS, this agreement ("Agreement") describes the terms on
which Summit is retaining Welco to serve as such a "Qualified
Independent Underwriter" in connection with this offering of
Preferred Stock;
NOW, THEREFORE, in consideration of the recitations set forth
above, and the terms, promises, conditions, and covenants herein
contained, the parties hereby contract and agree as follows:
DEFINITIONS
As hereinafter used, except as the context may otherwise
require, the term "Registration Statement" means the registration
statement on Form S-1 (including the related preliminary prospectus,
financial statements, exhibits and all other documents to be filed as
a part thereof or incorporated therein) for the registration of the
offer and sale of the preferred stock under the Securities Act of
1933, as amended, and the rules and regulations thereunder (the
"Act") filed with the Securities and Exchange Commission (the
"Commission"), and any amendment thereto, and the term "Prospectus"
means the prospectus including any preliminary or final prospectus
(including the form of prospectus to be filed with the Commission
pursuant to Rule 424(b) under the Act) and any amendment or
supplement thereto, to be used in connection with the offering.
1. SCHEDULE E REQUIREMENT. Welco hereby confirms its
agreement as set forth in clause (6) of paragraph (l) of Section 2 of
Schedule E of the Bylaws of the NASD and represents that, as
appropriate, Welco satisfies or at the times designated in such
paragraph (l) satisfies the other requirements set forth therein or
will receive an exemption from such requirements from the NASD.
2. CONSENT. Welco hereby consents to be named in the
Registration Statement and Prospectus as having acted as a "Qualified
Independent Underwriter" solely for the purposes of Schedule E
referenced herein. Except as permitted by the immediately preceding
sentence or to the extent required by law, all references to Welco in
the Registration Statement or Prospectus or in any other filing,
report, document, release or other communication prepared, issued or
transmitted in connection with the offering by Summit or any
corporation controlling, controlled by or under common control with
Summit, or by any director, officer, employee, representative or
agent of any thereof, shall be subject to Welco's prior written
consent with respect to form and substance.
3. PRICING FORMULA AND OPINION. Welco agrees to render a
written opinion as to the price above which Summit's Preferred Stock
may not be offered based on the computation of dividends to be
declared on those shares that is set forth in Schedule "A," a copy of
which is attached hereto, and incorporated herein by reference. It
is understood and agreed by Welco that the securities to which this
Agreement relates will be offered on a best efforts basis by MIS, as
the sole selling agent of Summit pursuant to the selling agreement to
be entered into between MIS and Summit which is filed as exhibit to
the Registration Statement referred to above. Summit, through MIS,
will continue to offer the preferred stock according to the terms and
conditions of said agreement, in accordance with this Agreement.
Welco reserves the right to review and amend its opinion upon the
filing of any post-effective amendment to this Registration Statement
or upon occurrence of any material event which may or may not require
such an amendment to be filed, or at such time as the offering under
this registration shall terminate or otherwise lapse under operation
of law.
4. FEES AND EXPENSE. It is understood that Summit shall
reimburse Welco for its expenses on a nonaccountable basis in the
amount of $5,000 of which $2,500 has been paid to date, and the
balance to be paid at closing. It is further agreed that Welco shall
be paid an additional amount of $15,000 at the time the pricing
opinion is rendered, concurrent with the closing. Welco agrees to
pay all fees and expenses to any legal counsel whom it may employ to
represent it separately in connection with or on account of its
actions contemplated herein. All mailing, telephone, travel, hotel,
meals, clerical, or other office costs incurred or to be incurred by
Welco in conjunction with Summit's proposed offering which is the
subject of this Agreement shall be reimbursed to Welco by Summit at
closing on an accountable basis upon receipt of an itemization of
said expenses.
5. MATERIAL FACTS. Summit represents and warrants to Welco
that at the time the Registration Statement and, at the time the
Prospectus is filed with the Commission (including any preliminary
prospectus and the form of prospectus filed with the Commission
pursuant to Rule 424(b)) and at all times subsequent thereto, to and
including the date on which payment for, and delivery of, the
Preferred Stock to be sold in the Offering is made by the underwriter
or underwriters, as the case may be, participating in the Offering
and by Summit (such date being referred to herein as the "Closing
Date"), the Prospectus (as amended or supplemented if it shall have
been so amended or supplemented) will contain all material statements
which are required to be stated therein in accordance with the Act
and will conform to all other requirements of the federal securities
laws, and will not, on such date include any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading
and that all contracts and documents required by the Act to be filed
or required as exhibits to said registration statement have been
filed. Summit further represents and warrants that any further
filing, report, document, release or communication which in any way
refers to Welco or to the services to be performed by Welco pursuant
to this Agreement will not contain any untrue or misleading statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading.
Summit further warrants and represents that:
(a) All leases, contracts and agreements referred to in or
filed as exhibits to the Registration Statement to which Summit or
its subsidiaries is a party or by which it is bound are in full force
and effect.
(b) Summit has good and marketable title, except as otherwise
indicated in the Registration Statement and Prospectus, to all of
their assets and properties described therein as being owned by them,
free and clear of all liens, encumbrances and defects except such
encumbrances and defects which do not, in the aggregate, materially
affect or interfere with the use made and proposed to be made of such
properties as described in the Registration Statement and Prospectus;
and Summit has no material leased properties except as disclosed in
the Prospectus.
(c) Summit is duly organized under the laws of the State of
Idaho and, as of the effective date of the Registration Statement and
at Closing Summit will be validly existing and in good standing under
the laws of the State of Idaho with full corporate power and
authority to own its properties and conduct its business to the
extent described in the Registration Statement and Prospectus; Summit
is duly qualified to do business as foreign corporations and in good
standing in all jurisdictions in which the nature of the business
transacted by them or their ownership of properties or assets makes
their qualification necessary; the authorized and outstanding
capitalization of Summit is as set forth in the Prospectus and the
description in the Prospectus of the capital stock of Summit conforms
with and accurately describes the rights set forth in the instruments
defining the same;
(d) Summit is not in violation of their respective certificates
of incorporation or Bylaws or in default in the performance or
observance of any material obligation, agreement, covenant or
condition contained in any bond, debenture, note, or other evidence
of indebtedness, contract or lease or in any indenture or loan
agreement to which any of them is a party or by which any of them is
bound.
(e) The execution, delivery and performance of this Agreement
has been duly authorized by all necessary corporate action on the
part of Summit and MIS and performance of the foregoing agreement and
the consummation of the transactions contemplated thereby, will not
conflict with or result in a breach of any of the terms or constitute
a violation of the respective certificates of incorporation or Bylaws
of Summit or MIS, or any deed of trust, lease, sublease, indenture,
mortgage, or other agreement or instrument to which Summit or MIS is
a party or by which any of them or their property is bound, or any
applicable law, rule, regulation, judgment, order or decree of any
government, governmental instrumentality or court, domestic or
foreign, having jurisdiction over Summit or MIS or their properties
or obligations; and no consent, approval, authorization or order of
any court or governmental agency or body is required for the
consummation of the transactions contemplated herein and in the other
agreements previously referred to in this paragraph except as may be
required under the Act or under any state securities or Blue Sky
Laws.
(f) Any certificate signed by an officer of Summit and
delivered to Welco pursuant to this Agreement shall be deemed a
representation and warranty by Summit to Welco, to have the same
force and effect as stated herein, as to the matters covered thereby.
(g) If any event relating to or affecting Summit or any of its
subsidiaries shall occur as a result of which it is necessary, in
Welco's opinion, to amend or supplement the Prospectus in order to
make the Prospectus not misleading in the light of the circumstances
existing at the time it is delivered to a purchaser, Summit
undertakes to inform Welco of such events within a reasonable time
thereafter, and will forthwith prepare and furnish to Welco, without
expense to them, a reasonable number of copies of an amendment or
amendments or a supplement or supplements to the Prospectus (in form
and substance satisfactory to Welco) which will amend or supplement
the Prospectus so that as amended or supplemented it will not contain
any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein in light of the
circumstances existing at the time the Prospectus is delivered to a
purchaser, not misleading.
(h) Summit hereby warrants and represents that it will offer
the preferred stock in accordance with the pricing formula set forth
in Schedule "A" which is incorporated by reference herein.
(i) All representations, warranties and agreements contained in
this Agreement, or contained in certificates of officers of Summit
submitted pursuant hereto, shall remain operative and in full force
and effect, surviving the date of this Agreement.
6. AVAILABILITY OF INFORMATION. Summit hereby agrees to
provide Welco, at its expense, with all information and documentation
with respect to its business, financial condition and other matters
as Welco may deem relevant based on the standards of reasonableness
and good faith and shall request in connection with Welco's
performance under this Agreement, including, without limitation,
copies of all correspondence with the Commission, certificates of its
officers, opinions of its counsel and comfort letters from its
auditors. The above-mentioned certificates, opinions of counsel and
comfort letters shall be provided to Welco as Welco may request on
the effective date of the Registration Statement and on the Closing
Date. Summit will make reasonably available to Welco, its auditors,
counsel, and officers and directors to discuss with Welco any aspect
of Summit which Welco may deem relevant. In addition, Summit, at
Welco's request, will cause to be delivered to Welco copies of all
certificates, opinions, letters and reports to be delivered to the
underwriter or underwriters, as the case may be, pursuant to any
underwriting agreement executed in connection with the Offering or
otherwise, and shall cause the person issuing such certificate,
opinion, letter or report to authorize Welco to rely thereon to the
same extent as if addressed directly to Welco. Summit represents and
warrants to Welco that all such information and documentation
provided pursuant to this paragraph 6 will not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statement therein not misleading. In addition,
Summit will promptly advise Welco of all telephone conversations with
the Commission which relate to or may affect the Offering.
7. INDEMNIFICATION.
(a) Subject to the conditions set forth below, and in
addition to any rights of indemnification and contribution to which
Welco may be entitled pursuant to any agreement among underwriters,
underwriting agreement or otherwise, and to the extent allowed by
law, Summit hereby agrees that it will indemnify and hold Welco and
each person controlling, controlled by or under common control with
Welco within the meaning of Section 15 of the Act or Section 20 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
or the rules and regulations thereunder (individually, an
"Indemnified Person") harmless from and against any and all loss,
claim, damage, liability, cost or expense whatsoever to which such
Indemnified Person may become subject under the Act, the Exchange
Act, or other federal or state statutory law or regulation, at common
law or otherwise, arising out of, based upon, or in any way related
or attributed to (i) this Agreement, (ii) any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement or Prospectus or any other filing, report,
document, release or communication, whether oral or written, referred
to in paragraph 5 hereof or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, (iii) any application or
other document executed by Summit or based upon written information
furnished by Summit filed in any jurisdiction in order to qualify the
Debentures under the securities or Blue Sky laws thereof, or the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or (iv) the breach of any representation or
warranty made by Summit in this Agreement. Summit further agrees
that upon demand by an Indemnified Person at any time or from time to
time, it will promptly reimburse such Indemnified Person for, or pay,
any loss, claim, damage, liability, cost or expense as to which
Summit has indemnified such person pursuant hereto. Notwithstanding
the foregoing provisions of this paragraph 7, any such payment or
reimbursement by Summit of fees, expenses or disbursement incurred by
an Indemnified Person in any proceeding in which a final judgment by
a court of competent jurisdiction (after all appeals or the
expiration of time to appeal) is entered against such Indemnified
Person as a direct result of such person's negligence, bad faith or
willful misfeasance will be promptly repaid to Summit. In addition,
anything in this paragraph 7 to the contrary notwithstanding, Summit
shall not be liable for any settlement of any action or proceeding
effected without its written consent.
