As filed with the Securities and Exchange Commission on January 9,
1996 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)
Tom Turner
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 / /.
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for
the same offering. / /.
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /.
If delivery of the prospectus is expected to be made pursuant
to Rule 434, please check the following box. / /.
<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 $5,172
Investment
Certificates $40,000,000 $1 $40,000,000 $3,241
</TABLE>
The Registrant is hereby proposing to register a new offering
of Investment Certificates, Series A, in the amount of $9,400,000
and 150,000 Shares of Preferred Stock Series S-2 and is hereby
amending Registration No. 33-57619 pursuant to Rule 429 of which
approximately $30,600,000 of Investment Certificates, Series A,
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 Consolidated
Financial Data;
Certain Investment
Considerations/
Risk Factor;
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 Consolidated
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 JANUARY 9, 1996
PROSPECTUS
SUMMIT SECURITIES, INC.
$40,000,000 Investment Certificates, Series A
150,000 Shares Variable Rate Cumulative
Preferred Stock, Series S-2
($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-2
("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 parity
with unsecured accounts payable and accrued liabilities and on
parity with all previously issued and outstanding investment
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-2
PRICE DISTRIBUTION
PER SHARE FORMULA (Applicable Rate)
<S> <C>
$100.00 The greater of the per annum rate of the
Three-month U.S. 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 two percentage points 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 its
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, on parity with other
preferred stock and preferred as to Summit's common stock. See
"DESCRIPTION OF PREFERRED STOCK-Liquidation Rights".
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 subsidiary 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 and risks which should be
analyzed prior to any investment. 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% 0% to 6% 100% to 94%
Total: $40,000,000 None-$2,400,000 $40,000,000-37,600,000
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 MIS, its broker-dealer, a wholly-owned subsidiary acquired
January 31, 1995, 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
reinvestments or new purchases. See "PLAN OF DISTRIBUTION".
(2) Before deducting other expenses estimated at $173,000.
The Certificates and Preferred Stock are being offered for sale
on a continuous, best efforts basis, directly to investors through
MIS 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, 1997. 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 __________________.
<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 and other information filed by
Summit can be inspected and copied at the public reference
facilities maintained by the Commission in Washington, D.C. at 450
Fifth Street, N.W., Room 1024, Washington, DC 20549 and at certain
of its regional offices which are located in the New York Regional
Office, 7 World Trade Center, Suite 1300, New York, NY 10048, and
Chicago Regional Office, 500 West Madison Street, Suite 1400,
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 on Form S-2 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.
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 Consolidated Financial Data...............
Certain Investment Considerations-Risk
Factors...........................................
Description of Securities.........................
Description of Certificates..................
Description of Capital Stock.................
Description of Preferred Stock...............
Legal Matters.....................................
Legal Opinion................................
Legal Proceedings............................
Experts...........................................
Plan of Distribution..............................
Use of Proceeds...................................
Capitalization....................................
Selected Consolidated Financial Data..............
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................................
Business..........................................
Management........................................
Executive Compensation.......................
Indemnification...................................
Principal Shareholders............................
Certain Transactions..............................
Index to Consolidated Financial Statements........
<PAGE>
PROSPECTUS SUMMARY
This summary is qualified in its entirety by reference to, and
should be read in conjunction with, the detailed information and
financial statements appearing elsewhere in this Prospectus. This
offering involves certain investment considerations for prospective
investors which are set forth in "Description of Securities" and
"Certain Investment Considerations-Risk Factors".
The Summit Consolidated Group of Companies
Summit Securities, Inc.(Summit) was incorporated under the laws
of the State of Idaho on July 25, 1990. Its principal executive
offices are located at 929 West Sprague Avenue, Spokane WA 99210-
2162. Its mailing address is P.O. Box 2162, Spokane WA 99210-2162
and its telephone number is (509) 838-3111. Summit also maintains
an office at 8601 W. Emerald, Ste. 150, Boise, Idaho 83704 and its
telephone number is (208)376-8260.
Where reference herein is intended to include Summit
Securities, Inc. and its subsidiaries, they are jointly referred to
as the "Consolidated Group". Where reference herein is intended to
refer to Summit Securities, Inc. as the parent company only, it is
referred to individually as "Summit".
Summit was founded in 1990 by Metropolitan Mortgage &
Securities Co., Inc. (Metropolitan) as a wholly-owned subsidiary.
On September 9, 1994, Summit was acquired by National Summit Corp.,
which is wholly-owned by C. Paul Sandifur, Jr. Mr. Sandifur is
President and controlling shareholder of Metropolitan. Accordingly,
the change in ownership altered the form of control, but did not
result in a change of the individual in control. See "CERTAIN
TRANSACTIONS".
Between January and June of 1995, Summit acquired MIS and a
wholly-owned holding company acquired Old Standard Life Insurance
Company (Old Standard) from Metropolitan. In addition, Summit
commenced operation of a property development company, Summit
Property Development Inc. See "BUSINESS" & "CERTAIN TRANSACTIONS".
The Consolidated Group is engaged nationwide in the business
of acquiring, holding and selling receivables (hereafter
Receivables). These Receivables include real estate contracts, and
promissory notes collateralized by first position liens on
residential real estate. The Consolidated Group also invests in
Receivables consisting of real estate contracts and promissory notes
collateralized by second and lower position liens, structured
settlements, annuities, lottery prizes, and other investments. In
addition, it also invests in U.S. Treasury obligations, corporate
bonds and other securities. The Consolidated Group invests directly
in Receivables using funds generated from Receivable cash flows, the
sale of annuities, the sale of certificates and preferred stock, and
securities portfolio earnings. See "BUSINESS" & "CERTAIN
TRANSACTIONS".
Definitions:
For ease of reading, the following is a compilation of several of
the defined terms which appear regularly within this document.
Also, See "Business".
Arizona Life: Arizona Life Insurance Company
Certificates: Where this term is capitalized it refers to the
Investment Certificates being offered herein. Where not
capitalized, it refers to certificates generally.
Consolidated Group: This term refers to the combined businesses
consisting of Summit and all subsidiaries.
MIS: Metropolitan Investment Securities, Inc.
Metropolitan: Metropolitan Mortgage & Securities Co., Inc.
Old Standard: Old Standard Life Insurance Company.
Preferred Stock: Where this term is capitalized it refers to the
Series S-2 Preferred Stock being offered herein. Where it is not
capitalized, it refers to preferred stock generally.
Receivables: Investments in cash flows, consisting of obligations
collateralized by real estate, structured settlements, annuities,
lottery prizes and other investments.
Summit: Summit Securities, Inc.
<PAGE>
ORGANIZATIONAL CHART FOR SUMMIT SECURITIES, INC.
(including subsidiaries, effective December 31, 1995)
National Summit Corp.
|
|
|
Summit Securities,
Inc.
|
|
- -----------------------------------------------
| | |
Metropolitan Summit Summit Group Holding
Investment Property Company
Securities , Development, |
Inc. Inc. |
Old Standard Life
Insurance Company
|
|
Arizona Life
Insurance Company
National Summit Corp.: Parent Company, inactive except as owner
of Summit Securities, Inc. and Summit Trading Co.* Wholly-Owned by
C. Paul Sandifur, Jr., President of Metropolitan.
Summit Securities, Inc.: Invests in Receivables and other
investments principally funded by proceeds from investments and
securities offerings.
Metropolitan Investment Securities, Inc.: Limited-purpose
securities broker/dealer currently marketing securities offered by
Summit and Metropolitan, and certain mutual funds.
Summit Property Development, Inc.: Provides real estate development
services to others, with the principal clients being Metropolitan
and its subsidiaries.
Summit Group Holding Company: Inactive except as owner of Old
Standard Life Insurance Company.
Old Standard Life Insurance Company: Invests in Receivables and
other investments principally funded by proceeds from investments,
investment income and from annuity sales.
Arizona Life Insurance Company: Old Standard purchased this
insurance company effective December 28, 1995. Its business
activities are expected to commence in 1996, and are anticipated to
include investments in Receivables and other investments principally
funded by proceeds from Receivables, and from annuity sales. See
"BUSINESS-Recent Developments-Subsidiary Acquisitions".
* Other Subsidiaries:
In addition to the companies shown above, the parent company,
National Summit Corp. has an additional wholly-owned subsidiary,
Summit Trading Company. This company was established in 1995, and
intends to operate as a new business ventures company. Revenues to
date have been negligible. It is principally managed by Philip
Sandifur, son of C. Paul Sandifur Jr.
<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, 1995, Summit had outstanding
approximately $38,546,000 (principal and compounded and accrued
interest) of certificates and similar obligations and approximately
$105,000 (principal and accrued interest) of collateralized debt.
See "CAPITALIZATION".
Use of Proceeds . . . . The proceeds of this Certificate offering
will provide funds for Receivable investments, retiring maturing
certificates, preferred stock dividends, other investments (which
may include investments in existing subsidiaries and the acquisition
of other companies, or the commencement of new business ventures),
and general corporate purposes. See "USE OF PROCEEDS".
Principal and Interest Payments . . . . At the option of the holders
of Certificates, 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-2 (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 this 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 are senior to the common
stock of Summit, on parity with the liquidation rights of all other
previously issued and outstanding preferred stock and junior to all
debts of Summit including Summit's previously issued Certificates
and the Certificates offered herein. 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. 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 full monthly
distributions or more, per share. See "DESCRIPTION OF PREFERRED
STOCK-Voting Rights".
Use of Proceeds . . . . The proceeds of this Preferred Stock
offering will provide funds for Receivable investments, retiring
maturing certificates, preferred stock dividends, other investments
(which may include investments in existing subsidiaries and the
acquisition of other companies or the commencement of new business
ventures) and for general corporate purposes. See "USE OF
PROCEEDS".
Federal Income Tax Considerations. . . . In the event the
Consolidated Group has earnings and profits for federal income tax
purposes in any future year, the distributions paid on Preferred
Stock in that year will constitute taxable income to the recipient
to the extent of such earnings and profits. Management is unable to
predict the future character of its distributions. Purchasers are
advised to consult their own tax advisors with respect to the
federal income tax treatment of distributions made. See
"DESCRIPTION OF PREFERRED STOCK-Federal Income Tax Consequences of
Distributions".
<PAGE> SUMMIT SECURITIES, INC.
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
The consolidated financial data shown below as of September 30, 1995 and 1994 and for the years
ended September 30, 1995, 1994 and 1993 (other than the ratio of earnings to fixed charges and
preferred stock dividends) have been derived from, and should be read in conjunction with, the
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, 1993, 1992 and 1991 and for the years ended September 30, 1992 and 1991 have been
derived from audited financial statements not included herein. The consolidated financial statements
as of and for the years ended September 30, 1995, 1994 and 1993 have been audited by Coopers &
Lybrand L.L.P. The consolidated financial statements as of and for the years ended September 30,
1992, and 1991 have been audited by BDO Seidman.
Year Ended Year Ended Year Ended Year Ended Year Ended
September 30, September 30, September 30, September 30, September, 30
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA:
Revenues $ 9,576,615 $3,395,252 $ 2,815,624 $ 2,435,843 $1,026,405
=========== ========== ========== ========== ==========
Income before
extraordinary item $ 587,559 $ 264,879 $ 283,107 $ 611,595 $ 238,205
Extraordinary item (1) -- -- -- 49,772 --
----------- ---------- ---------- ---------- ----------
Net Income 587,559 264,879 283,107 661,367 238,205
Preferred Stock Dividends (309,061) (2,930) -- -- --
----------- ---------- ---------- ---------- ----------
Income Applicable to Common
Stockholders $ 278,498 $ 261,949 $ 283,107 $ 661,367 $ 238,205
=========== ========== ========== ========== ==========
Per Common Share:
Income before
extraordinary
item $ 27.85 $ 13.47 $ 14.15 $ 30.58 $ 11.91
Extraordinary item (1) -- -- -- 2.49 --
----------- ---------- --------- --------- ----------
Income applicable to
common stockholders $ 27.85 $ 13.47 $ 14.15 $ 33.07 $ 11.91
=========== ========== ========== ========== ==========
Weighted average number
of common shares
outstanding 10,000 19,445 20,000 20,000 20,000
=========== ========== ========== ========== ==========
Ratio of Earnings
to Fixed Charges
and Preferred Stock
Dividends 1.11 1.16 1.24 1.53 1.37
BALANCE SHEET DATA:
Due from/(to) affiliated
companies, net $ 1,960,104 $ 267,735 $ 1,710,743 $ (400,365) $(5,528,617)
Total Assets $96,346,572 $35,101,988 $25,441,605 $17,696,628 $16,718,823
Debt Securities
and Other
Debt Payable $38,650,532 $31,212,718 $21,982,078 $14,289,648 $ 8,451,106
Stockholders' Equity $ 3,907,067 $3,321,230 $3,188,024 $2,904,917 $2,243,550
<FN>
(1) Benefit from utilization of net operating loss carryforwards.
</TABLE>
<PAGE>
CERTAIN INVESTMENT CONSIDERATIONS - RISK FACTORS
General
1. Impact of Interest Rates and Economic Conditions: During
the twelve month period ending September 30, 1996, more of the
Consolidated Group's financial liabilities, principally annuities
and Certificates, are scheduled to reprice or mature than are its
financial assets, principally Receivables and fixed income
investments. Consequently, in a falling interest rate environment
such as has recently been experienced, the current level of
profitability and the fair value of the Consolidated Group's equity
are likely to improve. Conversely, in a rising interest rate
environment, the net interest income and the fair value of equity
for the Consolidated Group would likely decline. The fair value of
equity is the difference between the fair value of all assets less
the fair value (as opposed to book value) of all liabilities. The
impact of a change in interest rates will be reflected to the
greatest extent in the fair value of assets and liabilities with the
longest maturities or time to their scheduled repricing date.
Additionally, borrowers tend to repay Receivable loans when interest
rates decline when they are able to refinance such loans at lower
rates of interest. This factor reduces the amount of interest to be
received over time as loans with higher rates of interest are
prepaid more rapidly. However, the Consolidated Group purchases the
substantial majority of its Receivables at a discount. The yield on
these Receivables is improved when recognition of the discount is
accelerated through prepayment. 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 that
collateralize the Receivables and a reduction in the probable sales
prices for property obtained through such action which could
adversely affect the results of operations and financial position of
the Consolidated Group.
2. Dependence Upon Metropolitan: All decisions with respect
to the day-to-day management of the Consolidated Group will be made
exclusively by the officers of the respective companies, many of
whom are also employees of Metropolitan and/or its subsidiaries.
The Consolidated Group has contracted with Metropolitan, for
Metropolitan to provide principally all of the administrative
services related to their general business administration, including
those related to their Receivable activities. Metropolitan charges
a fee for its services. The fee charged to the Consolidated Group
relating to Receivable acquisition activities during the fiscal
years ended September 30, 1995, 1994 and 1993 was $1,967,409,
$681,991, and $243,414, respectively. See "BUSINESS" & "CERTAIN
TRANSACTIONS".
Management considers these contractual arrangements to be more
beneficial to the Consolidated Group than incurring the cost to
duplicate these services internally. These contracts do not
restrict any of the companies from obtaining these services from
other sources and they may be terminated at any time. However, it
is anticipated that these contracts will continue indefinitely. See
"BUSINESS" & "CERTAIN TRANSACTIONS".
3. Conflicts of Interest: Many of the officers and directors
of Summit and its subsidiaries 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 and its subsidiaries. Summit
and Old Standard may compete with Metropolitan and its subsidiaries
in the acquisition of Receivables. Summit may compete with
Metropolitan for the sale of securities, and Old Standard may
compete with Metropolitan's insurance subsidiary for the sale of
annuities.
On September 9, 1994, Metropolitan sold Summit to National
Summit Corp., a holding company wholly-owned by C. Paul Sandifur Jr.
In fiscal 1995, Summit purchased MIS and Old Standard from
Metropolitan, and commenced operations of Summit Property
Development Inc. See "CERTAIN TRANSACTIONS". Mr. Sandifur is the
President and has voting control of Metropolitan. Prior to these
transactions, Mr. Sandifur had effective control of Summit and its
subsidiaries through his control of Metropolitan. Following these
transactions, Mr. Sandifur through National Summit Corp. continues
to control Summit, and through Summit controls Summit's
subsidiaries.
Conflicts of interest are not anticipated to be substantially
different from those which existed prior to these sales, such as
conflicts in the time available to devote to Summit or its
subsidiaries and conflicts with respect to securities sales and 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.
Purchasers of 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 by each company,
and in making other business decisions.
4. Effect of Certain Insurance Regulations: Insurance company
regulations restrict transfers of assets and the amount of dividends
that the insurance subsidiaries may pay. Accordingly, to the extent
of such restrictions, assets and earnings of the insurance
subsidiaries are not available to Summit without special permission
from the respective insurance commissioner in the insurance
subsidiary's state of domicile. This restriction on dividends could
affect Summit's ability to pay interest, retire certificates and pay
Preferred Stock distributions. The total unrestricted statutory
surplus of Old Standard was approximately $249,000 as of September
30, 1995. See "BUSINESS-Regulation" & "CERTAIN TRANSACTIONS."
5. 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 payment of certificates which
mature during the period ending January 31, 1997, portions of the
net proceeds from this Certificate and Preferred Stock offering may
be used for such purpose. See "USE OF PROCEEDS". Approximately
$7,851,000 in principal amount of certificates will mature between
February 1, 1996 and January 31, 1997. The majority of Summit's
certificates have been sold with a five year maturity. Summit has
been operating for fewer than six full fiscal years. Therefore, it
has not yet experienced significant levels of maturities of
outstanding certificates. During the fiscal year ended September
30, 1995, its fifth full year of operation, 60% of Summit's maturing
certificates were reinvested. The cash flow from the existing
assets has been adequate during the past five years to satisfy the
demand for payment of maturing certificates. Summit's ability to
repay its other outstanding obligations, including those created by
the sale of the securities described herein, may be contingent in
part upon the success of future public offerings of certificates and
preferred stock.
6. Effect of Life Insurance and Annuity Termination Rates: An
increase in the number of annuity policy terminations will tend to
negatively impact the insurance subsidiaries' earnings, (and in turn
the Consolidated Group's earnings) by requiring the expensing of
unamortized deferred costs related to policy surrenders. At
September 30, 1995, deferred policy acquisition costs on annuities
were approximately 5.6% of annuity reserves. Surrender charges
typically do not exceed 5% of the annuity contract balance at the
contract's inception, and such charges decline annually from that
rate. Annuity termination rates based upon results for the four
months ended September 30, 1995, were approximately 12%. Management
believes a reasonable estimate for future lapse rates to be 10%
(including 4% for death and partial withdrawal and 6% for basic
surrenders and surrenders occurring in the year the surrender charge
expires. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" & "Note 12, Consolidated
Financial Statements".
7. Investments in Receivables:
Receivables Collateralized by Real Estate: The Consolidated
Group is engaged in the purchase of Receivables which include
Receivables collateralized 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. The Consolidated Group's underwriting
is currently provided through Metropolitan. Metropolitan's
investment underwriting procedure includes a review of demographics,
market values, property appraisal, economy, and the buyer's credit.
Through Metropolitan, the Consolidated Group buys these Receivables
nationwide, allowing it to diversify its investments geographically
into areas where the market trends and economic conditions may be
favorable. 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 collateralized by real estate, the Consolidated
Group, through Metropolitan, 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 (frequently an unrelated
insurance company, or in the case of lotteries, a state government).
Unlike Receivables collateralized by real estate, these Receivables
are generally not collateralized by a specific asset. The
Consolidated Group's underwriting is currently provided through
Metropolitan. Metropolitan's investment underwriting procedures
vary with the type of investment and may include any or all of the
following: a review of the credit rating of the payor, a review of
corresponding state laws including the potential 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 to minimize
the occurrence of any default. See "BUSINESS-Receivable
Investments". As of September 30, 1995, the Consolidated Group's
Receivable investments consisted of the following:
<TABLE>
<S> <C>
Percent Type of Receivable
_______ __________________
78% Receivables collateralized by Real Estate
2% Annuities
20% Lotteries and Loans collateralized by
Lotteries
</TABLE>
As of September 30, 1995, the Consolidated Group's Receivable
investments collateralized by real estate were principally located
in the following regions:
<TABLE>
<S> <C>
Percent Region
------- ------
22% Pacific Northwest (Washington, Alaska,
Oregon, Idaho and Montana)
21% Pacific Southwest (California, Nevada and
Arizona)
18% Southwest (Texas, Louisiana and New
Mexico)
10% Southeast (Florida, Georgia, North
Carolina and South Carolina)
29% Other areas (of which no more than 3% were
located in any one state)
</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 unsecured or collateralized debt. Neither does the
Indenture require Summit to maintain any specified financial ratios,
minimum net worth, minimum working capital or a sinking fund. 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 other unsecured accrued liabilities.
As of September 30, 1995, Summit had approximately $105,000 of
collateralized debt and related accrued interest. Also as of
September 30, 1995, the principal and accrued interest on Summit's
outstanding certificates was approximately $38,546,000.
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) nor 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 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 of the Certificates is thus
higher than the risk incurred by investors in such insured financial
institutions.
3. Term Investment/Absence of Trading Market/Liquidity: There
is no trading market for the Certificates, and it is not anticipated
that one will develop. The Certificates are not subject to
redemption prior to maturity. Prepayments pursuant to the
"prepayment on death" provision or upon mutual agreement between
Summit and a Certificateholder 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-Description of Certificates".
Relative to Preferred Stock
1. Limited Marketability of Shares: The Preferred Stock is
not listed, nor does management anticipate applying for a listing on
any national or regional stock exchange and no independent public
market for Preferred Stock is anticipated. The broker/dealer for
this offering, MIS, 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 a recognized public stock
exchange. See "DESCRIPTION OF PREFERRED STOCK-Redemption of
Shares".
2. 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 under limited
circumstances solely at the option of Summit. 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".
3. 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, all shares of
Series S Preferred Stock, including shares of additional sub-series
which may subsequently be authorized and sold, are on a parity.
Preferred Stock is 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, 1995,
total assets of Summit were approximately $96,347,000 and the total
liabilities of Summit ranking senior in liquidation preference to
Preferred Stock were approximately $92,440,000, and the total
liquidation preference of all outstanding shares of Series S
preferred stock was approximately $3,562,000.
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 outcome in such events 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.
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. Federal Income Tax Considerations: Under the current
Federal Income Tax Code, 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 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. See
"DESCRIPTION OF PREFERRED STOCK-Federal Income Tax Consequences of
Distributions".
<PAGE>
DESCRIPTION OF SECURITIES
Description of Certificates
The Certificates will be issued under an 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 available for
inspection at the principal office of Summit.
General
The Certificates will represent general unsecured obligations
of Summit and will be issued in fully registered form without
coupons, in fractional denominations of $0.01 or more. 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.
Summit is currently exploring an alternative means of
certificate registration commonly known as "book entry". A book
entry method of registration eliminates the need for a negotiable
certificate. Instead, a receipt for the investment would be issued
and record of the investment would be maintained by Summit.
