<PAGE> 1
As filed with the Securities and Exchange Commission on May 16, 1997
Registration No. 333-
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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
(248) 358-5555
(Address, including zip code, and telephone number, including area code
of registrant's principal executive offices)
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<S> <C>
Copy to:
Lee P. Wells, President Paul R. Rentenbach
MCA Financial Corp. Dykema Gosett PLLC
23999 Northwestern Highway 400 Renaissance Center
Southfield, Michigan 48075 Detroit, Michigan 48243
(248) 358-5555 (313) 568-6973
(Name, address, including zip code, and telephone number, (313) 568-6915 (FAX)
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.
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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
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 1997, Due June 1,
2003 $10,000,000 100% $10,000,000 $2,000.00
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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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<PAGE> 2
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
Statement and Outside Front Cover
Page of Prospectus Facing Page; Cross-Reference
Sheet; Outside Front Cover
Page of Prospectus
Item 2 Inside Front and Outside Back
Cover Pages of Prospectus Inside Front Cover Page of
Prospectus; Back Cover Page
of Prospectus
Item 3 Summary Information, Risk Factors
and Ratio of Earnings to Fixed
Charges Prospectus Summary; Risk Factors;
Selected 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
Registered Description of Series 1997
Debentures
Item 10 Interests of Named Experts
and Counsel Not Applicable
Item 11 Information with Respect to the
Registrant Business; Index to Consolidated Financial Statements;
Selected Consolidated Financial Data;
Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Management; Compensation
Committee Interlocks and Insider
Participation; Principal Stockholders
Item 12 Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities Not Applicable
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<PAGE> 3
PROSPECTUS
$10,000,000
MCA FINANCIAL CORP.
__% SUBORDINATED DEBENTURES, SERIES 1997
DUE JUNE 1, 2003
MCA Financial Corp., a Michigan corporation ("MCA Financial"), is hereby
offering $10,000,000 in aggregate principal amount of __% Subordinated
Debentures, Series 1997, Due June 1, 2003 (the "Series 1997 Debentures").
Interest on the Series 1997 Debentures will be payable on March 1, June 1,
September 1 and December 1 of each year, from the date the Series 1997
Debentures are issued or from the most recent interest payment date on which
interest has been paid or duly provided for. The Series 1997 Debentures will
be issued in fully registered form, without coupons, in denominations of $1,000
and integral multiples thereof, and will be dated on their Date of Issue. The
Series 1997 Debentures are subordinated unsecured obligations of MCA Financial.
The unsecured obligations of MCA Financial, including the Series 1997
Debentures, are subordinate in right of payment to all current and future
Senior Indebtedness of MCA Financial and will rank on an equal basis with MCA
Financial's outstanding 11% Subordinated Debentures Due 2002 (the "1996
Debentures") and MCA Financial's outstanding 11% Asset-Backed Subordinated
Debentures Due 2000 (the "1994 Debentures," and together with the 1996
Debentures the "Prior Debentures") except insofar as the 1994 Debentures are
secured by specific collateral. The issuance of Senior Indebtedness by MCA
Financial is not restricted by the Indenture. See "Description of Series 1997
Debentures."
MCA Financial 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", BEGINNING ON PAGE 5.
----------------
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.
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Price to Sales Proceeds to
the Public(1) Commissions(2) Company(1)
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<S> <C> <C> <C>
Per Debenture 100% 6.5% 93.5%
Total $ 10,000,000 $650,000 $9,350,000
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</TABLE>
(1) The Series 1997 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 $82,300, which are payable by MCA
Financial.
(2) The Offering is being made on a "best efforts" basis. There is no
assurance as to the amount of Series 1997 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 1997
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 1997 Debentures it will
be paid a commission of 8.0% on all sales.
-----------------
This Offering will continue until all Series 1997 Debentures are sold or until
May 31, 1998, whichever is earlier; however, MCA Financial may elect to extend
the offering until all of the Series 1997 Debentures offered hereby are
sold, as permitted under applicable securities laws and regulations. MCA
Financial 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 __, 1997
<PAGE> 4
STATEMENT OF AVAILABLE INFORMATION
MCA Financial 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 MCA Financial 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 500 West Madison Street, Suite
1400, Chicago, Illinois 60601; and 7 World Trade Center, Suite 1300, New York,
New York 10048. 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. The Commission maintains a Web site on the
Internet (which can be found at http://www.sec.gov) that contains reports and
other information regarding registrants that file electronically with the
Commission.
A Registration Statement on Form S-1 relating to the Series 1997
Debentures offered hereby has been filed by MCA Financial 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 MCA Financial and the Series 1997 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 MCA Financial.
i
<PAGE> 5
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 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. MCA Financial is a Michigan
corporation which was formed in 1989 and was inactive until 1991 when it became
a holding company for its principal subsidiaries. Unless otherwise indictated,
MCA Financial and its subsidiaries are hereinafter collectively referred to as
the "Company." Currently, MCA Financial 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 MCA Financial 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.
As of January 31, 1997, the Company operated 30 offices in the states of
Michigan, Illinois, Indiana, Kentucky, Ohio, Florida, North Carolina and
California 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 its telephone number is (248)
358-5555.
<PAGE> 6
THE OFFERING
Securities Offered: $10,000,000 of __% Subordinated Debentures, Series 1997,
Due June 1, 2003. The Series 1997 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 1997 Debentures are redeemable prior to
maturity, at the option of the Company, on or after June
1, 1999, 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 1, 1999,
an individual Holder may request the Company to redeem up
to $25,000 of Series 1997 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
1997 Debentures - Right of Redemption."
Subordination: The Series 1997 Debentures are subordinated in right of
payment to all Senior Indebtedness of MCA Financial, which
as of the date hereof totalled approximately $35.2
million, and will rank on an equal basis with the
Company's outstanding 1994 Debentures and 1996 Debentures
(except insofar as the 1994 Debentures are secured by
specific collateral), of which as of the date hereof,
there were outstanding $13.0 million in principal amount.
As of the date hereof, the Company's subsidiaries had
outstanding indebtedness which totalled approximately
$105.5 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 1997 Debentures,
to participate in any distribution of assets of its
subsidiaries will be limited. See "Description of Series
1997 Debentures - Subordination."
Acceleration: If an Event of Default occurs, then the Trustee or Holders
of not less than 25% in principal amount of the Series
1997 Debentures may declare the principal of all Series
1997 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 1997
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
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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 1997 Debentures
- Consolidation, Merger or Transfer."
Trading Market: No market exists at the present time for the Series 1997
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 1997 Debentures."
Use of Proceeds: The net proceeds of the Offering will be used by the
Company for general corporate purposes, which will include
providing advances to its subsidiaries and certain of
its affiliates. See "Use of Proceeds."