(b) Promptly after receipt by an Indemnified Person under
paragraph (a) above of notice of the commencement of any action, such
Indemnified Person will, if a claim in respect thereof is to be made
against Summit under paragraph (a), notify Summit in writing of the
commencement thereof; but the omission to so notify Summit will not
relieve Summit from any liability which it may have to any
Indemnified Person otherwise than under this paragraph 7 if such
omission shall not have materially prejudiced Summit's ability to
investigate or to defend against such claim. In case any such action
is brought against any Indemnified Person, and such Indemnified
Person notifies Summit of the commencement thereof, Summit will be
entitled to participate therein and, to the extent that it may elect
by written notice delivered to the Indemnified Person promptly after
receiving the aforesaid notice from such Indemnified Person, to
assume the defense thereof with counsel reasonably satisfactory to
such Indemnified Person; provided, however, that if the defendants in
any such action include both the Indemnified Person and Summit or any
corporation controlling, controlled by or under common control with
Summit, or any director, officer, employee, representative or agent
of any thereof, or any other "Qualified Independent Underwriter"
retained by Summit in connection with the Offering and the
Indemnified Person shall have reasonably concluded that there may be
legal defenses available to it which are different from or additional
to those available to such other defendant, the Indemnified Person
shall have the right to select separate counsel to represent it.
Upon receipt of notice from Summit to such Indemnified Person of its
election so to assume the defense of such action and approval by the
Indemnified Person of counsel, Summit will not be liable to such
Indemnified Person under this paragraph 7 for any fees of counsel
subsequently incurred by such Indemnified Person in connection with
the defense thereof (other than the reasonable costs of investigation
subsequently incurred by such Indemnified Person) unless (i) the
Indemnified Person shall have employed separate counsel in accordance
with the provision of the next preceding sentence (it being
understood, however, that Summit shall not be liable for the expenses
of more than one separate counsel in any one jurisdiction
representing the Indemnified Person, which counsel shall be approved
by Welco), (ii) Summit, within a reasonable time after notice of
commencement of the action, shall not have employed counsel
reasonably satisfactory to the Indemnified Person to represent the
Indemnified Person, or (iii) Summit shall have authorized in writing
the employment of counsel for the Indemnified Person at the expense
of Summit, and except that, if clause (i) or (iii) is applicable,
such liability shall be only in respect of the counsel referred to in
such clause (i) or (iii).
(c) In order to provide for just and equitable
contribution in circumstances in which the indemnification provided
for in paragraph 7 is due in accordance with its terms but is for any
reason held by a court to be unavailable from Summit to Welco on
grounds of policy or otherwise, Summit and Welco shall contribute to
the aggregate losses, claims, damages and liabilities (including
legal or other expenses reasonably incurred in connection with
investigating or defending same) to which Summit and Welco may be
subject in such proportion so that Welco is responsible for that
portion represented by the percentage that its fee under this
Agreement bears to the public offering price appearing on the cover
page of the Prospectus and Summit is responsible for the balance,
except as Summit may otherwise agree to reallocate a portion of such
liability with respect to such balance with any other person,
including, without limitation, any other "Qualified Independent
Underwriter"; provided, however, that (i) in no case shall Welco be
responsible for any amount in excess of the fee set forth in
paragraph 4 above and (ii) no person guilty of fraudulent
misrepresentation within the meaning of Section 11(f) of the Act
shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. For purposes of this paragraph
(c), any person controlling, controlled by or under common control
with Welco, or any partner, director, officer, employee,
representative or any agent of any thereof, shall have the same
rights to contribution as Welco and each person who controls Summit
within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, each officer of Summit who shall have signed the
Registration Statement and each director of Summit shall have the
same rights to contribution as Summit, subject in each case to clause
(i) of this paragraph (c). Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit
or proceeding against such party in respect of which a claim for
contribution may be made against the other party under this paragraph
(c), notify such party from whom contribution may be sought, but the
omission to so notify such party shall not relieve the party from
whom contribution may be sought from any other obligation it or they
may have hereunder or otherwise than under this paragraph (c). The
indemnity and contribution agreements contained in this paragraph 7
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Indemnified Person or
termination of this Agreement.
8. AUTHORIZATION BY SUMMIT. Summit represents and warrants to
Welco that this Agreement has been duly authorized, executed and
delivered by Summit and constitutes a valid and binding obligation of
Summit.
9. AUTHORIZATION BY MIS. MIS represents and warrants to Welco
that this Agreement has been duly authorized, executed and delivered
by MIS and constitutes a valid and binding obligation of MIS.
10. AUTHORIZATION BY WELCO. Welco represents and warrants to
Summit that this Agreement has been duly authorized, executed and
delivered by Welco and constitutes a valid and binding obligation of
Welco.
11. NOTICE. Whenever notice is required to be given pursuant
to this Agreement, such notice shall be in writing and shall be
mailed by first class mail, postage prepaid, addressed (a) if to
Welco, at 101 West City Avenue, Suite 2130, Bala Cynwyd, PA
19004-9967, Attention: Kenneth S. Shapiro, and (b) if to Summit, at
West 929 Sprague Avenue, Spokane, Washington 99204, Attention: Susan
A. Thomson.
12. GOVERNING LAW. This Agreement shall be construed (both as
to validity and performance) and enforced in accordance with and
governed by the laws of the State of Washington applicable to
agreements made and to be performed wholly within such jurisdiction.
IN WITNESS WHEREOF, this Agreement has been executed by the
parties hereto as of the day and year first above mentioned.
SUMMIT SECURITIES, INC.
By:__________________________________________
John Trimble, President
By:__________________________________________
Tom Turner, Secretary
METROPOLITAN INVESTMENT SECURITIES, INC.
By:__________________________________________
Susan A. Thomson, Vice President
By:__________________________________________
Reuel Swanson, Secretary
WELCO SECURITIES, INC.
By:__________________________________________
Kenneth S. Shapiro, President
<PAGE>
SCHEDULE A
The opinion of Welco is conditioned upon Summit's undertaking to
maintain the distribution rate of the Preferred Stock in accordance
with the formula set forth below:
Notwithstanding anything to the contrary herein the Applicable
Rate for any monthly distribution period shall not, in any event, be
less than 6% or greater than 14% per annum. The Board of Directors
may, however, by resolution, authorized distributions in excess of
the Applicable Rate. The Applicable Rate for any monthly
distribution period shall be the highest of the Treasury Bill Rate,
the Ten Year Constant Maturity Rate and the Twenty Year Constant
Maturity Rate (each as hereinafter defined) plus one half of one
percentage point for such dividend period. In the event that the
Company determines in good faith that for any reason one or more of
such rates cannot be determined for any distribution period, then the
Applicable Rate for such period shall be the higher of whichever of
such rates can be so determined.
<PAGE>
Form of
Pricing Opinion of Welco Securities, Inc.
Welco Securities, Inc.
P.O. Box 688
101 West City, Avenue, Suite 2130
Bala Cynwyd, PA 19004-9967
Date:
John Trimble, President
Metropolitan Investment Securities, Inc.
917 W. Sprague Avenue
Spokane, Washington 99210
Re: Summit Securities, Inc., Offering of $40,000,000 in
Principal Amount of Investment Certificates, Series A
Dear Mr. Sandifur:
This letter will serve to confirm our engagement as a "qualified
independent underwriter" as that term is defined in Sections 2(l) (1)
through (7) of Schedule E to the NASD bylaws, as amended ("Schedule
E").
Based upon our review of the registration statement, and the
performance of "due diligence" as required in Section 3 (c) (1) to
Schedule E, it appears that the yields on the Certificates (which are
based upon the computation set forth in Exhibits A and B to the
Agreement to Act as "Qualified Independent Underwriter" dated
, which is filed as Exhibit 1(b)(i) to the
registration statement referred to hereafter,) are no lower than
those which we would recommend.
We hereby consent to the use of our name as a "qualified
independent underwriter," in the Registration Statement (SEC File No.
33- ).
Very truly yours,
WELCO SECURITIES, INC.
/s/ KENNETH S. SHAPIRO
By: ________________________________________
Kenneth S. Shapiro, President
cc: National Association of Securities Dealers, Inc.
<PAGE>
Form of
Pricing Opinion of Welco Securities, Inc.
Date:
John Trimble, President
Metropolitan Investment Securities, Inc.
917 W. Sprague Avenue
Spokane, Washington 99210
Re: Summit Securities, Inc. Offering of $15,000,000 of Variable
Rate Cumulative Preferred Stock, Series S-1
Dear Mr. Sandifur:
This letter will serve to confirm our engagement as a "qualified
independent underwriter" as that term is defined in Sections 2(l)
(1) through (7) of Schedule E to the NASD bylaws, as amended
("Schedule E").
Based upon our review of the registration statement, and the
performance of "due diligence" as required in Section 3 (c) (1) to
Schedule E, it appears that the price of $100.00 per share on the
Variable Rate Cumulative Preferred Stock, Series S-1 (provided that
the manner in which the computation of dividends are those set forth
in Exhibit A to the Agreement to Act as "Qualified Independent
Underwriter" dated January , 1994, which is filed as Exhibit
1(b)(ii) to the registration statement referred to hereafter,) is no
higher than that which we would recommend.
We hereby consent to the use of our name as a "qualified
independent underwriter," to the Registration Statement (SEC File No.
33- ).
Very truly yours,
WELCO SECURITIES, INC.
By:_______________________________________
Kenneth S. Shapiro, President
KSS/mm
cc: National Association of Securities Dealers, Inc.
<PAGE>
FORM OF
STATEMENT OF RIGHTS, DESIGNATIONS AND PREFERENCES OF VARIABLE RATE
CUMULATIVE PREFERRED STOCK, SERIES S-1 PURSUANT TO
1. Name of Corporation: Summit Securities, Inc.
2. Copy of resolution establishing and designating Variable Rate
Cumulative Preferred Stock, Series S-1, and determining the
relative rights and preferences thereof: Attached hereto.
3. The undersigned does hereby certify that the attached resolution
was duly adopted by the Board of Directors of the corporation on
February , 1995.
______________________________________
Tom Turner, Secretary
<PAGE>
SUMMIT SECURITIES, INC.
PREFERRED STOCK SERIES S-1 AUTHORIZING RESOLUTION
Resolved, that pursuant to the authority expressly granted and
vested in the Board of Directors (the "Board") of this Corporation by
its Articles of Incorporation, as amended, a sub-series of Preferred
Stock, Series S-1 of the Corporation be, and is hereby, established
which will consist of 150,000 shares of the par value of $10.00 per
share ($15,000,000), shall be designated "Variable Rate Cumulative
Preferred Stock, Series S-1" (hereafter called "Preferred Stock"),
shall be offered at $100.00 per share and which shall have rights,
preferences, qualifications and restrictions as follows:
1. DIVIDENDS.
a) Dividends (or other distributions deemed dividends for
purposes of this resolution) on the issued and outstanding shares of
Preferred Stock shall be declared and paid monthly at a percentage
rate per annum of the liquidation preference of $100.00 per share
equal to the "Applicable Rate," as hereinafter defined, or such
greater rate as may be determined by the Board. Notwithstanding the
foregoing, the Applicable Rate for any monthly dividend period shall,
in no event, be less than 6% per annum or greater than 14% per annum.
Such dividends shall be cumulative from the date of original issue of
such shares and shall be payable, when and as declared by the Board,
on such dates as the Board deems advisable, but at least once a year,
commencing June 1, 1993. Each such dividend shall be paid to the
holders of record of shares of Preferred Stock as they appear on the
stock register of the Corporation on such record date as shall be
fixed by the Board in advance of the payment date thereof. Dividends
on account of arrears for any past Dividend Periods may be declared
and paid at any time, without reference to any regular dividend
payment date, to holders of record on such date as shall be fixed by
the Board in advance of the payment date thereof.
b) Except as provided below in this section, the Applicable
Rate for any monthly dividend period shall be the highest of the
Treasury Bill Rate, the Ten Year Constant Maturity Rate and the
Twenty Year Constant Maturity Rate (each as defined in Exhibit A
attached hereto and incorporated by reference herein) plus one half
of one percentage point. In the event that the Board determines in
good faith that for any reason one or more of such rates cannot be
determined for any dividend period, than the Applicable Rate for such
dividend period shall be the higher of whichever of such rates can be
so determined. In the event that the Board determines in good faith
that none of such rates can be determined for any dividend period,
then the Applicable Rate in effect for the preceding dividend period
shall be continued for such dividend period. The Treasury Bill Rate,
the Ten Year Constant Maturity Rate and the Twenty Year Constant
Maturity Rate shall each be rounded to the nearest five hundredths of
a percentage point.
c) No dividend shall be paid upon, or declared or set apart
for, any share of Preferred Stock for any Dividend Period unless at
the same time a like dividend shall be paid upon, or be declared and
set apart for, all shares of Preferred Stock then issued and
outstanding and all shares of all other series of preferred stock
then issued and outstanding and entitled to receive dividends.