Certificates may be transferred or exchanged for other
Certificates of the same series of a like aggregate principal
amount, subject to the limitations set forth in the Indenture. No
service charge will be made for any transfer or exchange of
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 the 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 financial hardship, 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 in the order received
and are subject to review by Summit's executive management.
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 completed 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, 1995,
(including compound and accrued interest) was approximately
$38,546,000. There are no limitations on Summit's ability to incur
collateralized debt. Collateralized debt outstanding on that date
of approximately $105,000 (principal and accrued interest) consisted
primarily of senior liens on the real estate collateral for Summit's
real estate Receivables.
Concerning the Trustee
West One Bank is the Indenture Trustee (the "Trustee"). 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, with a combined capital
and surplus in excess of $350,000,000. Summit and certain of its
affiliates may maintain deposit accounts with and may, from time to
time, borrow money from the bank and conduct other banking
transactions with it. At September 30, 1995 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. West One has informed Summit of its
intent to withdraw as Trustee. Summit is currently negotiating with
several qualified businesses to substitute for West One as Trustee.
It is not anticipated that this change will have any impact on
Summit or its Certificates.
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
The authorized capital of Summit consists of 2,000,000 shares
of Common Stock ($10.00 par value), and 10,000,000 shares of Series
S Preferred Stock ($10.00 par value), from which 185,000 shares of
Series S-1 and 150,000 shares of Series S-2 have been authorized.
See "Consolidated Financial Statements".
Relative Rights of Common 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 preferred shareholders', 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-2 (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 this 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"). Preferred Stock is
issued in Book Entry form. Investments in Preferred Stock are
evidenced by receipts and not by negotiable stock certificates.
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 Authorizing Resolution, a copy of
which has been filed with the Commission as an exhibit to the
Registration Statement of which this Prospectus is a part, and is
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. 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
three-month U.S. Treasury Bill Rate, the Ten-Year Constant Maturity
Rate and the Twenty-Year Constant Maturity Rate (each as more fully
described in the Authorizing Resolution), (ii) plus one half of one
percentage point. Each of the above three rates shall be calculated
as the arithmetic average of the two most recent weekly per annum
yields as published weekly by the Federal Reserve Board during the
Calendar Period immediately prior to the ten calendar days
immediately preceding the first day of the distribution period for
which the distribution rate on Preferred Stock is being determined.
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 3-month U.S.
Treasury Bill Rate, Ten-Year Constant Maturity Rate and Twenty-Year
Constant Maturity Rate shall each be rounded to the nearest five
hundredths of a percentage point.
Summit's Board of Directors has adopted a resolution to
authorize a distribution rate on the Preferred Stock at two
percentage points higher than the Applicable Rate. Such higher
distribution rate will continue from month to month until the Board
elects to terminate it. The Board may increase, decrease or
eliminate the additional points at any time, in its sole discretion.
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,
1995, the total liabilities of Summit ranking senior in liquidation
preference to Preferred Stock were approximately $92,440,000. See
"BUSINESS-Regulation". There are no limitations on Summit's ability
to incur additional secured indebtedness. See "CAPITALIZATION" &
"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 affecting
redemptions during an offering, and subject to the limitations
described below, accept such shares for redemption. Such redemption
requests are reviewed in the order received, and are subject to
review by Summit's executive management. 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, in the
opinion of Summit's management, 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.
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, MIS, maintains a trading list to match buyers and
sellers 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 Stock
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 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 Authorizing Resolution provides that holders of Preferred
Stock, together with the holders of Summit's 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 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 or more per share. Such right will continue until
all distributions in arrears have been paid in full.
Federal Income Tax Consequences of Distributions
The following discussion of the federal income tax consequences
of distributions is based upon the Internal Revenue Code of 1986 as
amended (the "Code"), existing Treasury regulations, current
published administrative positions of the Internal Revenue Service
(the "Service") contained in revenue rulings, revenue procedures and
notes and existing judicial decisions. No assurance can be given
that legislative or administrative changes or court decisions may
not be forthcoming that could significantly modify the statements in
this discussion. 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).
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
currently unable to predict the character of its distributions for
calendar 1995, or for future years.
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.
Transfer Agent and Registrar
Metropolitan acts as Transfer Agent and Registrar for Summit's
Certificates and capital stock, including its Preferred 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 MIS, and also employed by
Metropolitan as its Assistant Corporate Counsel and Vice President.
LEGAL PROCEEDINGS
There are no material legal proceedings or actions pending or
threatened against Summit, or to which its property is subject.
EXPERTS
The consolidated balance sheets of Summit and its subsidiaries
as of September 30, 1995 and 1994 and the consolidated statements of
income, stockholder's equity and cash flows for each of the three
years in the period ended September 30, 1995 included in this
Prospectus, have been included herein in reliance on the report,
which includes an explanatory paragraph describing changes in the
methods of accounting for repossessed real property and income taxes
in fiscal 1993, 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 September 30,
1994 and December 31, 1993 and for the periods 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 methods of 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.
<PAGE>
PLAN OF DISTRIBUTION
The Certificates and Preferred Stock are offered directly to
the public on a continuing best efforts basis through MIS which is a
subsidiary 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 in
the maximum amount of 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. MIS will transmit such funds or other consideration
directly to Summit by noon of the next business day after receipt.
Summit will also pay certain other expenses in connection with the
offering. During the three fiscal years ended September 30, 1995,
MIS received commissions of $662,299 from Summit on sales of
approximately $29,343,000 of Summit's certificates and preferred
stock. Preferred Stock was sold for the first time during 1994.
MIS is a member of the National Association of Securities
Dealers, Inc. (NASD). As such, Schedule E of the Bylaws 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 $45,000 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 undertakes to
maintain 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 . . . . If all of the Certificates are sold,
Summit expects net proceeds from this Certificate offering of
$37,600,000 to $40,000,000 before deducting offering expenses
estimated at $173,000 (combined total for both Certificates and
Preferred Stock) and after sales commissions. There can be no
assurance, however, that any of the Certificates can be sold. Sales
commissions will range up to $2,400,000 (6%) depending on maturities
of Certificates sold and whether sales are reinvestments or new
purchases. See "BUSINESS-Method of Financing".
Preferred Stock Proceeds . . . .If all of the Preferred Stock is
sold, Summit expects net proceeds from this Preferred Stock offering
of $14,100,000 to $15,000,000 before deducting offering expenses
estimated at $173,000 (combined total for both Certificates and
Preferred Stock) 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.
See "BUSINESS-Method of Financing".
In conjunction with the other funds available to it through
operations and/or borrowings, Summit will utilize the proceeds of
the Certificates and Preferred Stock offerings for funding
investments in Receivables, and other investments, which may include
investments in subsidiaries and the acquisition of other companies,
and the commencement of new business ventures. The Consolidated
Group continues to evaluate possible acquisition candidates, but
presently is only in preliminary discussions with any such
candidates. To the extent internally generated funds are
insufficient or unavailable for the retirement of maturing
certificates through the period ending January 31, 1997, 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 $7,851,000 in principal
amount of debt securities will mature between February 1, 1996 and
January 31, 1997 with interest rates ranging from 6.5% to 10% and
averaging approximately 9.5% per annum. See Note 7 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 1
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the
Consolidated Group at September 30, 1995:
<TABLE>
<CAPTION>
<S> <C>
DEBT PAYABLE
Real estate contracts and
mortgage notes payable
7% to 9.5%, due 1995 to 2009 $ 104,636
-----------
INVESTMENT CERTIFICATES
Investment Certificates,
Maturing 1995 to 2000,
at 6% to 11% 33,724,658
Compound and accrued interest 4,821,238
-----------
Total Investment Certificates 38,545,896
-----------
STOCKHOLDERS' EQUITY
Preferred Stock, $10 par:
10,000,000 shares authorized;
35,622 shares issued and
outstanding (liquidation preference
$3,562,220) 356,222
Common Stock, $10 par:
2,000,000 shares authorized;
10,000 shares issued and
outstanding 100,000
Additional paid-in capital 1,786,991
Retained earnings 1,675,738
Net unrealized losses
on investments (11,884)
----------
Total Stockholders' Equity 3,907,067
----------
Total Capitalization $42,557,599
==========
</TABLE>
<PAGE> SUMMIT SECURITIES, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
The consolidated financial data shown below as of September 30, 1995 and 1994 and for the years
ended September 30, 1995, 1994 and 1993(other than the ratio of earnings to fixed charges and
preferred stock dividends) 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, 1993, 1992 and 1991 and for the year ended September 30, 1992 and 1991 have been
derived from audited financial statements not included herein. The consolidated financial statements
as of and for the years ended September 30, 1995, 1994 and 1993 have been audited by Coopers &
Lybrand L.L.P. The consolidated financial statements as of and for the years ended September 30,
1992, and 1991 have been audited by BDO Seidman.
Year Ended Year Ended Year Ended Year Ended Year Ended
September 30, September 30, September 30, September 30, September, 30
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA:
Revenues $ 9,576,615 $3,395,252 $ 2,815,624 $ 2,435,843 $1,026,405
=========== ========== ========== ========== ==========
Income before
extraordinary item $ 587,559 $ 264,879 $ 283,107 $ 611,595 $ 238,205
Extraordinary item (1) -- -- -- 49,772 --
----------- ---------- ---------- ---------- ----------
Net Income 587,559 264,879 283,107 661,367 238,205
Preferred Stock Dividends (309,061) (2,930) -- -- --
----------- ---------- ---------- ---------- ----------
Income Applicable to Common
Stockholders $ 278,498 $ 261,949 $ 283,107 $ 661,367 $ 238,205
=========== ========== ========== ========== ==========
Per Common Share:
Income before
extraordinary
item $ 27.85 $ 13.47 $ 14.15 $ 30.58 $ 11.91
Extraordinary item (1) -- -- -- 2.49 --
----------- ---------- ---------- ---------- ----------
Income applicable to
common stockholders $ 27.85 $ 13.47 $ 14.15 $ 33.07 $ 11.91
=========== ========== ========== ========== ==========
Weighted average number
of common shares
outstanding 10,000 19,445 20,000 20,000 20,000
=========== ========== ========== ========== ==========
Ratio of Earnings
to Fixed Charges and
Preferred Stock Dividends 1.11 1.16 1.24 1.53 1.37
BALANCE SHEET DATA:
Due from/(to) affiliated
companies, net $ 1,960,104 $ 267,735 $ 1,710,743 $ (400,365) $(5,528,617)
Total Assets $96,346,572 $35,101,988 $25,441,605 $17,696,628 $16,718,823
Debt Securities
and Other
Debt Payable $38,650,532 $31,212,718 $21,982,078 $14,289,648 $ 8,451,106
Stockholders' Equity $ 3,907,067 $3,321,230 $3,188,024 $2,904,917 $2,243,550
<FN>
(1) Benefit from utilization of net operating loss carryforwards.
</TABLE>
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
For the Three Fiscal Years Ended September 30, 1995
Introduction
Summit's operations for the fiscal year ended September 30,
1995 benefited from the acquisition of and start-up of several new
operating subsidiaries. MIS was acquired from Summit's former
parent company in January, 1995. At the same time, Summit
established a property development subsidiary. Summit acquired Old
Standard from Summit's former parent company on May 31, 1995. Of
these transactions, the largest was the acquisition of Old Standard.
As of September 30, 1995, Old Standard had total assets of
approximately $54.1 million. See Note 1 to the Financial
Statements. During the fiscal year ended September 30, 1995, MIS,
Summit Property Development and Old Standard contributed gross
revenues of $1.2 million, $1.3 million, and $1.4 million,
respectively, to the Consolidated Group. For the same period,
Summit Property Development and Old Standard contributed operating
income of approximately $118,000 and $86,000 ,respectively, to the
Consolidated Group. The operating income of MIS was not significant
after intercompany eliminations.
Results of Operations
Revenues of the Consolidated Group increased to approximately
$9.6 million in 1995 from approximately $3.4 million in 1994, and
approximately $2.8 million in 1993. The growth in revenues from
1994 to 1995 is attributable to an increase in investment earnings
on outstanding Receivables due largely to the acquisition of Old
Standard along with gains realized on the sale of a portion of the
Receivable portfolio. Additionally in 1995, the Consolidated Group
realized approximately $2.6 million in fee, commission and service
revenues from its newly acquired and newly formed subsidiaries. The
growth in revenues 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 Consolidated Group has increased its investment in
Receivables, collateralized by real estate, to approximately $60.1
million at September 30, 1995 from $27.3 million at September 30,
1994, and $19.5 million at September 30, 1993. Additionally, the
Consolidated Group has begun investing in annuities and lottery
prizes with a total outstanding investment as of September 30, 1995
of $ 16.9 million.
Net income before preferred stock dividends for the fiscal year
ended September 30, 1995 was approximately $588,000 compared to
$265,000 in 1994 and $283,000 in 1993. The increase from 1994 to
1995 was primarily the result of increased gains on the sale of
Receivables, an increase in the margin between interest sensitive
income and interest sensitive expense caused largely by the
acquisition of Old Standard, and increased fees, commissions and
service revenues from MIS and Summit Property Development, Inc.
which were only partially offset by increases in salaries and
benefits, commissions and other operating expenses. The relatively
small decrease in net income from 1993 to 1994 was the result of
Summit being able to realize gains on the sale 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
an increase in the provision for losses on real estate assets.
Since the date of its incorporation through approximately the
end of calendar year 1993 and again in 1995, Summit generally
benefited 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 1995 and 1994 as Summit was able
to realize gains of $512,500 and $171,756, respectively, from the
sale of Receivables. Higher levels of prepayments in the Receivable
portfolio were experienced during the years 1992 through 1995,
allowing Summit to recognize unamortized discounts on Receivables at
an accelerated rate. During 1994 and continuing in 1995,
Metropolitan, Summit's former parent and the primary supplier of
Receivables, began charging the Consolidated Group underwriting fees
associated with Receivable acquisitions. The charging of the
underwriting fee results in a somewhat lower yield over the life of
the newly acquired Receivables. However, management believes the
yield to be favorable in comparison to other investment
opportunities. See "BUSINESS-Investment in Receivables".
Maintaining efficient collection efforts and minimizing
delinquencies in the Consolidated Group's Receivable portfolio are
ongoing management goals. During 1995, the Consolidated Group
realized a gain on the sale of repossessed real estate of
approximately $6,300 compared to a gain of $12,300 in 1994 and a
loss of $18,400 in 1993. In recognition of the increased size of
the Consolidated Group's Receivable and real estate portfolios,
principally associated with the purchase of Old Standard, the
Consolidated Group has increased its provision for losses on assets
collateralized by real estate. Provisions for losses were
approximately $445,000, $155,000, and $51,000 for 1995, 1994, and
1993, respectively. At September 30, 1995, the Consolidated Group
had an allowance for losses on real estate assets of $765,000
compared to $251,000, and $97,000 at September 30, 1994 and 1993,
respectively. The increase in 1995 was in part attributable to the
acquisition of Old Standard. At September 30, 1995, 1994 and 1993,
the allowance for losses represented approximately 1.2%, 0.9% and
0.5%, respectively, of the face value of Receivables collateralized
by real estate.
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 cost 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 for fiscal 1993.
Interest Sensitive Income and Expense
Management continually monitors the interest sensitive income
and expense of the Consolidated Group. Interest sensitive expense
is predominantly related to annuity benefits and the interest costs
of Certificates, while interest sensitive income includes interest
and earned discounts on Receivables, dividends and other investment
income.
The excess of interest sensitive income over interest sensitive
expense was approximately $1,075,000 in 1995, $543,000 in 1994, and
$696,000 in 1993. The increase from 1994 to 1995 of $532,000 was
attributable to the following: (1) increased investment in the
Receivable portfolio largely due to the acquisition of Old Standard;
(2) a lower cost of funds, influenced in part by the acquisition of
Old Standard, and; (3) additional dividend income from preferred
stock of Metropolitan held by Summit. The decrease from 1993 to
1994 of approximately $153,000 was attributable to several factors
including: (1) the 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 utilized for the
September 1994 payment of $3.6 million to Metropolitan to redeem its
outstanding common stock. See Note 11 to the Consolidated Financial
Statements.
Fees, Commissions, Service and Other Income
Other income grew to approximately $2,580,000 in 1995 from
$60,700 in 1994, and $42,700 in 1993. In 1995, the significant
increase in other income was the result of commissions earned by the
Consolidated Group's broker/dealer subsidiary, MIS, of approximately
$1.12 million and approximately $1.25 million of service fees earned
by its property development subsidiary, offset, in part, from the
increase in other expenses. Other income in 1993 and 1994 resulted
predominantly from miscellaneous fees and charges related to
Receivables.
Other Expenses
Operating expenses increased significantly in 1995 to
$2,900,000 from relatively stable amounts of $231,400 for 1994 and
$244,600 for 1993. The 1995 increase in operating expense was
principally the result of the acquisition and establishment of new
subsidiaries, including the insurance, broker/dealer and the
property development subsidiaries. The 1995 increase in operating
expenses encompassed the addition of employees for each of the new
subsidiaries, commissions paid to agents as a result of the
insurance company acquisition, and occupancy and administrative
expenses associated with the various subsidiaries. See "BUSINESS-
Recent Developments-Subsidiary Acquisitions".
Provision for Losses on Real Estate Assets
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 to provide for what Management
believes are adequate allowances for anticipated losses. The
following table summarizes the Consolidated Group's allowance for
losses on Receivables and repossessed real estate:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Beginning Balance $250,572 $ 96,654 $59,244
Increase due to:
Acquisition of
life insurance
affiliate 310,957
Provision 103,950 103,000 15,000
Charge-Offs (34,276) (49,921) (7,894)
Recoveries 133,927 100,839 30,304
-------- -------- --------
Ending Balance $765,130 $250,572 $96,654
======= ======= =======
<FN>
These allowances are in addition to unamortized acquisition
discounts of approximately $2.6 million at September 30, 1995, $1.3
million at September 30, 1994, and $1.1 million at September 30,
1993.
</TABLE>
Gain/Loss on Other Real Estate Owned
During 1995, the Consolidated Group experienced a gain on the
sale of real estate of approximately $6,300. At the end of fiscal
1995, the Consolidated Group had approximately $836,000 in real
estate held for sale, less than 1% of total assets.
Effect of Inflation
During the three year period ended September 30, 1995,
inflation has had a generally positive impact on the Consolidated
Group's operations. This impact has primarily been indirect in that
the level of inflation tends to be reflected in the current level of
interest rates which impact interest returns and costs on the
Consolidated Group's assets and liabilities. See "BUSINESS-Interest
Sensitive Income and Expense". However, both interest rate levels
in general and the cost of the Consolidated Group's funds and the
return on it investments are influenced by additional factors such
as the level of economic activity and competitive or strategic
product pricing issues. The net effect of the combined factors on
the earnings of the Consolidated Group has been a slight improvement
over the three year period in the positive spread between the rate
of return on interest earning assets less the cost of interest
paying liabilities. Inflation has not had a material effect on the
Consolidated Group's operating expenses. Increases in operating
expenses have resulted principally from increased product volumes or
other business considerations including the acquisition of
additional companies and the start-up of new businesses.
Revenues from real estate sold are influenced in part by
inflation, as, historically, real estate values have fluctuated with
the rate of inflation. However, the effect of inflation in this
regard has not had a material effect on the operations of the
Consolidated Group nor is it expected to have a material effect in
the near future.
Asset/Liability Management
As most of the Consolidated Group's assets and liabilities are
financial in nature, the Consolidated Group is subject to interest
rate risk. In fiscal 1996, more of the Consolidated Group's
financial liabilities (primarily annuities and certificates) will
reprice or mature more quickly than its financial assets (primarily
Receivables and fixed income investments). In a decreasing interest
rate environment, this factor will tend to increase earnings as
liabilities will generally be repriced at lower rates of interest
while financial assets maintain their existing rates of interest.
This effect is mitigated to the extent that receivables are reduced
when debtors increase their level of early repayments to the
Consolidated Group in a decreasing rate environment.
The Consolidated Group may 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 Consolidated Group may 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 take a
trading position in an attempt to benefit from an anticipated
movement in the financial markets. The Consolidated Group had not
employed any such strategies prior to or through September 30, 1995.
Also See "BUSINESS-Securities Investments".
During fiscal 1996, approximately $15.0 million of interest
sensitive assets (cash, Receivables and fixed income investments)
are expected to reprice or mature. Interest sensitive liabilities,
including annuity reserves of approximately $49.6 million reprice
during fiscal 1996, and approximately $10.2 million of Certificates
and other debt will mature during fiscal 1996. These estimates
result in repricing of interest sensitive liabilities in excess of
interest sensitive assets of approximately $44.8 million, or a ratio
of interest sensitive liabilities to interest sensitive assets of
approximately 400%.
New Accounting Rules
In the fourth quarter of fiscal 1993, the Consolidated Group
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 the Consolidated Group's financial position. Prior to fiscal
1993, the Consolidated Group accounted for income taxes as required
by Accounting Principles Board Opinion No. 11. See Note 9 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. The Consolidated Group is required to adopt this
new standard by October 1, 1995. The Consolidated Group does not
anticipate that the adoption of SFAS No. 114 will have a material
effect on the financial statements.
Old Standard 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
stockholders' equity by $59,311, which is net of a $30,554 income
tax effect. At September 30, 1995, the Consolidated Group had net
unrealized losses on investments of $11,884. This amount is
reported as a reduction in stockholders' equity.
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
(the Consolidated Group'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
Consolidated Group's financial statements.
Liquidity and Capital Resources
As a financial institution, the Consolidated Group's liquidity
is largely linked to its ability to renew, maintain or obtain
additional sources of cash. The Consolidated Group has successfully
maintained liquidity, as necessary, during the past four years to
allow it to continue to invest funds generated by operations and
financing activities.
The Consolidated Group generated cash from operations of
approximately $4.0 million in 1995, $2.3 million in 1994, and $1.4
million in 1993. Cash utilized by the Consolidated Group in its
investing activities was approximately $13.7 million in 1995, $6.3
million in 1994, and $9.2 million in 1993. Cash provided by the
Consolidated Group's financing activities was approximately $9.1
million in 1995, $4.1 million in 1994, and $5.8 million in 1993.
These cash flows have resulted in year end cash and cash equivalent
balances of approximately $3.0 million in 1995, and $3.6 million in
both 1994 and 1993.
During 1995, the cash provided by operating activities of
approximately $4.0 million plus cash provided by financing
activities of $9.1 million was used entirely to support the net
investing activities of $13.7 million. Cash from operating
activities of $4.0 million resulted primarily from net income of
$600,000, increases in annuity reserves of $1.0 million, increases
in compound and accrued interest on Certificates of $1.7 million
plus other adjustments of $.7 million. Cash used in investing
activities of $13.7 million primarily included acquisition of real
estate receivables and other receivable investments, net of payments
and sales, of $16.1 million, offset by $1.0 million from the sale of
investment securities and the $1.4 million of cash received upon the
acquisition of various subsidiaries. Cash from financing activities
of $9.1 million resulted primarily from: (1) issuances of
Certificates, net of repayments and related debt issue costs, of
$5.3 million; (2) issuance of insurance annuities, net of
surrenders, of approximately $4.0 million; (3) issuances of
preferred stock of $.4 million; less (4) debt repayments to banks
and others of $.2 million; and (5) dividend payments from
subsidiaries of $.4 million.