3
<PAGE> 8
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, 1997, which were derived from the audited consolidated
financial statements of the Company for the periods in the five-year period
ended January 31, 1997. The audited consolidated financial statements of the
Company for each of the periods in the three-year period ended January 31, 1997
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.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
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1997 1996 1995(1) 1994 1993
---- ---- ------- ----- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME DATA:
Revenues $58,926 $41,951 $33,371 $29,534 $14,393
Expenses 57,522 40,823 33,547 28,562 13,477
Income (loss) before federal income taxes 1,404 1,128 (176) 972 916
Net income (loss) 765 616 (278) 551 586
Net income (loss) per share 0.59 0.30 (1.80) 0.98 2.01
Ratio of earnings to fixed charges(2)
Historical 1.11x 1.13x n/a 1.20x 1.82x
Pro forma(3) 1.01x 1.01x n/a n/a n/a
Earnings (deficiency of earnings) over
fixed charges 1,404 1,128 (176) 972 916
BALANCE SHEET DATA:
Mortgages held for resale $54,430 $63,306 $15,702 $39,250 $14,084
Total assets 144,992 135,191 77,112 76,845 28,632
Notes payable(4) 83,975 86,598 44,843 54,549 13,824
11% Subordinated Debentures due 1997(5) 4,921 4,921 4,938 4,938 3,171
11% Subordinated Debentures due 2000 10,000 4,253 -- -- --
11% Subordinated Debentures due 2002 621 -- -- -- --
10% Subordinated Notes due 2006 15,000 -- -- -- --
Total liabilities 134,087 125,030 67,822 67,982 23,460
Redeemable common stock(6) 256 -- -- 300 300
Stockholders' equity 10,649 10,161 9,290 8,563 4,872
OPERATING DATA:
Loan production--
Number of loans originated 10,107 7,928 8,224 8,910 2,448
Average loan balance $80 $80 $69 $77 $83
Total loans originated $809,756 $632,281 $564,235 $687,484 $203,087
Number of full-time employees 433 412 336 448 202
</TABLE>
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(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, 1.12x, 1.19x, and 1.79x
for the years ended January 31, 1997, 1996, 1994, and 1993, 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 $0.6 million for the year ended January 31, 1995.
(3) The pro forma data reflects interest expense on the Series 1997
Debentures, assuming all such debentures are sold, and reflects the
amortization of debt issuance costs over a five-year period using the
interest method.
(4) See Note 3 of Notes to Consolidated Financial Statements.
(5) The Subordinated Debentures due 1997 were redeemed in full as of March 17,
1997.
(6) See Note 5 of Notes to Consolidated Financial Statements.
4
<PAGE> 9
RISK FACTORS
The Offering is being made on a best efforts basis and there is no
assurance as to the amount of Series 1997 Debentures that will be sold. In
addition, the purchase of the Series 1997 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 outstanding 11% Subordinated
Debentures Due 2000 (the "1994 Debentures") are entitled to receive annual
interest of approximately $1,100,000, on $10.0 million and (iv) the
holders of its outstanding 11% Subordinated Debentures Due 2002 (the "1996
Debentures") are entitled to receive annual interest of approximately $_______
on $_____ million aggregate principal amount subscribed for as of June 1, 1997
(such annual interest will be $660,000 if all 1996 Debentures are sold). The
1994 Debentures and the 1996 Debentures are sometimes referred to hereafter as
the "Prior Debentures." The Company is also obligated to pay interest with
respect to indebtedness due to certain financial institutions at rates ranging
from the Federal Funds rate plus 1.5% (fluctuating from 6.8% to 12.0%). The
amount of this indebtedness at January 31, 1997 was $84.0 million.
At the then-current interest rates, the Company would be obligated to pay
$9.62 million in annual interest on its existing indebtedness as of January 31,
1997. The obligations with respect to the preferred stock dividends are
subordinate to the Company's obligations with respect to the Series 1997
Debentures. However, the dividend and other obligations of the Company
represent significant leverage and financial risk and the annual interest
expense on the Series 1997 Debentures, $1,100,000 if all Series 1997 Debentures
are sold, will be additional leverage and financial risk with respect to the
Company. Prospective investors should note that the Series 1997 Debentures,
which are due on June 1, 2003, 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 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.
5
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RANKING OF SERIES 1997 DEBENTURES
The Series 1997 Debentures are subordinated unsecured obligations of MCA
Financial and are subordinate in right of payment to all current and future
Senior Indebtedness of MCA Financial. See "Description of Series 1997
Debentures - Subordination." The Series 1997 Debentures will rank on an equal
basis with the Prior Debentures, however, unlike the 1994 Debentures, the
Series 1997 Debentures and the Series 1996 Debentures are unsecured obligations
of MCA Financial.
HOLDING COMPANY STRUCTURE
Holders of the Series 1997 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 $153.7 million 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 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 1997 DEBENTURES
The Company can provide no assurances as to whether a market for the
Series 1997 Debentures will develop. If such a market were to exist in the
future, the Series 1997 Debentures could trade at prices higher or lower than
their initial public offering price depending on many factors, including
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 1997 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
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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."
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 1997, Freddie Mac
purchased $171 million of conventional mortgage loans from the Company, Fannie
Mae purchased $139 million of conventional mortgage loans from the Company and
$320 million of conventional mortgage loans of the Company were converted into
Ginnie Mae mortgage-backed securities and sold to various institutional
investors. 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. 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
7
<PAGE> 12
premiums, escrow deficiencies and any other amounts associated with the loan.
Although the Company is approved as a correspondent with 17 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 $141 million in fiscal 1997 to 21 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 1996, the Company sold $86.6 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.
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
$125 million. To the extent that the Company is not successful in renewing
its lines of credit, 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 credit facility, currently $28.5 million,
with Comerica Bank that is secured by a stand-by Note Purchase Agreement
between Comerica Bank and the Detroit Policemen and Firemen Retirement System
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 finance 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." The Detroit Policemen and Firemen Retirement System also
has provided the Company $15 million in subordinated debt to expand its
non-conforming originations.
The Company also has $1.0 million available under a line of credit
facility with a commercial bank for the acquisition and rehabilitation of
residential real property prior to resale.
RELIANCE ON CERTAIN WAREHOUSE LENDING ARRANGEMENTS
Among its short-term financing sources, MCA Mortgage has loan arrangements
with Texas Commerce Bank, N.A., and with Paine Webber Real Estate Securities,
Inc., pursuant to which they have agreed to lend MCA Mortgage up to $115
million and $10 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. If for any reason these lending arrangements are terminated, MCA
Mortgage's ability to fund mortgages and land contracts will be adversely
impacted.
8
<PAGE> 13
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."
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. 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, increased from $5.6 million for fiscal 1995 to
$14.3 million for fiscal 1996 and to $24.9 million for fiscal 1997. 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 $564 million for fiscal 1995,
increased to $632 million for fiscal 1996, and increased to $810 million for
fiscal 1997. 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 and to
approximately $172 million for fiscal 1996, which also adversely affected
mortgage origination fees. In fiscal 1997, interest rates experienced a slight
decline and refinancings remained steady at approximately $194 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
Illinois) 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 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
9
<PAGE> 14
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.
ANNUAL REPORTS
The Company will not send Annual Reports to the holders of its Series 1997
Debentures. Each Holder of Series 1997 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 (248) 358-5555.
10
<PAGE> 15
THE COMPANY
MCA Financial Corp. ("MCA Financial" 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. MCA Financial was founded in 1989
and became a holding company for MCA Mortgage and MCA in 1991. Through its
subsidiaries, MCA Financial 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, MCA Financial 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 1997
Debentures are estimated to be $9,269,700 if all Series 1997 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 1997 Debentures sold, 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. See
"Compensation Committee Interlocks and Insider Participation."
