<PAGE> 1
As filed with the Securities and Exchange Commission on May __, 1996
Registration No. 33-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
MCA FINANCIAL CORP.
(Exact Name of Registrant as Specified in its Charter)
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<S> <C> <C>
Michigan 6162 38-3014001
(State or other jurisdiction (Primary standard industrial (I.R.S. Employer
of incorporation or organization) classification code number) Identification No.)
</TABLE>
23999 Northwestern Highway
Southfield, Michigan 48075
(810) 358-5555
(Address, including zip code, and telephone number, including area code
of registrant's principal executive offices)
Lee P. Wells, President
MCA Financial Corp.
23999 Northwestern Highway
Southfield, Michigan 48075
(810) 358-5555
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Approximate date of commencement of proposed sale to public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
If 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. [ ]
CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Maximum Maximum
Dollar Offering Aggregate Amount of
Amount to be Price per Offering Registration
Title of Each Class of Securities to be Registered Registered Unit Price Fee
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<S> <C> <C> <C> <C>
__% Subordinated Debentures, Series 1996,
Due June 30, 2002 $6,000,000 100% $6,000,000 $2,068.97
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</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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MCA FINANCIAL CORP.
Cross Reference Sheet Pursuant to Item 501 of Regulation S-K
Between Items in Part I of Form S-1 and Prospectus
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ITEMS OF FORM S-1 HEADINGS IN PROSPECTUS
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Item 1 Forepart of the Registration Facing Page; Cross-Reference Sheet; Outside Front
Statement and Outside Front Cover Cover Page of Prospectus
Page of Prospectus
Item 2 Inside Front and Outside Back Inside Front Cover Page of Prospectus;
Cover Pages of Prospectus Back Cover Page of Prospectus
Item 3 Summary Information, Risk Factors Prospectus Summary; Risk Factors; Selected
and Ratio of Earnings to Fixed Charges Consolidated Financial Data
Item 4 Use of Proceeds Use of Proceeds
Item 5 Determination of Offering Price Not Applicable
Item 6 Dilution Not Applicable
Item 7 Selling Security Holders Not Applicable
Item 8 Plan of Distribution Plan of Distribution
Item 9 Description of Securities to be Description of Series 1996 Debentures
Registered
Item 10 Interests of Named Experts Not Applicable
and Counsel
Item 11 Information with Respect Business; Index to Financial Statements;
to the Registrant Selected Consolidated Financial Data; Management's Discussion and
Analysis of Financial Condition and Results of Operations; Management;
Compensation Committee Interlocks and Insider Participation; Principal
Shareholders
Item 12 Disclosure of Commission Position Not Applicable
on Indemnification for Securities
Act Liabilities
</TABLE>
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PROSPECTUS
$6,000,000
MCA FINANCIAL CORP.
___% SUBORDINATED DEBENTURES, SERIES 1996
DUE JUNE 30, 2002
MCA Financial Corp., a Michigan corporation ("MCAFC"), is hereby offering
$6,000,000 in aggregate principal amount of % Subordinated Debentures,
Series 1996, Due June 30, 2002 (the "Series 1996 Debentures"). Interest on the
Series 1996 Debentures will be payable quarterly on March 31, June 30,
September 30 and December 31 of each year, from the date the Series 1996
Debentures are issued or from the most recent interest payment date on which
interest has been paid or duly provided for. The Series 1996 Debentures will
be issued in fully registered form, without coupons and in denominations of
$1,000 and integral multiples thereof, and will be dated on their Date of
Issue. The Series 1996 Debentures are subordinated unsecured obligations of
MCAFC. The unsecured obligations of MCAFC, including the Series 1996
Debentures, are subordinate in right of payment to all current and future
Senior Indebtedness of MCAFC and will rank on an equal basis with MCAFC's
outstanding 11% Asset-Backed Subordinated Debentures Due 1997 (the "1992
Debentures") and MCAFC's outstanding 11% Asset-Backed Subordinated Debentures
Due 2000 (the "1994 Debentures" and together with the 1992 Debentures the
"Prior Debentures") except insofar as such Debentures are secured by specific
collateral. The issuance of Senior Indebtedness by MCAFC is not restricted by
the Indenture. See "Description of Series 1996 Debentures."
MCAFC is a holding company which, through its principal subsidiaries, MCA
Mortgage Corporation and Mortgage Corporation of America, engages in the
mortgage banking business.
FOR INFORMATION THAT SHOULD BE CONSIDERED
BY PROSPECTIVE INVESTORS, SEE "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
(continued)
<PAGE> 4
(Cover page continued)
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Price to Sales Proceeds to
the Public(1) Commissions(2) Company(1)
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Per Note .................. 100% 6.5% 93.5%
Total ..................... $ 6,000,000 $390,000 $5,610,000
</TABLE>
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(1) The Series 1996 Debentures will bear interest from their Date of Issue,
which will be the date on which subscription monies are accepted by the
Company. Accordingly, no accrued interest will be charged to purchasers. See
"Plan of Distribution." Before deduction of expenses of this offering (the
"Offering"), estimated at $80,000, which are payable by MCAFC.
(2) The Offering is being made on a "best efforts" basis. There is no assurance
as to the amount of Series 1996 Debentures that will be sold. Participating
broker-dealers will be paid a commission of 6.5%, provided, however, that if a
broker-dealer sells $250,000 or more of the Series 1996 Debentures it will be
paid a commission of 7.0% on all sales, and if a broker-dealer sells $500,000
or more of the Series 1996 Debentures it will be paid a commission of 8.0% on
all sales.
--------------------------
This Offering will continue until all Series 1996 Debentures are sold or until
May 31, 1997, whichever is earlier; however MCAFC may elect to extend the
Offering until all of the Series 1996 Debentures offered hereby are sold, as
permitted under applicable securities laws and regulations. MCAFC may reject a
subscription for any reason or for no reason whatever, and may terminate the
Offering at any time.
The date of this Prospectus is June , 1996
<PAGE> 5
STATEMENT OF AVAILABLE INFORMATION
MCAFC is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports and other information filed by
MCAFC with the Commission can be inspected and copied at the office of the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, or at
its Regional Offices located at Suite 1400, 500 West Madison Street, Chicago,
Illinois 60661-2511; and 7 World Trade Center, Suite 1300, New York, New York
10048, and copies of such material can be obtained from the Public Reference
Section of the Commission, at 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates.
A Registration Statement on Form S-1 relating to the Series 1996
Debentures offered hereby has been filed by MCAFC with the Commission in
Washington, D.C. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits thereto. For further
information with respect to MCAFC and the Series 1996 Debentures offered
hereby, reference is made to the Registration Statement and exhibits.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to are not necessarily complete and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. A copy of the Registration Statement, including
exhibits, may be inspected without charge at the Commission's principal offices
in Washington, D.C. or at the Commission's regional offices, and copies of all
or any part thereof may be obtained from the Commission's principal office in
Washington, D.C. upon the payment of the fees prescribed by the Commission.
Annual Reports will not be sent to the security holders of MCAFC.
i
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PROSPECTUS SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus, including information contained under the caption "Risk
Factors." Reference is made to, and this summary is qualified in its entirety
by, the more detailed information and consolidated financial statements,
including the notes thereto, contained elsewhere in this Prospectus.
THE COMPANY
MCA Financial Corp. ("MCAFC" or the "Company") is a holding company which,
through its principal subsidiaries and certain affiliates, engages in mortgage
banking, land contract and mortgage syndication, loan originating and servicing
and real estate acquisitions, rehabilitation, leasing and sales. MCAFC is a
Michigan corporation which was formed in 1989 and was inactive until 1991 when
it became a holding company for its principal subsidiaries.
Currently, MCAFC operates through the following wholly-owned subsidiaries:
- MCA Mortgage Corporation ("MCA Mortgage") is a Michigan
corporation that was incorporated in 1985 and has conducted a
mortgage banking business since that date. It was known
as Primary Mortgage Corporation until that date and was known
as Mortgage Corporation of America from August 1985 until
March 1993.
- Mortgage Corporation of America ("MCA") is a Michigan corporation
that was incorporated in 1984 and has conducted a mortgage
banking business since that date. It was known as First American
Mortgage Corporation, Inc. until September 1989 and as First
American Mortgage Associates, Inc. from September 1989 until
October 1993.
- RIMCO Realty & Mortgage Company, doing business as MCA Realty
Corporation ("MCA Realty") is a Michigan corporation that was
incorporated in 1993 and was acquired by MCAFC on January 31,
1995. MCA Realty is engaged in the purchase and sale of
residential real estate.
- Mortgage Corporation of America, Inc. ("MCA-Ohio") is an Ohio
Corporation that was incorporated in 1993 and has conducted a
mortgage banking business, emphasizing non-conforming loans,
since that date. It was known as Charter 1st Mortgage Banc, Inc.
from May 1993 until July 1995 when it was acquired by MCA.
MCAFC has two other subsidiaries, Complete Financial Corporation and
Securities Corporation of America, both Michigan corporations, which are
currently inactive. Unless otherwise indicated, MCAFC and its subsidiaries are
hereinafter collectively referred to as the "Company."
1
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As of January 31, 1996, the Company operated 35 offices in the states of
Michigan, Idaho, Illinois, Indiana, Kentucky, Maryland, Ohio, Florida, West
Virginia and Pennsylvania which are engaged in mortgage and land contract
origination. The Company's principal executive offices are located at 23999
Northwestern Highway, Southfield, Michigan 48075, and the telephone number is
(810) 358-5555.
THE OFFERING
Securities Offered: $6,000,000 of % Subordinated Debentures, Series 1996,
Due June 30, 2002. The Series 1996 Debentures are
subordinated unsecured obligations of the Company. The
minimum Subscription amount which the Company will accept
in this Offering is $1,000.
Redemption: The Series 1996 Debentures are redeemable prior to
maturity, at the option of the Company, on or after July 1,
1998, in whole or in part, at the prices set forth
herein, plus accrued interest to the date of redemption.
Such redemption is subject to the payment of or receipt of
waivers from all Senior Indebtedness of the Company and is
subject to the Company's financial ability to engage in
such a redemption. In addition, commencing March 31, 1998,
an individual Holder may request the Company to redeem up
to $25,000 of Series 1996 Debentures per year, with
priority given to requests made on behalf of deceased
Holders, but only up to an aggregate of $100,000 per
calendar year for all Holders. See "Description of Series
1996 Debentures - Right of Redemption."
Subordination: The Series 1996 Debentures are subordinated in
right of payment to all Senior Indebtedness of the
Company, which as of the date hereof totalled
approximately $___ million, and will rank on an equal basis
with the Company's outstanding 1992 Debentures and 1994
Debentures (except insofar as such Prior Debentures are
secured by specific collateral), of which as of the date
hereof, there were outstanding $___ million in principal
amount. As of the date hereof, the Company's subsidiaries
had outstanding indebtedness which totalled approximately
$__ million, which the Company has guaranteed. There are no
limitations on the amount of Senior Indebtedness that may
be issued or incurred in the future and since the Company
is a holding company, its rights and, indirectly, the
rights of the holders of the Series 1996 Debentures, to
participate in any distribution of assets of its
subsidiaries will be limited. See "Description of Series
1996 Debentures - Subordination."
2
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Acceleration: If an Event of Default occurs, then the Trustee or
Holders of not less than 25% in principal amount of the
Series 1996 Debentures may declare the principal of all
Series 1996 Debentures immediately due and payable. Such
acceleration would be subject to the payment of or receipt of
waivers from all Senior Indebtedness of the Company and is
subject to the Company's financial ability to comply with
such obligation. See "Description of Series 1996 Debentures
- Event of Default; - Subordination."
Consolidation: The Company may not consolidate with, merge with or transfer
all or substantially all of its assets to another entity
unless such other entity assumes the Company's obligations
under the Indenture, regardless of whether the transaction is
a leveraged buyout initiated or supported by the Company, its
management or any of their affiliates. Neither the Company
nor the Trustee has the right to waive this covenant. See
"Description of Series 1996 Debentures - Consolidation,
Merger or Transfer."
Trading Market: No market exists at the present time for the Series 1996
Debentures and it is likely that no trading market will
develop. As a result, investors will remain as investors for
a substantial period of time. See "Risk Factors - Limited
Market for Series 1996 Debentures."
Use of Proceeds: The net proceeds of the Offering will be used by the Company
to redeem, at maturity on March 15, 1997, up to $4.92 million
of its 1992 Debentures and for general corporate purposes,
which will include providing advances to its subsidiaries and
certain of its affiliates. See "Use of Proceeds."
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth a summary of selected historical financial
data of the Company for each of the periods indicated in the five-year period
ended January 31, 1996, which were derived from the audited consolidated
financial statements of the Company for the periods in the five-year period
ended January 31, 1996. The audited consolidated financial statements of the
Company for each of the periods in the three-year period ended January 31, 1996
are included elsewhere in this Prospectus. This table should be read in
conjunction with such consolidated financial statements of the Company and the
notes thereto.
3
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<CAPTION>
Year Ended January 31
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1996 1995(1) 1994 1993 1992
-------- --------- ------- ------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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INCOME DATA:
Revenues...............................$ 41,951 $ 33,371 $ 29,534 $ 14,393 $ 9,432
Expenses............................... 40,823 33,547 28,562 13,477 9,022
Income (loss) before
federal income taxes.............. 1,128 (176) 972 916 410
Net income (loss)...................... 616 (278) 551 586 273
Net income (loss)
per share......................... 1.44 (.69) 1.60 2.15 1.24
Ratio of earnings
over fixed charges
-historical (2)................... 1.13x -- 1.20x 1.82x 1.41x
-pro forma (3).................... 1.01x -- -- -- --
Earnings (deficiency
of earnings) over
fixed charges..................... 1,128 (176) 972 916 410
</TABLE>
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<CAPTION>
At January 31
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1996 1995 1994 1993 1992
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BALANCE SHEET DATA:
Mortgages held for
resale...............................$ 63,306 $ 15,702 $ 39,250 $ 14,084 $ 7,154
Total assets.............................. 135,191 77,112 76,845 28,632 15,764
Notes payable(4).......................... 86,598 44,843 54,549 13,824 8,058
11% Subordinated
Debentures due 1997.................. 4,921 4,938 4,938 3,171 --
11% Subordinated
Debentures due 2000.................. 4,253 -- -- -- --
Total liabilities......................... 125,030 67,822 67,982 23,460 13,148
Stockholders' equity...................... 10,161 9,290 8,563 4,872 2,316
</TABLE>
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<CAPTION>
At January 31
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1996 1995 1994 1993 1992
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OPERATING DATA:
Loan production:
Number of loans
originated............................ 7,928 8,224 8,910 2,448 1,185
Average loan balance......................$ 80 $ 69 $ 77 $ 83 $ 70
Total loans originated....................$632,281 $564,235 $687,484 $203,087 $82,708
Number of full-time
employees............................. 412 336 448 202 149
</TABLE>
(1) On July 19, 1994, the Company purchased substantially all of the revenue
producing activities of Liberty National Mortgage Corporation. See Note
15 of Notes to Consolidated Financial Statements.
(2) The ratio of earnings to fixed charges was computed by dividing (a) net
income (loss) for the period plus fixed charges by (b) fixed charges,
which consist of interest expense, amortization of debt expense and that
portion of rentals that represents interest. The ratio of earnings over
fixed charges and preferred dividends was 1.12x, 1.19x, 1.79x and 1.41x for
the years ended January 31, 1996, 1994, 1993 and 1992, respectively.
Earnings were insufficient to cover fixed charges for the year ended
January 31, 1995. The deficiency of earnings over fixed charges and
preferred dividends was $.6 million for the year ended January 31, 1995.
(3) The pro forma data assumes that the Series 1996 Debentures bear interest
at a rate of 12.0% and that the debt issuance costs are amortized over a
five year period using the interest method.
(4) See Note 3 of Notes to Consolidated Financial Statements.
4
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RISK FACTORS
The Offering is being made on a best efforts basis and there is no
assurance as to the amount of Series 1996 Debentures that will be sold. In
addition, the purchase of the Series 1996 Debentures involves a number of
significant risk factors, and each prospective investor should consider the
following:
ABILITY TO SERVICE DEBT; SUBSTANTIAL LEVERAGE
The Company is highly leveraged. The Company has current obligations
relating to its outstanding securities as follows: (i) the holders of its
Series A Preferred Stock are entitled to receive annual cumulative dividends of
approximately $183,000 ($0.90 per share on 203,022 outstanding shares), (ii)
the holders of its Series B Preferred Stock are entitled to receive annual
cumulative dividends of approximately $303,000 ($0.90 per share on 336,619
outstanding shares), (iii) the holders of its 1992 Debentures are entitled to
receive annual interest of approximately $541,860, on $4.92 million aggregate
principal amount outstanding, and (iv) the holders of its outstanding 1994
Debentures are entitled to receive annual interest of approximately $468,000,
on $4.25 million aggregate principal amount subscribed for as of January 31,
1996 (such annual interest will be $1.1 million if all 1994 Debentures are
sold). The Company is also obligated to pay interest with respect to
indebtedness due to certain financial institutions at rates ranging from the
LIBOR rate plus 1.5% (currently 6.8%) to 12.0%. The amount of this
indebtedness at January 31, 1996 was $86.6 million. In addition to this
indebtedness, the Company has a commitment from Bank One, Texas N.A., to
provide a $30 million warehousing line of credit and a commitment from the
Policemen and Firemen Retirement System of the City of Detroit to lend the
Company $15 million in subordinated debt to expand its non-conforming lending
business.
At the then-current interest rates, the Company would be obligated to pay
$6.39 million in annual interest on its existing indebtedness as of January 31,
1996. The obligations with respect to the preferred stock dividends are
subordinate to the Company's obligations with respect to the Series 1996
Debentures. However, the dividend and other obligations of the Company
represent significant leverage and financial risk and the annual interest
expense on the Series 1996 Debentures, $ if all Series 1996
Debentures are sold, will be additional leverage and financial risk with
respect to the Company. Prospective investors should note that the Series 1996
Debentures, which are due on June 30, 2002, do not provide for periodic
repayment of principal through a sinking fund provision. Thus, the Company
will be required to make substantial cash payments on this debt at the time it
matures. The Company's ability to withstand adverse market conditions may not
be as great as that of competitors who are not as highly leveraged. Failure to
make payments when due will result in default under and possible acceleration
of one or more of the Company's debt instruments. A substantial portion of the
Company's cash flow from operations will be required to pay the Company's
interest expense and principal repayment obligations. Although management
believes that the cash flow generated from the operations of MCA
5
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Mortgage and MCA will provide the Company with sufficient resources to meet the
Company's present and foreseeable liquidity and capital needs for the next
fiscal year, including those arising from debt obligations, there can be no
assurance that the Company will generate earnings in any future period
sufficient to cover its fixed charges. In the event the Company's cash flow so
generated is insufficient for these purposes, the Company may be required to
dispose of assets, refinance its indebtedness or raise additional capital.
There is no assurance that the Company will be able to complete such
transactions if required to do so.
RANKING OF SERIES 1996 DEBENTURES
The Series 1996 Debentures are subordinated unsecured obligations of MCAFC
and are subordinate in right of payment to all current and future Senior
Indebtedness of MCAFC. See "Description of Series 1996 Debentures -
Subordination." The Series 1996 Debentures will rank on an equal basis with
the Prior Debentures, however, unlike the Prior Debentures, the Series 1996
Debentures are unsecured obligations of MCAFC.
HOLDING COMPANY STRUCTURE
Holders of the Series 1996 Debentures will be creditors of MCA Financial
Corp., but not creditors of MCA Mortgage, MCA or any other subsidiary of the
Company. Certain of the net proceeds from this Offering may be invested in MCA
Mortgage and MCA, and may also be invested in other subsidiaries of the
Company. The Company's assets consist primarily of its ownership of MCA
Mortgage, MCA, MCA Realty, MCA-Ohio and two other subsidiaries which are
currently inactive. As of the date hereof, the Company and its subsidiaries
have $__________ of indebtedness outstanding. Since the Company has limited
operations, its cash flow and ability to service its debt are dependent upon
the earnings of its subsidiaries and their ability to distribute those earnings
to the Company through the payment of dividends, repayment of loans or other
distributions of funds. The Company's subsidiaries are limited with respect to
the distributions they may make to the Company as a result of various financial
covenants contained in loan documents to which they are parties and as a result
of minimum net worth requirements imposed by various mortgage investors and
government agencies. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business - Regulation." Furthermore,
the Company's right and, indirectly, the right of the Debenture holders, as
creditors, to participate in the assets of MCA Mortgage, MCA, MCA Realty,
MCA-Ohio or the Company's other subsidiaries in the event of their liquidation
or reorganization, will be subordinate to the claims of any and all other
creditors of MCA Mortgage, MCA, MCA Realty, MCA-Ohio or the Company's other
subsidiaries.
LIMITED MARKET FOR SERIES 1996 DEBENTURES
The Company can provide no assurances as to whether a market for the
Series 1996 Debentures will develop. If such a market were to exist in the
future, the Series 1996 Debentures could trade at prices higher or lower than
their initial public offering price depending on many factors, including
6
<PAGE> 12
prevailing interest rates, the Company's operating results and the market for
similar securities. Investors who do not wish, or who are not financially
able, to remain as investors for a substantial period of time are advised
against purchasing Series 1996 Debentures.
REGULATION
The Company is subject to various federal and state rules and regulations
with respect to the processing, origination and purchase, sale and servicing of
mortgage loans and land contracts. MCA Mortgage is an approved seller/servicer
for the Federal Home Loan Mortgage Corporation ("Freddie Mac"), the Federal
National Mortgage Association ("Fannie Mae") and the Government National
Mortgage Association ("Ginnie Mae"). MCA is an approved seller/servicer for
Freddie Mac, and both MCA Mortgage and MCA are registered with the Commissioner
of the Michigan Financial Institution Bureau as a mortgage broker, lender and
servicer. The failure of these subsidiaries to meet the requirements of such
federal and state agencies, which might result in the loss of Freddie Mac,
Fannie Mae, Ginnie Mae or U.S. Department of Housing and Urban Development
("HUD") approvals, would have a material adverse impact on the Company's
ability to carry on its current business. MCA Realty is a licensed real estate
broker in the State of Michigan. See "Business - Regulation."
SUBSTANTIAL COMPETITION
The Company competes with numerous other mortgage banking firms, state and
national banks, thrift institutions and insurance companies for loan
originations and purchases. Many of such companies are well-established with
greater financial and personnel resources and significantly more offices with a
greater market presence than the Company. See "Business - Competition."
CONFLICTS OF INTEREST
The Company and its subsidiaries have entered into various contracts and
other transactions with corporations, limited partnerships and other persons
affiliated with the Company and its officers and directors. The terms and
conditions of such transactions were not negotiated at arm's length and may not
have been as favorable to the Company as terms and conditions that would have
been obtained with unaffiliated parties. This is particularly true with
respect to certain real estate transactions with affiliates of the Company.
Future dealings between the Company and such affiliated entities, if any, may
not be at arm's length. The Company currently does not have any standards,
policies or procedures for dealing with such transactions but it expects to
establish a procedure whereby the approval of a majority of disinterested
directors would be required for any such transactions. The Company, through
certain affiliates, engages in the purchase and rehabilitation of real estate
which is syndicated through affiliated partnerships of the Company. A decrease
in this revenue would have an adverse impact on the Company. See "Selected
Consolidated Financial Data" and "Compensation Committee Interlocks and Insider
Participation."
7
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DEPENDENCE UPON MORTGAGE INVESTORS
The vast majority of the mortgage loans originated by the Company are
currently purchased by Freddie Mac or Fannie Mae or are pooled to form Ginnie
Mae mortgage-backed securities which are sold to institutional investors.
These conventional loans must comply with the particular mortgage investor's
guidelines and underwriting standards. During fiscal 1996, Freddie Mac
purchased $228.6 million of conventional mortgage loans from the Company,
Fannie Mae purchased $56.5 million of conventional mortgage loans from the
Company and $224 million of conventional mortgage loans of the Company were
converted into Ginnie Mae mortgage-backed securities and sold to various
institutional investors. During fiscal 1995, Freddie Mac purchased $199
million of conventional mortgage loans from the Company, Fannie Mae purchased
$8.2 million of conventional mortgage loans from the Company and $225 million
of conventional mortgage loans of the Company were converted into Ginnie Mae
mortgage-backed securities and sold to various institutional investors. The
price each mortgage investor will pay the Company for loans fluctuates on a
daily basis and is finally determined when the mortgage investor has committed
to purchase a loan from the Company. In general, the Company sells these
conventional loans to mortgage investors on a "non-recourse" basis, which means
that the Company has no liability to the mortgage investor if there is a
default on the loan unless (i) the Company has breached its representations and
warranties to the mortgage investor, (ii) the Company fails to deliver the
appropriate documentation with respect to the loan, (iii) the loan does not
comply with applicable laws or (iv) the borrower defaults on payment of the
loan within varying periods of up to six months after the loan is made. In any
such event, the Company generally will be required to repurchase the loan by
paying the principal, accrued interest, late charges, servicing release
premiums, escrow deficiencies and any other amounts associated with the loan.
Although the Company is approved as a correspondent with nine conventional
mortgage investors, the Company anticipates that the majority of its originated
conventional mortgages will be purchased by Freddie Mac or Fannie Mae or
through Ginnie Mae programs. Management of the Company believes that the loss
of the Freddie Mac or Fannie Mae seller/servicer approval would have a material
adverse effect on the Company. See Note 11 of Notes to Consolidated Financial
Statements.
In addition, the Company has made bulk sales of non-conforming mortgages
of approximately $86.6 million in fiscal 1996 to five different non-conforming
mortgage investors. None of the non-conforming mortgage investors has
purchased more than 30% of the aggregate non-conforming mortgage bulk sales to
date. During fiscal 1995, the Company sold $51.8 million of non-conforming
mortgages to these investors. Non-conforming mortgages are defined as
mortgages which do not comply with the guidelines and underwriting standards of
Freddie Mac, Fannie Mae or Ginnie Mae. Non-conforming mortgages are
responsible for a significant portion of the Company's mortgage banking income.
The Company's management believes that the loss of its non-conforming mortgage
investors would have a material adverse effect on the Company.
8
<PAGE> 14
AVAILABILITY OF FUNDING SOURCES
The Company finances its land contract and mortgage operations through a
program of selling participation interests in pools of land contracts and
mortgage interests and through various lines of credit, which currently total
$66 million, to support financing of mortgages and land contracts pending sale.
The Company has a commitment from Bank One, Texas N.A., to provide an
additional $30 million that is expected to close in June 1996. To the extent
that the Company is not successful in arranging financing, or if the Company
experiences difficulty in selling its mortgages or pass-through securities, it
may have to curtail its mortgage origination and purchasing activities, which
would have a material adverse effect on the Company's operations, profitability
and its ability to service debt.
In addition, the Company has a second credit facility, currently $28.5
million, with Comerica Bank that is secured by a stand-by Note Purchase
Agreement between Comerica Bank and a third-party pension fund whereby the
pension fund has agreed to provide payment to Comerica Bank upon the occurrence
of certain events of default by the Company. This facility is utilized by the
Company to increase its servicing portfolio, which provides collateral under
the facility. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources."
MCA Mortgage also has $3.0 million available under two $1.5 million credit
facilities with commercial banks for the acquisition and rehabilitation of
residential real property prior to resale.
The Policemen and Firemen Retirement System of the City of Detroit has
committed to provide the Company $15 million in subordinated debt to expand its
non-conforming originations. This facility is expected to close in June 1996.
RELIANCE ON CERTAIN WAREHOUSE LENDING ARRANGEMENTS
Among its short-term financing sources, MCA Mortgage has loan arrangements
with PNC Mortgage Bank, N.A., as described in "Availability of Funding Sources"
above, and with DLJ Mortgage Capital, Inc., pursuant to which they have agreed
to lend MCA Mortgage up to $25 million and $30 million, respectively, to fund
mortgage loans until they are sold to Freddie Mac, Fannie Mae, to certain
institutional investors through Ginnie Mae mortgage-backed securities, or to
other approved mortgage investors. The Company also has a similar $10 million
warehousing line of credit with Paine Webber Real Estate Securities, Inc. In
addition, the Company has a short-term revolving loan facility with Comerica
Bank, pursuant to which it may borrow up to $1.5 million, $1 million of which
is available to fund land contract purchases, with the remaining amount
available for general working capital. If for any reason these lending
arrangements are terminated, MCA Mortgage's ability to fund mortgages and land
contracts will be adversely impacted. This would also adversely impact the
Company's operations, cash flow, profitability and ability to service debt.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
9
<PAGE> 15
INTEREST RATE RISKS
The Company's ability to originate mortgages in volume is affected by
prevailing market interest rates. These rates affect consumers' decisions to
obtain new loans or refinance existing loans. Recent declining interest rates,
for example, generally increase the level of loan origination activity, whereas
the rise in interest rates from April 1994 to October 1994 caused a decline in
the amount of loan originations during the Company's 1995 fiscal year. The
Company's mortgage origination fees, which include gains and losses from loan
resale transactions, decreased from $11.3 million for fiscal 1994 to $5.6
million for fiscal 1995 and increased to $14.3 million for fiscal 1996.
Included in the decrease from fiscal 1994 to fiscal 1995 are reductions in
gains from loan resale transactions amounting to $6.6 million. Included in the
increase for fiscal 1996 are $4.2 million of additional gains from loan resale
transactions. The Company's originations decreased from approximately $687
million for fiscal 1994 to approximately $501 million for fiscal 1995 and
increased to $632 million for fiscal 1996. The rise in interest rates during
the period from April 1994 to October 1994 also caused a slowdown in
refinancings from approximately $498 million for fiscal 1994 to approximately
$173 million for fiscal 1995, which also adversely affected mortgage
origination fees. In fiscal 1996, interest rates experienced a slight decline
and refinancings remained steady at approximately $172 million. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations."
Interest rate changes can also directly affect the Company's operating
results. An increase in rates would adversely affect the value of existing
mortgage loans held directly by the Company, as well as any commitments to make
loans at fixed interest rates which are not covered by third-party commitments
to purchase the loans. The Company's general policy is to minimize the amount
of uncovered loans and loan commitments. Declining interest rates, while
likely to increase loan origination and refinancing activity, can also lead to
more prepayments of outstanding fixed-rate loans with relatively higher
interest rates. The prepayment of such loans results in (i) a decrease in the
value of servicing rights and (ii) the elimination of the associated servicing
income and a resulting increase in charges against earnings from the
acceleration of the amortization of any loan premiums reflected as income and
capitalized when the loans were made. See "Business - Mortgage Banking."
Furthermore, variations in the relationship between short-term rates and
long-term rates for mortgages can affect the Company's ability to earn net
interest income on loans held for sale.
POSSIBLE OBLIGATION TO REPURCHASE LOANS
When the Company sells loans which it has originated or which its loan
correspondents have originated, it will attempt to sell them on a non-recourse
basis. However, under limited circumstances the Company may sell loans with
recourse. In those cases, any significant adverse economic developments in the
Company's service area (primarily Michigan, Indiana, Ohio, Florida and
Washington) could result in an increase in defaults or delinquencies that the
Company would then be required to satisfy. In those cases where the Company
sells its loans on a non-recourse basis but retains
10
<PAGE> 16
the servicing rights, a loan default would increase the cost of servicing the
loan and cause the Company to incur the costs of going through a foreclosure
and subsequent liquidation of the property. Most of these costs may, however,
be recouped when the property is sold, assuming the property maintains its
value. In addition, when the Company sells loans into the secondary market, it
will make representations and warranties concerning the accuracy of the
information contained in the loan documentation which concern such items as
property appraisal values and borrower qualifications. If a buyer of a loan
discovers a breach of these representations and warranties after the sale of a
loan, the Company could be required to repurchase the loan. The Company
employs strict due diligence and quality control standards to minimize this
risk. With respect to loans originated by the Company's loan correspondents,
the Company's general practice will be to attempt to pass on this risk to the
loan correspondent. However, if the correspondent is unwilling or unable to
perform, the Company will remain liable. For additional information relating
to the Company's experience with respect to delinquencies and losses, see
"Business - Mortgage Banking - Servicing."
FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS
A significant portion of the Company's revenues consists of gains
recognized upon the sales of mortgage loans, mortgage servicing rights and real
estate interests. As a result, the timing of such mortgage loan, servicing
right, and real estate interest sales has a significant effect on the Company's
results of operations, and the results of one quarter are not necessarily
indicative of results for the next quarter. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
GENERAL BUSINESS RISKS
The Company's business is subject to various business risks. The level of
the Company's revenues is dependent upon demand for the type of mortgage loan
purchased, sold and serviced by the Company from both potential borrowers and
investors. Future declines in real estate values, changes in prevailing
interest rates and changes in the availability of attractive returns on
alternative investments each could make mortgage loans of the type originated
and purchased by the Company less attractive to borrowers and investors.
IMPACT OF ECONOMIC CYCLES
The business risks associated with the Company's business become more
acute in an economic slowdown. Such an environment is generally characterized
by decreased demand for real estate and declining real estate values in many
areas of the country. Delinquencies, foreclosures and loan losses generally
increase during economic slowdowns or recessions, and any such future slowdowns
could adversely affect future operations of the Company.
11
<PAGE> 17
ANNUAL REPORTS
The Company will not send Annual Reports to the holders of its Series 1996
Debentures. Each holder of Series 1996 Debentures may obtain a copy of the
Company's Annual Report on Form 10-K, as filed with the Securities and Exchange
Commission, and its interim Quarterly Reports on Form 10-Q, as filed with the
Securities and Exchange Commission, upon written request to Lee P. Wells at
23999 Northwestern Highway, Southfield, Michigan 48075, telephone number (810)
358-5555.
THE COMPANY
MCA Financial Corp. ("MCAFC" or the "Company") is a holding company which,
through its principal wholly-owned subsidiaries MCA Mortgage and MCA, is
principally engaged in the business of mortgage banking, which includes
mortgage originating, lending and servicing. MCAFC was founded in 1989 and
became a holding company for MCA Mortgage and MCA in 1991. Through its
subsidiaries, MCAFC currently originates and purchases conventional mortgage
loans secured by one-to-four family residential properties that comply with the
requirements for sale to Freddie Mac or Fannie Mae, mortgage loans which
qualify for sale in the form of mortgage-backed securities guaranteed by Ginnie
Mae as well as non-conforming loans that do not conform to Freddie Mac or
Fannie Mae requirements and sells these mortgages to certain financial
institutions and investor-owned pass-through pools sponsored by MCA. Unless
otherwise indicated, MCAFC and its subsidiaries are hereinafter collectively
referred to as the "Company."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Series 1996
Debentures is estimated to be $5,530,000 if all Series 1996 Debentures offered
are sold, after deducting expenses of the Offering and an assumed 6.5% sales
commission. The Company intends to use the net proceeds from the Offering,
regardless of the amount of Series 1996 Debentures sold, to redeem up to $4.92
million of its outstanding 1992 Debentures, which bear an annual interest rate
of 11% and mature March 15, 1997, and for general corporate purposes, which
includes providing advances to its subsidiaries and certain of its affiliates,
as well as the possible acquisition of mortgage servicing rights and the
business of one or more unaffiliated mortgage companies. If a sufficient
amount of Series 1996 Debentures are not sold in order to allow for the
redemption of all outstanding 1992 Debentures, the Company may be required to
seek alternative refinancing alternatives. See "Compensation Committee
Interlocks and Insider Participation."
12
<PAGE> 18
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of January 31, 1996, and as adjusted to give effect to the sale of
the Series 1996 Debentures offered hereby:
<TABLE>
<CAPTION>
January 31, 1996
----------------------------
Actual As Adjusted
--------- -------------
<S> <C> <C>
Long-term debt:
Capitalized Lease Obligations (1)............ $ 1,250,162 $ 1,250,162
11% Subordinated Debentures Due 1997......... 4,921,000 4,921,000
11% Subordinated Debentures Due 2000(2) ..... 4,253,000 4,253,000
__% Subordinated Debentures Due 2002,
offered hereby........................... -- 6,000,000
----------- -----------
Total long-term debt ..................... $10,424,162 $16,424,162
----------- -----------
Stockholders' equity:
Common stock, 3,750,000 shares authorized;
448,617 shares issued and
outstanding .............................. 4,486 4,486
Series A Preferred Stock, 350,000
shares authorized; 203,022 shares
issued and outstanding ................... 2,030,220 2,030,220
Series B Preferred Stock, 750,000
shares authorized; 336,619 shares
issued and outstanding ................... 3,366,190 3,366,190
Additional paid in capital................... 3,457,251 3,457,251
Retained earnings ........................... 1,302,713 1,302,713
----------- -----------
Total stockholders' equity ................. 10,160,860 10,160,860
----------- -----------
Total capitalization ............................. $20,585,022 $26,585,022
=========== ===========
</TABLE>
- ---------------
(1) See Note 10 of Notes to Consolidated Financial Statements.
(2) An aggregate of $10,000,000 in principal amount of debentures
is currently being offered, which offering has not yet been completed.
13
<PAGE> 19
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical financial data of the
Company for each of the periods indicated in the five-year period ended January
31, 1996 which were derived from the audited consolidated financial statements
of the Company for the periods in the five-year period ended January 31, 1996.
The audited consolidated financial statements of the Company for each of the
periods in the three-year period ended January 31, 1996 are included elsewhere
in this Prospectus. This table should be read in conjunction with the audited
consolidated financial statements of the Company and the notes thereto.
<TABLE>
<CAPTION>
Year Ended January 31
---------------------------------------------------------
Income Data: 1996 1995(1) 1994 1993 1992
---------- ---------- -------- -------- ----------
Revenues: (Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Gain on sale of land
contracts................ $ 2,981 $ 2,983 $ 1,753 $ 1,433 $ 1,846
Gain on sale of real
estate................... 751 -- 67 299 94
Gain on sale of real
estate-related parties 6,530 7,365 4,811 3,249 1,948
Gain on bulk sales of
servicing rights......... 4,726 7,475 5,579 997 --
Mortgage origination fees and
gain on sale of mortgages 14,339 5,584 11,282 6,280 3,802
Servicing fees............ 6,244 4,617 1,917 851 572
Interest income........... 5,903 5,106 3,948 856 865
Other..................... 477 241 177 428 305
-------- -------- ------- ------- -------
Total revenues........ 41,951 33,371 29,534 14,393 9,432
Expenses................... 40,823 33,547 28,562 13,477 9,022
-------- -------- ------- ------- -------
Income (loss) before
federal income taxes..... 1,128 (176) 972 916 410
Provision for federal
income taxes............. 512 102 421 330 137
-------- -------- ------- ------- -------
Net income (loss)..... $ 616 $ (278) $ 551 $ 586 $ 273
======== ======== ======= ======= =======
Net income (loss) per share $ 1.44 $ (.69) $1.60 $2.15 $1.24
Ratio of earnings over fixed
charges
-historical (2).......... 1.13x -- 1.20x 1.82x 1.41x
-pro forma (3)........... 1.01x -- -- -- --
Earnings (deficiency of
earnings) over
fixed charges............. 1,128 (176) 972 916 410
</TABLE>
<TABLE>
<CAPTION>
At January 31
---------------------------------------------------------
Balance Sheet Data: 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Assets:
Cash.................. $ 2,730 $ 2,931 $ 4,782 $ 3,699 $ 3,160
Mortgages held for resale.. 63,306 15,702 39,250 14,084 7,154
Other................. 69,155 58,479 32,813 10,849 5,450
-------- ------- ------- ------- -------
Total assets....... $135,191 $77,112 $76,845 $28,632 $15,764
======== ======= ======= ======= =======
Liabilities:
Notes payable(4)...... $ 86,598 $44,843 $54,549 $13,824 $ 8,058
11% Subordinated Debentures
due 1997............. 4,921 4,938 4,938 3,171 --
11% Subordinated Debentures
due 2000............. 4,253 -- -- -- --
Other................. 29,258 18,041 8,495 6,465 5,090
-------- ------- ------- ------- -------
Total liabilities.. $125,030 $67,822 $67,982 $23,460 $13,148
Redeemable Common Stock(5) -- -- 300 300 300
Stockholders' equity....... 10,161 9,290 8,563 4,872 2,316
-------- ------- ------- ------- -------
Total liabilities and
stockholders' equity.. $135,191 $77,112 $76,845 $28,632 $15,764
======== ======= ======= ======= =======
</TABLE>
14
<PAGE> 20
<TABLE>
<CAPTION>
At January 31
------------------------------------------------------
Operating Data: 1996 1995 1994 1993 1992
--------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Loan production:
Number of loans originated 7,928 8,224 8,910 2,448 1,185
Average loan balance... $ 80 $ 69 $ 77 $ 83 $ 70
Total loans originated... $632,281 $564,235 $687,484 $203,087 $82,708
Number of full-time
employees................ 412 336 448 202 149
</TABLE>
- ------------------
(1) On July 19, 1994 the Company purchased substantially all of the revenue
producing activities of Liberty National Mortgage Corporation. See Note
15 of Notes to Consolidated Financial Statements.
(2) The ratio of earnings to fixed charges was computed by dividing (a) net
income (loss) for the period plus fixed charges by (b) fixed charges,
which consist of interest expense, amortization of debt expense and that
portion of rentals that represents interest. The ratio of earnings over
fixed charges and preferred dividends was 1.12x, 1.19x, 1.79x and 1.41x
for the years ended January 31, 1996, 1994, 1993 and 1992, respectively.
Earnings were insufficient to cover fixed charges for the year ended
January 31, 1995. The deficiency of earnings over fixed charges and
preferred dividends was $.6 million for the year ended January 31, 1995.
(3) The pro forma data assumes that the Series 1996 Debentures bear interest
at a rate of 12.0% and that the debt issuance costs are amortized over a
five year period using the interest method.
(4) See Note 3 of Notes to Consolidated Financial Statements.
(5) These shares were redeemed in April 1994. See Note 5 of Notes to
Consolidated Financial Statements.
15
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary financing needs are for mortgage banking activities,
loan funding activities, operating cash flows and the purchase of mortgage
servicing rights.
Loan funding activities are primarily financed through the use of mortgage
warehouse lines of credit with commercial banks. See Note 3 of Notes to
Consolidated Financial Statements. The Company also provides funding for loans
by using a technique known as "table funding", which is common in the mortgage
banking industry. In this case, funds are advanced directly to the title
company for closing from a third party source of funds, typically another
mortgage bank or a financial institution. This technique avoids the use of the
Company's warehouse lines of credit, but proves less profitable as a result of
fees charged by the third party provider of funds. For the past year, the
Company financed approximately 93% of its mortgage originations using its
warehouse lines of credit and approximately 7% with table funding sources.
The Company currently has a $25 million warehousing line of credit,
through MCA Mortgage, with PNC Mortgage Bank, N.A. This revolving warehousing
line of credit provides financing for funding and originating residential
mortgage loans. Interest on bank borrowings are based on the bank's prime
rate. Mortgage loans held for sale are pledged as collateral. This facility
is scheduled to expire on July 1, 1996. The Company also has a $30 million
Whole Loan Financing Facility, through MCA Mortgage, with DLJ Mortgage Capital,
Inc. This facility also provides financing for funding and originating
residential mortgage loans. Interest on borrowings under this facility are
based on the federal funds rate plus 1.50%. Mortgage loans held for sale are
pledged as collateral and this facility may be terminated upon short notice.
This facility is scheduled to expire on June 15, 1996. The Company also has a
$10 million warehousing line of credit with Paine Webber Real Estate
Securities, Inc. ("Paine Webber"). Interest on borrowings under this facility
are based on Libor plus 1.5%. This facility is scheduled to expire on November
1, 1996. Aside from the DLJ Mortgage Capital, Inc. facility, the Company
expects to renew these warehousing lines of credit upon their respective
expirations. At January 31, 1996 a total of $63.2 million was outstanding
under these facilities. The Company also has a commitment from Bank One, Texas
N.A. to provide a $30 million warehousing line of credit. The Company expects
to close on this agreement in June 1996, however, there is no assurance that
this transaction will be completed.
The Company also utilizes mortgage loan repurchase agreements with Paine
Webber pursuant to which Paine Webber purchases mortgage loans until such time
as the loans are pooled for resale to an end investor at which time the Company
repurchases such loans. Such agreements provide for interest payments based on
the federal funds rate. These agreements can be terminated on demand.
16
<PAGE> 22
The Company utilizes a strategy of retaining servicing rights on a portion
of its loan originations in order to provide a steady stream of servicing
revenue and cash flow in future years and as a hedge against inflation and
rising interest rates. To help facilitate this strategy, the Company utilizes
three funding sources: proceeds from its $4.9 million 1992 Debenture offering
that was completed in July 1993, a bank credit facility, which was first made
available to the Company in April 1993 and proceeds from its $10 million 1994
Debenture offering, of which $4.25 million principal amount was outstanding as
of January 31, 1996. Each series of Prior Debentures, as well as the credit
facility are collateralized by certain of the Company's servicing rights and
rights to servicing income. The credit facility, which is currently at $28.5
million, is with Comerica Bank and is enhanced by a stand-by Note Purchase
Agreement between Comerica Bank and the Policemen and Firemen Retirement System
of the City of Detroit (the "Fund") whereby the Fund has agreed to provide
payment to Comerica Bank upon the occurrence of certain events of default by
the Company. This credit enhancement permits the Company to obtain a more
favorable interest rate and collateralization terms from the lending bank. In
consideration for the credit enhancement provided, the Company agreed to pay
certain fees to the Fund and provide it with an option to purchase up to 5% of
the Company's outstanding common stock, at 70% of the public offering price per
share, if the Company completes a firm commitment underwritten sale of its
common stock prior to April 30, 2000. At January 31, 1996, $28.5 million was
outstanding under the Comerica Bank credit facility.
During the years ended January 31, 1996 and 1995, mortgage servicing
rights with respect to approximately 75% and 91%, respectively, of loan
originations, or $474 million and $488 million principal amount, respectively,
were retained by the Company and financed primarily through operations, the
debenture offerings and the Comerica Bank credit facility. The Company intends
to continue the level of retained servicing and also to purchase additional
mortgage servicing rights.