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 the
Consolidated Group's former parent, of $3.6 million.
During 1993, a $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.
Management believes that cash flow from operating activities
and financing activities and the liquidity provided from current
investments will be sufficient for the Consolidated Group to conduct
its business and meet its anticipated obligations as they mature
during fiscal 1996. Summit has not defaulted on any of its
obligations since its founding in 1990.
<PAGE>
BUSINESS
INTRODUCTION
The Consolidated Group is a financial institution which
consists of Summit, and several subsidiaries including insurance
companies, a securities broker/dealer, and a property development
services company. Summit and Old Standard, are engaged in the
business of investing in Receivables and other assets through funds
provided by annuity sales, Receivable investment proceeds,
certificate sales, preferred stock sales, and the resale of
repossessed real estate. Their goal is to achieve a positive spread
between the return on their Receivables, and other investments and
their 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, a Washington corporation. On September 9, 1994,
Metropolitan and C. Paul Sandifur, Jr. completed a sale of the
common stock of Summit to National Summit Corp. National Summit
Corp. is a holding company wholly-owned by C. Paul Sandifur Jr.
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 continues to hold
effective control of Summit through National Summit Corp. There
were not and are not any plans to make any material changes in the
business, operations or administration of Summit as a result of the
sale. See "CERTAIN TRANSACTIONS".
Recent Developments-Subsidiary Acquisitions
On January 31, 1995, Summit acquired a securities
broker/dealer, MIS, from Metropolitan. Also, on January 31, 1995,
Summit Property Development, Inc. commenced operations, providing
real estate development services to Metropolitan and its
subsidiaries. See "CERTAIN TRANSACTIONS".
On May 31, 1995, Summit, through a wholly-owned holding
company, purchased Old Standard from Metropolitan. See "CERTAIN
TRANSACTIONS".
On June 1, 1995, Old Standard entered into a Stock Purchase
Agreement to acquire Arizona Life, an insurance company domiciled in
Arizona. The acquisition was completed on December 28, 1995.
Arizona Life has been inactive since approximately August 1994,
except to the extent necessary to retain its licenses. Arizona Life
holds licenses to engage in insurance sales in seven states.
Obtaining access to these additional markets is the principal
purpose for the purchase. Approval of the acquisition was obtained
from the State of Arizona Department of Insurance. As of January 1,
1996, approval is pending in the remaining six states where Arizona
Life currently holds insurance licenses. Management anticipates
obtaining approval from the remaining six states. However, there is
no assurance such approvals will be obtained. During 1996, Arizona
Life is expected to commence annuity sales, and to invest in
Receivables, similar to the activities of Old Standard. See
"CERTAIN TRANSACTIONS".
MANAGEMENT
As of September 30, 1995, Summit's personnel consisted of its
officers and directors, an accountant and an attorney. See
"MANAGEMENT". Most of those individuals are also employed by
Metropolitan. It is anticipated that the Metropolitan employees
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 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 Summit employees are expected to be
necessary or hired during the foreseeable future.
As of September 30, 1995, Old Standard had four employees who
perform the annuity processing and servicing activities. On that
same date, Summit Property Development's staff consisted of twenty-
three employees, while MIS had four staff employees, and independent
contractor agreements with twenty-one registered representatives.
Most of the officers and directors of these subsidiaries are also
employees of Metropolitan, and/or its subsidiaries. It is
anticipated that they will continue to devote substantial amounts of
time to their duties related to their respective positions with
Metropolitan and its subsidiaries, subject to the necessary
commitment of time to conduct the business of the Consolidated
Group's subsidiaries.
The Consolidated Group is currently developing and evaluating
the possible expansion into direct lending, principally residential
lending. The Consolidated Group is also evaluating the possible
securitization and sale of pools of loans, principally to be sold to
institutional investors. Neither of these activities is expected to
have a material impact on the business of the Consolidated Group in
fiscal 1996.
Metropolitan provides management, Receivable acquisition and
Receivable collection services for a fee to Summit and to Old
Standard pursuant to the terms of Management, Receivable Acquisition
and Servicing Agreements. The Receivable acquisition fees are based
upon yield requirements established by Summit and by Old Standard.
Each company 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 1995, Summit and Old Standard incurred service fees for
Receivable acquisitions from Metropolitan of approximately
$1,967,000. Management believes that the terms and conditions of
the agreements with Metropolitan are at least as favorable to Summit
and Old Standard 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 collateralized by
real estate mortgages, deeds of trust and conditional real estate
sales contracts. To a lesser extent, Summit and Old Standard also
acquire 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. Old Standard's investments in Receivables
are financed primarily by the cash flows from Receivables, the sale
of annuities, and income from securities investments.
Sources of Receivables
Summit and Old Standard acquire their Receivables through the
services of Metropolitan. See "BUSINESS-Management". Approximately
90% of these Receivables are acquired by Metropolitan 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 Metropolitan's 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 and Old Standard
have acquired Receivables from all such sources through
Metropolitan.
In order to enhance its position in the Receivables market,
Metropolitan has developed a broker software program called
BrokerNet. BrokerNet is a menu driven program which assists brokers
in preparing and completing proposals to sell Receivables to
Metropolitan. In addition, the program assists in analyzing the
quality of the Receivable, and provides online quotes for the
purchase price for the Receivable. It is planned that this software
will be further developed to assist in preparing the legal documents
needed to purchase a Receivable, assist in monitoring the closing of
a Receivable purchase, and ultimately, transfer the Receivable data
directly into Metropolitan's Receivable servicing and collection
system. All of these efforts are intended to streamline the
decision making process, make the closing time quicker, and continue
to enhance Metropolitan's position in the Receivable purchasing
industry. Although the initial response from the Receivable brokers
appears positive, there can be no assurance that this software
program will create a competitive advantage.
Metropolitan's Receivable acquisition activities (total
activities for itself and for others), grew from approximately
$156.6 million and $142.5 million in 1993 and 1994, respectively, to
$259.8 million in 1995. At the same time, Metropolitan's average
closing time has ranged from 23 days in 1995, to 24 days in 1994,
and 27 days in 1993. Management considers closing time to be an
important factor in a seller's decision to sell a Receivable to
Metropolitan.
Yield and Discount Considerations
Summit and Old Standard each establish their own yield
requirements for Receivable acquisitions. 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". Each company's yield
requirements are provided to Metropolitan, which negotiates
Receivable purchases at prices calculated to provide the desired
yield. Often this results in a purchase price less than the
Receivable's unpaid balance. The difference between the unpaid
contractual balance and the purchase price is the "discount." The
amount of the discount will vary in any given transaction depending
upon the yield requirements at the time of the purchase and the
terms and nature of the Receivable.
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 Receivables, the amortization period, which is
approximately 78 months, is based on an estimated constant
prepayment rate of 10-12 percent per year on scheduled balances,
which is consistent with Summit's and Old Standard's prior
experience with similar loans and their expectations.
YIELD CHART: REFER TO GRAPH APPENDIX ITEM 2
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 1995). During fiscal
1995, the Consolidated Group's average initial yield requirement was
10.5% to 11%, for Receivables collateralized by real estate.
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. In addition,
extensions of additional credit and/or refinancing of the Receivable
may be negotiated. 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 being considered for acquisition
(underwriting) is performed for Summit and Old Standard 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 the Consolidated Group'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 the purchaser. 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 and Old Standard
for Receivables collateralized by real estate include a requirement
that the ratio of their investment in a Receivable compared to the
appraised value of the property which collateralizes the Receivable
may not exceed 75-80% (depending upon company, collateral type and
collateral quality) on Receivables collateralized by single family
residences; and that the ratio of the investment to the property's
appraised value may not exceed 70% on Receivables collateralized by
other types of improved property; and 55% on unimproved land.
These investment to collateral ratio requirements generally provide
higher than conventional levels of collateral to protect the
purchaser's investment in the event of a default on a Receivable.
For each Receivable collateralized by real estate, a current
market value appraisal of the real estate providing collateral is
obtained. These appraisals are obtained through licensed
independent appraisers or through one of Metropolitan's licensed
staff appraisers. These appraisals are generally based on visual
drive-by inspections, and comparative sales analysis. Each
independent appraisal is also subject to review by a staff
appraiser.
Additionally, every proposed investment in a Receivable
collateralized by real estate is evaluated by Metropolitan's
demography department utilizing computerized data which identifies
local trends in property values, personal income, population and
economic indicators. Other underwriting functions related to
Receivables collateralized 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 and Old Standard also acquire Receivables, through
Metropolitan, which are not collateralized 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 generally
require that Metropolitan review the settlement agreement. In the
case of all annuity purchases, underwriting guidelines generally
require that Metropolitan review the annuity policy, related
documents, the credit rating of the payor (frequently an insurance
company), determine the existence of any state insurance fund
designed to protect annuity holders, and review other factors
relevant to the risk of purchasing a particular annuity as deemed
appropriate by management 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 receipt of
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, a certified copy of the court order is
required.
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. Receivable purchases
which involve investments greater than specified amounts are
submitted to an additional special risk evaluation committee, and
are subject to legal department review. The investment amount which
gives rise to special risk evaluation is dependent upon the type and
quality of collateral, ranging from $250,000 for conventionally
financiable residential property to $100,000 for residential
property which is not owner occupied. In addition, transactions
involving investments of more than $500,000 are subject to Board of
Director's approval.
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 and Old Standard's acquisition of Receivables
collateralized 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
The Consolidated Group's investments in Receivables includes
Receivables collateralized by first or second liens, primarily on
single family residential property. Management believes that these
Receivables present lower credit risks than a portfolio of mortgages
collateralized by commercial property or unimproved 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 consolidated information about the
Consolidated Group's investments in Receivables collateralized by
real estate, as of September 30, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Face value of discounted
Receivables $51,768,999 $21,931,395
Face value of originated
and non-discounted
Receivables 10,560,249 6,473,183
Unrealized discounts,
net of unamortized
acquisition costs (2,614,937) (1,337,365)
Allowance for losses (765,130) (250,572)
Accrued interest
receivable 1,168,038 466,350
----------- -----------
Carrying value $60,117,219 $27,282,991
=========== ===========
</TABLE>
As of September 30, 1995, approximately 82% of the Consolidated
Group's investments in Receivables are collateralized by first lien
positions on real estate and 18% in second lien positions. The
Receivables are collateralized by residential, business and
commercial properties with residential collateral representing
approximately 83% of such investments as of September 30, 1995. The
Receivables are primarily generated by private individuals or
businesses and are therefore not government insured loans.
The Consolidated Group's Receivable investments in real estate
loans at September 30, 1995 were collateralized by properties
located throughout the United States with not more than 3% (by
dollar amount) in any single state except as follows:
Arizona . . . . . . 9%
California . . . . 11%
Oregon . . . . . . 7%
Texas . . . . . . . 13%
Washington . . . . 12%
Florida . . . . . . 5%
Georgia . . . . . . 3%
New Mexico. . . . . 5%
<PAGE>
SUMMIT SECURITIES, INC.
and subsidiaries
RECEIVABLES COLLATERALIZED BY REAL ESTATE
September 30, 1995
<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 segregates the Consolidated Group's Receivable portfolio by type, size and
lien position.
Number Carrying Delinquent Number of
of Interest Amount of Principal Delinquent
Description Receivables Rates Receivables Amount Receivables
---------- -------- -------- ----------- ----------
RESIDENTIAL Principally
<S> <C> <C> <C> <C> <C> <C>
First Mortgage > $75,000 103 7%-12% $10,750,067 $602,699 5
First Mortgage > $40,000 268 7%-12% 14,265,052 797,198 14
First Mortgage < $40,000 924 7%-12% 18,514,619 750,304 46
Second or Lower> $75,000 13 9%-12% 1,358,974 -- --
Second or Lower> $40,000 38 8%-12% 2,022,634 226,881 4
Second or Lower< $40,000 236 8%-11% 5,074,103 49,146 3
COMMERCIAL
First Mortgage > $75,000 24 9%-11% 2,757,580 -- --
First Mortgage > $40,000 17 8%-11% 975,626 -- --
First Mortgage < $40,000 35 8%-11% 739,072 16,855 2
Second or Lower> $75,000 8 9%-11% 1,087,947 -- --
Second or Lower> $40,000 9 9%-11% 537,240 -- --
Second or Lower< $40,000 15 9%-11% 383,437 -- --
FARM, LAND AND OTHER
First Mortgage > $75,000 7 10%-12% 1,395,643 -- --
First Mortgage > $40,000 13 8%-11% 648,812 -- --
First Mortgage < $40,000 65 9%-11% 1,111,652 14,526 1
Second or Lower> $75,000 1 0% 217,391 217,391 1
Second or Lower> $40,000 4 5%-12% 223,881 -- --
Second or Lower< $40,000 14 8%-10 265,518 -- --
Unrealized discounts, net
of unamortized acquisition
costs, on Receivables
purchased at a discount (2,614,937)
Accrued Interest Receivable 1,168,038
Allowance for Losses (765,130)
___________ ___________
TOTAL $ 60,117,219 $ 2,675,000
============ ===========
<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 1995 - September 1998 $ 6,935,045 $ 1,524,281 $ 1,494,409 $ 9,953,735
October 1998 - September 2000 5,091,289 1,210,602 434,447 6,736,338
October 2000 - September 2002 3,895,987 680,842 270,919 4,847,748
October 2002 - September 2005 6,444,955 731,814 440,803 7,617,572
October 2005 - September 2010 10,504,342 1,490,854 939,390 12,934,586
October 2010 - September 2015 6,142,677 192,069 123,111 6,457,857
October 2015 - Thereafter 12,971,154 650,440 159,818 13,781,412
---------- ---------- ---------- ----------
$51,985,449 $6,480,902 $3,862,897 $62,329,248
=========== ========== ========== ==========
</TABLE>
The Consolidated Group held 1,794 Receivables collateralized by
real estate, as of September 30, 1995. The average stated interest
rate (weighted by principal balances) on these Receivables on that
date was approximately 9.3%. See Note 2 to Consolidated Financial
Statements.
Delinquency Experience & Collection Procedures
The principal amount of Receivables collateralized by real
estate, held by the Consolidated Group (as a percentage of the total
outstanding principal amount of such Receivables) which was in arrears
for more than ninety days at September 30, 1995 was 4.3% compared to
3.8% and 8.0% at September 30, 1994 and 1993, respectively. The
increase in 1995 is attributable to the increased investment in this
type of Receivable particularly in conjunction with the acquisition of
Old Standard. The decrease in 1994 is attributable to the sale of the
timeshare receivables to Metropolitan and improved collection efforts.
Because Receivables purchased by the Consolidated Group are typically
not of the same quality as mortgages that are originated for sale to
agencies such as the Federal National Mortgage Association (Fannie
Mae), higher delinquency rates are expected. However, because these
Receivables are purchased at a discount, the aggregate loss to the
Consolidated Group on sales after repossession are generally lower
than might otherwise be expected given these higher delinquency rates.
Metropolitan provides Receivable collection services for Summit
and Old Standard, pursuant to the following guidelines. When a
Receivable becomes delinquent, the payor is initially contacted by
letter approximately seven days after the delinquency date. If the
delinquency is not cured, the payor is contacted by telephone
(generally on or about the 17th day following the payment due date).
If the default is still not cured (generally within three to six days
after the initial call), then additional collection activity,
including further 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 collateral for the
Receivable. Collection activity may also involve the initiation of
legal proceedings against the Receivable payor. 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
The Consolidated Group 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, an appraisal policy was adopted which requires annual appraisals
on properties collateralizing delinquent receivables when the
Receivable balance exceeds a threshold equal to .5% of total assets of
the respective company. Biannual appraisals are required on all other
delinquent Receivables with balances in excess of $50,000. The
allowance for losses was 1.2%, 0.9%, and 0.5% of the face value of
Receivables collateralized by real estate at September 30, 1995, 1994,
and 1993, respectively.
Repossessed Properties
Summit and Old Standard own various repossessed properties held
for sale. At September 30, 1995, 16 properties, acquired in
satisfaction of debt, with a combined carrying amount of approximately
$836,000 were held.
ANNUITY OPERATIONS
Introduction
The Consolidated Group raises significant funds through its
insurance company, Old Standard. Old Standard was incorporated in
Idaho in 1990, and acquired by the Consolidated Group on May 31, 1995.
Old Standard had total assets of approximately $54.1 million at
September 30, 1995.
Old Standard markets its annuity products through approximately
100 independent sales representatives under contract. These
representatives may also sell insurance products for other companies.
Old Standard is licensed as an insurer in Idaho, and has applied for
licenses in Hawaii, Montana, North Dakota, Oregon and Utah.
Additionally, the Company has pending applications for the states of
Texas and Arizona. During calendar 1994, the most recent year for
which statistical information is available, Old Standard's annuity
market share was 4.17%, and it was ranked 7th as a producer of
annuities in Idaho.
Management intends to expand the insurance operations into other
states as opportunities arise, which may include the acquisition of
other insurance companies.
There is no specific regulatory limitation imposed by Idaho on
the percent of assets which Old Standard may invest in Receivables
collateralized by real estate. As of September 30, 1995, 55.1% of Old
Standard's assets were invested in Receivables collateralized by real
estate, 21.1% in lotteries, and 0.5% in annuities (issued by unrelated
insurance companies). As of September 30, 1995, the balance of Old
Standard's investments were invested in principally investment grade
corporate and government securities, but may be invested into a
variety of other areas as permitted by applicable insurance
regulations. See "BUSINESS-REGULATION".
Annuities
During the last three years, Old Standard has derived 100% of its
premiums from annuity sales. Management believes that annuity
balances have continued to grow due to market acceptance of the
products (due largely to a competitive rate and a reputation for
superior service), and changes in tax laws that removed the
attractiveness of competing tax-advantaged products.
Old Standard's annuities also qualify for use as either
Individual Retirement Annuities, Simplified Employee Pensions,
Qualified Corporate Pension Plans or Tax-Sheltered Annuities for
teachers and certain other nonprofit organizations' retirement plans.
Under these qualified plans, the interest is tax deferred and the
principal contributions, within the limits specifically established by
the Internal Revenue Code, are tax deductible during the accumulation
period. These annuities are subject to income tax only upon actual
receipt of proceeds, usually at retirement when an individual's tax
rate is anticipated to be lower.
During 1996, the Consolidated Group anticipates matching premium
flow substantially with the availability of Receivable investments, in
order to maximize the earnings from the interest spread.
Additionally, the premium flow and resulting asset growth will be
influenced by the ability of Summit to make additional capital
contributions to Old Standard.
Flexible and single premium annuities are offered with short,
intermediate and traditional surrender fee periods. At September 30,
1995, deferred policy acquisition costs were approximately 5.6% of
annuity reserves. Since surrender charges typically do not exceed 5%,
increasing termination rates may have an adverse impact on the
insurance subsidiary's earnings, requiring faster amortization of
these costs. Management believes that this potentially adverse impact
is mitigated by higher annuity interest spreads, which are estimated
to be approximately 250 basis points in future years. During the four
months ended September 30, 1995, amortization of deferred policy
acquisition costs was $198,000. The calculation has been reviewed by
an independent actuary.
Annuity lapse rates are calculated by dividing cash outflows
related to benefits and payments by average annuity reserves. For the
four months ended September 30, 1995 (the period since Old Standard's
acquisition by Summit), withdrawals and benefits were approximately
$1.9 million. Based upon results for the four months ended September
30, 1995, the annualized lapse rate was approximately 12%. Management
believes a reasonable estimate for future lapse rates to be 10%
(including 4% for death and partial withdrawal and 6% for basic
surrenders and surrenders occurring in the year the surrender charge
expires).
Reserves
State law requires that the reserve be sufficient to meet Old
Standard's future obligations under annuity contracts currently in
force. Reserves are recalculated each year to reflect amounts of
insurance in force, issue ages of new contract holders, duration of
contracts and variations in contract terms. Since such reserves are
based on certain actuarial assumptions, no representation is made that
the ultimate liability will not exceed these reserves. Old Standard
utilizes the services of a consulting actuary to review the reserve
amount for compliance with applicable statutes.
The actuarially determined reserve is reported in statutory
financial statements as required by state insurance regulatory
authorities. Accounting principles used to prepare these statutory
financial statements differ from generally accepted accounting
principles (GAAP). Annuity reserves amounted to approximately $49.6
million at September 30, 1995 based on GAAP financial reporting.
Securities Investments
At September 30, 1995, 100% of the Consolidated Group's
securities investments were held by Old Standard. The following table
outlines the nature and carrying value of securities investments held
by Old Standard at September 30, 1995:
<TABLE>
<CAPTION>
Available Held To Total Percent
For Sale Maturity
Portfolio Portfolio
---------- ---------- ---------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Total Amount $ - $ 8,270 $ 8,270 100.0%
======= ======== ======== ======
Invested In:
Fixed Income/Taxable $ - $ 8,270 $ 8,270 100.0%
======= ======== ======== ======
Taxable:
Government Agency $ - 5,230 5,230 63.2%
Corporate - 3,040 3,040 36.8%
------- -------- -------- ------
$ - $ 8,270 $ 8,270 100.0%
======= ======== ======== =====
Corporate Bonds:
AAA $ - $ 1,032 $ 1,032 33.9%
AA - 1,003 1,003 33.0%
A - 1,005 1,005 33.1%
------- -------- -------- ------
$ - $ 3,040 $ 3,040 100.0%
======= ======== ======== ======
Corporate:
Finance $ - $ 2,008 $ 2,008 66.1%
Industrial - 1,032 1,032 33.9
------- -------- -------- ------
$ - $ 3,040 $ 3,040 100.0%
======= ======== ======== ======
</TABLE>
Investments of the insurance subsidiary are subject to the
direction and control of an investment committee appointed by the
Board of Directors of each insurance subsidiary. All such investments
must comply with applicable state insurance laws and regulations. See
"BUSINESS-REGULATION". Investments currently include corporate,
government agency, and direct government obligations.
Old Standard is authorized to use financial futures instruments
for the purpose of hedging interest rate risk relative to 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. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS-Asset/Liability Management".
In the held to maturity portfolio, gross unrealized losses were
$198,000 at September 30, 1995.
METHOD OF FINANCING
The Consolidated Group's continued growth is expected to depend
on its ability to market its securities and annuities 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 annuities,
Certificates and Preferred Stock. Such funds may be supplemented by
short-term bank financing and borrowing from affiliates. Old Standard
has established secured lines of credit through several lending
institutions, principally consisting of Brokerage Firms. As of
September 30, 1995, there were no borrowings outstanding.
The availability of Receivables offered for investment in the
national market is believed by management to be adequate to meet the
needs of the Consolidated Group.
COMPETITION
Summit's and Old Standard'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 Financial Services Company, Inc.,
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 and Old Standard 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. To
the extent other competing Receivable investors may develop faster
closing times or more flexible investment policies, they may
experience a competitive advantage.
Summit's and MIS's securities products face competition for
investors from other securities issuers many of which are much larger,
and from other types of financial institutions.
The life insurance and annuity business is highly competitive.