11
<PAGE> 16
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of January 31, 1997, and as adjusted to give effect to the sale of
the Series 1997 Debentures offered hereby:
<TABLE>
<CAPTION>
JANUARY 31, 1997
----------------
ACTUAL AS ADJUSTED
------ -----------
<S> <C> <C>
Long-term debt:
Capitalized lease obligations (1) $636,298 $636,298
11% Subordinated Debentures due 1997 (2) 4,921,000 4,921,000
11% Subordinated Debentures due 2000 10,000,000 10,000,000
11% Subordinated Debentures due 2002 621,000 621,000
10% Subordinated Notes due 2006 15,000,000 15,000,000
__% Subordinated Debentures due 2003
(offered hereby) --- 10,000,000
----------- -----------
Total long-term debt $31,178,298 $41,178,298
----------- -----------
Redeemable Common Stock 256,373 256,373
Stockholders' equity:
Common Stock--3,750,000 shares
authorized, 503,281 shares issued 5,033 5,033
Series A Preferred Stock--350,000 shares
authorized, 203,022 shares issued 2,030,220 2,030,220
Series B Preferred Stock--750,000 shares
authorized, 336,619 shares issued 3,366,190 3,366,190
Additional paid-in capital 3,664,976 3,664,976
Retained earnings 1,582,384 1,582,384
----------- -----------
Total stockholders' equity 10,648,803 10,648,803
----------- -----------
Total capitalization $42,083,474 $52,083,474
=========== ===========
</TABLE>
- -------------------
(1) See Note 10 of Notes to Consolidated Financial Statements.
(2) The 11% Subordinated Debentures due 1997 were redeemed in full as of March
17, 1997.
12
<PAGE> 17
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, 1997, which were derived from the audited consolidated financial statements
of the Company for the periods in the five-year period ended January 31, 1997.
The audited consolidated financial statements of the Company for each of the
periods in the three-year period ended January 31, 1997, 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>
FISCAL YEAR ENDED JANUARY 31
--------------------------------------------------
1997 1996 1995(1) 1994 1993
---- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME DATA:
Revenues--
Gain on sale of land contracts $3,438 $2,981 $2,983 $1,753 $1,433
Gain on sale of real estate 708 751 --- 67 299
Gain on sale of real estate--
related parties 7,539 6,530 7,365 4,811 3,249
Gain on bulk sales of servicing rights 5,231 4,726 7,475 5,579 997
Mortgage origination fees and
gain on sale of mortgages 24,862 14,339 5,584 11,282 6,280
Servicing fees 8,499 6,244 4,617 1,917 851
Interest income 8,168 5,903 5,106 3,948 856
Other 481 477 241 177 428
-------- -------- -------- -------- --------
Total revenues 58,926 41,951 33,371 29,534 14,393
Expenses 57,522 40,823 33,547 28,562 13,477
-------- -------- -------- -------- --------
Income (loss) before federal income taxes 1,404 1,128 (176) 972 916
Provision for federal income taxes 639 512 102 421 330
-------- -------- -------- -------- --------
Net income (loss) $765 $616 $(278) $551 $586
======== ======== ======== ======== ========
Net income (loss) per share $0.59 $0.30 $(1.80) $0.98 $2.01
Ratio of earnings to fixed charges--
Historical (2) 1.11x 1.13x n/a 1.20x 1.82x
Pro forma (3) 1.01x 1.01x n/a n/a n/a
Earnings (deficiency of earnings) over
fixed charges $1,404 $1,128 $(176) $972 $916
BALANCE SHEET DATA:
Assets--
Cash $3,097 $2,730 $2,931 $4,782 $3,699
Mortgages held for resale 54,430 63,306 15,702 39,250 14,084
Other 87,465 69,155 58,479 32,813 10,849
-------- -------- -------- -------- --------
Total assets $144,992 $135,191 $77,112 $76,845 $28,632
======== ======== ======== ======== ========
Liabilities--
Notes payable (4) $83,975 $86,598 $44,843 $54,549 $13,824
11% Subordinated Debentures due 1997 (5) 4,921 4,921 4,938 4,938 3,171
11% Subordinated Debentures due 2000 10,000 4,253 --- --- ---
11% Subordinated Debentures due 2002 621 --- --- --- ---
10% Subordinated Notes due 2006 15,000 --- --- --- ---
Other 19,570 29,258 18,041 8,495 6,465
-------- -------- -------- -------- --------
Total liabilities 134,087 125,030 67,822 67,982 23,460
Redeemable Common Stock (6) 256 --- --- 300 300
Stockholders' equity 10,649 10,161 9,290 8,563 4,872
-------- -------- -------- -------- --------
Total liabilities and stockholders' equity $144,992 $135,191 $77,112 $76,845 $28,632
======== ======== ======== ======== ========
OPERATING DATA:
Loan production--
Number of loans originated 10,107 7,928 8,224 8,910 2,448
Average loan balance $80 $80 $69 $77 $83
Total loans originated $809,756 $632,281 $564,235 $687,484 $203,087
Number of full-time employees 433 412 336 448 202
</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, 1.12x, 1.19x ,and 1.79x
for the years ended January 31, 1997, 1996, 1994, and 1993,
13
<PAGE> 18
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 $0.6 million for the year ended
January 31, 1995.
(3) The pro forma data reflects the Series 1997 Debenture interest expense,
assuming all such debentures are sold, and reflects the amortization of
debt issuance costs over a five-year period using the interest method.
(4) See Note 3 of Notes to Consolidated Financial Statements.
(5) The 11% Subordinated Debentures due 1997 were redeemed in full as of March
17, 1997.
(6) See Note 5 of Notes to Consolidated Financial Statements.
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 95% of its mortgage originations using its
warehouse lines of credit and approximately 5% with table funding sources.
The Company currently has a $115 million loan agreement with Texas
Commerce Bank, N.A. This revolving warehousing line of credit provides
financing for funding and originating a variety of residential mortgage loans
including, but not limited to, conforming mortgages, non-conforming mortgages
and land contracts. Interest on bank borrowings are based on LIBOR plus 0.85 to
2.5% depending on the type of loan. Mortgage loans held for resale are pledged
as collateral. This facility is scheduled to expire on September 3, 1997.
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, 1997. The Company expects to renew these warehousing
lines of credit upon their respective expirations. At January 31, 1997 a total
of $52.8 million was outstanding under these facilities.
The Company also has a $15 million loan and financing agreement with the
Board of Trustees of the Policeman and Firemen Retirement System of the City of
Detroit. This subordinated term loan has been provided to expand the Company's
non-conforming lending business. Interest on this borrowing is 10% and is
payable quarterly. Commencing July 1, 2001 equal quarterly installments of
principal and interest will be paid until the loan terminates and is repaid in
full on June 30, 2006. Under conditions of this agreement, the lender was
issued 30,197 shares of the Company's common stock. This represented 6% of the
outstanding unrestricted shares at July 18, 1996. As part of the agreement the
lender has the right to "put" these shares back to the Company on August 1,
2006 or upon default under a number of different scenarios.
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
14
<PAGE> 19
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.
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 $10 million principal amount was outstanding as of
January 31, 1997. The $4.9 million and the $10.0 million series of Debentures,
as well as the credit facility are collateralized by certain of the Company's
servicing rights and rights to servicing income. The Debenture offering
completed April, 1993 was terminated March 17, 1997. 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,
1997, $28.3 million was outstanding under the Comerica Bank credit facility.