As in mortgage banking, the Company also has a need to finance loan
funding activities with respect to its land contract and mortgage syndication
until such time as the loans are packaged and sold to investors. The principal
sources of this financing are two limited partnerships which have been
established in order to provide up to $4 million for this purpose. These
partnerships will terminate in December 1997. The Company is considering
several alternatives to extend or replace these financing sources at the time
of their respective terminations. There is no assurance that the Company will
be successful in extending or replacing these financing sources, however.
The Company has $3.0 million available under two $1.5 million credit
facilities with commercial banks for the acquisition and rehabilitation of
residential real property prior to resale. At January 31, 1996, $1.9 million
was outstanding under these facilities. See Note 3 of Notes to Consolidated
Financial Statements.
The Company also has $1 million available under a $1.5 million credit
facility with a commercial bank which is similar in structure to a mortgage
warehouse line of credit. This portion of the credit facility is used
exclusively for the warehousing of land contracts. The additional $0.5
17
<PAGE> 23
million is available for working capital. At January 31, 1996, $1.5 million
was outstanding under this facility. See Note 3 of Notes to Consolidated
Financial Statements.
On April 11, 1996, the Company received a commitment from the Policemen
and Firemen Retirement System of the City of Detroit to lend the Company $15
million in subordinated debt to expand its non-conforming lending business.
There is no assurance that the Company will successfully complete this
financing transaction.
During fiscal 1996, the Company's operating activities used $31.7 million.
Of this net amount, $47.0 million was used to fund the increase in mortgage
loans held for resale. The decrease in accounts receivable, primarily
receivables related to bulk sales of servicing rights, provided $4.4 million.
The Company's investing activities during fiscal 1996 used $13.5 million.
Investments in purchased servicing rights used $12.1 million. Financing
activities provided the Company $45.0 million during fiscal 1996. The Company
used proceeds from notes payable of $548.9 million to fund mortgage loans and
invest in purchased servicing rights. Proceeds from sales of mortgage loans
and investments in purchased servicing rights of $507.7 million were used to
make payments on notes payable. Sales of the Company's Series 1996 Debentures
provided $4.2 million.
RESULTS OF OPERATIONS
Revenue for the year ended January 31, 1996, increased by 25.7% to $42.0
million as compared to $33.4 million for the fiscal year ended January 31,
1995. Revenue for the year ended January 31, 1995 had increased by 13.2% as
compared to $29.5 million for the fiscal year ended January 31, 1994. Net
earnings increased by 321.8% to net earnings of $615,530 for fiscal 1996 as
compared to a net loss of $277,546 in fiscal 1995. Net earnings decreased by
$829,186 to a net loss of $277,546 for fiscal 1995 as compared to net earnings
of $551,640 in fiscal 1994. The increase in revenue during fiscal 1996 was the
result of increased mortgage origination fees, including gains on sale from
loan resale transactions, to $14.34 million in fiscal 1996 as compared to $5.58
million in fiscal 1995. Servicing fees also increased to $6.24 million in
fiscal 1996 from $4.62 million in fiscal 1995. The only revenue item to
substantially decrease was gain on bulk sales of servicing rights which
declined to $4.73 million in fiscal 1996 as compared to $7.48 million in fiscal
1995. The higher level of revenue during fiscal 1995 as compared to fiscal
1994 resulted primarily from increases in servicing fees from $1.92 million in
fiscal 1994 to $4.62 million in fiscal 1995, gain on sales of servicing rights
from $5.58 million in fiscal 1994 to $7.48 million in fiscal 1995 and
increases in sales of real estate from $4.87 million in fiscal 1994 to $7.37
million in fiscal 1995. These increases were partially offset by increases in:
(i) operating expenses from $5.2 million in fiscal 1994 and $8.16 million in
fiscal 1995 to $10.11 million in fiscal 1996, (ii) interest expense from $4.43
million in fiscal 1994 and $6.02 million in fiscal 1995 to $7.57 million in
fiscal 1996 and (iii) commissions paid to loan originators from $8.29 million
in fiscal 1994 and $4.59 million in fiscal 1995 to $5.93 million in fiscal
1996. The increase in earnings during fiscal 1996 is
18
<PAGE> 24
attributable to a general decline in interest rates during the year resulting
in increased originations, gains on loan resale and increased non-conforming
originations. The net loss during fiscal 1995 was due to significant increases
in long-term interest rates during the first six months of the year. This
severely curtailed mortgage refinancings and increased competitive pressures in
the market. The slight decrease in earnings during fiscal 1994 was primarily
due to the substantially higher than normal prepayment rate for the mortgages
included in the Company's servicing portfolio. The mortgage prepayment rate
was 36.1%, 8.9% and 9.8% during fiscal 1994, 1995 and 1996, respectively. The
increased prepayment rate in fiscal 1994 is attributable to increased
refinancing activity caused by lower interest rates over the period and the
fact that a substantial portion of the increased servicing portfolio in fiscal
1993 occurred late in the year. The amount of refinancing activity was $498
million during fiscal 1994, $173 million during fiscal 1995 and $172 million
during fiscal 1996.
Mortgage origination fees, including gains on sale from loan resale
transactions, for fiscal 1996 increased to $14.34 million as compared to $5.58
million for fiscal 1995, an increase of 157.0%. Such mortgage origination fees
had decreased in fiscal 1995 to $5.58 million as compared to $11.28 million for
fiscal 1994, a decrease of 50.6%. The total dollar volume of loans originated
increased by 12.1% to $632 million, for fiscal 1996, up from $564 million for
fiscal 1995 which represented a decrease of 17.9% down from $687 million for
fiscal 1994. The total number of loans produced decreased 3.6% from 8,224 in
fiscal 1995 to 7,928 in fiscal 1996. The total number of loans produced
decreased 7.7% from 8,910 in fiscal 1994 as compared to 8,224 in fiscal 1995.
The average loan balance decreased 11.1% from $77,159 to $68,608 from fiscal
1994 to fiscal 1995 and increased 16.2% from $68,608 to $79,753 from fiscal
1995 to fiscal 1996. The increase in the dollar volume of loan originations
during fiscal 1996 resulted from the general decline in long-term interest
rates and the continuity in production from the branches opened in fiscal 1995
for a full year. The decrease in loan originations during fiscal 1995 resulted
from significant increases in long-term interest rates which slowed refinancing
activity, as described above. Competitive pressures in the mortgage market
also increased substantially during this period, which caused a significant
decline in profit margins on a per-loan basis. Included in mortgage
origination fees are gains and losses on sale from loan resale transactions of
$3.77 million in fiscal 1996, $(.43) million in fiscal 1995 and $6.18 million
in fiscal 1994. The losses on sale from loan resale transactions during fiscal
1995 were primarily due to rising interest rates from April 1994 to October
1994, which is the Company's peak season.
During fiscal 1994, MCA opened five branch offices in Michigan and one in
Ohio. The 1994 branch additions were opened at the end of the fourth quarter
and did not affect fiscal 1994 operations. The branches opened at the end of
fiscal 1994 originated approximately $41 million in principal amount of loans
in fiscal 1995. Branches opened at the end of fiscal 1993 originated
approximately $68 million in principal amount of loans during fiscal 1994 and
$42 million in fiscal 1995. In fiscal 1995, 18 branches were opened or
acquired and originated approximately $91.2 million in principal amount of
loans during fiscal 1995 and $190.7 million in fiscal 1996. In fiscal 1996, 17
branches were opened or acquired and originated approximately $131.1 million in
principal amount of loans during fiscal 1996.
19
<PAGE> 25
In fiscal 1994, wholesale originations totalled approximately $207.76
million, in fiscal 1995, approximately $137.95 million and in fiscal 1996,
approximately $140.71 million. The decrease in wholesale originations from
fiscal 1994 to fiscal 1995 was due to a decreased supply of product that was
available from mortgage brokers due to interest rate increases. The increase
in wholesale originations from fiscal 1995 to fiscal 1996 was a result of the
Company focusing its wholesale efforts on non-conforming wholesale originations
which increased to $52.49 million in fiscal 1996 from $9.46 million in fiscal
1995. Conforming wholesale origination dropped accordingly.
Mortgage origination revenue as a percent of total mortgage origination
volume increased to 2.3% in fiscal 1996 compared to 1.0% in fiscal 1995 which
represented a decrease as compared to 1.6% in fiscal 1994. The increase from
fiscal 1995 to fiscal 1996 reflects an easing in the competitive pressures
experienced in fiscal 1995 resulting from the decline in interest rates,
increased production volume in non-conforming mortgages, which typically have
higher margins, and increased gains from loan resale transactions. These gains
represented .6% of mortgage origination revenue as a percent of total
origination volume in fiscal 1995. The decrease from fiscal 1994 to fiscal
1995 reflects the loss of gains on sale from loan resale transactions resulting
from increased interest rates. These gains represented 0.9% of mortgage
origination revenue as a percent of total origination volume in fiscal 1994.
For fiscal 1994, retail originations totalled approximately $479.73 million, in
fiscal 1995, approximately $426.29 million and in fiscal 1996, approximately
$491.57 million.
During fiscal 1996, the Company recorded revenues of $4.73 million (11.3%
of total revenues) from the sale of bulk servicing rights to approximately $940
million of mortgage loans; during fiscal 1995, the Company recorded revenues of
$7.48 million (22.4% of total revenues) from the sale of bulk servicing rights
to approximately $1.7 billion of mortgage loans and during fiscal 1994, the
Company recorded revenues of $5.58 million (18.9% of total revenues) from the
sale of bulk servicing rights to approximately $446 million of mortgage loans.
Gain on bulk sales of servicing rights as a percent of servicing rights sold
increased to 0.5% in fiscal 1996 from 0.4% in fiscal 1995, which had decreased
from 1.3% in fiscal 1994. The increase in fiscal 1996 was primarily due to the
net effect of a decrease to $500 million of the bulk sales involving servicing
previously purchased and a slight decline in market prices due to declining
interest rates. The gain on bulk sales of this bulk-purchased servicing is
lower because the Company's basis in these servicing rights is much greater
than in originated mortgages. The decrease in fiscal 1995 was primarily
attributable to $1.2 billion of the bulk sales involving servicing which was
previously purchased by the Company in bulk.
Interest income increased from $3.95 million in fiscal 1994 to $5.11
million in fiscal 1995, an increase of 29.4%, and increased to $5.90 million in
fiscal 1996, an increase of 15.6% as compared to fiscal 1995. Interest income
is earned primarily on loans held by the Company pending resale in the
secondary market. The increase in fiscal 1996 resulted from increased
production volumes in general and specifically increased non-conforming
production volumes which typically carry higher interest rates. The increase
in fiscal 1995 resulted from increased interest rates and loan-holding periods
averaging 43 days as compared to 38 days in fiscal 1994.
20
<PAGE> 26
Servicing fee revenue increased from $1.92 million in fiscal 1994 to $4.62
million in fiscal 1995, an increase of 140.63%, and increased to $6.24 million
in fiscal 1996 an increase of 35.2% as compared to fiscal 1995. For fiscal
1995 as compared to fiscal 1996, the Company's servicing portfolio increased
from $1.3 billion to $2.2 billion and from 16,372 loans serviced to 27,357
loans serviced. For fiscal 1994 as compared to fiscal 1995, the Company's
servicing portfolio increased from $1.1 billion to $1.3 billion and from 15,900
loans serviced to 16,372 loans serviced. Most of the increase in the servicing
portfolio over these periods was due to the addition of servicing for Freddie
Mac and Fannie Mae mortgages. At January 31, 1996, the Company was servicing
mortgages owned by Freddie Mac and Fannie Mae with outstanding balances of
approximately $2.1 billion. The addition of Freddie Mac and Fannie Mae
servicing resulted in a higher average loan balance in the servicing portfolio,
which increased from $69,530 at fiscal year end 1994 to $79,625 at fiscal year
end 1995 and $80,650 at fiscal year end 1996. Average servicing revenue per
loan increased from $192 per loan for fiscal 1994 to $286 per loan for fiscal
1995 and decreased to $228 per loan for fiscal 1996. These variances are
primarily due to the timing of bulk sales and purchases of mortgage servicing
rights. In fiscal 1996 and 1994, the majority of bulk purchases occurred late
in the year, thus decreasing the average servicing revenue per loan. Servicing
fees, measured in terms of an average percentage applied to the amount of the
outstanding mortgage, have not materially changed from year to year.
The increase in the Company's servicing portfolio over the past five years
reflects the Company's strategy of developing a larger servicing portfolio.
During fiscal 1996, 1995 and 1994, the Company retained servicing rights with
respect to approximately $474 million, $488 million and $626 million of
mortgages it originated and sold to others and purchased, during fiscal 1996
and 1994, approximately $619 million and $472 million of servicing rights from
other institutions, net of servicing rights sold to other institutions. During
fiscal 1995, the Company sold servicing rights in excess of servicing rights
purchased in the amount of $166 million. This strategy of increasing the
Company's servicing portfolio is intended to result in a counter-cyclical
source of cash flow and profits in the future. Furthermore, with current
mortgage interest rates fairly stable and historically rather low, management
believes that the probability of future refinancing of currently-originated
mortgages is low. This anticipated decline in refinancing activity will, in
management's opinion, increase the value of the Company's mortgage servicing
rights and afford the Company a lower-risk opportunity to pursue such a
strategy.
The aggregate of gains on the sale of real estate-related parties and
gains on the sale of real estate increased from approximately $4.9 million in
fiscal 1994 to $7.4 million in fiscal 1995 and decreased to $7.3 million in
fiscal 1996. Of these amounts, gains on the sale of real estate-related
parties represented approximately $4.8 million in fiscal 1994, $7.4 million in
fiscal 1995 and $6.5 million in fiscal 1996. This reflects the Company's
strategy to develop its business of real estate limited partnership
syndications through a former subsidiary. During fiscal 1996, 1995 and 1994,
723, 735 and 415 income producing properties were sold. Typically, these
properties are acquired in distressed situations, requiring rehabilitation
expenditures or having substantial tax delinquencies which need to be paid.
21
<PAGE> 27
Gains on the sale of land contracts were stable during fiscal 1996 and
fiscal 1995, remaining approximately $3.0 million for both years. Gains on the
sale of land contracts increased during fiscal 1995, as compared to
approximately $1.8 million in fiscal 1994. This reflects an increase in the
number of loan originators employed by the Company and increased marketing
efforts. In fiscal 1996, the Company syndicated 15 pass-through pools of real
estate related loans with a total of $21.9 million of loans, as compared to 15
pools with a total of $22.5 million of loans in fiscal 1995 and 13 pools with a
total of $14.2 million of loans in fiscal 1994. Gains as a percentage of total
syndication amounts increased from 12.3% to 13.3% from fiscal 1994 to fiscal
1995 and increased to 13.6% in fiscal 1996. These percentages are consistent
with past results.
Expenses for fiscal 1996 increased by $7.3 million over fiscal 1995, from
a total of $33.5 million to a total of $40.8 million; an increase of 21.8%.
Expenses for fiscal 1995 increased by $5.0 million over fiscal 1994, from a
total of $28.6 million to a total of $33.5 million; an increase of 17.5%.
These increases were in line with the overall increase in revenue during these
three years. Higher expenses resulted from increases in virtually every
category of expense, reflecting the Company's overall growth to meet increases
in production levels and the number of loans serviced. As a percentage of
revenue, however, payroll and commissions dropped from 52.2% to 46.7% and 42.6%
for fiscal 1994, fiscal 1995 and fiscal 1996, respectively. This increased
productivity reflects systems enhancements from improved technology and the
replacement of key managers in many operational areas. General and
Administrative expense increased from 17.6% to 24.5% as a percentage of revenue
from fiscal 1994 to fiscal 1995 and decreased to 24.1% as a percentage of
revenue for fiscal 1996. In fiscal 1995, refinancings, which increase payroll
and commissions but not fixed overhead, dropped significantly as compared to
fiscal 1994 and the Company was forced to open a number of branches and carry
branches that would normally be closed to maintain production levels. During
fiscal 1996, the Company opened 17 new branches and closed 12 underperforming
locations. The Company did not receive the benefit of a full year's production
for the new branches and continued to carry some of the closed branches' costs
resulting in historically high general and administrative expenses.
Amortization expense decreased from $2.01 million in fiscal 1994 to $1.92
million in fiscal 1995 due primarily to a significant drop in refinancings,
that was partially offset by the increased size of the portfolio. In fiscal
1996, amortization increased to $3.3 million. This results from the increased
size of the servicing portfolio and the corresponding runoff and increased
amortization of certain deferred charges and other assets.
The Company is party to financial instruments with off-balance-sheet risk
in the normal course of business through the production and sale of mortgage
loans and the management of interest rate risk. These financial instruments
include commitments to extend credit and forward contracts to deliver and sell
loans to investors. The Company is exposed to credit loss in the event of
nonperformance by the counter-parties. However, the Company does not
anticipate such nonperformance and the Company's exposure to credit risk with
respect to commitments to extend credit are limited due to the non-recourse
nature of the loans upon sale to investors meeting certain
22
<PAGE> 28
requirements. At January 31, 1994, 1995 and 1996, respectively, the Company
had approved loans that had not yet closed amounting to approximately $31.84
million, $23.08 million and $74.3 million. See Note 9 of Notes to Consolidated
Financial Statements.
INFLATION
Inflation affects the Company primarily in the mortgage banking operations
as a result of its impact on interest rates. Historically, interest rates have
increased during periods of high inflation and this has had a negative impact
on the Company's mortgage origination volume. Conversely, during periods of
low inflation interest rates have also been low and this has had a positive
impact on mortgage originations.
The total dollar volume of land contracts originated decreased to $21.9
million, for fiscal 1996, as compared to $22.5 million in fiscal 1995, which
represented an increase as compared to $14.2 million, in fiscal 1994. The
Company's land contract originations volume tends to run counter-cyclical to
the mortgage origination cycle described above. As mortgage interest rates
increase, especially above 11%, the use of land contract financing increases
and has a positive impact on land contract originations. As interest rates
decrease, mortgage financing activity increases and land contract originations
tend to decrease.
The Company's strategy of increasing its servicing portfolio may also act
as an inflationary hedge. As interest rates increase, prepayments decrease,
which decreases amortization expense and increases the earnings potential of
the servicing portfolio. However, during periods of low inflation and
decreasing interest rates, prepayments increase, which increases amortization
expense and results in a decrease in the earnings potential of the servicing
portfolio.
SEASONALITY
The mortgage banking industry is usually subject to an unpredictable
degree of seasonal trends. These trends reflect the general pattern of
nationwide home sales. Such sales typically peak during the spring and summer
seasons and decline to lower levels from October through January. In an effort
to mitigate this, the Company has opened eight branch offices in Florida.
BUSINESS
MORTGAGE BANKING
Mortgage banking is the business of acting as a financial intermediary in
the origination of mortgage loans, the holding or warehousing of such loans,
the subsequent marketing of such loans to investors and the ongoing management
or servicing of such loans during the repayment term. Mortgage bankers earn
revenue in each of the four phases of the mortgage banking process:
origination, warehousing, marketing, and servicing.
23
<PAGE> 29
Origination. The origination of mortgage loans produces revenue through
fees paid by the borrower upon applying for a loan and at the loan closing.
The origination process involves providing competitive mortgage loan rates,
soliciting loan applications, performing title and credit review and funding
loans at closing. The Company originates mortgage loans through direct
solicitation of borrowers by its own sales force and through referrals from
real estate brokers, builder-developers and others (commonly referred to as
retail origination). In connection with the origination of each loan, the
Company prepares mortgage documentation, conducts credit checks, has the
property appraised by independent appraisers and closes the loan. The
Company's underwriting standards and procedures with respect to loans it
originates, as described above, conform to the requirements of its mortgage
loan investors. Referrals from real estate brokers account for the largest
portion of the Company's originated loans. In addition, advertising is used in
the local markets where offices are located and generates additional
origination activity. During fiscal 1996, retail loans aggregating
approximately $193 million (39% of all retail loans) related to properties
located in Michigan, $57 million (11% of all retail loans) related to
properties located in Indiana, $85 million (17% of all retail loans) related to
properties located in Florida, $46 million (9% of all retail loans) related to
properties located in Ohio, $55 million (11% of all retail loans) related to
properties in Illinois and the remaining retail loans related to properties
located in various other states. During fiscal 1995, retail loans aggregating
approximately $234 million (59% of all retail loans) related to properties
located in Michigan, $51 million (13% of all retail loans) related to
properties located in Indiana, $31 million (8% of all retail loans) related to
properties located in Washington, $48 million (12% of all retail loans) related
to properties located in Ohio, and the remaining retail loans related to
properties located in various other states. By comparison, during fiscal 1994,
retail loans aggregating approximately $289.37 million (59% of all retail
loans) related to properties located in Michigan, $96.26 million (19% of all
retail loans) related to properties located in Indiana, $54.23 million (11% of
all retail loans) related to properties located in Washington and $33.70
million (7% of all retail loans) related to properties located in Ohio, and the
remaining retail loans related to properties located in various other states.
The Company currently purchases a substantial portion of its originated
mortgage loans through "wholesale" operations. Wholesale operations involve
the origination of loans by unrelated mortgage companies which prepare the
necessary documentation, but leave the credit evaluation, property appraisal
and loan funding functions for the Company to perform. The standards of loan
documentation by such unrelated mortgage company originators may not be as
stringent as the standards applied by the Company on its own direct
originations. For each wholesale loan the Company's credit evaluation and
property appraisal procedures are the same as for its retail originations.
During fiscal 1996, wholesale loans aggregating approximately $11 million (8%
of all wholesale loans) related to properties located in Florida, loans
aggregating approximately $66 million (47% of all wholesale loans) related to
properties located in Michigan, loans aggregating approximately $28 million
(20% of all wholesale loans) related to properties located in Illinois, loans
aggregating approximately $25 million (18% of all
24
<PAGE> 30
wholesale loans) related to properties located in Ohio and the remaining
wholesale loans related to properties located in various other states. During
fiscal 1995, wholesale loans aggregating approximately $45 million (33% of all
wholesale loans) related to properties located in Florida, loans aggregating
approximately $35 million (25% of all wholesale loans) related to properties
located in Michigan, loans aggregating approximately $17 million (12% of all
wholesale loans) related to properties located in Indiana, loans aggregating
approximately $9 million (7% of all wholesale loans) related to properties
located in Oregon and the remaining wholesale loans related to properties
located in various other states. By comparison, during fiscal 1994, 1,220
wholesale loans aggregating approximately $85.42 million (41% of all wholesale
loans) related to properties located in Florida, 718 loans aggregating
approximately $46.69 million (22% of all wholesale loans) related to properties
located in Michigan, 513 loans aggregating approximately $30.8 million (15% of
all wholesale loans) related to properties located in Indiana and 198 loans
aggregating approximately $12.87 million (6% of all wholesale loans) related to
properties located in Oregon, and the remaining wholesale loans related to
properties located in various other states.
The Company is engaged in the origination of conventional mortgage loans,
secured by one- to four-family residential properties (including condominiums),
that conform to the requirements for sale to either the Federal National
Mortgage Association ("Fannie Mae") or the Federal Home Loan Mortgage
Corporation ("Freddie Mac"). The Company also originates non-conforming
conventional loans that exceed the maximum amounts qualifying for sale to
Freddie Mac or Fannie Mae (currently $207,000) but that otherwise conform to
their requirements ("jumbo loans"). The Company's principal mortgage banking
subsidiary, MCA Mortgage, is an approved seller/servicer for Freddie Mac, the
Government National Mortgage Association ("Ginnie Mae") and Fannie Mae, while
its other principal subsidiary, MCA, is an approved seller/servicer for Freddie
Mac. In addition, MCA Mortgage and MCA are qualified to originate mortgage
loans insured by the Federal Housing Administration ("FHA") and mortgage loans
partially guaranteed by the Veterans Administration ("VA"), which qualify for
pooling by Ginnie Mae and qualify for sale to other institutional investors.
The Company also originates loans which do not conform to Freddie Mac or
Fannie Mae requirements. These "non-conforming" loans are typically made to
self-employed individuals and others unable to meet the underwriting standards
for conventional lending. Generally, these loans carry higher interest rates
and fees commensurate with the additional credit risk. These loans are
typically sold on the secondary market to a different group of investors than
the conventional loans originated by the Company. The Company expanded its
originations in this market through the acquisition of MCA-Ohio in July 1995, a
company which has been engaged in this type of lending since 1993. In fiscal
1997, the Company hopes to aggressively expand its originations of
non-conforming loans by employing the $15 million committed to the Company by
the Policemen and Firemen Retirement System of the City of Detroit to recruit
loan officers with non-conforming lending experience, open non-conforming
lending branches and potentially acquire other non-conforming lenders.
25
<PAGE> 31
The following table sets forth for the periods indicated the number,
dollar volume and percentage of total volume of the Company's loan production
(dollars in thousands except Average Loan Balances):
<TABLE>
<CAPTION>
Year ended January 31,
-------------------------------------
1996 1995 1994
-------- -------- ----------
<S> <C> <C> <C>
RETAIL LOANS
Conventional Loans:
Number of Loans. . . . . . 2,715 2,241 1,792
Volume of Loans. . . . . . $243,154 $186,452 $225,111
Percent of Total Volume. . 38.47% 33.04% 32.74%
FHA/VA Loans:
Number of Loans. . . . . . 2,669 2,681 3,181
Volume of Loans. . . . . . $202,803 $186,136 $215,146
Percent of Total Volume. . 32.07% 32.99% 31.30%
Non-Conforming Loans:
Number of Loans. . . . . . 581 1,425 1,142
Volume of Loans. . . . . . $ 34,133 $ 42,301 $ 19,188
Percent of Total Volume. . 5.40% 7.50% 2.79%
Jumbo Loans
Number of Loans. . . . . . 40 41 61
Volume of Loans. . . . . . $ 11,478 $ 11,397 $ 20,281
Percent of Total Volume. . 1.81% 2.02% 2.95%
Average Loan Balance . . . . . . $ 81,860 $ 66,732 $ 74,830
Total Volume of Loans(1) . . . . $491,568 $426,286 $479,726
WHOLESALE LOANS(2)
Conventional Loans:
Number of Loans. . . . . . 617 655 1,664
Volume of Loans. . . . . . $ 60,590 $ 54,740 $133,310
Percent of Total Volume. . 9.58% 9.70% 19.39%
FHA/VA Loans:
Number of Loans. . . . . . 309 1,059 1,066
Volume of Loans. . . . . . $ 27,158 $ 73,746 $ 73,428
Percent of Total Volume. . 4.30% 13.07% 10.68%
Non-Conforming Loans:
Number of Loans. . . . . . 995 122 *
Volume of Loans. . . . . . $ 52,485 $ 9,463 *
Percent of Total Volume. . 8.30% 1.68% *
Jumbo Loans
Number of Loans. . . . . . 2 * 4
Volume of Loans. . . . . . $ 480 * $ 1,020
Percent of Total Volume. . .07% * .15%
Average Loan Balance . . . . . . $ 73,174 $ 75,136 $ 75,990
Total Volume of Loans(1) . . . . $140,713 $137,949 $207,758
</TABLE>
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<PAGE> 32
<TABLE>
<CAPTION>
TOTAL LOANS
<S> <C> <C> <C>
Number of Loans. . . . . . 7,928 8,244 8,910
Volume of Loans. . . . . . $632,281 $564,235 $687,484
Average Loan Balance . . . $ 79,753 $ 68,608 $ 77,159
</TABLE>
- ---------------
*Indicates that these types of loans were not originated by the Company during
the applicable period.
(1) The total volume of retail loans for each of fiscal 1993 and 1992 was
$151.14 million and $98.98 million, respectively. The total volume of
wholesale loans for each of fiscal 1993 and 1992 was $51.95 million and
$67.84 million, respectively. Further detail for fiscal 1993 and 1992 is
not available.
(2) During fiscal 1996, Watson Financial Group ("Watson") was responsible for
13% of the Company's wholesale originations. Watson is not affiliated
with the Company. During fiscal 1995, no single company was responsible
for greater than 10% of the Company's wholesale originations. During
fiscal 1994, Residential Mortgage Services, Inc. ("Residential") was
responsible for 21% of the Company's wholesale originations. Residential
was responsible for 563 loans aggregating approximately $43.1 million.
Residential is not affiliated with the Company.
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<PAGE> 33
At January 31, 1996, the Company had applications in process for
approximately 1,947 mortgage loans, aggregating approximately $186 million.
By comparison, on January 31, 1995, the Company had applications in process for
approximately 1,387 mortgage loans aggregating approximately $163 million. The
Company anticipates, based on past history, that 80% to 85% of the loan
applications will close within 45 to 90 days.
Warehousing. Warehousing is the term used to describe the process of
holding mortgage loans pending their sale to investors (typically financial
institutions) or into the secondary market. During the warehousing period the
Company earns income equal to the difference between the interest received on
the mortgage loans and the interest paid on short-term advances from banks
which are used typically to fund the mortgage loans. During periods when
short-term warehouse borrowing rates exceed long-term mortgage lending rates,
the warehousing of mortgage loans can result in a loss.
Pending sale and delivery to investors, the Company's mortgage loans are
funded almost entirely by borrowings under warehousing lines of credit from
banks. The Company typically holds mortgage loans for a period of up to 60
days after closing in order to prepare them for sale. Borrowed funds are
repaid when the Company receives payment upon the sale of the loans.
Accordingly, the Company is dependent on loan sales to free warehousing credit
lines in order that new loans can be closed.
Among its short-term financing sources, the Company maintains a mortgage
warehousing line of credit with PNC Mortgage Bank, N.A. and a mortgage loan
financing facility with DLJ Mortgage Capital, Inc. As is customary in the
industry, these credit facilities can be terminated on demand or upon
relatively short notice. In such an event, the Company would seek replacement
or new credit facilities from other lenders for these existing lines of credit
on terms at least as favorable. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."
Marketing. The offering, sale, packaging and delivery of closed mortgage
loans to investors is the activity which distinguishes a mortgage banker as a
financial intermediary from a portfolio lender or permanent investor.
Marketing mortgage loans is the most complex aspect (both financially and
operationally) of the mortgage banking business. It requires matching the
needs of the retail origination market (consisting of home buyers and
homeowners seeking new mortgages) with the needs of the secondary market for
mortgage loans (consisting of securities broker-dealers, depository
institutions, insurance companies, pension funds and other investors).
Conventional mortgage loans (i.e., those not guaranteed or insured by agencies
of the federal government), which are secured by one-to-four family residential
properties (including condominiums) and which comply with applicable
requirements, are packaged for direct sale to mortgage investors. In addition,
there is an active private market for mortgage loans which have not been pooled
or securitized.
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<PAGE> 34
Factors which may influence the market value of packaged loans include the
general level of interest rates, the types of loans (e.g., conventional
mortgage loans or larger jumbo loans), interest payment and principal
amortization schedules (e.g., self-amortizing or balloon, fixed-rate or indexed
adjustable-rate, equal monthly payment or adjustable payment), type of
mortgaged property (e.g., one-to four family detached, row or townhouse,
condominium or planned unit development), ratio of loan proceeds to appraised
property value, property location, credit profile, and whether loans are
packaged into pools (represented by securities) or sold separately on a whole
loan basis.
The following table sets forth for the periods indicated, the Company's
loan production by type of interest payment and principal amortization schedule
as well as loan to value ratio information (dollars in thousands):
<TABLE>
<CAPTION>
Year ended January 31,
--------------------------------
1996 1995 1994 1993
------ ------ ------ ------
<S> <C> <C> <C> <C>
30-year Fixed Rate:
Number of Loans . . . . . 5,349 4,569 5,084 818
Volume of Loans . . . . . $424,994 $339,394 $448,762 $ 94,297
Percent of Total Volume . 67.22% 60.15% 65.28% 46.43%
15-year Fixed Rate:
Number of Loans . . . . . 611 844 1,953 673
Volume of Loans . . . . . $ 40,137 $ 49,536 $142,340 $ 50,985
Percent of Total Volume . 6.35% 8.78% 20.70% 25.11%
Adjustable Rate ("ARMS"):
Number of Loans . . . . . 1,239 1,217 299 248
Volume of Loans . . . . . $114,619 $108,983 $ 34,073 $ 26,534
Percent of Total Volume . 18.13% 19.32% 4.96% 13.07%
Other (1):
Number of Loans . . . . . 69 352 194 245
Volume of Loans . . . . . $ 5,225 $ 6,154 $ 3,121 $ 3,408
Percent of Total Volume . 0.82% 1.09% 0.45% 1.68%
Balloon Payment:
Number of Loans . . . . 660 1,242 1,380 464
Volume of Loans . . . . $ 47,306 $ 60,167 $ 59,188 $ 27,863
Percent of Total Volume . 7.48% 10.66% 8.61% 13.71%
Total Number of Loans(2) . . . 7,928 8,224 8,910 2,448
Total Volume(2) . . . . . . . $632,281 $564,235 $687,484 $203,087
Total Loan to Value Percent. . 83.8% 90.5% 94.5% *
</TABLE>
- ---------------
*Indicates that the information is not available for this period.
(1) This category represents mortgages and land contracts with other than 15 or
30 year terms, which have no balloon payment.
(2) The total number of loans for fiscal 1992 was 2,121 and the total volume of
loans for fiscal 1992 was $166,822. Further detail for fiscal 1992 is not
available.
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<PAGE> 35
The following table sets forth for the periods indicated, the number,
dollar volume and percent of total volume of the Company's loan production by
occupancy status and type of mortgaged property (dollars in thousands):
<TABLE>
<CAPTION>
Year ended January 31,(1)
------------------------------------------
1996 1995 1994 1993
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Detached - Single Family
Owner Occupied:
Number of Loans. . . . . 6,943 6,916 7,441 1,864
Volume of Loans. . . . . $578,154 $506,714 $636,440 $178,515
Percent of Total Volume. 91.44% 89.81% 92.58% 87.90%
Non-owner occupied:
Number of Loans. . . . . 133 947 1,088 447
Volume of Loans. . . . . $ 6,121 $ 28,603 $ 23,441 $ 14,427
Percent of Total Volume. 0.97% 5.07% 3.41% 7.11%
Other (2):
Number of Loans. . . . . 66 39 64 9
Volume of Loans. . . . . $ 5,929 $ 3,310 $ 4,894 $ 698
Percent of Total Volume. 0.94% 0.59% 0.71% 0.34%
Multi-Unit and Commercial
Owner Occupied:
Number of Loans. . . . . 360 262 265 101
Volume of Loans. . . . . $ 28,919 $ 19,909 $ 18,895 $ 7,655
Percent of Total Volume. 4.57% 3.53% 2.75% 3.77%
Non-owner occupied:
Number of Loans. . . . . 426 60 52 27
Volume of Loans. . . . . $ 13,158 $ 5,699 $ 3,814 $ 1,792
Percent of Total Volume. 2.08% 1.00% 0.55% 0.88%
</TABLE>
- ---------------
(1) This information is not available for fiscal 1992.
(2) Includes second homes and vacant land.
The sale of mortgage loans produces a net gain or loss equal to the sum of
(i) the difference between the principal amount of the loans and the net price
at which the loans are sold (the cash gain or loss on sales) and (ii) the
present value of the difference (the "premium on sale of mortgage loans"), if
any, between the stated interest rate collected by the mortgage banker from the
mortgage loan borrowers and the interest rate paid by the mortgage banker to
the purchasers of the loans, net of a normal servicing fee.
The Company typically holds its mortgage loans for up to 60 days before
selling them to investors. The Company sells conforming loans either directly
on a loan-by-loan basis to Freddie Mac, Fannie Mae or other financial
institutions, or by a process of "securitization" of loan pools. Conforming
loans and loans qualifying for securitization through Ginnie Mae programs may
be grouped in pools and assigned to Freddie Mac, Fannie Mae or Ginnie Mae, as
applicable, which issues a mortgage-backed security ("MBS") representing an
undivided interest in the loan pool. For issuing the MBS, Freddie Mac, Fannie
Mae or Ginnie Mae receives an annual fee, up to .50% of the declining principal
amount of the loan pool. The Company, through investment bankers, may then
sell these MBSs to investors or hold them for investment.
30
<PAGE> 36
Loan pools may be sold to Freddie Mac or Fannie Mae, or securitized in the
form of Ginnie Mae mortgaged-backed securities and sold to institutional
investors with or without recourse in the event of default by the borrowers.
If a loan pool is sold without recourse, Freddie Mac will typically charge a
fee for issuing the MBS which is .05% to .07% higher than if such loan pool
were sold with recourse. The Company decides to sell loan pools with or
without recourse based primarily upon capital market conditions and perceived
risks of the terms of such mortgage loan documents. To date all of the loan
pools sold by the Company to Freddie Mac or Fannie Mae or through Ginnie Mae
programs have been sold on a non-recourse basis.
Mortgage loans are also sold on a loan-by-loan basis to banks, mortgage
companies and other private investors and, in the case of conforming loans, may
be sold to Freddie Mac or Fannie Mae. Such individual loan sales are typically
made by the Company on a non-recourse basis. During fiscal 1996, 1995, 1994
and 1993, the Company made $632.3 million, $564.2 million, $687.4 million and
$203.1 million of non-recourse loans, respectively, and did not sell any loans
with recourse. Loans underwritten and sold may be subject to repurchase if the
underwriting standards of the investor are not met, potentially resulting in
actual loss and/or the limitation of the Company's liquidity.
The Company packages substantially all of its FHA-insured and
VA-guaranteed mortgage loans into pools of loans sold in the form of
pass-through mortgage-backed securities guaranteed by Ginnie Mae. With respect
to loans secured through Ginnie Mae programs, the Company is insured against
foreclosure loss by the FHA or partially guaranteed against foreclosure loss by
the VA (at present generally 25% to 100% of the loan). Since the Company is
not an end investor in these types of loans, its risk with respect to these
loans is minimal. FHA-insured and VA-guaranteed mortgage loans represent
approximately 33% of the Company's originations in any given year. The
discontinuance of these programs would have a limited impact upon the Company
due to the Company's ability to originate a substantial volume of conventional
loans which enables the Company to market mortgage loans to Freddie Mac, Fannie
Mae or other investors.
The Company commits to sell loans in an amount equal to the closed loans
held in inventory, plus a portion of the loans that the Company has committed
to make but has not yet closed. This enables the Company to mitigate the
interest rate risk resulting from the fact that market interest rates may
change between the time that the Company commits to make or purchase a loan and
the time the Company commits to sell or sells such loans. The portion of loans
that have not yet closed which the Company commits to sell depends on numerous
factors, including the total amount of the Company's outstanding commitments to
make loans, the portion of such loans that is likely to close, the timing of
such closings and anticipated changes in interest rates. The Company
constantly monitors these factors and adjusts its commitments position
accordingly. The Company's commitment position may consist of mandatory
forward commitments on mortgage-backed securities or mortgage loans, options on
mortgage-backed securities or treasury futures contracts, or outright futures
contracts. See Note 9 of Notes to Consolidated Financial Statements for a
discussion of financial instruments with off-balance-sheet risk.
31
<PAGE> 37
Servicing. At January 31, 1996, the Company owned servicing rights for
mortgages with outstanding balances of approximately $2.1 billion and to land
contracts with outstanding net balances of approximately $97 million. The
Company intends to increase its servicing of residential mortgage loans, and to
maintain a mortgage and land contract servicing system that emphasizes cash
management and compliance with investor servicing requirements. To this end,
the Company intends to purchase conventional mortgage loan servicing rights
from other unaffiliated loan servicers.
The Company also obtains additional servicing through the retention of
servicing with respect to mortgages and land contracts that it originates and
sells to others. For residential mortgage loans which it originates, the
Company retains the servicing related to most of these loans temporarily, then
sells the servicing rights from time to time on the open market. The Company
intends to restrict its purchases of mortgage servicing to servicing that can
be purchased at a price that provides targeted rates of return, and is
compatible with the Company's systems and processes. During fiscal 1996, the
Company has purchased servicing for a total of approximately $1.4 billion of
mortgage loans and has sold servicing for a total of approximately $700 million
of mortgage loans.
A loan servicing portfolio creates an earning asset in the form of income
created from servicing fees, which range generally from 0.25% to 0.50% per year
for mortgage loans and from 0.25% to 2.5% per year for land contracts, based on
the declining principal balance of the mortgage loans or the declining net
principal balances of land contracts serviced, and the potential interest
earnings on escrow funds held until the time payment for taxes and insurance
must be made. Based upon current market conditions, the Company estimates that
servicing rights for residential mortgage loans and land contracts have a
market value from 1.25% to 2.5% and from 1.25% to 4.0%, respectively, of the
principal balance of the mortgage loans and the declining net principal
balances of land contracts serviced.
One of the Company's strategies is to build and retain its servicing
portfolio. The Company believes that it has developed systems that enable it
to service mortgage and land contract loans efficiently and therefore enhance
the returns it can earn from investments in servicing rights. In addition, the
Company believes that the earnings from its servicing portfolio may to some
extent offset the effect of interest rate fluctuations on loan origination
revenue. In general, the value of the Company's loan servicing portfolio may
be adversely affected as mortgage interest rates decline and expected loan
prepayments increase. Income generated from the Company's loan servicing
portfolio also may decline in such an environment. On the other hand, these
effects may be offset somewhat by an increase in originations and servicing
income attributable to new loans which historically increase in periods of
declining mortgage interest rates. However, there can be no assurance that low
mortgage rates will result in increased loan originations, particularly during
periods of slow or negative economic growth. As of January 31, 1996, the
weighted average rate on mortgages serviced by the Company but owned by others
was 7.9% and the weighted average rate on mortgages and land contracts serviced
by the Company but owned by MCA Mortgage or MCA-sponsored pass-through pools
was 10.9%.
32
<PAGE> 38
The following table sets forth information about the Company's retail and
wholesale loan origination and servicing activities:
<TABLE>
<CAPTION>
Year ended January 31,
--------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- -------- -------- --------
(dollars in thousands, except average loan balance)
<S> <C> <C> <C> <C> <C>
Beginning loan
servicing portfolio ..... $1,303,628 $1,105,534 $ 234,743 $ 44,380 $ 21,547
Add:
Loans purchased and
originated by the
Company for resale...... 632,281 536,881 687,484 203,087 166,822
Loans purchased by the
Company for syndication. 25,597 27,354 19,188 16,475 8,934
Mortgage servicing
purchased (net of sales) 618,780 (166,577) 471,587 98,808 --
---------- ---------- ---------- --------- ---------
$2,580,286 $1,503,192 $1,413,002 $ 362,750 $ 197,303
Less:
Amortization ............... (43,491) (43,228) (36,832) (1,146) --
Prepayments of loans ....... (172,100) (107,571) (210,305) (7,773) (3,023)
Loans sold with
servicing sold.......... (158,235) ( 48,765) (60,331) (119,088) (149,900)
---------- ---------- ---------- --------- ---------
Ending loan servicing
portfolio .......... $ 2,206,460 $1,303,628 $1,105,534 $ 234,743 $ 44,380
=========== ========== ========== ========= =========
Number of loans serviced
(end of period) ..... 27,357 16,372 15,900 4,063 1,576
Average loan balance ...... $ 80,650 $ 79,625 $ 69,530 $ 57,776 $ 28,160
</TABLE>
The following table sets forth, for the periods indicated, the mortgage
delinquency rate of the Company's loan servicing portfolio and information
relating to foreclosed properties:
<TABLE>
<CAPTION>
Year ended January 31,
-------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Delinquent mortgage loans at
Period end:
30 days:
Number of loans ....... 227 359 259 157 83
Percent of total loans 0.83% 2.19% 1.87% 3.86% 5.27%
60 days:
Number of loans ....... 49 97 77 26 19
Percent of total loans 0.18% 0.59% 0.56% 0.64% 1.21%
90 days or more:
Number of loans ....... 75 143 43 45 53
Percent of total loans 0.27% 0.87% 0.31% 1.11% 3.36%
Total delinquencies:
Number of loans ....... 351 599 379 228 155
Percent of total loans 1.28% 3.65% 2.74% 5.61% 9.84%
Foreclosed Properties:
Beginning inventory ..... 84 83 84 34 7
Properties acquired ..... 136 89 122 162 44
Ending inventory ........ 122 84 83 84 34
Aggregate carrying
value, net (-000's)..... $ 2,288 $ 1,500 $ 1,495 $ 1,701 $ 458
Average carrying value .. $ 18,754 $17,854 $18,012 $20,246 $13,465
</TABLE>
33
<PAGE> 39
OTHER BUSINESS ACTIVITIES
Securitization and Syndication of Real Estate Interests. The Company is
involved in marketing real estate interests in the form of pass-through
securities which represent the ownership of undivided fractional interests in a
defined pool of real estate related loans and loan participations. The
Company's primary objective in marketing these securities is to provide
investors with consistent high income without undue risk of loss. To
accomplish this, the Company has developed a program of acquiring for resale
real estate related investments consisting primarily of land contract seller's
interests and real estate mortgage notes. The Company emphasizes investments
in land contract seller's interests because of the traditional absence of
competition from financial institutions in this market, which generally results
in higher yields, and the belief that legal rights and remedies available to
land contract sellers are more flexible and lead to collection of delinquent
accounts with greater success than can be realized with respect to mortgage
notes. In addition, a land contract may be used only as an instrument
facilitating the sale and exchange of real property. Therefore, the nature of
the debt owed by the land contract purchaser is a result of the purchaser's
desire to own, through installment payments, the realty involved.
Through January 31, 1996, the Company had sponsored more than 100
offerings of pass-through certificates. For each offering, a subsidiary acts
as the sponsor and servicing agent for the land contracts, mortgages and other
real estate interests which are held for the benefit of the certificate
holders. Pursuant to the participation and servicing agreement relating to
each pass-through pool ("Participation and Servicing Agreement"), the sponsor
is obligated to purchase all outstanding participation certificates held by
investors in that pass-through pool at such time as the aggregate net
receivable balance of each pass-through pool is less than 10% of the original
face amount. At January 31, 1996, the maximum amount of these future purchase
commitments totalled approximately $8.0 million. The sponsor can satisfy its
repurchase obligation for such a paid-down pool by arranging a purchase of the
underlying real estate interests by another pass-through pool or a mortgage
investor.