Premium rates, annuity yields and commissions to agents are
particularly sensitive to competitive forces. Old Standard's
management believes that it is in an advantageous position in this
regard because of its earning capability through investments in
Receivables compared to that of most other life insurance companies.
Old Standard has also been assigned an A.M. Best Co. (Best) rating of
"B (good)". Best bases its rating on a number of complex financial
ratios, the length of time a company has been in business, the nature
and quality of investments in its portfolio, depth and experience of
management and various other factors. Best's ratings are supplied
primarily for the benefit of policyholders and insurance agents.
BROKER DEALER ACTIVITIES
Metropolitan Investment Securities, Inc. (MIS) is a securities
broker/dealer, and member of the National Association of Securities
Dealers. It markets the securities products of Summit and of
Metropolitan, Summit's former parent company. In addition, MIS
currently markets several families of mutual funds, and it anticipates
adding additional products offered by unrelated entities such as
variable annuities. MIS's sales efforts are currently focused in the
states of Washington, Oregon, Idaho and Montana. It is licensed in
several other Western states and plans to expand its sales and
marketing efforts into additional states in the near future. After
the elimination of transactions conducted among the Consolidated
Group, MIS contributed an immaterial operating loss to the
Consolidated Group during the fiscal year ended September 30, 1995 on
revenues of approximately $1.2 million, after intercompany
eliminations. See Note 11 to Consolidated Financial Statement.
PROPERTY DEVELOPMENT SERVICES
Summit Property Development, Inc. provides real estate
development services for a fee. Currently its principal client is
Metropolitan. Such services may include, but are not limited to the
following: sales, marketing, market analysis, architectural services,
design services, subdividing properties, and coordination with
regulatory groups to obtain the approvals which are necessary to
develop a particular property. Summit Property Development does not
own any real estate itself. Summit Property Development, Inc.
produced operating income for the Consolidated Group during the fiscal
year ended September 30, 1995 of approximately $118,000 on revenues of
approximately $1,250,000. See Note 11 to Consolidated Financial
Statement.
REGULATION
Old Standard and Summit are subject to the Insurance Holding
Company Act as administered by the Office of the State Insurance
Commissioner of the State of Idaho. The act regulates transactions
between insurance companies and their affiliates. It requires that
Summit provide prior notification to the Idaho Insurance Commissioner
of certain transactions between the insurance company and affiliates.
In certain instances, the Idaho Insurance Commissioner's approval is
required.
The purchase of Arizona Life required approval from the Office
of the State Insurance Commissioner of the State of Arizona, and each
state in which Arizona Life is authorized to do business. Approval
from the State of Arizona was obtained December 28, 1995. As of that
date, formal approval from the other states wherein Arizona Life is
licensed was pending. Arizona Life and Old Standard are subject to the
Insurance Holding Company Act as administered in Arizona. The Act
regulates transactions between insurance companies and their
affiliates. It requires that Old Standard provide notification to the
Insurance Commissioner of certain transactions between the insurance
company and affiliates. In certain instances, the Commissioner's
approval is required before a transaction with an affiliate can be
consummated.
Old Standard and Arizona Life are subject to extensive regulation
and supervision by the Office of the State Insurance Commissioner of
their states of domicile, which are Idaho and Arizona, respectively.
To a lesser extent they are also subject to regulation by each of the
other states in which they operate. These regulations are directed
toward supervision of such things as granting and revoking licenses to
transact business on both the insurance company and agency levels,
approving policy forms, prescribing the nature and amount of permitted
investments, establishing solvency standards and conducting extensive
periodic examinations of insurance company records. Such regulation
is intended to protect annuity contract and policy owners, rather than
investors in an insurance company. Old Standard and Arizona Life are
required to file detailed annual and quarterly reports with their
respective states of domicile.
All states in which the insurance subsidiaries operate have laws
requiring solvent life insurance companies to pay assessments to
protect the interests of policyholders of insolvent life insurance
companies. Assessments are levied on all member insurers in each
state based on a proportionate share of premiums written by member
insurers in the lines of business in which the insolvent insurer
engaged. A portion of these assessments can be offset against the
payment of future premium taxes. However, future changes in state
laws could decrease the amount available for offset. The economy and
other factors have caused failures of substantially larger companies
which could result in substantially increased future assessments.
The net amounts expensed by Old Standard for guaranty fund
assessments and charged to operations for the four month period ended
September 30, 1995 was $25,000. This estimate was based on updated
information provided by the National Organization of Life and Health
Insurance Guaranty Associations regarding insolvencies occurring
during 1990 through 1992. Management does not believe that the amount
of future assessments associated with known insolvencies after 1992
will be material to its financial condition or results of operations.
These estimates are subject to future revisions based upon the
ultimate resolution of the insolvencies and resultant losses.
Management cannot reasonably estimate the additional effects, if any,
upon its future assessments pending the resolution of the above
described insolvencies. The amount of guaranty fund assessment has
been recorded net of a 7% discount rate applied to the estimated
payment term of approximately seven years.
Old Standard is subject to regulatory restrictions on its ability
to pay dividends. Such restrictions affect Summit's ability to
receive dividends from Old Standard. The unrestricted statutory
surplus of Old Standard totaled approximately $249,000 as of September
30, 1995.
For statutory purposes, Old Standard's capital and surplus and
its ratio of capital and surplus to admitted assets were as follows as
of the dates indicated:
<TABLE>
<CAPTION>
As of As of December 31,
September 30, 1995 1994 1993 1992
------------------ ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Capital and Surplus $2,249 $2,431 $2,069 $2,078
Ratio of Capital and
Surplus to Admitted
Assets 4.2% 5.4% 5.0% 6.5%
</TABLE>
Although the State of Idaho requires only $2.0 million in capital
and surplus to conduct insurance business, Old Standard has attempted
to maintain a capital and surplus ratio of at least 5% of total
admitted assets which management considers adequate for regulatory and
rating purposes.
Idaho has enacted the Risk Based Capital Model law which requires
an insurance company to maintain minimum amounts of capital and
surplus based on complex calculations of risk factors that encompass
the invested assets and business activities. The insurance
subsidiary's capital and surplus levels exceed the calculated minimum
requirements.
MIS is subject to extensive regulation and supervision by the
National Association of Securities Dealers and the Securities and
Exchange Commission. These regulations include licensing
requirements, record keeping requirements, net capital requirements,
supervision requirements and sales practice standards.
<PAGE>
MANAGEMENT
Directors and Executive Officers
(As of December 31, 1995)
Name Age Position
Tom Turner 45 President/Director
Philip Sandifur 24 Vice President/Director
Greg Gordon 42 Secretary/Treasurer/Director
Ernest Jurdana 51 Principal Accounting Officer
Robert Potter 68 Director
Tom Turner was elected President on October 31, 1995. Prior to
serving as President, he had served as Secretary/Treasurer since
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.
Philip Sandifur is the son of C. Paul Sandifur Jr., who is the
sole shareholder of National Summit Corp., the parent company of
Summit and also the controlling shareholder of Metropolitan. 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. Philip Sandifur is principally active as the
President of Summit Trading Company, a wholly-owned subsidiary of
Summit's parent company, National Summit Corp.
Greg Gordon was elected Secretary/Treasurer on October 31, 1995.
He joined Metropolitan in April of 1989 and started the company's
demography department. From 1985 to 1989, he was employed as the
Northeastern US division, Market Analyst for Mortgage Guarantee
Insurance Corporation. From 1984 to 1985, he was employed as a
limited partnership underwriter with Reliance Insurance Company.
Ernest Jurdana joined Metropolitan as its Principal Accounting
Officer in June of 1994. Since that date, he has also been the
Principal Accounting 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.
Robert Potter was elected a Director of Summit on March 14, 1995.
He is an outside director, not active in the day-to-day business of
Metropolitan or Summit. From 1987 to present, Mr. Potter has served
as President of Jobs Plus, Inc., a non-profit corporation formed to
diversify and broaden the economic base of Kootenai County Idaho.
Prior to 1987, Mr. Potter was employed for approximately 6 months as
Chief Operating Officer of Incomnet Inc., and prior to that he worked
for approximately 30 years with AT&T.
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 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 (the "Act")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 common
stock as of September 30, 1995.
<TABLE>
<CAPTION>
SHARES OF
NAME AND ADDRESS COMMON STOCK % OF CLASS
<S> <C> <C>
National Summit Corp. 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 has continued to provide, for a fee, principally
all the management 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 continues to control
Summit through National Summit Corp.
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 current officers and
all but one of the directors are employees of Metropolitan. No
officer or director of Summit is an officer or director of
Metropolitan.
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 January 31, 1995, Summit acquired MIS from Metropolitan. The
purchase price was $288,950 paid in cash. MIS is a limited-purpose
broker/dealer and the exclusive broker/dealer for the securities sold
by Metropolitan and Summit. This sale has not materially affected the
business of MIS. Also see "CERTAIN INVESTMENT CONSIDERATIONS-RISK
FACTORS" & "BUSINESS-BROKER DEALER ACTIVITIES". Also on January 31,
1995, Metropolitan discontinued its property development division,
which consisted of a group of employees experienced in real estate
development. On the same date, Summit commenced the operation of a
property development subsidiary, Summit Property Development Inc.,
employing those same individuals who had previously been employed by
Metropolitan. Summit Property Development has entered into an
agreement with Metropolitan to provide property development services
to Metropolitan. Also see "CERTAIN INVESTMENT CONSIDERATIONS-RISK
FACTORS" & "BUSINESS-ANNUITY OPERATIONS".
Through a wholly-owned subsidiary, Summit Group Holding Company,
Summit acquired Old Standard on May 31, 1995 from Metropolitan. The
purchase price was $2.722 million, plus 20% of Old Standard's
statutory earnings for the subsequent three years. The purchase price
was established based upon an actuarial valuation of Old Standard.
Summit and Old Standard obtain substantially all of their
Receivable management and servicing support from Metropolitan through
a Management, Receivable Acquisition and Servicing Agreement. It is
anticipated that Arizona Life will execute a similar Agreement during
the first quarter of calendar 1996. Also see "BUSINESS-RECEIVABLE
INVESTMENTS" & "CERTAIN INVESTMENT CONSIDERATIONS-RISK FACTORS" & Note
11 to Consolidated Financial Statements. Management believes that
such Agreements are on terms at least as favorable as could be
obtained from non-affiliated parties.
In addition, transactions between Metropolitan and companies
within the Consolidated Group take place in the normal course of
business. Such transactions include rental of office space, provision
of administrative and data processing support, accounting and legal
services. See Note 11 to Financial Statements.
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 up to a maximum of 6% of the investment
amount in each transaction. During the fiscal year ended September
30, 1995, Summit paid or accrued commissions to MIS in the amount of
$297,106 upon the sale of $8,585,470 of certificates and commissions
of $19,557 upon the sale of $390,280 of preferred stock. MIS also
maintains, on behalf of Summit, certain investor files and information
pertaining to investments in Summit's Certificates.
Summit Property Development has entered into an Agreement with
Metropolitan to provide property development services to Metropolitan
for a fee. See "BUSINESS-PROPERTY DEVELOPMENT SERVICES".
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
Summit Securities, Inc. and Subsidiary:
Historical:
Report of Independent Accountants...................
Consolidated Balance Sheets.........................
Consolidated Statements of Income...................
Consolidated Statements of Stockholders' Equity.....
Consolidated Statements of Cash Flows...............
Notes to Consolidated Financial Statements..........
Proforma Unaudited Financial Statements:
Condensed Consolidated Balance Sheet................
Condensed Consolidated Statements of Income.........
Notes to Condensed Consolidated Balance Sheet
and Statements of Income............................
Old Standard Life Insurance Company Historical
Financial Statements:
Report of Independent 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 subsidiaries as of September 30, 1995
and
1994, and the related consolidated statements of income,
stockholders'
equity and cash flows for each of the three years in the period
ended
September 30, 1995. 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 financial statements referred to above
present
fairly, in all material respects, the consolidated financial
position
of Summit Securities, Inc. and subsidiaries as of September 30,
1995
and 1994, and the consolidated results of their operations and
their
cash flows for each of the three years in the period ended
September
30, 1995 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 fiscal 1993.
COOPERS & LYBRAND L.L.P.
Spokane, Washington
November 20, 1995
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1995 and 1994
1995
1994
----------- -------
- ----
ASSETS
Cash and cash equivalents $ 2,979,362 $
3,608,764
Investments:
Investments in affiliated company
(Note 4) 3,022,425
3,022,425
Held-to-maturity securities, at
amortized cost (Note 5) 8,269,541
Accrued interest on investments 46,209
----------- -------
- ----
Total cash and investments 14,317,537
6,631,189
Real estate contracts and mortgage
notes receivable, net
(Notes 2, 6 and 11) 60,117,219
27,282,991
Other receivable investments (Notes 3
and 11) 16,895,902
Real estate held for sale (Note 6) 836,291
452,700
Deferred costs (Note 8) 3,582,202
705,994
Other assets, net 597,421
29,114
----------- -------
- ----
Total assets $96,346,572
$35,101,988
===========
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Annuity reserves (Note 12) $49,559,589
Investment certificates and accrued
interest (Note 7) 38,545,896
$31,092,830
Debt payable (Note 6) 104,636
119,888
Accounts payable and accrued expenses
including payables to affiliates
(Note 11) 2,938,182
416,262
Deferred income taxes (Note 9) 1,291,202
151,778
----------- -------
- ----
Total liabilities 92,439,505
31,780,758
----------- -------
- ----
Commitments and contingencies (Notes 1
and 12)
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
September 30, 1995 and 1994
1995
1994
----------- -------
- ----
LIABILITIES AND STOCKHOLDERS' EQUITY,
CONTINUED
Stockholders' equity (Note 10):
Preferred stock, $10 par (liquidation
preference $3,562,220 and $3,171,940) 356,222
317,194
Common stock, $10 par 100,000
100,000
Additional paid-in capital 1,786,991
1,454,063
Retained earnings 1,675,738
1,449,973
Net unrealized loss on investments, net
of income taxes of $6,122 (11,884)
----------- -------
- ----
Total stockholders' equity 3,907,067
3,321,230
----------- -------
- ----
Total liabilities and
stockholders' equity $96,346,572
$35,101,988
===========
===========
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended September 30, 1995, 1994 and 1993
1995 1994
1993
---------- ---------- ------
- ----
Revenues:
Annuity fees and charges $ 14,179
Interest on receivables 3,901,113 $2,422,484
$1,938,206
Earned discount on receivables 777,659 373,003
428,482
Other investment interest 410,568 275,180
120,998
Dividends (Note 11) 256,991
Real estate sales 1,123,500 88,000
280,500
Fees, commissions, service
and other income (Note 11) 2,580,105 60,677
42,714
Realized net gains on sales
of investments 4,252
4,724
Realized net gains on sales
of real estate contracts and
mortgage notes and other
receivable investments
(Note 11) 512,500 171,756
---------- ---------- ------
- ----
Total revenues 9,576,615 3,395,352
2,815,624
---------- ---------- ------
- ----
Expenses:
Annuity benefits 1,034,082
Interest expense 3,251,334 2,527,945
1,792,059
Cost of real estate sold 1,117,233 75,656
298,900
Provision for losses on
real estate assets 445,381 155,042
51,012
Salaries and employee benefits 907,690
Commissions to agents 1,395,994
Other operating and under-
writing expenses (Note 11) 738,380 231,423
244,595
Less amount capitalized as
deferred costs, net of
amortization (Note 8) (140,745)
---------- ---------- ------
- ----
Total expenses 8,749,349 2,990,066
2,386,566
---------- ---------- ------
- ----
Income before income taxes 827,266 405,286
429,058
Income tax provision (Note 9) (239,707) (140,407)
(145,951)
---------- ---------- ------
- ----
Net income 587,559 264,879
283,107
Preferred stock dividends (309,061) (2,930)
---------- ---------- ------
- ----
Income applicable to common
stockholders $ 278,498 $ 261,949 $
283,107
========== ==========
==========
Income per share applicable to
common stockholders $ 27.85 $ 13.47 $
14.15
========== ==========
==========
Weighted average number of
shares of common stock
outstanding 10,000 19,445
20,000
========== ==========
==========
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended September 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Net
Unrealized
Gains
Additional
(Losses)
Preferred Common Paid-In
on Invest- Retained
Stock Stock Capital
ments Earnings Total
---------- ---------- ----------
---------- ---------- ----------
<S> <C> <C> <C>
<C> <C> <C>
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
Net income
587,559 587,559
Cash dividends on preferred
stock (variable rate)
(309,061) (309,061)
Sale of variable rate preferred
stock, net of offering costs
(3,903 shares) 39,028 332,928
371,956
Net change in unrealized gains
(losses) on investment
securities, net of income
taxes of $6,122 (Note 5)
$ (11,884) (11,884)
</TABLE>
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, CONTINUED
For the Years Ended September 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Net
Unrealized
Gains
Additional
(Losses)
Preferred Common Paid-In
on Invest- Retained
Stock Stock Capital
ments Earnings Total
---------- ---------- ----------
---------- ---------- ----------
<S> <C> <C> <C>
<C> <C> <C>
Excess cost over historical
cost basis of subsidiaries
purchased from related
parties (Note 1)
(52,733) (52,733)
---------- ---------- ----------
---------- ---------- ----------
Balance, September 30, 1995 $ 356,222 $ 100,000 $1,786,991
$ (11,884) $1,675,738 $3,907,067
========== ========== ==========
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended September 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995
1994 1993
----------
- - ----------- -----------
<S> <C>
<C> <C>
Operating activities:
Net income $
587,559 $ 264,879 $ 283,107
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)
Realized net gains on sales of investments
(4,252) (4,724)
Realized net gains on sales of real estate
contracts and mortgage notes and other
receivable investments
(512,500) (171,756)
(Gain) loss on sale of real estate
(6,267) (12,344) 18,400
Provision for losses on real estate assets
445,381 155,042 51,012
Amortization of deferred costs
519,280 262,484 151,763
Deferred income tax provision
164,249 136,500 145,951
Changes in assets and liabilities, net of
effects from purchase of subsidiaries:
Annuity reserves
1,031,720
Compound and accrued interest on investment
certificates and debt payable
1,714,943 1,229,371 955,322
Accrued interest receivable
(306,978) 107,423 (175,460)
Other
365,111 312,110 7,383
----------
- - ----------- -----------
Net cash provided by operating activities
4,002,498 2,283,750 1,437,129
----------
- - ----------- -----------
Investing activities:
Payments for purchase of subsidiaries, net of cash
received
1,406,873
Advances to parent and affiliated companies
(1,710,743)
Collection of advances to parent and affiliated
companies
1,710,743
Proceeds from sales of available-for-sale
investments
992,370
Principal payments on real estate contracts and
mortgage notes receivable
6,567,102 1,829,515 4,039,074
Principal payments on other receivable investments
393,942
Purchases of real estate contracts and mortgage
notes receivable
(26,130,804) (20,177,705) (15,667,120)
</TABLE>
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARIES
CONSOLIDATED CASH FLOWS, Continued
For the Years Ended September 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995
1994 1993
----------
- - ----------- -----------
<S> <C>
<C> <C>
Investing activities, continued:
Purchases of other receivable investments
(18,316,371)
Proceeds from real estate sales
163,687 6,200 75,008
Additions to real estate held for sale
(141,336) (82,135) (24,155)
Proceeds from sale of real estate contracts and
mortgage notes and other receivable investments
21,350,848 10,393,131 4,044,423
----------
- - ----------- -----------
Net cash used in investing activities
(13,713,689) (6,320,251) (9,243,513)
----------
- - ----------- -----------
Financing activities:
Repayment of amounts due to parent company
(400,365)
Receipts from annuity products
5,903,808
Withdrawals of annuity products
(1,934,898)
Proceeds from investment certificates
8,585,470 10,539,684 9,677,843
Repayments of investment certificates
(2,847,347) (2,635,649) (2,300,088)
Repayments to banks and others
(193,631) (48,170) (890,247)
Debt issuance costs
(441,775) (444,102) (333,489)
Excess cost over historical cost basis of
subsidiaries purchased from related parties
(52,733)
Issuance of preferred stock
371,956 141,960
Issuance of common stock
100,000
Redemption and retirement of common stock
(3,600,000)
Dividends paid on preferred stock
(309,061) (2,930)
----------
- - ----------- -----------
Net cash provided by financing activities
9,081,789 4,050,793 5,753,654
----------
- - ----------- -----------
Net increase (decrease) in cash and cash equivalents
(629,402) 14,292 (2,052,730)
Cash and cash equivalents, beginning of year
3,608,764 3,594,472 5,647,202
----------
- - ----------- -----------
Cash and cash equivalents, end of year $
2,979,362 $ 3,608,764 $ 3,594,472
=========== =========== ===========
</TABLE>
See Note 14 for supplemental cash flow information.
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARIES
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 (the Company), was
incorporated on July 25, 1990. Prior to September 9, 1994,
the
Company was a wholly-owned subsidiary of Metropolitan
Mortgage &
Securities Co., Inc. (Metropolitan). On September 9, 1994,
the
controlling interest in the Company 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 the Company redeemed all the common
shares held by its former parent company, Metropolitan,
which
consisted of 100% of the outstanding common stock of the
Company
for $3,600,000, which approximated the net book value of
the
Company at the transaction date. Contemporaneously with
this
redemption, the Company issued 10,000 shares of common
stock to
National Summit Corp. for $100,000. In addition, various
investors holding Metropolitan's common and preferred
stock,
including members of Mr. Sandifur's immediate family,
acquired
30,224 shares of the Company'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 4).
On January 31, 1995, the Company consummated an agreement
with
Metropolitan, whereby it acquired Metropolitan Investment
Securities, Inc. (MIS) effective January 31, 1995 at a
purchase
price of $288,950, which approximated the book value of MIS
at
date of purchase. This acquisition was recorded as a
purchase.
However, due to the common control of Metropolitan and the
Company, the historical cost bases of the assets and
liabilities
of MIS were recorded by the Company.
On May 31, 1995, the Company consummated an agreement with
Metropolitan, whereby it acquired Old Standard Life
Insurance
Company (OSL) effective May 31, 1995, at a purchase price
of
$2,722,000, which approximated the historical cost basis of
OSL
at date of purchase, with future contingency payments equal
to
20% of statutory income prior to the accrual of income tax
for
the fiscal years ending December 31, 1995, 1996 and 1997.
Future contingent payments, if any, will be accounted for
as
dividends. The purchase price plus estimated future
contingency
payments approximate the appraised valuation of OSL. The
acquisition was recorded as a purchase. However, due to
the
common control of Metropolitan and the Company, the
historical
cost bases of assets and liabilities of OSL were recorded
by
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF ACCOUNTING POLICIES, CONTINUED:
BUSINESS AND REORGANIZATION, CONTINUED
the Company. The total purchase price of MIS and OSL
exceeded
the historical cost basis of the net assets of the
companies by
approximately $53,000. Due to the common control of
Metropolitan and the Company, this excess purchase price
has
been recorded as a dividend through a reduction of retained
earnings.