During the years ended January 31, 1997 and 1996, mortgage servicing
rights with respect to approximately 75% and 75%, respectively, of loan
originations, or $607 million and $474 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 also has $4 million
available as part of its $115 million facility with Texas Commerce Bank. 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 $1.0 million available under a credit facility with
commercial banks for the acquisition and rehabilitation of residential real
property prior to resale. At January 31, 1997, $.28 million was outstanding
under this facility. 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 million
is available for working capital. At January 31, 1997, $0.25 million was
outstanding under this facility. See Note 3 of Notes to Consolidated
Financial Statements.
15
<PAGE> 20
During fiscal 1997, the Company's operating activities used $23.6 million.
Of this, $15.5 million was used to fund the increase in accounts
receivable-mortgages sold. The increase in accounts receivable, primarily
receivables related to bulk sales of servicing rights, used $7.3 million. The
Company used $8.0 million to increase excess interest spread receivable and
$9.5 million to decrease accounts payable. These uses of cash were offset by
an $8.9 million net decrease in mortgages held for resale. The Company's
investing activities during fiscal 1997 provided $5.9 million. Financing
activities provided the Company $18.1 million during fiscal 1997. The Company
used proceeds from notes payable of $814.9 million to fund mortgage loans and
invest in purchased servicing rights. Proceeds from sales of mortgage loans
and investments in purchased servicing rights of $817.7 million were used to
make payments on notes payable. Sales of the Company's 11% Subordinated
Debentures due June 30, 2000 and 2002 provided $6.4 million. Proceeds from
subordinated notes payable also provided $15.0 million.
RESULTS OF OPERATIONS
Revenue for the year ended January 31, 1997 increased by 40.5% to $58.9
million. 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. Net earnings increased by 24.3% to net earnings of $765,338 for
fiscal 1997 as compared to net earnings of $615,530 for fiscal 1996. Net
earnings in fiscal 1996 had increased from a net loss of $227,546 in fiscal
1995. In fiscal 1997 revenue increased in virtually every revenue item. The
most substantial increase, $10,522,661, occurred in mortgage origination fees
and gain on sale of mortgages. Interest income and servicing fees increased
$2,265,185 and $2,255,648, respectively. The increase in revenue during
fiscal 1996 was the result of increased mortgage origination fees 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 increase in earnings in fiscal
1997 resulted from increased overall revenues, specifically in non- conforming
originations. The increase in earnings during fiscal 1996 is 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 mortgage prepayment rate was 8.9%, 9.8% and 12.5% during fiscal
1995, 1996 and 1997, respectively. The amount of refinancing activity was $173
million during fiscal 1995, $172 million during fiscal 1996, and $194 million
during 1997.
Mortgage origination fees, including gains on sale from loan resale
transactions, for fiscal 1997, increased to $24.86 million as compared to
$14.34 million in fiscal 1996, an increase of 73.4%. Such mortgage origination
fees had increased in fiscal 1996 from $5.58 million in fiscal 1995. The total
dollar volume of loans originated increased by 28.2% to $810 million, for
fiscal 1997, up from $632 million for fiscal 1996 which represented a 12.1%
increase from $564 million in fiscal 1995. The total number of loans
produced increased 27.5% from 7,928 in fiscal 1996 to 10,107 in fiscal 1997.
The total number of loans produced decreased 3.8% from 8,244 in fiscal 1995 to
7,928 in fiscal 1996. The average loan balance increased to $80,118 in fiscal
1997 from $79,753 in fiscal 1996 and $68,608 in fiscal 1995. Increased
mortgage originations in fiscal 1997 resulted from steady (relatively low)
interest rates, strong home buying and building markets and the continued
addition of new loan origination branches. 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 branches opened
in fiscal 1995 for a full year. Included in mortgage
16
<PAGE> 21
origination fees are gains and losses on sale from loan resale transactions of
$4.40 million in fiscal 1997, $3.77 million fiscal 1996 and $(.43) million in
fiscal 1995.
In fiscal 1997, wholesale originations totaled $195.71 million, in fiscal
1996, approximately $140.71 million and in fiscal 1995, approximately $137.95
million. The increase in wholesale originations from fiscal 1996 to fiscal
1997 was the result of the Company focusing its wholesale efforts on
non-conforming wholesale originations which increased from $52.49 million to
$108.93 million, respectively. Non- conforming wholesale originations in
fiscal 1996 increased to $52.49 million from $9.46 million in fiscal 1995.
Mortgage origination revenues as a percent of total mortgage origination
volume increased from 1.0% in fiscal 1995 to 2.3% in fiscal 1996 to 3.1% in
fiscal 1997. 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. The increase in fiscal 1997 was attributable, primarily,
to the continued increase in the volume of non-conforming loan production.
The Company recorded revenues of $5.23 million related to the sale of bulk
servicing rights of $1.8 billion during fiscal 1997 as compared to $4.73
million on bulk sales of $940 million. Gains on bulk sales as a percent of
servicing rights sold decreased to 0.29% for fiscal 1997 from 0.5% in fiscal
1996. This decrease was due to the net effect of an increase of $500 million
of bulk sales involving servicing previously purchased. The gain on bulk sales
of this bulk-purchased servicing is lower because the Company's basis is much
greater than in originated mortgages. Revenues from bulk sales of servicing in
fiscal 1995 were $7.48 million, 0.4% of servicing rights sold. In fiscal 1996
and fiscal 1995, respectively, the Company sold servicing rights of $.7 billion
and $1.2 billion that had previously been purchased by the Company in bulk.
Interest income increased from $5.11 million in fiscal 1995 to $5.90
million in fiscal 1996, an increase of 15.5%, and increased to $8.20 million in
fiscal 1997, an increase of 39.0% as compared to fiscal 1996. Interest income
is earned primarily on loans held by the Company pending resale in the
secondary market. The increases in fiscal 1997 and fiscal 1996 resulted from
increased production volumes in general and specifically increased
non-conforming production volumes which typically carry higher interest rates.
Servicing fee revenue increased $4.62 million in fiscal 1995 to $6.24
million, an increase of 35.2%, and increased to $8.50 million in fiscal 1997,
an increase of 36.2% as compared to fiscal 1996. In 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. At the
end of fiscal 1997, the Company's servicing portfolio was $1.6 billion with
21,248 loans serviced. The Company sold $1.0 billion of servicing at the end
of fiscal 1997. Average servicing revenue per loan remained constant at $286
per loan for fiscal 1995 and fiscal 1996 and increased to $350 per loan for
fiscal 1997. The variance was primarily due to the timing of bulk sales.
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 aggregate of gains on the sale of real estate-related parties and
gains on the sale of real estate decreased from approximately $7.4 million in
fiscal 1995 to $7.3 million in fiscal 1996 and increased in fiscal 1997 to $8.2
million. Of these amounts, gains on the sale of real estate-related parties
represented approximately $7.4 million in fiscal 1995, $6.5 million in fiscal
1996 and $7.5 million in fiscal 1997. This
17
<PAGE> 22
reflects the Company's strategy to develop its business of real estate limited
partnership syndications through a former subsidiary. During fiscal 1997,
1996, and 1995, 820, 723, and 735 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.