34
<PAGE> 40
The following table shows the growth of the Company's originations and
purchases of loans for syndication in pass-through pools during the fiscal
years indicated:
<TABLE>
<CAPTION>
Year ended January 31,
--------------------------------------------------------
1996 1995 1994 1993 1992
----- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Number of Land Contracts
syndicated in pools ... 933 1,002 798 308 399
Average balance ............ $ 23,485 $ 22,453 $ 17,759 $ 31,413 $ 18,152
Total amount of Land
Contracts syndicated .. $21,911,707 $22,498,079 $14,172,104 $ 9,675,388 $7,242,840
Number of Mortgage Notes
syndicated in pools ... 78 212 344 260 67
Average loan balance ....... $ 47,246 $ 22,906 $ 14,580 $ 26,152 $ 29,266
Total amount of Mortgage
Notes syndicated ...... $ 3,685,207 $ 4,856,239 $ 5,015,723 $ 6,799,612 $1,960,826
Total number of loans
syndicated in pools ... 1,011 1,214 1,142 568 466
Average loan balance ....... $ 25,318 $ 22,513 $ 16,802 $ 29,005 $ 19,171
Total amount syndicated .... $25,596,914 $27,354,318 $19,187,827 $16,475,000 $8,933,666
</TABLE>
Purchase and Resale of Real Property. The Company purchases and sells
income-producing real estate, with sales made primarily to limited partnerships
for which an affiliated company acts as general partner. This activity
produces income to the Company in the form of gains on the sale of such real
estate. In addition, MCA Realty purchases distressed residential real estate,
which is rehabilitated and sold to non-related individuals. During the year
ended January 31, 1996, the Company acquired and sold 723 single family homes
for a total gain of $7.3 million, $6.5 million of which represented sales to
the limited partnerships described above. During fiscal 1995, 1994 and 1993,
the Company acquired and sold 735, 415 and 268 single-family homes for total
gains of $7.4 million, $4.9 million and $3.5 million, respectively, of which
$7.3 million, $4.8 million and $3.2 million, respectively, represented sales to
related parties. See Note 14 of Notes to Consolidated Financial Statements for
a summary of selected consolidated segment financial information.
The income producing real estate which is purchased by the Company and its
affiliates is acquired through the assistance of both affiliated and
unaffiliated real estate brokers. Approximately 60% and 40%, respectively, is
acquired through affiliated and nonaffiliated brokers. There appears to be
increased competition for these income-producing real estate properties as real
estate values continue to escalate and the economy continues to grow.
Most of the income-producing real estate is sold by the Company and its
affiliates on land contracts to limited partnerships controlled by an affiliate
of the Company. These transactions are not arm's length transactions with
independent third party appraisals. The land contracts are then sold by the
Company to real estate pass-through pools of which MCA is the sponsor of the
pools. The remaining balance of income-producing real estate is sold to
unrelated third parties.
35
<PAGE> 41
Because most of the income-producing real estate sales are directed to
affiliated partnerships, the normal real estate concerns associated with
purchasers and fluctuating market values are not applicable. These
partnerships are engaged in the business of renting income producing properties
to individuals. The day-to-day real estate rental concerns are those of the
syndicated real estate limited partnerships of the affiliates and not those of
the Company. However, the payments to the Company pursuant to the land
contract receivables are dependent upon the ability of these partnerships to
generate rental income.
Other. During fiscal 1996, the Company made a common stock investment of
approximately $1.0 million in a Delaware Limited Liability Company. The
Company's passive investment in the Class B Securities issued by this Limited
Liability Company provides it the right to participate in earnings and
distributions, if any, subject to the preferential right of certain other
shareholders. This type of investment is similar to other passive investments
made by the Company. See Note 1 - "Investments" - of Notes to Consolidated
Financial Statements.
COMPETITION
The Company competes with other mortgage bankers, state and national
banks, thrift institutions and insurance companies for loan originations and
purchases. While there are several dominant competitors in the industry, the
Company believes it is a mid-range mortgage company in its markets. Many of
its competitors have substantially greater resources than the Company.
However, the Company believes that it offers a more diversified and, in some
cases, unique product line to its customers. The Company competes, in part,
through print and electronic media advertising campaigns, by motivating its
sales force through incentive compensation based on volume of loan
originations, by maintaining a network of branch locations designed to provide
sales support for its originators and by maintaining close relationships with
real estate brokers and builder-developers.
REGULATION
The Company is subject to the rules and regulations of, and examina- tions
by, Freddie Mac, Fannie Mae, Ginnie Mae and the Department of Housing and Urban
Development ("HUD") with respect to the processing, origination and purchase,
sale and servicing of mortgage loans and contracts. These rules and
regulations prohibit discrimination, provide for inspection and appraisals of
properties, require credit reports on prospective borrowers and, in some cases,
fix maximum interest rates, fees and loan amounts. The Company is required to
meet certain financial requirements and to submit certified financial
statements to these agencies annually. Mortgage loan origination activities
are subject to the Equal Credit Opportunity Act, Federal Truth-in- Lending Act,
Real Estate Settlement Procedures Act and the regulations promulgated
thereunder which prohibit discrimination and require the dis- closure of
certain information to borrowers concerning credit and settlement costs.
Mortgage loans, other than first mortgages, are also subject to the usury
statutes of the states in which the Company does business. Addition- ally,
there are various state laws affecting the Company's mortgage banking
36
<PAGE> 42
operations, including licensing requirements and substantive limitations on the
interest and fees that may be charged. MCA Mortgage and MCA are registered
with the Commissioner of the Michigan Financial Institutions Bureau under the
Michigan Mortgage Brokers, Lenders, and Servicers Licensing Act and are subject
to the provisions of such law. MCA Realty is a licensed real estate broker in
the state of Michigan. Expansion of the Company's operations has subjected it
to similar regulations in the states of Indiana, Illinois, Idaho, Kentucky,
Maryland, Ohio, Florida, West Virginia and Pennsylvania.
EMPLOYEES
At January 31, 1996, 412 individuals were employed by the Company, of
which 401 were full-time employees, including 162 mortgage and land contract
originators and mortgage and land contract servicers. The remaining full-time
employees are administrative and management personnel. None of the Company's
employees is represented by a bargaining agent. The Company believes its
relations with its employees are good.
PROPERTIES
The Company's executive and administrative offices and its mortgage
banking and real estate operations are located in approximately 35,300 square
feet of leased office space in Southfield, Michigan. The basic annual rent for
the Southfield office space is approximately $423,000. The lease for this
office expires on September 30, 1999. The Company believes that its offices
are adequate for present purposes and for any foreseeable increase in its
business activities. As of January 31, 1996, the Company leased office space
in 34 other locations: 9 in Michigan, 5 in Indiana, 8 in Florida, 3 in Ohio, 3
in Illinois, 2 in Maryland and one in each of Kentucky, Idaho, West Virginia
and Pennsylvania. These locations are used by certain of the Company's
mortgage and land contract originators.
LEGAL PROCEEDINGS
The Company is a party to various routine legal proceedings arising out of
the ordinary course of its business. Management believes that none of these
actions, individually or in the aggregate, will have a material adverse effect
on the financial condition or results of operations of the Company.
37
<PAGE> 43
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information about the directors and executive
officers of MCAFC.
<TABLE>
<CAPTION>
Name and Age Principal Position(s) Held with MCAFC
- ------------------------------- -----------------------------------------------
<S> <C>
Patrick D. Quinlan, 49. . . . . Chairman, Chief Executive Officer and Director
Thomas P. Cronin, 49. . . . . . Vice Chairman and Director
Lee P. Wells, 35. . . . . . . . President, Chief Operating Officer and Director
Keith D. Pietila, 46. . . . . . Executive Vice President and Director
Alexander J. Ajemian, 32. . . . Senior Vice President, Controller and Treasurer
James B. Quinlan, 44. . . . . . Director
C. Thompson Wells, Jr., 55. . . Director
D. Michael Jehle, 46. . . . . . Director
</TABLE>
The Board of Directors is divided into three classes, with each class
serving a three-year term. At each annual meeting of the shareholders,
directors in the class whose term expires are elected to serve a three-year
term. Keith D. Pietila and James B. Quinlan are serving for a term ending at
the annual meeting of shareholders to be held in 1996; Lee P. Wells, and Thomas
P. Cronin are serving for a term ending at the annual meeting of shareholders
to be held in 1997 and Patrick D. Quinlan, C. Thompson Wells and D. Michael
Jehle are serving for a term ending at the annual meeting of shareholders to be
held in 1998.
Executive officers serve at the pleasure of the Board of Directors. The
business experience of each director and executive officer during the past five
years is described below.
PATRICK D. QUINLAN has been Chairman of the Board, Chief Executive Officer and
a director of MCAFC since its inception and served as President of MCAFC from
its inception until July 1995. Mr. Quinlan was a founder and served as
Chairman of the Board, President and a director of MCA Mortgage from 1985 until
July 1992. Mr. Quinlan is the brother of James B. Quinlan. See "Principal
Shareholders."
THOMAS P. CRONIN has been Vice Chairman of MCAFC since July 1995 and a director
of MCAFC since January 1993. Mr. Cronin has been Chief Executive Officer of
MCA Mortgage since November 1993. Mr. Cronin served as President of MCA
Mortgage from October 1992 until November 1993 and has been a director of MCA
Mortgage since August 1992. From October 1990 until October 1992, Mr. Cronin
was an Executive Vice President of MCA. From 1977 until 1990, Mr. Cronin was a
member of the Chicago Board of Trade and a licensed floor broker with the
Commodity Futures Trading Commission.
38
<PAGE> 44
LEE P. WELLS has been President and Chief Operating Officer of MCAFC since July
1995 and has been a director of MCAFC since its inception. Mr. Wells served as
Executive Vice President of MCAFC from its inception until July 1995, and
served as Executive Vice President of MCA Mortgage from 1990 until November
1993 and was a director of MCA Mortgage from 1990 until July 1992. Mr. Wells
is responsible for land contract originations and syndication of land contracts
and mortgages into pass-through pools which are sold to private mortgage
investors. From 1987 until 1990 Mr. Wells was a Vice President of MCA
Mortgage, and served as the Controller of MCA Mortgage from 1987 until 1988.
Mr. Wells is the son of C. Thompson Wells, Jr. See "Principal Shareholders."
KEITH D. PIETILA has been Executive Vice President and Chief Financial Officer
of MCAFC since July 1995 and has been a director of MCAFC since its inception.
Mr. Pietila served as Chief Operating Officer and Vice President of MCAFC from
MCAFC's inception until July 1995. Mr. Pietila also was a Vice President,
Chief Financial Officer and Chief Operating Officer and a director of MCA
Mortgage from 1990 until July 1992. Mr. Pietila has been a Director of U.S.
Mutual Financial Corporation since 1991. From 1982 until 1990, Mr. Pietila was
employed by Acorn Building Components, Inc., and served in several positions,
the last of which was as chief operating officer.
ALEXANDER J. AJEMIAN has been a Senior Vice President of MCAFC since July 1995
and has been Controller and Treasurer of MCAFC since its inception. Mr.
Ajemian served as Vice President of MCAFC from its inception until July 1995,
served as Vice President of MCA Mortgage since November 1992 and has served as
Treasurer of MCA Mortgage since November 1993. Mr. Ajemian was the Controller
of MCA Mortgage from 1990 until July 1992 and was the Vice President and
Assistant Secretary of MCA Mortgage from 1991 until July 1992. From 1986 until
1990, Mr. Ajemian was in the audit department of BDO Seidman, independent
certified public accountants. Mr. Ajemian is a Certified Public Accountant
licensed in Michigan.
JAMES B. QUINLAN has been a director of MCAFC since its inception. Mr. Quinlan
is the President of Standard Home Mortgage, Inc., a residential mortgage broker
located in Grosse Pointe, Michigan. Mr. Quinlan served as Senior Vice
President of MCAFC from 1991 until August 1993. Mr. Quinlan has served as a
director of MCA Mortgage since 1985 and served as a Senior Vice President of
MCA Mortgage from 1985 until August 1993. Mr. Quinlan also served as Treasurer
of MCA Mortgage from 1985 until August 1993. Mr. Quinlan is the brother of
Patrick D. Quinlan and the brother-in-law of David C. Wells. See "Principal
Shareholders."
C. THOMPSON WELLS, JR., has been a director of MCAFC since its inception and
previously served in the same capacity with MCA Mortgage from 1990 until July
1992. Since 1987, Mr. Wells has been the President of Wells' System, Inc., a
consulting firm, and has been involved in child care centers as the Chief
Executive Officer of three primary entities: Discovery Learning Centers,
Discovery Learning Centers Limited Partnership and Kids at Work, operating
through 25 other related secondary entities. Of these entities four filed
bankruptcy petitions in 1991 and 1992. Two entities have completed their
liquidations and the other two entities' petitions under the Bankruptcy laws
have been dismissed. Mr. Wells is also the President and a director of
39
<PAGE> 45
Austin Kids, Inc., which filed a bankruptcy petition in December 1994 and for
which an order confirming its plan of reorganization was entered in April 1995.
C. Thompson Wells, Jr. is the father of Lee P. Wells. See "Principal
Shareholders."
D. MICHAEL JEHLE has been a director of MCAFC since November 1993 and has
served as a director of MCA Mortgage since November 1993. Mr. Jehle served as
President and Chief Operating Officer of MCA Mortgage from November 1993 to
November 1994 and since March 1996 has been the Chairman-Office of Production
for MCA Mortgage. Mr. Jehle served as the President and Chief Executive
Officer of Rimco Financial Corporation from November 1994 to February 1996 and
currently serves as a director of Rimco Financial Corporation. Prior to
joining the Company, Mr. Jehle was employed by First Fidelity Thrift and Loan
in San Diego, California, from 1991 to 1993 in both loan production and
servicing capacities. From 1989 to 1991, Mr. Jehle was self-employed in both
residential and commercial loan originations and prior to that he was President
of ABQ MoneyCenter, Inc., in San Diego, California.
Certain of the directors and executive officers of MCAFC are also directors or
officers of MCAFC's other subsidiaries.
40
<PAGE> 46
COMPENSATION
The following table sets forth, for the fiscal years shown, information
regarding amounts paid to or accrued for the Chief Executive Officer of MCAFC
and the other four most highly compensated executive officers of MCAFC (the
"Named Executive Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards
------------------------------------ Other ------------
Name and Annual Restricted All Other
Principal Fiscal Compen- Stock Compen-
Position Year Salary Bonus sation Awards(1) sation(2)
- ---------------------- ------ ------ ------ -------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Patrick D. Quinlan - 1996 $206,458 $ -- $ -- $ -- $16,048
Chairman, 1995 195,000 -- -- -- 16,878
and Chief Executive 1994 183,114 -- -- -- 11,520
Officer
Thomas P. Cronin - 1996 $218,099 $ -- $ -- $ -- $ 9,670
Vice Chairman 1995 204,200 -- -- 110,000 9,670
1994 144,733 43,400 -- -- 4,835
Lee P. Wells - 1996 $159,583 $19,500 $ -- $ -- $ 2,146
President and Chief 1995 117,000 40,000 -- -- $ 1,766
Operating Officer 1994 111,600 21,000 -- -- 1,349
Keith D. Pietila - 1996 $153,333 $25,000 $ -- $ -- $11,552
Chief Financial 1995 124,800 22,000 -- 66,000 10,818
Officer and Executive 1994 114,568 17,000 18,000(3) -- 5,892
Vice President
Alexander J. Ajemian 1996 $ 94,375 $10,000 $ -- $ -- $ --
Senior Vice President 1995 69,600 -- -- 66,000 --
1994 62,461 8,000 -- -- --
</TABLE>
- ---------------
(1) During fiscal 1995, Mr. Pietela was awarded 6,000 shares of restricted
stock with a value of $66,000, with 2,000 shares vesting in each of fiscal
1996, 1997 and 1998. As of January 31, 1996, Mr. Pietela held 4,000
shares of restricted stock with a value of $27,160. During fiscal 1995,
Mr. Cronin was awarded 10,000 shares of restricted stock with a value of
$110,000, with 6,000 shares vesting in fiscal 1996 and 2,000 shares
vesting in each of fiscal 1997 and 1998. As of January 31, 1996, Mr.
Cronin held 4,000 shares of restricted stock with a value of $27,160.
During fiscal 1995, Mr. Ajemian was awarded 6,000 shares of restricted
stock with a value of $66,000, with 2,000 shares vesting in each of fiscal
1996, 1997 and 1998. As of January 31, 1996, Mr. Ajemian held 4,000
shares of restricted stock with a value of $27,160. Dividends are payable
on the restricted stock when paid on the Company's Common Stock.
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<PAGE> 47
(2) Represents, for each of the Named Executive Officers, premiums paid by
the Company for life insurance for the last fiscal year.
(3) Represents award of 2,000 shares of unrestricted stock valued at $9.00
per share.
The Company paid director's fees of $55,000 during the fiscal year ended
January 31, 1996, including $10,000 paid to James B. Quinlan for serving on the
Board of MCA Mortgage. For the year ending January 31, 1997, the Company will
pay non-employee directors an annual fee of $20,000 and will pay James B.
Quinlan an additional annual fee of $10,000 for serving on the board of MCA
Mortgage. This policy will be subject to review annually.
INDEMNIFICATION AND LIMITATION OF LIABILITY MATTERS
The Company's Restated Articles of Incorporation require the Company to
indemnify its directors, officers, employees and agents to the fullest extent
permitted by law, for expenses, judgments, penalties, fines and amounts paid in
settlement in connection with any pending, threatened or completed action, suit
or proceeding (other than by or in the right of the Company), to which any such
person was made a party by reason of the fact that he or she was acting in such
capacity for the Company or was serving as such for another corporation or
enterprise at the Company's request. Such indemnification will be provided if
such persons acted in good faith and in a manner they reason- ably believed to
be in or not opposed to the best interests of the Company or its shareholders,
or in respect to a criminal proceeding, had no reasonable cause to believe such
conduct was unlawful. In actions by or in the right of the Company,
indemnification is limited to expenses and amounts paid in settlement.
The Michigan Business Corporation Act ("MBCA") permits Michigan cor-
porations to limit the personal liability of directors for a breach of their
fiduciary duty. The Company's Restated Articles of Incorporation limit
liability to the maximum extent permitted by law. The Company's Restated
Articles of Incorporation provide that a director of the Company shall not be
personally liable to the Company or its shareholders for monetary damages for
breach of the director's fiduciary duty. However, they do not eliminate or
limit the liability of a director for any of the following (i) a breach of the
director's duty of loyalty to the Company or its shareholders; (ii) acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law; (iii) declaring an unlawful dividend or distribution to
shareholders; (iv) a transaction from which the director derives an improper
personal benefit; and (v) an act or omission occurring prior to the effective
date of the pertinent article. As a result of the inclusion of such a
provision, shareholders of the Company may be unable to recover monetary
damages against directors for actions taken by them which constitute negligence
or gross negligence or which are in violation of their fiduciary duties,
although it may be possible to obtain injunctive or other equitable relief with
respect to such actions. Insofar as indemnification for liabilities arising
under the Securities Act of 1933 (the "Act") may be permitted to directors,
officers and controlling persons of the Company
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<PAGE> 48
pursuant to the foregoing provisions, or otherwise, the Company 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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Patrick D. Quinlan, Keith D. Pietila and Lee P. Wells served on the
Compensation Committee of the Board of Directors of the Company during the year
ended January 31, 1996. Each of Messrs. Quinlan, Pietila and Wells is a
director and executive officer of the Company. Messrs. Quinlan and Wells are
executive officers and directors of Rimco Financial Corporation and certain of
its subsidiaries and Mr. Jehle is a director of Rimco Financial Corporation.
Messrs. Wells and Pietila are also directors and officers of Property
Corporation of America ("PCA") and Mr. Quinlan is a director of PCA. Mr.
Pietila is an officer and director of U.S. Mutual Financial Corporation.
From time to time, the Company and its subsidiaries have entered into
various contracts and other transactions with affiliates of the Company,
including certain officers and directors of the Company. The terms and
conditions of such transactions were not negotiated at arm's length and may not
have been as favorable to the Company as terms and conditions that would have
been obtained with unaffiliated parties.
During fiscal 1994, the Company purchased 15 single family homes from NML,
Inc., a corporation owned by Patrick D. Quinlan and Lee P. Wells. These
properties had been acquired by NML, Inc. for approximately $175,000. The
Company purchased these properties for $342,000 and subsequently sold them, as
described below, for the same price. These properties, together with other
parcels of real estate purchased from unrelated third parties during fiscal
1994, were sold by the Company to limited partnerships whose general partner is
owned by Patrick D. Quinlan and Lee P. Wells. Gains totaling $4,811,069 were
recognized from such sales during fiscal 1994. During fiscal 1996 and fiscal
1995, the Company recognized a gain of $6,529,708, and $7,365,199,
respectively, on the sale of properties purchased from unrelated third parties
and subsequently sold to such affiliated limited partnerships. During fiscal
1996, fiscal 1995 and fiscal 1994, the Company paid commissions in connection
with the acquisition of these properties totaling $1,735,000, $1,315,000 and
$996,000, respectively, to Rimco Realty and Mortgage, Inc., a former subsidiary
of Rimco Financial Corp. which is owned equally by Patrick D. Quinlan, Lee P.
Wells and Leroy G. Rogers.
The Company provides accounting and administrative services to U.S. Mutual
Financial Corporation ("U.S. Mutual") and receives a base monthly fee of $3,000
plus additional amounts as periodically agreed to by the respective parties.
U.S. Mutual is a publicly-owned corporation; however, Patrick D. Quinlan
together with his wife, Cheryl J. Quinlan, and James B. Quinlan, their brother
John E. Quinlan and their mother Bonnie B. Quinlan collectively own
approximately 15% of the outstanding voting stock of U.S. Mutual, and it is
therefore considered an affiliate of the Company, as defined by the
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<PAGE> 49
Securities and Exchange Commission. This service arrangement can be terminated
by either party at any time. The Company earned $36,000, $36,000 and $36,000
in management fees for administrative services provided to U.S. Mutual during
fiscal 1996, 1995 and 1994, respectively. Keith D. Pietila is a director of
U.S. Mutual.
During fiscal 1996, the Company retained Consulting Services of America,
Inc. ("CSA") as a consultant for specific long range planning and other
projects. During fiscal 1995 and 1994, the Company retained the Alquin Group,
Inc. ("Alquin") to provide similar services. John E. Quinlan, the brother of
Patrick and James Quinlan, is the principal shareholder and a director and
executive officer of CSA and was a shareholder, director and executive officer
of Alquin. For its services, CSA charges the Company its normal billing rate
of $150 per hour, and receives a minimum retainer of $5,000 per month. During
fiscal 1996, the Company paid $120,200 in consulting fees to CSA and during
fiscal 1995 and 1994, the Company paid $123,080 and $173,000, respectively, in
consulting fees to Alquin.
In February 1993, Patrick D. Quinlan and Lee P. Wells each purchased 500
shares of common stock of Property Corporation of America ("PCA") for $5,000 in
cash, as part of the reorganization of PCA. In connection with such
reorganization, the Company exchanged its PCA common stock for shares of PCA
non-voting preferred stock. As a result of the reorganization, Messrs. Quinlan
and Wells became the owners of all of the outstanding voting common stock of
PCA and the Company's property management subsidiary became a wholly-owned
subsidiary of PCA.
In July 1993, Janet K. Wells, the wife of C. Thompson Wells, Jr. and the
mother of Lee P. Wells, purchased 36,000 shares of common stock of the Company
for $12.50 per share in exchange for promissory notes with an aggregate
principal amount of $450,000, secured by mortgages on certain appraised real
estate. The appraisal was performed by Gary Speier, an employee of Blackacre
Appraisal Corp., an unaffiliated licensed real estate appraisal firm, and the
value of the stock was negotiated by the parties with approval by the Company's
Board of Directors. The notes were subsequently sold by the Company to several
investor pass-through pools for $450,000.
On January 27, 1994, North-Side Homes, Inc., a corporation owned by
Patrick D. Quinlan, Lee P. Wells, Roger Smigiel, David C. Wells, Janet K. Wells
and Leroy G. Rogers transferred certain rental properties to the Company,
subject to related liabilities that were assumed by the Company, which had an
aggregate appraised value (net of the assumed liabilities) of approximately
$979,000, in exchange for 58,400 shares of the Company's common stock, valued
at $16.77 per share. The appraisal was performed by Michigan Certified
Appraisers, Inc., a licensed real estate appraisal firm wholly owned by Dave
Thomas, a brother-in-law of Patrick D. Quinlan, and the value of the stock was
negotiated by the parties with approval by the Company's Board of Directors.
In July 1995, Janet K. Wells purchased 20,000 shares of common stock of
the Company for $30 per share in exchange for promissory notes with an
aggregate principal amount of $600,000, secured by mortgages on certain
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<PAGE> 50
appraised real estate. The appraisal was performed by the Real Estate
Appraisal Group, an unaffiliated licensed real estate appraisal firm, and the
value of the stock was negotiated by the parties with approval by the Company's
Board of Directors.
From time to time the Company has made working capital loans to related
entities, and these entities have entered into transactions in the ordinary
course of business with the Company pursuant to which the Company accrues net
payables to these entities. At January 31, 1996, 1995 and 1994, the Company's
accounts receivable from these related entities, net of accounts payable to
these entities, were $793,000, $796,000 and $1.63 million, respectively, due
from Rimco Financial Corp., a company owned by Patrick D. Quinlan, Lee P. Wells
and Leroy G. Rogers, and $1.68 million, $1.10 million and $1.07 million,
respectively, due from PCA, the common stock of which is owned by Patrick D.
Quinlan and Lee P. Wells. In addition, there is $4.6 million due from investor
pass-through pools sponsored by MCA Mortgage or MCA and limited partnerships
sponsored by other affiliates of the Company. On January 31, 1995, MCAFC
purchased all of the issued and outstanding common stock of Rimco Realty &
Mortgage Company from Rimco Financial Corp. for $12,918. The payment for such
shares was in the form of a reduction in debt owned by Rimco Financial Corp. to
MCAFC. Rimco Realty & Mortgage Company was engaged in the purchase and sale of
residential real estate and now operates as MCA Realty Corporation.
On October 19, 1994, MCA Mortgage and Rimco Financial Corp. entered into a
$1.5 million line of credit facility with Sterling Bank & Trust, FSB. This
credit facility is collateralized in part through the corporate guaranty of
MCAFC. At January 31, 1996, $1.5 million was outstanding under this facility.
45
<PAGE> 51
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as of April 1, 1996,
regarding each person known by the Company to own more than five (5%) percent
of the issued and outstanding shares of Common Stock of the Company, each
current director, each of the Named Executive Officers and all directors and
executive officers of the Company as a group. Unless otherwise noted, each
person is the record owner of the shares indicated and possesses the sole
voting and investment power with respect to such shares. Unless otherwise
noted, the address for each person is 23999 Northwestern Hwy., Southfield,
Michigan 48075.
<TABLE>
<CAPTION>
Amount and
Nature of Percent
Beneficial of
Name and Address Ownership Class(1)
-------------------- ----------- ------------
<S> <C> <C>
Patrick D. Quinlan 114,135 (2) 23.85%
James B. Quinlan 55,734 (3) 11.64%
17150 Kercheval Ave.
Grosse Pointe, Michigan 48230
C. Thompson Wells, Jr. 86,200 (4) 18.01%
Lee P. Wells 48,372 (2) 10.11%
NML, Inc. 33,700 (2) 7.04%
David C. Wells 27,842 (5) 5.82%
Keith D. Pietila 28,167 (6) 5.88%
Thomas P. Cronin 13,200 (6) 2.76%
D. Michael Jehle 10,000 (6) 2.09%
Janet K. Wells 86,200 (4) 18.01%
3 Sycamore
Grosse Pointe, Michigan 48230
Alexander J. Ajemian 8,280 (6) 1.73%
All executive officers and
directors as a group (8 persons) 397,788(2)(4)(6) 83.11%
</TABLE>
- ---------------
(1) As of April 1, 1996, there were 478,643 shares of Common Stock of the
Company outstanding. This number includes 12,336 shares of Common Stock
which are subject to forfeiture.
(2) Patrick D. Quinlan owns 50% of NML, Inc. and Lee P. Wells owns 50% of
NML, Inc.
(3) These 55,734 shares are held by Standard Home Mortgage, Inc., a
corporation wholly owned by James B. Quinlan. Of these shares, 1,334 are
subject to forfeiture.
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<PAGE> 52
(4) Janet K. Wells holds 86,200 shares in revocable trust and has voting and
investment power with respect to these shares. Ms. Wells is the wife of
C. Thompson Wells, Jr., who disclaims beneficial ownership of these
shares.
(5) Includes 1,334 shares subject to forfeiture.
(6) Includes the following shares that were issued pursuant to compensation
arrangements and are subject to forfeiture: Mr. Pietila - 2,000 shares;
Mr. Cronin - 2,000 shares; Mr. Jehle - 2,668 shares; Mr. Ajemian - 2,000
shares; and all executive officers and directors as a group - 10,002
shares.
DESCRIPTION OF SERIES 1996 DEBENTURES
General. In this Offering the Company is offering for sale up to
$6,000,000 aggregate principal amount of ____% Subordinated Debentures Series
1996, Due June 30, 2002 (the "Series 1996 Debentures"). The Series 1996
Debentures are unsecured obligations of the Company and are to be issued under
an Indenture (the "Indenture"), between the Company and First Union National
Bank, formerly known as First Fidelity Bank, N.A., as Trustee (the "Trustee"),
a copy of which has been filed as an exhibit to the registration statement of
which this Prospectus forms a part. The following summaries of certain
provisions of the Indenture do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, the provisions of the
Indenture, including the definitions of certain terms in the Indenture.
Wherever particular provisions and definitions of the Indenture are referred
to, such provisions and definitions are incorporated by reference as part of
the statements made, and the statements are qualified in their entirety by
those references. The Indenture has been qualified under the Trust Indenture
Act of 1939, as amended. In the discussion that follows, and unless otherwise
noted, the references to the Company are to MCA Financial Corp. only and do not
include any of its subsidiaries.
Since the Company is a holding company, its rights and, indirectly, the
rights of its creditors, including the holders of the Series 1996 Debentures,
to participate in any distribution of assets of the Company's subsidiaries upon
a liquidation or reorganization of any subsidiary will be subject to the prior
claims of creditors of that subsidiary, except to the extent that the Company
may itself be a creditor with recognized claims against its subsidiaries. In
the event a receiver or trustee is appointed for one or more of the Company's
subsidiaries or in the event of their insolvency, bankruptcy, assignment for
the benefit of creditors, reorganization or any other marshalling of assets and
liabilities of these entities, the Company will not be entitled to participate
or share, ratably or otherwise, in the distribution of the assets of that
subsidiary until all claims of all other present and future creditors of that
subsidiary have been fully satisfied.
The Indenture provides that the Company may issue additional debt during
or after the offering of the Series 1996 Debentures and such debt may be either
superior to, on a par with, or subordinated to the Series 1996 Debentures.
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<PAGE> 53
The total amount of Series 1996 Debentures that may be issued under the
Indenture and sold by the Company is limited to $6,000,000. Interest on the
Series 1996 Debentures will accrue from the Date of Issue and will be payable
on March 31, June 30, September 30 and December 31 of each year at the rate of
___% per annum. Interest will be payable to the person in whose name the Series
1996 Debentures are registered at the close of business on the first day of the
calendar month in which falls an Interest Payment Date. The Series 1996
Debentures will mature on June 30, 2002, unless redeemed earlier at the option
of the Company or at the request of a Holder or a Holder's authorized
representative upon the death of a Holder as set forth below. See "- Optional
Redemption" and "- Holders' Right of Redemption."
All interest payments to be made to registered holders of Series 1996
Debentures shall be paid directly by the Company to the Trustee, and the
Trustee shall mail these interest payments on the Interest Payment Date to the
Holders that are listed in the Debenture Register. Principal of the Series
1996 Debentures will be payable at maturity or upon redemption prior to
maturity by the Trustee by check mailed to the person entitled to payment, upon
surrender of the Series 1996 Debentures.
The Company will issue the Series 1996 Debentures only in fully registered
form, without coupons, in denominations of $1,000 and integral multiples
thereof. Holders may transfer or exchange the Series 1996 Debentures by
surrendering them for transfer or exchange at the Corporate Trust Department of
the Trustee, duly endorsed for transfer. The Series 1996 Debentures will be
transferable or exchangeable without service charge, but the Company may
require payment to cover taxes or other government charges. The Series 1996
Debentures must be surrendered to the Trustee in order to receive principal
payments.
Optional Redemption. Under the Indenture, the Company may redeem all of
the Series 1996 Debentures at any time on or after July 1, 1998, or some of
them from time to time on or after July 1, 1998, at the following redemption
prices (expressed in percentages of the principal amount to be redeemed), plus
accrued interest to the redemption date:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
July 1, 1998 through June 30, 1999 .............. 102.0%
July 1, 1999 through June 30, 2000 .............. 101.0%
July 1, 2000 and thereafter ..................... 100.0%
</TABLE>
If the Company elects to redeem the Series 1996 Debentures in whole or in part,
it shall notify the Trustee of the desired redemption date and the principal
amount of Series 1996 Debentures to be redeemed. If less than all of the
Series 1996 Debentures are to be redeemed, the Trustee shall select the Series
1996 Debentures to be redeemed either pro-rata or by lot, as the Trustee in its
sole discretion shall choose. Series 1996 Debentures shall be redeemed only in
denominations of $1,000 or integral multiples thereof.
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<PAGE> 54
At least 30 days but not more than 60 days prior to a redemption date the
Company shall mail, or shall cause the Trustee to mail, a notice of redemption
by first-class mail to each Holder of Series 1996 Debentures to be redeemed.
The notice shall identify the Series 1996 Debentures to be redeemed and shall
state (1) the redemption date and redemption price, (2) the name and address of
the Paying Agent, (3) in the event that a Debenture is to be redeemed in part
only, the portion of the principal amount thereof to be redeemed, and that on
and after the redemption date, upon surrender of the Series 1996 Debenture a
new Series 1996 Debenture, equal in principal amount to the unredeemed portion
thereof, will be issued, (4) that Series 1996 Debentures called for redemption
must be surrendered to the Paying Agent to collect the redemption price and (5)
that interest on the Series 1996 Debentures to be redeemed ceases to accrue on
and after the redemption date.
Holders' Right of Redemption. The Indenture provides that on each March
31, commencing with March 31, 1998, upon request by a Holder or on behalf of a
deceased Holder, the Company will redeem such Holder's Series 1996 Debentures,
but only up to $25,000 principal amount per Holder in each calendar year and
only up to an aggregate of $100,000 per calendar year for all Holders, without
any premium, provided that (a) the Series 1996 Debentures have been registered
in the name of the Holder or the deceased Holder for a period of at least six
months prior to the date of such request for redemption, (b) the Trustee has
been notified in writing of a request for redemption within one year after a
deceased Holder's death, and (c) the Company is not, or, after giving effect to
such redemption would not be, in default under any Senior Indebtedness. Series
1996 Debentures for which such redemption is requested on behalf of a deceased
Holder will be repaid at 100% of the principal amount thereof, whereas Series
1996 Debentures for which redemption is requested by any other Holder will be
repaid at 95% of the principal amount thereof; in either case, interest accrued
to the Redemption Date will also be paid. Redemption will be made on the March
31 next following a duly made redemption request. Redemption requests shall be
made to the Trustee and contain the following: (i) a written request for
redemption signed by a Holder or the duly authorized representative of a
deceased Holder, which (in the case of a deceased Holder) shall indicate the
name of the deceased Holder and the date of his death and shall indicate the
principal amount of Series 1996 Debentures to be redeemed, up to $25,000, (ii)
the Series 1996 Debentures to be redeemed, and (iii) evidence of the death of a
deceased Holder and of the authority of his representative. After receiving an
initial redemption payment, a Holder or the authorized representative of a
deceased Holder may annually request that the Company redeem additional Series
1996 Debentures in the principal amount of up to $25,000 each year, which the
Company will honor on March 31 of the succeeding year, subject to the further
limitation that Holders other than those representing a deceased Holder may not
have more than $50,000 principal amount of Series 1996 Debentures redeemed in
the aggregate. Authorized representatives of a deceased Holder include
executors, administrators or other legal representatives of an estate, trustees
of a trust, joint owners of Series 1996 Debentures owned in joint tenancy or
tenancy by the entirety, custodians, conservators, guardians,
attorneys-in-fact, and other persons generally recognized as having legal
authority to act on behalf of another.
49
<PAGE> 55
In applying the annual aggregate redemption limit of $100,000, the Trustee
shall give priority in the redemption of Series 1996 Debentures as follows:
first, to requests for redemption received prior to December 31 of each year
made on behalf of deceased Holders on a pro rata basis, and second, to all
other Holders of Series 1996 Debentures, on a pro rata basis.
The death of a Person owning a Series 1996 Debenture in joint tenancy or
tenancy by the entirety with another or others shall be deemed the death of the
Holder of the Series 1996 Debenture, and the entire principal amount of the
Series 1996 Debenture so held shall be subject to redemption, together with
interest accrued thereon to the Redemption Date. The death of a Person owning
a Series 1996 Debenture by tenancy in common shall be deemed the death of a
Holder of a Series 1996 Debenture only with respect to the deceased Holder's
interest in the Series 1996 Debenture so held by tenancy in common; except that
in the event a Series 1996 Debenture is held by husband and wife as tenants in
common, the death of either shall be deemed the death of the Holder of the
Series 1996 Debenture and the entire principal amount of the Series 1996
Debenture so held shall be subject to redemption. The death of a Person who,
during his lifetime, was entitled to substantially all of the beneficial
interests of ownership of a Series 1996 Debenture, will be deemed the death of
the Holder thereof for purposes of this provision, regardless of the registered
holder, if such beneficial interest can be established to the satisfaction of
the Company. Such beneficial interest will be deemed to exist in typical cases
of nominee ownership, ownership under the Uniform Gifts to Minors Act,
community property or other joint ownership arrangements between a husband and
wife, and trust arrangements where one Person has substantially all of the
beneficial ownership interests in the Series 1996 Debenture during his
lifetime.
Subordination. Any payment on the Series 1996 Debentures is subordinated
at all times, including upon liquidation of the Company, to the prior payment
of all "Senior Indebtedness" of the Company due and owing. Senior Indebtedness
is defined in the Indenture to mean all Indebtedness of the Company for money
borrowed from others, whether outstanding on the date of the Indenture or
thereafter created or incurred, which is not by its terms either expressly
subordinate and junior to, or on a parity with, the Series 1996 Debentures. At
January 31, 1996, the Company had $30.4 million of Senior Indebtedness
outstanding. In addition, at January 31, 1996, MCA Mortgage and MCA, the
Company's principal subsidiaries, had $85.8 million aggregate indebtedness
outstanding, including amounts owing under all of their mortgage warehousing
credit facilities, which the Company has guaranteed. Since the Company is a
holding company, its rights and, indirectly, the rights of its creditors,
including the holders of the Series 1996 Debentures, to participate in any
distribution of assets of such subsidiaries upon a liquidation or
reorganization of either of them will be subject to the prior claims of
creditors of that subsidiary, except to the extent that the Company may itself
be a creditor with recognized claims against its subsidiaries. See "-
General."
No payment of the principal of, or interest on, the Series 1996 Debentures
may be made if the Company is at the time in default with respect to any Senior
Indebtedness, or if such payment would cause the Company to be in default with
respect to any Senior Indebtedness, subject to exceptions for
50
<PAGE> 56
the cure or waiver of any such default. Upon any distribution of assets of the
Company upon any dissolution, winding up, liquidation or reorganization of the
Company, as discussed below, all Senior Indebtedness would be required to be
paid in full before any payment of principal or interest on the Series 1996
Debentures may be made. Such subordination will not prevent the occurrence of
any Event of Default (as defined below) under the Indenture.
BY REASON OF THE SUBORDINATION OF THE SERIES 1996 DEBENTURES, IN THE EVENT
OF LIQUIDATION OF THE COMPANY, THE RECOVERY, IF ANY, TO THE HOLDERS OF SERIES
1996 DEBENTURES MAY BE LESS, PROPORTIONATELY, THAN TO HOLDERS OF SENIOR
INDEBTEDNESS. THERE ARE NO LIMITATIONS ON THE AMOUNT OF SENIOR INDEBTEDNESS
THAT MAY BE ISSUED OR INCURRED IN THE FUTURE.
Restrictions on Dividends. So long as the year-end Common Equity (the
aggregate amount of the Common Stock, Additional Paid-in Capital and Retained
Earnings accounts) of the Company is less than $2,000,000, as reflected on the
Company's annual consolidated balance sheet, or if an Event of Default has
occurred and is continuing, the Indenture provides that the Company will not
(i) declare or pay any dividend or make any distribution on its Equity
Securities (other than dividends or distributions payable in shares of Equity
Securities of the Company); (ii) purchase, redeem or otherwise acquire or
retire for value any shares of Equity Securities of the Company; or (iii)
permit any Subsidiary to purchase, redeem or otherwise acquire or retire for
value any shares of Equity Securities of the Company. Otherwise, the Company
may declare and pay dividends on, make distributions on, and purchase, redeem
or otherwise acquire or retire for value shares of its Equity Securities.
Consolidation, Merger or Transfer. The Company may not consolidate with,
merge with, or transfer all or substantially all of its assets to another
entity unless such other entity assumes the Company's obligations under the
Indenture and unless, after giving effect thereto, no event which, after notice
or lapse of time, would become an Event of Default shall have occurred and be
continuing. Any consolidation, merger or acquisition of assets of the Company
is further conditioned on the surviving corporation having a Consolidated Net
Worth equal to or greater than that of the Company and the satisfaction of
certain other requirements. While the concept of "substantially all" of the
assets of a company has not been defined under Michigan law or by any Michigan
judicial decision, counsel has advised the Company that the potential sale of
assets having an aggregate book value of more than 50% of the total book value
of all assets, or the potential sale of assets from which more than 50% of the
Company's gross revenues were derived during the most recent fiscal year, would
be subject to this restriction.
Event of Default. An Event of Default, as defined in the Indenture,
includes: (a) default in the payment of the principal on any Series 1996
Debenture at its Maturity or upon redemption; (b) default in the payment of
interest on any Series 1996 Debenture when it becomes due and payable, and
continuance of such default for a period of ten (10) days after notice of such
default to the Company by the Trustee; (c) a default in the performance, or
breach, of any other covenant or warranty of the Company in the Indenture for a
period of 30 days after receipt of written notice specifying the default and
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<PAGE> 57
requiring the Company to remedy such default; (d) default in the payment at
stated maturity of certain indebtedness for money borrowed of the Company or
any of its Subsidiaries; (e) appointment of a receiver or conservator of the
Company or any of its Subsidiaries in certain circumstances; and (f) certain
events of insolvency, receivership, conservatorship or reorganization.
Within 90 days after the occurrence of any default, as defined in the
Indenture, the Trustee shall give the Series 1996 Debenture holders notice of
all uncured defaults known to it; provided that, except in the case of a
default in the payment of the principal of or interest on any Series 1996
Debentures, the Trustee shall be protected in withholding such notice if and so
long as it in good faith determines that the withholding of such notice is in
the interests of the Series 1996 Debenture holders.
If an Event of Default occurs and is continuing, the Trustee, in its
discretion may, and, at the written request of holders of a majority in
aggregate principal amount of the Series 1996 Debentures Outstanding and upon
being indemnified to its satisfaction shall, proceed to protect and enforce its
rights and the rights of the Series 1996 Debenture holders. If an Event of
Default occurs and is continuing, then and in every such case the Trustee or
the Holders of not less than 25% in principal amount of the Series 1996
Debentures Outstanding may declare the principal of all the Series 1996
Debentures to be due and payable immediately, by a notice in writing to the
Company, and to the Trustee if given by Series 1996 Debenture holders, and upon
any such declaration such principal will become immediately due and payable,
subject to the limitation on accelerations described below. Prior to
acceleration of maturity of such Series 1996 Debentures, the Holders of a
majority in principal amount of the Series 1996 Debentures Outstanding may
waive an Event of Default resulting in acceleration of such Series 1996
Debentures but only if all Events of Default have been remedied and all
payments due, other than those due as a result of acceleration, have been made.
The Company must furnish annually to the Trustee an Officers' Certificate
stating whether, to the best of the knowledge of the signers, the Company is in
default under any of the provisions of the Indenture, and specifying all such
defaults and the nature thereof of which they have knowledge.
A Holder of any Series 1996 Debenture will not have any right to institute
any proceeding with respect to the Indenture, or for the appointment of a
receiver or trustee, or for any remedy thereunder, unless (i) such Holder has
previously given written notice to the Trustee of a continuing Event of
Default, (ii) the Holders of at least 25% in aggregate principal amount of the
Outstanding Series 1996 Debentures have made a written request, and offered
reasonable indemnity, to the Trustee to institute proceedings in respect of
such Event of Default in its own name as Trustee and (iii) the Trustee has not
received from the Holders of a majority in principal amount of the Outstanding
Series 1996 Debentures a direction inconsistent with such written request and
shall have failed to institute such proceeding within 60 days after its receipt
of such notice, request and offer of indemnity. However, the Holder of any
Series 1996 Debenture will have an absolute right to receive payment of and the
principal of and interest on such Series 1996 Debenture on or after the
respective due dates and to institute suit for the enforcement of any such
payment.
52
<PAGE> 58
Modification and Waiver. With certain limited exceptions which permit
modification of the Indenture by the Company and Trustee only, the Indenture
may be modified by the Company with the consent of Holders of not less than 50%
in principal amount of Outstanding Series 1996 Debentures; provided, however,
that no such changes shall, without the consent of the holder of each
Outstanding Series 1996 Debenture affected thereby (i) change the Stated
Maturity of the principal of, or any installment of interest on any Series 1996
Debenture, (ii) reduce the principal of, or the rate of interest on, any Series
1996 Debenture (iii) change the coin or currency in which any Series 1996
Debenture or the interest thereon is payable, (iv) impair the right to
institute suit for the enforcement of any such payment, (v) reduce the
percentage in principal amount of the Outstanding Series 1996 Debentures, the
consent of whose Holders is required to modify the Indenture, (vi) reduce the
percentage in principal amount of the Outstanding Series 1996 Debentures, the
consent of whose Holders is required for any waiver of compliance with certain
provisions of the Indenture or certain defaults thereunder, (vii) subordinate
the Indebtedness evidenced by the Series 1996 Debentures to any Indebtedness of
the Company other than Senior Indebtedness, or (viii) impair or restrict the
rights of the Holders of the Series 1996 Debentures to redemption of the Series
1996 Debentures prior to the Stated Maturity thereof as provided in the
Indenture. No supplemental indenture shall adversely affect the rights of any
holders of Senior Indebtedness without the consent of such holder.