Holders of Preferred Stock shall not be entitled to any dividend,
whether payable in cash, property or stock, in excess of full
cumulative dividends as herein provided. No interest, or sum of
money in lieu of interest, shall be payable in respect of any
dividend payment or payments which may be in arrears on Preferred
Stock.
d) Dividends payable for each full monthly Dividend Period
shall be computed by dividing the Applicable Rate for such monthly
Dividend Period by twelve and applying such rate against the
liquidation preference of $100.00 per share. Dividends shall be
rounded to the nearest whole cent. Dividends payable for any period
less than a full monthly Dividend Period shall be computed on the
basis of 30 day months and a 360 day year. The Applicable Rate with
respect to each monthly Dividend Period shall be calculated as
promptly as practicable by the Corporation according to the method
provided herein. The Corporation will cause notice of such
Applicable Rate to be enclosed with the dividend payment check next
mailed to the holders of shares of Preferred Stock.
e) So long as any shares of Preferred Stock are
outstanding, (i) no dividend (other than a dividend in common stock
or in any other stock ranking junior to Preferred Stock as to
dividends and upon liquidation and other than as provided in the
foregoing section 1(c)) shall be declared or paid or set aside for
payment; (ii) no other distribution shall be declared or made upon
common stock or upon any other stock ranking junior to or on a parity
with Preferred Stock as to dividends or upon liquidation; and (iii)
no common stock or any other stock of the Corporation ranking junior
to or on a parity with Preferred Stock as to dividends or upon
liquidation shall be redeemed, purchased or otherwise acquired by the
Corporation for any consideration (or any monies paid to or made
available for a sinking fund for the redemption of any shares of any
such stock) except by conversion into or exchange for stock of the
Corporation ranking junior to Preferred Stock as to dividends and
upon liquidation unless, in each case, the full cumulative dividends
on all outstanding shares of Preferred Stock shall have been paid or
declared and set apart for all past dividend payment periods.
f) The holders of Preferred Stock shall be entitled to
receive, when and as declared by the Board, dividend distributions
out of the funds of the Corporation legally available therefor. Any
distribution made which may be deemed to have been made out of the
capital surplus of Preferred Stock shall not reduce either the
redemption process or the liquidation rights as hereafter specified.
2. REDEMPTION.
a) The Corporation, at its option, may redeem shares of
Preferred Stock, in whole or in part, at any time or from time to
time, at redemption prices hereafter set forth plus accrued and
unpaid dividends to the date fixed for redemption.
i) In the event of a redemption of shares pursuant to
this subsection prior to January 1, 1995, the redemption price shall
be $102.00 per share; and the redemption price shall be $100.00 per
share in the event of redemption anytime after December 31, 1994.
ii) In the event that fewer than all of the
outstanding shares of Preferred Stock are to be redeemed, the number
of shares to be redeemed shall be determined by the Corporation and
the shares to be redeemed shall be determined by lot, or pro rata, or
by any other method, as may be determined by the Corporation in its
sole discretion to be equitable.
iii) In the event that the Corporation shall redeem
shares hereunder, notice of such redemption shall be given by first
class mail, postage prepaid, mailed not less than 30 days or more
than 60 days prior to he redemption date, to each holder of record of
the shares to be redeemed, at such holder's address as it appears on
the stock register of the Corporation. Each such notice shall state:
(i) the redemption date; (ii) the number of shares to be redeemed
and, if fewer than all shares held by such holder are to be redeemed,
the number of such shares to be redeemed from such holder; (iii) the
redemption price; (iv) the place or places where certificates for
such shares are to be surrendered for payment of the redemption
price; and (v) that dividends on the shares to be redeemed will cease
to accrue on such redemption date.
iv) Notice having been mailed as aforesaid, from and
after the redemption date (unless default shall be made by the
Corporation in providing money for the payment of the redemption
price), dividends on the shares so called for redemption shall no
longer be deemed to be outstanding, and all rights of the holders
thereof as stockholders of the Corporation (except the right to
receive from the Corporation the redemption price) shall cease. Upon
surrender in accordance with said notice of the certificates
representing shares redeemed (properly endorsed or assigned for
transfer, if the Board shall so require and the notice shall so
state), such shares shall be redeemed by the Corporation at the
redemption price aforesaid. In case fewer than all of the shares
represented by any such certificate are redeemed, a new certificate
shall be issued representing the unredeemed shares without cost to
the holder thereof.
b) Discretionary Redemption Upon Request of the Holder: The
shares of Preferred Stock are not redeemable at the option of the
holder. If, however, the Corporation receives an unsolicited written
request for redemption of a block of shares from any holder, the
Corporation may, in its sole discretion and subject to the
limitations described below, accept such shares for redemption. Any
shares so tendered, which the Corporation in its discretion, allows
for redemption, shall be redeemed by the Corporation directly, and
not from or through a broker or dealer, at a price equal to $97 per
share, plus any declared but unpaid dividends to date if redeemed
during the first year after the date of original issuance and $99 per
share plus any declared but unpaid dividends if redeemed thereafter.
The Corporation may change such optional redemption prices at any
time with respect to unissued shares.
For a period of three years from the date of initial sale of each
share of Preferred Stock, any such optional redemption of such share
shall occur only upon the death or major medical emergency of the
holder or any joint holder of the share requested to be redeemed.
Any optional redemption of a share in any calendar year after the
third year from the date of sale of the share, not arising from the
death or medical emergency of the holder or any joint holder shall
occur only when the sum of all optional redemptions (including those
arising out of the death or medical emergency of the holder or any
joint holder) of shares of Preferred Stock during that calendar year
shall not exceed 10% of the number of shares of Preferred Stock
outstanding at the end of the preceding calendar year. In the event
the 10% limit is reached in any calendar year, the only redemption
which may thereafter occur during that calendar year shall be those
arising from the death or medical emergency of the holder or any
joint holder; provided, however, that to the extent that total
optional redemptions in any calendar year do not reach the 10% limit,
the amount by which such optional redemptions shall fall short of the
10% limit may be carried over into ensuing years; and provided
further that to the extent that all redemptions, including those
involving the death or medical emergency of the holder or any joint
holder, exceed the 10% in any year, the amount by which such
redemptions exceed the 10% limit shall reduce the limit in the
succeeding year for limiting redemptions not involving the death or
medical emergency of a holder or any joint holder. In no event shall
such optional redemptions of all types in a single calendar year
exceed 20% of the number of shares of Preferred Stock outstanding at
the end of the preceding calendar year.
The Corporation may not redeem any such shares tendered for
redemption if to do so would be unsafe or unsound in light of the
Corporation's financial condition (including its liquidity position);
if payment of interest or principal on any outstanding instrument of
indebtedness is in arrears or in default; or if payment of any
dividend on Preferred Stock or share of any stock of the Company
ranking at least on a parity therewith is in arrears as to dividends.
c) Any shares of Preferred Stock which shall at any time
have been redeemed shall, after such redemption, have the status of
authorized but unissued shares of Preferred Stock, without
designation as to series until such shares are designated as part of
a particular series by the Board.
d) Notwithstanding the foregoing provisions of this Section
2, if any dividends on Preferred Stock are in arrears, no shares of
Preferred Stock shall be redeemed unless all outstanding shares of
Preferred Stock are simultaneously redeemed, and the Corporation
shall not purchase or otherwise acquire any shares of Preferred
Stock; provided, however, that the foregoing shall not prevent the
purchase or acquisition of shares of Preferred Stock pursuant to a
purchase or exchange offer made on the same terms to holders of all
of the outstanding shares of Preferred Stock.
3. CONVERSION OR EXCHANGE. The holders of shares of Preferred
Stock shall not have any rights to convert such shares into or
exchange such shares for shares of any other class or series of any
class of securities of the Corporation.
4. VOTING. Except as required from time to time by law, the
shares of Preferred Stock shall have no voting powers. Provided,
however, not withstanding the foregoing, that whenever and as often
as dividends payable on any shares of Preferred Stock shall be in
arrears in an amount equal to twenty four full monthly dividends or
more per share, the holders of Preferred Stock together with the
holders of any other preferred stock hereafter authorized, voting
separately and as a single class shall be entitled to elect a
majority of the Board of Directors of the Corporation. Such right
shall continue until all dividends in arrears on preferred stock have
been paid in full.
5. LIQUIDATION RIGHTS.
a) Upon the dissolution, liquidation or winding up of the
Corporation, the holders of the shares of Preferred Stock shall be
entitled to receive out of the assets of the Corporation, before any
payment or distribution shall be made on the Common Stock, or on any
other class of stock ranking junior to Preferred Stock, upon
liquidation, the amount of $100.00 per share, plus a sum equal to all
dividends (whether or not earned or declared) on such shares accrued
and unpaid thereon to the date of final distribution.
b) Neither the sale, lease or conveyance of all or
substantially all the property or business of the Corporation, nor
the merger or consolidation of the Corporation into or with any other
corporation or the merger or consolidation of any other corporation
into or with the Corporation, shall be deemed to be a dissolution,
liquidation or winding up, voluntary or involuntary, for the purposes
of this Section.
c) After the payment to the holders of the shares of
Preferred Stock of the full preferential amounts provided for in this
Section, the holders of Preferred Stock as such shall have no right
or claim to any of the remaining assets of the Corporation.
d) In the event the assets of the Corporation available for
distribution to the holders of shares of Preferred Stock upon any
dissolution, liquidation or winding up of the Corporation, whether
voluntary or involuntary, shall be insufficient to pay in full all
amounts to which such holders are entitled pursuant to this Section,
no such distribution shall be made on account of any shares or any
other series of Preferred Stock or any other class of stock ranking
on a parity with the shares of Preferred Stock upon such dissolution,
liquidation or winding up, unless proportionate distributive amounts
shall be paid on account of the shares of Preferred Stock, ratably in
accordance with the sums which would be payable in such distribution
if all sums payable in respect of the shares of all series of
Preferred Stock and any such other class of stock as aforesaid were
discharged in full.
6. PRIORITIES. For purposes of this Resolution, any stock of
any class or classes of the Corporation shall be deemed to rank:
a) Prior to the shares of Preferred Stock, either as to
dividends or upon liquidation if the holders of such class or classes
shall be entitled to the receipt of dividends or of amounts
distributable upon dissolution, liquidation or winding up of the
Corporation, as the case may be, in preference or priority to the
holders of shares of Preferred Stock.
b) On a parity with shares of Preferred Stock, either as
to dividends or upon liquidation, whether or not the dividend rates,
dividend payment dates or redemption or liquidation prices per share
or sinking fund provisions, if any, are different from those of
Preferred Stock, if the holder of such stock shall be entitled to the
receipt of dividends or of amounts distributable upon dissolution,
liquidation or winding up of the Corporation, as the case may be, in
proportion to their respective dividend rates or liquidation prices,
without preference or priority, one over the other, as between the
holder of such stock and the holders of Preferred Stock; and
c) Junior to shares of Preferred Stock, either as to
dividends or upon liquidation, if the holders of shares of Preferred
Stock shall be entitled to receipt of dividends or of amounts
distributable upon dissolution, liquidation or winding up of the
Corporation, as the case may be, in preference or priority to the
holders of shares of such class or classes.
7. SHARES NON-ASSESSABLE. Any and all shares of Preferred
Stock issued, and for which the full consideration has been paid or
delivered, shall be deemed fully paid stock and the holder of such
shares shall not be liable for any further call or assessment or any
other payment thereon.
8. PRE-EMPTIVE RIGHTS. Holders of Preferred Stock shall have
no pre-emptive rights to acquire additional shares of Preferred
Stock.