Gains on the sale of land contracts were stable during fiscal 1996 and
fiscal 1995, remaining approximately $3.0 million for both years and increased
to $3.4 million in fiscal 1997. This reflects an increase in the number of
loan originators employed by the Company and increased marketing efforts. The
Company syndicated 16 pass-through pools with a total of $20.9 million of real
estate related loans in fiscal 1997. 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. Gains as a percentage of total syndication amounts increased from
13.3% in fiscal 1995 to 13.6 % in fiscal 1996, and 16.3% in fiscal 1997. These
percentages are consistent with past results.
Expenses for fiscal 1997 increased by $16.7 million over fiscal 1996 from
a total of $40.8 million to a total of $57.5 million, an increase of 40.9%.
Expenses for fiscal 1996 increased by $7.3 million from a total of $33.5
million in fiscal 1995 to $40.8 million in fiscal 1996, an increase of 21.8%.
These increases were in line with the overall increase in revenue during these
three years. Higher expenses directly resulted from increases in virtually
every category of revenue, reflecting the Company's overall growth to meet
increases in production levels and number of loans serviced. As a percentage
of revenue, however, payroll and commissions dropped from 46.7% to 42.6% and
40.8% for fiscal 1995, fiscal 1996 and fiscal 1997, respectively. These
continued improvements in efficiency have resulted from the Company's
commitment to keeping up with the available technology in the industry.
Interest expense increased in fiscal 1997 to $11.4 million from $7.6 million in
fiscal 1996 and $6.0 million in fiscal 1995, following increased production
levels. As a percentage of revenue, interest expense has been 19.4%, 18.0% and
18.0% for fiscal 1997, 1996 and 1995, respectively. General and administrative
expense remained consistent at 24.8%, 24.1% and 24.4%, as a percentage of
revenue for fiscal 1997, 1996 and 1995, respectively. Amortization expense
increased from $1.9 million in fiscal 1995 to $3.3 million in fiscal 1996 and
$4.9 million in fiscal 1997. The increases correspond with the balances in 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 requirements. At January 31,
1995, 1996 and 1997, respectively, the Company had approved loans that had not
yet closed amounting to approximately $23.08 million, $74.3 million and $40.1
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
18
<PAGE> 23
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 purchased and originated have
been consistent at $22.5 million, $21.9 and $20.9 for fiscal 1995, fiscal 1996,
and fiscal 1997, respectively. 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 currently has four offices in Florida and one
office in Georgia.
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.
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.
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<PAGE> 24
The following tables set forth the aggregate amount of retail loans and
the percentage of such retail loans that related to properties in the various
states in which the Company operates.
<TABLE>
<CAPTION>
Year State $ Amount of Retail Loans Percentage of Retail Loans
- ---- ----- ------------------------ --------------------------
<S> <C> <C> <C>
1997 Michigan $247 million 40%
Indiana 72 million 12%
Florida 103 million 17%
Ohio 35 million 6%
Illinois 82 million 13%
1996 Michigan $193 million 39%
Indiana 57 million 11%
Florida 85 million 17%
Ohio 46 million 9%
Illinois 55 million 11%
1995 Michigan $234 million 59%
Indiana 51 million 13%
Washington 31 million 8%
Ohio 48 million 12%
</TABLE>
The remaining retail loans for fiscal 1997, 1996 and 1995 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.
The following tables set forth the aggregate amount of wholesale loans and
the percentage of such wholesale loans that related to properties in the
various states in which the Company operates.
<TABLE>
<CAPTION>
Year State $ Amount of Wholesale Loans Percentage of Wholesale Loans
- ---- ----- --------------------------- -----------------------------
<S> <C> <C> <C>
1997 Florida $33 million 17%
Michigan 61 million 31%
Illinois 34 million 18%
Ohio 41 million 21%
1996 Florida $11 million 8%
Michigan 66 million 47%
Illinois 28 million 20%
Ohio 25 million 18%
1995 Florida $45 million 33%
Michigan 35 million 25%
Indiana 17 million 12%
Oregon 9 million 7%
</TABLE>
20
<PAGE> 25
The remaining wholesale loans for fiscal 1997, 1996 and 1995 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 $214,600 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 expanded its originations of non-conforming loans by
employing the $15 million received from the Detroit Policemen and Firemen
Retirement System to recruit loan officers with non-conforming lending
experience, and to open non-conforming lending branches.
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<PAGE> 26
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>
FISCAL YEAR ENDED JANUARY 31,
-----------------------------------------------
1997 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
RETAIL LOANS-- (DOLLARS IN THOUSANDS)
Conventional loans:
Number of loans 3,076 2,715 2,241 1,792
Volume of loans $272,943 $234,154 $186,452 $225,111
Percentage of total volume 33.71% 38.47% 33.04% 32.74%
FHA/VA loans:
Number of loans 3,765 2,669 2,681 3,181
Volume of loans $291,601 $202,803 $186,136 $215,146
Percentage of total volume 36.01% 32.07% 32.99% 31.30%
Non-conforming loans:
Number of loans 418 581 1,425 1,142
Volume of loans $32,012 $34,133 $42,301 $19,188
Percentage of total volume 3.96% 5.40% 7.50% 2.79%
Jumbo loans:
Number of loans 68 40 41 61
Volume of loans $17,491 $11,478 $11,397 $20,281
Percentage of total volume 2.16% 1.81% 2.02% 2.95%
Average loan balance $83,806 $ 81,860 $ 66,732 $ 74,830
Total volume of retail loans (1) $614,047 $491,568 $426,286 $479,726
WHOLESALE LOANS--
Conventional loans:
Number of loans 546 617 655 1,664
Volume of loans $48,048 $60,590 $54,740 $133,310
Percentage of total volume 5.93% 9.58% 9.70% 19.39%
FHA/VA loans:
Number of loans 427 309 1,059 1,066
Volume of loans $37,904 $27,158 $73,746 $73,428
Percentage of total volume 4.68% 4.30% 13.07% 10.68%
Non-conforming loans:
Number of loans 1,803 995 122 *
Volume of loans $108,928 $52,485 $9,463 *
Percentage of total volume 13.45% 8.30% 1.68% *
Jumbo loans:
Number of loans 4 2 * 4
Volume of loans $829 $480 * $1,020
Percentage of total volume 0.10% 0.07% * 0.15%
Average loan balance $70,400 $ 73,174 $75,136 $75,990
Total volume of wholesale
loans (2) $195,709 $140,713 $137,949 $207,758
TOTAL LOANS--
Number of loans 10,107 7,928 8,244 8,910
Volume of loans $809,756 $632,281 $564,235 $687,484
Average loan balance $80,118 $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 fiscal 1993 was
$151.14 million. The total volume of wholesale loans for fiscal 1993
was $51.95 million. Further detail for fiscal 1993 is not available.
(2) During fiscal 1997, no single company was responsible for more than 10%
of the Company's wholesale originations. 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.
22
<PAGE> 27
At January 31, 1997 the Company had applications in process for
approximately 2,022 mortgage loans, aggregating approximately $154 million.
By comparison, on January 31, 1996, the Company had applications in process for
approximately 1,947 mortgage loans aggregating approximately $186 million. The
Company anticipates, based on past history, that 75% to 80% 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 Loan
Agreement with Texas Commerce Bank N.A. and a Mortgage Loan Agreement with
Paine Webber Real Estate Securities. 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.