Pro forma summary financial information of the Company, as
if
the acquisitions of MIS and OSL occurred as of October 1,
1993,
is as follows:
Years Ended
September 30,
--------------------
- ----
1995 1994
----------- -------
- ----
Revenues $13,704,000 $
9,930,000
Net income 1,184,000
874,000
Net income per common share 87.50
44.80
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.
does not have any operations or activities other than the
acquisition of the Company. The consolidated financial
statements include the accounts of the Company and its
wholly-
owned subsidiaries, Old Standard Life Insurance Company
(since
May 31, 1995), Metropolitan Investment Securities, Inc.
(since
January 31, 1995) and Summit Property Development, Inc.
All
significant intercompany transactions and balances have
been
eliminated in consolidation.
The Company purchases contracts and mortgage notes
collater-
alized by real estate and other receivable investments with
funds generated from the public issuance of debt securities
in
the form of investment certificates, annuity products, cash
flows from receivable payments and sales of real estate.
CASH AND CASH EQUIVALENTS
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
balances periodically exceed the FDIC insurance limit.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF ACCOUNTING POLICIES, CONTINUED:
INVESTMENTS IN AFFILIATED COMPANY
Investments in equity securities of Metropolitan are
carried at
the lower of cost or estimated net realizable value.
INVESTMENTS
The Company has classified its investments in debt and
equity
securities, other than those of an affiliated company, as
"available-for-sale," "held-to-maturity" or "trading." The
accounting policies related to these investments are as
follows:
AVAILABLE-FOR-SALE SECURITIES: Available-for-sale
securities,
consisting primarily of government-backed securities,
public
utility 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
consolidated statement of income in the period the
securities
are sold. Unrealized gains and losses are presented as a
separate component of stockholders' equity, net of
related
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.
TRADING SECURITIES: Trading securities, consisting
primarily
of government-backed securities and corporate bonds, are
bought and held principally for the purpose of selling
them in
the near term and are recorded at market value. Realized
and
unrealized gains and losses are included in the
consolidated
statements of income.
For other than a temporary decline in the value of a common
stock, preferred stock or publicly traded bonds below their
cost
or amortized cost, the investment is reduced to its net
realizable value, which becomes the new cost basis of the
investment. The amount of the reduction is reported as a
loss.
Any recovery of market value in excess of the investment's
new
cost basis is recognized as a realized gain only upon sale,
maturity or other disposition of the investment. Factors
which
the Company evaluates in determining the existence of an
other
than temporary decline in value include the length of time
and
extent to which market value has been less than cost; the
financial condition and near-term prospects of the issuers;
and
the intent and ability of the Company to retain its
investment
for the anticipated period of recovery in market value.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF ACCOUNTING POLICIES, CONTINUED:
REAL ESTATE CONTRACTS AND MORTGAGE NOTES RECEIVABLE
Real estate contracts and mortgage notes receivable 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 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 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 on October 1, 1995. The Company
does
not anticipate that the adoption of SFAS No. 114 will have
a
material effect on the consolidated financial statements.
OTHER RECEIVABLE INVESTMENTS
Other receivables 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 on an individual receivable
basis
over the remaining contractual term of the receivable.
REAL ESTATE HELD FOR SALE
Real estate is stated at the lower of cost or fair value
less
costs to sell. 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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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
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.
ALLOWANCE FOR LOSSES ON REAL ESTATE RECEIVABLES
The established allowances for losses on real estate
receivables
include amounts for estimated probable losses on real
estate
contracts and mortgage notes receivable. Specific
allowances
are established for delinquent contract receivables, as
necessary, with net carrying values in excess of $100,000.
Additionally, the Company establishes allowances, based on
prior
delinquency and loss experience, for currently performing
receivables and smaller delinquent receivables. Allowances
for
losses are based 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 exceeds the
fair
value of the collateral, net of estimated selling costs.
The
Company obtains new or updated appraisals on collateral for
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 expense and other annuity policy and investment
certificates issuance costs are deferred. For investment
certificates, amortization is computed over the expected
certificate term which ranges from 6 months to 5 years,
using
the level yield (interest) method. 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
percentage of the estimated gross profits (both realized
and
unrealized) associated with the annuities.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF ACCOUNTING POLICIES, CONTINUED:
ANNUITY RESERVES
Premiums for annuities are recorded as annuity reserves.
Reserves for annuities are equal to the sum of the account
balances including deferred service charges. Based on past
experience, consideration is given in actuarial
calculations to
the number of policyholder and annuitant deaths that might
be
expected, policy lapses, surrenders and terminations.
RECOGNITION OF ANNUITY REVENUES
Annuity revenues consist of the charges assessed against
the
account balance for expense and surrender charges. Charges
for
future services are assessed; however, the related revenue
is
deferred and recognized in income over the period
benefitted
using the same assumptions as are used to amortize deferred
acquisition costs.
GUARANTY FUND ASSESSMENTS
OSL is subject to insurance guaranty laws in the states in
which
it operates. These laws provide for assessments against
insurance companies for the benefit of policyholders and
claimants in the event of insolvency of other life
insurance
companies. A portion of these assessments can be offset
against
the payment of future premium taxes. However, future
changes in
state laws could decrease the amount available for offset.
As
of September 30, 1995, the Company has accrued a liability
for
guaranty fund assessments for known insolvencies, net of
estimated recoveries through premium tax offsets.
INCOME TAXES
The Company was included in the consolidated income tax
return
with Metropolitan, its former parent, through September 9,
1994.
Subsequent to that date, the Company is included in the
consoli-
dated income tax return with National Summit Corp. The
Company
is allocated a current and deferred tax provision from
Metro-
politan or National Summit Corp. as if the Company filed a
separate tax return. Effective October 1, 1992, Summit
adopted
the provisions of Statement of Financial Accounting
Standards
No. 109 (SFAS No. 109), "Accounting for Income Taxes."
There
was no effect on the Company's financial statements of
adopting
SFAS No. 109.
In association with the disaffiliation from 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 a
reduction in amounts payable to Metropolitan, which
resulted in
a reduction of deferred taxes payable of approximately
$207,000.
This benefit has been recorded as additional paid-in
capital due
to the affiliation between Metropolitan and the Company.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF ACCOUNTING POLICIES, CONTINUED:
FINANCIAL INSTRUMENTS
In December 1991, Statement of Financial Accounting
Standards
No. 107 (SFAS No. 107), "Disclosures about Fair Value of
Financial Instruments," was issued. SFAS No. 107 requires
disclosures of fair value information about financial
instruments, whether or not recognized in the balance
sheet, for
which it is practicable to estimate that value. SFAS No.
107 is
effective for financial statements issued for fiscal years
ending after December 31, 1995 (the Company'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.
EARNINGS PER COMMON SHARE
Earnings per common share are computed by deducting
preferred
stock dividends from net income and dividing the result by
the
weighted averaged number of shares of common stock
outstanding.
There were no common stock equivalents or potentially
dilutive
securities outstanding during any of the three years in the
period ended September 30, 1995.
RECLASSIFICATIONS
Certain amounts in the 1994 and 1993 financial statements
have
been reclassified to conform with the 1995 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, 1995, the Company held first
position
liens associated with contracts and mortgage notes receivable
with
a face value of approximately $51,100,000 and second position
liens of approximately $11,230,000. Approximately 18% of the
face
value of the Company's real estate contracts and mortgage
notes
receivable are collateralized by property located in the
Southwest
(Texas, Louisiana and New Mexico), approximately 21% by
property
located in the Pacific Southwest (California, Nevada and
Arizona),
approximately 22% by property located in the Pacific
Northwest
(Washington, Alaska, Idaho, Montana and Oregon) and
approximately
10% by property located in the Southeast (Florida, Georgia,
North
Carolina and South Carolina).
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. REAL ESTATE CONTRACTS AND MORTGAGE NOTES RECEIVABLE,
CONTINUED:
The face value of the Company's real estate contracts and
mortgage
notes receivable as of September 30, 1995 and 1994 is grouped
by
the following dollar ranges:
1995
1994
----------- -------
- ----
Under $15,001 $ 3,399,194 $
1,262,236
$15,001 to $40,000 22,777,987
10,555,623
$40,001 to $80,000 20,210,801
9,970,820
$80,001 to $150,000 11,883,730
4,684,026
Greater than $150,000 4,057,536
1,931,873
----------- -------
- ----
$62,329,248
$28,404,578
===========
===========
Contractual interest rates on the face value of the Company's
real
estate contracts and mortgage notes receivable as of
September 30,
1995 and 1994 are as follows:
1995
1994
----------- -------
- ----
Less than 8.00% $ 7,003,736 $
3,072,262
8.00% to 8.99% 9,430,059
3,682,307
9.00% to 9.99% 13,741,811
6,489,889
10.00% to 10.99% 20,058,197
10,242,985
11.00% to 11.99% 7,687,561
2,868,603
12.00% to 12.99% 2,957,362
1,533,520
13% or higher 1,450,522
515,012
----------- -------
- ----
$62,329,248
$28,404,578
===========
===========
The weighted average contractual interest rate on these
receiv-
ables at September 30, 1995 is approximately 9.3%. Maturity
dates
range from 1995 to 2025. The constant effective yield on
contracts purchased in fiscal 1995 and 1994 was approximately
10.9% and 11.5%, respectively.
<PAGE>
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, 1995 and 1994:
1995
1994
----------- -------
- ----
Face value of discounted receivables $51,768,999
$21,931,395
Face value of originated and non-
discounted receivables 10,560,249
6,473,183
Unrealized discounts, net of
unamortized acquisition costs (2,614,937)
(1,337,365)
Allowance for losses (765,130)
(250,572)
Accrued interest receivable 1,168,038
466,350
----------- -------
- ----
Carrying value $60,117,219
$27,282,991
===========
===========
The principal amount of receivables with required principal
or
interest payments being in arrears for more than three months
was
approximately $2,675,000 and $1,085,000 at September 30, 1995
and
1994, respectively. During the years ended September 30,
1995 and
1994, the Company sold approximately $20,000,000 and
$10,400,000
of real estate contracts and mortgage notes receivables
without
recourse and recognized gains of approximately $384,000 and
$172,000, respectively. The sales during 1995 were primarily
made
to affiliated companies at estimated fair value which
resulted in
a gain of approximately $335,000.
Aggregate amounts of receivables (face amount) expected to be
received, based upon estimated prepayment patterns, are as
follows:
Fiscal Year Ending
September 30,
-------------------
1996 $ 7,328,000
1997 6,666,000
1998 6,063,000
1999 5,515,000
2000 5,015,000
Thereafter 31,742,248
-----------
Total $62,329,248
===========
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. OTHER RECEIVABLE INVESTMENTS:
Other receivable investments include various cash flow
investments
which are not secured by real estate, primarily annuities and
lottery prizes. Annuities are general obligations of the
payor,
generally an insurance company. Lottery prizes are general
obligations of the insurance company or other entity making
the
lottery prize payments. Additionally, when the lottery
prizes are
from a state-run lottery, the lottery prizes are often backed
by
the general credit of the state.
These investments normally are non-interest bearing and are
purchased at a discount sufficient to meet the Company's
investment yield requirements. The weighted average constant
effective yield on these receivables at September 30, 1995 is
approximately 9.1%. Maturities range from 1995 to 2035.
The following is a reconciliation of the face value of the
other
receivable investments to the Company's carrying value at
September 30, 1995:
Face value of receivables $28,618,310
Unrealized discounts, net of unamortized
acquisition costs (11,722,408)
-----------
Carrying values $16,895,902
===========
All such receivables at September 30, 1995 were performing in
accordance with their contractual terms.
During the year ended September 30, 1995, the Company sold
approximately $1,260,000 of these receivables without
recourse and
recognized a gain of approximately $128,500.
The following individual other receivable investments were in
excess of ten percent of stockholders' equity at September
30,
1995:
Aggregate
Carrying
Issuer Amount
----------------------- ----------
Arizona State Agency $3,344,695
California State Agency 2,036,041
Michigan State Agency 906,801
New Jersey State Agency 2,933,380
New York State Agency 2,364,728
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. OTHER RECEIVABLE INVESTMENTS, CONTINUED:
Aggregate amounts of receivables (face amounts) expected to
be
received are as follows:
Fiscal Year Ending
September 30,
-------------------
1996 $ 2,128,000
1997 2,205,000
1998 2,153,000
1999 2,348,000
2000 2,393,000
Thereafter 17,391,310
-----------
Total $28,618,310
===========
4. INVESTMENTS IN AFFILIATED COMPANY:
At September 30, 1995 and 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, 1995 and 1994,
the
Company owned 7.09% and 7.12%, respectively, of the
outstanding
Class A common stock.
The preferred stock has a par value of $10 per share and has
liquidation preferences equal to its 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 annum. At
September 30, 1995, the preferred Series C, D and E-1 had
dividend
rates of 7.97%. The preferred Series E-4 had a dividend rate
of
8.47%. Neither the common nor preferred shares are traded in
a
public market.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. INVESTMENTS:
A summary of carrying and estimated market values of
investments
at September 30, 1995 is as follows:
Amortized
Cost Gross Gross
Estimated
(Carrying Unrealized Unrealized
Market
Held-to-Maturity Value) Gains Losses
Value
---------------- ---------- ---------- ---------- ------
- ----
U.S. Government
Bonds $5,229,949 $ 0 $ (144,091)
$5,085,858
Corporate Bonds 3,039,592 0 (53,985)
2,985,607
---------- ---------- ---------- ------
- ----
Total $8,269,541 $ 0 $ (198,076)
$8,071,465
========== ========== ==========
==========
All bonds held at September 30, 1995 were performing in
accordance
with their terms.
All investments are held by the Company's life insurance
affiliate. During the year ended September 30, 1994, this
affiliate transferred approximately $6,000,000 of investments
from its available-for-sale portfolio to its held-to-maturity
portfolio. At the date of transfer, these investments had
net
unrealized losses of approximately $29,000 before income
taxes.
These unrealized losses are being amortized over the
remaining
term of the investments transferred using the interest
method.
At September 30, 1995, the remaining unamortized loss of
approximately $12,000, net of income taxes, is reported as a
reduction of stockholders' equity.
The following individual investments (excluding U.S.
government
bonds) held by the Company at September 30, 1995 were in
excess of
ten percent of stockholders' equity:
Carrying
Issuer Amount
------------------------------------- ----------
Corporate Bonds:
Countrywide Funding $1,004,526
General Electric Credit Corporation 1,031,930
Wal-Mart Stores 1,003,136
There were no individual investments held by the Company at
September 30, 1994 in excess of ten percent of stockholders'
equity.
At September 30, 1995, the contractual maturities of the debt
securities are from one year through five years. Expected
maturities will differ from contractual maturities because
issuers
may have the right to call or pre-pay obligations with or
without
call or pre-payment penalties.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. INVESTMENTS, CONTINUED:
Upon the acquisition of OSL, the Company transferred an
investment
with an amortized cost of approximately $992,000 which was
previously classified by Metropolitan as held-to-maturity to
available-for-sale. The investment was subsequently sold at
a
loss of approximately $8,000 when the issuer called the bond.
6. DEBT PAYABLE:
At September 30, 1995 and 1994, debt payable consists of:
1995
1994
-------- ----
- ----
Real estate contracts and mortgage notes
payable, interest rates ranging from 7%
to 9.5%, due in installments through 2009,
collateralized by senior liens on certain
of the Company's real estate contracts,
mortgage notes receivable and real estate
held for sale $104,067
$119,573
Accrued interest payable 569
315
-------- ----
- ----
$104,636
$119,888
========
========
Aggregate amounts of principal payments due on debt payable
at
September 30, 1995 are as follows:
Fiscal Year Ending
September 30,
-------------------
1996 $ 13,818
1997 14,413
1998 15,679
1999 15,198
2000 6,630
Thereafter 38,898
--------
Total $104,636
========
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. INVESTMENT CERTIFICATES:
At September 30, 1995 and 1994, investment certificates
consist
of:
Annual
Interest Principally
Rates Maturing in 1995 1994
---------- ------------------- ----------- -------
- ----
6% to 7% 1996 and 1997 $ 810,558 $
1,732,000
7% to 8% 1996 and 1997 1,789,822
1,083,000
8% to 9% 1998, 1999 and 2000 22,070,089
15,808,000
9% to 10% 1997 and 1998 2,831,765
3,202,000
10% to 11% 1996 6,222,424
6,161,535
----------- -------
- ----
33,724,658
27,986,535
Compound and accrued interest 4,821,238
3,106,295
----------- -------
- ----
Totals $38,545,896
$31,092,830
===========
===========
The weighted average interest rate on outstanding investment
certificates at both September 30, 1995 and 1994 was
approximately
8.8%.
Investment certificates and compound and accrued interest at
September 30, 1995 mature as follows:
Fiscal Year Ending
September 30,
-------------------
1996 $10,152,000
1997 4,816,000
1998 8,844,000
1999 7,932,000
2000 6,463,000
Thereafter 338,896
-----------
Total $38,545,896
===========
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
8. DEFERRED COSTS:
An analysis of deferred costs related to annuity acquisition
and
investment certificates issued for the years ended September
30,
1995, 1994 and 1993 is as follows:
Annuity Investment
Acquisition Certificates
Total
----------- ------------ ------
- ----
Balance, September 30, 1992 $ 342,650 $
342,650
Deferred during the period:
Commissions 276,060
276,060
Other expenses 57,429
57,429
---------- ------
- ----
Total deferred costs 676,139
676,139
Amortized during the period (151,763)
(151,763)
---------- ------
- ----
Balance, September 30, 1993 524,376
524,376
Deferred during the period:
Commissions 299,748
299,748
Other expense 144,354
144,354
---------- ------
- ----
Total deferred costs 968,478
968,478
Amortized during the period (262,484)
(262,484)
---------- ------
- ----
Balance, September 30, 1994 705,994
705,994
Increase due to acquisition
of life insurance
affiliate $2,614,778
2,614,778
Deferred during the period:
Commissions 291,050 259,633
550,683
Other expense 47,885 182,142
230,027
---------- ---------- ------
- ----
Total deferred costs 2,953,713 1,147,769
4,101,482
Amortized during the period (198,190) (321,090)
(519,280)
----------- ---------- ------
- ----
Balance, September 30, 1995 $2,755,523 $ 826,679
$3,582,202
========== ==========
==========
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
9. 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, 1995 and 1994 is as follows:
1995 Assets
Liabilities
------------------------------------ ---------- -------
- ----
Mark to market for investment
securities $
73,468
Guaranty fund assessments $ 150,045
Annuity reserves 597,743
Management fee payable
402,101
Allowance for losses on real estate
and receivables 196,202
Deferred policy acquisition costs
936,878
Deferred contract acquisition costs
and discount yield recognition
1,486,157
Net operating loss carryforwards 535,500
Other 127,912
---------- -------
- ---
Total deferred income taxes $1,607,402
$2,898,604
==========
==========
1994
------------------------------------
Management fee payable $ 20,400
Allowance for losses on real estate
and receivables 103,675
Deferred contract acquisition costs
and discount yield recognition $
619,716
Net operating loss carryforwards 343,863
---------- -------
- ---
Total deferred income taxes $ 467,938 $
619,716
==========
==========
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, 1995, the
Company's
net operating loss carryforwards of approximately $1,575,000
expire from 2006 through 2010.
Due to the Company's previous change in ownership,
approximately
$1,000,000 of the above net operating losses are subject to
the
provisions of Internal Revenue Code Section 382, which limits
the
annual utilization of net operating losses to approximately
$200,000 per year.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
9. 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:
1995 1994
1993
-------- -------- ----
- ----
Federal income tax at statutory
rate $281,270 $137,797
$145,880
Affiliate corporate dividend
received deduction (49,921)
Other 8,358 2,610
71
-------- -------- ----
- ----
Income tax provision $239,707 $140,407
$145,951
======== ========
========
The components of the provision for income taxes are as
follows:
1995 1994
1993
-------- -------- ----
- ----
Current $ 75,458 $ 3,907
Deferred 164,249 136,500
$145,951
-------- -------- ----
- ----
$239,707 $140,407
$145,951
======== ========
========
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
10. STOCKHOLDERS' EQUITY:
A summary of preferred and common shares at September 30,
1995 and
1994 is as follows:
<TABLE>
<CAPTION>
Issued and Outstanding Shares
-------
- -----------------------------
Authorized Shares
1995 1994
-------------------- -------
- ---------- -----------------
1995 1994 Amount
Shares Amount Shares
--------- --------- -------
- - ------- -------- -------
<S> <C> <C> <C>
<C> <C> <C>
Registered preferred
stock, Series S-1 185,000 150,000
$356,222 35,622 $317,194 31,719
========= =========
======== ======= ======== =======
Common stock 2,000,000 2,000,000
$100,000 10,000 $100,000 10,000
========= =========
======== ======= ======== =======
</TABLE>
The Company has authorized 10,000,000 total shares of Series
S
preferred stock, of which 185,000 and 150,000 shares of
Series S-1
were registered at September 30, 1995 and 1994, respectively.
The
Company has the right, without further stockholder approval,
to
establish additional series of preferred stock with
provisions
different than those described below for the Series S-1
preferred
stock.
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 $100
per
share.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
10. STOCKHOLDERS' EQUITY, CONTINUED:
All preferred shares have 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.
The payment of dividends by the Company's wholly-owned life
insurance subsidiary is subject to certain restrictions
imposed by
statute. Dividends can only be paid out of earned surplus.
Earned surplus includes accumulated statutory basis earnings
of
the Company and surplus arising from unrealized capital gains
or
the revaluation of assets. The Idaho Insurance Code requires
the
life insurance subsidiary to maintain $1 million in common
stock
and $1 million in contributed surplus.
11. RELATED-PARTY TRANSACTIONS:
The Company receives accounting, data processing, contract
servicing and other administrative services from
Metropolitan.
Charges for these services were approximately $315,000 in
fiscal
1995, $58,000 in fiscal 1994 and $97,000 in fiscal 1993 and
were
assessed based on the number of real estate contracts and
mortgage
notes receivable serviced by Metropolitan on the Company's
behalf.
Other indirect services provided by Metropolitan to the
Company,
such as management and regulatory compliance, were not
directly
charged to the Company.
Management believes that these charges are reasonable and
result
in the reimbursement to Metropolitan of all significant
direct
expenses incurred on behalf of the Company and its
subsidiaries.
Currently, management anticipates that Metropolitan will
continue
to supply these services in the future.