<PAGE>
EXHIBIT A
Treasury Bill Rate
Except as provided below in this paragraph, the "Treasury Bill
Rate" for each dividend period will be the arithmetic average of the
two most recent weekly per annum market discount rates (or the one
weekly per annum market discount rate, if only one such rate shall be
published during the relevant Calendar Period (as defined below)) for
three-month U.S. Treasury bills, as published weekly by the Federal
Reserve Board during the Calendar Period immediately prior to the ten
calendar days immediately preceding the first day of the dividend
period for which the dividend rate on Preferred Stock Series E-5, is
being determined. In the event that the Federal Reserve Board does
not publish such a weekly per annum market discount rate during any
such Calendar Period, then the Treasury Bill Rate for the related
dividend period shall be the arithmetic average of the two most
recent weekly per annum market discount rates (or the one weekly per
annum market discount rate, if only one such rate shall be published
during the relevant Calendar Period) for three-month U.S. Treasury
bills, as published weekly during such Calendar Period by any Federal
Reserve Bank or by any U.S. Government department or agency selected
by the Company. In the event that a per annum market discount rate
for three-month U.S Treasury bills shall not be published by the
Federal Reserve Board or by any Federal Reserve Bank or by any U.S.
Government department or agency during such Calendar Period, then the
Treasury Bill Rate for such dividend period shall be the arithmetic
average of the two most recent weekly per annum market discount rates
(or the one weekly per annum market discount rate, if only one such
rate shall be published during the relevant Calendar Period) for all
of the U.S. Treasury bills then having maturities of not less than 80
nor more than 100 days, as published during such Calendar Period by
the Federal Reserve Board or, if the Federal Reserve Board shall not
publish such rates, by any Federal Reserve Bank or by any U.S.
Government department or agency selected by the Company. In the
event that the Company determines in good faith that for any reason
no such U.S. Treasury bill rates are published as provided above
during such Calendar Period, then the Treasury Bill Rate for such
dividend period shall be the arithmetic average of the per annum
market discount rates based upon bids during such Calendar Period for
each of the issues of marketable non-interest bearing U.S. Treasury
securities with a maturity of not less than 80 nor more than 100 days
from the date of each such quotation, as quoted daily for each
business day in New York City (or less frequently if daily quotations
shall not be generally available) to the Company by at least three
recognized primary U.S. Government securities dealers selected by the
Company. In the event that the Company determines in good faith that
for any reason the Company cannot determine the Treasury Bill Rate
for any dividend period as provided above in this paragraph, the
Treasury Bill Rate for such dividend period shall be the arithmetic
average of the per annum market discount rates based upon the closing
bids during such Calendar Period for each of the issues of marketable
interest-bearing U.S. Treasury securities with a maturity of not less
than 80 nor more than 100 days from the date of each such quotation,
as quoted daily for each business day in New York City (or less
frequently if daily quotations shall not be generally available) to
the Company by at least three recognized primary U.S. Government
securities dealers selected by the Company.
Ten Year Constant Maturity Rate
Except as provided below in this paragraph, the "Ten Year
Constant Maturity Rate" for each dividend period shall be the
arithmetic average of the two most recent weekly per annum Ten Year
Average Yields (or the one weekly per annum Ten Year Average Yield,
if only one such Yield shall be published during the relevant
Calendar Period as provided below, as published weekly by the Federal
Reserve Board during the Calendar Period immediately prior to the ten
calendar days immediately preceding the first day of the dividend
period for which the dividend rate on Preferred Stock, Series E-5 is
being determined. In the event that the Federal Reserve Board does
not publish such a weekly per annum Ten Year Average Yield during
such Calendar Period, then the Ten Year Constant Maturity Rate for
such dividend period shall be the arithmetic average of the two most
recent weekly per annum Ten Year Average Yields (or the one weekly
per annum Ten Year Average Yield, if only one such Yield shall be
published during such Calendar Period), as published weekly during
such Calendar Period by any Federal Reserve Bank or by any U.S.
Government department or agency selected by the Company. In the
event that a per annum Ten Year Average Yield shall not be published
by the Federal Reserve Board or by any Federal Reserve Bank or by any
U.S. Government department or agency during such Calendar Period,
then the Ten Year Constant Maturity Rate for such dividend period
shall be the arithmetic average of the two most recent weekly per
annum average yields to maturity (or the one weekly average yield to
maturity, if only one such yield shall be published during the
relevant Calendar Period) for all of the actively traded marketable
U.S. Treasury fixed interest rate securities (other than Special
Securities (as defined below)) then having maturities of not less tan
eight nor more than twelve years, as published during such Calendar
Period by the Federal Reserve Board or, if the Federal Reserve Board
shall not publish such yields, by any Federal Reserve Bank o by any
U.S. Government department or agency selected by the Company. In the
event that the Company determines in good faith that for any reason
the Company cannot determine the Ten Year Constant Maturity Rate for
any dividend period as provided above in this paragraph, then the Ten
Year Constant Maturity Rate for such dividend period shall be the
arithmetic average of the per annum average yields to maturity based
upon the closing bids during such Calendar Period for each of the
issues of actively traded marketable U.S. Treasury fixed interest
rate securities (other than Special Securities) with a final maturity
date not less than eight nor more than twelve years from the date of
each such quotation, as quoted daily for each business day in New
York City (or less frequently if daily quotations shall not be
generally available) to the Company by at least three recognized
primary U.S. Government securities dealers selected by the Company.
Twenty Year Constant Maturity Rate
Except as provided below in this paragraph, the "Twenty Year
Constant Maturity Rate" for each dividend period shall be the
arithmetic average of the two most recent weekly per annum Twenty
Year Average Yields (or the one weekly per annum Twenty year Average
Yield, if only one such Yield shall be published during the relevant
Calendar Period), as published weekly by the Federal Reserve Board
during the Calendar Period immediately prior to the ten calendar days
immediately preceding the first day of the dividend period for which
the dividend rate on Preferred Stock, Series E-5 is being determined.
In the event that the Federal Reserve Board does not publish such a
weekly per annum Twenty Year Average Yield during such Calendar
Period, then the Twenty Year Constant Maturity Rate for such dividend
period shall be the arithmetic average of the two most recent weekly
per annum Twenty Year Average Yields (or the one weekly per annum
Twenty Year Average Yield, if only one such Yield shall be published
during such Calendar Period), as published weekly during such
Calendar Period by any Federal Reserve Bank or by any U.S. Government
department or agency selected by the Company. In the event that a
per annum Twenty Year Average Yield shall not be published by the
Federal Reserve Board or by any Federal Reserve Bank or by any U.S.
Government department or agency during such Calendar Period, then the
Twenty Year Constant Maturity Rate for such dividend period shall be
the arithmetic average of the two most recent weekly per annum
average yields to maturity (or the one weekly average yield to
maturity, if only one such yield shall be published during such
Calendar Period) for all of the actively traded marketable U.S.
Treasury fixed interest rate securities (other than Special
Securities) then having maturities of not less than eighteen nor more
than twenty-two years, as published during such Calendar Period by
the Federal Reserve Board or, if the Federal Reserve Board shall not
publish such yields, by any Federal Reserve Bank or by any U.S.
Government department or agency selected by the Company. In the
event that the Company determines in good faith that for any reason
the Company cannot determine the Twenty Year Constant Maturity Rate
for any dividend period as provided above in this paragraph, then the
Twenty Year Constant Maturity Rate for such dividend period shall be
the arithmetic average of the per annum average yields to maturity
based upon the closing bids during such Calendar Period for each of
the issues of actively traded marketable U.S. Treasury fixed interest
rate securities (other than Special Securities) with a final maturity
date not less than eighteen nor more than twenty-two years from the
date of each such quotation, as quoted daily for each business day in
New York City (or less frequently if daily quotations shall not be
generally available) to the Company by at least three recognized
primary U.S. Government securities dealers selected by the Company.
As used herein, the term "Calendar Period" means a period of 14
calendar days; the term "Special Securities" means securities which
may, at the option of the holder, be surrendered at face value in
payment of any federal estate tax or which provide tax benefits to
the holder and are priced to reflect such tax benefits or which were
originally issued at a deep or substantial discount; the term "Ten
Year Average Yield" means the average yield to maturity for actively
traded marketable U.S. Treasury fixed interest rate securities
(adjusted to constant maturities of ten years); and the term "Twenty
Year Average Yield" means the average yield to maturity for actively
traded marketable U.S. Treasury fixed interest rate securities
(adjusted to constant maturities of 20 years).
<PAGE>
FORM OF
OPINION OF SUSAN A. THOMSON
February , 1995
The Directors and Stockholder
Summit Securities, Inc.
929 West Sprague Avenue
Spokane, WA 99204
Gentlemen:
I have acted as counsel to you in connection with the
proceedings for the authorization and issuance of $40,000,000
principal amount of Investment Certificates of the Company and the
preparation of a Registration Statement (form S-1) under the
Securities Act of 1933, as amended, which you have filed with the
Securities and Exchange Commission with respect to the Certificates.
(SEC Registration No. 33- ).
I have examined the Registration Statement referred to above and
such documents and records of the Company and other documents as I
have deemed necessary for the purpose of this opinion.
Based upon the foregoing, I am of the opinion that upon the
happening of the following events,
(a) due action by the Board of Directors of the Company
authorizing the issuance and sale of the Certificates
pursuant to the Indenture dated as of November 15, 1990,
between the Company and West One Bank, Idaho, N.A. as
Trustee;
(b) the Registration Statement referred to above becoming
effective;
(c) compliance with the terms and conditions of the Indenture
with respect to the creation, authentication and delivery
of the Certificates, the due execution by the Company and
authentication and delivery by the Trustee of the
Certificates, and the sale thereof by the Company as
contemplated in the Registration Statement and in
accordance with the above-mentioned corporate and
governmental authorizations;
The Certificates will constitute in the hands of the holders
thereof valid, binding and legal outstanding obligations of the
Company, in accordance with their terms, subject to applicable
bankruptcy and insolvency laws.
I hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and to the reference to me in the
Prospectus under the caption "Legal Opinion".
Sincerely,
/s/SUSAN A. THOMSON
Susan A. Thomson
Assistant Corporate Counsel
<PAGE>
Form of
OPINION OF SUSAN A. THOMSON
February , 1995
The Directors and Stockholders
Summit Securities, Inc.
West 929 Sprague Avenue
Spokane, WA 99204
Gentlemen:
I have acted as counsel to Summit Securities, Inc. (the
"Company") in connection with the proceedings for the authorization
and issuance of 150,000 shares of Variable Rate Cumulative Preferred
Stock, Series S-1 ("Preferred Stock, Series S") including the
preparation of a Registration Statement (Form S-1) under the
Securities Act of 1933, as amended, which has been filed with the
Securities and Exchange Commission. (SEC Registration No. 33-
)
I have examined the Registration Statement referred to above and
such other documents and records as I have deemed necessary for the
purpose of this opinion.
Based upon the foregoing, and subject to the Board of Directors'
adoption of Articles of Amendment to the Company's Article of
Incorporation which incorporate the Statement of Rights, Designation
and Preferences of variable Rate Cumulative Preferred Stock, Series
S-1, and the filing of same with the Secretary of State of the State
of Idaho in accordance with , I am
of the opinion that:
(1) the Preferred Stock, Series S-1 of the Company which is
being registered, when issued and sold in the manner and
for the consideration contemplated by the Registration
Statement, will be legally issued, fully paid and
non-assessable; and
(2) in the event of dissolution, liquidation or winding up of
the affairs of the Company, whether voluntary or
involuntary, the holders of Preferred Stock, Series S-1
will be entitled to receive, on parity with all other
issued and outstanding preferred stock, before any payment
or distribution is made on the Company's Class A or Class
B Common Stock, the amount of ($100.00 per share plus an
amount equal to all accrued and unpaid dividends thereon to
the date of distribution or payment.
This opinion is furnished pursuant to the requirements of Item
601(b)(5) of Regulation S-K.
I hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and to the reference to me in the
Prospectus under the caption "Legal Opinion."