The Holders of at least 50% in principal amount of the Series 1996
Debentures at the time the Series 1996 Debentures are Outstanding may waive
compliance by the Company with certain restrictive provisions of the Indenture.
DESCRIPTION OF COMMON STOCK
The Company's authorized capital stock consists of 1,250,000 shares of
Preferred Stock and 3,750,000 shares of Common Stock. As of April 1, 1996,
there were 478,643 shares of Common Stock outstanding, including shares subject
to forfeiture. Owners of the Common Stock are entitled to such dividends as
may be declared by the Board of Directors out of the assets legally available
for that purpose, and are entitled to one vote per share on all matters
submitted to a vote of the shareholders of the Company. The holders of shares
of Common Stock do not have cumulative voting rights and therefore holders of
more than fifty (50%) percent of the shares voting for the election of
directors can elect all of the directors and the remaining holders will not be
able to elect any directors. The holders of shares of Common Stock have no
preemptive rights or other rights to subscribe for additional shares. There
are no conversion rights, redemption rights or sinking fund provisions with
respect to shares of Common Stock. All shares of Common Stock now outstanding
are validly issued, fully paid and nonassessable. On liquidation, dissolution
or winding up of the Company, the holders of shares of Common Stock are
entitled to receive, pro rata, the net assets of the Company remaining after
the payment of all creditors and the payment of all accrued and unpaid
dividends and the liquidation value with respect to outstanding shares of
Series A and Series B Preferred Stock.
53
<PAGE> 59
There is no established public trading market for the Company's Common
Stock. At April 1, 1996, there were 50 shareholders of record of the Company's
Common Stock. The Company has never paid a dividend on its Common Stock and
has no present plans to pay dividends in the future. The Company is restricted
in its ability to pay dividends under the terms of certain of its loan
agreements, as well as under the Indentures with respect to the Prior
Indentures and it is restricted under the Indenture with respect to the Series
1996 Debentures.
PLAN OF DISTRIBUTION
The Series 1996 Debentures being offered hereby are being offered by the
Company through certain officers, none of whom will be compensated, directly or
indirectly, in connection with his participation in the Offering. The Company
will rely on Rule 3a4-1 under the Securities Exchange Act of 1934, as amended,
and sales of Series 1996 Debentures will be conducted within the requirements
of Rule 3a4-1 by the Company's officers. In addition, the Company has
appointed East West Capital Corporation and _____________, each a member of the
National Association of Securities Dealers, Inc. ("NASD"), to act as selling
agents in the Offering on a "best efforts" basis. These participating NASD
members have all been in the securities business for over three years. These
participating NASD members will not have any firm commitment for the purchase
of Series 1996 Debentures. As compensation for their services in connection
with this Offering, participating broker-dealers will be paid a selling
commission by the Company of 6.5% of the purchase price of all Series 1996
Debentures sold by them, provided, however, that if a broker-dealer sells
$250,000 or more of the Series 1996 Debentures it will be paid a commission of
7.0% on all sales, and if a broker-dealer sells $500,000 or more of the Series
1996 Debentures it will be paid a commission of 8.0% on all sales. The Company
has agreed to indemnify participating broker-dealers against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended, or to contribute to payments the broker-dealers may be required to
make in respect thereof.
For the duration of the Offering, the Company and any participating
broker-dealer will instruct investors to make their investment checks payable
to the Company and will forward all subscription monies promptly to the
Company.
54
<PAGE> 60
LEGAL MATTERS
The validity of the Series 1996 Debentures offered hereby will be passed
on for the Company by Dykema Gossett PLLC, Detroit, Michigan.
EXPERTS
The Company's consolidated balance sheets as of January 31, 1996 and 1995,
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended January 31, 1996 included in this
Prospectus have been audited by Moore Stephens Doeren Mayhew, P.C. and Grant
Thornton LLP acting in a joint capacity, independent certified public
accountants, to the extent and for the periods indicated in their report
thereon appearing elsewhere herein and are included in reliance upon such
reports given upon the authority of said firms as experts in auditing and
accounting.
55
<PAGE> 61
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets
As of January 31, 1996 and 1995 F-3
Consolidated Statements of Operations
For the years ended January 31, 1996, 1995 and 1994 F-4
Consolidated Statements of Stockholders' Equity
For the years ended January 31, 1996, 1995 and 1994 F-5
Consolidated Statements of Cash Flows
For the years ended January 31, 1996, 1995 and 1994 F-6 to F-7
Notes to Consolidated Financial Statements F-8 to F-24
F-1
<PAGE> 62
[GRANT THORNTON LETTERHEAD]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
MCA Financial Corp.
We have audited the accompanying consolidated balance sheets of MCA Financial
Corp. and subsidiaries as of January 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended January 31, 1996. 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 MCA Financial
Corp. and its subsidiaries as of January 31, 1996 and 1995, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended January 31, 1996, in conformity
with generally accepted accounting principles.
Moore Stephens
Doeren Mayhew, P.C. Grant Thornton LLP
Moore Stephens Grant Thornton LLP
Doeren Mayhew, P.C. Detroit, Michigan
Troy, Michigan
April 26, 1996
F-2
<PAGE> 63
MCA FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
January 31 January 31
1996 1995
-------------- -------------
<S> <C> <C>
Cash $ 2,730,408 $ 2,931,234
Land contracts held for resale 11,484,877 9,309,498
Mortgages held for resale 63,306,372 15,702,403
Accounts receivable 9,722,527 14,154,804
Accounts receivable, related parties 8,256,090 8,269,139
Purchased servicing rights, net 27,293,358 17,567,698
Investments 2,492,816 1,529,728
Syndication participations 67,903 87,236
Real estate held for resale 392,013 -
Property and office equipment 4,856,330 3,863,737
Deferred charges and other assets 4,587,947 3,696,043
-------------- ------------
$ 135,190,641 $ 77,111,520
============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Notes payable $ 86,597,703 $ 44,843,292
Subordinated debentures 9,174,000 4,938,000
Accounts payable 25,206,687 15,354,085
Accounts payable, related parties 1,693,311 1,499,582
Accrued interest and other expenses 2,058,080 986,249
Deferred federal income tax 300,000 200,000
-------------- ------------
125,029,781 67,821,208
-------------- ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock
Authorized 3,750,000 shares at January 31,
1996 and 1995. No par, stated value $.01
each. Issued and outstanding, 448,617 shares at January 31,
1996 and 404,906 shares at January 31, 1995 4,486 4,049
Preferred stock (Series A)
Authorized 350,000 shares, $10 stated value, issued and
outstanding 203,022 shares at January 31, 1996
and 1995 2,030,220 2,030,220
Preferred stock (Series B)
Authorized 750,000 shares, $10 stated value, issued and
outstanding 336,619 shares at January 31, 1996
and 1995 3,366,190 3,366,190
Additional paid-in capital 3,457,251 2,717,030
Retained earnings 1,302,713 1,172,823
-------------- ------------
10,160,860 9,290,312
-------------- ------------
$ 135,190,641 $ 77,111,520
============== ============
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE> 64
MCA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended January 31
1996 1995 1994
---- ---- ----
REVENUES
<S> <C> <C> <C>
Gain on sale of land contracts $ 2,981,138 $ 2,983,022 $ 1,753,043
Gain on sale of real estate 750,800 - 66,967
Gain on sale of real estate-related parties 6,529,708 7,365,199 4,811,069
Gain on bulk sales of servicing rights 4,725,872 7,475,444 5,578,948
Mortgage origination fees and gain on
sale of mortgages 14,339,220 5,584,454 11,282,265
Servicing fees 6,243,748 4,616,738 1,916,662
Interest income 5,902,714 5,106,041 3,948,291
Other income 477,810 240,783 176,976
------------ ------------ ------------
Total revenues 41,951,010 33,371,681 29,534,221
------------ ------------ ------------
EXPENSES
Payroll 11,955,536 10,985,576 7,141,707
Interest 7,565,044 6,018,518 4,428,925
Commissions 5,929,844 4,591,079 8,286,531
Professional services 1,447,810 1,511,215 1,294,889
Depreciation 554,904 351,964 202,599
Amortization 3,259,131 1,924,872 2,009,511
General and administrative 10,111,211 8,163,619 5,197,874
------------ ------------ ------------
Total expenses 40,823,480 33,546,843 28,562,036
------------ ------------ ------------
INCOME (LOSS) BEFORE
FEDERAL INCOME TAXES 1,127,530 (175,162) 972,185
Provision for federal income taxes 512,000 102,384 420,545
------------ ------------ ------------
NET INCOME (LOSS) $ 615,530 $ (277,546) $ 551,640
============ ============ ============
Earnings (loss) per share $1.44 $(.69) $1.60
===== ===== =====
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE> 65
MCA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Year Ended January 31, 1996, 1995 and 1994
COMMON PREFERRED ADDITIONAL RETAINED
STOCK STOCK PAID IN CAPITAL EARNINGS
----------- ------------ --------------- ------------
<S> <C> <C> <C> <C>
Balance, February 1, 1993 $ 2,966 $ 1,690,600 $ 1,617,159 $ 1,561,101
Net Income - - - 551,640
Issuance of Common Stock 1,057 - 1,529,810 -
Issuance of Preferred Stock - 3,008,270 (298,619) -
Preferred Stock Dividends - - - (214,926)
----------- ------------ ------------ ------------
Balance, January 31, 1994 4,023 4,698,870 2,848,350 1,897,815
Net Loss - - - (277,546)
Issuance of Common Stock 26 - 28,211 -
Issuance of Preferred Stock - 697,540 (159,531) -
Preferred Stock Dividends - - - (447,446)
----------- ------------ ------------ ------------
Balance, January 31, 1995 4,049 5,396,410 2,717,030 1,172,823
Net Income - - - 615,530
Issuance of Common Stock 444 - 764,300 -
Repurchase of Common Stock (7) - (24,079) -
Preferred Stock Dividends - - - (485,640)
----------- ------------ ------------ ------------
Balance, January 31, 1996 $ 4,486 $ 5,396,410 $ 3,457,251 $ 1,302,713
=========== ============ ============ ============
<CAPTION>
PREFERRED
STOCK
SUBSCRIPTIONS TOTAL
------------- -----
<S> <C> <C>
Balance, February 1, 1993 $ - $ 4,871,826
Net Income - 551,640
Issuance of Common Stock - 1,530,867
Issuance of Preferred Stock (886,000) 1,823,651
Preferred Stock Dividends - (214,926)
----------- ------------
Balance, January 31, 1994 (886,000) 8,563,058
Net Loss - (277,546)
Issuance of Common Stock - 28,237
Issuance of Preferred Stock 886,000 1,424,009
Preferred Stock Dividends - (447,446)
----------- ------------
Balance, January 31, 1995 - 9,290,312
Net Income - 615,530
Issuance of Common Stock - 764,744
Repurchase of Common Stock - (24,086)
Preferred Stock Dividends - (485,640)
----------- ------------
Balance, January 31, 1996 $ - $ 10,160,860
=========== ============
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE> 66
MCA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended January 31
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ 615,530 $ (277,546) $ 551,640
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 3,814,035 2,276,836 2,212,110
Stock award compensation 165,744 28,237 101,637
Increase in land contracts
held for resale (2,175,379) (5,439,497) (2,409,120)
(Increase) decrease in mortgages held
for resale (47,003,969) 23,547,628 (25,166,053)
(Increase) decrease in accounts receivable 4,432,277 (7,325,104) (5,593,570)
Increase in accounts receivable, related parties (986,951) (1,333,086) (4,616,933)
Increase in deferred charges and other assets (1,751,063) (2,115,825) (754,659)
Increase in accounts payable 9,852,602 9,047,933 1,988,117
Increase (decrease) accounts payable,
related parties 193,729 194,211 (406,000)
Increase in accrued interest and other expenses 1,071,831 205,166 442,248
Increase in deferred Federal income taxes 100,000 20,000 5,600
------------- -------------- ------------
Net cash provided by (used in)
operating activities (31,671,614) 18,828,953 (33,644,983)
------------- -------------- -------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition of MCA Realty Corporation - 163,341 -
Investment in purchased servicing rights, net (12,125,632) (10,645,117) (8,585,344)
(Increase) decrease in investments 36,912 (224,702) 133,717
Decrease in investments in syndications 19,333 126,424 305,679
Real estate acquisitions (392,013) - -
Proceeds from sale of real estate - 451,133 420,131
Capital expenditures (1,073,420) (232,962) (484,374)
------------- ------------- -------------
Net cash used in investing activities (13,534,820) (10,361,883) (8,210,191)
------------- -------------- -------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from notes payable 548,960,490 529,181,111 639,870,762
Payments on notes payable (507,680,156) (540,175,700) (600,308,609)
Proceeds from subordinated debentures 4,236,000 - 1,767,000
Redemption of common stock - (300,000) -
Repurchase of common stock (25,086) - -
Proceeds from issuance of preferred stock - 1,583,540 2,122,270
Preferred stock issuance costs - (159,531) (298,619)
Dividends on preferred stock (485,640) (447,446) (214,926)
------------- -------------- ------------
Net cash provided by (used in) financing
activities 45,005,608 (10,318,026) 42,937,878
------------- -------------- ------------
Net increase (decrease) in cash (200,826) (1,850,956) 1,082,704
Cash at beginning of period 2,931,234 4,782,190 3,699,486
------------- -------------- ------------
Cash at end of period $ 2,730,408 $ 2,931,234 $ 4,782,190
============= ============== ============
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE> 67
MCA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONCLUDED)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Year Ended January 31
1996 1995 1994
----------- ----------- ----------
<S> <C> <C> <C>
Cash paid during the period for:
Interest $7,435,339 $5,943,047 $4,276,624
Income Taxes $ 66,506 $ 325,878 $ 396,445
</TABLE>
During the year ended January 31, 1996 the Company issued 24,410 shares of
common stock to employees and recognized $164,744 in compensation expense. The
Company also issued 20,000 shares of common stock to a shareholder/director of
the Company in exchange for $600,000 in notes receivable. Prior to January 31,
1996 the notes receivable were assigned to Investor Pass-Through Trusts in
satisfaction of amounts due the Trust by MCAFC. In December of 1995, the
Company exchanged a $1,000,000 investment in a real estate partnership acquired
from a related party in exchange for a reduction in amounts due the Company for
an interest in a limited liability company whose primary activity involves
providing financing for automobile dealerships. During the year ended January
31, 1996, capital leases totalling $474,077 were entered into for the purchase
of various furniture and equipment.
During the year ended January 31, 1995 the Company issued 2,567 shares of
common stock to employees and recognized $28,237 in compensation expense. The
Company also entered into capital lease arrangements for the purchase of
various furniture and equipment in the amount of $767,145. On January 31, 1995
the Company acquired MCA Realty Corporation (see Note 15) in a non-cash
transaction. The following assets and liabilities were acquired in exchange
for a $945,117 net reduction in accounts receivable from RIMCO Financial
Corporation:
<TABLE>
<S> <C>
Cash $163,341
Accounts receivable 414,126
Property and office equipment 947,967
Deferred charges and other 18,918
Notes payable (521,634)
Accounts payable (77,601)
---------
$945,117
=========
</TABLE>
During the year ended January 31, 1994 the Company issued 94,400 shares of
common stock to various shareholders/directors of the Company in exchange for
certain real estate and notes receivable valued at $1,428,286. Subsequent to
January 31, 1994 the notes receivable were assigned to Investor Pass-Through
Trusts in satisfaction of amounts due to the Trust by MCAFC. During fiscal
1994 the Company issued 11,293 shares of common stock to employees and
recognized $101,637 in compensation expense. The Company also entered into
capital lease arrangements for the purchase of various furniture and equipment
in the amount of $1,163,121. At January 31, 1994 there were preferred stock
subscriptions outstanding in the amount of $886,000. These amounts were
received in the first quarter of fiscal 1995.
See notes to consolidated financial statements
F-7
<PAGE> 68
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements at January 31, 1996, 1995 and 1994
include the accounts of MCA Financial Corp. (MCAFC) and its wholly owned
subsidiaries MCA Mortgage Corp. (MCAMC), Mortgage Corporation of America (MCA),
MCA Realty Corporation (MRC) and Complete Financial Corp. (CFC). Mortgage
Corporation of America - Ohio (MCA-Ohio) is a wholly owned subsidiary of MCA.
Intercompany accounts and transactions are eliminated in consolidation.
NATURE OF OPERATIONS
MCAFC and its subsidiaries (the Company) is a diversified mortgage banking and
real estate services enterprise. The Company generates revenue from four
primary sources including mortgage banking, land contract syndication, loan
servicing and real estate sales.
The Company originates first mortgage loans on residential properties. Loans
are delivered, primarily on a pre-sold basis, to various institutional
investors throughout the United States. These mortgage loans are typically
sold on a non-recourse basis. Loans underwritten and sold may be subject to
repurchase if the underwriting standards of the investor are not met. These
transactions are accounted for as sales of loans since the Company is able to
estimate its obligation under the recourse provisions, which historically have
been immaterial. Gains and losses from loan sale transactions are recognized
when the mortgage loans are sold and amount to approximately $3,767,000,
$(430,000) and $6,175,000 for the years ending January 31, 1996, 1995 and 1994
respectively.
MCA purchases land contracts and mortgage notes at a discount from face value
and packages (securitizes) these real estate investments into Investor
Pass-through Trusts. MCA is the sponsor of the Trusts, which are sold as
securities to investors by independent security broker-dealers. The Trusts
hold the entire interest, including any residual, in the transferred loans.
Gain on sale is recognized when the Trusts have broken escrow (investor funds
have been received).
MCAMC and MCA service the land contracts and mortgages for various investors.
Servicing revenues are recognized monthly according to the servicing contracts
related to the various portfolio interests.
MCAFC, MCA and MRC purchase residential and commercial income properties which
are sold to limited partnerships. Revenues related to limited partnership
sales are recognized when the sales are closed.
Substantially all of the real estate and land contracts held by the limited
partnerships and Investor Pass-through Trusts are located in, or relate to,
properties located in the greater Detroit, Michigan metropolitan area.
F-8
<PAGE> 69
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LAND CONTRACTS HELD FOR RESALE
Land contracts held for resale are recorded at the lower of cost or market and
consisted of the following at:
<TABLE>
<CAPTION>
January 31
1996 1995
----------- ------------
<S> <C> <C>
Land contracts receivable $12,158,775 $11,073,717
Discount (416,418) (749,043)
Senior liens payable (257,480) (1,015,176)
----------- -----------
$11,484,877 $ 9,309,498
=========== ===========
</TABLE>
The fair value of land contracts for resale approximates cost at January 31,
1996.
MORTGAGES HELD FOR RESALE
Mortgages held for resale are recorded at the lower of cost or market which is
determined by the aggregate method (unrealized losses are offset by unrealized
gains). Cost approximated market value, therefore, no valuation allowance was
necessary at January 31, 1996 and 1995.
ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following at:
<TABLE>
<CAPTION>
January 31
1996 1995
----------- -----------
<S> <C> <C>
Accounts receivable - sales of servicing rights $5,912,243 $10,480,361
Accrued fees and commissions 1,505,378 1,195,060
Accounts receivable - syndication sales 662,577 910,500
Accounts receivable - escrows on closed loans 563,061 233,714
Accounts receivable - shareholders 182,679 262,020
Accrued interest 211,843 137,333
Employee commission draws 113,799 108,800
Notes receivable - other - 95,000
Other 570,947 732,016
---------- -----------
$9,722,527 $14,154,804
========== ===========
</TABLE>
Accounts receivable - related parties consist mainly of non-interest bearing
advances and other administrative charges to Investor Pass-through Trusts and
limited partnerships sponsored by the Company, and other related entities.
F-9
<PAGE> 70
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTS RECEIVABLE - CONCLUDED
Included in accounts receivable - related parties at January 31, 1996 and 1995,
respectively, are approximately $793,000 and $796,000 due from an entity owned
by certain directors and shareholders of the Company; $1,676,000 and $1,097,000
due from Property Corporation of America (PCA); and $4,568,000 and $4,995,000
due from investor pass-through trusts and limited partnerships. Collectibility
of the receivables from PCA and from investor pass-through trusts and limited
partnerships is substantially dependent upon the successful syndication of
partnership interests and operating cash flows generated by rental operations.
The Company uses the allowance method to account for possible losses of
accounts receivable, and no allowance was deemed necessary at January 31, 1996
and 1995.
PURCHASED SERVICING RIGHTS
The Company capitalizes the cost of bulk purchases of servicing rights, as well
as the net cost of servicing rights acquired through the purchase of loans
servicing released, which will be sold servicing retained. The purchase price
of loans acquired servicing released is allocated between the servicing rights
and the value of the loans on a servicing retained basis. The portion of the
purchase price that represents the cost of acquiring the servicing rights is
capitalized as purchased servicing. The remainder of the purchase price
represents the cost basis of the loan that will be sold.
The following is an analysis of the changes in purchased servicing rights:
<TABLE>
<S> <C>
Balance, February 1, 1993 $ 1,387,453
Additions 8,585,344
Scheduled amortization (453,764)
Amortization due to changes in
prepayment and other assumptions (1,261,728)
Sales -
-----------
Balance, January 31, 1994 8,257,305
Additions 22,145,428
Scheduled amortization (1,334,724)
Amortization due to changes in
prepayment and other assumptions -
Sales (11,500,311)
-----------
Balance January 31, 1995 17,567,698
Additions 25,711,919
Scheduled amortization (1,991,974)
Amortization due to changes in
prepayment and other assumptions (468,007)
Sales (13,526,278)
-----------
Balance, January 31, 1996 $27,293,358
===========
</TABLE>
F-10
<PAGE> 71
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PURCHASE SERVICING RIGHTS - (CONCLUDED)
Amortization of purchased servicing rights is based on the ratio of net
servicing income received in the current period to total net servicing income
projected to be realized from the purchased servicing rights on a discounted
basis. The Company periodically evaluates the recoverability on a
disaggregated basis by analyzing each individual bulk purchase
of servicing rights separately and recording any amortization necessary to
adjust the carrying value of each bulk purchase to its net realizable value.
Projected net servicing income is determined on the basis of the estimated
balance of the underlying mortgage loan portfolio, which declines over time
from prepayment and scheduled amortization. The Company estimates future
prepayment rates based on current interest rate levels and other economic
conditions, as well as relevant characteristics of the servicing portfolio,
such as loan types, interest rate stratification and recent prepayment
experience. Amortization of purchased servicing rights was $2,459,981,
$1,334,724, and $1,715,492 for the years ended January 31, 1996, 1995 and 1994,
respectively. Accumulated amortization of purchased servicing rights was
$2,887,705, $427,724 and $1,715,492 at January 31, 1996, 1995 and 1994,
respectively.
Properties securing the mortgage loans in the Company's servicing portfolio are
located throughout the United States.
At January 31, 1996 the net book value of the purchased servicing rights
portfolio approximated fair value.
INVESTMENTS
Partnership investments consist of partnership interests in limited
partnerships and are accounted for under the equity method. The partnerships
invest primarily in residential rental properties. Presented below is summary
unaudited financial information for the above limited partnerships as of, and
for the year ended:
<TABLE>
<CAPTION>
December 31
-----------
1995 1994
---------- ----------
<S> <C> <C>
Total assets $9,327,310 $9,089,000
Total liabilities 2,885,888 2,908,000
Partnership equity 6,441,422 6,181,000
Net income 510,748 322,000
</TABLE>
Included in investments at January 31, 1996 is a common stock investment in a
LLC which was made in December, 1995. This start-up company intends to
participate in the used vehicle retail industry through providing floor plan
financing and participating in joint venture activities with existing dealers.
The Company's investment in the Class B shares issued by this LLC provides it
the right to participate in earnings and distributions, if any, subject to the
preferential rights of certain other shareholders. This investment is being
acounted for on the cost method.
SYNDICATION PARTICIPATIONS
Syndication participations consist of interests in Investor Pass-through Trusts
sponsored by the Company and are recorded at cost. Income earned from the
Company's interest in Pass-through Trusts is included in interest income.
REAL ESTATE HELD FOR RESALE
Real estate held for resale consists mainly of single-family residences at
January 31, 1996 and is recorded at the lower of cost or net realizable value.
F-11
<PAGE> 72
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONCLUDED)
PROPERTY AND OFFICE EQUIPMENT
Property and office equipment are recorded at cost. Depreciation is calculated
principally using the straight-line method based upon the estimated useful
lives of the assets, ranging from seven to ten years. Property and office
equipment consisted of the following at:
<TABLE>
<CAPTION>
January 31
1996 1995
-------------- -------------
<S> <C> <C>
Property and office equipment under capital leases $ 2,475,010 $ 1,998,546
Property and office equipment 2,653,472 1,896,579
Building and improvements 1,090,714 785,558
------------- ------------
6,219,196 4,680,683
Less: accumulated depreciation (1,362,866) (816,946)
------------- ------------
$ 4,856,330 $ 3,863,737
============= ============
</TABLE>
Depreciation and amortization expense for the year ended January 31, 1996, 1995
and 1994 amounted to $554,904, $351,964 and $202,599, respectively.
REVENUE RECOGNITION
Gains on the sale of servicing rights are recognized when title and all risks
and rewards have irrevocably passed to the buyer and there are no significant
unresolved contingencies. Mortgage origination fees on loans held for sale are
recognized as income at the time the loan is sold.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statements of Financial Accounting Standards ("SFAS") No. 107 issued by the
Financial Accounting Standards Board ("FASB"), "Disclosures about Fair Value of
Financial Instruments", requires the disclosure of fair value information about
financial instruments, whether or not recognized in the statement of financial
condition, where it is practicable to estimate that value. In cases where
quoted market prices are not available, fair values are based on estimates
using present value or other valuation techniques. SFAS 107 excludes certain
financial instruments and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Company.
The following methods and assumptions were used by the Company to estimate the
fair value of each class of financial instruments for which it is practicable
to estimate that value:
Cash and cash equivalents: For these short-term instruments, the carrying
amount is a reasonable estimate of fair value.
Land Contracts held for resale: This portfolio consists of land contracts held
for resale underlying single family residential properties. These are valued
based on the fair value of obligations with similar credit characteristics.
Mortgage Servicing Rights: The fair value of the mortgaged servicing rights
is determined using the discounted present value of the net cash flows. Market
estimates are used for servicing costs, prepayment speeds and discount rates.
Mortgages held for resale: This portfolio consists of single family mortgage
loans held for sale and is valued using fair values attributable to similar
mortgage loans.
Notes Payable and Subordinated Debentures: The carrying amount for these
instruments approximates fair value.
F-12
<PAGE> 73
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONCLUDED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that effect reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
EARNINGS PER SHARE
Earnings per share are computed based on the weighted average number of common
and common equivalent shares outstanding during the period. The weighted
average number of shares used in the determination of earnings per share was
426,762, 403,622, and 343,893 for the years ended January 31, 1996, 1995 and
1994.
RECLASSIFICATION
Certain amounts in the prior year's financial statements have been reclassified
to conform to the January 31, 1996 presentation.
NEW PRONOUNCEMENTS
In March 1995, the FASB issued "SFAS No. 121 - Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." This statement
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to those assets to be
held and used, and for long-lived assets and certain identifiable intangibles
to be disposed of. The statement is effective for the year ended January 31,
1997.
In May 1995, the FASB issued SFAS No. 122 - "Accounting for Mortgage Servicing
Rights". This statement requires that a mortgage banking enterprise recognize
as separate assets rights to service mortgage loans for others, however those
servicing rights are acquired. This statement is effective for the year ended
January 31, 1997.
Management does not believe the adoption of these standards will have a
material effect on the financial statements.
NOTE 2 - RESTRICTED CASH
Included in cash and accounts payable are advance payments by borrowers on
loans serviced by the Company in the amount of approximately $378,000 and
$421,000, respectively, at January 31, 1996 and 1995.
F-13
<PAGE> 74
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - NOTES PAYABLE
Notes payable consisted of the following at:
<TABLE>
<CAPTION>
January 31
1996 1995
------------ ------------
<S> <C> <C>
Note payable under $25 million mortgage
warehouse credit facility, subject to renewal
on July 1, 1996, interest is computed
at the bank's prime rate less 1/2% (8.0% at
January 31, 1996) and payable monthly; principal
payable upon sale of mortgage collateral
(mortgages held for resale) to institutional
investors or on demand. $ 22,557,781 $ 7,332,644
Note payable under $28.5 million revolving credit
loan subject to renewal on October 31, 1996 interest is
computed at the bank's prime rate (7.125% at
January 31, 1996), collateralized by purchased servicing
rights. 28,500,000 24,646,708
Note payable under $30 million mortgage warehouse
facility terminating June 15, 1996, interest is computed
at the federal funds rate plus 1.5% (7.47% at
January 31, 1996) and deducted from the proceeds of
investor fundings, principal payable upon sale of mortgage
collateral (mortgages held for resale) to institutional
investors or on demand. 26,554,708 8,203,564
Note payable under $10 million mortgage warehouse
facility, subject to renewal on November 1, 1996, interest is
computed at LIBOR plus 1.5% (7.14% at January 31, 1996),
principal payable upon sale of mortgage collateral (mortgages
held for resale) to institutional investors. 3,729,748 -
Revolving line of credit/note payable, $.5 million credit
line for working capital, $1 million note payable for
purchases of land contracts subject to renewal on
April 30, 1996, interest is computed at the bank's prime
rate plus 1% (9.5% at January 31, 1996). Land
contracts are assigned to the bank as collateral, personally
guaranteed by certain officers of the Company, principal
payable upon sale of collateral. 1,500,000 1,500,000
Note payable under $1.5 million line of credit for the
acquisition and rehabilitation of residential real property
subject to renewal on October 31, 1996, interest is computed
at 12%, collateralized by residential real property and
personally guaranteed by certain officers of the Company,
principal payable upon sale of collateral. 1,448,042 1,199,304
</TABLE>
F-14
<PAGE> 75
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - NOTES PAYABLE (CONCLUDED)
<TABLE>
<S> <C> <C>
Note payable under $1.5 million line of credit for the
acquisition and reliabilitation of residential real property,
subject to renewal April 1, 1996, interest is computed
at the bank's prime rate plus 3/4%, collateralized by residential
real property and personally guaranteed by certain officers
of the Company, principal payable upon sale of collateral. 408,773 -
Land contracts payable to certain Investor Pass-through
Trusts sponsored by the Company for purchase of a building,
interest at 11%, collateralized by the building, principal
payable based on 30 year amortization, balloon payment
required in 10 years. 542,556 478,881
Other notes payable, including obligations under capital
leases, expiring at various times through 1999. 1,356,095 1,482,191
------------ -------------
$ 86,597,703 $ 44,843,292
============ =============
</TABLE>
In connection with the $28.5 million credit facility, the Company entered into
an arrangement with the Policemen and Firemen Retirement System of The City of
Detroit (The "Fund") whereby the the Fund has agreed to provide payment upon
the occurrence of certain events of default by the Company. In consideration
for this, the Company pays certain fees to the Fund, and has provided it with
an option to purchase up to five percent of the Company's outstanding common
stock, at seventy percent of the public offering price per share, if the
Company completes a firm commitment underwritten sale of its common stock prior
to April 30, 2000.
The above notes payable place certain financial restrictions on the Company.
If for any reason the warehouse credit facilities are terminated, the Company's
ability to fund mortgage loans will be adversely impacted. The Company
anticipates renewal of all of its existing credit facilities.
NOTE 4 - SUBORDINATED DEBENTURES
In December 1991, the Company began offering up to $7,500,000 of 11%
Asset-Backed Subordinated Debentures due March 15, 1997. Interest on the
Debentures is payable quarterly. The Debentures are subordinate in right of
payment to all current and future senior indebtedness of the Company. Payment
of principal and interest on the Debentures is collateralized by a security
interest in and lien upon certain existing and future contract rights to
service mortgages and land contracts. These rights must at all times have a
formula value, as determined by provisions of the Indenture, of at least 105%
of the principal amount of Debentures outstanding. Under certain limited
conditions the Debentures are redeemable commencing June 15, 1993 only up to
$25,000 per holder in each calendar year and only up to an aggregate of
$100,000 per calendar year for all holders. The right of redemption does not
exist if the Company is in default under any senior indebtedness. Through
January 31, 1996 there have been $17,000 in redemptions. The Debentures also
place restrictions on dividends and certain equity transactions should the
Company's consolidated retained earnings fall below $1,000,000. The Debentures
are registered with the Securities and Exchange Commission.
Through January 31, 1996, the Company has incurred approximately $866,000 in
fees related to the debenture offering. These costs are included in deferred
charges and other assets and are being amortized over the life of the
debentures on the straight-line method. Accumulated amortization was $686,000
and $532,000 at January 31, 1996 and 1995.
F-15
<PAGE> 76
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - SUBORDINATED DEBENTURES (CONCLUDED)
In December 1994, the Company began offering up to $10,000,000 of 11%
Asset-Backed Subordinated Debentures due June 30, 2000. Interest on the
Debentures is payable quarterly. The Debentures are subordinate in right of
payment to all current and future senior indebtedness of the Company. Payment
of principal and interest on the Debentures is collateralized by a security
interest in and lien upon certain existing and future contract rights to
service mortgages and land contracts and specified mortgage notes and land
contract vendors' interests relating to one-to-four family residential and
commercial real estate. This collateral must at all times have a formula
value, as determined by provisions of the Indenture, of at least 105% of the
principal amount of Debentures outstanding. Under certain limited conditions
the Debentures are redeemable only up to $25,000 per holder in each calendar
year and only up to an aggregate of $100,000 per calendar year for all holders.
The right of redemption does not exist if the Company is in default under any
senior indebtedness. Through January 31, 1996 there have been no redemptions.
The Debentures are registered with the Securities and Exchange Commission.
Through January 31, 1996, the Company has incurred approximately $867,000 in
fees related to the debenture offering. These costs are included in deferred
charges and other assets and are being amortized over the life of the
debentures on the straight-line method. Accumulated amortization was $109,000
and $0 at January 31, 1996 and 1995.
NOTE 5 - REDEEMABLE COMMON STOCK
The Company had an arrangement with one shareholder whereby the Company was
required to redeem, at the shareholder's option, any or all of the 14,000
shares covered by the redemption agreement. The redemption price was $21.42
per share. These shares were redeemed during fiscal 1995.
NOTE 6 - PREFERRED STOCK
In March 1992 MCAFC began offering up to 350,000 units consisting of one share
of Series A 9%, $10 stated value, cumulative convertible preferred stock and
one warrant to purchase one share of common stock of the Company. The stock is
convertible only in the event of an initial public offering of the Company's
common stock. The warrants are conditional on an initial public offering of
the Company's common stock within one year of the redemption of the warrant
holders Series A preferred stock. The preferred stock is redeemable at any
time at the option of the Company only. Redemption prices per share increase
$.20 per year from $10.20 in 1993 to $11 in 1997 and thereafter. Through
January 31, 1996 there have been no redemptions. Dividends are payable
quarterly.
In June 1993 MCAFC began offering up to 750,000 units consisting of one share
of Series B 9%, $10 stated value, cumulative convertible preferred stock. The
stock is convertible only in the event of an initial public offering of the
Company's common stock. The preferred stock is redeemable at any time on or
after July 15, 1994 at the option of the Company only at a redemption price of
$10 per share. Through January 31, 1996 there have been no redemptions.
Dividends are payable quarterly.
Through January 31, 1996 the Company has incurred approximately $603,000 in
fees related to the preferred stock offering. These costs have been offset
against additional paid-in capital on the balance sheet.
F-16
<PAGE> 77
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - FEDERAL INCOME TAXES
Deferred income taxes are provided for on the liability method and reflect the
net tax effects of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for
income tax purposes. Significant components of the deferred tax liability are
as follows:
<TABLE>
<CAPTION>
January 31
1996 1995
-------- ---------
<S> <C> <C>
Depreciation of property and office
equipment $416,000 $275,000
Deferred gain on sales 23,000 30,000
Non-deductible accruals (31,000) (50,000)
Amortization of goodwill (108,000) (55,000)
-------- --------
$300,000 $200,000
======== ========
</TABLE>
Components of income tax expense include:
<TABLE>
<CAPTION>
Year Ended January 31
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Current $412,000 $ 82,384 $414,945
Deferred 100,000 20,000 5,600
-------- -------- --------
$512,000 $102,384 $420,545
======== ======== ========
</TABLE>
The income tax provision reconciled to the tax computed at the statutory
federal rate is as follows for the years ended January 31:
<TABLE>
<CAPTION>
1996 1995
---- -----
<S> <C> <C>
Tax (benefit) at statutory rate $383,000 $(59,000)
Non-deductible items 169,000 107,000
Adjustment of prior year accrual - 38,000
Other (40,000) 16,384
-------- --------
$512,000 $102,384
======== ========
</TABLE>
NOTE 8 - RELATED PARTY TRANSACTIONS
The Company purchased various real estate parcels during the years ended
January 31, 1996, 1995 and 1994. Certain of these parcels during the year
ended January 31, 1994 were purchased for $342,000 from a company owned by two
MCAFC shareholders. These and other parcels purchased from unrelated third
parties were subsequently sold to limited partnerships, for which PCA is the
general partner. Gains totaling $6,529,708, $7,365,199 and $4,811,069 for the
years ended January 31, 1996, 1995 and 1994 were recognized on the sales,
respectively. The Company did not recognize gains on the sale of parcels
acquired from related parties.
During the years ended January 31, 1996, 1995 and 1994 the Company agreed to
pay commissions of $1,735,000, $1,315,000 and $996,000, respectively for the
acquisition of properties acquired from unrelated third parties to a Company
owned by three shareholders of MCAFC. These commissions reduced "Gain on Sale
of Real Estate" in the Consolidated Statements of Operations.
MCA earned $36,000 for management fees for administrative services provided to
U.S. Mutual Financial Corporation (USMFC) during each of the years ended
January 31, 1996, 1995 and 1994, respectively. Certain shareholders of the
Company are directors or major shareholders in USMFC.
Included in accounts payable at January 31, 1996 and 1995 are approximately
$1,693,000 and $1,500,000 attributable to transactions with partnerships,
trusts and other related entities. Such transactions include rental payments
received on behalf of these entities and disbursed in subsequent months.
F-17
<PAGE> 78
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company is party to financial instruments with off-balance sheet risk in
the normal course of business through the production and sale of mortgage loans
and the management of interest rate risk. These financial instruments include
commitments to extend credit and forward contracts to deliver and sell loans to
investors.
The Company is exposed to credit loss in the event of nonperformance by the
counter-parties to the various agreements. However, the Company does not
anticipate nonperformance by the counter-parties. The Company's exposure to
credit risk with respect to commitments to extend credit are limited due to
the non-recourse nature of the loans upon sale to investors. At January 31,
1996 and 1995, respectively, the Company had approved loans that had not yet
closed amounting to approximately $74,259,000 and $23,075,000. The Company
manages credit risk with respect to forward contracts by entering into
agreements only with investors meeting certain requirements. In the event of
default by the counter-party the Company's exposure to credit risk is the
difference between the contract price and the current market
price.
NOTE 10 - LEASE COMMITMENTS
The Company leases office space and equipment under long-term capital and
operating leases with varying terms which expire through 2000. Rent expense on
operating leases approximated $1,803,000, $1,251,000 and $917,000 for the years
ended January 31, 1996, 1995 and 1994, respectively, and is included in the
caption General and Administrative" expense in the Consolidated Statements of
Operations.
As of January 31, 1996, approximate future minimum lease payments under
capital leases and future minimum lease payments under operating leases that
have initial or remaining noncancelable terms in excess of one year are as
follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------------ -----------
<S> <C> <C> <C>
1997 $ 857,641 $ 834,992
1998 447,149 798,058
1999 121,815 549,282
2000 - 282,860
----------- ----------
Total minimum lease payments 1,426,605 $2,465,192
==========
Less:
Amount representing interest 176,443
-----------
Present value of minimum
lease payments $ 1,250,162
===========
</TABLE>
NOTE 11 - COMMITMENTS AND CONTINGENCIES
In accordance with the terms of the Investor Pass-through Trust Participation
Agreements, the Company is obligated to purchase all outstanding participation
certificates held by investors at such time as the aggregate net receivable
balances of each Trust is less than 10% of the original face amount of the
Trust. At January 31, 1996 and 1995, the maximum amount of these future
purchase commitments totalled approximately $8,011,000 and $5,853,000.
F-18
<PAGE> 79
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Although the Company is approved as a correspondent with numerous mortgage
investors, the Company estimates that three investors purchased substantially
all of the Company's mortgage loans originated during fiscal 1996, 1995 and
1994. Management believes that the loss of these investors would have a
material adverse effect on the Company.
The Company is a party to various routine legal proceedings arising out of the
ordinary course of its business. Management believes that none of these
actions, individually or in the aggregate will have a material adverse affect
on the financial condition or results of operations of the Company.
NOTE 12 - EMPLOYEE BENEFIT PLAN
The Company has a 401(k) plan covering substantially all its employees. The
Company has the option of making an annual discretionary profit sharing
contribution and is matching each employee's contribution up to a predetermined
limit.
The Company's combined contribution to the plan amounted to $22,000, $17,000
and $48,000 for the years ended January 31, 1996, 1995 and 1994.
NOTE 13 - RESTRICTED STOCK AWARDS
At the discretion of the Board of Directors, shares may be issued to employees
and non-employees as incentives for performance. The number of shares awarded,
and the terms under which such shares become vested (nonforfeitable), are
determined on an individual basis. The Company recognizes the issuance of
restricted shares when they become vested.
As of January 31, 1996, a total of 23,360 shares have been awarded and remain
unvested. The aggregate number of shares and the years in which they become
vested in each of the periods succeeding January 31, 1996 are as follows:
1997 12,358
1998 11,002
F-19
<PAGE> 80
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - SEGMENT INFORMATION
The Company and it's subsidiaries operate primarily in two business segments.
Operations in mortgage banking involve the origination and purchase of mortgage
loans, sale of mortgage loans in the secondary mortgage market, servicing of
mortgage loans, and the purchase and sale of mortgage servicing rights.
Operations in the real estate industry consist of the purchase and resale and
the securitization and syndication of real estate interests. The following is
a summary of selected consolidated segment information for the mortgage banking
and real estate industry segments for the years ended:
<TABLE>
<CAPTION>
January 31
1996 1995 1994
--------- --------- -----------
<S> <C> <C> <C>
Revenue:
Mortgage banking $ 31,051,952 $22,512,856 $22,508,313
Real estate 10,899,058 10,858,825 7,025,908
------------ ----------- -----------
Total: $ 41,951,010 $33,371,681 $29,534,221
============ =========== ===========
Income (loss) before income
taxes:
Mortgage banking $ (1,195,323) $(3,057,212) $(1,794,175)
Real estate 2,322,853 2,882,050 2,766,360
------------ ----------- -----------
Total: $ 1,127,530 $ (175,162) $ 972,185
============ =========== ===========
Identifiable assets:
Mortgage banking $104,990,975 $46,523,533 $58,341,127
Real estate 27,147,572 23,238,535 15,040,540
Other 3,052,094 7,349,452 3,463,498
------------ ----------- -----------
Total: $135,190,641 $77,111,520 $76,845,165
============ =========== ===========
</TABLE>
F-20
<PAGE> 81
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - BUSINESS ACQUISITION
On July 19, 1994 the Company purchased substantially all of the revenue
producing activities of Liberty in a transaction accounted for using the
purchase method. These assets included certain furniture and equipment located
in Liberty branch offices in Michigan, Maryland, West Virginia and Illinois and
the right to process and close certain mortgage loans in process originated by
Liberty. The purchase price of the furniture and equipment was determined by
independent appraisal and payable within 45 days of this agreement. The
appraised value was $85,000. At the closing of this agreement a down-payment
of $350,000 was made as an advance against amounts due as a result of future
Liberty branch loan closings. This downpayment is included in deferred charges
and other assets in the accompanying consolidated balance sheet. Liberty was
paid based on a negotiated formula tied to loan closings at Liberty branches
over an eighteen month period. The total purchase price, was $885,000. This
consists of the $85,000 referred to above which was capitalized and amortized
as furniture and equipment; approximately $200,000 for loans-in-process, which
upon closing were capitalized as a cost of the loan origination, and $500,000,
for future branch loan closings, $150,000 of which was paid during July and
August, 1994 and $350,000, which was paid at the closing. The benefits to be
derived from the acquisition of these production offices will to extend beyond
the eighteen month earn-out period, and, accordingly have been capitalized as
goodwill (included in deferred charges and other assets on the balance sheet)
and amortized over a five year period, subject to periodic reevaluation. In
connection with the acquisition, the Company acquired approximately $4,000,000
of loans held for resale which were funded by the Company's warehouse credit
facilities and subsequently purchased by outside investors under terms similar
to any Company originated loan.
The following unaudited pro-forma summary presents the consolidated results of
operations as if the acquisition had occurred at February 1, 1993, after giving
effect to certain adjustments. These pro-forma results have been prepared for
comparative purposes and do not purport to be indicative of what would have
occurred had the acquisition been made as of those dates or of results which
may occur in the future.