The Company had the following related-party transactions with
Metropolitan and affiliates during fiscal years 1995, 1994
and
1993:
1995 1994
1993
----------- ----------- ------
- -----
Real estate contracts and
mortgage notes receivable
and other receivable
investments purchased
through Metropolitan or
affiliates $42,479,766 $19,495,714
$15,423,706
Contract acquisition costs
charged to the Company on
purchased real estate
contracts and mortgage
notes receivable, includ-
ing management under-
writing fees 1,967,409 681,991
243,414
----------- ----------- ------
- -----
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
11. RELATED-PARTY TRANSACTIONS, CONTINUED:
1995 1994
1993
----------- ----------- ------
- -----
Total cost of real estate
contracts and mortgage
notes and other receivable
investments purchased
through Metropolitan $44,447,175 $20,177,705
$15,667,120
=========== ===========
===========
Real estate contracts and
mortgage notes receivable
and other receivable in-
vestments sold to Metro-
politan or its affiliates $17,098,581 $10,122,544 $
4,044,423
Gains on real estate con-
tracts and mortgage notes
receivable and other
receivable investments
sold to Metropolitan or
its affiliates 335,469
Service fees charged to
Metropolitan for property
development assistance 1,250,017
Commissions and service
fees charged to Metro-
politan on sale of
Metropolitan's debentures
and preferred stock 1,124,481
Interest expense paid to
Metropolitan and its
affiliated companies 11,684
6,000
Commissions capitalized as
deferred costs, paid to
a Metropolitan affiliate
on sale of debentures 86,491 299,748
276,060
Commissions deducted from
additional paid-in capital,
paid to a Metropolitan
affiliate on sale of
preferred stock 13,249 7,552
Dividends received on
Metropolitan's preferred
stock investments 256,991
Advances due Metropolitan or its affiliates in the amount of
$1,960,104 and $267,735 at September 30, 1995 and 1994,
respectively, represent real estate contracts and mortgage
notes
and related costs advanced by Metropolitan on behalf of the
Company and are included in accounts payable.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
11. RELATED-PARTY TRANSACTIONS, CONTINUED:
The Company's employees are included in the Metropolitan
Mortgage
& Securities Co., Inc. Retirement Savings Plan (the Plan),
authorized under Section 401(k) of the Tax Reform Act of
1986, as
amended. This Plan is available to all employees over the
age of
21 upon completion of six months of service in which he or
she has
500 hours of service. Employees may defer from 1% to 15% of
their
compensation in multiples of whole percentages. The Company
matches contributions equal to 25% of pre-tax contributions
up to
a maximum of 6% of compensation. This match is made only if
the
Company has a net profit during the preceding fiscal year.
No
contribution was made by the Company during the years ended
September 30, 1995, 1994 or 1993.
12. ANNUITY RESERVES AND GUARANTY FUND ASSESSMENTS:
Annuity reserves are based upon contractual amounts due the
annuity holder including accrued interest. Annuity contract
interest rates ranged from 5.75% to 10.65% during the four-
month
period ended September 30, 1995.
All states in which the Company's insurance subsidiary
operates
have laws requiring solvent life insurance companies to pay
assessments to protect the interests of policyholders of
insolvent
life insurance companies. Assessments are levied on all
member
insurers in each state based on a proportionate share of
premiums
written by member insurers in the lines of business in which
the
insolvent insurers engaged. A portion of these assessments
can be
offset against the payment of future premium taxes. However,
future changes in state laws could decrease the amount
available
for offset.
The net amount expensed by the Company's life insurance
subsidiary
for guaranty fund assessments and amount estimated to be
assessed
for the four-month period ended September 30, 1995 was
$25,000.
The Company's estimate of these liabilities is based upon
updated
information from the National Organization of Life and Health
Insurance Guaranty Associations regarding insolvencies
occurring
during the years 1990 through 1992. These estimates are
subject
to future revisions based upon the ultimate resolution of the
insolvencies and resultant losses. The Company cannot
reasonably
estimate the additional effects, if any, upon its future
assessments pending the resolution of the above-described
insolvencies. The Company does not believe that the amount
of
future assessments associated with known insolvencies after
1992
will be material to its financial condition or results of
operations. The amount of estimated future guaranty fund
assessment has been recorded net of a 7% discount rate
applied to
the estimated payment term of approximately seven years.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
13. STATUTORY ACCOUNTING (UNAUDITED):
The life insurance subsidiary of the Company 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 (GAAP). Selected differences between
the
statutory and the GAAP financial statements for the insurance
subsidiary as of and for the four-month period ended
September 30,
1995 are as follows:
Statutory
GAAP
---------- ------
- ----
Stockholders' equity at September 30,
1995 $2,248,969
$2,743,415
Net income for the four-month period
from May 31, 1995 to September 30,
1995 43,574
86,031
Unassigned statutory surplus and
retained earnings at September 30,
1995 248,969
755,299
Written approval was received from the Insurance Department
of the
state of Idaho to capitalize the underwriting fees charged to
the
Company by Metropolitan and to amortize these fees as an
adjustment of the yield on acquired mortgage notes.
Statutory
accounting practices prescribed by Idaho do not describe the
accounting required for this type of transaction. As of
September
30, 1995, this permitted accounting practice increased
statutory
surplus by approximately $692,000 over what it would have
been had
prescribed practices disallowed this accounting treatment.
14. SUPPLEMENTAL DISCLOSURES FOR STATEMENTS OF CASH FLOWS:
Supplemental information on interest and income taxes paid
during
the years ended September 30, 1995, 1994 and 1993 is as
follows:
1995 1994
1993
---------- ---------- ------
- ----
Interest paid $1,536,137 $1,298,248 $
836,737
Income taxes paid 128,190 3,907
101
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
14. SUPPLEMENTAL DISCLOSURES FOR STATEMENTS OF CASH FLOWS,
CONTINUED:
Non-cash investing and financing activities of the Company
during
the years ended September 30, 1995, 1994 and 1993 are as
follows:
1995 1994
1993
---------- ---------- ------
- ----
Assumption of other debt
payable in conjunction
with purchase of real
estate contracts and
mortgage notes receivable $ 162,597 $ 81,451 $
235,374
Assumption of other debt
payable in conjunction
with acquisition of real
estate held for sale 15,528 63,650
14,225
Real estate held for sale
acquired through fore-
closure 1,232,732 437,448
276,573
Loans to facilitate the sale
of real estate 959,813 81,800
205,492
Exchange of the Company's
preferred stock as full
consideration for Metro-
politan preferred and
common stock 3,022,425
Additional paid-in capital
resulting from income tax
benefits associated with
the change in tax
affiliation 206,872
Increase in assets and
liabilities associated
with purchase of subsidi-
aries:
Investment securities 9,401,577
Real estate contracts
and mortgage notes
receivable 32,080,899
Real estate held for
sale 503,298
Deferred costs 2,614,778
Other assets 205,504
Annuity reserves 44,558,959
Accounts payable and
other liabilities 1,653,970
<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 statements and related notes thereto reflect the purchase
of
all of the outstanding common stock of Old Standard Life
Insurance
Company by Summit Securities, Inc. The business combination was
accounted for using the purchase method, but due to the entities
being
under common control, the historical cost bases of the assets and
liabilities of Old Standard Life Insurance Company have been
retained.
<PAGE>
SUMMIT SECURITIES, INC. AND OLD STANDARD LIFE INSURANCE COMPANY
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
March 31, 1995
<TABLE>
<CAPTION>
Purchase
of Old
Consolidation Consolidation
Summit Standard of Old
Adjustments
Historical Dr. (Cr.) Standard
Dr. (Cr.) ProForma
----------- ----------- -----------
- -- ------------- -----------
<S> <C> <C> <C>
<C> <C>
ASSETS
Cash and cash equiva-
lents $ 1,075,468 $(2,722,000) (a) $
2,228,824 $ 582,292
Investments:
Investments in affili-
ated company 3,022,425 2,722,000 (a)
$(2,722,000)(b) 3,022,425
Held-to-maturity
securities, at
amortized cost
9,276,473 9,276,473
Accrued interest on
investments
52,888 52,888
Real estate contracts
and mortgage notes
receivable, net 33,188,824
32,489,699 65,678,523
Real estate held for
sale 400,050
553,973 954,023
Deferred costs 800,212
2,590,702 3,390,914
Office equipment, net
of accumulated
depreciation
13,605 13,605
Income tax receivable
94,974 94,974
Other assets, net 12,104
413,408 425,512
----------- ----------- ----------
- - ----------- -----------
Total assets $38,499,083 $ 0
$47,714,546 $(2,722,000) $83,491,629
=========== ===========
=========== =========== ===========
</TABLE>
<PAGE>
SUMMIT SECURITIES, INC. AND OLD STANDARD LIFE INSURANCE COMPANY
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED),
CONTINUED
March 31, 1995
<TABLE>
<CAPTION>
Purchase
of Old
Consolidation Consolidation
Summit Standard of Old
Adjustments
Historical Dr. (Cr.) Standard
Dr. (Cr.) Pro Forma
----------- ----------- -----------
- -- ------------- -----------
<S> <C> <C> <C>
<C> <C>
LIABILITIES AND STOCK-
HOLDERS' EQUITY
Liabilities:
Annuity reserves
$43,217,612 $43,217,612
Investment certifi-
cates and accrued
interest $33,898,903
33,898,903
Debt payable 51,168
51,168
Accounts payable and
accrued expenses 647,983
543,724 1,191,707
Due to affiliated
companies
26,107 26,107
Dividends payable to
affiliated company
400,000 400,000
Deferred income taxes 259,548
1,161,807 1,421,355
----------- ----------- ----------
- - ----------- -----------
Total liabilities 34,857,602 0
45,349,250 0 80,206,852
----------- ----------- ----------
- - ----------- -----------
Stockholders' equity:
Preferred stock, $10
par (liquidation
preference
$3,453,630) 345,363
345,363
Common stock, $10 par 100,000
1,000,000 $(1,000,000) (b) 100,000
Additional paid-in
capital 1,694,036
1,000,000 (1,000,000) (b) 1,694,036
Retained earnings 1,502,082
379,410 (722,000) (b) 1,159,492
Net unrealized loss
on investments, net
of deferred income
taxes
(14,114) (14,114)
----------- ----------- ----------
- - ----------- -----------
</TABLE>
<PAGE>
SUMMIT SECURITIES, INC. AND OLD STANDARD LIFE INSURANCE COMPANY
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED),
CONTINUED
March 31, 1995
<TABLE>
<CAPTION>
Purchase
of Old
Consolidation Consolidation
Summit Standard of Old
Adjustments
Historical Dr. (Cr.) Standard
Dr. (Cr.) Pro Forma
----------- ----------- -----------
- -- ------------- -----------
<S> <C> <C> <C>
<C> <C>
LIABILITIES AND STOCK-
HOLDERS' EQUITY,
CONTINUED
Total stock-
holders' equity 3,641,481 0
2,365,296 (2,722,000) 3,284,777
----------- ----------- ----------
- - ----------- -----------
Total liabilities
and stockholders'
equity $38,499,083 $ 0
$47,714,546 $(2,722,000) $83,491,629
=========== ===========
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this pro forma
balance sheet.
<PAGE>
SUMMIT SECURITIES, INC. AND OLD STANDARD LIFE INSURANCE COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
for the year ended September 30, 1995
<TABLE>
<CAPTION>
Adjustment Consolidation
Summit of
Earnings of
Historical Dr.
(Cr.) Old Standard(i) Pro Forma
----------- ---------
- -- ------------- -----------
<S> <C> <C>
<C> <C>
Revenues:
Interest and earned discounts $ 5,103,519 $
(299,420) (g) $ 2,879,249 $ 7,683,348
Realized net gains on sales of
receivables 512,500
512,500
Real estate sales 1,123,500
477,500 1,601,000
Dividend income 256,991
256,991
Other income 2,580,105
83,996 2,664,101
----------- ---------
- -- ----------- -----------
Total revenues 9,576,615
(299,420) 3,440,745 12,717,940
----------- ---------
- -- ----------- -----------
Expenses:
Annuity benefits 1,034,082
1,784,626 2,818,708
Interest expense 3,251,334
(157) 3,251,177
Cost of real estate sold 1,117,233
480,242 1,597,475
Provision for losses on real estate
contracts and real estate held 445,381
64,937 510,318
Salaries and benefits 907,690
29,409 937,099
Commissions to agents 1,395,994
222,447 1,618,441
Other operating and underwriting
expenses 738,380
328,963 1,067,343
Less amount capitalized as deferred
costs, net of amortization (140,745)
(188,549) (329,294)
----------- ---------
- -- ----------- -----------
Total expenses 8,749,349
0 2,721,918 11,471,267
----------- ---------
- -- ----------- -----------
Income before income taxes 827,266
(299,420) 718,827 1,246,673
Income tax provision (239,707)
101,802 (h) (127,729) (265,634)
----------- ---------
- -- ----------- -----------
Net income 587,559
(197,618) 591,098 981,039
Preferred stock dividends (309,061)
(309,061)
----------- ---------
- -- ----------- -----------
Income applicable to common stockholders $ 278,498 $
(197,618) $ 591,098 $ 671,978
===========
=========== =========== ===========
</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>
Adjustment Consolidation
Summit of
Earnings of
Historical Dr.
(Cr.) Old Standard Pro Forma
----------- ---------
- -- ------------- -----------
<S> <C> <C>
<C> <C>
Revenues:
Interest and earned discounts $ 3,070,667 $
(299,420) (c) $ 4,000,138 $ 6,771,385
Realized net gains on sale of invest-
ment securities 4,252
33,143 37,395
Realized net gains on sales of
receivables 171,756
51,842 223,598
Real estate sales 88,000
621,950 709,950
Other income 60,677
62,581 123,258
----------- ---------
- -- ----------- -----------
Total revenues 3,395,352
(299,420) 4,769,654 7,865,586
----------- ---------
- -- ----------- -----------
Expenses:
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
contracts and real estate held 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
0 3,815,996 6,806,062
----------- ---------
- -- ----------- -----------
Income before income taxes 405,286
(299,420) 953,658 1,059,524
Income tax provision (140,407)
101,802 (d) (328,302) (366,907)
----------- ---------
- -- ----------- -----------
Net income 264,879
(197,618) 625,356 692,617
Preferred stock dividends (2,930)
(2,930)
----------- ---------
- -- ----------- -----------
Income applicable to common stockholders $ 261,949 $
(197,618) $ 625,356 $ 689,687
===========
=========== =========== ===========
</TABLE>
<PAGE>
SUMMIT SECURITIES, INC. AND OLD STANDARD LIFE INSURANCE COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
for the six months ended March 31, 1995
<TABLE>
<CAPTION>
Adjustment Consolidation
Summit of
Earnings of
Historical Dr.
(Cr.) Old Standard Pro Forma
----------- ---------
- -- ------------- -----------
<S> <C> <C>
<C> <C>
Revenues:
Interest and earned discounts $ 1,813,581 $
(149,710) (e) $ 2,109,367 $ 3,773,238
Realized net gains on sale of
receivables 49,103
49,103
Real estate sales 511,500
226,000 737,500
Dividend income 152,078
152,078
Other income 843,427
65,206 908,633
----------- ---------
- -- ----------- -----------
Total revenues 3,369,689
(149,710) 2,400,573 5,620,552
----------- ---------
- -- ----------- -----------
Expenses:
Annuity benefits
1,323,779 1,323,779
Interest expense 1,536,182
(581) 1,535,601
Cost of real estate sold 503,258
228,916 732,174
Provision for losses on real estate
contracts and real estate held 167,821
110,938 278,759
Salaries and benefits 228,772
21,876 250,648
Commissions to agents 399,236
147,811 547,047
Other operating and underwriting
expenses 216,443
267,129 483,572
Less amount capitalized as deferred
costs, net of amortization
(164,473) (164,473)
----------- ---------
- -- ----------- -----------
Total expenses 3,051,712
0 1,935,395 4,987,107
----------- ---------
- -- ----------- -----------
Income before income taxes 317,977
(149,710) 465,178 633,445
Income tax provision (108,877)
50,901 (f) (163,939) (221,915)
----------- ---------
- -- ----------- -----------
Net income 209,100
(98,809) 301,239 411,530
Preferred stock dividends (156,991)
(156,991)
----------- ---------
- -- ----------- -----------
Income applicable to common stockholders $ 52,109 $
(98,809) $ 301,239 $ 254,539
===========
=========== =========== ===========
</TABLE>
<PAGE>
SUMMIT SECURITIES, INC. AND OLD STANDARD LIFE INSURANCE COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AND STATEMENTS OF INCOME
NOTE 1:
The pro forma condensed consolidated balance sheet at March 31,
1995
assumes the purchase of all of the outstanding common stock of
Old
Standard Life Insurance Company (OSL) as if it occurred on March
31,
1995 through the payment of $2,722,000 to Metropolitan. As
additional
consideration for the purchase of OSL, the Company will make
contingency payments equal to 20% of statutory income prior to
the
accrual of income tax for the fiscal years ending December 31,
1995,
1996 and 1997. Due to the fact that these entities are under
common
control, any amounts paid under this provision will be accounted
for
as dividends. This business combination was accounted for using
the
purchase method, but due to the fact that the Company,
Metropolitan
and OSL are all entities under the common control of one
individual,
the Company retained the historical cost bases of the assets and
liabilities of OSL. Thus, the excess of the purchase price of
OSL,
over its historical cost bases has been treated as if it were a
dividend and has been charged against retained earnings.
NOTE 2:
The pro forma condensed consolidated statements of income reflect
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
condensed
consolidated balance sheet and statements of income to reflect
the
acquisition of OSL:
Pro Forma Balance Sheet (March 31, 1995)
----------------------------------------
(a) To record the acquisition of OSL by the Company through the
payment of $2,722,000 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 $343,000 to retained earnings.
Pro Forma Statement of Income (September 30, 1994)
--------------------------------------------------
(c) To reflect the reduction in investment income associated
with
the $2,722,000 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>
Pro Forma Statement of Income (March 31, 1995)
----------------------------------------------
(e) To reflect the reduction in investment income associated
with
the $2,722,000 adjusted purchase price paid to Metropolitan,
calculated at an assumed net yield of 11% per annum, for the
six-
month period.
(f) To record the income tax effects of adjustment (e).
Pro Forma Statement of Income (September 30, 1995)
--------------------------------------------------
(g) To reflect the reduction in investment income associated
with
the $2,722,000 adjusted purchase price paid to Metropolitan,
calculated at an assumed net yield of 11% per annum.
(h) To record the income tax effects of adjustment (g).
(i) This column reflects the operations of Old Standard for the
period October 1, 1994 to May 31, 1995, the date of acquisition
by
Summit. The results of operations of Old Standard for the
period
June 1, 1995 to September 30, 1995 are included in Summit's
historical consolidated statement of income for the year ended
September 30, 1995.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Directors and Stockholder
Old Standard Life Insurance Company
We have audited the accompanying balance sheets of Old Standard
Life
Insurance Company, a wholly-owned subsidiary of Metropolitan
Mortgage
& Securities Co., Inc., as of September 30, 1994 and December 31,
1993, and the related statements of income, stockholder's equity
and
cash flows for the nine months ended September 30, 1994 and the
year
ended December 31, 1993. 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 September 30, 1994 and
December 31, 1993, and the results of its operations and its cash
flows for the nine months ended September 30, 1994 and the year
ended
December 31, 1993 in conformity with generally accepted
accounting
principles.
As discussed in Note 1, the Company changed its method of
accounting
for its investments in certain debt securities in 1993.
COOPERS & LYBRAND L.L.P.
Spokane, Washington
January 12, 1995, except for the first
paragraph of Note 1, as to which the
date is May 31, 1995
<PAGE>
OLD STANDARD LIFE INSURANCE COMPANY
BALANCE SHEETS
March 31, September 30, December
31,
1995 1994 1993
------------ ------------ --------
- ----
(Unaudited)
ASSETS
Invested assets:
Investments (Note 2):
Held-to-maturity secur-
ities, at amortized
cost $ 9,276,473 $ 9,283,204 $
3,323,735
Available-for-sale
securities, at market
5,908,968
Real estate contracts and
mortgage notes receiv-
able, net (Note 3) 32,093,603 28,506,656
23,542,397
Real estate held for sale
(Note 4) 553,973 447,413
372,301
Policy loans 13,833 14,614
5,468
Cash and cash equivalents 2,228,824 5,829,278
5,051,110
------------ ------------ -------
- ----
Total invested
assets 44,166,706 44,081,165
38,203,979
------------ ------------ -------
- ----
Receivables, net 3,585 20,746
34,127
------------ ------------ -------
- ----
Other assets:
Deferred acquisition costs
(Note 5) 2,590,702 2,426,229
2,283,615
Accrued investment income 448,984 462,921
515,613
Furniture and equipment,
net 13,605 14,235
15,179
Due from affiliated com-
panies (Note 8) 210,542
1,456,431
Income taxes receivable
(Note 7) 94,974
Other 395,990 159,480
159,480
------------ ------------ -------
- ----
Total other assets 3,544,255 3,273,407
4,430,318
------------ ------------ -------
- ----
Total assets $ 47,714,546 $ 47,375,318 $
42,668,424
============ ============
============
<PAGE>
OLD STANDARD LIFE INSURANCE COMPANY
BALANCE SHEETS, Continued
March 31, September 30, December
31,
1995 1994 1993
------------ ------------ --------
- ----
(Unaudited)
LIABILITIES AND STOCK-
HOLDER'S EQUITY
Liabilities:
Annuity reserves (Note 6) $ 43,217,612 $ 43,396,028 $
39,344,173
Due to affiliated com-
panies (Note 8) 26,107
Dividends payable to
affiliate company
(Note 8) 400,000
Income taxes payable
(Note 7) 254,435
Deferred income taxes
(Note 7) 1,161,807 737,040
801,650
Advance annuity deposit
funds 13,207 7,532
14,222
Accounts payable and
accrued expenses 530,517 518,471
492,673
------------ ------------ --------
- ----
Total liabilities 45,349,250 44,913,506
40,652,718
------------ ------------ --------
- ----
Stockholder's equity
(Notes 9 and 10):
Common stock, $10 par
value, 250,000 shares
authorized; 100,000,
40,000 and 40,000
shares issued and
outstanding 1,000,000 400,000
400,000
Additional paid-in
capital 1,000,000 800,000
800,000
Retained earnings 379,410 1,278,171
875,017
Net unrealized losses on
investments,net of de-
ferred income taxes of
$7,261 at March 31,
1995, $8,419 at
September 30, 1994 and
$30,554 at December 31,
1993 (Note 2) (14,114) (16,359)
(59,311)
------------ ------------ --------
- ----
Total stockholder's
equity 2,365,296 2,461,812
2,015,706
------------ ------------ --------
- ----
Total liabilities
and stockholder's
equity $ 47,714,546 $ 47,375,318 $
42,668,424
============ ============
============
The accompanying notes are an integral part of the financial
statements.
<PAGE>
OLD STANDARD LIFE INSURANCE COMPANY
STATEMENTS OF INCOME
Six Months Nine Months
Ended Ended Year
Ended
March 31, September 30, December
31,
1995 1994 1993
----------- ------------- --------
- ----
(Unaudited)
Revenues:
Net investment income $2,043,352 $2,964,109
$3,615,585
Net realized investment
gains (losses) (Note 2) (2,916) 66,378
77,936
Other insurance revenues 21,794 39,324
28,143
----------- ---------- -------
- ---
Total revenues 2,062,230 3,069,811
3,721,664
----------- ---------- -------
- ---
Benefits and expenses:
Annuity benefits 1,345,573 2,040,286
2,377,835
Commissions (Note 5) 147,811 316,012
652,077
General expenses (Note 8) 58,939 90,275
96,529
Provision for losses
on real estate contracts
and mortgage notes 110,938 166,476
263,697
Insurance taxes, licenses
and fees 98,264 (17,338)
518,920
Increase in deferred
acquisition costs
(Note 5) (164,473) (142,614)
(615,992)
----------- ---------- -------
- ---
Total benefits and
expenses 1,597,052 2,453,097
3,293,066
----------- ---------- -------
- ---
Income before income taxes 465,178 616,714
428,598
Provision for income taxes
(Note 7) 163,939 213,560
146,804
----------- ---------- -------
- ---
Net income $ 301,239 $ 403,154 $
281,794
========== ==========
==========
Net income per share $ 4.30 $ 10.08 $
7.04
========== ==========
==========
Weighted average number of
shares outstanding 70,000 40,000
40,000
========== ==========
==========
The accompanying notes are an integral part of the financial
statements.