Sincerely,
/s/ SUSAN A. THOMSON
Susan A. Thomson
Assistant Corporate Counsel
FORM OF
SELECTED DEALERS AGREEMENT
Metropolitan Investment Securities, Inc. West 917 Sprague
Avenue, Spokane, WA 99204 (the"Underwriter"), invites your
participation as a Participating Dealer ("Participating Dealer") in
an offering of _______________________________________
(referred to herein as the "Securities"), being offered by Summit
Securities, Inc. (the Company). The Securities are more particularly
described in the enclosed Prospectus, additional copies of which will
be supplied in reasonable quantities upon request. The Company
through the Underwriter is offering the Securities subject to the
terms of this Agreement, the Underwriter's instructions which may be
forwarded to the Participating Dealers from time to time, and is made
only to Selected Dealers who are members in good standing of the
National Association of Securities Dealers, Inc. ("NASD") or foreign
dealers who are not eligible for membership in the NASD and who agree
to abide by the Rules of Fair Practice of the NASD including Section
8, 24, 25 and 36 thereof, and the interpretations of the NASD's Board
of governors with respect to free-riding and withholding in making
sales to purchasers outside the United States and not to effect sales
of the Securities within the United States, its territories or its
possessions, or to persons who are citizens thereof or residents
therein. This invitation is made by the Underwriter only if the
Company's Securities may be lawfully offered to dealers in your
state. The terms and conditions of this invitation are as follows:
1. Acceptance of Orders. Orders received from the
Participating Dealer will be accepted only at the price, in the
amounts, and on the terms which are set forth in the Company's
Prospectus.
2. Selling Concession. As a Participating Dealer, you will be
allowed a concession of up to a maximum of 5% of the offering price
of the Securities ($100 per shares).
3. Status of Dealer. The Participating Dealer agrees to
purchase the Company's Securities being offered for its customers
only through the Underwriter, and all such purchases shall be made
only upon offers already received by the Participating Dealer from
its customers. In all sales of the Company's Securities to the
public the Participating Dealer shall confirm as agent for another.
4. Delivery of Funds. The Participating Dealer will promptly
transmit directly to the Company, all funds received form the
Purchasers and a confirmation of a record of such sale which will set
forth the name, address, and social security number of each
individual purchaser, and if there is more than one registered owner,
whether the certificate or certificates evidencing the ownership of
the security purchased are to be issued to the purchaser in joint
tenancy or otherwise. Also, each Participating Dealer shall report,
in writing, to the Company the principal amount of Securities which
have been sold in each state and the number of persons in each such
state who purchased the Company's Securities from the Participating
Dealer. Each sale may be rejected by the Company, and if rejected,
the Underwriter as agent for the Company will return to you all funds
paid by the purchaser which ave been received by the Company. In
such event, the Participating Dealer will return to the Purchaser
within five (5) business days after actual receipt from the
Underwriter the full purchaser is a subscriber for the principal
amount of Securities until such time as his subscription is received
and accepted by the Underwriter as agent for the Company.
5. Payment. Payment for the Company's Securities shall
accompany all subscriptions. All checks and other orders for payment
of money shall be made payable to "Summit Securities, Inc."
Securities sold by the Participating Dealer shall be available for
delivery from the Company.
6. Dealer's Undertakings. No person is authorized to make any
representations concerning the Company's Securities except those
contained in the Company's Prospectus. The Participating Dealer will
not sell the Company's Securities pursuant to this Agreement unless
the Prospectus is furnished to the purchaser at least 48 hours prior
to the mailing of the confirmation of sale. The participating Dealer
agrees not to use any supplemental sales literature of any kind
without prior written approval of the Company unless it is furnished
by the Company for such purpose. In offering and selling the
Company's Securities, the Participating Dealer will rely solely on
the representations contained in the Company's Prospectus.
Additional copies of the Prospectus will be supplied by the Company
in reasonable quantities upon request.
7. Conditions of Offering. All sales will be subject to
delivery by the Company to the purchaser of certificates (or about
entry acknowledgements) evidencing ownership of the Securities.
8. Failure to Order. If an order is rejected or if a payment
is received which proves insufficient or worthless, any compensation
paid to the Participating Dealer shall be returned either by the
Participating Dealer's remittances in cash or by a charge against the
account of the Participating Dealer as the Underwriter may elect.
9. Representations and Agreements of Dealers. By accepting
this Agreement, the Participating Dealer represents that: it is
registered as a Broker/Dealer under the Securities Exchange Act of
1934, as amended; it is qualified to act as a dealer in the states or
other jurisdictions in which it offers the Company's Securities; it
is a member in good standing of the National Association of
Securities Dealers, Inc.' and it will maintain such registration,
qualifications and memberships throughout the term of those
Agreement. Further, the participating dealer agrees to comply with
all applicable federal laws; the laws of the state or other
jurisdictions concerns; and the Rules and Regulations of the National
Association of Securities Dealers, Inc. Further, the Participating
Dealer agrees that it will not offer or sell the Company's Securities
in any state or jurisdiction except where the Securities are
qualified for sale. The participating dealer shall not be entitled
to any compensation during any period in which it has been suspended
or expelled from membership in the National Association of Securities
Dealer, Inc. The Participating Dealer will be advised concerning the
states where the certificates have been registered for sale.
10. Dealer's Employees. By accepting this Agreement, the
Participating Dealer has assumed full responsibility for thorough and
prior training of its representatives concerning the selling methods
to be used in connection with the offer and sale of the Company's
Securities giving special emphasis to the principles of full and fair
disclosure to prospective investors and the prohibition against
"Free-Riding and Withholders".
11. Participating dealer's Indemnification. The Participating
Dealer hereby agrees to indemnify and to hold harmless the
Underwriter and each person, if any, who controls the Underwriter
within the meaning of Section 15 of the Securities Act of 1933, as
amended, from and against any and all losses, claims, damages, or
liabilities to which the Underwriter may become subject under the
Securities Act of 1933, as amended, or otherwise insofar as such
losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon information contained in the
Registration Statement, or other documents filed with the Securities
and Exchange Commission to the extent such information is supplied by
the Participating Dealer to the Underwriter for inclusion therein, or
are based upon alleged misrepresentations or omissions to state
material facts in connection with statements made by the
Participating Dealer or the Participating Dealer will reimburse the
Underwriter for any legal or other expenses reasonably incurred in
connection with the investigation of or the defending of any such
action or claim. The underwriter shall, after receiving the first
Summons or other legal process disclosing the nature of the action
being served upon it, in any proceeding in respect of which indemnity
may be sought by the Underwriter hereunder, promptly notify the
Participating Dealer in writing of the commencement thereof and the
Participating Dealer shall be entitled to participate in (and, to the
extent the Participating Dealer shall wish, to direct) the defense,
which shall be conducted by counsel of good standing satisfactory to
the Underwriter. If the Participating Dealer shall fail to provide
such defense, the Underwriter may defend such action at the
Participating Dealer's cost and expense. The Participating Dealer's
obligation under this paragraph shall survive the termination of this
Agreement.
12. Compliance with NASD By-Laws and Regulations. Each
Participating Dealer shall conduct itself in a manner consistent with
the provisions of the Section 12 of Schedule E to the NASD by-Laws,
and no transaction in the Securities to be offered will be executed
by an member in a discretionary account without the prior specific
written approval of the customer.
Investor's checks will be transmitted directly to the Company by
noon of the next business day following receipt.
13. Expenses. No expense will be charged to Participating
Dealers. A single transfer tax, if any, on the sale of the
Securities by the Participating Dealer to its customer will be paid
when such Securities are delivered to the Participating Dealer for
delivery to its customers. However, the Participating Dealer will
pay its proportionate share of any transfer tax or any other tax
(other than the single transfer tax described above) if any such tax
shall be from time to time assessed against the Underwriter and other
Participating Dealers.
14. Communications. All communications to the Underwriter
should be sent to the address shown in the opening paragraph of this
Agreement. Any notice to the Participating Dealer shall be properly
given if mailed or telephone to the Participating Dealer below. This
Agreement shall be construed according to the laws of the State of
Idaho.
15. Assignment and Termination. This Agreement may not be
assigned by the Participating Dealer without the Underwriter's
consent. This Agreement will terminate upon the termination of the
offering except that either party may terminate this Agreement at any
time by giving written notice to the other.
Accepted on: METROPOLITAN INVESTMENT
SECURITIES, INC.
Firm Name: By:
BY: Susan Thomson
Address:
Telephone:
I.R.S. Employer Identification No.
<PAGE>
MANAGEMENT, ACQUISITION AND SERVICING AGREEMENT
Agreement made this 9th day of September, 1994 by and between
Summit Securities, Inc. (hereinafter "SUMMIT"), a Washington
corporation with principal offices at 1000 West Hubbard, Suite 140,
Coeur d'Alene, ID 83814, and Metropolitan Mortgage & Securities Co.,
Inc. (hereinafter "METROPOLITAN"), a Washington corporation with its
principal office at W. 929 Sprague Ave., Spokane, Washington 99204,
(also hereinafter referred to jointly as the "Parties".)
WITNESSETH
WHEREAS, METROPOLITAN engages in the business of purchasing and
servicing receivables, and maintains subsidiaries, internal staff,
and operations to support such activities, and; WHEREAS, SUMMIT
also engages in the business of investing in receivables, but SUMMIT
does not maintain internal staff or operations to support the
purchasing and servicing of receivables, and;
WHEREAS, METROPOLITAN has the personnel, systems and expertise
to provide to SUMMIT general support services, receivable acquisition
services and receivable collection and management services, and;
WHEREAS, SUMMIT desires to obtain from METROPOLITAN general
support services, receivable acquisition services and receivable
collection and management services;
NOW THEREFORE, for the foregoing reasons and in consideration of
the mutual promises, covenants and agreements set forth herein, the
parties promise, covenant and agree as follows:
I. REPRESENTATIONS AND WARRANTIES OF METROPOLITAN:
METROPOLITAN REPRESENTS AND WARRANTS TO SUMMIT THAT:
1. METROPOLITAN is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Washington.
2. METROPOLITAN is licensed, or qualified, and in good
standing in each of the states where the laws require licensing or
qualification in order to conduct METROPOLITAN'S receivable
acquisition, collection and management activities, or METROPOLITAN is
exempt under applicable law from such licensing or qualification.
3. The consummation of the transactions contemplated herein
have been validly authorized and all requisite corporate action has
been taken by METROPOLITAN to make this agreement binding upon
METROPOLITAN in accordance with its terms.
4. The consummation of the transactions contemplated by this
agreement are in the ordinary course of business of METROPOLITAN.
5. The execution and delivery of this agreement, the servicing
of receivables by METROPOLITAN, the other services and transactions
contemplated hereby, and the fulfillment of and compliance with the
terms and conditions of this agreement, will not conflict with or
result in a breach of any of the terms of METROPOLITAN's articles of
incorporation, bylaws or any other agreement, instrument, law,
regulation, rule, order, or judgment to which METROPOLITAN is now a
party or by which it is bound. METROPOLITAN is not subject to any
agreement, instrument, law, regulation, rule, order or judgment which
would impair the ability of SUMMIT to collect its receivables or
impair the value of SUMMIT'S receivables.
6. METROPOLITAN does not believe, nor does it have any reason
or cause to believe, that it cannot perform each and every covenant
contained in this agreement.
7. There is no action, suit, proceeding or investigation
pending or threatened against METROPOLITAN which, either in any one
instance or in the aggregate, may result in any material adverse
change in the business, operations, financial condition, properties
or assets of METROPOLITAN, or in any material impairment of the right
or ability of METROPOLITAN to carry on its business substantially as
now conducted, or which would draw into question the validity of this
agreement or of any action taken or to be taken in connection with
the obligations of METROPOLITAN contemplated herein, or which would
be likely to impair materially the ability of METROPOLITAN to perform
under the terms of this agreement.
8. No consent, approval, authorization or order of any court
or governmental agency or body is required for METROPOLITAN'S
execution, delivery and performance of or compliance with this
agreement.
9. The receivables acquisition practices, receivable
collection practices and other services provided hereunder shall each
be conducted in accordance with generally accepted business practices
in all respects, as applicable to each respective activity.
II. REPRESENTATIONS AND WARRANTIES OF SUMMIT
SUMMIT REPRESENTS AND WARRANTS TO METROPOLITAN THAT:
1. SUMMIT is a corporation duly organized, validly existing
and in good standing under the laws of the State of Idaho.