F-21
<PAGE> 82
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - BUSINESS ACQUISITION (CONTINUED)
<TABLE>
<CAPTION>
Year ended January 31, 1994
---------------------------
MCAFC Pro-Forma MCAFC
(Historical) Adjustments (Pro-Forma)
--------------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Gain on sale of land contracts $ 1,753,043 $ - $ 1,753,043
Gain on sale of real estate 4,878,036 - 4,878,036
Gain on bulk sales of servicing rights 5,578,948 1) 1,777,595 7,356,543
Mortgage origination fees 11,282,265 1) 7,893,555 19,175,820
Servicing fees 1,916,662 1) 875,719 2,792,381
Interest income 3,948,291 1) 1,812,194 5,760,485
Other income 176,976 222,193 399,169
----------- --------------- ------------
Total revenues 29,534,221 12,581,256 42,115,477
----------- --------------- ------------
EXPENSES
Payroll 7,141,707 1) 6,220,706 13,362,413
Interest 4,428,925 1) 1,336,167 5,765,092
Commissions 8,286,531 1) 2,002,722 10,289,253
Professional services 1,294,889 1) 167,181 1,462,070
Depreciation 202,599 1) 107,891 310,490
Amortization 2,009,511 1) 2) 253,500 2,263,011
General and administrative 5,197,874 2,908,724 8,106,598
----------- --------------- ------------
Total expenses 28,562,036 12,996,891 41,558,927
----------- --------------- ------------
INCOME (LOSS) BEFORE
FEDERAL INCOME TAXES 972,185 (415,635) 556,550
Provision for federal income taxes 420,545 3) 26,637 447,182
----------- --------------- -----------
NET INCOME $ 551,640 $ (442,272) $ 109,368
=========== =============== ===========
Earnings per share $ 1.60 $ (1.29) $ .31
====== ======= =====
</TABLE>
F-22
<PAGE> 83
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - BUSINESS ACQUISITION (CONTINUED)
<TABLE>
<CAPTION>
Year ended January 31, 1995
MCAFC Pro-Forma MCAFC
(Historical) Adjustments (Pro-Forma)
------------ ----------- -----------
<S> <C> <C> <C>
REVENUES
Gain on sale of land contracts $ 2,983,022 $ - $ 2,983,022
Gain on sale of real estate 7,365,199 - 7,365,199
Gain on bulk sales of servicing rights 7,475,444 1) 1,737,609 9,213,053
Mortgage origination fees 5,584,454 1) 1,862,821 7,447,275
Servicing fees 4,616,738 1) 429,081 5,045,819
Interest income 5,106,041 1) 245,634 5,351,675
Other income 240,783 128,035 368,818
----------- ------------ -----------
Total revenues 33,371,681 4,403,180 37,774,861
----------- ------------ -----------
EXPENSES
Payroll 10,985,576 1) 1,705,338 12,690,914
Interest 6,018,518 1) 171,221 6,189,739
Commissions 4,591,079 1) 836,669 5,427,748
Professional services 1,511,215 1) 80,798 1,592,013
Depreciation 351,964 1) 49,275 401,239
Amortization 1,924,872 1) 2)110,000 2,034,872
General and administrative 8,163,619 843,557 9,007,176
----------- ------------ -----------
Total expenses 33,546,843 3,796,858 37,343,701
----------- ------------ -----------
INCOME (LOSS) BEFORE
FEDERAL INCOME TAXES (175,162) 606,322 431,160
Provision (credit) for federal income
taxes 102,384 3) 206,149 308,533
----------- ------------ -----------
NET INCOME (LOSS) $ (277,546) $ 400,173 $ 122,627
=========== ============ ===========
Earnings (loss) per share $(.69) $.99 $.30
===== ==== ====
</TABLE>
Summary of Pro-Forma Adjustments:
1) To include historical operating results of the Liberty National
Mortgage Corporation for the year ended December 31, 1993 and the
period ended May 31, 1994. (Certain amounts have been reclassified to
conform to the MCAFC historical presentation.)
2) Amortization of $500,000 of goodwill over five years.
3) Estimated federal income tax accrual.
F-23
<PAGE> 84
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - BUSINESS ACQUISITION (CONCLUDED)
On January 31, 1995 the Company acquired all of the issued and outstanding
common stock of RIMCO Realty & Mortgage from RIMCO Financial Corporation (an
entity owned by three shareholders of the Company) in exchange for a $945,117
reduction in amounts due the Company. Amounts assigned in the accompanying
consolidated balance sheet to assets purchased and liabilities assumed were
based on the seller's historical cost which is less than fair value.
F-24
<PAGE> 85
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, and, if given or
made, such information or representations must not be relied upon as having
been authorized by the Company. This Prospectus does not constitute an offer
to sell or the solicitation of an offer to buy Series 1996 Debentures offered
by this Prospectus, nor does it constitute an offer to sell or a solicitation
of any offer to buy Series 1996 Debentures by anyone in any jurisdiction in
which such offer or solicitation is not authorized, or in which the person
making such offeror solicitation is not authorized to do so, or to any person
to whom it is unlawful to make such an offer or solicitation. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof.
TABLE OF CONTENTS
Page
----
Statement of Available
Information ..................
Prospectus Summary ................
Risk Factors ......................
The Company .......................
Use of Proceeds ...................
Capitalization ....................
Selected Consolidated
Financial Data................
Management's Discussion and
Analysis of Financial Condition
Condition and Results of
Operations ...................
Business ..........................
Management ........................
Compensation Committee Interlocks
and Insider Participation.....
Principal Shareholders ............
Description of Series 1996
Debentures ...................
Description of Common Stock .......
Plan of Distribution ..............
Legal Matters .....................
Experts ...........................
Index to Financial Statements .....
MCA FINANCIAL CORP.
$6,000,000
___%
Subordinated Debentures,
Series 1996,
Due June 30, 2002
June , 1996
<PAGE> 86
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following sets forth the costs and expenses to be incurred in
connection with the issuance and distribution of the securities to be
registered. Each amount, except for SEC and NASD fees, is estimated.
<TABLE>
<S> <C>
SEC registration fee . . . . . . . . . . . . . $ 2,069
NASD fee . . . . . . . . . . . . . . . . . . . 1,100
Blue Sky fees (excluding legal fees) . . . . . 2,500
Accounting fees and expenses . . . . . . . . . 19,331
Legal fees and expenses. . . . . . . . . . . . 40,000
Printing, engraving and miscellaneous. . . . . 15,000
--------
Total. . . . . . . . . . . . . . . . . . . . . $ 80,000
</TABLE>
Item 14. Indemnification of Directors and Officers.
Sections 561 through 571 of the Michigan Business Corporation Act (the
"MBCA"), and Article IX of the Company's Restated Articles of Incorporation
relate to the Indemnification of the Company's directors and officers, among
others, in a variety of circumstances against liabilities arising in connection
with the performance of their duties.
The MBCA provides for indemnification of directors and officers acting in
good faith and in a manner they reasonably believe to be in or not opposed to
the best interest of the Company or its shareholders (and, with respect to a
criminal proceeding, if they have no reasonable cause to believe their conduct
to be unlawful) against (i) expenses (including attorney's fees) judgments,
penalties, fines and amounts paid in settlement actually and reasonably
incurred in connection with any threatened, pending, or completed action, suit,
or proceeding (other than an action by, or in the right of the Company) arising
out of a position with the Company (or with some other entity at the Company's
request) and (ii) expenses (including attorney's fees) and amounts paid in
settlement actually and reasonably incurred in connection with threatened,
pending, or completed action or suit by or in the right of the Company, unless
the director or officer is found liable to the Company and an appropriate court
does not determine that he or she is nevertheless fairly and reasonably
entitled to indemnification. The MBCA requires indemnification for expenses to
the extent that a director or officer is successful in defending against any
such action, suit or proceeding, and otherwise requires in general that the
indemnification provided for in (i) and (ii) above be made only on a
determination by a majority vote of a quorum of the Board of Directors who were
not parties to or threatened to be made parties to the action, suit or
proceeding. In certain circumstances, the MBCA further permits advances to
cover such expenses before a final determination that indemnification is
permissible, upon receipt of a written affirmation by the directors or officers
of their
II-1
<PAGE> 87
good faith belief that they have met the applicable standard of conduct set
forth in the MBCA, receipt of a written undertaking by or on behalf of the
directors or officers to repay such amounts unless it shall ultimately be
determined that they are entitled to indemnification and a determination that
the facts then known to those making the advances would not preclude
indemnification.
Indemnification under the MBCA is not exclusive of other rights to
indemnification to which a person may be entitled under the Company's Restated
Articles of Incorporation, Bylaws, or a contractual agreement. The MBCA
permits the Company to purchase insurance on behalf of its directors and
officers against liabilities arising out of their positions with the Company
whether or not such liabilities would be within the foregoing indemnification
provisions. To date, the Company has not maintained such insurance. The
indemnification provisions in the Company's Restated Articles of Incorporation
incorporate all of those found in the MBCA.
Item 15. Recent Sales of Unregistered Securities.
During the last three years, the Registrant has sold securities in
transactions not registered under the Securities Act of 1933 as follows:
(a) on February 23, 1993, March 20, 1993, November 30, 1993, February 8,
1994, September 20, 1994, and October 17, 1994 the Registrant issued 8,521; 75;
8,996; 38,000; 12,131 and 1,600 shares of common stock to a total of 39
employees of the Registrant, who received such shares in recognition of their
service to the Registrant with certain shares to be earned on a prospective
basis contingent upon continued employment;
(b) on July 30, 1993, the Registrant issued 36,000 shares of common stock
to the Janet Wells Revocable Living Trust for promissory notes in the total
principal sum of $450,000;
(c) on November 30, 1993, the Registrant issued 350 shares of common stock
to three business affiliates in recognition of their continued business
relationships with the Registrant; and
(d) on January 27, 1994, the Registrant issued 58,400 shares of common
stock to North-Side Homes, Inc. in exchange for certain real estate related
assets and related liabilities valued at approximately $979,000.
(e) On April 28, 1995, the Registrant issued 20,000 shares of common stock
to the Janet Wells Revocable Living Trust for promissory notes in the total
principal sum of $600,000.
Each issuance of shares described in (a) through (e) above is claimed to be
exempt from the registration requirements of the Securities Act by reason of
the provisions of Section 4(2) of such Act.
The shares issued on February 23, 1993, March 20, 1993, and November 30,
1993, as disclosed in subsection (a) above (a total of 17,592 shares) represent
the entire amount of shares issued to employees during fiscal
II-2
<PAGE> 88
1994. The shares issued on February 8, 1994, September 20, 1994 and October
17, 1994 as disclosed in subsection (a) above, represent the entire amount of
shares issued to employees during fiscal 1995. Of these shares, 6,808 shares
issued in fiscal 1994 and 38,000 shares issued on February 8, 1994 represent
shares that are to be earned by the applicable recipient on a prospective basis
contingent upon continued employment. In addition, 12,131 of the shares issued
on September 20, 1994 and 1,600 shares issued on October 17, 1994 are also to
be earned on a prospective basis.
Compensation expense is recorded and the shares are accounted for as
outstanding when earned by the employee. Therefore, the 11,293 shares issued
in fiscal 1994, as described on page F-7 of the Financial Statements included
with this registration statement, represent the remaining 10,784 shares issued
during fiscal 1994, as described above, which were fully vested plus 509 shares
issued in prior periods which also vested in fiscal 1994. The 2,567 shares
issued during fiscal 1995, as described on page F-7, represent shares issued in
prior periods which vested in fiscal 1995 and the 24,410 shares issued during
fiscal 1996, as described on Page F-7, represent shares issued in prior periods
which vested in fiscal 1996.
In addition, during the period from March 16, 1992 through April 30, 1993,
the Registrant sold 203,022 Units, each consisting of one share of the
Registrant's Series A $.90 Cumulative Convertible Preferred Stock and one
warrant to purchase one share of common stock, for an aggregate of $2,030,220
to A. Campbell, B. Blanchard, G. Chirillo, S. Pankake Profit Sharing Plan,
Mercury Gage Profit Sharing Plan, A. Macera, J. Potoski, H. Rygiel and M.
Breithaupt and G. DiClemente, as joint tenant with John, Steven, Perry, Gino &
Luciana DiClemente, J. Murphy Trust, E. Mancini, DiClemente Siegel Profit
Sharing Plan, M. Scott, G. Misplon, J. Flattery, J. Colliton, M. Reuter Trust,
A. Burnham Trust, D. Burnham Trust, Dillman and Upton Trust, D. Burnham Profit
Sharing Plan, G. O'Dierna, J. Dillon, D. Burnham IRA, J. Campbell IRA, A.
Campbell, III IRA, D. Spencer IRA, A. Burnham IRA, V. Secontine Trust, J.
Roberts, L. Trama, C. Long IRA, B. Dinser, T. Driscoll, F. Caroll IRA, L.
Gerwin, L. Unrath, L. Trama IRA, Edward M. Ranger Pension Plan, E. Ranger, as
Custodian, H. Bonnell Trust, R. Smigiel IRA and A. Davis IRA. The offering of
such Units has been completed and the issuance of such Units by the Registrant
is claimed to be exempt from the registration requirements of the Securities
Act by reason of the provisions of Section 4(2) of such act and Rule 506
promulgated thereunder.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits:
Exhibit
Number Description of Exhibit
- ------- --------------------------
1 * Form of Selling Agreement.
II-3
<PAGE> 89
3.1 Restated Articles of Incorporation, as amended (previously filed as
Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-QSB for the
period ended April 30, 1993, and incorporated herein by reference).
3.2 Bylaws, as amended (previously filed as Exhibit 3.2 to Amendment No. 1 to
the Registrant's Registration Statement on Form SB-2, File No.
33-79190, and incorporated herein by reference).
4.1 * Form of Indenture betwen the Registrant and First Union National
Bank, formerly known as First Fidelity Bank, N.A., as Trustee, relating to
the Registrant's __% Subordinated Debentures Due June 30, 2002.
4.2 Indenture dated as of December 30, 1994, between the Registrant and First
Fidelity Bank, N.A., as Trustee, relating to the Registrant's 11%
Asset-Backed Subordinated Debentures Due June 30, 2000 (previously filed
as Exhibit 4.1 to the Registrant's Registration Statement on Form S-1,
File No. 33-98644, and incorporated herein by reference).
4.3 First Supplemental Indenture between the Registrant and First Fidelity
Bank, N.A. (previously filed as Exhibit 4.2 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended January 31, 1996, and
incorporated herein by reference).
4.4 Indenture, dated as of January 1, 1992, between the Registrant and IBJ
Schroder Bank & Trust Company relating to the Registrant's 11%
Asset-Backed Subordinated Debentures Due 1997 (previously filed as Exhibit
4 to Amendment No. 2 to the Registrant's Registration Statement on Form
S-18, File No. 33-43765C, and incorporated herein by reference).
5 * Opinion of Dykema Gossett PLLC as to the legality of the securities
being registered.
10.1 Lease Agreement, dated April 1, 1991, between Mortgage Corporation of
America and Multi-City Investment Company, as amended by First Amendment
(previously filed as Exhibit 10.15 to the Post-Effective Amendment No. 1
to the Registrant's Registration Statement on Form S-18, File No.
33-43765C, and incorporated herein by reference).
10.2 Second, Third, Fourth, Fifth and Sixth Amendments to Exhibit 10.1
(previously filed as Exhibit 10.12 to the Registrant's Annual Report on
Form 10-KSB for the fiscal year ended January 31, 1994, and incorporated
herein by reference).
10.3 Agreement and Plan of Reorganization by and among the Registrant, Metro
Rental Properties, Inc., Patrick D. Quinlan, Lee P. Wells and C. Thompson
Wells, Jr. (previously filed as Exhibit 10.20 to the Registrant's Annual
Report on Form 10-KSB for the fiscal year ended January 31, 1993, and
incorporated herein by reference).
II-4
<PAGE> 90
10.4 Revolving Credit Loan Agreement, dated April 30, 1993, by and among the
Registrant, MCA Mortgage Corporation, First American Mortgage
Associates, Inc., Complete Financial Corporation, Securities Corporation
of America and Comerica Bank (previously filed as Exhibit 10.17 to the
Registrant's Registration Statement on Form SB-2, File No. 33-63206C, and
incorporated herein by reference).
10.5 First Amendment to Revolving Credit Loan Agreement, dated December 27,
1993, by and among the Registrant, MCA Mortgage Corporation, Mortgage
Corporation of America, Complete Financial Corporation, Securities
Corporation of America and Comerica Bank, amending Exhibit 10.4
(previously filed as Exhibit 10.18 to the Registrant's Annual Report on
Form 10-KSB for the fiscal year ended January 31, 1994, and incorporated
herein by reference).
10.6 Second Amendment to Revolving Credit Loan Agreement, dated February 25,
1994, by and among the Registrant, MCA Mortgage Corporation, Mortgage
Corporation of America, Complete Financial Corporation, Securities
Corporation of America and Comerica Bank, amending Exhibit 10.4
(previously filed as Exhibit 10.19 to the Registrant's Annual Report on
Form 10-KSB for the fiscal year ended January 31, 1994, and incorporated
herein by reference).
10.7 Credit Enhancement Umbrella Agreement, dated April 30, 1993, by and among
the Registrant, MCA Mortgage Corporation, First American Mortgage
Associates, Inc. and The Board of Trustees of the Policemen and Firemen
Retirement System of the City of Detroit (previously filed as Exhibit
10.18 to the Registrant's Registration Statement on Form SB-2, File No.
33-63206C, and incorporated herein by reference).
10.8 First Amendment to Credit Enhancement Umbrella Agreement, dated
December 27, 1993, by and among the Registrant, MCA Mortgage
Corporation, Mortgage Corporation of America and the Board of Trustees of
the Policemen and Firemen Pension Fund of the City of Detroit, amending
Exhibit No. 10.7 (previously filed as Exhibit 10.21 to the Registrant's
Annual Report on Form 10-KSB for the fiscal year ended January 31, 1994,
and incorporated herein by reference).
10.9 Piggyback Rights Agreement, dated April 30, 1993, between the Registrant
and The Board of Trustees of the Policemen and Firemen Retirement System
of the City of Detroit (previously filed as Exhibit 10.19 to the
Registrant's Registration Statement on Form SB-2, File No. 33-63206C, and
incorporated herein by reference).
10.10 Form of Stock Redemption Agreement, dated January 20, 1994, between the
Registrant and each of Patrick D. Quinlan, James B. Quinlan, Keith D.
Pietila, Thomas P. Cronin, Lee P. Wells and David C. Wells (previously
filed as Exhibit 10.24 to the Registrant's Annual Report on Form 10-KSB
for the fiscal year ended January 31, 1994, and incorporated herein by
reference).
II-5
<PAGE> 91
10.11 Agreement and Plan of Reorganization, dated January 27, 1994, by and
among the Registrant, North-Side Homes, Inc., Patrick D. Quinlan, Lee
P. Wells, Roger Smigiel, Leroy G. Rogers, David C. Wells and Janet K.
Wells (previously filed as Exhibit 10.25 to the Registrant's Annual
Report on Form 10-KSB for the fiscal year ended January 31, 1994, and
incorporated herein by reference).
10.12 Mortgage Loan Participation Agreement, dated May 19, 1993, between MCA
Mortgage Corporation and Paine Webber Real Estate Securities Inc.
(previously filed as Exhibit 10.26 to the Registrant's Annual Report on
Form 10-KSB for the fiscal year ended January 31, 1994, and incorporated
herein by reference).
10.13 Conforming Mortgage Loan Participation Agreement, dated May 19, 1993,
between MCA Mortgage Corporation and Paine Webber Real Estate
Securities Inc. (previously filed as Exhibit 10.27 to the Registrant's
Annual Report on Form 10-KSB for the fiscal year ended January 31, 1994,
and incorporated herein by reference).
10.14 Escrow Agreement between the Registrant and Comerica Bank, as Escrow
Agent (previously filed as Exhibit 10.23 to Amendment No. 1 to the
Registrants Registration Statement on Form SB-2, File No. 33-79190, and
incorporated herein by reference).
10.15 Agreement and Plan of Acquisition and Merger dated as of June 20, 1994
among MCA Financial Corp., Complete Financial Corporation and Liberty
National Mortgage Corporation (previously filed as Exhibit 2 to the
Registrant's Current Report on Form 8-K dated July 27, 1994, and
incorporated herein by reference).
10.16 Warehousing Credit and Security Agreement dated as of July 1, 1994
between MCA Mortgage Corporation, PNC Mortgage Bank, N.A. and Marine
Midland Bank (replacing agreements previously filed as Exhibits 10.13,
10.14, 10.15 and 10.23 to Registration Statement No. 33-79190)
(previously filed as Exhibit 10.1 to the Registrant's Quarterly Report on
Form 10-QSB for the period ended July 31, 1994, and incorporated herein
by reference).
10.17 Whole loan Financing Program dated as of October 6, 1993 among MCA
Mortgage Corporation, DLJ Mortgage Capital, Inc. and Sears Savings Bank,
FSB (previously filed as Exhibit 10.2 to the Registrant's Quarterly
Report on Form 10-QSB for the period ended July 31, 1994, and
incorporated herein by reference).
10.18 Amendment to Whole loan Financing Program dated as of April 30, 1994
among MCA Mortgage Corporation and DLJ Mortgage Capital, Inc., amending
Exhibit No. 10.17 (previously filed as Exhibit 10.27 to Amendment No. 2
to the Registrant's Registration Statement on Form SB-2, File No.
33-79190, and incorporated herein by reference).
10.19 Third Amendment to Revolving Credit Loan Agreement, dated May 26, 1994,
by and among the Registrant, MCA Mortgage Corporation,
II-6
<PAGE> 92
Mortgage Corporation of America, Complete Financial Corporation,
Securities Corporation of America and Comerica Bank, amending Exhibit
10.4 (previously filed as Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-QSB for the period ended April 30, 1994, and
incorporated herein by reference).
10.20 Fourth Amendment to Revolving Credit Loan Agreement, dated September 30,
1994, by and among the Registrant, MCA Mortgage Corporation, Mortgage
Corporation of America, Complete Financial Corporation, Securities
Corporation of America and Comerica Bank, amending Exhibit 10.4
(previously filed as Exhibit 10.29 to Amendment No. 2 to the Registrant's
Registration Statement on Form SB-2, File No. 33-79190, and incorporated
herein by reference).
10.21 Second Amendment to Credit Enhancement Umbrella Agreement, dated May 26,
1994, by and among the Registrant, MCA Mortgage Corporation, Mortgage
Corporation of America and the Board of Trustees of the Policemen and
Firemen Pension Fund of the City of Detroit, amending Exhibit No. 10.7
(previously filed as Exhibit 10.2 to the Registrant's Quarterly Report on
Form 10-QSB for the period ended April 30, 1994, and incorporated herein
by reference).
10.22 Third Amendment to Credit Enhancement Umbrella Agreement, dated
September 8, 1994, by and among the Registrant, MCA Mortgage Corporation,
Mortgage Corporation of America and the Board of Trustees of the
Policemen and Firemen Pension Fund of the City of Detroit, amending
Exhibit No. 10.7 (previously filed as Exhibit 10.31 to Amendment No. 2 to
the Registrant's Registration Statement on Form SB-2, File No. 33-79190,
and incorporated herein by reference).
10.23 Line of Credit Agreement, dated October 1994, among MCA Mortgage
Corporation, Rimco Financial Corp. and Sterling Bank & Trust FSB
(previously filed as Exhibit 10.32 to the Registrant's Annual Report on
Form 10-KSB for the fiscal year ended January 31, 1995, and incorporated
herein by reference).
10.24 Stock Purchase Agreement, dated January 31, 1995, between the Registrant
and Rimco Financial Corp. (previously filed as Exhibit 10.33 to the
Registrant's Annual Report on Form 10-KSB for the fiscal year ended
January 31, 1995, and incorporated herein by reference).
10.25 Line of Credit Agreement, dated March 17, 1995, among MCA Financial
Corp., RIMCO Realty and Mortgage Co. and Comerica Bank. (previously filed
as Exhibit 10.01 to the Registrants Quarterly Report on Form 10-Q for the
period ended April 30, 1995, and incorporated herein by reference).
10.26 First Amendment to Escrow Agreement, dated September 18, 1995, between
the Registrant and Comerica Bank, as Escrow Agent, amending Exhibit No.
10.14 (previously filed as Exhibit 10.26 to the
II-7
<PAGE> 93
Registrant's Registration Statement on Form S-1, File No. 33-98644, and
incorporated herein by reference).
10.27 Seventh and Eighth Amendments to Exhibit 10.1 (previously filed as
Exhibit 10.27 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 31, 1996, and incorporated herein by reference).
10.28 Mortgage Loan Repurchase Agreement, dated November 1, 1995, between MCA
Mortgage Corporation, Mortgage Corporation of America and Paine Webber
Real Estate Securities, Inc. (previously filed as Exhibit 10.28 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended January
31, 1996, and incorporated herein by reference).
10.29 Form of Second Amendment to Escrow Agreement between the Registrant and
Comerica Bank, as Escrow Agent, amending Exhibit No. 10.14 (previously
filed as Exhibit 10.29 to the Registrant's Registration Statement on Form
S-1, File No. 33-98644, and incorporated herein by reference).
12 *Computation of Ratio of Earnings to Fixed Charges.
21 Subsidiaries of the Registrant (previously filed as Exhibit 21 to the
Registrant's Registration Statement on Form S-1, File No. 33-98644, and
incorporated herein by reference).
23.1 *Consent of Moore Stephens Doeren Mayhew, P.C./Grant Thornton LLP.
23.2 *Consent of Dykema Gossett PLLC (contained in its opinion filed as
Exhibit 5).
24 *Power of Attorney (located on page II-10).
25 *Form T-1 with respect to the eligibility of First Union National Bank,
formerly known as First Fidelity Bank, N.A., as trustee under the
Indenture.
- ---------------
*Filed herewith.
(b) Financial Statements Schedules:
There are no Schedules required to be filed herewith.
Item 17. Undertakings.
(1) The undersigned Registrant hereby undertakes:
II-8
<PAGE> 94
(a) 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; and (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;
(b) 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 the securities at that time shall
be deemed to be the initial bona fide offering thereof; and
(c) 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.
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 person 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 Securities Act and will be governed
by the final adjudication of such issue.
For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(l) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-9
<PAGE> 95
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Southfield, State of
Michigan, on May 29, 1996.
MCA FINANCIAL CORP.
By: /s/ Patrick D. Quinlan
-------------------------------
Patrick D. Quinlan, Chairman
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Patrick D.
Quinlan and Keith D. Pietila, or either of them, as his true and lawful
attorneys-in-fact and agents, with full power of substitution, for him and in
his name, in any and all capacities, to sign any or all amendments (including
post-effective amendments) to this Registration Statement filed by MCA
Financial Corp. and to file the same with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or either of them, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on May 29, 1996.
Signature Title
--------- -----
/s/ Patrick D. Quinlan Chairman and Director (Principal executive officer)
- ------------------------
Patrick D. Quinlan
/s/ Keith D. Pietila Executive Vice President and Director (Principal
- ------------------------ financial and accounting officer)
Keith D. Pietila
/s/ Lee P. Wells Director
- ------------------------
Lee P. Wells
/s/ C. Thompson Wells Director
- ------------------------
C. Thompson Wells
/s/ James B. Quinlan Director
- ------------------------
James B. Quinlan
/s/ Thomas P. Cronin Director
- ------------------------
Thomas P. Cronin
/s/ D. Michael Jehle Director
- ------------------------
D. Michael Jehle
II-10
<PAGE> 96
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit Page
- ------- -------------------------- ----
<S> <C> <C>
1.1 * Form of Selling Agreement.
3.1 Restated Articles of Incorporation, as amended (previously
filed as Exhibit 3.1 to the Registrant's Quarterly Report
on Form 10-QSB for the period ended April 30, 1993, and
incorporated herein by reference).
3.2 Bylaws, as amended. (previously filed as Exhibit 3.2 to
Amendment No. 1 to the Registrant's Registration Statement
on Form SB-2, File No. 33-79190, and incorporated herein
by reference).
4.1 * Form of Indenture between the Registrant and First Union
National Bank, formerly known as First Fidelity Bank, N.A.,
as Trustee, relating to the Registrant's ____% Subordinated
Debentures Due June 30, 2002.
4.2 Indenture, dated as of December 30, 1994, between the
Registrant and First Fidelity Bank, N.A., as Trustee,
relating to the Registrant's 11% Asset-Backed Subordinated
Debentures Due June 30, 2000 (previously filed as Exhibit
4.1 to the Registrant's Registration Statement on Form S-1,
File No. 33-98644, and incorporated herein by reference).
4.3 First Supplemental Indenture between the Registrant and First
Fidelity Bank, N.A. (previously filed as Exhibit 4.2 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended January 31, 1996, and incorporated herein by reference).
4.4 Indenture, dated as of January 1, 1992, between the Registrant
and IBJ Schroder Bank & Trust Company relating to the
Registrant's 11% Asset-Backed Subordinated Debentures Due 1997
(previously filed as Exhibit 4 to Amendment No. 2 to the
Registrant's Registration Statement on Form S-18, File
No. 33-43765C, and incorporated herein by reference).
</TABLE>
<PAGE> 97
5 * Opinion of Dykema Gossett PLLC as to the legality of the
securities being registered.
10.1 Lease Agreement, dated April 1, 1991, between Mortgage Corporation of
America and Multi-City Investment Company, as amended by First Amendment
(previously filed as Exhibit 10.15 to the Post-Effective Amendment No. 1
to the Registrant's Registration Statement on Form S-18, File No.
33-43765C, and incorporated herein by reference).
10.2 Second, Third, Fourth, Fifth and Sixth Amendments to Exhibit 10.1
(previously filed as Exhibit 10.12 to the Registrant's Annual Report on
Form 10-KSB for the fiscal year ended January 31, 1994, and incorporated
herein by reference).
10.3 Agreement and Plan of Reorganization by and among the Registrant, Metro
Rental Properties, Inc., Patrick D. Quinlan, Lee P. Wells and C. Thompson
Wells, Jr. (previously filed as Exhibit 10.20 to the Registrant's Annual
Report on Form 10-KSB for the fiscal year ended January 31, 1993, and
incorporated herein by reference).
10.4 Revolving Credit Loan Agreement, dated April 30, 1993, by and among the
Registrant, MCA Mortgage Corporation, First American Mortgage Associates,
Inc., Complete Financial Corporation, Securities Corporation of America
and Comerica Bank (previously filed as Exhibit 10.17 to the Registrant's
Registration Statement on Form SB-2, File No. 33-63206C, and incorporated
herein by reference).
10.5 First Amendment to Revolving Credit Loan Agreement, dated December 27,
1993, by and among the Registrant, MCA Mortgage Corporation, Mortgage
Corporation of America, Complete Financial Corporation, Securities
Corporation of America and Comerica Bank, amending Exhibit 10.4
(previously filed as Exhibit 10.18 to the Registrant's Annual Report on
Form 10-KSB for the fiscal year ended January 31, 1994, and incorporated
herein by reference).
10.6 Second Amendment to Revolving Credit Loan Agreement, dated February 25,
1994, by and among the Registrant, MCA Mortgage Corporation,
<PAGE> 98
Mortgage Corporation of America, Complete Financial Corporation,
Securities Corporation of America and Comerica Bank, amending Exhibit
10.4 (previously filed as Exhibit 10.19 to the Registrant's Annual Report
on Form 10-KSB for the fiscal year ended January 31, 1994, and
incorporated herein by reference).
10.7 Credit Enhancement Umbrella Agreement, dated April 30, 1993, by and among
the Registrant, MCA Mortgage Corporation, First American Mortgage
Associates, Inc. and The Board of Trustees of the Policemen and Firemen
Retirement System of the City of Detroit (previously filed as Exhibit
10.18 to the Registrant's Registration Statement on Form SB-2, File No.
33-63206C, and incorporated herein by reference).
10.8 First Amendment to Credit Enhancement Umbrella Agreement, dated December
27, 1993, by and among the Registrant, MCA Mortgage Corporation, Mortgage
Corporation of America and the Board of Trustees of the Policemen and
Firemen Pension Fund of the City of Detroit, amending Exhibit No. 10.7
(previously filed as Exhibit 10.21 to the Registrant's Annual Report on
Form 10-KSB for the fiscal year ended January 31, 1994, and incorporated
herein by reference).
10.9 Piggyback Rights Agreement, dated April 30, 1993, between the Registrant
and The Board of Trustees of the Policemen and Firemen Retirement System
of the City of Detroit (previously filed as Exhibit 10.19 to the
Registrant's Registration Statement on Form SB-2, File No. 33-63206C, and
incorporated herein by reference).
10.10 Form of Stock Redemption Agreement, dated January 20, 1994, between the
Registrant and each of Patrick D. Quinlan, James B. Quinlan, Keith D.
Pietila, Thomas P. Cronin, Lee P. Wells and David C. Wells (previously
filed as Exhibit 10.24 to the Registrant's Annual Report on Form 10-KSB
for the fiscal year ended January 31, 1994, and incorporated herein by
reference).
10.11 Agreement and Plan of Reorganization, dated January 27, 1994, by and
among the Registrant, North-Side Homes, Inc., Patrick D. Quinlan, Lee
<PAGE> 99
P. Wells, Roger Smigiel, Leroy G. Rogers, David C. Wells and Janet
K. Wells (previously filed as Exhibit 10.25 to the Registrant's Annual
Report on Form 10-KSB for the fiscal year ended January 31, 1994, and
incorporated herein by reference).
10.12 Mortgage Loan Participation Agreement, dated May 19, 1993, between MCA
Mortgage Corporation and Paine Webber Real Estate Securities Inc.
(previously filed as Exhibit 10.26 to the Registrant's Annual Report on
Form 10-KSB for the fiscal year ended January 31, 1994, and incorporated
herein by reference).
10.13 Conforming Mortgage Loan Participation Agreement, dated May 19, 1993,
between MCA Mortgage Corporation and Paine Webber Real Estate Securities
Inc. (previously filed as Exhibit 10.27 to the Registrant's Annual Report
on Form 10-KSB for the fiscal year ended January 31, 1994, and
incorporated herein by reference).
10.14 Escrow Agreement between the Registrant and Comerica Bank, as Escrow
Agent (previously filed as Exhibit 10.23 to Amendment No. 1 to the
Registrants Registration Statement on Form SB-2, File No. 33-79190, and
incorporated herein by reference).
10.15 Agreement and Plan of Acquisition and Merger dated as of June 20, 1994
among MCA Financial Corp., Complete Financial Corporation and Liberty
National Mortgage Corporation (previously filed as Exhibit 2 to the
Registrant's Current Report on Form 8-K dated July 27, 1994, and
incorporated herein by reference).
10.16 Warehousing Credit and Security Agreement dated as of July 1, 1994
between MCA Mortgage Corporation, PNC Mortgage Bank, N.A. and Marine
Midland Bank (replacing agreements previously filed as Exhibits 10.13,
10.14, 10.15 and 10.23 to Registration Statement No. 33-79190)
(previously filed as Exhibit 10.1 to the Registrant's Quarterly Report on
Form 10-QSB for the period ended July 31, 1994, and incorporated
herein by reference).
<PAGE> 100
10.17 Whole loan Financing Program dated as of October 6, 1993 among MCA
Mortgage Corporation, DLJ Mortgage Capital, Inc. and Sears Savings Bank,
FSB (previously filed as Exhibit 10.2 to the Registrant's Quarterly Report
on Form 10-QSB for the period ended July 31, 1994, and incorporated herein
by reference).
10.18 Amendment to Whole loan Financing Program dated as of April 30, 1994
among MCA Mortgage Corporation and DLJ Mortgage Capital, Inc., amending
Exhibit No. 10.17 (previously filed as Exhibit 10.27 to Amendment No. 2 to
the Registrant's Registration Statement on Form SB-2, File No. 33-79190,
and incorporated herein by reference).
10.19 Third Amendment to Revolving Credit Loan Agreement, dated May 26, 1994,
by and among the Registrant, MCA Mortgage Corporation, Mortgage
Corporation of America, Complete Financial Corporation, Securities
Corporation of America and Comerica Bank, amending Exhibit 10.4
(previously filed as Exhibit 10.1 to the Registrant's Quarterly Report on
Form 10-QSB for the period ended April 30, 1994, and incorporated herein
by reference).
10.20 Fourth Amendment to Revolving Credit Loan Agreement, dated September 30,
1994, by and among the Registrant, MCA Mortgage Corporation, Mortgage
Corporation of America, Complete Financial Corporation, Securities
Corporation of America and Comerica Bank, amending Exhibit 10.4
(previously filed as Exhibit 10.29 to Amendment No. 2 to the Registrant's
Registration Statement on Form SB-2, File No. 33-79190, and incorporated
herein by reference).
10.21 Second Amendment to Credit Enhancement Umbrella Agreement, dated May 26,
1994, by and among the Registrant, MCA Mortgage Corporation, Mortgage
Corporation of America and the Board of Trustees of the Policemen and
Firemen Pension Fund of the City of Detroit, amending Exhibit No. 10.7
(previously filed as Exhibit 10.2 to the Registrant's Quarterly Report on
Form 10-QSB for the period ended April 30, 1994, and incorporated herein
by reference).
<PAGE> 101
10.22 Third Amendment to Credit Enhancement Umbrella Agreement, dated
September 8, 1994, by and among the Registrant, MCA Mortgage Corporation,
Mortgage Corporation of America and the Board of Trustees of the Policemen
and Firemen Pension Fund of the City of Detroit, amending Exhibit No. 10.7
(previously filed as Exhibit 10.31 to Amendment No. 2 to the Registrant's
Registration Statement on Form SB-2, File No. 33-79190, and incorporated
herein by reference).
10.23 Line of Credit Agreement, dated October 1994, among MCA Mortgage
Corporation, Rimco Financial Corp. and Sterling Bank & Trust FSB
(previously filed as Exhibit 10.32 to the Registrant's Annual Report on
Form 10-KSB for the fiscal year ended January 31, 1995, and incorporated
herein by reference).
10.24 Stock Purchase Agreement, dated January 31, 1995, between the Registrant
and Rimco Financial Corp. (previously filed as Exhibit 10.33 to the
Registrant's Annual Report on Form 10-KSB for the fiscal year ended
January 31, 1995, and incorporated herein by reference).
10.25 Line of Credit Agreement, dated March 17, 1995, among MCA Financial
Corp., RIMCO Realty & Mortgage Co. and Comerica Bank (previously filed as
Exhibit 10.01 to the Registrants Quarterly Report on Form 10-Q for the
period ended April 30, 1995, and incorporated herein by reference)
10.26 First Amendment to Escrow Agreement, dated September 18, 1995, between
the Registrant and Comerica Bank, as Escrow Agent, amending Exhibit No.
10.14 (previously filed as Exhibit 10.26 to the Registrant's Registration
Statement on Form S-1, File No. 33-98644, and incorporated herein by
reference).
10.27 Seventh and Eighth Amendments to Exhibit 10.1 (previously filed as
Exhibit 10.27 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 31, 1996, and incorporated herein by reference).
10.28 Mortgage Loan Repurchase Agreement, dated November 1, 1995, between MCA
Mortgage Corporation, Mortgage Corporation of America and Paine Webber
Real Estate Securities, Inc.
<PAGE> 102
(previously filed as Exhibit 10.28 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended January 31, 1996, and incorporated
herein by reference).
10.29 Form of Second Amendment to Escrow Agreement between the Registrant and
Comerica Bank, as Escrow Agent, amending Exhibit No. 10.14 (previously
filed as Exhibit 10.29 to the Registrant's Registration Statement on Form
S-1, File No. 33-98644, and incorporated herein by reference).
12 *Computation of Ratio of Earnings to Fixed Charges.
21 Subsidiaries of the Registrant (previously filed as Exhibit 21 to the
Registrant's Registration Statement on Form S-1, File No. 33-98644, and
incorporated herein by reference).
23.1 *Consent of Moore Stephens Doeren Mayhew, P.C./Grant Thornton LLP.
23.2 *Consent of Dykema Gossett PLLC (contained in its opinion filed as Exhibit
5).
24 *Power of Attorney (located on page II-10).
25 *Form T-1 with respect to the eligibility of First Union National
Bank, formerly known as First Fidelity Bank, N.A., as trustee under the
Indenture.
- ---------------
*Filed herewith.
<PAGE> 1
EXHIBIT 1.1
SELLING AGREEMENT
$6,000,000 OF _% ASSET BACKED SUBORDINATED DEBENTURES, SERIES 1996
DUE JUNE 30, 2002
MCA FINANCIAL CORP.
MCA Financial Corp.
23999 Northwestern Hwy
Southfield, MI 48075
MCA FINANCIAL CORP., a Michigan corporation (the "Company"), proposes to
issue and sell (the "Offering") $6,000,000 in aggregate principal amount of
__ % Asset-Backed Subordinated Debentures, Series 1996, due June 30, 2002 (the
"Debentures"). The Debentures shall be offered to the public in multiples of
$ 1,000. The purpose of this Agreement is to confirm the arrangements between
the Company and the undersigned (the "Placement Agent") with respect to the
sale by the Placement Agent as agent for the Company, on a best efforts basis,
of $6,000,000 of Debentures. The Agreement shall be effective on and after
the effective date of the Offering.
In consideration of the mutual agreements set forth herein, the parties
hereto agree as follows:
I(A). Representations, Warranties, and Agreements of the Company. The Company
represents and warrants to and agrees with the Placement Agent that:
(1) A registration statement on Form S-1 (File No. __________) with
respect to the Debentures, including a preliminary prospectus, has been
prepared by the Company in conformity with the requirements of the Securities
Act of 1933, as amended (the "Act"), and the applicable rules and regulations
(the "Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") under the Act and has been filed with the Commission; and such
amendments to such registration statement as may have been required prior to
the date hereof have been similarly prepared and filed with the Commission.
Copies of such registration statement and amendment or amendments and of each
related preliminary prospectus ("Preliminary Prospectus") have been delivered
to the Placement Agent. The Company has prepared in the same manner, and has
filed a further amendment to such registration statement incorporating a final
form of prospectus or proposes to file a final form of prospectus in accordance
with the requirements of Rule 424 of the Rules and Regulations. The Company
will not at any time hereafter file any amendments to such registration
statement of which the Placement Agent shall not have been furnished a copy.
The registration statement and prospectus, in the forms in which they become
effective, are herein respectively referred to as the "Registration Statement"
and the "Prospectus" provided, however, that if, after the effectiveness of the
Registration Statement, the Company shall file a form of Prospectus under Rule
424 of the Rules and Regulations, the term "Prospectus" shall refer to the form
of Prospectus so filed.
Page 1 of 10
<PAGE> 2
(2) The Commission has not issued any order preventing or suspending the
use of any Preliminary Prospectus. Each Preliminary Prospectus has complied in
all material respects with the requirements of the Act and the Rules and
Regulations, and no Preliminary Prospectus has included any untrue statement of
material fact or omitted to state a material fact necessary to make the
statements therein not misleading. As of the date (the "Effective Date") that
the Registration Statement is declared effective by the Commission and at all
times thereafter up to and including the Closing Date (as defined in Section
II(3) (vi)), (i) the Registration Statement and Prospectus, and any amendments
or supplements thereto, will contain all statements and information which are
required to be included therein in accordance with the Act and the Rules and
Regulations and will in all material respects conform to the requirements of
the Act and the Rules and Regulations and (ii) neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto, will
include any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading; provided, however, that the Company makes no representations
and warranties as to information contained in or omitted from the Registration
Statement or the Prospectus or any such amendment or supplement in reliance
upon and in conformity with information furnished to the Company by the
Placement Agent specifically for use in the preparation thereof.
(3) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of Michigan, with full power and
authority (corporate and other) to own, lease and operate its properties and
conduct its business as described in the Prospectus; this Agreement has been
duly authorized, executed and delivered by the Company and is binding upon the
Company in accordance with its terms; the performance of this Agreement and the
consummation of the transactions herein contemplated will not result in a
breach or violation of any of the terms and provisions of, or constitute a
default under, (i) any indenture, mortgage, deed of trust, loan agreement,
bond, debenture, note agreement, or other evidence of indebtedness, lease,
contract, or other agreement or instrument to which the Company is a party or
by which the property of the Company is bound, (ii) the Company's articles of
incorporation or bylaws, or (iii) any statute or any order, rule, or regulation
of any court or governmental agency or body having jurisdiction over the
Company or over the properties of the Company; and no consent, approval,
authorization, or order of any court or governmental agency or body is required
for the consummation by the Company of the transactions on its part
contemplated herein, except such as may be required under the Act or under
state or other securities laws.
(4) Except as set forth in the Prospectus, there is not now and at or
prior to the Closing Date there will not be any action, suit, or proceeding, at
law or equity, against the Company by a private litigant, by any federal, state
or other commission, board or agency wherein any unfavorable result or decision
could materially adversely affect the business, property, financial condition
or income or earnings of the Company, or prevent consummation of the
transactions contemplated hereby; and there are no contracts or documents of
the Company which would be required to be filed as exhibits to the Registration
Statement by the Act or by the Rules and Regulations which have not been filed
as exhibits to the Registration Statement.
Page 2 of 10
<PAGE> 3
(5) The Debentures to be issued and sold by the Company have been duly
authorized for issuance and sale to investors, pursuant to this Selling
Agreement and the Indenture, as amended, with First Union National Bank, as
Trustee and, when issued and delivered by the Company pursuant to this Selling
Agreement against payment therefor, such Debentures will be duly and validly
issued, fully paid, and nonassessable, and will constitute legal, valid and
binding obligations of the Company in accordance with their terms.
(6) Moore Stephens Doeren Mayhew and Grant Thornton, acting in a joint
venture capacity have audited and reviewed certain of the financial statements
filed with the Commission as a part of the Registration Statement and included
in the Prospectus, are independent public accountants within the meaning of the
Act and the Rules and Regulations; and the financial statements filed as a part
of the Registration Statement and included in the Prospectus present fairly the
financial position and the results of operations of the Company at the
respective dates and for the respective periods to which they apply and have
been prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved.
(7) Prior to the Closing Date, the Company will supply and deliver to the
Placement Agent at its offices, all information required to enable it to make
such investigation of the Company and its business prospects as it shall desire
and shall make available to it such persons as it deems reasonably necessary or
appropriate in order to verify or substantiate any information regarding the
Company. In addition, the Placement Agent shall have the right to review any
materials prepared in connection with any offering of securities of the Company
conducted prior to the Offering for compliance with applicable federal and
state securities laws.
(8) The Company will make arrangements to have available, at the offices
of the Trustee, First Union National Bank, certificates for Debentures in such
quantities as may, from time to time, be necessary.
(9) The Company is not aware of the occurrence or likelihood of occurrence
of any event or events which would cause it to use the proceeds of the offering
in any way materially different from that stated in the Prospectus.
I(B). Representations, Warranties and Agreements of the Placement Agent. The
Placement Agent represents and warrants to and agrees with the Company that:
(1) The Placement Agent is registered as a broker-dealer with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934, as amended, is registered as a broker-dealer with the state or states
listed on Annex A under applicable securities laws of such state(s), and is a
member in good standing of the National Association of Securities Dealers, Inc.