<PAGE>
OLD STANDARD LIFE INSURANCE COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY
for the year ended December 31, 1993,
the nine months ended September 30, 1994
and the six months ended March 31, 1995
<TABLE>
<CAPTION>
Net
Additional Unrealized
Common Paid-
in Retained Losses on
Stock
Capital Earnings Investments
------------ --------
- ---- ------------ ------------
<S> <C> <C>
<C> <C>
Balance, December 31, 1992 $ 400,000 $
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 1 and 7)
$ (59,311)
------------ --------
- ---- ------------ ------------
Balance, December 31, 1993 400,000
800,000 875,017 (59,311)
Net income
403,154
Net change in unrealized losses
on available-for-sale securities,
net of deferred income taxes of
$22,125 (Notes 2 and 7)
42,952
------------ --------
- ---- ------------ ------------
Balance, September 30, 1994 400,000
800,000 1,278,171 (16,359)
Net income (unaudited)
301,239
Cash dividends (unaudited)
(400,000)
Stock dividends (unaudited) 600,000
200,000 (800,000)
Net change in unrealized losses
on available-for-sale securities,
net of deferred income taxes of
$1,158 (Notes 2 and 7)
(unaudited)
2,245
------------ --------
- ---- ------------ ------------
Balance, March 31, 1995 (unaudited) $ 1,000,000 $
1,000,000 $ 379,410 $ (14,114)
============
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial
statements.
<PAGE>
OLD STANDARD LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
Six Months Nine Months
Ended Ended Year
Ended
March 31, September 30, December
31,
1995 1994 1993
------------ -----------------------
- -------------
(Unaudited)
Cash flows from operating
activities:
Net income $ 301,239 $ 403,154 $
281,794
Adjustments to recon-
cile net income to
net cash provided by
operating activities:
Net realized invest-
ment (gains) losses 2,916 (66,378)
(77,936)
Provision for losses
on real estate
contracts and
mortgage notes 110,938 166,476
263,697
Depreciation and
amortization 630 944
1,769
Deferred income tax
provision (benefit) 423,609 (86,736)
143,254
Changes in assets and
liabilities:
Deferred acquisition
costs (164,473) (142,614)
(615,992)
Accrued investment
income (13,937) 52,692
(242,299)
Other accruals (699,685) 236,172
348,678
Annuity reserves 1,326,233 2,000,962
2,349,839
------------ ------------- --------
- ----
Net cash provided by
operating activities 1,287,470 2,564,672
2,452,804
------------ ------------- --------
- ----
Cash flows from investing
activities:
Principal payments on
real estate contracts
and mortgage notes
receivable 2,352,639 4,034,423
4,554,827
Proceeds from sale of
real estate contracts
and mortgage notes
receivable 22,336 633,650
Proceeds from sale of
real estate held for
sale 18,900 77,218
56,378
<PAGE>
OLD STANDARD LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS, CONTINUED
Six Months Nine Months
Ended Ended Year
Ended
March 31, September 30, December
31,
1995 1994 1993
------------ ------------- --------
- ----
(Unaudited)
Cash flows from investing
activities, continued:
Proceeds from maturities
of held-to-maturity
investments
200,000
Purchase of available-
for-sale investments
(58,768,357)
Proceeds from sales of
available-for-sale
investments
49,529,844
Purchase of real estate
contracts and mortgage
notes receivable (5,997,771) (9,776,499)
(3,473,576)
Net change in policy loans 781 (9,146)
(5,468)
Change in due to/from
affiliated companies 236,649 1,245,889
(3,831,065)
Additions to real estate
held for sale (22,484) (36,242)
(49,808)
------------ ------------- --------
- ----
Net cash used in
investing activities (3,388,950) (3,830,707)
(11,787,225)
------------ ------------- --------
- ----
Cash flows from financing
activities:
Receipts from annuity
products 2,835,246 5,902,105
12,228,314
Withdrawals on annuity
products (4,339,895) (3,851,212)
(3,289,837)
Change in advance annuity
deposit funds 5,675 (6,690)
(181,721)
Dividends paid
(700,000)
------------ ------------- --------
- ----
Net cash provided by
(used in) financing
activities (1,498,974) 2,044,203
8,056,756
------------ ------------- --------
- ----
Net increase (decrease)
in cash and cash
equivalents (3,600,454) 778,168
(1,277,665)
Cash and cash equivalents:
Beginning of period 5,829,278 5,051,110
6,328,775
------------ ------------- --------
- ----
End of period $ 2,228,824 $ 5,829,278 $
5,051,110
============ =============
============
See Note 11 for supplemental cash flow information.
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 March 31, 1995 and for
the six months ended March 31, 1995 is unaudited)
1. SUMMARY OF ACCOUNTING POLICIES:
Nature of Business
------------------
Old Standard Life Insurance Company (Old Standard or the
Company) is engaged primarily in the offering, issuance
and
sale of variable rate annuity contracts and life insurance
policies. Old Standard was a wholly-owned subsidiary of
Metropolitan Mortgage & Securities Co., Inc.
(Metropolitan)
until May 31, 1995 when it was acquired by Summit
Securities,
Inc., an affiliate of Metropolitan.
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 7). The Company has classified its investments
in
debt 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.
For other than a temporary decline in the value of
publicly
traded bonds below their cost or amortized cost, the
investment
is reduced to its net realizable value, which becomes the
new
cost basis of the investment. The amount of the reduction
is
reported as a loss. Any recovery of market value in
excess of
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF ACCOUNTING POLICIES, Continued:
Investments, Continued
----------------------
the investment's new cost basis is recognized as a
realized
gain only upon sale, maturity or other disposition of the
investment. Factors which the Company evaluates in
determining
the existence of an other than temporary decline in value
include the length of time and extent to which market
value has
been less than cost; the financial condition and near-term
prospects of the issuers; and the intent and ability of
the
Company to retain its investment for the anticipated
period of
recovery in market value.
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, 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
on 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>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF ACCOUNTING POLICIES, Continued:
Real Estate Held for Sale
-------------------------
The Company values real estate held for sale at the lower
of
cost or fair value less costs to sell. 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.
Profit on sales of real estate is recognized (1) when the
buyers' initial and continuing investment is adequate to
demonstrate a commitment to fulfill the terms of the
transaction, (2) collectibility of the remaining sales
price
due is reasonably assured, and (3) the Company has no
continuing involvement or obligation in relation to the
property sold and has transfered all the risks and rewards
of
ownership to the buyer.
Allowance for Losses on Real Estate Contracts
---------------------------------------------
The established allowance for losses on real estate
contracts
include amounts for estimated probable losses on
receivables.
Specific allowances are established for delinquent
contract
receivables, as necessary, with net carrying values in
excess
of $100,000. Additionally, the Company establishes
allowances,
based on historic delinquency and loss experience, for
currently performing receivables and smaller delinquent
receivables. Allowances for losses are based on 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 collateral for
appropriate
delinquent receivables and adjusts the allowance for
losses, as
necessary, such that the net carrying value does not
exceed net
realizable value.
Cash and Cash Equivalents
-------------------------
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.
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF ACCOUNTING POLICIES, Continued:
Deferred Acquisition Costs
--------------------------
Sales commissions and other sales costs related to sales
of
annuity contracts are deferred. The portion of the
deferred
acquisition cost that is estimated not to be recoverable
from
surrender charges is amortized as a constant percentage of
the
estimated gross profits (both realized and unrealized)
associated with the annuities.
Annuity Reserves
----------------
Premiums for annuities are recorded as annuity reserves.
Annuity reserves are equal to the sum of the individual
account
accumulation values including deferred service charges.
Based
on past experience, consideration is given in actuarial
calcu-
lations to the number of policyholder and annuitant deaths
that
might be expected, policy lapses, surrenders and
terminations.
Recognition of Annuity Revenues
-------------------------------
Annuity revenues consist of the charges assessed against
the
annuity account balance for expense and surrender charges.
Charges for future services are assessed; however, the
related
revenue is deferred and recognized in income over the
period
benefitted using the same assumptions as are used to
amortize
deferred acquisition costs.
Guaranty Fund Assessments
-------------------------
The Company is subject to insurance guaranty laws in the
states
in which it operates. These laws provide for assessments
against insurance companies for the benefit of
policyholders
and claimants in the event of insolvency of other life
insurance companies. A portion of these assessments can
be
offset against the payment of future premium taxes.
However,
future changes in state laws could decrease the amount
available for offset. As of March 31, 1995, the Company
has
accrued a liability for guaranty fund assessments for
known
insolvencies net of estimated recoveries through premium
tax
offsets.
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
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.
Earnings Per Share
------------------
Earnings per share are computed by dividing net income by
the
weighted average number of common shares outstanding.
Financial Information as of and for the Six-Month Period
Ended
March 31, 1995
----------------------------------------------------------
- ----
In the opinion of the Company, the accompanying unaudited
interim financial information contains all adjustments
necessary to present fairly the financial position as of
March 31, 1995 and the results of operations and changes
in
cash flows for the six-month period ended March 31, 1995.
The
results of operations for the six-month period ended March
31,
1995 are not necessarily indicative of the results to be
expected for the full year.
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. INVESTMENTS:
A summary of carrying and estimated market values of
investments
at March 31, 1995, September 30, 1994 and December 31, 1993
is as
follows:
<TABLE>
<CAPTION>
March
31, 1995
------------------------------
- --------------------------------
Gross
Gross
Amortized Cost Unrealized
Unrealized Estimated
Held-to-Maturity (Carrying Value) Gain
Loss Market Value
-------------------------- ---------------- ------------
------------ ----------------
<S> <C> <C>
<C> <C>
Government-backed bonds $ 5,226,541 $ --
$ 326,462 $ 4,900,079
Corporate bonds 4,049,932 --
156,190 3,893,742
------------ ------------
------------ ------------
Total $ 9,276,473 $ --
$ 482,652 $ 8,793,821
============ ============
============ ============
<CAPTION>
September 30, 1994
------------------------------
- --------------------------------
Gross
Gross
Amortized Cost Unrealized
Unrealized Estimated
Held-to-Maturity (Carrying Value) Gain
Loss Market Value
-------------------------- ---------------- ------------
------------ ----------------
<S> <C> <C>
<C> <C>
Government-backed bonds $ 5,223,122 $ --
$ 389,995 $ 4,833,127
Corporate bonds 4,060,082 --
186,479 3,873,603
------------ ------------
------------ ------------
Total $ 9,283,204 $ --
$ 576,474 $ 8,706,730
============ ============
============ ============
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. INVESTMENTS, CONTINUED:
<TABLE>
<CAPTION>
December 31, 1993
------------------------------
- --------------------------------
Gross
Gross
Amortized Cost Unrealized
Unrealized Estimated
Held-to-Maturity (Carrying Value) Gain
Loss Market Value
-------------------------- ---------------- ------------
------------ ----------------
<S> <C> <C>
<C> <C>
Government-backed bonds $ 255,351 $ --
$ 3,867 $ 251,484
Corporate bonds 3,068,384 4,861
1,225 3,072,020
------------ ------------
------------ ------------
Total $ 3,323,735 $ 4,861
$ 5,092 $ 3,323,504
============ ============
============ ============
<CAPTION>
Gross
Gross Estimated
Unrealized
Unrealized Market Value
Available-for-Sale Amortized Cost Gain
Loss (Carrying Value)
-------------------------- ---------------- ------------
------------ ----------------
<S> <C> <C>
<C> <C>
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
============ ============
============ ============
</TABLE>
The government-backed securities above include investments
on deposit for regulatory authorities (as required by law)
of $250,000 at March 31, 1995, September 30, 1994 and
December 31, 1993.
There were no sales or maturities of bonds for the six
months ended March 31, 1995 or during the nine months ended
September 30, 1994. Proceeds from sales and maturities of
bonds for the year ended December 31, 1993 were $49,529,844.
Gross gains of $122,866 and gross losses of $26,805 were
realized on those transactions.
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. INVESTMENTS, CONTINUED:
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, the nine months ended
September 30,
1994 and the six months ended March 31, 1995, $0, $4,563 and
$3,052, respectively, of these losses were amortized. At
March
31, 1995, September 30, 1994 and December 31, 1993, the
remaining
unamortized loss, net of deferred income taxes, is reported
as a
reduction of stockholder's equity.
The amortized costs and estimated market values of debt
securities at March 31, 1995, 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 March 31, 1995:
Estimated
Amortized
Market
Cost
Values
---------- -------
- ---
Due after one year through five
years $9,276,473
$8,793,821
==========
==========
Held-to-maturity debt securities at September 30, 1994:
Estimated
Amortized
Market
Cost
Values
---------- -------
- ---
Due after one year through five
years $9,283,204
$8,706,730
==========
==========
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. INVESTMENTS, CONTINUED:
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
===========
===========
Available-for-sale debt securities at December 31, 1993:
Estimated
Amortized
Market
Cost
Values
---------- -------
- ---
Due after one year
through five years $5,000,000
$4,918,750
Due after five years
through 10 years 998,833
990,218
---------- -------
- ---
$5,998,833
$5,908,968
==========
==========
The following individual investments (excluding U.S.
government
bonds) held by the Company were in excess of ten percent of
stockholder's equity at March 31, 1995, September 30, 1994
and
December 31, 1993:
Carrying
Issuer
Amount
--------------------------------- -------
- ---
March 31, 1995
--------------
Corporate bonds:
General Electric Credit Corp.
$1,041,186
Countrywide Funding
1,005,054
Wal-Mart Stores
1,003,732
MCA Funding Corp.
999,960
September 30, 1994
------------------
Corporate bonds:
General Electric Credit Corp.
1,050,288
Countrywide Funding
1,005,562
Wal-Mart Stores
1,004,320
MCA Funding Corp.
999,912
December 31, 1993
-----------------
Corporate bonds:
General Electric Credit Corp.
1,063,376
Countrywide Funding
990,218
Wal-Mart Stores
1,005,163
MCA Funding Corp.
999,845
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
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 values of the real estate contracts and mortgage notes
range
principally from $15,000 to $150,000 with no single amount
in
excess of $300,000. Interest rates principally range from
5.0%
to 13.125%. The weighted average interest rate on these
receivables at March 31, 1995, September 30, 1994 and
December
31, 1993 is approximately 9.6%, 10.0% and 9.8%,
respectively.
Maturity dates range from 1995 to 2025.
The following is a reconciliation of the face value of the
real
estate contracts and mortgage notes to the Company's
carrying
value.
March 31, September 30, December
31,
1995 1994 1993
----------- ------------- --------
- ----
Face value $33,824,750 $29,870,460
$25,325,877
Unrealized dis-
counts, net of
unamortized acqui-
sition costs (1,424,642) (1,135,582)
(1,537,425)
Allowance for
losses (306,505) (228,222)
(246,055)
----------- ----------- --------
- ---
Carrying value $32,093,603 $28,506,656
$23,542,397
=========== ===========
===========
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
$1,350,000 at March 31, 1995, $1,010,000 at September 30,
1994
and $1,139,000 at December 31, 1993.
4. REAL ESTATE HELD FOR SALE:
Real estate held for sale consists of the following:
March 31, September 30, December
31,
1995 1994 1993
----------- ------------- --------
- ----
Single-family
dwelling $ 325,260 $ 218,700 $
372,301
Land - residential
improved 202,500 202,500
Commercial 26,213 26,213
----------- ------------- --------
- ---
$ 553,973 $ 447,413 $
372,301
=========== =============
===========
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. DEFERRED ACQUISITION COSTS:
An analysis of deferred costs related to annuity
acquisitions is
as follows:
March 31, September 30, December
31,
1995 1994 1993
----------- ------------- --------
- ----
Balance at beginning
of period $ 2,426,229 $ 2,283,615 $
1,667,623
Deferred during
period:
Commissions 147,811 316,012
652,077
General expenses 136,385 62,035
96,096
----------- ------------- --------
- ---
Total deferred 2,710,425 2,661,662
2,415,796
Amortized during
period (119,723) (235,433)
(132,181)
----------- ------------- --------
- ---
Balance at end of
period $ 2,590,702 $ 2,426,229 $
2,283,615
=========== =============
============
6. ANNUITY RESERVES AND GUARANTY FUND ASSESSMENTS:
Annuity reserves are based upon contractual amounts due the
annuityholders including accrued interest. Annuity contract
interest rates ranged from 5.0% to 10.65% during the six
months
ended March 31, 1995, 5.0% to 10.65% during the nine months
ended September 30, 1994 and 5.0% to 9.0% during the year
ended
December 31, 1993.
All states in which the Company operates have laws requiring
solvent life insurance companies to pay assessments to
protect
the interests of policyholders of insolvent life insurance
companies. Assessments are levied on all member insurers in
each
state based on a proportionate share of premiums written by
member insurers in the lines of business in which the
insolvent
insurers engaged. A portion of these assessments can be
offset
against the payment of future premium taxes. However,
future
changes in state laws could decrease the amount available
for
offset.
The net amounts expensed by the Company for guaranty fund
assessments and amounts estimated to be assessed for the
periods
ended March 31, 1995, September 30, 1994 and December 31,
1993
were approximately $30,000, $(71,000) and
$472,000,respectively.
The Company's estimate of these liabilities is based upon
updated
information from the National Organization of Life and
Health
Insurance Guaranty Associations regarding insolvencies
occurring
during the years 1990 through 1992.
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. ANNUITY RESERVES AND GUARANTY FUND ASSESSMENTS, CONTINUED:
These estimates are subject to future revisions based upon
the
ultimate resolution of the insolvencies and resultant
losses.
The Company does not believe that the amount of future
assessments associated with known insolvencies after 1992
will be
material to its financial condition or results of
operations.
The Company cannot reasonably estimate the additional
effects, if
any, upon its future assessments pending the resolution of
the
above-described insolvencies. The amount of estimated
future
guaranty fund assessment has been recorded net of a 7%
discount
rate applied to the estimated payment term of approximately
seven
years.
7. INCOME TAXES:
The Company files a separate tax return from its parent
company
under specific provisions which require life insurance
entities
to file a separate federal income tax return for the first
five
taxable years after becoming a member of the parent's
affiliated
group. The Company is taxed as a life insurance company.
The components of the provision (benefit) for income taxes
are as
follows:
Six Months Nine Months
Ended Ended Year
Ended
March 31, September 30, December
31,
1995 1994 1993
----------- ------------- --------
- ----
Current $(259,670) $ 300,296 $
3,550
Deferred 423,609 (86,736)
143,254
--------- --------- -------
- --
$ 163,939 $ 213,560 $
146,804
========= =========
=========
The effective income tax rate differs from the statutory
income
tax rate due to state income taxes.
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
7. INCOME TAXES, Continued:
The income tax effects of the temporary differences giving
rise to the Company's deferred tax assets and liabilities
are
as follows:
<TABLE>
<CAPTION>
March 31, 1995 September 30,
1994 December 31,1993
----------------------- ----------------
- ------- -----------------------
Assets Liabilities Assets
Liabilities Assets Liabilities
---------- ----------- ---------- ----
- ------- ---------- -----------
<S> <C> <C> <C> <C>
<C> <C>
Allowance for
contract losses $ 127,100 $ 97,485
$ 98,246
Reserves on re-
possessed real
estate 23,634 19,522
14,707
Deferred loan fees $ 1,008,772 $
1,105,983 $ 1,089,848
Deferred acquisi-
tion costs 748,132
692,211 650,235
Annuity reserves 643,266 706,776
632,093
Guaranty fund
reserve 23,800 190,688
160,609
Investments and
other 243,103 46,683
132,795
Net operating loss
carryforwards 68,000
165,573
---------- ----------- ---------- ----
- ------- ---------- -----------
$ 862,000 $ 2,023,807 $1,061,154 $
1,798,194 $1,071,228 $ 1,872,878
========== =========== ==========
=========== ========== ===========
</TABLE>
No valuation allowance has been established 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.
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
7. INCOME TAXES, Continued:
At March 31, 1995, the Company had unused net operating loss
carryforwards, for income tax purposes, of approximately
$200,000
which expire in 2009. These carryforwards have been
utilized to
reduce the deferred income tax provision for the six months
ended
March 31, 1995.
8. RELATED-PARTY TRANSACTIONS:
The Company had the following related-party transactions
with
Metropolitan:
Six Months Nine Months
Ended Ended Year
Ended
March 31, September 30, December
31,
1995 1994 1993
----------- ------------- --------
- ----
Real estate contracts
and mortgage notes
purchased through
Metropolitan $5,397,985 $9,827,000 $
603,465
Contract acquisition
cost and underwrit-
ing fees charged
to the Company on
purchases of real
estate contracts
and mortgage notes 586,520 52,729
33,575
Investment and general
expenses paid to
Metropolitan 62,694 95,955
62,677
Additionally, the Company paid commissions of $18,820,
$30,667 and
$31,332 during the six months ended March 31, 1995, the nine
months ended September 30, 1994 and the year ended December
31,
1993, respectively, to Beacon Properties, Inc. (Beacon) for
acting
as broker on real estate sold. Beacon is a wholly-owned sub-
sidiary of Metropolitan. Old Standard declared a cash
dividend of
$400,000 and a dividend of $800,000 payable in common stock
to
Metropolitan during the six-month period ended March 31,
1995.
Old Standard paid a cash 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 of $2,865,000 from Western
United
Life Assurance Company, a subsidiary of Metropolitan.
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
9. STOCKHOLDER'S EQUITY:
Old Standard is required to file statutory financial
statements
with state insurance regulatory authorities. Accounting
principles used to prepare the statutory financial statements
differ from generally accepted accounting principles. See
Note 10
for a reconciliation of statutory stockholder's equity to
stockholder's equity in accordance with generally accepted
accounting principles (GAAP).
The payment of dividends by Old Standard is subject to
certain
restrictions imposed by statute. Dividends can only be paid
out
of earned surplus as statutorily defined.