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.
23
<PAGE> 28
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>
FISCAL YEAR ENDED JANUARY 31,
------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
30-year Fixed Rate:
Number of Loans 6,092 5,349 4,569 5,084 818
Volume of Loans $492,949 $424,994 $339,394 $448,762 $ 94,297
Percent of Total Volume 60.88% 67.22% 60.15% 65.28% 46.43%
15-year Fixed Rate:
Number of Loans 785 611 844 1,953 673
Volume of Loans $49,149 $40,137 $49,536 $142,340 $ 50,985
Percent of Total Volume 6.07% 6.35% 8.78% 20.70% 25.11%
Adjustable Rate ("ARMS"):
Number of Loans 1,487 1,239 1,217 299 248
Volume of Loans $143,453 $114,619 $108,983 $34,073 $ 26,534
Percent of Total Volume 17.71% 18.13% 19.32% 4.96% 13.07%
Other (1):
Number of Loans 0 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 1,743 660 1,242 1,380 464
Volume of Loans $124,205 $47,306 $60,167 $59,188 $ 27,863
Percent of Total Volume 15.34% 7.48% 10.66% 8.61% 13.71%
Total Number of Loans 10,107 7,928 8,224 8,910 2,448
Total Volume $809,756 $632,281 $564,235 $687,484 $203,087
Total Loan to Value Percent 84.1% 83.8% 90.5% 94.5% *
</TABLE>
* Indicates that information is not available.
(1) This category represents mortgages and land contracts with other than 15 or
30 year terms, which have no balloon payment.
24
<PAGE> 29
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>
FISCAL YEAR ENDED JANUARY 31,
------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Detached - Single Family
------------------------
Owner Occupied:
Number of Loans 8,939 6,943 6,916 7,441 1,864
Volume of Loans $724,011 $578,154 $506,714 $636,440 $178,515
Percent of Total Volume 89.41% 91.44% 89.81% 92.58% 87.90%
Non-owner Occupied:
Number of Loans 442 133 947 1,088 447
Volume of Loans $20,733 $6,121 $28,603 $23,441 $ 14,427
Percent of Total Volume 2.56% 0.97% 5.07% 3.41% 7.11%
Other (1):
Number of Loans 76 66 39 64 9
Volume of Loans $6,022 $5,929 $3,310 $4,894 $ 698
Percent of Total Volume 0.75% 0.94% 0.59% 0.71% 0.34%
Multi-United Commercial
-----------------------
Owner Occupied:
Number of Loans 523 360 262 265 101
Volume of Loans $52,489 $28,919 $19,909 $18,895 $ 7,655
Percent of Total Volume 6.48% 4.57% 3.53% 2.75% 3.77%
Non-owner occupied:
Number of Loans 127 426 60 52 27
Volume of Loans $6,501 $13,158 $5,699 $3,814 $ 1,792
Percent of Total Volume 0.80% 2.08% 1.00% 0.55% 0.88%
</TABLE>
- ---------------
(1) 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")
25
<PAGE> 30
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 0.50% 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.
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 0.05% to 0.07% 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 1997, 1996, 1995,
1994, and 1993, the Company made $809.8 million, $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.
Non-conforming loans are sold to a different group of investors. They are
typically packaged with other similar loans and sold servicing released, in
bulk, to obtain a more favorable price. In the fourth
26
<PAGE> 31
quarter, the Company entered into an agreement with another party to sell
substantial portions of the Company's non-conforming production for purposes of
securitization. This entitles the Company to the difference between the
weighted average coupon rate of the loan it originated and the security's
stated yield, less a normal servicing fee and certain other fees.
Servicing. At January 31, 1997, the Company owned servicing rights for
mortgages with outstanding balances of approximately $1.48 billion and to land
contracts with outstanding net balances of approximately $117 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 1997, the
Company has purchased servicing for a total of approximately $830 million of
mortgage loans and has sold servicing for a total of approximately $1.8 billion
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, 1997, the
weighted average rate on mortgages serviced by the Company but owned by others
was 8.04% 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 10.98%.
27
<PAGE> 32
The following table sets forth information about the Company's retail and
wholesale loan origination and servicing activities:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(dollars in thousands, except average loan balance)
Beginning loan servicing portfolio $2,206,460 $1,303,628 $1,105,534 $234,743 $44,380
Add:
Loans purchased and originated for resale 727,007 632,281 536,881 687,484 203,087
Loans purchased for syndication 20,849 25,597 27,354 19,188 16,475
Mortgage servicing purchased (net of sales) (862,569) 618,780 (166,577) 471,587 98,808
---------- ---------- ---------- ---------- -----------
$2,091,747 $2,580,286 $1,503,192 $1,413,002 $362,750
Less:
Amortization (53,761) (43,491) (43,228) (36,832) (1,146)
Prepayment of loans (237,196) (172,100) (107,571) (210,305) (7,773)
Loans sold with servicing sold (199,748) (158,235) (48,765) (60,331) (119,088)
---------- ---------- ---------- ---------- ---------
Ending loan servicing portfolio $1,601,042 $2,206,460 $1,303,628 $1,105,534 $234,743
========== ========== ========== ========== =========
Number of loans serviced (end of period) 21,248 27,357 16,372 15,900 4,063
Average loan balance $75,350 $80,650 $79,625 $69,530 $57,776
</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>
FISCAL YEAR ENDED JANUARY 31,
--------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Delinquent mortgage loans at Period end:
30 days:
Number of loans 838 227 359 259 157
Percent of total loans 3.94% 0.83% 2.19% 1.87% 3.86%
60 days:
Number of loans 216 49 97 77 26
Percent of total loans 1.02% 0.18% 0.59% 0.56% 0.64%
90 days or more:
Number of loans 367 75 143 43 45
Percent of total loans 1.73% 0.27% 0.87% 0.31% 1.11%
Total delinquencies:
Number of loans 1,421 351 599 379 228
Percent of total loans 6.69% 1.28% 3.65% 2.74% 5.61%
</TABLE>
28
<PAGE> 33
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Foreclosed Properties:
Beginning inventory 122 84 83 84 34
Properties acquired 106 136 89 122 162
Ending inventory 113 122 84 83 84
Aggregate carrying value,
net (-000's) $2,576 $2,288 $1,500 $1,495 $1,701
Average carrying value $22,798 $18,754 $17,854 $18,012 $20,246
</TABLE>
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, 1997, the Company had sponsored more than 114
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, 1997, the maximum amount of these future purchase
commitments totalled approximately $9.4 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.