2. SUMMIT is licensed or qualified, and in good standing in
each of the states where the laws require licensing or qualification
in order to hold and enforce the terms of its receivables and conduct
its business, or SUMMIT is exempt under applicable law from such
licensing or qualification.
3. The consummation of the transactions contemplated herein
have been validly authorized and all requisite corporate action has
been taken by SUMMIT to make this agreement binding upon SUMMIT in
accordance with its terms.
4. The consummation of the transactions contemplated by this
agreement are in the ordinary course of business of SUMMIT.
5. The execution and delivery of this agreement, the
fulfillment of and compliance with the terms and conditions of this
agreement, will not conflict with or result in a breach of any of the
terms of SUMMITS articles of incorporation, bylaws or any other
agreement, instrument, law, regulation, rule, order, or judgment to
which SUMMIT is a party, by which it is bound or its property is
subject, which would impair the ability of METROPOLITAN to service
and collect the receivables in accordance with the terms of this
Agreement.
6. SUMMIT does not believe, nor does it have any reason or
cause to believe, that it cannot perform each and every covenant
contained in this agreement.
7. There is no action, suit or proceeding or investigation
pending or threatened against SUMMIT which, either in any one
instance or in the aggregate, may result in any material adverse
change in the business, operations, financial condition, properties
or assets of SUMMIT, or in any material impairment of the right or
ability of SUMMIT to carry on its business substantially as now
conducted, or which would draw into question the validity of this
agreement or of any action taken or to be taken in connection with
the obligations of SUMMIT contemplated herein, or which would be
likely to impair materially the ability of SUMMIT to perform under
the terms of this agreement.
8. No consent, approval, authorization or order of any court
or governmental agency or body is required for SUMMIT's execution,
delivery and performance of or compliance with this agreement.
III. GENERAL SUPPORT SERVICES:
1. DESCRIPTION OF SERVICES
a. Administrative Support Services:
METROPOLITAN shall provide SUMMIT administrative support
services including but not limited to Human Resources,
Information Systems, Art & Advertising, Accounting, legal, check
processing, and cashiering services.
b. Financial Services:
METROPOLITAN shall provide financial advice to SUMMIT.
c. Office Space:
METROPOLITAN shall lease or sublease to SUMMIT sufficient office
space for SUMMIT'S business needs at METROPOLITAN'S headquarters
facility in Spokane, Washington and/or such other location as
agreed to by the parties. Any such lease may include lease of
office furnishing and equipment.
2. FEES FOR GENERAL SUPPORT SERVICES
SUMMIT will pay METROPOLITAN monthly fees for General Support
Services provided by METROPOLITAN to SUMMIT. Fees for General
Support Services shall be determined by mutual agreement of the
parties.
IV. RECEIVABLE ACQUISITION SERVICES
1. GENERAL DUTIES AND AUTHORITY
METROPOLITAN shall provide receivable acquisition services to
SUMMIT which shall be performed substantially in compliance with the
following:
a. METROPOLITAN shall secure opportunities for SUMMIT to
purchase receivables through the use of METROPOLITAN's branch
office system, industry contacts and the other methods developed
by METROPOLITAN for its own receivable purchases.
b. In reviewing the receivables offered to SUMMIT,
METROPOLITAN shall review, among other things, the receivable
loan to value ratio, security value, security condition, payment
record, payor's credit, security title reports and legal
documents, taking into account the investment guidelines
provided by SUMMIT.
c. METROPOLITAN or its agent, shall close the receivable
purchase in a manner and using practices which are consistent
with industry standards for the location where the receivable is
closed.
d. Loans resulting from financing that may be provided by
METROPOLITAN as a means to induce the purchase of property (e.g.
for the financing of repossession resales or other seller
financing) may be placed in SUMMIT's receivable portfolio if
such receivables are consistent with SUMMIT's investment
guidelines.
e. METROPOLITAN shall prepare and maintain such books,
records, computer systems and procedures as shall be required
and necessary to maintain control over the day to day activities
regarding offers to purchase and closing of receivable
purchases.
f. METROPOLITAN shall furnish to SUMMIT such periodic, special
or other reports or information as requested by SUMMIT including
reports of total receivables purchased, closing periods and
closing costs. All such reports, documents or information shall
be provided by and in accordance with all reasonable
instructions and directions which SUMMIT may give.
g. METROPOLITAN may carry out any other activity or procedure,
which in METROPOLITAN's discretion, is necessary or appropriate
in connection with the acquisition and closing of the
receivables for the benefit of SUMMIT.
2. RECEIVABLE ACQUISITION SERVICES FEE:
SUMMIT shall pay METROPOLITAN fees for Receivable Acquisition
and Support Services provided by METROPOLITAN to SUMMIT. Fees shall
be determined by mutual agreement of the parties.
3. RIGHT TO REJECT.
SUMMIT shall have the right at anytime to review the receivables
acquired pursuant to this agreement and to reject any receivables
which in SUMMIT's opinion are not consistent with its investment
guidelines as such guidelines existed at the time of the acquisition.
Any receivables not rejected within three months of acquisition are
deemed accepted. Any receivable which is rejected shall be purchased
by METROPOLITAN at its face amount or such other amount as agreed to
by the parties.
V. RECEIVABLE COLLECTION AND MANAGEMENT SERVICES
1. SERVICING:
METROPOLITAN or its agents shall perform collection and
management services for SUMMIT substantially in compliance with the
following:
a. Hold and safe keep all original receivable documents and
files.
b. Prepare and maintain such books, records, computer systems
and procedures as shall be required and necessary to maintain
control over the day to day activities regarding the collection
and enforcement of the rights, obligations and performance of
each receivable subject to this agreement.
c. Furnish to SUMMIT such periodic, special, or other reports,
documents or information as requested by SUMMIT including, but
not limited to, cash receipt reports, aging of all receivables
balances on a contractual basis, and itemizations of unearned or
deferred income all in accordance with generally accepted
accounting and statutory accounting principles. All such
reports, documents or information shall be provided by and in
accordance with all reasonable instructions and directions which
SUMMIT may give.
d. METROPOLITAN shall manage the receipt of receivable
payments substantially as follows:
i. Deposit all monies received from the receivable payors
into a general collection account maintained by
METROPOLITAN, or its agent, which account may contain other
monies and funds which may be held for others. Within a
reasonable time the amounts collected and deposited on
behalf of SUMMIT shall be transferred to an account
designated by SUMMIT.
ii. For the purposes of this subparagraph d, reasonable
time shall mean two to three business days, unless
extraordinary circumstances beyond METROPOLITAN'S control,
such as computer failure, makes such time frame
unreasonable, in which case the reasonable time shall be
two to three days following elimination of the
circumstances causing the delay.
e. Accept and remit to appropriate parties any amounts
designated as reserves for the payment of real estate taxes,
insurance premiums or similar items as may be provided by the
receivable documents;
f. Monitor the tax, insurance and other payments required to
be paid directly by receivable payor to third parties, or
collect from the receivable payors and remit to the appropriate
third parties any amounts due for any taxes imposed upon the
real estate securing any receivable, any insurance premiums and
any other sums required to be paid by the receivable payor
pursuant to the terms of any receivable. Any funds so collected
by METROPOLITAN or subsidiaries shall be held in escrow if
required by the receivable documents or applicable regulations,
or METROPOLITAN shall pay such sums to SUMMIT as provided in
Paragraph V.1.d. hereinabove. METROPOLITAN shall pay out such
monies to such taxing authorities or other parties or persons as
shall be authorized to receive such payments.
g. Implement routine collection procedures (including
telephone calls and the preparation and mailing of written
notices) as METROPOLITAN may, in its discretion, deem to be
reasonable or appropriate and in accordance with its customary
practice and procedure in the servicing of its own accounts, on
delinquent receivables;
h. When appropriate, in METROPOLITAN's discretion,
METROPOLITAN or its agent may undertake any legal action,
whether judicial or non-judicial, to enforce the payment of any
sums due or other performance required by the terms of any
receivable documents or to foreclose upon or forfeit any real
estate or other security securing a receivable.
i. Whenever METROPOLITAN shall commence suit to enforce the
terms of a receivable which is subject to this agreement,
METROPOLITAN shall be deemed to be the authorized legal agent
and representative of SUMMIT in any court of law in any federal,
state, or commonwealth, or other court of competent
jurisdiction, and to so act, without receiving any other prior
authority of SUMMIT, to enforce, sue, settle, compromise, and/or
collect such monies and recover any and all such real estate
security which shall be the subject of any receivable. Any such
action may be maintained in the name of "SUMMIT" or
"METROPOLITAN", at METROPOLITAN's discretion.
j. Carry out any other activity or procedure which, in
METROPOLITAN'S discretion, is necessary or appropriate in
connection with the maintenance and enforcement of the
receivables for the benefit of SUMMIT.
2. COOPERATION BY SUMMIT
SUMMIT agrees to cooperate with METROPOLITAN in the enforcement
of all receivables, make personnel available to METROPOLITAN and
cause such personnel to execute documents, and to make such
documents, records, papers, or other items of evidence available as
needed to assist METROPOLITAN in the collection and servicing of the
receivables subject to this agreement.
3. RECEIVABLE COLLECTION AND MANAGEMENT SERVICES FEES
SUMMIT agrees to compensate METROPOLITAN for its duties
performed hereunder in the following manner and amounts:
a. SUMMIT agrees to pay in addition to any applicable taxes a
monthly management and servicing fee. Such sum shall be due
whether or not a receivable is in default. The Receivable
Collection and Management Services Fee shall be determined by
mutual agreement of the parties.
b. In addition, SUMMIT shall reimburse METROPOLITAN for all
outside attorney costs and all third party fees and charges
which may be incurred in performance of the collections
services.
c. SUMMIT agrees that as additional compensation to
METROPOLITAN for such management and collection efforts that
METROPOLITAN shall be entitled to retain any and all late
charges, extension charges, and any other charges or costs
imposed upon a delinquent obligor that do not relate to changing
the terms or conditions of the loan to effect a restructuring or
otherwise.
VI. GENERAL TERMS AND CONDITIONS
1. ADJUSTMENTS TO FEES
METROPOLITAN may, from time to time, change the method for
determining any or all of the fees charged pursuant to this agreement
so long as the new method conforms with the intent of the parties, is
reasonable and reflects changes in market rates and/or the cost for
providing such services.
2. REVIEW OF FEES
SUMMIT shall have the right at any time to review the method for
determining the fees charged pursuant to this Agreement. If, in
SUMMIT's opinion, any fee is unacceptable SUMMIT may request a review
by the officers of SUMMIT and METROPOLITAN, who shall use their best
efforts to resolve any objection in consideration of the best
interests of both parties.
3. NON-EXCLUSIVITY OF AGREEMENT
a. This agreement is non-exclusive. SUMMIT reserves the right
and privilege to employ and engage, from time to time, any other
entity or person to perform any of the services which are the
subject of this agreement, or may itself perform any such
services. Such actions by SUMMIT shall not be construed as an
event of termination of this agreement.
b. SUMMIT may withdraw any receivable at any time from those
being serviced pursuant to this agreement, which action shall
not be a breach or termination of this agreement.
4. DELEGATION
METROPOLITAN may utilize, delegate to or subcontract with any of
its subsidiaries, divisions, affiliates or third parties in
connection with its performance of the terms of this agreement, in
full or in part, as deemed appropriate at METROPOLITAN's discretion.
5. RIGHT TO EXAMINE METROPOLITAN'S RECORDS
SUMMIT shall have the right to examine and audit any and all of
the books, records, or other information of METROPOLITAN, with
respect to or concerning this agreement or the receivables during
business hours or at such other times as may be reasonable under
applicable circumstances.
6. EVENT OF DEFAULT
The following shall be construed as an event of default:
a. The failure by METROPOLITAN to deliver any and all monies
received by METROPOLITAN which METROPOLITAN is obligated to pay
to SUMMIT pursuant to the terms of this agreement;
b. The failure by SUMMIT to deliver any sums required to be
paid to METROPOLITAN pursuant to the terms of this agreement.
c. The failure of either party to perform in accordance with
the terms and conditions of this agreement to the extent that
such failure to perform shall constitute a material breach of a
term or condition of this agreement.
d. In the event that METROPOLITAN shall file bankruptcy or
otherwise be determined to be insolvent, this agreement may be
terminated by SUMMIT and SUMMIT may take immediate steps to
employ another entity to collect and service the receivables
then being serviced by METROPOLITAN.