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 GAAP is as follows:
Six Months Nine Months
Ended Ended Year
Ended
March 31, September 30, December
31,
1995 1994 1993
----------- ------------- --------
- ----
Net income per statu-
tory statements $ 387,600 $ 515,235 $
900,085
Adjustments for:
Change in annuity
reserves (31,490) (175,563)
(682,476)
Change in deferred
acquisition costs 164,473 142,614
615,992
Deferred tax provision
(benefit) (423,609) 86,736
(143,254)
Interim current tax
provision adjustment 217,670 (258,296)
State guaranty fund
provision (30,000) 71,070
(472,379)
Interest maintenance
reserves 6,706 45,337
58,642
Policy contract
benefits 323,822 (31,703)
180,604
Adjustment to loss
reserves (110,938) (6,649)
Unrealized losses on
mortgage loans and
real estate con-
tracts (106,405) (25,521)
(173,420)
Other income adjust-
ments (96,590) 39,894
(2,000)
--------- --------- -------
- --
Net income in accor-
dance with GAAP $ 301,239 $ 403,154 $
281,794
========= =========
=========
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
10. RECONCILIATION OF GAAP AND STATUTORY ACCOUNTING, CONTINUED:
March 31, September 30,
December 31,
1995 1994
1993
---------- ------------- -------
- -----
Stockholder's equity
per statutory
statements $2,265,503 $2,527,464
$2,069,030
Adjustments for:
Deferred acquisi-
tion costs 2,590,702 2,426,229
2,283,615
Annuity reserves (1,634,856) (1,603,336)
(1,427,803)
Deferred income
taxes (1,161,807) (737,040)
(801,650)
Interim current tax
payable adjustment (258,296)
Nonadmitted assets 22,515 16,204
5,442
Interest maintenance
reserve 75,764 104,310
73,510
Asset valuation
reserve 202,902 218,910
188,548
State guaranty fund
provision (431,304) (401,309)
(472,379)
Adjustment of real
estate related
assets to statutory
values (69,353) (70,129)
(130,650)
Securities valuation
reserves (14,114) (16,359)
(59,311)
Policy and contract
benefits 501,436 283,640
309,700
Other 17,908 (28,476)
(22,346)
----------- ---------- ------
- ----
Stockholder's
equity in
accordance
with GAAP $2,365,296 $2,461,812
$2,015,706
========== ==========
==========
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
11. SUPPLEMENTAL DISCLOSURES FOR STATEMENTS OF CASH FLOWS:
The following table summarizes income taxes paid during the
periods:
Six Months Nine Months
Ended Ended Year
Ended
March 31, September 30, December
31,
1995 1994 1993
----------- ------------- --------
- ----
Income taxes $ 89,739 $ 45,860 $
3,550
Non-cash investing and financing activities of the Company
are as
follows:
Six Months Nine Months
Ended Ended Year
Ended
March 31, September 30, December
31,
1995 1994 1993
----------- ------------- --------
- ----
Loans to facilitate the
sale of real estate
held $ 207,100 $ 370,732 $
440,372
Real estate held for
sale and development
acquired through
foreclosure 378,685 615,260
976,668
Debt assumed upon fore-
closure of real estate
contracts -- 10,598
- --
Inside Back Cover Page: This page intentionally left blank
<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 ....................$ 8,413
NASD Filing Fee ......................... 6,000
Independent Underwriter Fee.............. 55,000
*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 ............. 30,000
*Miscellaneous .......................... 3,587
TOTAL ............................. $173,000
*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-2.
*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.
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 Statement of Rights, Designations and Preferences of
Variable Rate Cumulative Preferred Stock Series S-2.
*5.a. Form of Opinion of Susan A. Thomson, Attorney at Law,
as to validity of Investment Certificates.
*5.b. Form of Opinion of Susan A. Thomson, Attorney at Law,
as to validity of Preferred Stock.
7. Opinion Regarding Liquidation Preference. See Exhibit
5.b.
10.a. Management Receivable Acquisition and Servicing
Agreement between Summit Securities Inc. and
Metropolitan Mortgage & Securities Co., Inc. dated
September 9, 1994. (Exhibit 10.a. to Registraion No.
33-57619)
10.b. Stock Purchase Agreement between Summit and
Metropolitan regarding the purchase of
Metropolitan Investment Securities, dated January
31, 1995. (Exhibit 10.b to Registration No.
33-57619)
*10.c. Receivable Acquisition, Management and Services
Agreement between Summit Securities, Inc. and
Metropolitan Mortgage & Securities Co., Inc., dated
September 9, 1994.
*10.d. Receivable Acquisition, Management and Services
Agreement between Old Standard Life Insurance Company
and Metropolitan Mortgage & Securities Co., Inc., dated
December 31, 1994.
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.a.ii. Consent of Susan Thomson, Attorney at Law. See Exhibit
5.b.
*25. Statement on Form T-1 of West One Bank. (The Exhibits
to this Exhibit have been filed in paper pursuant to
a continuing hardship exemption granted January 24,
1994.)
*27. Financial Data Schedule.
*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 foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer,
or controlling persons of the registrant in the successful defense
of any action, suit, or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it
meets all the requirements for filing on Form S-2 and has duly caused
this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Spokane, State
of Washington, on January 9, 1996.
SUMMIT SECURITIES, INC.
/S/ TOM TURNER
By:
_________________________________________________
Tom Turner,
President/Director
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
/S/TOM TURNER
_________________________ President/Director/ January 9, 1996
Tom Turner
/S/PHILIP SANDIFUR
_________________________ Vice President/Director January 9, 1996
Philip Sandifur
/S/ GREG GORDON
_________________________ Secretary/Treasurer January 9, 1996
Greg Gordon Director
/S/ERNEST JURDANA
_________________________Principal Accounting January 9, 1996
Ernest Jurdana Officer
/S/ ROBERT POTTER
________________________ Director January 9, 1996
Robert Potter
GRAPHS APPENDIX
1. 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.
2. 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.
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 6% of the investment amount.
8. Governing Law.
This Agreement shall be deemed to be made under and governed by the
laws of the State of 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.
By:___________________________________
Tom Turner, President
METROPOLITAN INVESTMENT SECURITIES, INC.
By_____________________________________
Susan A. Thomson, Vice President
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-2 (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 6% 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.
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 ______________________________________________
Tom Turner, President
METROPOLITAN INVESTMENT SECURITIES, INC.
By ______________________________________________
Susan A. Thomson, Vice President
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-2, 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-2 (including the related preliminary prospectus, financial
statements, exhibits and all other documents to be filed as a part
thereof or incorporated therein) for the registration of the offer and
sale of the 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 $30,000 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.
By: ______________________________________________
Tom Turner, President
By: ______________________________________________
Greg Gordon, Secretary/Treasurer
METROPOLITAN INVESTMENT SECURITIES, INC.
By: ______________________________________________
Susan A. Thomson, Vice President
By: ______________________________________________
Reuel Swanson, Secretary
WELCO SECURITIES, INC.
By: _____________________________________________
Kenneth S. Shapiro, President
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.
EXHIBIT B
Summit Securities
PRICING FORMULA
<TABLE>
<CAPTION>
C.D. RATE GOVERNMENT RATE
Average rate between a composite of 8 selected Most current of 8 selected auction rate
Banks and Savings and Loans as of the 1st Tuesday available on the 1st Tuesday of each month.
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
CERTIFICATE OF DEPOSIT GOVERNMENT RATE ENTER LESSER SUMMIT'S
(CD) CALCULATION CALCULATION OF COLUMN A OR B ASSUMED FLOOR CURRENT RATE
<S> <C> <S> <C> <C> <C> <C> <C>
5 yr CD rate = ________ 5 yr Govt Rate = ________
6 mo CD Rate = ________ 6 mo Govt Rate = ________
DIFFERENCE = ________ DIFFERENCE = ________
x .20 x .20
________ ________
Differential = ________ Differential = ________
(enter in (a) (enter in (a)
below) below)
6 mo (actual) 6 mo (actual)
rate = ________ rate = ________ ____________________ + 1% ________________ _________
(a) + (a) + 6-11 mos.
________ ________
1 year rate = ________ 1 year rate = ________ ____________________ + 1% ________________ __________
(a) + (a) + 12-23 mos.
________ ________
2 year rate = ________ 2 year rate = ________ ____________________ + 1% ________________ _________
(a) + (a) + 24-35 mos.
________ ________
3 year rate = ________ 3 year rate = ________ ____________________ + 1% ________________ _________
(a) + (a) + 36-47 mos.
________ ________
4 year rate = ________ 4 year rate = ________ ____________________ + 1% ________________ _________
(a) + (a) + 48-59 mos.
________ ________
5 - 10 year 5 year
(actual) rate ________ (actual) rate ________ ____________________ + 1% ________________ __________
60-120 mos.
- .25
________________
<CAPTION>
<S> <C> <C>
INSTALLMENT PAYMENTS (Floor equal to Five Yr. rate MINUS .25)......................... ________________ _________*
Install.
* The rate for installment payment bonds is .5% less than those specified for comparable terms.
</TABLE>
FORM OF
AGREEMENT TO ACT AS "QUALIFIED INDEPENDENT UNDERWRITER"
This agreement made as of the day of _____________, 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-2,"
(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-2, 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-2
(including the related preliminary prospectus, financial statements,
exhibits and all other documents to be filed as a part thereof or
incorporated therein) for the registration of the offer and sale of the
preferred stock under the Securities Act of 1933, as amended, and the rules
and regulations thereunder (the "Act") filed with the Securities and
Exchange Commission (the "Commission"), and any amendment thereto, and the
term "Prospectus" means the prospectus including any preliminary or final
prospectus (including the form of prospectus to be filed with the Commission
pursuant to Rule 424(b) under the Act) and any amendment or supplement
thereto, to be used in connection with the offering.
1. 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:__________________________________________
Tom Turner, President
By:__________________________________________
Greg Gordon, Secretary/Tresurer
METROPOLITAN INVESTMENT SECURITIES, INC.
By:__________________________________________
Susan A. Thomson, Vice President
By:__________________________________________
Reuel Swanson, Secretary
WELCO SECURITIES, INC.
By:__________________________________________
Kenneth S. Shapiro, President
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.
EXHIBIT B
VARIABLE RATE, CUMULATIVE
PREFERRED STOCK, SERIES S-2
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 _____________________________ +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.
_______________________________________________________
Greg Gordon, Secretary
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:
Tom Turner, 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.Turner:
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.
By:
________________________________________
Kenneth S. Shapiro, President
cc: National Association of Securities Dealers, Inc.
Form of
Pricing Opinion of Welco Securities, Inc.
Date:
Tom Turner, 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-2
Dear Mr.Turner:
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-2 (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 __________________, 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. ).
Very truly yours,
WELCO SECURITIES, INC.
By:_______________________________________
Kenneth S. Shapiro, President
KSS/mm
cc: National Association of Securities Dealers, Inc.
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.
By:________________________
Firm Name:_________________________
Address:
Telephone:
By:_________________________________
I.R.S. Employer Identification No.
STATEMENT OF RIGHTS, DESIGNATIONS AND PREFERENCES OF VARIABLE
RATE
CUMULATIVE PREFERRED STOCK, SERIES S-2
1. Name of Corporation: Summit Securities, Inc.
2. Copy of resolution establishing and designating Variable Rate
Cumulative Preferred Stock, Series S-2, 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 December 13, 1995.
/S/ GREG GORDON
______________________________________
Greg Gordon, Secretary
SUMMIT SECURITIES, INC.
PREFERRED STOCK SERIES S-2 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-2 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-2"
(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.
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.
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).
FORM OF
OPINION OF SUSAN A. THOMSON
Dated _____________
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-2) 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. ).
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,
Susan A. Thomson
Assistant Corporate Counsel
Form of
OPINION OF SUSAN A. THOMSON
Dated _____________
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-2 ("Preferred Stock, Series
S") including the preparation of a Registration Statement (Form
S-2) under the Securities Act of 1933, as amended, which has been
filed with the Securities and Exchange Commission. (SEC
Registration No. )
I have examined the Registration Statement referred to above
and such other documents and records as I have deemed necessary
for the purpose of this opinion.
Based upon the foregoing, and subject to the Board of
Directors' adoption of Articles of Amendment to the Company's
Article of Incorporation which incorporate the Statement of
Rights, Designation and Preferences of variable Rate Cumulative
Preferred Stock, Series 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-2 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-2
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; and
(3) The liquidation preference of the preferred stock
exceeds the par value thereof. There are no
restrictions upon surplus by reason of such excess and
there are no remedies available to security holders by
reason of such excess before or after payment of any
dividend that would reduce surplus to an amount less
than the amount of such excess and which remedies arise
by reason of such excess..
This opinion is furnished pursuant to the requirements of
Item 601(b)(5) and 601(b) 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,
Susan A. Thomson
Assistant Corporate Counsel
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 Transfer Agent, Registrar, 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 supersedes 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.
/S/ C. PAUL SANDIFUR, JR. /S/ JOHN TRIMBLE
By: By:
C. Paul Sandifur, Jr. John Trimble
President President
/S/ SUSAN THOMSON /S/ TOM TURNER
Attest Attest
Susan Thomson Tom Turner
Assistant Secretary Secretary/Treasurer
ADDENDUM TO MANAGEMENT, ACQUISITION AND SERVICING AGREEMENT
BETWEEN
SUMMIT SECURITIES, INC.
AND
METROPOLITAN MORTGAGE & SECURITIES CO., INC.
DATE OF Amended 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 balanced
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 SUMMIT.
METROPOLITAN MORTGAGE & SUMMIT SECURITIES, INC.
SECURITIES CO., INC.
/S/ C. PAUL SANDIFUR, JR. /S/ JOHN TRIMBLE
By: By:
C. Paul Sandifur, Jr. John Trimble
President President
/S/ SUSAN THOMSON /S/ TOM TURNER
Attest Attest
Susan Thomson Tom Turner
Assistant Secretary Secretary/Treasurer
MANAGEMENT, ACQUISITION AND SERVICING AGREEMENT
Agreement made this 31st day of December, 1994 by and between Old
Standard Life Insurance Company (hereinafter "OLD STANDARD"), an Idaho
corporation with principal offices at 1000 West Hubbard, 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, OLD STANDARD also engages in the business of investing in
receivables, but OLD STANDARD 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 OLD STANDARD general support services, receivable acquisition services and
receivable collection and management services, and;
WHEREAS, OLD STANDARD desires to obtain from Metropolitan general support
services, receivable acquisition services and account receivable 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 OLD STANDARD 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 OLD STANDARD to collect its receivables or
impair the value of OLD STANDARD'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 OLD STANDARD
OLD STANDARD REPRESENTS AND WARRANTS TO METROPOLITAN THAT:
1. OLD STANDARD is a corporation duly organized, validly existing and
in good standing under the laws of the State of Idaho.
2. OLD STANDARD 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 OLD
STANDARD 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 OLD
STANDARD to make this agreement binding upon OLD STANDARD in accordance with
its terms.
4. The consummation of the transactions contemplated by this agreement
are in the ordinary course of business of OLD STANDARD.
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 OLD STANDARDS
articles of incorporation, bylaws or any other agreement, instrument, law,
regulation, rule, order, or judgment to which OLD STANDARD 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. OLD STANDARD 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 OLD STANDARD 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 OLD STANDARD, or in
any material impairment of the right or ability of OLD STANDARD 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 OLD STANDARD contemplated herein, or which
would be likely to impair materially the ability of OLD STANDARD to perform
under the terms of this agreement.
III. GENERAL SUPPORT SERVICES:
1. DESCRIPTION OF SERVICES
a. Administrative Support Services:
METROPOLITAN shall provide OLD STANDARD 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 and investment portfolio
management services to OLD STANDARD.
c. Office Space:
Metropolitan shall lease or sublease to OLD STANDARD sufficient office
space for OLD STANDARD'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 furnishings
and equipment.
2. FEES FOR GENERAL SUPPORT SERVICES
OLD STANDARD will pay METROPOLITAN monthly fees for General Support
Services provided by METROPOLITAN to OLD STANDARD. 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 OLD
STANDARD which shall be performed substantially in compliance with the
following:
a. METROPOLITAN shall secure opportunities for OLD STANDARD 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 OLD STANDARD, 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 OLD STANDARD.
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 OLD
STANDARD's receivable portfolio if such receivables are consistent with
OLD STANDARD'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 OLD STANDARD such periodic, special
or other reports or information as requested by OLD STANDARD 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
OLD STANDARD 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
OLD STANDARD.
2. RECEIVABLE ACQUISITION SERVICES FEE:
OLD STANDARD shall pay METROPOLITAN fees for Receivable Acquisition and
Support Services provided by METROPOLITAN to OLD STANDARD. Fees shall be
determined by mutual agreement of the parties.
3. RIGHT TO REJECT.
OLD STANDARD shall have the right at anytime to review the receivables
acquired pursuant to this agreement and to reject any receivables which in OLD
STANDARD'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 OLD STANDARD 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 OLD STANDARD such periodic, special, or other reports,
documents or information as requested by OLD STANDARD 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 OLD STANDARD 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 OLD STANDARD shall be transferred to an
account designated by OLD STANDARD.
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 OLD STANDARD 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 OLD
STANDARD 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 OLD STANDARD, 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 "OLD STANDARD" 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 OLD
STANDARD.
2. COOPERATION BY OLD STANDARD
OLD STANDARD 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
OLD STANDARD agrees to compensate METROPOLITAN for its duties performed
hereunder in the following manner and amounts:
a. OLD STANDARD 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, OLD STANDARD 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. OLD STANDARD 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
OLD STANDARD shall have the right at any time to review the method for
determining the fees charged pursuant to this Agreement. If, in OLD STANDARD's
opinion, any fee is unacceptable OLD STANDARD may request a review by the
officers of OLD STANDARD 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. OLD STANDARD 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 OLD
STANDARD shall not be construed as an event of termination of this
agreement.
b. OLD STANDARD 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
OLD STANDARD 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 OLD STANDARD
pursuant to the terms of this agreement;
b. The failure by OLD STANDARD 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 OLD
STANDARD and OLD STANDARD 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
OLD STANDARD LIFE INSURANCE COMPANY
1000 West Hubbard
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 AGREEMENT
This Agreement replaces and supersedes each and every prior agreement
executed by the parties related to the management, receivable acquisition and
receivable collection services provided by METROPOLITAN to OLD STANDARD.
This agreement is executed the day, month, and year first above written by
the duly authorized officers of each party.
METROPOLITAN MORTGAGE & OLD STANDARD LIFE INSURANCE COMPANY
SECURITIES CO., INC.
/s/ C. PAUL SANDIFUR, JR. /S/ M. DAVID GORTON
By: By:
C. Paul Sandifur, Jr. M. David Gorton
President Vice-President
/S/ SUSAN THOMSON /S/ THOMAS TURNER
Attest Attest
Susan Thomson Thomas Turner
Assistant Secretary Secretary/Treasurer
ADDENDUM TO MANAGEMENT, ACQUISITION AND SERVICING AGREEMENT
BETWEEN
OLD STANDARD LIFE INSURANCE COMPANY
AND
METROPOLITAN MORTGAGE & SECURITIES CO., INC.
DATE OF ORIGINAL AGREEMENT: 12/31/94
DATE OF THIS ADDENDUM: 12/31/94
ADDENDUM NUMBER: 1
1. FEES FOR GENERAL SUPPORT SERVICES
a. Administrative Support Fees:
i. OLD STANDARD will pay METROPOLITAN a monthly fee for general
office services provided by METROPOLITAN to OLD STANDARD. 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 to be allocated to OLD STANDARD. 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. OLD STANDARD shall pay to METROPOLITAN an agreed amount to
METROPOLITAN for METROPOLITAN providing financial consultation and
advice, and for managing OLD STANDARD'S investment portfolio.
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.
The portfolio management services shall be charged to OLD STANDARD
as a percentage of the portfolio size and payable monthly.
c. Office Space Rental Fees:
i. OLD STANDARD shall also pay to METROPOLITAN an agreed amount
of rent for the real and personal property utilized by OLD STANDARD
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 METROPOLITAN.
2. RECEIVABLE ACQUISITION SERVICES FEE:
a. METROPOLITAN shall acquire receivables for OLD STANDARD, 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.
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 balanced
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 OLD STANDARD
(subject to IV.2.b.).
ix. Determine the percent of the face value of the receivable
which OLD STANDARD 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 OLD STANDARD 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
OLD STANDARD agrees to compensate METROPOLITAN for its duties performed
hereunder in the following manner and amounts:
a. OLD STANDARD 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 OLD STANDARD
receivable balance and multiplied by one plus a factor that considers the
additional servicing cost attendant to the types of receivables generally
acquired OLD STANDARD.
METROPOLITAN MORTGAGE & OLD STANDARD LIFE INSURANCE COMPANY
SECURITIES CO., INC.
/S/ C. PAUL SANDIFUR, JR. /S/ M. DAVID GORTON
By: By:
C. Paul Sandifur, Jr. M. David Gorto
President Vice President
/S/ SUSAN THOMSON /S/ THOMAS TURNER
Attest Attest
Susan Thomson Thomas Turner
Assistant Secretary Secretary/Treasurer
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.
Year Ended
September 30,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C>
Income before extraordinary
item $ 587,559 $ 264,879 $ 283,107 $ 611,595 $ 238,205
Add:
Interest 3,251,334 2,527,945 1,792,059 1,390,968 640,318
Taxes (benefit) on
income 239,707 140,407 145,951 127,989 (2,689)
---------- ---------- ----------- ---------- ---------
Adjusted Earnings $4,078,600 $2,933,231 $2,221,117 $2,130,552 $ 875,834
========== ========== ========== ========== =========
Preferred Stock Dividend
Requirements $ 309,061 $ 2,930
Ratio Factor of Income
after provision for income
taxes to income before
provision for income taxes 71% 65%
Preferred Stock Dividend
Factor on Pretax Basis 435,297 4,508
Fixed Charges
Interest 3,251,334 $2,527,945 $1,792,059 $1,390,968 $ 640,318
---------- ---------- ---------- ---------- ----------
Fixed Charges and Preferred
Stock Dividends $3,686,631 $2,532,453 $1,792,059 $1,390,968 $ 640,318
========== ========== ========== ========== ==========
Ratio of Adjusted Earnings
to Fixed Charges and
Preferred Stock Dividends 1.11 1.16 1.24 1.53 1.37
==== ==== ==== ==== ====
</TABLE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form
S-2 (File No. ) of our report, which includes an explanatory
paragraph describing changes in the methods of accounting for
repossessed real property and income taxes in fiscal 1993, dated
November 20, 1995 on our audit of the consolidated financial
statements of Summit Securities, Inc. and Subsidiaries.
We consent to the inclusion in this Registration Statement on Form
S-2 of our report, which includes an explanatory paragraph
describing a change in the method of accounting for investments in
certain debt securities in fiscal 1993, dated January 12, 1995 on
our audit of the financial statements of Old Standard Life Insurance
Company.
We also consent to the reference of our firm under the caption
"Experts".
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Spokane, Washington
January 9, 1996
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)
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, 1995
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, 1995
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, 1995.
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, 1995
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, 1995
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, 1995
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, 1995
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>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 2,979
<SECURITIES> 11,388
<RECEIVABLES> 77,778
<ALLOWANCES> 765
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 96,347
<CURRENT-LIABILITIES> 0
<BONDS> 38,651
<COMMON> 100
0
356
<OTHER-SE> 3,451
<TOTAL-LIABILITY-AND-EQUITY> 96,347
<SALES> 0
<TOTAL-REVENUES> 9,577
<CGS> 0
<TOTAL-COSTS> 5,053
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 445
<INTEREST-EXPENSE> 3,251
<INCOME-PRETAX> 827
<INCOME-TAX> 240
<INCOME-CONTINUING> 587
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 587
<EPS-PRIMARY> 27.85
<EPS-DILUTED> 27.85