("NASD").
(2) The Placement Agent will, in accordance with the provisions
of the Act and with the securities laws of the jurisdictions in which the
Debentures are offered by the Placement Agent, offer Debentures prior to the
Effective Date exclusively through the use of a Preliminary Prospectus.
Page 3 of 10
<PAGE> 4
(3) The Placement Agent will only sell Debentures after the Effective Date
and will comply with the applicable provisions of the Act and the securities
laws of the jurisdictions in which the Debentures are sold by the Placement
Agent with respect to such sales.
(4) No person was or is entitled, directly or indirectly, to compensation
from it or any of its affiliates for services as a finder in connection with
the proposed public offering.
(5) The Placement Agent will comply with all applicable Sections of
Article III of the NASD Rules of Fair Practice with respect to the Offering.
II. Employment of Placement Agent. Upon the foregoing representations,
warranties and agreements, and subject to the terms and conditions of this
Selling Agreement:
(1) The Company hereby employs the Placement Agent as its agent to sell
for the account of the Company up to $ 6,000,000 in principal amount of
Debentures in multiples of $ 1,000 per Debenture.
(2) The Placement Agent will be paid a commission of 6.5% of the gross
sales price of the Debentures, provided, however, if the Placement Agent sells
$250,000 in principal amount of the Debentures it will be paid a commission of
7.0% on all sales, and if the Placement Agent sells $500,000 or more of the
Debentures it will be paid a commission of 8.0% on all sales.
(3) The Placement Agent will use its best efforts to find purchasers
for the Debentures as follows:
(i) For the duration of the Offering, all funds received by the
Placement Agent from purchasers of the Debentures shall remit the
proceeds from the sale of the Debentures to the Company in
accordance with any applicable rules of the NASD. The Placement
Agent shall instruct all purchasers to make their investment checks
payable to the Company and all checks or funds that the Placement
Agent receives from purchasers of the Debentures shall be
transmitted to the Company.
(4) The Placement Agent agrees to make a public offering of the Debentures
in accordance with, and as set forth in, the Prospectus. Such public offering
shall be made directly to the public.
(5) Through its legal counsel, the Company has sought to register or
qualify the Debentures under the securities or Blue Sky laws of Michigan, Ohio,
Illinois, Florida and other states to be determined at the Company's sole
discretion and such counsel will use their best efforts to effect such
registrations or to obtain such qualifications. The Company shall pay for all
Blue Sky filing fees as well as all costs and expenses of such counsel in
seeking clearance of the Offering in these states, and will file such consents
to service of process or other documents as may be necessary to effect such
clearance and continue the same in effect for as long a period as the Placement
Agent may reasonably request.
Page 4 of 10
<PAGE> 5
III. Further Agreements of the Company. The Company agrees with the
Placement Agent that:
(1) The Company will use its best efforts to cause the Registration
Statement to become effective and will advise the Placement Agent promptly and,
if requested by the Placement Agent, will confirm such advice in writing (i)
when the Registration Statement has become effective and when any amendment
thereto becomes effective, (ii) of any request by the Commission or other
governmental authority for amendments or supplements to the Registration
Statement or Prospectus or for additional information, (iii) of the issuance by
the Commission or other governmental authority of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose, and (iv) within the period of time referred to in
Section III (5) below, of the happening of any event which makes any statement
made in the Registration Statement or the Prospectus untrue or which requires
the making of any additions to or changes in the Registration Statement or the
Prospectus in order to make the statements therein not misleading. If at any
time the Commission or other governmental authority issues any stop order
suspending the effectiveness of the Registration Statement, the Company will
make every reasonable effort to obtain the withdrawal of such order at the
earliest possible moment.
(2) The Company will pay all expenses in connection with the delivery to
the purchasers of the Debentures and all expenses in connection with the
printing, preparation and filing of the Registration Statement (including this
Selling Agreement and all other exhibits to the Registration Statement) and the
Prospectus and any amendments or supplements thereto.
(3) The Company will furnish to the Placement Agent, without charge,
conformed copies of the Registration Statement as originally filed and of any
amendment thereto, including exhibits.
(4) The Company will not file any amendment to the Registration Statement
or make any amendment or supplement to the Prospectus of which the Placement
Agent shall not previously have been advised or with respect to which the
Placement Agent promptly after being so advised reasonably shall object in
writing.
(5) Prior to the Effective Date, the Company has delivered or will deliver
to the Placement Agent, without charge, in such quantities as requested or as
may hereafter be reasonably requested, copies of each form of Preliminary
Prospectus. The Company consents to the use prior to the Effective Date, in
accordance with the provisions of the Act and with the securities laws of the
jurisdiction in which the Debentures are offered by the Placement Agent, of
each Preliminary Prospectus so furnished by the Company.
(6) On the Effective Date and thereafter from time to time for such period
as in the opinion of counsel for the Placement Agent the Prospectus is required
by law to be delivered in connection with sales by the Placement Agent, the
Company will deliver to the Placement Agent without charge as many copies of
the Prospectus (and of any amendments or supplements thereto) as the Placement
Agent may reasonably request. The Company consents to the use of the
Prospectus (and of any amendments or
Page 5 of 10
<PAGE> 6
supplements thereto) in accordance with the provisions of the Act and with the
securities laws of the jurisdictions in which the Debentures are offered by the
Placement Agent, both in connection with the offering or sale of the Debentures
and for such period of time thereafter as the Prospectus is required by law
to be delivered in connection therewith. If during such period of time any
event occurs which, in the judgement of the Company or in the opinion of
counsel for the Placement Agent, should be set forth in the Prospectus in order
to make the statements therein, in light of the circumstance in which they were
made, not misleading, or if it is necessary to amend or supplement the
Prospectus to comply with the Act or any other law, the Company will forthwith
prepare and file with the Commission an appropriate amendment or supplement
thereto and will furnish to the Placement Agent, without charge, a reasonable
number of copies thereof, which the Placement Agent shall use thereafter.
(7) From the date hereof until one year after the termination of the
Offering, the Company will furnish to the Placement Agent (i) as soon as
available, a copy of each report of the Company mailed to its Debenture holders
or filed with the Commission, and (ii) from time to time, such other
information concerning the business and financial condition of the Company as
the Placement Agent may reasonably request.
(8) The Company shall promptly notify the Placement Agent of the filing
of a registration statement with the Commission pursuant to Section 12 of the
Securities Exchange Act of 1934, furnish the Placement Agent with a copy of
such registration statement and promptly inform the Placement Agent of its
effectiveness.
(9) The Company will apply the net proceeds from the sale of the
Debentures in the manner set forth under the caption "Use of Proceeds" in the
Prospectus, except where, as a result of events brought to its attention after
the Closing Date, it is determined that such application would not be in the
best interest of the Company and would not violate any applicable law.
IV. Indemnity and Contribution Provisions.
(1) The Company agrees to indemnify and hold harmless the Placement
Agent and any person who controls any Placement Agent within the meaning of
Section 15 of the Act against any and all losses, claims, lawsuits, damages or
liabilities, joint and several, to which such Placement Agent or such
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, lawsuits, damages or liabilities (including awards and/or
judgements) arise out of any untrue or alleged untrue statement of a material
fact contained in the Registration Statement, the Prospectus and related
exhibits, or any amendment or supplement thereto, or any Preliminary
Prospectus; or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statement therein not
misleading; and will reimburse the Placement Agent and each such controlling
person for any and all costs and expenses, including reasonable counsel fees
incurred by such Placement Agent or such controlling persons in connection with
the investigation or defense of any such loss, claim, lawsuit, damage or
liability; provided, however, that the Company will not be liable in any such
case to the extent that any such loss, claim, lawsuit or liability arises out
of or is based upon an untrue statement
Page 6 of 10
<PAGE> 7
or omission made in the Registration Statement or the Prospectus and related
exhibits or any amendment or supplement thereto or any Preliminary Prospectus
in reliance upon and in conformity with information furnished to the Company by
or on behalf of the Placement Agent specifically for use with reference to such
Placement Agent in preparation thereof; and provided further that the
indemnity agreement contained in this Section IV(l) with respect to any
Preliminary Prospectus shall not inure to the benefit of the Placement Agent
(or any person controlling such Placement Agent) from whom the person asserting
any such loss, claim, lawsuit or liability purchased Debentures which are the
subject thereof if such Placement Agent failed to send or give a copy of the
final Prospectus to such person at or prior to the confirmation of the sale of
such Debentures to such person, and if such loss, claim, lawsuit or liability
would not have arisen but for such failure. This indemnity agreement will be
in addition to any liability which the Company may otherwise have.
(2) The Placement Agent will indemnify and hold harmless the Company,
each of its directors, each of its officers who signs the Registration
Statement and any person who controls the Company within the meaning of the Act
against any and all losses, claims, lawsuits, damages or liabilities to which
the Company or any such director or officer or controlling person may become
subject, under the Act or otherwise, insofar as such losses, claims, lawsuits,
damages or liabilities (including awards and/or judgements) arise out of or are
in connection with any information furnished to the Company by the Placement
Agent and are included in the Registration Statement, the Prospectus and
related exhibits or any amendment or supplement thereto or any Preliminary
Prospectus, and will reimburse any and all costs and expenses, including
reasonable counsel fees incurred by the Company or such director or officer or
controlling person in connection with investigating or defending any such loss,
claim, lawsuit, damage or liability. This indemnity agreement will be in
addition to any liability which the Placement Agent may otherwise have.
(3) Promptly after receipt by an indemnified party under this Article
IV of notice of any such liability, claim or lawsuit, such indemnified party
will, if a claim in respect thereof is to be made against an indemnifying party
under this Article IV, notify the indemnifying party in writing of the
commencement thereof; but the omission to so notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under this Article IV. In case any such action is brought
against any indemnified party and it notifies any indemnifying party of the
commencement thereof, the indemnifying party will be entitled to take any and
all necessary and proper action, at its sole cost and expense, with respect to
such liability, claim or lawsuit, including the right to settle, compromise and
dispose of such liability, claim or lawsuit, excepting therefrom any and all
proceedings or hearings before any regulatory bodies and/or authorities.
(4) If the indemnification provided for in Section (1) or (2) of this
Article IV is, for any reason other than as specified in such sections, held by
a court to be unavailable and the Company or the Placement Agent has been
required to pay damages as a result of a determination by a court that the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto contains an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, then the Company shall contribute
to the damages paid by the Placement Agent and the Placement Agent shall
contribute to the
Page 7 of 10
<PAGE> 8
damages paid by the Company, but in each case only to the extent that such
damages arise out of or are based upon such untrue statement or omission, (i)
in such proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and the Placement Agent on the other from the
offering of the Debentures, or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect the relative benefits referred to in clause (i) above but also the
relative fault of the Company and the Placement Agent in such damages, as well
as any other relevant equitable considerations. The relative benefits received
by the Company and the Placement Agent shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total selling commissions and
allocable expenses received by the Placement Agent, as set forth in the table
on the cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue statement of a material
fact or the omission to state a material fact relates to information supplied
by the Company or the Placement Agent and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
untrue statement or omission. For purposes of this Section, the term "damages"
shall include any counsel fees or other expenses reasonably incurred by the
Company or the Placement Agent in connection with investigating or defending
any action or claim which is the subject of the contribution provisions of this
Section. Notwithstanding the provisions of this Section, the Placement Agent
shall not be required to contribute any amount in excess of the amount by which
the total price at which the Debentures distributed to the public were offered
to the public exceeds the amount of any damages which Placement Agent has
otherwise been required to pay by reason of any such untrue statements or
omissions. No person adjudged 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.
(5) The agreements contained in this Article IV and the representations
and warranties of the Company and the Placement Agent set forth in this Selling
Agreement shall remain operative and in full force and effect, regardless of
(a) any investigation made by or on behalf of the Placement Agent or any person
controlling the Placement Agent or by or on behalf of the Company, any of its
directors or officers, or any person controlling the Company, (b) acceptance of
any Debentures and payment therefor hereunder, and (c) any termination of this
Selling Agreement. A successor of the Placement Agent or of the Company, or
any director or officer thereof or any person controlling the Placement Agent
or the Company, as the case may be, shall be entitled to the benefits of the
agreements contained in this Article IV.
V. Conditions to Placement Agent's Obligation. The obligations of the
Placement Agent to participate in the offer and sale of the Debentures
hereunder are subject to the accuracy of and compliance with the
representations and warranties and agreements of the Company contained herein
on and as of the Closing Date and to the following further conditions:
(1) That the Registration Statement shall have become effective; that no
stop order suspending the effectiveness of the Registration Statement shall
have been issued and no proceedings for that purpose shall have been or to the
knowledge of the Company shall be contemplated by the Commission at or prior to
the Closing Date, and
Page 8 of 10
<PAGE> 9
(2) That the Company shall have delivered to the Placement Agent such
additional documents as it shall reasonably request in order to receive further
assurance as to the accuracy of the Registration Statement and compliance with
the Company's agreements hereunder.
VI. Termination. This agreement may be terminated by either party upon sixty
(60) days written notice to the other party. Any termination of this Agreement
pursuant to this provision shall not affect the Company's obligation to
compensate the Placement Agent for commissions earned in accordance with
Article II hereof.
VII. Miscellaneous. Except as otherwise provided herein, notice given pursuant
to any of the provisions of this Selling Agreement shall be in writing and
shall be delivered (a) to the Company at the office of the Company, 23999
Northwestern Hwy, Southfield, MI 48075, Attention: Cheryl A. Swain; or (b) to
the Placement Agent at the office of the Placement Agent, set forth below or in
each case to such other address as the person to be notified may have requested
in writing.
This Selling Agreement has been and is made solely for the benefit of the
Placement Agent, the Company, the controlling persons, directors and officers
referred to in Article IV hereof, and their respective successors and assigns;
and no other person shall acquire or have any right under or by virtue of this
Selling Agreement. The terms "successor" or "successor and assigns" as used in
this Selling Agreement shall not include a purchaser from any of the several
Placement Agents of any of the Debentures in his status as such purchaser.
This Selling Agreement may be executed in any number of counterparts, each
of which, when taken together, shall be deemed the fully executed agreement
between the parties.
This Selling Agreement shall be governed by and construed in accordance
with the laws of the State of Michigan.
Page 9 of 10
<PAGE> 10
MCA FINANCIAL CORP.
By:
-----------------------------
Cheryl A. Swain
Its: Vice President
PLACEMENT AGENT
By:
-----------------------------
-----------------------------
Please Print Name
-----------------------------
Company Name
Its:
-----------------------------
Page 10 of 10
<PAGE> 11
ANNEX A
STATES IN WHICH AGENT IS REGISTERED
-----------------------------
-----------------------------
-----------------------------
-----------------------------
Page A-1
<PAGE> 1
EXHIBIT 4.1
- --------------------------------------------------------------------------------
MCA FINANCIAL CORP.
(the "Company")
and
FIRST UNION NATIONAL BANK
(the "Trustee")
------------------------------------
INDENTURE
Dated as of June , 1996
------------------------------------
$6,000,000
__% Subordinated Debentures, Series 1996, Due June 30, 2002
- --------------------------------------------------------------------------------
<PAGE> 2
Reconciliation and Tie Sheet*
between
Provisions of the Trust Indenture Act of 1939
and
Indenture, Dated as of , 1996
between
MCA FINANCIAL CORP.
and
FIRST FIDELITY BANK, N.A., Trustee
<TABLE>
<CAPTION>
Section Section of
of TIA Indenture
--------------------------------------------------- ------------
<S> <C>
310(a)(1) ........................................ 6.08
(a)(2) ........................................ 6.08
(a)(3) ........................................ Inapplicable
(a)(4) ........................................ Inapplicable
(b) ........................................ 6.08, 6.09
(c) ........................................ Inapplicable
311(a) ........................................ 6.12
(b) ........................................ 6.12
(c) ........................................ Inapplicable
312(a) ........................................ 6.14
(b) ........................................ 1.08
(c) ........................................ 1.08
313(a) ........................................ 6.13
(b)(1) ........................................ 6.13
(b)(2) ........................................ 6.13
(c) ........................................ 6.13
(d) ........................................ 6.13
314(a) ........................................ 8.10
(b) ........................................ 8.02
(c) ........................................ 1.02
(d) ........................................ 8.11
(e) ........................................ 1.02
(f) ........................................ Omitted
315(a) ........................................ 6.01(a)
(b) ........................................ 6.02
(c) ........................................ 6.01(b)
(d) ........................................ 6.01(c)
(e) ........................................ 5.13
316(a)(1) ........................................ 5.12
(a)(2) ........................................ Omitted
(b) ........................................ 5.08
(c) ........................................ 1.07
317(a) ........................................ 5.03, 5.04
(b) ........................................ 8.05
318(a) ........................................ 1.11
</TABLE>
- ---------------
* This Reconciliation and Tie Sheet is not a part of the Indenture
<PAGE> 3
TABLE OF CONTENTS
ARTICLE ONE
Definitions and Other Provisions of
General Application
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 1.01. Definitions ...................................... 1
Section 1.02. Compliance Certificates and Opinions ............. 6
Section 1.03. Form of Documents Delivered to Trustee ........... 6
Section 1.04. Acts of Debentureholders ......................... 7
Section 1.05. Notices, etc., to Trustee and Company ............ 8
Section 1.06. Notices to Debentureholders; Waiver .............. 8
Section 1.07. Record Date for Action by Debentureholders ....... 8
Section 1.08. Communications by Holders with Other Holders ..... 9
Section 1.09. Affiliates of Company Exempt from
Individual Liability ............................. 9
Section 1.10. Payments Due on Saturdays, Sundays and Holidays .. 9
Section 1.11. Provisions required by TIA to Control ............ 10
Section 1.12. Counterparts ..................................... 10
Section 1.13. Effect of Headings and Table of Contents ......... 10
Section 1.14. Successors and Assigns ........................... 10
Section 1.15. Separability Clause .............................. 10
Section 1.16. Benefits of Indenture ............................ 10
Section 1.17. Governing Law .................................... 10
ARTICLE TWO
The Debentures
Section 2.01. Forms Generally .................................. 10
Section 2.02. Title and Terms .................................. 11
Section 2.03. Denominations .................................... 11
Section 2.04. Execution, Authentication and Delivery and Dating. 11
Section 2.05. Temporary Debentures ............................. 12
Section 2.06. Registration, Transfer and Exchange .............. 12
Section 2.07. Mutilated, Destroyed, Lost and Stolen Debentures . 13
Section 2.08. Payment of Interest; Interest Rights Preserved ... 13
Section 2.09. Persons Deemed Owners ............................ 15
Section 2.10. Cancellation ..................................... 15
Section 2.11. Authentication and Delivery of Original Issue .... 15
Section 2.12. Computation of Interest .......................... 15
ARTICLE THREE
Redemption
Section 3.01. Optional Redemption .............................. 15
Section 3.02. Mandatory Redemption ............................. 16
Section 3.03. Redemption of Debentures ......................... 18
Section 3.04. Debentures Redeemed in Part ...................... 19
</TABLE>
i
<PAGE> 4
ARTICLE FOUR
Satisfaction and Discharge
Section 4.01. Satisfaction and Discharge of Indenture ........... 19
Section 4.02. Application of Trust Money ........................ 20
ARTICLE FIVE
Remedies
Section 5.01. Events of Default ................................. 20
Section 5.02. Acceleration of Maturity; Rescission and
Annulment ......................................... 22
Section 5.03. Collection of Indebtedness and Suits for
Enforcement by Trustee ............................ 23
Section 5.04. Trustee May File Proofs of Claim .................. 23
Section 5.05. Trustee May Enforce Claims Without Possession of
Debentures ........................................ 24
Section 5.06. Application of Money Collected .................... 24
Section 5.07. Limitation on Suits ............................... 25
Section 5.08. Right of Debentureholders to Receive Principal and
Interest .......................................... 25
Section 5.09. Restoration of Rights and Remedies ................ 26
Section 5.10. Rights and Remedies Cumulative .................... 26
Section 5.11. Delay or Omission Not Waiver ...................... 26
Section 5.12. Rights of Holders to Direct Trustee and
to Waive Defaults ................................. 26
Section 5.13. Undertaking for Costs ............................. 27
ARTICLE SIX
The Trustee
Section 6.01. Certain Duties and Responsibilities ............... 27
Section 6.02. Notice of Defaults ................................ 28
Section 6.03. Certain Powers of Trustee ......................... 28
Section 6.04. Not Responsible for Recitals or Issuance of
Debentures ........................................ 29
Section 6.05. May Hold Debentures ............................... 29
Section 6.06. Money Held in Trust ............................... 30
Section 6.07. Compensation and Indemnity ........................ 30
Section 6.08. Eligibility; Disqualification ..................... 30
Section 6.09. Resignation and Removal; Appointment of
Successor ......................................... 30
Section 6.10. Acceptance of Appointment by Successor ............ 32
Section 6.11. Merger, Conversion, Consolidation or Succession
to Business ....................................... 32
Section 6.12. Preferential Collection of Claims Against Company . 33
Section 6.13. Reports by the Trustee ............................ 33
Section 6.14. Lists of Debentureholders ......................... 33
ARTICLE SEVEN
Supplemental Indentures
Section 7.01. Supplemental Indentures Without Consent of
Debentureholders .................................. 33
ii
<PAGE> 5
Section 7.02. Supplemental Indentures With Consent of
Debentureholders .................................. 34
Section 7.03. Execution of Supplemental Indentures .............. 35
Section 7.04. Effect of Supplemental Indentures ................. 35
Section 7.05. Reference in Debentures to Supplemental Indentures. 35
Section 7.06. Effect on Senior Indebtedness ..................... 35
ARTICLE EIGHT
Covenants
Section 8.01. Payment of Principal and Interest ................. 35
Section 8.02. Maintenance of Office or Agency ................... 35
Section 8.03. Money for Debenture Payments to be Held In Trust .. 36
Section 8.04. Payment of Taxes and Other Claims ................. 37
Section 8.05. Company Existence ................................. 37
Section 8.06. Company May Consolidate, etc., Only on Certain
Terms ............................................. 37
Section 8.07. Restrictions on Dividends, Redemptions, Etc. ...... 38
Section 8.08. Reports by the Company ............................ 38
ARTICLE NINE
Subordination of Debentures
Section 9.01. Agreement to Subordinate .......................... 38
Section 9.02. Distribution on Dissolution, Liquidation and
Reorganization .................................... 38
Section 9.03. Payments on Debentures Prohibited During Event
of Default under Senior Indebtedness .............. 39
Section 9.04. Subrogation ....................................... 39
Section 9.05. Obligation of Company Unconditional ............... 40
Section 9.06. Payments on Debentures Permitted .................. 40
Section 9.07. Effectuation of Subordination by Trustee .......... 40
Section 9.08. Knowledge of Trustee .............................. 41
Section 9.09. Trustee May Hold Senior Indebtedness .............. 41
Section 9.10. Rights of Holders of Senior Indebtedness Not
Impaired .......................................... 41
Section 9.11. Rights and Obligations Subject to Power of Court .. 41
Section 9.12. No Fiduciary Duty to Holders of
Senior Indebtedness ............................... 41
SIGNATURES ...................................................... 42
Exhibit A - Form of Debenture
iii
<PAGE> 6
THIS INDENTURE, dated as of June , 1996, is made by and between MCA
FINANCIAL CORP., a Michigan corporation, having its principal office at 23999
Northwestern Highway, Southfield, Michigan 48075 (the "Company"), and FIRST
UNION NATIONAL BANK, having its principal corporate trust office at 765 Broad
Street, Newark, New Jersey 07102-1732 (the "Trustee").
RECITALS
The Company has duly authorized the creation, execution and delivery of
its debentures, to be known as its % Subordinated Debentures, Series 1996,
Due June 30, 2002 (hereinafter referred to as the "Debentures"), the amount and
terms of which are as hereinafter provided; and, to provide the terms and
conditions upon which the Debentures are to be authenticated, issued and
delivered, the Company has duly authorized the execution of this Indenture.
All acts and things necessary to make the Debentures, when executed by the
Company and authenticated and delivered by the Trustee as in this Indenture
provided, the valid, binding and legal obligations of the Company, and to
constitute these presents as a valid indenture and agreement according to its
terms, have been done and performed, and the execution of this Indenture and
the issue hereunder of the Debentures have in all respects been duly
authorized, and the Company, in the exercise of the legal right and power
vested in it, executes this Indenture and proposes to make, execute, and
deliver the Debentures. The proceeds from the Offering will be used to redeem
up to $4.92 million of its outstanding 1992 Debentures and for general
corporate purposes, which includes providing advances to its subsidiaries and
certain of its affiliates, as well as the possible acquisition of mortgage
servicing rights and the business of one of more unaffiliated mortage
companies.
For and in consideration of the premises and the purchase of the
Debentures by the Holders thereof, and to secure the observance and performance
by the Company of all covenants and obligations expressed or implied herein and
in the Debentures, and in consideration of the receipt of proceeds from the
issuance and sale of the Debentures, the Company and the Trustee mutually
covenant and agree, for the equal and proportionate benefit of all Holders of
the Debentures as follows:
ARTICLE ONE
Definitions and Other Provisions of
General Application
Section 1.01. Definitions. For all purposes of this Indenture and any
indenture supplemental hereto, except as otherwise expressly provided or unless
the context otherwise requires:
(1) all references in this instrument to designated "Articles,"
"Sections" and other subdivisions are to the designated articles,
sections and other subdivisions of this instrument as originally
executed. The words "herein," "hereof" and "hereunder" and other
<PAGE> 7
words of similar import refer to this Indenture as a whole and not to
any particular article, section or other subdivision;
(2) the terms defined in this Article have the meaning assigned
to them in this Article, and include the plural as well as the
singular;
(3) all other terms used herein which are defined in the TIA,
either directly or by reference therein, have the meanings assigned to
them therein; and
(4) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted
accounting principles, which, with respect to any computation required
or permitted hereunder, shall mean such accounting principles as are
generally accepted at the date or time of such computation.
Certain terms, used principally in Article Six, are defined in that
Article.
"Act" when used with respect to any Debentureholder has the meaning
specified in Section 1.04.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Board of Directors" means either the board of directors of the Company or
any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday,
which is not a day upon which banking institutions in the City of New York, New
York are authorized or required by law to close.
"Common Equity" means the aggregate amount of the Common Stock, Additional
Paid-in Capital and Retained Earnings accounts of the Company, as shown on the
audited consolidated balance sheet of the Company at any particular date.
"Company" means MCA Financial Corp., a Michigan corporation, until a
successor shall have become such pursuant to the applicable provisions of this
Indenture, and thereafter "Company" shall mean such successor.
2
<PAGE> 8
"Company Request," "Company Order" and "Company Consent" means,
respectively, a written request, order or consent signed in the name of the
Company by the Chairman of the Board, Vice Chairman of the Board, President,
any Executive Vice President, any Senior Vice President or any Vice President,
and by the Treasurer, an Assistant Treasurer, Controller, an Assistant
Controller, Secretary or an Assistant Secretary, and delivered to the Trustee.
"Consolidated Net Worth" means, as of the date of any determination
thereof, the sum of all capital stock accounts of the Company, net of any
treasury stock (valued at its cost to the Company), plus (or minus in the case
of a deficit) the surplus and retained earnings of the Company and its
consolidated Subsidiaries, all as determined in accordance with generally
accepted accounting principles, plus the principal amount of any unsecured
Indebtedness of the Company that is, by its terms, expressly subordinate in
right of payment to the Debentures.
"Date of Issue" as to any Debenture (or portion thereof), means the date
of their authentication.
"Debentureholder" means a Person in whose name a Debenture is registered
in the Debenture Register.
"Debenture Register" and "Debenture Registrar" have the respective
meanings specified in Section 2.06.
"Defaulted Interest" has the meaning specified in Section 2.08.
"Equity Securities" means shares of any class or classes of stock, or
other securities, of the Company, other than debt securities of the Company
whether or not such debt securities are convertible into other securities of
the Company.
"Holder" when used with respect to any Debenture means a Debentureholder.
"Indebtedness" with respect to any Person at any date means and includes
all items of indebtedness or liability which, in accordance with generally
accepted accounting principles, would be included in determining total
liabilities as shown on the balance sheet of such Person at such date, and
shall include (i) all indebtedness guaranteed or endorsed (other than for
purposes of collection in the ordinary course of business), directly or
indirectly, in any manner, by such Person, and contingent obligations of such
Person with respect to, or to purchase or otherwise acquire, indebtedness of
others, and (ii) all indebtedness secured by any mortgage, lien, pledge, charge
or encumbrance upon property owned by such Person, whether or not the
indebtedness so secured has been assumed by such Person.
"Indenture" means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Debentures.
3
<PAGE> 9
"MCA" means Mortgage Corporation of America, a Michigan corporation that
is a wholly-owned subsidiary of the Company, and it successors and assigns.
"MCA Mortgage" means MCA Mortgage Corporation, a Michigan corporation that
is a wholly-owned subsidiary of the Company, and it successors and assigns.
"Mandatory Redemption Date" shall have the meaning given to such term in
Section 3.02.
"Maturity" when used with respect to any Debenture means the date on which
the principal of such Debenture becomes due and payable as therein or herein
provided, whether at the Stated Maturity or by declaration of acceleration or
otherwise.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, Vice Chairman of the Board, the President, any Executive Vice President,
any Senior Vice President or any Vice President, and by the Treasurer, an
Assistant Treasurer, the Controller, an Assistant Controller, the Secretary or
an Assistant Secretary of the Company, and delivered to the Trustee. Wherever
this Indenture requires that an Officers' Certificate be signed also by an
accountant or other expert, such accountant or other expert, except as
otherwise expressly provided in this Indenture, may be in the employ of the
Company, but must have been approved by the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may, except
as otherwise expressly provided in this Indenture, be counsel for or an
employee of the Company, who is acceptable to the Trustee.
"Outstanding" when used with respect to Debentures means, as of the date
of determination, all Debentures theretofore authenticated and delivered under
this Indenture, except (a) Debentures theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation, (b) Debentures for whose payment
money in the necessary amount has been theretofore deposited with the Trustee
or any Paying Agent in trust for the Holders of such Debentures and (c)
Debentures in exchange for or in lieu of which other Debentures have been
authenticated and delivered pursuant to this Indenture; provided, however, that
in determining whether the Holders of the requisite principal amount of
Debentures Outstanding have given any request, demand, authorization,
direction, notice, consent or waiver hereunder, Debentures owned by the Company
or any other obligor upon the Debentures or any Affiliate of the Company or
such other obligor shall be disregarded and deemed not to be Outstanding,
except that, in determining whether the Trustee shall be protected in relying
upon any such request, demand, authorization, direction, notice, consent or
waiver, only Debentures which the Trustee knows to be so owned shall be so
disregarded. Debentures so owned which have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right to act with respect to such Debentures and that the
pledgee is not the Company or any other obligor upon the Debentures or any
Affiliate of the Company or such other obligor.
"Paying Agent" shall have the meaning given to such term in Section 2.08.
4
<PAGE> 10
"Place of Payment" means a city or any political subdivision thereof
designated as such in Article Two.
"Predecessor Debentures" of any particular Debenture means every previous
Debenture evidencing all or a portion of the same debt as that evidenced by
such particular Debenture; and, for the purposes of this definition, any
Debenture authenticated and delivered under Section 2.07 in lieu of a lost,
destroyed or stolen Debenture shall be deemed to evidence the same debt as the
lost, destroyed or stolen Debenture.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the close of business in the first day of the calendar month in
which falls an Interest Payment Date.
"Responsible Officer" when used with respect to the Trustee means the
Chairman or Vice-Chairman of the Board of Directors, the Chairman or Vice
Chairman of the executive committee of the Board of Directors, the President,
any Executive Vice President, any Senior Vice President, any Vice President,
the Secretary, any Assistant Secretary, the Treasurer, any Assistant Treasurer,
the Cashier, any Assistant Cashier, any Trust Officer or Assistant Trust
Officer, the Controller, any Assistant Controller or any other officer of the
Trustee customarily performing functions similar to those performed by any of
the above designated officers and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of his knowledge of and familiarity with the particular subject.
"Senior Indebtedness" means all Indebtedness of the Company for money
borrowed from others, whether outstanding on the date hereof or hereafter
created or incurred, which is not by its terms expressly either subordinate and
junior to, or on a parity with, the Debentures.
"Special Record Date" for the payment of any Defaulted Interest, as
defined in Section 2.08, means a date fixed by the Trustee pursuant to Section
2.08.
"Stated Maturity" when used with respect to any Debenture or any
installment of interest thereon means the date specified in such Debenture as
the fixed date on which the principal of such Debenture or such installment of
interest is due and payable.
"Subsidiary" means any corporation of which at least a majority of the
outstanding stock having ordinary voting power to elect a majority of the
directors of such corporation, irrespective of whether or not at the time stock
of any other class or classes of such corporation shall have or might have
voting power by reason of the happening of any contingency, is at the time
directly or indirectly owned by the Company, by one or more Subsidiaries of the
Company, or by the Company and one or more Subsidiaries. The term
"Wholly-Owned Subsidiary" means a Subsidiary of which all of the outstanding
voting stock (other than directors' qualifying shares) is at the time directly
or indirectly owned by the Company, or by one or more Wholly-Owned
Subsidiaries, or by the Company and one or more Wholly Owned Subsidiaries.
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"TIA" means, except as otherwise provided in Sections 7.01 and 7.02, the
federal Trust Indenture Act of 1939, as amended by the Trust Indenture Reform
Act of 1990, and as in effect on the date as of which this Indenture was
executed.
"Trustee" means the Person named as the "Trustee" in the first paragraph
of this instrument until a successor Trustee shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Trustee" shall
mean such successor Trustee.
Section 1.02. Compliance Certificates and Opinions. Upon any application
or request by the Company to the Trustee to take any action under any provision
of this Indenture, the Company shall furnish to the Trustee an Officers'
Certificate stating that all conditions precedent, if any, provided for in this
Indenture (including any covenants for which compliance therewith constitutes a
condition precedent) relating to the proposed action have been complied with
and an Opinion of Counsel stating that in the opinion of such counsel all such
conditions precedent, if any, have been complied with, except that in the case
of any such application or request as to which the furnishing of such documents
is specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture shall include
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he
has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
Section 1.03. Form of Documents Delivered to Trustee. In any case where
several matters are required to be certified by, or covered by an opinion of,
any specified Person, it is not necessary that all such matters be certified
by, or covered by the opinion of, only one such Person, or that they be so
certified or covered by only one document, but one such Person may certify or
give an opinion with respect to some matters and one or more other such Persons
as to other matters, and any such Person may certify or give an opinion as to
such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
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reasonable care should know, that the certificate or opinion or representa-
tions with respect to the matters upon which his certificate or opinion is
based are erroneous. Any such certificate or Opinion of Counsel may be based,
insofar as it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Section 1.04. Acts of Debentureholders. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Debentureholders may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such Debentureholders in person or by agent duly appointed in writing; and,
except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to the Trustee,
and, where it is hereby expressly required, to the Company. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Debentureholders signing such
instrument or instruments. Proof of execution of any such instrument or of a
writing appointing any such agent shall be sufficient for any purpose of this
Indenture and, subject to Section 6.01, conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing is not required to be certified by a notary public or
other similar official but may be conclusively proved by the affidavit of a
witness of such execution, by a signature guaranteed by a commercial bank or a
member firm of the New York Stock Exchange, or by the certificate of any notary
public or other officer authorized by law to take acknowledgements of deeds to
the effect that the individual signing such instrument or writing acknowledged
to him the execution thereof. Where such execution is by an officer of a
corporation or a member of a partnership, on behalf of such corporation or
partnership, any such certificate or affidavit shall also constitute sufficient
proof of his authority. The fact and date of the execution of any such
instrument or writing, or the authority of the person executing the same, may
also be provided.
(c) The ownership of Debentures shall be proved by the Debenture Register.
(d) Any request, demand, authorization, direction, notice, consent, waiver
or other action by the Holder of any Debenture shall bind the Holder of every
Debenture issued upon the transfer thereof or in exchange therefor or in lieu
thereof, in respect of anything done or suffered to be done by the Trustee or
the Company in reliance thereon, whether or not notation of such action is made
upon such Debenture.
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Section 1.05. Notices, etc., to Trustee and Company. Any request, demand,
authorization, direction, notice, consent, waiver or Act of Debentureholders or
other document provided or permitted by this Indenture to be made upon, given
or furnished to, or filed with either (1) the Trustee by any Debentureholder or
by the Company shall be sufficient for every purpose hereunder if made, given,
furnished or filed in writing to or with the Trustee at its principal corporate
trust office, or (2) the Company by the Trustee or by any Debentureholder shall
be sufficient for every purpose hereunder if in writing and mailed, first class
postage prepaid, to the Company addressed to it, to the attention of its
President, at the address of its principal office specified in the first
paragraph of this instrument or at any other address furnished in writing to
the Trustee by the Company.
Section 1.06. Notices to Debentureholders; Waiver. Where this Indenture
provides for notice to Debentureholders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class postage prepaid, to each Debentureholder affected by
such event, at his address as it appears in the Debenture Register, not later
than the latest date, and not earlier than the earliest date, prescribed for
the giving of such notice. In any case where notice to Debentureholders is
given by mail, neither the failure to mail such notice, nor any defect in any
notice so mailed, to any particular Debentureholder shall affect the
sufficiency of such notice with respect to other Debentureholders. Where this
Indenture provides for notice in any manner, such notice may be waived in
writing by the Person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such notice. Waivers of
notice by Debentureholders shall be filed with the Trustee, but such filing
shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver. In case, by reason of the suspension of regular
mail service, or by reason of any other cause, it shall be impractical to give
such notice by mail as required by this Indenture, then such notification as
shall be made with the approval of the Trustee shall constitute a sufficient
notification for every purpose hereunder.
Section 1.07 Record Date for Action by Debentureholders. Whenever in this
Indenture it is provided that holders of a specified percentage in aggregate
principal amount of the Debentures may take any action (including the making of
any demand or request, the giving of any direction, notice, consent or waiver
or the taking of any other action), the Company, pursuant to a resolution of
its Board of Directors, or the Holders of at least 10% in aggregate principal
amount of the Debentures then outstanding, may request the Trustee to fix a
record date for determining debentureholders entitled to notice of and to take
any such action. In case the Company or the holders of Debentures in the
amount above specified shall desire to request Debenture-holders to take any
such action and shall request the Trustee to fix a record date with respect
thereto by written notice setting forth in reasonable detail the
Debentureholder action to be requested, the Trustee shall promptly (but in any
event within five days of receipt of such request) fix a record date which
shall be a business day not less than 15 nor more than 20 days after the date
on which the Trustee receives such request. If the Trustee shall fail to fix a
record date as hereinabove provided, then the Company or the Holders of
Debentures in the amount above specified may fix the same by mailing written
notice thereof (the record date so fixed to be a business day not less than 15
nor more than 20 days after the date on which such written notice shall be
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given) to the Trustee. If a record date is fixed according to this Section
1.07, only persons shown as Debentureholders on the registration books of the
Company at the close of business on the record date so fixed shall be entitled
to take the requested action and the taking of any such action by the holders
on the record date of the required percentage of the aggregate principal amount
of the Debentures shall be binding on all Debentures, provided that the taking
of the requested action by the Holders on the record date of the percentage in
aggregate principal amount of the Debentureholders specified in this Indenture
in connection with such action shall have been evidenced to the Trustee not
later than 180 days after such record date.
Section 1.08 Communications by Holders with Other Holders.
Debentureholders may communicate pursuant to Section 312(b) of the TIA with
other Holders with respect to their rights under this Indenture or the
Debentures, and the Company, the Trustee, the Registrar and anyone else shall
have the protection of Section 312(c) of the TIA.
Section 1.09 Affiliates of Company Exempt from Individual Liability. No
recourse under or upon any obligation, covenant or agreement of this Indenture,
or of any Debenture, or for any claim based thereon or otherwise in respect
thereof, shall be had against any incorporator, stockholder, officer or
director, as such, past, present or future, of the Company or of any successor
corporation, either directly or through the Company, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment
or penalty or otherwise, it being expressly understood that this Indenture and
the obligations issued hereunder are solely corporate obligations, and that no
such personal liability whatever shall attach to, or is or shall be incurred
by, the incorporators, stockholders, officers or directors, as such, of the
Company or of any successor corporation, or any of them, because of the
creation of the indebtedness hereby authorized, or under or by reason of the
obligations, covenants or agreements contained in this Indenture or in any of
the Debentures or implied therefrom; and that any and all such personal
liability of every name and nature, either at common law or in equity or by
constitution or statute of, and any and all such rights and claims against,
every such incorporator, stockholder, officer or director, as such, because of
the creation of the indebtedness hereby authorized, or under or by reason of
the obligations, covenants or agreements contained in this Indenture or in any
of the Debentures or implied therefrom are hereby expressly waived and released
as a condition of, and as a consideration for, the execution of this Indenture
and the issue of such Debentures; provided, however, that nothing herein shall
be taken to prevent recourse to and the enforcement of the liability, if any,
of any shareholder or subscriber to capital stock upon or in respect of shares
of capital stock of the Company not fully paid up.
Section 1.10 Payments Due on Saturdays, Sundays and Holidays. In any case
where the date of payment of interest on or principal of the Debentures or the
date fixed for redemption of any Debenture shall not be a Business Day then
payment of interest or principal (and premium, if any) need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the date of payment or the date fixed for redemption,
and no interest shall accrue for the period after such date.
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Section 1.11 Provisions Required by TIA to Control. If any provision
hereof limits, qualifies or conflicts with another provision included in this
Indenture by operation of any of Sections 310 to 317, inclusive, of the TIA,
such incorporated provision shall control.
Section 1.12 Counterparts. This Indenture may be executed in any number
of counterparts, each of which shall be an original; but such counterparts
shall together constitute but one and same instrument.
Section 1.13. Effect of Headings and Table of Contents. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
Section 1.14. Successors and Assigns. All covenants and agreements in
this Indenture by the Company shall bind its successors and assigns, whether so
expressed or not.
Section 1.15. Separability Clause. In case any provision in this
Indenture or in the Debentures shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
Section 1.16. Benefits of Indenture. Nothing in this Indenture or in the
Debentures, express or implied, shall give to any Person, other than the
parties hereto and their successors hereunder and the Debentureholders, any
benefit or any legal or equitable right, remedy or claim under this Indenture.
Section 1.17. Governing Law. This Indenture and the Debentures shall be
governed by and construed in accordance with the laws of the State of Michigan,
except that the rights, duties and liabilities of the Trustee hereunder shall
be governed by and construed in accordance with the laws of the State of
Pennsylvania.
ARTICLE TWO
Debenture Forms
Section 2.01. Forms Generally. The Debentures and the Trustee's
certificates of authentication shall be in substantially the form of Exhibit A,
with such appropriate insertions, omissions, substitutions and other variations
as are required or permitted by this Indenture and may have such letters,
numbers or other marks of identification and such legends or endorsements
placed thereon as may be required to comply with the rules of any securities
exchange, or as may, consistently herewith, be determined by the officers
executing such Debentures, as evidenced by their execution of the Debentures.
Any portion of the text of any Debenture may be set forth on the reverse
thereof, with an appropriate reference thereto on the face of the Debenture.
The definitive Debentures shall be printed, lithographed or engraved or
produced by any combination of these methods on steel engraved borders or
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in such other manner as the Company may deem appropriate, all as determined by
the officers executing such Debentures, as evidenced by their execution of such
Debentures.
Section 2.02. Title and Terms. The aggregate principal amount of
Debentures which may be authenticated and delivered under this Indenture is
limited to $6,000,000, except for Debentures authenticated and delivered upon
transfer of, or in exchange for, or in lieu of other Debentures pursuant to
Sections 2.05, 2.06, 2.07, 3.03 and 7.05.
The Debentures shall be known and designated as the % Subordinated
Debentures, Series 1996, Due June 30, 2002 of the Company. The Debentures
shall bear interest from the date and at the rate per annum specified in, and
such interest shall be payable on the dates specified in, the form of Debenture
set forth in Exhibit A until the principal thereof is paid or made available
for payment.
All interest payments to be made to registered holders of Debentures shall
be paid directly by the Company to the Trustee, and the Trustee shall mail
these interest payments to the Debentureholders that are listed in the
Debenture Register by the Interest Payment Date. The principal of the
Debenture shall be payable at the office or agency of the Trustee ("Place of
Payment") maintained for such purposes in Newark, New Jersey or in such other
office or agency as may be established by the Company pursuant to Section 8.04.
The Debentures shall not be redeemable prior to their Stated Maturity
except as provided in Article Three. The Debentures shall be subordinated in
right of payment to certain other Indebtedness of the Company as provided in
Article Nine.
Section 2.03. Denominations. The Debentures shall be issuable only in
fully registered form, without coupons, and in denominations of $1,000 and
integral multiples thereof.
Section 2.04. Execution, Authentication and Delivery and Dating. The
Debentures shall be executed on behalf of the Company by its Chairman of the
Board, its President or one of its Executive Vice Presidents, Senior Vice
Presidents or Vice Presidents under its corporate seal reproduced thereon and
attested by its Secretary or one of its Assistant Secretaries. The signature
of any of these officers on the Debentures may be manual or facsimile.
Debentures bearing the manual or facsimile signatures of individuals who were
at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Debentures or did not
hold such offices at the date of such Debentures.
The Debentures shall be dated the date of their authentication. At any
time and from time to time after execution and delivery of this Indenture, the
Company may deliver Debentures executed by the Company to the Trustee, together
with a Company Order for the authentication and delivery of such Debentures;
and the Trustee in accordance with such Company Order shall authenticate and
deliver such Debentures as in this Indenture provided, and not otherwise.
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No Debenture shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Debenture a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature of one of its Authorized Officers,
and such certificate upon any Debenture shall be conclusive evidence, and the
only evidence, that such Debenture has been duly authenticated and delivered
hereunder.
The Trustee may appoint an authenticating agent reasonably acceptable to
the Company to authenticate Debentures. Unless limited by the terms of such
appointment, an authenticating agent may authenticate Debentures whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent.