29
<PAGE> 34
The following table shows of the Company's originations and purchases of
loans for syndication in pass-through pools during the fiscal years indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
---------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Number of land contracts syndicated 855 933 1,002 798 308
Average balance $24,418 $23,485 $22,453 $17,759 $31,413
Total amount of land contracts syndicated $20,877,360 $21,911,707 $22,498,079 $14,172,104 $9,675,388
Number of mortgage notes syndicated 46 78 212 344 260
Average loan balance $62,930 $47,246 $22,906 $14,580 $26,152
Total amount of mortgage notes syndicated $2,894,797 $3,685,207 $4,856,239 $5,015,723 $6,799,612
Total number of loans syndicated 901 1,011 1,214 1,142 568
Average loan balance $26,384 $25,318 $22,513 $16,802 $29,005
Total amount syndicated $23,772,157 $25,596,914 $27,354,318 $19,187,827 $16,475,000
</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, 1997, the Company acquired and sold 820 single family homes for a
total gain of $8.2 million, $7.5 million of which represented sales to the
limited partnerships described above. During fiscal 1996, 1995, 1994 and 1993,
the Company acquired and sold 723, 735, 415 and 268 single-family homes,
respectively, for total gains of $7.3 million, $7.4 million $4.9 million and
$3.5 million respectively, of which $6.5 million, $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.
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
30
<PAGE> 35
contract receivables are dependent upon the ability of these partnerships to
generate and collect 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
stockholders. 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 examinations
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 disclosure 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. Additionally, there are various
state laws affecting the Company's mortgage banking 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, California, North Carolina and Pennsylvania.
31
<PAGE> 36
EMPLOYEES
At January 31, 1997, 452 individuals were employed by the Company, of
which 433 were full-time employees, including 157 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 39,000 square
feet of leased office space in Southfield, Michigan. The basic annual rent for
the Southfield office space is approximately $482,000. 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, 1997, the Company leased office space
in 29 other locations: 12 in Michigan, 4 in Indiana, 5 in Florida, 3 in Ohio, 2
in Illinois, one in Kentucky, one in North Carolina, and one in California.
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.
32
<PAGE> 37
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information about the directors and executive
officers of MCA Financial.
<TABLE>
<CAPTION>
Name and Age Principal Position(s) Held with MCA Financial
------------ ---------------------------------------------
<S> <C>
Patrick D. Quinlan, 50 Chairman, Chief Executive Officer and Director
Thomas P. Cronin, 50 Vice Chairman and Director
Lee P. Wells, 36 President, Chief Operating Officer and Director
Keith D. Pietila, 47 Executive Vice President and Director
Alexander J. Ajemian, 33 Senior Vice President, Controller and Treasurer
James B. Quinlan, 45 Director
C. Thompson Wells, Jr., 56 Director
D. Michael Jehle, 47 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 stockholders,
directors in the class whose term expires are elected to serve a three-year
term. Lee P. Wells and Thomas P. Cronin are serving for a term ending at the
annual meeting of stockholders 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 stockholders to be held in 1998. Keith D. Pietila and James B.
Quinlan are serving for a term ending at the Annual Meeting of Stockholders to
be held in 1999.
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. Certain of the directors and executive officers of
MCA Financial are also directors or officers of MCA Financial's other
subsidiaries.
PATRICK D. QUINLAN has been Chairman of the Board, Chief Executive Officer and
a director of MCA Financial since its inception and served as President of MCA
Financial 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 Stockholders."
THOMAS P. CRONIN has been Vice Chairman of MCA Financial since July 1995 and a
director of MCA Financial since January 1993. Mr. Cronin has been Chief
Executive Officer of MCA Mortgage from November 1993 until February 1997. 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.
LEE P. WELLS has been President and Chief Operating Officer of MCA Financial
since July 1995 and has been a director of MCA Financial since its inception.
Mr. Wells served as Executive Vice President of MCA Financial 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
33
<PAGE> 38
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
Stockholders."
KEITH D. PIETILA has been Executive Vice President and Chief Financial Officer
of MCA Financial since July 1995 and has been a director of MCA Financial since
its inception. Mr. Pietila served as Chief Operating Officer and Vice
President of MCA Financial from MCA Financial'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 MCA Financial since
July 1995 and has been Controller and Treasurer of MCA Financial since its
inception. Mr. Ajemian served as Vice President of MCA Financial 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 MCA Financial 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 MCA Financial 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 Stockholders."
C. THOMPSON WELLS, JR., has been a director of MCA Financial 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 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. Since
September 1996, Mr. Wells has served as President and Chief Executive Officer
of RIMCO Financial Corp., a company affiliated with MCA Financial Corp. C.
Thompson Wells, Jr. is the father of Lee P. Wells. See "Principal
Stockholders."
D. MICHAEL JEHLE has been a director of MCA Financial 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
34
<PAGE> 39
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.
COMPENSATION
The following table sets forth, for the fiscal years shown, information
regarding amounts paid to or accrued for the Chief Executive Officer of MCA
Financial and the other four most highly compensated executive officers of MCA
Financial (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation Awards
------------------- -----------------------------
Fiscal Restricted Stock All Other
Name and Principal Position Year Salary Bonus Awards(1) Compensation (2)
- --------------------------- ---- ------ ----- --------- ----------------
<S> <C> <C> <C> <C> <C>
Patrick D. Quinlan -
Chairman and 1997 $208,061 $--- $--- $23,172
Chief Executive 1996 206,458 --- --- 16,048
Officer 1995 195,000 --- --- 16,878
Thomas P. Cronin - 1997 $224,136 $--- $--- $9,670
Vice Chairman 1996 218,099 --- --- 9,670
1995 204,200 --- 110,000 9,670
Lee P. Wells - 1997 $170,000 $26,675 $--- $1,766
President and Chief 1996 159,583 19,500 --- 2,146
Operating Officer 1995 117,000 40,000 --- 1,766
Keith D. Pietila -
Chief Financial 1997 $160,000 $30,000 $ --- $11,640
Officer and 1996 153,333 25,000 --- 11,552
Executive Vice President 1995 124,800 22,000 66,000 10,818
Alexander J. Ajemian- 1997 $100,000 $15,000 $ --- $---
Controller, Treasurer and 1996 94,375 10,000 --- ---
Senior Vice President 1995 69,600 ---- 66,000 ---
</TABLE>
- -----------------
(1) During fiscal 1995, Mr. Pietila 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. Pietila 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.
(2) Represents for each of the Named Executive Officers, premiums paid by the
Company for life insurance for the last fiscal year.
For the year ended January 31, 1997, the Company paid non-employee
directors an annual fee of $20,000 and paid James B. Quinlan an additional
annual fee of $10,000 for serving on the board of MCA Mortgage. This policy is
subject to review annually.
35
<PAGE> 40
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 reasonably believed to be
in or not opposed to the best interests of the Company or its stockholders, 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
corporations 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 stockholders 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 stockholders; (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
stockholders; (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, stockholders 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 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, 1997. 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.
36
<PAGE> 41
During fiscal 1997, 1996 and 1995, the Company recognized a gain of
$7,539,447, $6,529,708, and $7,365,199, respectively, on the sale of properties
purchased from unrelated third parties and subsequently sold to limited
partnerships whose general partner is owned by Patrick D. Quinlan and Lee P.
Wells. During fiscal 1997, fiscal 1996, and fiscal 1995, the Company paid
commissions in connection with the acquisition of these properties totaling
$1,968,000, $1,735,000, and $1,315,000, respectively, to 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 Securities
and Exchange Commission. This service arrangement can be terminated by either
party at any time. The Company earned $36,000 in management fees for
administrative services provided to U.S. Mutual during each of fiscal 1997,
1996 and 1995. Keith D. Pietila is a director of U.S. Mutual.