7. TERMINATION
a. Either party may terminate this agreement by providing
written notice of termination to the other party, in which event
this agreement shall terminate immediately upon receipt of such
notice or at such later date as provided in said notice.
b. In the event of a default as defined in paragraph VI.6.
hereinabove, the non-defaulting party may, in lieu of
immediately terminating this agreement, provide written notice
of default to the defaulting party, which notice shall set forth
the time-period for cure, which shall be no less than ten (10)
days from receipt of the notice by the defaulting party. If the
breaching party does not cure the default within the time period
set forth in the notice, this agreement shall terminate upon
expiration of said time period.
8. NOTICE
Notice under this agreement shall be in writing, and delivered
by hand, receipt acknowledged, or delivered by registered certified
United States mail, return receipt requested, and if refused, by
regular United States mail, addressed to the parties as stated below:
a. ATTN: PRESIDENT
METROPOLITAN MORTGAGE & SECURITIES CO., INC.
W. 929 Sprague Ave.
Spokane, WA 99204.
b. ATTN: PRESIDENT
SUMMIT SECURITIES INC.
1000 W. Hubbard, Suite 140
Coeur d'Alene, ID 83814
9. BINDING EFFECT
This agreement sets forth the entire agreement between the
parties, and shall be binding upon all successors and assigns of both
of the parties hereto, and shall be construed under the laws of the
State of Washington.
10. PRIOR AGREEMENTS
This agreement replaces and supercedes each and every prior
agreement executed by the parties related to the management,
Receivable acquisition and Receivable collection services provided by
METROPOLITAN to SUMMIT.
This agreement is executed the day, month, and year first above
written by the duly authorized officers of each party.
METROPOLITAN MORTGAGE & SUMMIT SECURITIES, INC.
SECURITIES CO., INC.
By: By:
C. Paul Sandifur, Jr. John Trimble
President President
Attest Attest
Susan Thomson Tom Turner
Assistant Secretary Secretary/Treasurer
<PAGE>
ADDENDUM TO MANAGEMENT, ACQUISITION AND SERVICING AGREEMENT
BETWEEN
SUMMIT SECURITIES, INC.
AND
METROPOLITAN MORTGAGE & SECURITIES CO., INC.
DATE OF ORIGINAL AGREEMENT: September 9, 1994
DATE OF THIS ADDENDUM: September 9, 1994
ADDENDUM NUMBER: 1
1. FEES FOR GENERAL SUPPORT SERVICES
a. Administrative Support Fees:
i. SUMMIT will pay METROPOLITAN a monthly fee for
general office services provided by METROPOLITAN to SUMMIT.
It is the intent of the parties hereto that the
Administrative Support Fees be calculated at a fair and
equitable rate that reflects the current market cost for
comparable services.
ii. METROPOLITAN has developed and shall continue to
maintain a cost-allocation system designed to measure the
activity of the general support services departments used
by both parties, to provide a basis for allocation of the
costs generated by those departments. The cost allocation
system shall be expressed in terms of labor hours, machine
hours, square footage, and/or other appropriate measures.
The cost allocation system will be used to support charges
found in the market place for comparable services and may
be used as an approximation for market charges when the
market cost for such services cannot be determined and as
agreed to by the parties.
b. Financial Services Fees:
i. SUMMIT shall pay to METROPOLITAN an agreed amount to
METROPOLITAN for METROPOLITAN providing financial
consultation and advice.
ii. The financial consultation and advice, when provided,
shall be charged at a fee negotiated by the parties in each
instance and based upon the expertise and hours required to
provide the service.
c. Office Space Rental Fees:
i. SUMMIT shall also pay to METROPOLITAN an agreed amount
of rent for the real and personal property utilized by
SUMMIT during the term hereof, which amount shall be
determined on the basis of a triple net lease.
ii. The lease for office space and related triple net
charges shall be determined on a square foot basis, based
upon a percentage of the building's total expenses, or such
other appropriate measure as determined by the parties.
2. RECEIVABLE ACQUISITION SERVICES FEE:
a. METROPOLITAN shall acquire receivables for SUMMIT, which,
after deduction of METROPOLITAN's fee, earn a minimum net yield
equivalent to the yield obtainable in the market place for
assets of comparable credit quality (estimated to approximate
400 basis points over the average Treasury Mortgage Equivalent
Yield). Calculation of this fee shall be determined by mutual
agreement of the parties.
b. The minimum fee to METROPOLITAN will be no less than 100
basis points for all receivables purchased through its
origination network.
c. The following formula sets forth the initial method for
calculating the fee and corresponds to the sample calculation
set forth in Exhibit A.
i. Determine the net carrying value (net book value) of
the receivables(s) by decreasing its/their face amount by
the purchase discount, and adding back the capitalized
closing costs. For the purposes of this paragraph,
purchase discount is the difference between the face value
of the receivable and its purchase price paid to the third
party seller.
ii. Determine the weighted average remaining contractual
term of the receivable(s).
iii. Set forth the expected average remaining life for the
receivable(s), which expectation shall be determined after
applying the prepayment assumption set forth in paragraph
v. The average remaining life is equal to the life in
which the average balance is reached.
iv. Determine the weighted average coupon (weighted
average interest rate) for the receivable(s).
v. Set forth the expected prepayment assumption for the
receivable(s) which shall be determined by considering the
weighted average coupon (set forth in iv. hereinabove) in
light of the current interest rate environment.
vi. Determine the average weekly treasury yield for the
expected average time to maturity of the receivable(s) as
set forth in paragraph IV.2.c.iii. over the time period
that the receivable(s) was/were acquired. The weekly yield
shall be a weekly average calculated on a consistent basis,
such as the average weekly rate published by the Bloomberg
Investment System. The rate used may reflect an
interpolation between proximate treasury yields and terms.
The rate may be the result of rounding to the nearest whole
year, e.g. an expected receivable average term of 4.6 years
may be rounded to 5.0 years.
vii. Determine the mortgage equivalent (monthly payment
equivalent) for the average weekly treasury yield set forth
in vi. hereinabove.
viii. Add the appropriate spread to the mortgage
yield equivalent (IV.2.a.). The result is the receivable
yield to SUMMIT (subject to IV.2.b.).
ix. Determine the percent of the face value of the
receivable which SUMMIT can pay to achieve its yield
requirement as set forth in viii. hereinabove.
x. Set forth the dollar amount which results from
applying the percent in paragraph ix, to the face amount of
the receivable.
xi. The difference between the amount SUMMIT can pay to
obtain its desired yield (ix.) and the net carrying value
(i.), is the acquisition services fee.
xii. Determine that the fee prescribed in (xi) is equal to
or greater than the minimum fee prescribed in IV.2.b. If
the fee derived from the above formula is less than the
minimum then recalculate the fee at the prescribed minimum.
d. The receivable acquisition services fee may be calculated
by METROPOLITAN, at its discretion, on an individual receivable
basis, or on a pooled basis.
3. RECEIVABLE COLLECTION AND MANAGEMENT SERVICES FEES
SUMMIT agrees to compensate METROPOLITAN for its duties
performed hereunder in the following manner and amounts:
a. SUMMIT agrees to pay in addition to any applicable taxes a
monthly management and servicing fee. Such sum shall be due
whether or not a receivable is in default. The fee shall be
calculated based on the cost for similar services in the market
place. The charge will be derived based generally on the
following methodology: The standard servicing charge in the
market place for conventional residential receivables (currently
25 basis points) will be applied to the average Washington,
regional, or national average receivable balance. The parties
may agree to further segregate the charges between residential,
commercial or other receivable types. The resulting annual per
receivable charge will be divided by the recent average SUMMIT
receivable balance and multiplied by one plus a factor that
considers the additional servicing cost attendant to the types
of receivables generally acquired by SUMMIT.
METROPOLITAN MORTGAGE & SUMMIT SECURITIES, INC.
SECURITIES CO., INC.
By: By:
C. Paul Sandifur, Jr. John Trimble
President President
Attest Attest
Susan Thomson Tom Turner
Assistant Secretary Secretary/Treasurer <
/TEXT>
<PAGE>
STOCK PURCHASE AND SALE AGREEMENT
This Stock Agreement made on this 31st day of January, 1995, by
and between Metropolitan Mortgage & Securities Co., Inc., a
Washington corporation, hereinafter referred to as Metropolitan, and
Summit Securities, Inc. , an Idaho corporation, hereinafter referred
to as Summit.
SECTION ONE
PURCHASE AND SALE OF STOCK
1. Metropolitan hereby hands to Summit, Metropolitan's 150,000
shares of the common stock of Metropolitan Investment
Securities, Inc. receipt of which is hereby acknowledged.
2. Summit hereby pays in consideration therefore the sum of Two
Hundred Eighty Seven Thousand Dollars and 00/100 ($287,000),
receipt of which is hereby acknowledged.
SECTION TWO
REPRESENTATIONS AND WARRANTIES OF SELLER
Metropolitan represents and warrants as follows:
1) Metropolitan is a duly organized, validly existing corporation
in good standing under the laws of the State of Washington.
2) Metropolitan Investment Securities, Inc. is a duly organized,
validly existing corporation in good standing under the laws of
the State of Washington, and a member in good standing with the
NASD.
3) Metropolitan is the owner of 150,000 shares of common stock of
Metropolitan Investment Securities, Inc., free and clear of any
liens, encumbrances, and charges, and has full power to tender
said shares for sale.
4) Metropolitan has acted in good faith and, to the best of
Metropolitan's knowledge has acted with the care an ordinarily
prudent person in a like position would exercise under similar
circumstances and in a manner Metropolitan reasonably believes
to be in the best interests of Metropolitan.
5) Metropolitan believes in good faith that this transaction does
not violate any of the provisions contained in RCW 23B.06.400
and/or the Articles of Incorporation of Metropolitan currently
in effect.
6) The Board of Directors of Metropolitan has authorized the
execution of this Agreement.
SECTION THREE
REPRESENTATIONS AND WARRANTIES OF SUMMIT
Summit represents and warrants as follows:
1) Summit is a corporation existing and doing business by virtue of
the laws of the State of Idaho, and that it is a duly organized
validly existing corporation.
2) Summit has relied on information, opinions, reports and
statements (including financial statements and other financial
data presented to Summit) pertaining to this transaction.
3) Summit has acted in good faith, and to the best of Summit's
knowledge has acted with the care and ordinarily prudent person
in a like position would exercise under similar circumstances
and in a manner Summit reasonably believes to be in the best
interests of Summit.
4) The Board of Directors of Summit has authorized the execution of
this Agreement.
SECTION FOUR
BROKERAGE
Metropolitan and Summit represent that there are no brokerage or
other commissions due relative to the sale of the shares of stock by
Metropolitan.
SECTION FIVE
GOOD FAITH EFFORTS; FURTHER ASSURANCES; COOPERATION
The parties hereto shall, in good faith, undertake to perform
their obligations herein, to satisfy all conditions and to cause any
and all other transactions contemplated herein to be carried out
promptly in accordance with the terms hereof. Upon execution of this
Agreement and thereafter, each party shall do such things as may be
reasonably requested by the other party hereto in order to more
effectively document the transactions contemplated by this Agreement.
The parties shall cooperate fully with each other and their
respective officers, directors, employees, agents, counsel,
accountants and other designees in connection with any steps required
to be taken as part of their respective obligations under this
Agreement.
SECTION SIX
REPRESENTATION AND WARRANTIES TO SURVIVE CLOSING
The representations and warranties made by Metropolitan to
Summit and by Summit to Metropolitan shall survive the "closing" of
this transaction; closing being defined as the time when Metropolitan
delivers the shares of Summit Securities, Inc. to Summit in return
for the purchase price.
SECTION SEVEN
CHOICE OF LAW
This Agreement shall be construed according to the laws of the
State of Washington.