Section 2.05. Temporary Debentures. Pending the preparation of definitive
Debentures, the Company may execute and upon Company Order the Trustee shall
authenticate and deliver, temporary Debentures which are printed, lithographed,
typewritten, mimeographed or otherwise produced in any denomination,
substantially of the tenor of the definitive Debentures in lieu of which they
are issued and with such appropriate insertions, omissions, substitutions and
other variations as the officers executing such Debentures may determine, as
evidenced by their execution of such Debentures.
If temporary Debentures are issued, the Company will cause definitive
Debentures to be prepared without unreasonable delay. After the preparation of
definitive Debentures, the temporary Debentures shall be exchangeable for
definitive Debentures upon surrender of the temporary Debentures at the office
or agency of the Company in a Place of Payment, without charge to the Holder.
Upon surrender for cancellation of any one or more temporary Debentures the
Company shall execute and the Trustee shall authenticate and deliver in
exchange therefor a like principal amount of definitive Debentures of
authorized denominations. Until so exchanged the temporary Debentures shall in
all respects be entitled to the same benefits under this Indenture as
definitive Debentures.
Section 2.06. Registration, Transfer and Exchange. The Company shall
cause to be kept at the principal corporate trust office of the Trustee (or at
any other office or agency maintained by the Company as a Place of Payment) a
register (herein sometimes referred to as the "Debenture Register") in which,
subject to such reasonable regulations as it or the Trustee may prescribe, the
Company shall provide for the registration of Debentures and of transfers of
Debentures. The Trustee is hereby initially appointed "Debenture Registrar"
for the purpose of registering Debentures and transfers of Debentures as herein
provided.
A Debentureholder may surrender any Debenture for transfer at the office
or agency of the Company in a Place of Payment. The Company shall execute, and
the Trustee shall authenticate and deliver, in the name of the designated
transferee or transferees, one or more new Debentures of any authorized
denominations, of a like aggregate principal amount. At the option of the
Holder, Debentures may be exchanged for other Debentures of any authorized
denominations, of a like aggregate principal amount, upon surrender of the
Debentures to be exchanged at such office or agency. Whenever any Debentures
are so surrendered for exchange, the Company shall execute, and the
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Trustee shall authenticate and deliver, the Debentures which the Debenture-
holder making the exchange is entitled to receive. All Debentures issued upon
any transfer or exchange of Debentures shall be the valid obligations of the
Company if its requirements for such transactions are met, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Debentures
surrendered upon such transfer or exchange.
Every Debenture presented or surrendered for transfer or exchange by a
Person shall, if so required by the Company or the Trustee, be duly endorsed or
be accompanied by a written instrument of transfer in form satisfactory to the
Company and the Debenture Registrar, duly executed by the Holder thereof or his
attorney duly authorized in writing.
No service charge shall be made for any transfer or exchange of
Debentures, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in connection with any
transfer or exchange of Debentures, other than exchanges pursuant to Sections
2.05, 3.02 or 7.05 not involving any transfer.
Section 2.07. Mutilated, Destroyed, Lost and Stolen Debentures. If (i)
any mutilated Debenture is surrendered to the Trustee, or the Company and the
Trustee received evidence to their satisfaction of the destruction, loss or
theft of any Debenture, and (ii) there is delivered to the Company and the
Trustee such security or indemnity as may be required by them to save each of
them harmless, then, in the absence of notice to the Company or the Trustee
that such Debenture has been acquired by a bona fide purchaser, the Company
shall execute and upon its request the Trustee shall authenticate and deliver,
in exchange for or in lieu of any such mutilated, destroyed, lost or stolen
Debenture, a new Debenture of like tenor and principal amount, bearing a number
not contemporaneously outstanding. In case any such mutilated, destroyed, lost
or stolen Debenture has become or is about to become due and payable, the
Company in its discretion may, instead of issuing a new Debenture, pay such
Debenture.
Upon issuance of any new Debenture under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses,
including the fees and expenses of the Trustee, connected therewith.
Every new Debenture issued pursuant to this Section in lieu of any
destroyed, lost or stolen Debentures shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Debenture shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Debentures duly issued hereunder. The provisions of this
Section are exclusive and shall preclude, to the extent lawful, all other
rights and remedies with respect to the replacement or payment of mutilated,
destroyed, lost or stolen Debentures.
Section 2.08. Payment of Interest; Interest Rights Preserved. Interest on
any Debenture which is payable, and is punctually paid or duly provided for, on
any Interest Payment Date shall be paid to the Person in whose name that
Debenture (or one or more Predecessor Debentures) is registered at the close of
business on the Regular Record Date for such interest payment specified in this
Section 2.08.
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Any interest on the Debenture which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date shall accrue at a rate per
annum that is equal to one percent (1%) per annum plus the interest rate stated
in the Debenture until the same is paid in full (herein called "Defaulted
Interest"). The Defaulted Interest shall forthwith cease to be payable to the
registered Holder on the relevant Regular Record Date by virtue of having been
such Holder; and, except as hereinafter provided, such Defaulted Interest may
be paid by the Company, at its election in each case, as provided in Clause (1)
or Clause (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Debentures (or their
respective Predecessor Debentures) are registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company
shall notify the Trustee in writing of the amount of Defaulted
Interest proposed to be paid on each Debenture and the date of the
proposed payment, and at the same time the Company shall deposit with
the Trustee an amount of money equal to the aggregate amount proposed
to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the
date of the proposed payment, such money when deposited to be held in
trust for the benefit of the Persons entitled to such Defaulted
Interest as in this Clause provided. Thereupon the Trustee shall fix
a Special Record Date for the payment of such Defaulted Interest which
shall be not more than 15 nor less than ten days prior to the date of
the proposed payment and not less than ten days after the receipt by
the Trustee of the notice of the proposed payment. The Trustee shall
promptly notify the Company of such Special Record Date and, in the
name and at the expense of the Company, shall cause notice of the
proposed payment of such Defaulted Interest and the Special Record
Date therefor to be mailed, first class postage prepaid, to each
Debentureholder at the address as it appears in the Debenture
Register, not less than ten days prior to such Special Record Date.
Notice of proposed payment of such Defaulted Interest and the Special
Record Date therefor having been mailed as aforesaid, such Defaulted
Interest shall be paid to the Persons in whose names the Debentures
(or their respective Predecessor Debentures) are registered on such
Special Record Date and shall no longer be payable pursuant to the
following Clause (2).
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Debentures may be listed, and upon
such notice as may be required by such exchange, if, after notice
given by the Company to the Trustee of the proposed payment pursuant
to this Clause, such payment shall be deemed practicable by the
Trustee.
Subject to the foregoing provisions of this Section, each Debenture
delivered under this Indenture upon transfer of or in exchange for or in lieu
of any other Debenture shall carry the rights to interest accrued and unpaid,
and to accrue interest, which were carried by such other Debenture. The
Regular Record Date referred to in this Section for the payment of interest
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payable, and punctually paid or duly provided for, on any Interest Payment Date
shall be the close of business on the first day of the calendar month in which
falls an Interest Payment Date.
The Company shall maintain an office or agency where Debentures may be
presented for payment (the "Paying Agent"), and the Company may have one or
more additional paying agents. The Company shall notify the Trustee of the
name and address of any such additional Paying Agent. The Company hereby
initially appoints the Trustee as Paying Agent.
All payments of interest on the Debentures to the Persons entitled
thereto, whether made by the Company, the Trustee or any Paying Agent, as
authorized pursuant to this Indenture, shall be made (subject to collection) by
check mailed to the address of the Person entitled thereto, as such address
shall appear on the Debenture Register, unless the Trustee determines such
method of payment to be inappropriate in the circumstances.
Section 2.09. Persons Deemed Owners. The Company, the Trustee and any
agent of the Company or the Trustee may treat the Person in whose name any
Debenture is registered as the owner of such Debenture for the purpose of
receiving payment of principal of, and (subject to Section 2.08) interest on,
such Debenture and for all other purposes whatsoever, whether or not such
Debenture is overdue, and neither the Company, the Trustee, nor any agent of
the Company or the Trustee shall be affected by notice to the contrary.
Section 2.10. Cancellation. All Debentures surrendered for payment,
redemption, transfer or exchange shall, if surrendered to any Person other than
the Trustee, be delivered to the Trustee and, if not already cancelled, shall
be promptly cancelled by it. The Company may at any time deliver to the Trustee
for cancellation any Debentures previously authenticated and delivered
hereunder which the Company may have acquired in any manner whatsoever, and all
Debentures so delivered shall be promptly cancelled by the Trustee. No
Debentures shall be authenticated in lieu of or in exchange for any Debentures
cancelled as provided in this Section, except as expressly permitted by this
Indenture. All cancelled Debentures held by the Trustee shall be disposed of
as directed by a Company Order.
Section 2.11. Authentication and Delivery of Original Issue. Forthwith
upon the execution and delivery of this Indenture, or from time to time
thereafter, Debentures up to the aggregate principal amount of $6,000,000 may
be executed by the Company and delivered to the Trustee for authentication, and
shall thereupon be authenticated and delivered by the Trustee upon Company
Order, without any further action by the Company.
Section 2.12. Computation of Interest. Interest on the Debentures shall
be computed on the basis of a 360-day year of twelve 30-day months.
ARTICLE THREE
Redemption
Section 3.01. Optional Redemption. (a) The Company may redeem all of the
Debentures at any time on or after July 1, 1998, or some of them from time to
time on or after July 1, 1998, at the redemption prices (expressed in
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percentages of the principal amount to be redeemed) set forth in Exhibit A to
this Indenture, plus accrued interest to the redemption date. If the Company
elects to redeem the Debentures in whole or in part, it shall notify the
Trustee of the desired redemption date and the principal amount of Debentures
to be redeemed. If less than all of the Debentures are to be redeemed, the
Trustee shall select the Debentures to be redeemed either pro-rata or by lot,
as the Trustee in its sole discretion shall choose. Debentures shall be
redeemed only in denominations of $1,000 or integral multiples thereof.
(b) At least 30 days but not more than 60 days prior to a redemption date
the Company shall mail, or shall cause the Trustee to mail, a notice of
redemption by first-class mail to each Holder of Debentures to be redeemed.
The notice shall identify the Debentures to be redeemed and shall state (1) the
redemption date and redemption price, (2) the name and address of the Paying
Agent, (3) in the event that a Debenture is to be redeemed in part only, the
portion of the principal amount thereof to be redeemed, and that on and after
the redemption date, upon surrender of the Debenture a new Debenture, equal in
principal amount to the unredeemed portion thereof, will be issued, (4) that
Debentures called for redemption must be surrendered to the Paying Agent to
collect the redemption price and (5) that interest on the Debentures to be
redeemed ceases to accrue on and after the redemption date.
Section 3.02. Mandatory Redemption. (a) On each March 31, commencing with
March 31, 1998 (each a "Mandatory Redemption Date"), upon request for
redemption as provided herein, the Company shall redeem up to $25,000 principal
amount of Debentures held by a Holder, or on behalf of a deceased Holder, but
not more than $100,000 in the aggregate for all Holders in any calendar year,
in integral multiples of $1,000 in excess of the minimum authorized
denomination, as requested in the manner and subject to the limitations, set
forth below. The redemption price for Debentures to be redeemed pursuant to
this Section will be 100% of the principal amount thereof for Debentures to be
redeemed on behalf of a deceased Holder, and shall be 95% of the principal
amount thereof in the case of all other Holders, together with accrued interest
thereon through the Mandatory Redemption Date. Any request for redemption must
be received on or before December 31 of each calendar year and shall be made to
the Trustee. The Trustee shall promptly forward a copy thereof to the Company
within five (5) days of receipt, and await further direction from the Company
concerning the redemption request.
A request for redemption under this Section shall contain (1) a written
request for redemption of the Debentures signed by a Holder or by the duly
authorized representative of the Holder, which request shall set forth the name
of any Holder or deceased Holder, the date of death of any deceased Holder, and
the principal amount of the Debentures to be repaid up to $25,000, (2) the
Debenture or Debentures to be redeemed and (3) evidence of the death of any
deceased Holder and the authority of his or her representative.
In applying the annual aggregate redemption limit of $100,000 which is set
forth above, the Company and the Trustee shall give priority to the redemption
of Debentures as follows: (i) first, to requests for redemption received prior
to each December 31 on behalf of deceased Debentureholders by the Trustee, on a
pro rata basis, and (ii) second, to all other Holders of the Debentures, on a
pro rata basis.
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(b) Debentures shall not be entitled to redemption pursuant to this
Section unless all of the following conditions are met, as applicable:
(1) the Debentures to be redeemed have been registered on the
Debenture Register in the name of the Holder or the deceased Holder at
least six months prior to the date of the request for redemption; and
(2) the Trustee has been notified in writing of the request for
redemption within one year after a deceased Holder's death; and
(3) the Company is not, or, after giving effect to such payment
would not be, in default under any Senior Indebtedness.
(c) Following the request of a Holder or a deceased Holder's authorized
representative to redeem particular Debentures, the Company shall have 30 days
in which to determine whether the redemption request has been duly made and
whether the conditions to redemption set forth in this Section 3.02 have been
met, before becoming obligated to redeem the Debentures in accordance with
Section 3.03.
(d) After receiving an initial redemption payment, a Holder or a deceased
Holder's authorized representative annually may request additional redemption
of Debentures originally held by the deceased Holder in the principal amount of
up to $25,000 each year, subject to the further limitation that Holders other
than those representing a deceased Holder may not have more than $50,000
principal amount of Debentures redeemed in the aggregate. Such additional
redemption requests shall be made prior to the December 31 preceding a
Mandatory Redemption Date, and will be honored by the Company in accordance
with Section 3.03 on the next March 31 thereafter, if all of the conditions in
this Section 3.02 have been met.
(e) Authorized representatives of a Holder shall include the following:
executors, administrators, or other legal representatives of an estate;
trustees of a trust; joint owners of Debentures owned in joint tenancy or
tenancy by the entirety; custodians; conservators; guardians;
attorneys-in-fact; and other persons generally recognized as having legal
authority to act on behalf of another.
(f) For purposes of this Section 3.02, the death of a Person owning a
Debenture in joint tenancy or tenancy by the entirety with another or others
shall be deemed the death of the Holder of the Debenture, and the entire
principal amount of the Debenture so held shall be subject to repayment,
together with interest accrued thereon to the repayment date, subject to the
limitations and in accordance with the provisions of this Section 3.02 and
Section 3.03. For purposes of this Section 3.02, the death of a Person owning
a Debenture by tenancy in common shall be deemed the death of a Holder of a
Debenture only with respect to the deceased Holder's interest in the Debenture
so held by tenancy in common; except that in the event a Debenture is held by
husband and wife as tenants in common, the death of either shall be deemed the
death of the Holder of the Debenture, and the entire principal amount of the
Debenture so held shall be subject to repayment in accordance with the
provisions of this Section 3.02. A Person who, during such Person's lifetime,
was entitled to substantially all of the beneficial interests of ownership of
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a Debenture will, upon such person's death, be deemed the Holder thereof for
purposes of this Section 3.02, regardless of the registered holder, if such
beneficial interest can be established to the satisfaction of the Company. Such
beneficial interest will be deemed to exist in typical cases of nominee
ownership, ownership under the Uniform Gifts to Minors Act, community property
or other joint ownership arrangements between a husband and wife, and trust
arrangements where one Person has substantially all of the beneficial ownership
interests in the Debenture during such Person's lifetime. Beneficial interests
shall include the power to sell, transfer, or otherwise dispose of a Debenture
and the right to receive the proceeds therefrom, as well as interest and
principal payable with respect thereto.
Section 3.03. Redemption of Debentures. Within 30 days of the date a
request for redemption pursuant to Section 3.02 is first received, the Company
shall: (a) examine evidence of the death of any deceased Holder and the
authority of the deceased Holder's representative, and otherwise determine if
the request for redemption has been duly made in accordance with Section 3.02;
and (b) determine if the conditions to repayment set forth in Section 3.02 have
been met. If the Company shall determine that redemption may not be made in
accordance with Section 3.02, the Company shall direct the Trustee to so inform
the Holder or the deceased Holder's authorized representative and to return the
Debenture or Debentures to him. If the Company shall determine that the
request for redemption has been properly made and that all conditions to
redemption set forth in Section 3.02 have been met, the Company immediately
shall notify the Trustee in writing stating the amount of Debentures to be
redeemed, the redemption price and that the Debenture or Debentures will be
redeemed on the next March 31 thereafter, and the Company and the Trustee shall
cause the Debenture or Debentures to be redeemed as follows:
(1) At least 15 days before the Mandatory Redemption Date, the Trustee, in
the Company's name and at the Company's expense, shall mail a notice of
redemption by first class mail to each Holder whose Debentures are to be
redeemed. The notice shall state the amount of such Debentures to be redeemed,
the redemption price, and, if only a portion of a principal amount of any
Debenture is to be redeemed, after the Mandatory Redemption Date that a new
Debenture or Debentures in principal amount equal to the unredeemed portion
thereof will be issued.
(2) The Company shall deposit with the Trustee or with a Paying Agent or,
if the Company is acting as its own Paying Agent, segregate and hold in trust
as provided in Section 8.04, an amount of money sufficient to pay the
redemption price for all Debentures which are to be redeemed, together with
interest accrued thereon to the Mandatory Redemption Date, exclusive of
installments of interest whose stated maturity is on or prior to the Mandatory
Redemption Date, payment of which shall have been made or duly provided for to
the registered holders of the Debentures on the relevant Record Dates according
to their terms and the provisions of Section 2.08. The Debentures so to be
redeemed shall become due and payable on the Mandatory Redemption Date with
respect to each such Debenture at the amount to be repaid as provided above and
from and after the Mandatory Redemption Date. Such Debentures shall cease to
bear interest unless the Company shall default in such repayment.
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(3) Immediately upon deposit with the Trustee or with a Paying Agent or,
if the Company is acting as its own Paying Agent, upon segregation and holding
in trust, of the amounts as provided above with respect to each Debenture or
portion thereof, the Company shall cause such Debenture or portion thereof to
be redeemed. Installments of interest whose stated maturity is on or prior to
the Mandatory Redemption Date shall be payable to the holders of such
Debentures registered as such on the relevant Record Dates according to their
terms and the provisions of Section 2.08.
(4) If any Debenture duly requested to be repaid shall not be redeemed in
full upon the Mandatory Redemption Date, the remaining unpaid principal thereof
shall, until paid, bear interest from the Mandatory Redemption Date at the rate
borne by the Debenture.
Section 3.04. Debentures Redeemed in Part. The Company shall execute and
the Trustee shall authenticate and deliver, with respect to any Debenture
surrendered pursuant to Sections 3.01 or 3.02 and to be redeemed only in part,
to the Holder of such Debenture, without service charge, a new Debenture or
Debentures, of like series and of any authorized denomination as requested by
such Holder, in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the Debenture so surrendered and
redeemed in part. Notwithstanding any provision to the contrary in this
Section 3.04, if the unredeemed portion is less than the smallest authorized
denomination, the Company shall be obligated to pay the Holder such amount in
cash in the same manner as the redeemed portion. If required by the Company or
the Trustee, such Debenture so surrendered shall be duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or such Holder's
attorney duly authorized in writing.
ARTICLE FOUR
Satisfaction and Discharge
Section 4.01. Satisfaction and Discharge of Indenture. This Indenture
shall cease to be of further effect (except as to any surviving rights of
transfer or exchange of Debentures herein expressly provided for), and the
Trustee, on demand of and at the expense of the Company, shall execute the
proper instrument acknowledging satisfaction and discharge of this Indenture
when
(1) either (A) all Debentures theretofore authenticated and delivered,
other than (i) Debentures which have been destroyed, lost or stolen
and which have been replaced or paid as provided in Section 2.07, and
(ii) Debentures for whose payment money has theretofore been deposited
in trust or segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust, as provided in
Section 8.05, have been delivered to the Trustee cancelled or for
cancellation; or (B) all such Debentures not theretofore delivered to
the Trustee cancelled or for cancellation have become due and payable,
or will become due and payable at their Stated Maturity within one
year and the Company has deposited or caused to be deposited with the
Trustee in trust an amount sufficient
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to pay and discharge the entire indebtedness on such Debentures not
theretofore delivered to the Trustee cancelled or for cancellation,
for principal and interest to the Stated Maturity; and
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel each stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 6.07 shall survive.
Section 4.02. Application of Trust Money. All money deposited with the
Trustee pursuant to Section 4.01 shall be held in trust and applied by it, in
accordance with the provisions of the Debentures and this Indenture, to the
payment, either directly or through any Paying Agent (including the Company
acting as its own Paying Agent), to the Persons entitled thereto, of the
principal and interest for whose payment such money has been deposited with the
Trustee; but such money need not be segregated from other funds except to the
extent required by law.
ARTICLE FIVE
Remedies
Section 5.01. Events of Default. "Event of Default," wherever used
herein, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be
effected by operation of law pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body):
(1) default in the payment of the principal of any Debenture at its
Maturity, upon redemption, whether or not such default is due to the
application of any provision of Article Nine hereof; or
(2) default in the payment of any interest upon any Debenture when it
becomes due and payable, and continuance of such default for a period
of 10 days after there has been given, by registered or certified
mail, to the Company by the Trustee, a written notice specifying such
default or breach and requiring it to be remedied and stating that
such notice is a "Notice of Default" hereunder, whether or not such
default is due to the application of any provision of Article Nine
hereof; or
(3) default by the Company of any other covenant or warranty of the
Company in this Indenture and continuance of such default or breach
for a period of 30 days after there has been given, by registered or
certified mail, to the Company by the Trustee, or to the Company and
the Trustee by the Holders of at least 10% in principal amount of the
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Outstanding Debentures, a written notice specifying such default or
breach and requiring it to be remedied and stating that such notice is
a "Notice of Default" hereunder; or
(4) default by the Company or any of its Subsidiaries in the payment
at stated maturity of any Indebtedness for money borrowed (which shall
not include, among other things, deposits, capitalized lease
obligations, or advances for escrow accounts) with a principal amount
due at maturity of $500,000 or more and such default shall continue,
without having been satisfied, cured, waived or consented to, beyond
any applicable period of grace; or the occurrence of an event of
default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company, MCA Mortgage or MCA
(or the payment of which is guaranteed by the Company, MCA Mortgage or
MCA), whether such Indebtedness or guarantee now exists or shall be
created hereafter; provided, however, that no such event of default
shall constitute an Event of Default hereunder unless the effect of
such event of default is to cause the acceleration of such
Indebtedness prior to its expressed maturity, which together with the
principal amount of any such other Indebtedness so caused to be
accelerated, aggregates $500,000 or more at any one point in time and
such default shall not have been cured or waived and such acceleration
shall not have been rescinded or annulled, or such Indebtedness has
been accelerated within a period of 10 days after there shall have
been given, by registered or certified mail, to the Company by the
Trustee, or to the Company and the Trustee by the holders of at least
10% in principal amount of the Outstanding Debentures a written notice
specifying such default and requiring the Company to cause such
acceleration to be rescinded or annulled or cause such Indebtedness to
be discharged and stating that such notice is a "Notice of Default";
or
(5) entry of a decree or order by a court having jurisdiction in the
premises adjudging the Company or any of its Subsidiaries insolvent,
or approving as properly filed an involuntary petition seeking
reorganization, readjustment, arrangement, composition or similar
relief for the Company or any of its Subsidiaries under the federal
bankruptcy laws, or any other similar applicable law of any
governmental unit, domestic or foreign, and such decree or order shall
have continued undischarged or unstayed for a period of 60 days; or a
decree or order or other decision of a court or agency or supervisory
authority having jurisdiction in the premises for the appointment of
any Person to act as a receiver or conservator or liquidator or
trustee or assignee in bankruptcy or insolvency of the Company or any
of its Subsidiaries or of a substantial part of the property of any of
them, or for the involuntary winding down or liquidation of their
respective affairs, shall have been entered and such decree or order
shall have remained in force undischarged and unstayed for a period of
60 days; or, under the provisions of any insolvency, bankruptcy, or
other law for the relief or aid of creditors or depositors, any court,
or agency or supervisory authority having jurisdiction in the premises
shall assume custody or control of the Company or any of its
Subsidiaries or of a substantial
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part of the property of any of them, and such custody and control
shall not be terminated or stayed within 60 days from the date of
assumption of such custody or control; or
(6) institution of proceedings by the Company or any of its
Subsidiaries to be adjudicated insolvent, or the consent to the filing
of an insolvency proceeding against either of them, or filing of a
petition or answer or consent seeking reorganization, readjustment,
arrangement, composition, appointment of a receiver or conservator or
similar relief under the federal insolvency laws, or any other similar
applicable law of any governmental unit, domestic or foreign, or the
consent to the filing of any such petition or the consent to the
appointment of a receiver or conservator or liquidator or trustee or
assignee in insolvency of either of them or of a substantial part of
the property of either of them, or making of an assignment for the
benefit of creditors, or admitting in writing an inability to pay its
respective debts generally as they become due, or voluntarily
suspending transaction of its respective business (other than in
connection with a labor dispute), or any corporate action taken by the
Company or any of its Subsidiaries in furtherance of any of the
aforesaid purposes.
Section 5.02. Acceleration of Maturity; Rescission and Annulment. If an
Event of Default occurs and is continuing, then and in every such case the
Trustee or the Holders of not less than 25% in principal amount of the
Debentures Outstanding may declare the principal of all the Debentures to be
due and payable immediately, by a notice in writing to the Company, and to the
Trustee if given by Debentureholders, and upon any such declaration such
principal shall become immediately due and payable.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of a majority
in principal amount of the Debentures Outstanding, by written notice to the
Company and the Trustee, may rescind and annul such declaration and its
consequences if -
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay (A) all overdue installments of interest on all
Debentures, (B) the principal of any Debentures which have become due
otherwise than by such declaration of acceleration and interest
thereon at the rate borne by the Debentures, (C) to the extent that
payment of such interest is lawful, interest upon overdue installments
of interest at the rate borne by the Debentures, and (D) all sums paid
or advanced by the Trustee hereunder and the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and
counsel; and
(2) all Events of Default, other than the non-payment of the
principal of Debentures which have become due solely by such
acceleration, have been cured or waived as provided in Section 5.12.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
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Section 5.03. Collection of Indebtedness and Suits for Enforcement by
Trustee. The Company covenants that if
(1) default is made in the payment of the principal of any
Debenture at the Maturity thereof, or
(2) default is made in the payment of any installment of interest
on any Debenture when such interest becomes due and payable and such
default continues for a period of 10 days,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Debentures, the whole amount then due and payable on such
Debentures for principal and interest, with interest upon the overdue principal
and, to the extent that payment of such interest shall be legally enforceable,
upon overdue installments of interest, at the rate borne by the Debentures;
and, in addition thereto, such further amount as shall be sufficient to cover
the costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amount forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may and at the
written request of holders of a majority in aggregate principal amount of the
Debentures outstanding and upon being indemnified to its satisfaction, shall,
institute a judicial proceeding for the collection of the sums so due and
unpaid, and may prosecute such proceeding to judgment or final decree, and may
enforce the same against the Company or any other obligor upon the Debentures
and collect the moneys adjudged or decreed to be payable in the manner provided
by law out of the property of the Company or any other obligor upon the
Debentures, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may and at
the written request of holders of a majority in aggregate principal amount of
the Debentures outstanding and upon being indemnified to its satisfaction,
shall, in its discretion proceed to protect and enforce its rights and the
rights of the Debentureholders by such appropriate judicial proceedings as the
Trustee shall deem most effectual to protect and enforce any such rights,
whether for the specific enforcement of any covenant or agreement in this
Indenture or in aid of the exercise of any power granted herein, or to enforce
any other proper remedy.
Section 5.04. Trustee May File Proofs of Claim. In case of the pendency
of any receivership, conservatorship, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial
proceeding relating to the Company or its properties, irrespective of whether
the principal of the Debentures shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of whether the
Trustee shall have made any demand on the Company for the payment of overdue
principal or interest, the Trustee shall be entitled and empowered, by
intervention in such proceeding or otherwise,
(1) to file and prove a claim for the whole amount of principal
and interest owing and unpaid in respect of the Debentures and to file
such other papers or documents as may be necessary or advisable
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in order to have the claims of the Trustee, including any claim for
the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel, and of the Debentureholders
allowed in such judicial proceeding, and
(2) to collect and receive any moneys or other property payable
or deliverable on any such claims and to distribute the same;
and any receiver, assignee, trustee, liquidator, sequestrator, or other similar
official, in any such judicial proceeding is hereby authorized by each
Debentureholder to make such payments to the Trustee, and in the event that the
Trustee shall consent to the making of such payments directly to the
Debentureholders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 6.07.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Debentureholder any
plan of reorganization, arrangement, adjustment or composition affecting the
Debentures or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Debentureholder in any such proceeding.
Section 5.05. Trustee May Enforce Claims Without Possession of Debentures.
All rights of action and claims under this Indenture or the Debentures may be
prosecuted and enforced by the Trustee without the possession of any of the
Debentures or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Debentures in respect of which such
judgment has been recovered.
Section 5.06. Application of Money Collected. Any money collected by the
Trustee pursuant to this Article shall be applied in the following order, at
the date or dates fixed by the Trustee and, in case of the distribution of such
money on account of principal or interest, upon presentation of the Debentures
and the notation thereon of the payment if only partially paid and upon
surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section 6.07;
SECOND: In case the principal of the Debentures shall not have become due,
to the payment of interest on the Debentures, in the order of the maturity of
the installments of such interest, with interest, to the extent that such
interest has been collected by the Trustee, upon the overdue installments of
interest at the rate borne by the Debentures, such payments to be made ratably
to the Persons entitled thereto, without discrimination or preference;
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THIRD: In case the principal of the Debentures shall have become due, by
declaration or otherwise, to the payment of the whole amount then owing and
unpaid upon the Debentures for principal and interest, with interest on the
overdue principal and, to the extent that such interest has been collected by
the Trustee, upon overdue installments of interest at the rate borne by the
Debentures; and in case such moneys shall be insufficient to pay in full the
whole amount so due and unpaid upon the Debentures, then to the payment of such
principal and interest, without preference of priority of principal over
interest, or of interest over principal, or of any installment of interest over
any other installment of interest, or of any Debenture over any other
Debenture, ratably to the aggregate of such principal and accrued and unpaid
interest; and
FOURTH: The remainder, if any, shall be paid to the Company, its
successors or assigns, or to whomsoever may be lawfully entitled to receive the
same, or as a court of competent jurisdiction may direct.
Section 5.07. Limitation on Suits. No Holder of any Debenture shall have
any right to institute any proceeding, judicial or otherwise, with respect to
this Indenture, or for the appointment of a receiver or trustee, or for any
other remedy hereunder, unless
(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(2) the Holders of not less than 25% in aggregate principal
amount of the Outstanding Debentures shall have made a written request
to the Trustee to institute proceedings in respect of such Event of
Default in its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred
in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a
majority in principal amount of the Outstanding Debentures;
it being understood and intended that no one or more Holders of Debentures
shall have any right in any manner whatever by virtue of, or by availing of,
any provision of this Indenture to affect, disturb or prejudice the rights of
any other Holders of Debentures, or to obtain or to seek to obtain priority or
preference over any other Holders or to enforce any right under this Indenture,
except in the manner herein provided and for the equal and ratable benefit of
all the Holders of Debentures.
Section 5.08. Right of Debentureholders to Receive Principal and Interest.
Notwithstanding any other provision in this Indenture, the Holder of any
Debenture shall have the right to receive payment of the principal of and,
subject to Section 2.08, interest on such Debenture on the respective
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Stated Maturities expressed in such Debenture and to institute suit for the
enforcement of any such payment, and such right shall not be impaired without
the consent of such Holder.
Section 5.09. Restoration of Rights and Remedies. If the Trustee or any
Debentureholder has instituted any proceeding to enforce any right or remedy
under this Indenture and such proceeding has been discontinued or abandoned for
any reason, or has been determined adversely to the Trustee or to such
Debentureholder, then and in every such case the Company, the Trustee and the
Debentureholders shall, subject to any determination in such proceeding, be
restored severally and respectively to their former positions hereunder, and
thereafter all rights and remedies of the Trustee and the Debentureholders
shall continue as though no such proceeding had been instituted.
Section 5.10. Rights and Remedies Cumulative. Except as provided in
Section 2.07, no right or remedy herein conferred upon or reserved to the
Trustee or to the Debentureholders is intended to be exclusive of any other
right or remedy, and every right and remedy shall, to the extent permitted by
law, be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy.
Section 5.11. Delay or Omission Not Waiver. No delay or omission of the
Trustee or of any Holder of any Debenture to exercise any right or remedy
accruing upon any Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or in acquiescence therein.
Every right and remedy given by this Article or by law to the Trustee or to the
Debentureholders may be exercised from time to time, and as often as may be
deemed expedient, by the Trustee or by the Debentureholders, as the case may
be.
Section 5.12. Rights of Holders to Direct Trustee and to Waive Defaults.
The holders of a majority in aggregate principal amount of the Debentures at
the time Outstanding or, if a record date is set in accordance with Section
1.07, as of such record date, shall have the right to direct the time, method,
and place of conducting any proceeding for any remedy available to the Trustee,
or exercising any trust or power conferred on the Trustee; provided, however,
that subject to the provisions of Section 6.01, the Trustee shall have the
right to decline to follow any such direction if the Trustee being advised by
counsel shall determine that such action may not lawfully be taken, or if the
Trustee in good faith shall, by a responsible officer or officers of the
Trustee, determine that the proceedings so directed would be illegal or involve
it in personal liability or be unjustly prejudicial to the Debentureholders not
consenting, and provided further that nothing in this Indenture shall impair
the right of the Trustee in its discretion to take any action deemed proper by
the Trustee and which is not inconsistent with such direction by the
Debentureholders. Prior to the declaration of the maturity of the Debentures
as provided in Section 5.02, the Holders of a majority in aggregate principal
amount of the Debentures at the time Outstanding may on behalf of all Holders
waive any past default hereunder and its consequences, except a default in the
payment of interest or premium on, or the principal
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of, any of the Debentures. In the case of any such waiver the Company, the
Trustee and the Holders shall be restored to their former positions and rights
thereunder, respectively; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
Section 5.13. Undertaking for Costs. All parties to this Indenture agree,
and each Holder of any Debenture by his acceptance thereof shall be deemed to
have agreed, that any court may in its discretion require, in any suit for the
enforcement of any right or remedy under this Indenture, or in any suit against
the Trustee for any action taken or omitted by it as Trustee, the filing by any
party litigant in such suit of an undertaking to pay the costs of such suit,
and that such court may in its discretion assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in such suit, having due
regard to the merits and good faith of the claims or defenses made by such
party litigant; but the provisions of this Section shall not apply to any suit
instituted by the Trustee, to any suit instituted by any Debentureholder, or
group of Debentureholders, holding in the aggregate more than 10% in principal
amount of the Outstanding Debentures, or to any suit instituted by a
Debentureholder for the enforcement of the payment of the principal of or
interest on any Debenture.
ARTICLE SIX
The Trustee
Section 6.01. Certain Duties and Responsibilities.
(a) In connection with this Indenture,
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
of this Indenture; but in the case of any such certificates or
opinions which by any provision hereof are specifically required to be
furnished to the Trustee, the Trustee shall be under a duty to examine
the same to determine whether or not they conform to the requirements
of this Indenture.
(b) In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent individual would exercise or use under the circumstances in the conduct
of his or her own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own grossly negligent action, its own grossly
negligent failure to act, or its own willful misconduct, except that
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(1) this Subsection shall not be construed to limit the effect of
Subsection (a) of this Section;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it shall be proved
that the Responsible Officer was grossly negligent in ascertaining the
pertinent facts;
(3) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with
the direction of the Holders of a majority in principal amount of the
Outstanding Debentures relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee, under this
Indenture; and
(4) no provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to
it.
(d) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of
or affording protection to the Trustee shall be subject to the provisions of
this Section.
Section 6.02. Notice of Defaults. Within 90 days after the Trustee has
actual knowledge of the occurrence of an Event of Default, the Trustee shall
transmit by mail to all Debentureholders, as their names and addresses appear
in the Debenture Register, notice of such Event of Default known to the
Trustee, unless such Event of Default shall have been cured or waived;
provided, however, that, except in the case of an Event of Default relating to
the payment of the principal of or interest on any Debenture, the Trustee shall
be protected in withholding such notice if and so long as the board of
directors, the executive committee or a trust committee of directors and/or
Responsible Officers of the Trustee in good faith determine that the
withholding of such notice is in the interests of the Debentureholders; and
provided, further, that in the case of any Event of Default of the character
specified in Section 5.01(4) no such notice to Debentureholders shall be given
until at least 3O days after the occurrence thereof.
Section 6.03. Certain Powers of Trustee. Except as otherwise specifically
provided in Section 6.01:
(a) the Trustee may conclusively rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, Debenture or
other paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall
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be sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a Board
Resolution;
(c) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its
part, conclusively rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel and the advice of such counsel or
any Opinion of Counsel shall be full and complete authorization and protection
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any of
the Debentureholders pursuant to this Indenture, unless such Debentureholders
shall have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance
with such request or direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, Debenture or
other paper or document, but the Trustee, in its discretion, may make such
further inquiry or investigation into such facts or matters as it may see fit,
and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and premises
of the Company, personally or by agent or attorney; and
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder.
Section 6.04. Not Responsible for Recitals or Issuance of Debentures. The
recitals contained herein and in the Debentures and any other statements
provided by the Company in connection with the issuance of the Debentures,
except the Trustee's written statements provided to the Company and the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Debentures. The Trustee shall not be accountable for the
use or application by the Company of the Debentures or the proceeds thereof.
Section 6.05. May Hold Debentures. The Trustee, any Paying Agent,
Debenture Registrar or any other agent of the Company, in its individual or any
other capacity, may become the owner or pledgee of Debentures and, subject to
Sections 6.07 and 6.12, if operative, may otherwise deal with the Company with
the same rights it would have if it were not Trustee, Paying Agent, Debenture
Registrar or such other agent.
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Section 6.06. Money Held in Trust. Money held by the Trustee in trust
hereunder need not be segregated from other funds except to the extent required
by law. The Trustee shall be under no liability for interest on any money
received by it hereunder except as otherwise agreed with the Company.
Section 6.07. Compensation and Indemnity. The Company agrees:
(1) to pay to the Trustee from time to time reasonable compensation for
all services rendered by it hereunder as may be agreed upon between the Company
and the Trustee (which compensation shall not be limited by any provision of
law in regard to the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision of
this Indenture (including the reasonable compensation and the expenses and
disbursements of its agents, counsel, accountants, appraisers and experts),
except any such expense, disbursement or advance as may be attributable to its
negligence or bad faith; and
(3) to indemnify the Trustee and its officers, directors and employees
(the "Indemnitees") for, and to hold them harmless against, any loss, liability
or expense incurred without gross negligence or bad faith on the part of the
Indemnitees, arising out of or in connection with its acceptance or
administration of this trust, and the Trustee's duties hereunder, including the
costs and expenses of defending the Indemnitees against any claim or liability
in connection with the exercise or performance of any of its powers or duties
hereunder.
Section 6.08. Eligibility; Disqualification. There shall at all times be
a Trustee hereunder which shall be a corporation organized and doing business
under the laws of the United States of America or of any State, authorized
under such laws to exercise corporate trust powers, having a combined capital
and surplus of at least $50,000,000, subject to supervision or examination by
federal or state authority. If such corporation publishes reports of condition
at least annually, pursuant to law or to the requirements of the aforesaid
supervising or examining authority, then for the purpose of this Section, the
combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of
condition so published. If at any time the Trustee shall cease to be eligible
in accordance with the provisions of this Section, it shall resign immediately
in the manner and with the effect hereinafter specified in this Article. The
Trustee shall comply with Section 310(b) of the TIA, in the event that it has a
conflicting interest, as defined in such section. The Trustee confirms that it
has no such conflicting interest on the date of this Indenture.
Section 6.09. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 6.10.
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(b) The Trustee may resign at any time by giving written notice thereof to
the Company. If an instrument of acceptance by a successor Trustee shall not
have been delivered to the Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the Outstanding Debentures, delivered to the
Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with its obligation to
resign, as provided by Section 6.08, after written request therefore
by the Company or any Debentureholder who has been a bona fide Holder
of a Debenture for at least six months, except in the case of a
default in the payment of the principal of or interest on any
indenture security, or in the payment of any sinking or purchase fund
installment, the Trustee shall not be required to resign as provided
in paragraph (1) of this subsection (d) if the Trustee shall have
sustained the burden of proving, on application to the Securities and
Exchange Commission and after opportunity for hearing thereon, that
(A) the default under the Indenture may be cured or waived during a
reasonable period and under the procedures described in such
application, and (B) a stay of the Trustee's duty to resign will not
be inconsistent with the interests of holders of the indenture
securities. The filing of such an application shall automatically
stay the performance of the duty to resign until the Securities and
Exchange Commission orders otherwise, or
(2) the Trustee shall cease to be eligible under Section 6.08 and
shall fail to resign after written request therefor by the Company or
by any such Debentureholder, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver or conservator of the
Trustee or of its property shall be appointed or any public officer
shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or
liquidation,
(4) provided that no Event of Default shall have occurred and is
continuing, the Trustee shall have failed, in the good faith judgment
of the Company's Board of Directors, to adequately perform its duties
hereunder as Trustee and Paying Agent, or
(5) the Trustee has not performed its services in a timely and
professional manner.
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee, or (ii) any Debentureholder who has been a bona fide Holder of a
Debenture for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
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(e) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of
the Holders of a majority in principal amount of the Outstanding Debentures
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment, become the
successor Trustee and supersede the successor Trustee appointed by the Company.
If no successor Trustee shall have been so appointed by the Company or the
Debentureholders and accepted appointment in the manner hereinafter provided,
any Debentureholder who has been a bona fide Holder of a Debenture for at least
six months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
(f) The Company shall give notice of each resignation and each removal of
the Trustee and each appointment of a successor Trustee by mailing written
notice of such event within 30 days of the date thereof by first-class mail,
postage prepaid, to the Holders of Debentures as their names and addresses
appear in the Debenture Register. Each notice shall include the name of the
successor Trustee and the address of its principal corporate trust office.
Section 6.10. Acceptance of Appointment by Successor. Every successor
Trustee appointed hereunder shall execute, acknowledge and deliver to the
Company and to the retiring Trustee an instrument accepting such appointment,
and thereupon the resignation or removal of the retiring Trustee shall become
effective and such successor Trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, trusts and duties
of the retiring Trustee; but, on request of the Company or the successor
Trustee, such retiring Trustee shall, upon payment of its charges, execute and
deliver an instrument transferring to such successor Trustee all the rights,
powers and trusts of the retiring Trustee, and shall duly assign, transfer and
deliver to such successor Trustee all property and money held by such retiring
Trustee hereunder, subject nevertheless to its lien, if any, provided for in
Section 6.07. Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article, to the extent operative.
Section 6.11. Merger, Conversion, Consolidation or Succession to Business.
Any corporation or banking association into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation or banking
association resulting from any merger, conversion or consolidation to which the
Trustee shall be a party, or any corporation succeeding to all or substantially
all of the corporate trust business of the Trustee, shall be the successor of
the Trustee hereunder, provided such corporation or banking association shall
be otherwise qualified and eligible under this Article, to the extent
operative, without the execution or filing of any paper or any further act on
the part of any of the parties hereto.
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Section 6.12. Preferential Collection of Claims Against Company. The
Trustee shall comply with Section 311(a) of the TIA, excluding any relationship
listed in Section 311(b) of the TIA, and a Trustee who has resigned or been
removed shall be subject to Section 311(a) of the TIA to the extent indicated.
Section 6.13. Reports by the Trustee. If required by Section 313(a) of
the TIA, the Trustee shall transmit to each person entitled to receive the same
under Section 313(c) of the TIA, on or before June 15 of each year, commencing
with June 15, 1997, a brief report, dated as of a date convenient to the
Trustee no more than 60 nor less than 45 days prior thereto, that complies with
Section 313(a) of the TIA, and the Trustee shall also comply with Section
313(b) of the TIA. The Company shall notify the Trustee in writing if the
Debentures become listed on any securities exchange, in which event a copy of
each such report at the time of its mailing to the Holders shall be filed with
the Securities and Exchange Commission and each securities exchange, if any, on
which the Debentures are listed. In such event the Company shall notify the
Trustee in writing of any delisting of the Debentures from any securities
exchange.
Section 6.14. Lists of Debentureholders. The Trustee shall preserve in
as current form as is reasonably practicable, the most recent list available to
it of the names and addresses of Debentureholders. If the Trustee is not the
Debenture Registrar, the Company shall furnish to the Trustee on or before each
Interest Payment Date, and at such other times as the Trustee may request in
writing, a list, in such form and as of such date as the Trustee may reasonably
require, of the names and addresses of the Debentureholders. The Trustee may
destroy any list furnished to it upon receipt of a new list so furnished.
ARTICLE SEVEN
Supplemental Indentures
Section 7.01. Supplemental Indentures Without Consent of Debenture-
holders. Without the consent of the Holders of any Debentures, the Company,
when authorized by a Board Resolution, and the Trustee, at any time and from
time to time, may enter into one or more indentures supplemental hereto (which
shall conform to the provisions of the TIA as in force at the date of the
execution thereof, if required), in form satisfactory to the Trustee, for any
of the following purposes:
(1) to evidence the succession of another entity to the Company,
and the assumption by any such successor of the covenants of the
Company herein and in the Debentures; or
(2) to add to the covenants of the Company, for the benefit of
the Holders of the Debentures, or to surrender any right or power
herein conferred upon the Company; or
(3) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, to
modify, amend or supplement this Indenture in such a
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manner as will permit the qualification thereof under the TIA or to
make any other provisions with respect to matters or questions arising
under this Indenture which shall not be inconsistent with the
provisions of this Indenture, provided such action shall not adversely
affect the interests of the Holders of the Debentures.
Section 7.02. Supplemental Indentures With Consent of Debenture-holders.