SECTION EIGHT
ATTORNEYS' FEES
In the event that any action is filed in relation to this
Agreement, the unsuccessful party in the action shall pay to the
successful party, in addition to all of the sums that either party
may be called upon to pay, a reasonable sum for the successful
party's attorneys' fees.
SECTION NINE
OTHER
No representation or warranty by Metropolitan or Summit
contained in this Agreement, nor any written exhibit, statement,
certificate or agreement furnished or to be furnished by Metropolitan
or Summit pursuant to this Agreement, intentionally contains nor will
contain any untrue statement of a material fact, nor intentionally
omits nor will omit to state a material fact necessary to make the
statements herein or therein misleading.
SECTION TEN
INTEGRATION
This instrument embodies the entire Agreement between Summit and
Metropolitan and shall not be modified or terminated except by an
agreement in writing.
IN WITNESS WHEREOF, the parties have executed this Stock
Purchase and Sale Agreement at Spokane, Washington on the date first
above-written.
SUMMIT SECURITIES, INC. METROPOLITAN MORTGAGE & SECURITIES
CO., INC.
By: By:
John Trimble, President Bruce J. Blohowiak, Vice
President
By: By:
Tom Turner, Secretary Reuel Swanson, Secretary
<PAGE>
STATE OF WASHINGTON )
)ss
County of Spokane )
On this day of , 1995, before me, the
undersigned Notary Public in and for the State of Washington, duly
sworn, personally appeared John Trimble and Tom Turner, to me known
to be the President and Secretary, respectively, of Summit
Securities, Inc., the corporation that executed the foregoing
instrument as SUMMIT, and acknowledged the said instrument to be the
free and voluntary act and deed of said corporation for the uses and
purposes therein mentioned, and on oath stated that they are
authorized to execute said instrument and that the seal affixed is
the corporate seal of said corporation.
WITNESS my hand and official seal hereto affixed the day and
year first above-written.
Notary Public in and for the State of Washington
Residing at:
My commission expires:
STATE OF WASHINGTON )
)ss
County of Spokane )
On this day of , 1995, before me, the
undersigned Notary Public in and for the State of Washington, duly
sworn, personally appeared Bruce J. Blohowiak and Reuel Swanson, to
me known to be the Vice President and Secretary, respectively, of
Metropolitan Mortgage & Securities Co., Inc., the corporation that
executed the foregoing instrument as METROPOLITAN, and acknowledged
the said instrument to be the free and voluntary act and deed of said
corporation for the uses and purposes therein mentioned, and on oath
stated that they are authorized to execute said instrument and that
the seal affixed is the corporate seal of said corporation.
WITNESS my hand and official seal hereto affixed the day and
year first above-written.
Notary Public in and for the State of Washington
Residing at:
My commission expires:
<PAGE>
SUMMIT SECURITIES, INC.
RATIO OF EARNING TO FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
The ratio of adjusted earnings to fixed charges and Preferred Stock dividends was computed using the
following tabulations to compute adjusted earnings and the defined fixed charges and Preferred Stock
dividends.
July 25, 1990
(Date of
Incorporation)
Year Ended through
September 30, September 30, September 30, September 30,September 30,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Income before extraordinary
item $ 264,879 $ 283,107 $ 611,595 $ 238,205 $ 5,345
Add:
Interest 2,527,945 1,792,059 1,390,968 640,318
Taxes (benefit) on
income 140,407 145,951 127,989 (2,689) 2,750
---------- ----------- ---------- --------- ---------
Adjusted Earnings $2,933,231 $2,221,117 $2,130,552 $ 875,834 $ 8,095
========== ========== ========== ========= =========
Preferred Stock Dividend
Requirements $ 2,930
Ratio Factor of Income
after provision for income
taxes to income before
provision for income taxes 65%
Preferred Stock Dividend
Factor on Pretax Basis 4,508
Fixed Charges
Interest $2,527,945 $1,792,059 $1,390,968 $ 640,318 $ -
========== ========== ========== ========== ==========
Fixed Charges and Preferred
Stock Dividends $2,532,453 $1,792,059 $1,390,968 $ 640,318 $ -
========== ========== ========== ========== ==========
Ratio of Adjusted Earnings
to Fixed Charges and
Preferred Stock Dividends 1.16 1.24 1.53 1.37 -
========== ========== ========== ========= ==========
</TABLE>
<PAGE>
CONSENT OF
INDEPENDENT PUBLIC ACCOUNTANTS
Summit Securities, Inc.
Spokane, Washington
We consent to the inclusion in this Registration Statement on
Form S-2 of our report dated November 11, 1994 except for Note 9 as
to which the date is December 15, 1994 which includes an explanatory
paragraph describing changes in the Company's method of accounting
for repossessed real property and income taxes relating to our audits
of the consolidated financial statements of Summit Securities, Inc.
We consent to the inclusion in this Registration Statement on
Form S-2 of our report dated January 12, 1995, which includes an
explanatory paragraph describing changes in the Company's method of
accounting for investments in certain debt securities in 1993
relating to our audit of the financial statements of Old Standard
Life Insurance Company.
We also consent to the reference to our firm under the caption
"Experts".
/s/ COOPERS & LYBRAND
COOPERS & LYBRAND
Spokane, Washington
February 3, 1995
<PAGE>
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 to the incorporation
by reference of our reports dated December 7, 1992, relating to the
financial statements and schedules appearing in the Company's Annual
Report on Form 10-K for the year ended September 30, 1992.
We also consent to the reference to us under the caption
"Experts", "Summary Financial Data" and "Selected Financial Data" in
the Prospectus.
/s/ BDO SEIDMAN
BDO SEIDMAN
Spokane, Washington
January 10, 1994
<PAGE>
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 March 19,
1993, relating to the financial statements of Old Standard Life
Insurance Company, which is contained in that Prospectus.
We also consent to the reference to us under the caption
"Experts", "Summary Financial Data" and "Selected Financial Data" in
the Prospectus.
/s/ BDO SEIDMAN
BDO SEIDMAN
Spokane, Washington
February 3, 1995
<PAGE>
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
_____________________________
Statement of Eligibility and Qualification
Under the Trust Indenture Act of 1939 of a
Corporation Designated to Act as Trustee
_____________________________
WEST ONE BANK, IDAHO
(Exact name of trustee as specified in its charter)
_____________________________
Idaho 82-0130211
(State of incorporation (I.R.S. Employer
if not a national bank) Identification No.)
101 S. Capitol Boulevard 83702
Boise, Idaho (Zip code)
(Address of Trustee's
principal executive offices)
______________________________
SUMMIT SECURITIES, INC.
(Exact name of obligor as specified in its charter)
Idaho 82-0438135
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1000 W. Hubbard 83814
Coeur d'Alene, Idaho (Zip code)
(Address of principal
executive offices)
_________________________________
INVESTMENT CERTIFICATES
(Title of the indenture securities)
<PAGE>
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority
to which it is subject.
Name Address
Federal Reserve Bank of
San Francisco San Francisco, CA
Federal Deposit Insurance
Corporation Washington, D.C.
(b) Whether it is authorized to exercise corporate trust power.
Yes.
Item 2. Affiliations with Obligor and Underwriters.
If the obligor or any underwriter for the obligor is an
affiliate of the trustee, describe such affiliation.
None.
Item 3. Voting Securities of the Trustee.
Furnish the following information as to each class of
voting securities of the trustee:
As of December 7, 1994
Col. A Col. B
Title of Class Amount Outstanding
Capital Stock (Common)
par value $2.50 per share 6,148,202 shares
Item 4. Trusteeships under Other Indentures.
If the trustee is a trustee under another indenture under
which any other securities, or certificates of interest or
participation in any other securities, of the obligor are
outstanding, furnish the following information:
(a) Title of the securities outstanding under each such
other indenture.
None.
(b) A brief statement of the facts relied upon as a basis
for the claim that no conflicting interest within the
meaning of Section 310(b) (1) of the Act arises as a
result of the trusteeship under any such other
indenture, including a statement as to how the
indenture securities will rank as compared with the
securities issued under such other indenture.
Nonapplicable.
Item 5. Interlocking Directorates and Similar Relationships with
the Obligor or Underwriters.
If the trustee or any of the directors or executive
officers of the trustee is a director, officer, partner,
employee, appointee, or representative of the obligor or of
any underwriter for the obligor, identify each such person
having any such connection and state the nature of each
such connection.
None.
Item 6. Voting Securities of the Trustee Owned by the Obligor or
its Officials.
Furnish the following information as to the voting
securities of the trustee owned beneficially by the obligor
and each director, partner and executive officer of the
obligor.
As of December 7, 1994
The amount of voting securities of the trustee owned
beneficially by the obligor and its directors and executive
officers, taken as a group, does not exceed one percent of
the outstanding voting securities of the trustee.
Item 7. Voting Securities of the Trustee Owned by Underwriters or
their Officials.
Furnish the following information as to the voting
securities of the trustee owned beneficially by each
underwriter for the obligor and each director, partner, and
executive officer of each such underwriter.
As of December 7, 1994.
None.
Item 8. Securities of the Obligor Owned or Held by the Trustee.
Furnish the following information as to securities of the
obligor owned beneficially or held as collateral security
for obligations in default by the trustee.
As of December 7, 1994
None.
Item 9. Securities of Underwriters Owned or Held by the Trustee.
If the trustee owns beneficially or holds as collateral
security for obligations in default any securities of an
underwriter for the obligor, furnish the following
information as to each class of such underwriter any of
which are so owned or held by the trustee.
As of December 7, 1994
None.
Item 10. Ownership or Holdings by the Trustee of Voting Securities
of Certain Affiliates or Security Holders of the Obligors.
If the trustee owns beneficially or holds as collateral
security for obligations in default voting securities of a
person who, to the knowledge of the trustee (1) owns 10
percent or more of the voting securities of the obligor or
(2) is an affiliate, other than a subsidiary, of the
obligor, furnish the following information as to the voting
securities of such person.
As of December 7, 1994
None.
Item 11. Ownership or Holdings by the Trustee or any Securities of
Person Owning 50 percent or More of the Voting Securities
of the Obligor.
If the trustee owns beneficially or holds as collateral
security for obligations default any securities of a person
who, to the knowledge of the trustee, owns 50 percent or
more of the Voting Securities of the Obligor, furnish the
following information as to each class of securities of
such person any of which are so owned or held by the
trustee.
As of December 7, 1994
None.
Item 12. List of Exhibits.
Exhibit 1. Articles of Incorporation of the trustee,
as amended, and as now in effect.
Exhibit 2. Certificate of authority of the trustee to
commence business.
Exhibit 3. Authorization of the trustee to exercise
corporate trust powers.
Exhibit 4. Existing By-Laws of the trustee.
Exhibit 5. None.
Exhibit 6. Consent of the trustee required by Section
321(b) of the Act.
Exhibit 7. A copy of the latest report of condition of
the trustee published pursuant to law or
the requirements of its supervising or
examining authority.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act OF 1939
the trustee, West One Bank, Idaho, N.A. a corporation organized and
existing under the laws of the United States of America, has duly
caused this statement of eligibility and qualification to be signed
on its behalf by the undersigned, thereunto duly authorized, all in
the City of Boise, State of Idaho, on the 7th day of December, 1994.
WEST ONE BANK, IDAHO
/s/ ROGER WRIGHT
By:_________________________________________
Roger Wright
Vice President and Manager
Corporate Trust Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> SEP-30-1994
<CASH> 3,609
<SECURITIES> 3,022
<RECEIVABLES> 27,534
<ALLOWANCES> 251
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 35,102
<CURRENT-LIABILITIES> 0
<BONDS> 31,213
<COMMON> 100
0
317
<OTHER-SE> 2,904
<TOTAL-LIABILITY-AND-EQUITY> 35,102
<SALES> 0
<TOTAL-REVENUES> 3,395
<CGS> 0
<TOTAL-COSTS> 307
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 155
<INTEREST-EXPENSE> 2,528
<INCOME-PRETAX> 405
<INCOME-TAX> 140
<INCOME-CONTINUING> 265
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 265
<EPS-PRIMARY> 13.47
<EPS-DILUTED> 13.47
</TABLE>