With the consent of the Holders of at least 50% in principal amount of the
Outstanding Debentures, by Act of said Holders delivered to the Company and the
Trustee, the Company, when authorized by a Board Resolution, and the Trustee
may enter into an indenture or indentures supplemental hereto (which shall
conform to the provisions of the TIA as in force at the date of the execution
thereof, if required) for the purpose of adding any provisions to or changing
in any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders of the Debentures under this
Indenture; provided, however, that no such supplemental indenture shall,
without the consent of the Holder of each Outstanding Debenture affected
thereby,
(1) change the Stated Maturity of the principal of, or any
installment of interest on, any Debenture, or reduce the principal
amount thereof or the interest thereon or change any Place of Payment
where, or the coin or currency in which, any Debenture or the interest
thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity
thereof, or, in the case of redemption pursuant to Sections 3.01 or
3.02, on or after a redemption date, or
(2) reduce the percentage in principal amount of the Outstanding
Debentures, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required
for any waiver of compliance with certain provisions of this Indenture
or certain defaults hereunder and their consequences provided for in
this Indenture, or
(3) modify any of the provisions of this Section or Section 5.12,
except to increase any such percentage or to provide that certain
other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each Debenture affected thereby,
or
(4) subordinate the Indebtedness evidenced by the Debentures to
any Indebtedness of the Company other than Senior Indebtedness, as
provided in Article Nine, or
(5) impair or restrict the rights of the Holders of the
Debentures to repayment of Debentures prior to the Stated Maturity
thereof under the circumstances set forth in, and in accordance with
the provisions of, Section 3.02.
It shall not be necessary for any Act of Debentureholders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
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Section 7.03. Execution of Supplemental Indentures. In executing, or
accepting the additional trusts created by, any supplemental indenture
permitted by this Article or the modifications thereby of the trusts created by
this Indenture, the Trustee shall be entitled to receive, and, subject to
Section 6.01, shall be fully protected in relying upon, an Officer's
Certificate and an Opinion of Counsel. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
Section 7.04. Effect of Supplemental Indentures. Upon the execution of
any supplemental indenture under this Article, this Indenture shall be modified
in accordance therewith, and such supplemental indenture shall form a part of
this Indenture for all purposes; and every Holder of Debentures theretofore or
thereafter authenticated and delivered hereunder shall be bound thereby.
Section 7.05. Reference in Debentures to Supplemental Indentures.
Debentures authenticated and delivered after the execution of any supplemental
indenture pursuant to this Article may, and shall if required by the Trustee,
bear a notation in form approved by the Trustee as to any matter provided for
in such supplemental indenture. If the Company shall so determine, new
Debentures so modified as to conform, in the opinion of the Trustee and the
Board of Directors, to any such supplemental indenture may be prepared and
executed by the Company and authenticated and delivered by the Trustee in
exchange for Outstanding Debentures.
Section 7.06. Effect on Senior Indebtedness. No supplemental indenture
shall adversely affect the rights of any holder of Senior Indebtedness under
Article Nine without the consent of such holder.
ARTICLE EIGHT
Covenants
Section 8.01. Payment of Principal and Interest. The Company will duly
and punctually pay the principal of and interest on the Debentures in
accordance with the terms of the Debentures and this Indenture.
Section 8.02. Maintenance of Office or Agency. The Company will maintain
an office or agency in each Place of Payment where Debentures may be presented
or surrendered for payment, where Debentures may be surrendered for transfer or
exchange and where notices and demands to or upon the Company in respect of the
Debentures and this Indenture may be served. The Company will give prompt
written notice to the Trustee of the location, and of any change in the
location, of such office or agency. If at any time the Company shall fail to
maintain such office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be
made or served at the principal corporate trust office of the Trustee, and the
Company hereby appoints the Trustee its agent to receive all such
presentations, surrenders, notices and demands.
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Section 8.03. Money for Debenture Payments to be Held In Trust. If the
Company shall at any time act as its own Paying Agent, it will, on or before
each due date of the principal of or interest on, any of the Debentures,
segregate and hold in trust for the benefit of the Persons entitled thereto a
sum sufficient to pay the principal or interest so becoming due until such sums
shall be paid to such Persons or otherwise disposed of as herein provided, and
will promptly notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents, it will, prior
to each due date of the principal of or interest on, any Debentures, deposit
with a Paying Agent a sum sufficient to pay the principal or interest, so
becoming due, such sum to be held in trust for the benefit of the Persons
entitled to such principal or interest, and, unless such Paying Agent is the
Trustee, the Company will promptly notify the Trustee of its action or failure
so to act.
The Company will cause each Paying Agent other than the Trustee to execute
and deliver to the Trustee an instrument in which such Paying Agent shall agree
with the Trustee, subject to the provisions of this Section, that such Paying
Agent will
(1) hold all sums held by it for the payment of principal of or
interest on Debentures in trust for the benefit of the Persons
entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company, or any
other obligor upon the Debentures, in the making of any such payment
of principal or interest; and
(3) at any time during the continuance of any such default, upon
the written request of the Trustee, forthwith pay to the Trustee all
sums so held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the satis-
faction and discharge of this Indenture or for any other purpose, pay, or by
Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of or interest on any
Debenture and remaining unclaimed for five years after such principal or
interest has become due and payable shall be paid to the Company on Company
Request, or, if then held by the Company, shall be discharged from such trust;
and the Holder of such Debenture shall thereafter, as an unsecured general
creditor, look only to the Company for payment thereof, and all liability of
the Trustee or such Paying Agent with respect to such trust money, and all
liability of the Company as trustee thereof, shall thereupon cease.
36
<PAGE> 42
Section 8.04. Payment of Taxes and Other Claims. The Company will cause
its Subsidiaries to pay or discharge or cause to be paid or discharged, before
the same shall become delinquent, (1) all taxes, assessments and governmental
charges levied or imposed upon the Company or its Subsidiaries, or upon the
income, profits or property of the Company or its Subsidiaries, and (2) all
lawful claims for labor, materials and supplies which, if unpaid, might by law
become a lien upon the property of the Company or its Subsidiaries; provided,
however, that the Company or its Subsidiaries shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
by appropriate proceedings.
Section 8.05. Company Existence. Subject to Section 8.06, the Company
will do or cause to be done all things necessary to preserve and keep in full
force and effect its existence, its rights (charter and statutory) and its
franchises; provided, however, that the Company shall not be required to
preserve any right or franchise, except as specifically provided below, if the
Board of Directors of the Company shall determine that the preservation thereof
is no longer desirable in the conduct of the business of the Company and that
the net effect of the loss thereof is not disadvantageous in any material
respect to the Debentureholders.
Section 8.06. Company May Consolidate, etc., Only on Certain Terms. The
Company shall not consolidate or merge with or into any other entity, unless
(a) in the case of a consolidation or merger, if the Company is not the
continuing entity, the successor entity formed by such consolidation or into
which the Company is merged shall have executed a supplemental indenture
pursuant to Section 7.01(2) specifically assuming the obligations of the
Company hereunder with respect to the Debentures, (b) in the case of a sale of
all or substantially all of the assets of the Company, the purchaser shall have
executed a supplemental indenture pursuant to Section 7.01(2) specifically
assuming the obligations of the Company hereunder with respect to the
Debentures and (c) whether or not the Company is the continuing entity,
(1) immediately after giving effect to such transaction, no Event
of Default, and no event which, after notice or lapse of time, or
both, would become an Event of Default, shall have happened and be
continuing; and
(2) immediately after giving effect to such transaction, the
continuing entity shall have a Consolidated Net Worth of not less than
the Consolidated Net Worth of the Company immediately preceding such
transaction; and
(3) the continuing entity has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel each stating that such
consolidation merger, conveyance or transfer complies with this
Article and that all conditions precedent herein provided for relating
to such transaction have been complied with.
Upon any consolidation or merger of the Company into another entity, or any
conveyance or transfer of all or substantially all of the properties and assets
of the Company in accordance with this Section, the successor entity formed by
such consolidation or into which the Company is merged or to which
37
<PAGE> 43
such conveyance or transfer is made shall succeed to, and be substituted for,
and may exercise every right and power of, the Company under this Indenture
with the same effect as if such successor entity had been named as the Company
herein.
Section 8.07. Restrictions on Dividends, Redemptions, etc. So long as the
Common Equity, as reflected on the consolidated balance sheet of the Company at
the end of each fiscal year, is less than $2,000,000, or if an Event of Default
shall have occurred and be continuing, the Company will not (i) declare or pay
any dividend or make any distribution on its Equity Securities (other than
dividends or distributions payable in shares of Equity Securities of the
Company); (ii) purchase, redeem or otherwise acquire or retire for value any
shares of Equity Securities of the Company; or (iii) permit any Subsidiary to
purchase, redeem or otherwise acquire or retire for value any shares of Equity
Securities of the Company. Otherwise, the Company may declare and pay
dividends on, make distributions on, and purchase, redeem or otherwise acquire
or retire for value shares of its Equity Securities.
Section 8.08. Reports by the Company. The Company agrees to file with
the Trustee within 15 days after it is required to file the same with the
Securities and Exchange Commission, copies of the quarterly and annual reports
and of the information, documents and other reports (or copies of such portions
of any of the foregoing as said Commission may from time to time by rules and
regulations prescribe) which the Company may be required to file with said
Commission pursuant to Section 13 or Section 15(d) of the Securities Exchange
Act of 1934. The Company also shall comply with the other provisions of
Section 314(a) of the TIA.
ARTICLE NINE
Subordination of Debentures
Section 9.01. Agreement to Subordinate. The Company covenants and agrees,
and each Holder of Debentures by his or her acceptance thereof, likewise
covenants and agrees, that the Indebtedness represented by the Debentures and
the payment of the principal of and Interest on each and all of the Debentures
is hereby expressly subordinated, to the extent and in the manner hereinafter
set forth, in right of payment to the prior payment in full of all Senior
Indebtedness as provided in this Article Nine.
Section 9.02. Distribution on Dissolution, Liquidation and Reorganization.
Upon any distribution of assets of the Company upon any dissolution,
winding-up, liquidation or reorganization of the Company (pursuant to or
following bankruptcy, insolvency, reorganization or receivership proceedings or
other similar proceedings relative to the Company or its property), or upon an
assignment for the benefit of creditors or any other marshalling of the assets
and liabilities of the Company,
(a) the holders of all Senior Indebtedness shall first be
entitled to receive payment in full of the principal thereof and
interest due thereon, or adequate provision shall be made for such
payment, before the Holders of the Debentures are entitled to receive
any payment on account of the principal of or interest on indebtedness
evidenced by the Debentures; and
38
<PAGE> 44
(b) any payment by, or distribution of assets of, the Company of
any kind or character, whether in cash, property or securities, to
which the Holders of the Debentures or the Trustee would be entitled
shall be paid or delivered by the person making such payment or
distribution, whether a trustee in bankruptcy, a receiver or
liquidating trustee or otherwise, directly to the holders of Senior
Indebtedness or their representative or representatives or to the
trustee or trustees under any indenture under which any instruments
evidencing any of such Senior Indebtedness may have been issued,
ratably according to the aggregate amounts remaining unpaid on account
of the Senior Indebtedness held or represented by each, to the extent
necessary to make payment in full of all Senior Indebtedness remaining
unpaid after giving effect to any concurrent payment or distribution
to the holders of such Senior Indebtedness or provision therefor.
The Company shall give prompt written notice to the Trustee of any dissolution,
winding up, liquidation or reorganization or other similar event or proceeding
relative to the Company or its properties.
Section 9.03. Payments on Debentures Prohibited During Event of Default
under Senior Indebtedness. In the event and during the continuation of any
default in the payment of principal of, or premium, if any, or interest on, any
Senior Indebtedness beyond any applicable period of grace, or in the event that
any event of default with respect to any Senior Indebtedness shall have
occurred and be continuing, or would occur as a result of the payment referred
to hereinafter, permitting the holders of such Senior Indebtedness (or a
trustee or other representative thereof) to accelerate the maturity thereof,
then, unless and until such default or event of default shall have been cured
or waived or shall have ceased to exist, no payment of principal or interest on
the Debentures shall be made by the Company. In the event that any such
payment, whether in cash, property or securities, shall be received by the
Trustee or the Holders of the Debentures before all Senior Indebtedness is paid
in full, contrary to the provisions of Section 9.02 or this Section 9.03, such
payment or distribution shall be paid over to the holders of such Senior
Indebtedness or their representative or representatives or to the trustee or
trustees under any indenture under which any instruments evidencing any of such
Senior Indebtedness may have been issued, ratably as aforesaid, for application
to the payment of all Senior Indebtedness remaining unpaid until all such
Senior Indebtedness shall have been paid in full, after giving effect to any
concurrent payment or distribution to the holders of such Senior Indebtedness
or provision therefor.
Section 9.04. Subrogation. Subject to the payment in full of all Senior
Indebtedness, the Holders of the Debentures shall be subrogated to the rights
of the holders of Senior Indebtedness to receive payments or distributions of
cash, property or securities of the Company applicable to the Senior
Indebtedness until all amounts owing on the Debentures shall be paid in full,
and, as between the Company, its creditors other than holders of Senior
Indebtedness, and the Holders of the Debentures, no such payment or
distribution made to the holders of Senior Indebtedness by virtue of this
Article Nine which otherwise would have been made to the Holders of the
Debentures shall be deemed to be a payment by the Company on account of the
Senior Indebtedness, it being understood that the provisions of this Article
39
<PAGE> 45
Nine are and are intended solely for the purpose of defining the relative
rights of the Holders of the Debentures, on the one hand, and the holders of
Senior Indebtedness, on the other hand.
Section 9.05. Obligation of Company Unconditional. Nothing contained in
this Article Nine or elsewhere in this Indenture or in the Debentures is
intended to or shall impair, as between the Company, its creditors other than
the holders of Senior Indebtedness, and the Holders of the Debentures, the
obligation of the Company, which is absolute and unconditional, to pay to the
Holders of the Debentures the principal of and interest on the Debentures as
and when the same shall become due and payable in accordance with their terms,
or affect the relative rights of the Holders of the Debentures and creditors of
the Company other than the holders of Senior Indebtedness, nor shall anything
herein or therein prevent the Trustee or the Holder of any Debenture from
exercising all remedies otherwise permitted by applicable law upon default
under this Indenture, subject to the rights, if any, under this Article Nine of
the holders of Senior Indebtedness in respect of cash, property or securities
of the Company received upon the exercise of any such remedy.
Upon any payment or distribution of assets of the Company referred to in
this Article Nine, the Trustee and the Holders of the Debentures shall be
entitled to rely upon any order or decree made by any court of competent
jurisdiction in which any such dissolution, winding-up, liquidation or
reorganization proceeding affecting the affairs of the Company is pending or
upon a certificate of the liquidating trustee or agent or other person making
any payment or distribution to the Trustee or to the Holders of the Debentures
for the purpose of ascertaining the persons entitled to participate in such
payment or distribution, the holders of the Senior Indebtedness and other
indebtedness of the Company, the amount thereof or payable thereon, the amount
paid or distributed therein and all other facts pertinent thereto or to this
Article Nine. In the event that the Trustee determines, in good faith, that
evidence is required with respect to the right of any person as holder of
Senior Indebtedness to participate in any payment or distribution pursuant to
this Article Nine, the Trustee may request such person to furnish evidence to
the reasonable satisfaction of the Trustee as to the amount of Senior
Indebtedness held by such person, the extent to which such person is entitled
to participate in such payment or distribution and any other facts pertaining
to the rights of such person under this Article Nine, and if such evidence is
not furnished, the Trustee may defer any payment to such person pending
judicial determination as to the right of such person to receive such payment.
Section 9.06. Payments on Debentures Permitted. Nothing contained in this
Article Nine or elsewhere in this Indenture, or in any of the Debentures, shall
affect the obligation of the Company to make, or prevent the Company from
making, at any time except as provided in Sections 9.02 and 9.03, payments at
any time of principal of or interest on the Debentures.
Section 9.07. Effectuation of Subordination by Trustee. Each Holder of
Debentures, by his or her acceptance thereof, authorizes and directs the
Trustee in such Holder's behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article Nine and
appoints the Trustee such Holder's attorney-in-fact for any and all such
purposes.
40
<PAGE> 46
Section 9.08. Knowledge of Trustee. Notwithstanding the provisions of
this Article Nine or any other provisions of this Indenture, but subject to
Section 6.01, the Trustee shall not be charged with knowledge of the existence
of any facts which would prohibit the making of any payment of moneys to or by
the Trustee, or the taking of any other action by the Trustee, unless and until
the Trustee shall have received written notice thereof from the Company, any
Debentureholder, any paying agent or the holder or representative of any class
of Senior Indebtedness.
Section 9.09. Trustee May Hold Senior Indebtedness. The Trustee shall be
entitled to all the rights set forth in this Article Nine with respect to any
Senior Indebtedness at the time held by it, to the same extent as any other
holder of Senior Indebtedness, and nothing in Section 6.12 or elsewhere in this
Indenture shall deprive the Trustee of any of its rights as such holder.
Section 9.10. Rights of Holders of Senior Indebtedness Not Impaired. No
right of any present or future holder of any Senior Indebtedness to enforce the
subordination herein shall at any time or in any way be prejudiced or impaired
by any act or failure to act on the part of the Company or by any noncompliance
by the Company with the terms, provisions and covenants of this Indenture,
regardless of any knowledge thereof any such holder may have or be otherwise
charged with.
Section 9.11. Rights and Obligations Subject to Power of Court. The right
of the holders of Senior Indebtedness and the obligations of the Trustee and
the Debentureholders set forth in this Article Nine are subject to the power of
a court of competent jurisdiction to make other equitable provision reflecting
the rights conferred in this Indenture upon the Senior Indebtedness and the
holders thereof with respect to the Debentures and the Holders thereof by a
plan of reorganization under applicable bankruptcy law.
Section 9.12. No Fiduciary Duties to Holders of Senior Indebtedness. The
Trustee shall not be deemed to owe any fiduciary duty to any present or future
holders of Senior Indebtedness, and with respect to such holders of Senior
Indebtedness, the Trustee undertakes to perform or to observe only such of the
covenants and obligations as are specifically set forth in this Article Nine,
and no implied covenants or obligations with respect to the holders of Senior
Indebtedness shall be implied in this Indenture against the Trustee. The
Trustee shall not be liable to any present or future holders of Senior
Indebtedness if the Trustee shall in good faith pay over or distribute to or on
behalf of Holders of Debentures or the Company money or assets to which any
holders of Senior Indebtedness shall be entitled by virtue of this Article
Nine.
41
<PAGE> 47
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective seals to be hereunto affixed and attested,
all as of the day and year first above written.
Attest: MCA FINANCIAL CORP.
By:
- ------------------------- -------------------------
Its:
-------------------------
Attest: FIRST UNION NATIONAL BANK
By:
- ------------------------- -------------------------
Its:
-------------------------
42
<PAGE> 48
EXHIBIT A
MCA FINANCIAL CORP.
___% SUBORDINATED DEBENTURE, SERIES 1996
DUE JUNE 30, 2002
No. $
--------- ---------
CUSIP
MCA Financial Corp., a Michigan corporation (herein called the "Company"),
for value received, hereby promises to pay to or registered
assigns, the principal sum of Dollars on June 30, 2002, and to
pay interest thereon at the rate of % per annum quarterly on March 31, June
30, September 30 and December 31 of each year, commencing September 30, 1996
(each an "Interest Payment Date"), from the Date of Issue or from the most
recent Interest Payment Date to which interest has been paid or duly provided,
until the principal hereof is paid or made available for payment.
The interest so payable, and punctually paid or duly provided for, on any
Interest Payment Date will, as provided in the Indenture hereinafter referred
to, be paid to the Person in whose name this Debenture (or one or more
Predecessor Debentures) is registered at the close of business on the Regular
Record Date for such interest, which shall be the close of business on the
first day of the calendar month in which falls an Interest Payment Date. Any
such interest not so punctually paid or duly provided for shall forthwith cease
to be payable to the Registered Holder on such Regular Record Date, and may be
paid to the Person in whose name this Debenture (or one or more Predecessor
Debentures) is registered at the close of business on a Special Record Date for
the payment of such defaulted interest to be fixed by the Trustee, notice
whereof shall be given to the Holders not less than ten days prior to such
Special Record Date, or may be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the
Debentures may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in said Indenture. Payment of interest on
this Debenture will be made by check mailed to the address of the person
entitled thereto as such address shall appear on the Debenture Register.
Payment of the principal of this Debenture will be made at the office or agency
of the Trustee maintained for that purpose in Newark, New Jersey, or in such
other office or agency as may be established by the Company pursuant to said
Indenture in such coin or currency of the United States of America as at the
time of payment is legal tender for payment of public and private debts.
Reference is hereby made to the further provisions of this Debenture set
forth on the reverse side hereof and such further provisions shall for all
purposes have the same effect as though fully set forth at this place.
This Debenture shall not be valid or become obligatory for any purpose
until the certificate of authentication hereon shall have been manually signed
by the Trustee under the Indenture.
A-1
<PAGE> 49
IN WITNESS WHEREOF, the Company has caused this Debenture to be signed in
its name by the manual or facsimile signature of its President or one of its
Executive Vice Presidents, Senior Vice Presidents or Vice Presidents and its
corporate seal, or a facsimile thereof, to be impressed or imprinted hereon,
attested by the manual or facsimile signature of its Secretary or one of its
Assistant Secretaries.
MCA FINANCIAL CORP.
By:
------------------------
President
[Corporate Seal]
ATTEST:
- ---------------------------
Secretary
This is one of the Debentures referred to in the within mentioned
Indenture.
DATED:
FIRST UNION NATIONAL BANK
as Trustee
By:
------------------------------
Authorized Signature
A-2
<PAGE> 50
MCA FINANCIAL CORP.
___% SUBORDINATED DEBENTURE, SERIES 1996
DUE JUNE 30, 2002
This Debenture is one of a duly authorized issue of Debentures of the
Company designated as its % Subordinated Debentures Due June 30, 2002 (herein
called the "Debentures"), limited in aggregate principal amount to $6,000,000
issued and to be issued under an Indenture dated as of June , 1996 (herein
called the "Indenture"), between the Company and First Union National Bank, as
Trustee (herein called the "Trustee," which term includes any successor Trustee
under the Indenture), to which Indenture and all indentures supplemental
thereto reference is hereby made for a statement of the respective rights
thereunder of the Company, the Trustee and the Holders of the Debentures, and
the terms upon which the Debentures are, and are to be, authenticated and
delivered.
The indebtedness of the Company evidenced by the Debentures, including the
principal thereof and interest thereon (including post-default interest) is, to
the extent and in the manner set forth in the Indenture subordinate and junior
in right of payment at all times, including upon liquidation of the Company, to
the Company's obligations to holders of Senior Indebtedness and in certain
events, the Trustee's fees. Each Holder of a Debenture, by acceptance hereof,
agrees to and shall be bound by such provisions of the Indenture and all other
provisions of the Indenture, authorizes and directs the Trustee to take such
action on his behalf as may be necessary or appropriate to acknowledge or
effectuate, as between the Debentureholders and the holders of the Senior
Indebtedness, the subordination of this Debenture as provided in the Indenture
and appoints the Trustee his attorney-in-fact for any and all such purposes.
Each Holder of this Debenture, by accepting the same, agrees that each holder
of Senior Indebtedness, whether created or acquired before or after the
issuance of the Debentures, shall be deemed conclusively to have relied on such
provisions in acquiring and continuing to hold such Senior Indebtedness.
Except as provided hereafter in this paragraph, the Debentures are not
subject to redemption at any time prior to their Stated Maturity. The Company
may redeem all the Debentures at any time on or after July 1, 1998, or some of
them from time to time on or after July 1, 1998, at the following redemption
prices (expressed in percentages of principal amount), if redeemed during the
periods indicated below, plus accrued interest to the redemption date:
Year Percentage
---- ----------
July 1, 1998 through June 30, 1999 .................................. 102.0%
July 1, 1999 through June 30, 2000 .................................. 101.0%
July 1, 2000 and thereafter ......................................... 100.0%
In addition to the foregoing optional redemption, on each March 31,
commencing with March 31, 1998, upon request the Company will redeem the
principal amount of this Debenture (but only up to $25,000 in any calendar
year, and not more than $100,000 in the aggregate for all Holders in any
calendar year, together with interest accrued to the March 31 Mandatory
A-3
<PAGE> 51
Redemption Date), provided that a duly made request therefor from a Holder or a
deceased Holder's authorized representative has been received by the Company or
the Trustee on or before the December 31 preceding such March 31 Mandatory
Redemption Date, in accordance with the provisions of the Indenture, and
further provided that (1) this Debenture has been registered in the Holder's
name since the Date of Issue or for a period of at least six months prior to
the date of the request for redemption, (2) the Trustee has been notified in
writing of the request for redemption within one year after a Holder's death,
and (3) the Company is not, or, after giving effect to such redemption would
not be, in default under any Senior Indebtedness. On March 31 of each calendar
year succeeding an initial redemption, the Company will redeem additional
Debentures originally held by a Debentureholder in the principal amount of up
to $25,000 (together with interest accrued to the March 31 Mandatory Redemption
Date) if the Debentureholder or the authorized representative of a deceased
Debentureholder duly requests such redemption on or before the December 31
preceding such March 31 Mandatory Redemption Date. When honoring requests for
redemption, the Company shall give priority to requests made on behalf of
deceased Debentureholders.
If an Event of Default as defined in the Indenture shall occur and be
continuing, the principal of all the Debentures may be declared due and payable
in the manner and with the effect provided in the Indenture. The Indenture
provides that such declaration and its consequences may, in certain events, be
annulled by the Holders of a majority in principal amount of the Debentures
Outstanding.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Debentures under the Indenture at
any time by the Company and the Trustee with the consent of the Holders of not
less than 50% in aggregate principal amount of the Debentures at the time
Outstanding, as defined in the Indenture. The Indenture also contains
provisions permitting the Holders of a majority in aggregate principal amount
of the Debentures at the time Outstanding on behalf of the Holders of all the
Debentures, to waive compliance by the Company with certain provisions of the
Indenture and certain past defaults under the Indenture and their consequences.
Any such consent or waiver by the Holder of this Debenture shall be conclusive
and binding upon such Holder and upon all future Holders of this Debenture and
of any Debenture issued upon the registration of transfer hereof or in exchange
therefor or in lieu hereof, whether or not notation of such consent or waiver
is made upon this Debenture.
Subject to the last paragraph hereof, no reference herein to the Indenture
and no provisions of this Debenture or of the Indenture shall alter or impair
the obligation of the Company, which is absolute and unconditional, to pay the
principal of and interest on this Debenture at the times, places and rate, and
in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein
set forth, this Debenture is transferable on the Debenture Register of the
Trustee, upon surrender of this Debenture for registration of transfer at the
office or agency of the Trustee to be maintained for that purpose in Newark,
New Jersey, or at such other office or agency as may be established by the
Company for such purpose pursuant to the Indenture duly endorsed by, or
A-4
<PAGE> 52
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Debenture Registrar, duly executed by, the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Debentures,
of authorized denominations and for the same aggregate principal amount, will
be issued to the designated transferee or transferees.
The Debentures are issuable only in registered form, without coupons, in
denominations of $1,000 and integral multiples thereof. Debentures are
exchangeable for a like aggregate principal amount of Debentures of a different
authorized denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such transfer or exchange, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
No recourse shall be had for the payment of the principal of or interest
on this Debenture, or for any claim based hereon, or otherwise in respect
hereof, or based on or in respect of the Indenture or any indenture supplement
thereto, against any incorporator, stockholder, officer or director, as such,
past, present, or future, of the Company or of any successor at law or by the
enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the issue
hereof, expressly waived and released; provided, however, that nothing herein
or in the Indenture shall be taken to prevent recourse to and the enforcement
of the liability, if any, of any shareholder or subscriber to capital stock
upon or in respect of shares of capital stock of the Company not fully paid up.
Certain capitalized terms used in this Debenture which are defined in the
Indenture have the meanings set forth therein.
The Company, the Trustee and any agent of the Company or the Trustee may
treat the Person in whose name this Debenture is registered as the owner hereof
for all purposes, whether or not this Debenture be overdue, and neither the
Company, the Trustee, nor any such agent shall be affected by notice to the
contrary.
A-5
<PAGE> 53
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
-----------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Name and Address of Assignee Including Zip Code Must be Printed or Typewritten)
- --------------------------------------------------------------------------------
the within instrument, and all rights thereunder, hereby irrevocably
constituting and appointing
- --------------------------------------------------------------------------------
ATTORNEY TO TRANSFER SAID instrument on the books of the Company, with full
power of substitution in the premises.
Dated:
------------------- -----------------------------------------
Signature
Signature Guaranteed:
-----------------------------------------
NOTICE: The signature to this assignment
must correspond with the name as it
appears upon the face of the within
Instrument in every particular
NOTE: ANY TRANSFER OR ASSIGNMENT IS SUBJECT TO THE PRESENTATION OF SUCH PROOF
OF VALID AND LEGAL TRANSFER OR ASSIGNMENT AS THE COMPANY MAY REQUIRE.
A-6
<PAGE> 1
EXHIBIT 5
[DYKEMA GOSSETT LETTERHEAD]
Telecopier: (313) 568-6915
May 30, 1996
MCA Financial Corp.
23999 Northwestern Highway
Southfield, Michigan 48075
Dear Sirs:
We have acted as counsel for MCA Financial Corp., a Michigan corporation
(the "Company"), in connection with a Registration Statement on Form S-1 (the
"Registration Statement") being filed by the Company with the Securities and
Exchange Commission for registration under the Securities Act of 1993, as
amended, (the "Act") of up to $6,000,000 of % Subordinated Debentures due
June 30, 2002 (the "Debentures").
We have examined and are familiar with the Company's Restated Articles of
Incorporation, its Bylaws and the resolutions adopted by the Board of Directors
of the Company relating to the authorization, issuance and sale of the
Debentures. We have also examined a Certificate of Good Standing for the
Company from the Department of Commerce of the State of Michigan and such laws
and other documents as we deem necessary for purposes of the opinions expressed
herein.
Based upon the foregoing, we are of the opinion that:
1. The Company is an existing corporation in good standing under the laws
of the State of Michigan; and
2. Issuance of the Debentures by the Company has been authorized by all
necessary corporate action, and when such Debentures have been duly delivered
against payment therefor as contemplated by the Registration Statement,
including the prospectus forming a part thereof relating to the Debentures,
will be validly issued, fully paid and nonassessable and will constitute legal,
valid and binding obligations of the Company, enforceable in accordance with
their terms.
Our opinion is qualified to the extent that the validity, binding nature
or enforceability of any of the terms referred to in this opinion may be
subject to or affected by applicable bankruptcy, insolvency, reorganization,
arrangement, moratorium or other similar laws relating to or affecting the
rights of creditors generally and general principles of equity which may limit
the availability of equitable remedies whether considered in a court of law or
equity.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
We further consent to the use of our name in the Registration Statement
under the caption "Legal Matters." In giving such consent, we do not concede
that we are experts within the meaning of the Act or the rules or regulations
thereunder or that this consent is required under Section 7 of the Act.
Very truly yours,
DYKEMA GOSSETT PLLC
/s/ Dykema Gossett PLLC
-----------------------
<PAGE> 1
EXHIBIT 12
MCA FINANCIAL CORP.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Year ended January 31,
------------------------------------------------------------------------------------
Proforma
1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Income (Loss) Before Federal
Income Taxes ..................... $ 51,293 $1,127,530 $ (175,162) $ 972,185 $ 915,602 $ 409,004
Add:
Portion of Rents
Representative of
the Interest Factor ............. 216,360 216,360 134,075 72,234 57,265 43,801
Interest on Indebtedness ........... 8,466,254 7,565,044 6,018,518 4,428,925 962,439 954,188
Amortization of
Debt Expense ..................... 862,417 687,390 421,189 286,009 102,675 ---
---------- ---------- ---------- ---------- ---------- ----------
$9,596,324 $9,596,324 $6,398,620 $5,759,353 $2,037,981 $1,406,993
========== ========== ========== ========== ========== ==========
Fixed Charges:
Portion of Rents
Representative of
the Interest Factor ............. $ 216,360 $ 216,360 134,075 72,234 57,265 43,801
Interest on Indebtedness ......... 8,466,254 7,565,044 6,018,518 4,428,925 962,439 954,188
Amortization of Debt Expense ..... 862,417 687,390 421,189 286,009 102,675 ---
---------- ---------- ---------- ---------- ---------- ----------
$9,545,031 $8,468,794 $6,573,782 $4,787,168 $1,122,379 $ 997,989
========== ========== ========== ========== ========== ==========
Ratio of Earnings
To Fixed Charges ................. 1.01* 1.13 --- 1.20 1.82 1.41
Deficiency of Earnings
Over Fixed Charges ............... $ --- $ --- $ (175,162) $ --- $ --- $ ---
</TABLE>
* This computation does not reflect earnings, if any to be derived from the
investment of proceeds in excess of amounts required to retire the
Series 1992 Subordinated Debentures.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
MCA Financial Corp.
Southfield, Michigan
We have issued our report dated April 26, 1996 accompanying the consolidated
financial statements of MCA Financial Corp. contained in the Registration
Statement and Prospectus. We consent to the use of the aforementioned report
in the Registration Statement and Prospectus, and to the use of our name as it
appears under the caption "Experts".
/s/Moore Stephens Doeren Mayhew, P.C. /s/Grant Thornton LLP
Moore Stephens Doeren Mayhew, P.C. Grant Thornton LLP
Troy, Michigan Detroit, Michigan
May 29, 1996
<PAGE> 1
EXHIBIT 25
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
----------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE
PURSUANT TO SECTION 305(b)(2) ___
----------
FIRST UNION NATIONAL BANK
(Name of Trustee)
22-1147033
(Jurisdiction of Incorporation or (I.R.S. Employer
Organization if not a U.S. National Bank) Identification No.)
101 NORTHSIDE PLAZA, ELKTON, MARYLAND 21921
(Address of Principal Executive Offices) (Zip Code)
----------
MCA FINANCIAL CORP.
(Name of Obligor)
MICHIGAN 38-3014001
(State of Incorporation) (I.R.S. Employer
Identification No.)
23999 NORTHWESTERN HWY., SOUTHFIELD, MICHIGAN 48075
(Address of Principal Executive Offices) (Zip Code)
----------
SUBORDINATED DEBENTURES
(Title of Indenture Securities)
<PAGE> 2
GENERAL
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO WHICH
IT IS SUBJECT:
Comptroller of the Currency, Washington, D.C.
Board of Governors of the Federal Reserve System, New York, N.Y.
Federal Deposit Insurance Corporation, Washington, D.C.
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
The Trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
ITEM 3. VOTING SECURITIES OF THE TRUSTEE.
FURNISH THE FOLLOWING INFORMATION AS TO EACH CLASS OF VOTING SECURITIES OF
THE TRUSTEE:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
COL. A. COL. B.
- --------------------------------------------------------------------------------
TITLE OF CLASS AMOUNT OUTSTANDING
- --------------------------------------------------------------------------------
<S> <C>
</TABLE>
Not Applicable.
ITEM 4. TRUSTEESHIP 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.
Not Applicable
(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.
Not Applicable.
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.
Not Applicable
<PAGE> 3
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.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D.
- --------------------------------------------------------------------------------
PERCENTAGE OF VOTING
SECURITIES REPRESENTED
NAME OF TITLE OF AMOUNT OWNED BY AMOUNT GIVEN IN
OWNER CLASS BENEFICIALLY COL. C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
</TABLE>
Not Applicable
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.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D.
- --------------------------------------------------------------------------------
PERCENTAGE OF
VOTING SECURITIES
REPRESENTED BY
NAME OF AMOUNT OWNED AMOUNT GIVEN IN
OWNER TITLE OF CLASS BENEFICIALLY COL. C.
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
</TABLE>
Not Applicable
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 THE OBLIGATIONS IN DEFAULT BY
THE TRUSTEE.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D.
- --------------------------------------------------------------------------------
WHETHER THE
SECURITIES ARE AMOUNT OWNED BENEFICIALLY PERCENT OF CLASS
VOTING OR OR HELD AS COLLATERAL REPRESENTED BY
TITLE NONVOTING SECURITY FOR OBLIGATIONS AMOUNT GIVEN IN
OF CLASS SECURITIES IN DEFAULT COL.C.
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
</TABLE>
Not Applicable
ITEM 9. SECURITIES OF THE UNDERWRITERS OWNED OR HELD BY THE TRUSTEE.
IF THE TRUSTEE OWNS BENEFICIALLY OR HOLDS AS COLLATERAL SECURITY FOR
OBLIGATIONS IN DEFAULT ANY SECURITIES OF AN UNDERWRITER FOR THE OBLIGOR,
FURNISH THE FOLLOWING INFORMATION AS TO EACH CLASS OF SECURITIES OF SUCH
UNDERWRITER ANY OF WHICH ARE SO OWNED OR HELD BY THE TRUSTEE.
Not Applicable
2
<PAGE> 4
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D.
- --------------------------------------------------------------------------------
AMOUNT OWNED BENEFICIALLY PERCENT OF CLASS
NAME OF OR HELD AS COLLATERAL REPRESENTED BY
ISSUER AND AMOUNT SECURITY FOR OBLIGATIONS AMOUNT GIVEN IN
TITLE OF CLASS OUTSTANDING IN DEFAULT BY TRUSTEE GIVEN IN COL. C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
</TABLE>
Not applicable
ITEM 10. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF VOTING SECURITIES OF CERTAIN
AFFILIATES OR SECURITY HOLDERS OF THE OBLIGOR.
IF THE TRUSTEE OWNS BENEFICIALLY OR HOLDS AS COLLATERAL SECURITY FOR
OBLIGATIONS IN DEFAULT VOTING SECURITIES OF A PERSON WHO, TO THE KNOWLEDGE OF
THE TRUSTEE (1) OWNS 10 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.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D.
- --------------------------------------------------------------------------------
AMOUNT OWNED BENEFICIALLY PERCENT OF VOTING
NAME OF OR HELD AS COLLATERAL SECURITIES
ISSUER AND AMOUNT SECURITY FOR OBLIGATIONS REPRESENTED BY AMOUNT
TITLE OF CLASS OUTSTANDING IN DEFAULT BY TRUSTEE GIVEN IN COL. C.
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
</TABLE>
Not Applicable.
ITEM 11. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF ANY SECURITIES OF A 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 IN 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.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D.
- --------------------------------------------------------------------------------
AMOUNT OWNED BENEFICIALLY PERCENT OF CLASS
NAME OF OR HELD AS COLLATERAL REPRESENTED BY
ISSUER AND AMOUNT SECURITY FOR OBLIGATIONS AMOUNT GIVEN IN
TITLE OF CLASS OUTSTANDING IN DEFAULT BY TRUSTEE COL. C.
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
</TABLE>
Not Applicable
ITEM 12. INDEBTEDNESS OF THE OBLIGOR TO THE TRUSTEE.
EXCEPT AS NOTED IN THE INSTRUCTIONS, IF THE OBLIGOR IS INDEBTED TO THE
TRUSTEE, FURNISH THE FOLLOWING INFORMATION:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
COL. A. COL. B. COL. C.
NATURE OF INDEBTEDNESS AMOUNT OUTSTANDING DATE DUE
- --------------------------------------------------------------------------------
<S> <C> <C>
</TABLE>
Not Applicable
3
<PAGE> 5
ITEM 13. DEFAULTS BY THE OBLIGOR.
(A) STATE WHETHER THERE IS OR HAS BEEN A DEFAULT WITH RESPECT TO THE
SECURITIES UNDER THIS INDENTURE. EXPLAIN THE NATURE OF ANY SUCH DEFAULT.
None
(B) IF THE TRUSTEE IS A TRUSTEE UNDER ANOTHER INDENTURE UNDER WHICH ANY
OTHER SECURITIES, OR CERTIFICATES OF INTEREST OR PARTICIPATION IN ANY OTHER
SECURITIES, OF THE OBLIGOR ARE OUTSTANDING, OR IS TRUSTEE FOR MORE THAN ONE
OUTSTANDING SERIES OF SECURITIES UNDER THE INDENTURE, STATE WHETHER THERE HAS
BEEN DEFAULT UNDER ANY SUCH INDENTURE OR SERIES, IDENTIFY THE INDENTURE OR
SERIES AFFECTED, AND EXPLAIN THE NATURE OF ANY SUCH DEFAULT.
None
ITEM 14. AFFILIATIONS WITH THE UNDERWRITERS.
IF ANY UNDERWRITER IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
Not Applicable
ITEM 15. FOREIGN TRUSTEE.
IDENTIFY THE ORDER OR RULE PURSUANT TO WHICH THE FOREIGN TRUSTEE IS
AUTHORIZED TO ACT AS SOLE TRUSTEE UNDER INDENTURES QUALIFIED OR TO BE QUALIFIED
UNDER THE ACT.
Not Applicable
ITEM 16. LISTS OF EXHIBITS.
1* -COPY OF ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN EFFECT.
2 -NO CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE BUSINESS IS
FURNISHED SINCE THIS AUTHORITY IS CONTAINED IN THE ARTICLES OF
ASSOCIATION OF THE TRUSTEE.
3* -COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE TRUST
POWERS.
4* -COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, AS NOW IN EFFECT.
5 -NOT APPLICABLE.
6* -THE CONSENT OF THE TRUSTEE REQUIRED BY SECTION 321 (B) OF THE ACT.
7 -A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED
PURSUANT TO THE LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR
EXAMINING AUTHORITY.
8 -NOT APPLICABLE
9 -NOT APPLICABLE
- ----------
*EXHIBITS THUS DESIGNATED HAVE HERETOFORE BEEN FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION, HAVE NOT BEEN AMENDED SINCE FILING AND ARE INCORPORATED
HEREIN BY REFERENCE (SEE EXHIBIT T-1 REGISTRATION NUMBER 22-13279).
IN ANSWERING ANY ITEM IN THIS STATEMENT OF ELIGIBILITY AND QUALIFICATION
WHICH RELATES TO MATTERS PECULIARLY WITHIN THE KNOWLEDGE OF THE OBLIGOR OR OF
ITS DIRECTORS OR OFFICERS, OR AN UNDERWRITER FOR THE OBLIGOR, THE UNDERSIGNED,
FIRST UNION NATIONAL BANK, HAS RELIED UPON INFORMATION FURNISHED TO IT BY THE
OBLIGOR OR SUCH UNDERWRITER.
4
<PAGE> 6
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE TRUST INDENTURE ACT OF 1939 THE
TRUSTEE, FIRST UNION NATIONAL BANK, A NATIONAL BANKING ASSOCIATION ORGANIZED
AND EXISTING UNDER THE LAWS OF THE UNITED STATES, HAS DULY CAUSED THIS
STATEMENT OF ELIGIBILITY TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, ALL IN THE CITY OF NEWARK, AND STATE OF NEW JERSEY,
ON THE 29TH DAY OF MAY, 1996.
FIRST UNION NATIONAL BANK
(TRUSTEE)
(CORPORATE SEAL) BY: Rick Barnes
-------------------
RICK BARNES
VICE PRESIDENT
<PAGE> 7
EXHIBIT T-7
REPORT OF CONDITION
Consolidating domestic and foreign subsidiaries of the First Fidelity Bank,
National Association, at the close of business on December 29, 1995, published
in response to call made by Comptroller of the Currency, under title 12, United
States Code, Section 161. Charter Number 33869 Comptroller of the Currency
Northeastern District.
STATEMENT OF RESOURCES AND LIABILITIES
ASSETS
<TABLE>
<CAPTION>
Thousand of Dollars
-------------------
<S> <C> <C>
Cash and balance due from depository institutions:
Noninterest-bearing balances and currency and coin.......... 1,876,439
Interest-bearing balances................................... 35,650
Securities.................................................... /////////
Hold-to-maturity securities................................. 672,202
Available-for-sale securities............................... 4,786,380
Federal funds sold and securities purchased under agreements //////////
to resell in domestic offices of the bank and of it //////////
Edge and Agreement subsidiaries, and in IBFs: //////////
Federal funds sold....................................... 30,000
Securities purchased under agreements to resell.......... 369,072
Loans and lease financing receivables:
Loan and leases, net of unearned income.................. 23,027,860
LESS: Allowance for loan and lease losses................ 489,305
LESS: Allocated transfer risk reserve.................... 0
Loans and leases, net of unearned income, allowance, and
reserve.................................................. 22,558,555
Assets held in trading accounts............................... 76,675
Premises and fixed assets (including capitalized leases)...... 374,903
Other real estate owned....................................... 104,196
Investment in unconsolidated subsidiaries and associated //////////
companies..................................................... 19,166
Customer's liability to this bank on acceptances outstanding.. 134,499
Intangible assets............................................. 785,891
Other assets.................................................. 863,227
Total assets.................................................. 32,686,855
LIABILITIES
Deposits:
In domestic offices...................................... 24,886,995
Noninterest-bearing.................................... 4,687,403
Interest-bearing...................................... 20,199,592
In foreign offices, Edge and Agreement subsidiaries,
and IBFs................................................. 1,304,436
Noninterest-bearing.................................... 207
Interest-bearing....................................... 960,051
Federal funds purchased and securities sold under agreements
to repurchase in domestic offices of the bank and of its
Edge and Agreement subsidiaries, and IBFs
Federal fund purchased................................... 1,304,436
Securities sold under agreements to repurchase........... 882,846
Demand notes issued to the U.S. Treasury...................... 97,451
Trading liabilities........................................... 0 0
Other borrowed money:......................................... /////////
With original maturity of one year or less............... 252,296
With original maturity of more than one year............. 1,602
Mortgage indebtedness and obligations under capitalized leases 17,369
Bank's liability on acceptances executed and outstanding...... 134,499
Subordinated notes and debentures............................. 175,000
Other liabilities............................................. 934,256
Total liabilities............................................. 29,647,008
Limited-life preferred stock and related surplus.............. 0
</TABLE>
<PAGE> 8
EQUITY CAPITAL
<TABLE>
<S> <C>
Perpetual preferred stock and related surplus................. 160,540
Common Stock.................................................. 452,156
Surplus....................................................... 1,300,080
Undivided profits and capital reserves........................ 1,127,557
Net unrealized holding gains (losses) on available-for-sale /////////
securities................................................... ( 486)
Cumulative foreign currency translation adjustments........... 0
Total equity capital.......................................... 3,039,847
Total liabilities, limited-life preferred stock and equity.... //////////
capital..................................................... 32,686,855
</TABLE>