From time to time, 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 a stockholder, director and executive officer of
CSA and was a stockholder, 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 1997 and 1996,
the Company paid $105,000 and $120,000, respectively, in consulting fees to
CSA. During fiscal 1995, the Company paid $123,080 in consulting fees to
Alquin.
In July 1995, Janet K. Wells, the wife of C. Thompson Wells, Jr., and the
mother of Lee P. 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 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, 1997, 1996 and 1995, the Company's
accounts receivable from these related entities, net of accounts payable to
these entities, were $571,000, $793,000, and $796,000, respectively, due from
Rimco Financial Corp., a company owned by Patrick D. Quinlan, Lee P. Wells and
Leroy G. Rogers, and $1.67 million, $1.68 million and $1.10 million,
respectively, due from Property Corporation of America, the common stock of
which is owned by Patrick D. Quinlan and Lee P. Wells. In addition, there is
$3.4 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, MCA Financial 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 MCA Financial. Rimco Realty & Mortgage
Company was engaged in the purchase and sale of residential real estate and now
operates as MCA Realty Corporation.
37
<PAGE> 42
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of April 1, 1997,
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 112,135 (2) 21.43%
James B. Quinlan 55,734 (3) 10.65%
17150 Kercheval Ave.
Grosse Pointe, Michigan 48230
C. Thompson Wells, Jr. 86,200 (4) 16.47%
Lee P. Wells 48,372 (2) 9.24%
NML, Inc. 33,700 (2) 6.44%
David C. Wells 28,347 (5) 5.42%
Keith D. Pietila 28,167 (6) 5.38%
Thomas P. Cronin 13,200 (6) 2.52%
D. Michael Jehle 11,000 (6) 2.10%
Janet K. Wells 86,200 (4) 16.47%
3 Sycamore
Grosse Pointe, Michigan 48230
Alexander J. Ajemian 8,280 (6) 1.58%
All executive officers and directors
as a group (8 persons) 397,293 (2)(4)(6) 75.92%
</TABLE>
- ---------------
(1) As of April 1, 1997, there were 523,283 shares of Common Stock of the
Company outstanding. This number includes 20,002 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.
(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.
38
<PAGE> 43
DESCRIPTION OF SERIES 1997 DEBENTURES
General. In this Offering the Company is offering for sale up to
$10,000,000 aggregate principal amount of __% Subordinated Debentures Series
1997, Due June 1, 2003 (the "Series 1997 Debentures"). The Series 1997
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, 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
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 1997 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 1997 Debentures and such debt may be either
superior to, on a par with, or subordinated to the Series 1997 Debentures.
The total amount of Series 1997 Debentures that may be issued under the
Indenture and sold by the Company is limited to $10,000,000. Interest on the
Series 1997 Debentures will accrue from the Date of Issue and will be payable
on March 1, June 1, September 1 and December 1 of each year at the rate of __%
per annum. Interest will be payable to the person in whose name the Series
1997 Debentures are registered at the close of business on the first day of the
proceeding calendar month in which falls an Interest Payment Date. The Series
1997 Debentures will mature on June 1, 2003, 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 1997
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
1997 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 1997 Debentures.
The Company will issue the Series 1997 Debentures only in fully registered
form, without coupons, in denominations of $1,000 and integral multiples
thereof. Holders may transfer or exchange the Series 1997
39
<PAGE> 44
Debentures by surrendering them for transfer or exchange at the Corporate Trust
Department of the Trustee, duly endorsed for transfer. The Series 1997
Debentures will be transferable or exchangeable without service charge, but the
Company may require payment to cover taxes or other government charges. The
Series 1997 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 1997 Debentures at any time on or after June 1, 1999, or some of
them from time to time on or after June 1, 1999, 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>
June 1, 1999 through May 31, 2000 102.0%
June 1, 2000 through May 31, 2001 101.0%
June 1, 2001 and thereafter 100.0%
</TABLE>
If the Company elects to redeem the Series 1997 Debentures in whole or in
part, it shall notify the Trustee of the desired redemption date and the
principal amount of Series 1997 Debentures to be redeemed. If less than all of
the Series 1997 Debentures are to be redeemed, the Trustee shall select the
Series 1997 Debentures to be redeemed either pro-rata or by lot, as the Trustee
in its sole discretion shall choose. Series 1997 Debentures shall be redeemed
only in denominations of $1,000 or integral multiples thereof.
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 1997 Debentures to be redeemed.
The notice shall identify the Series 1997 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 1997 Debenture a
new Series 1997 Debenture, equal in principal amount to the unredeemed portion
thereof, will be issued, (4) that Series 1997 Debentures called for redemption
must be surrendered to the Paying Agent to collect the redemption price and (5)
that interest on the Series 1997 Debentures to be redeemed ceases to accrue on
and after the redemption date.
Holders' Right of Redemption. The Indenture provides that on each March
1, commencing with March 1, 1999, upon request by a Holder or on behalf of a
deceased Holder, the Company will redeem such Holder's Series 1997 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 1997 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
1997 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
1997 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
1 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
40
<PAGE> 45
deceased Holder and the date of his death and shall indicate the principal
amount of Series 1997 Debentures to be redeemed, up to $25,000, (ii) the Series
1997 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 1997
Debentures in the principal amount of up to $25,000 each year, which the
Company will honor on March 1 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 1997 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 1997 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.
In applying the annual aggregate redemption limit of $100,000, the Trustee
shall give priority in the redemption of Series 1997 Debentures as follows:
first, to requests for redemption received prior to December 1 of each year
made on behalf of deceased Holders on a pro rata basis, and second, to all
other Holders of Series 1997 Debentures, on a pro rata basis.
The death of a Person owning a Series 1997 Debenture in joint tenancy or
tenancy by the entirety with another or others shall be deemed the death of the
Holder of the Series 1997 Debenture, and the entire principal amount of the
Series 1997 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 1997 Debenture by tenancy in common shall be deemed the death of a
Holder of a Series 1997 Debenture only with respect to the deceased Holder's
interest in the Series 1997 Debenture so held by tenancy in common; except that
in the event a Series 1997 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 1997 Debenture and the entire principal amount of the Series 1997
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 1997 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 1997 Debenture during his
lifetime.
Subordination. Any payment on the Series 1997 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 1997 Debentures. At
January 31, 1997, MCA Financial had $35.2 million of Senior Indebtedness
outstanding. In addition, at January 31, 1997, MCA Mortgage and MCA, the
Company's principal subsidiaries, had $72.3 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 1997 Debentures, to participate in any
distribution of assets of such subsidiaries upon a liquidation or
reorganization of either of
41
<PAGE> 46
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.
No payment of the principal of, or interest on, the Series 1997 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 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 1997 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 1997 DEBENTURES, IN THE EVENT OF LIQUIDATION OF THE
COMPANY, THE RECOVERY, IF ANY, TO THE HOLDERS OF SERIES 1997 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 1997
Debenture at its Maturity or upon redemption; (b) default in the payment of
interest on any Series 1997 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
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
42
<PAGE> 47
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 1997 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 1997
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 1997 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 1997 Debentures Outstanding and upon
being indemnified to its satisfaction shall, proceed to protect and enforce its
rights and the rights of the Series 1997 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 1997
Debentures Outstanding may declare the principal of all the Series 1997
Debentures to be due and payable immediately, by a notice in writing to the
Company, and to the Trustee if given by Series 1997 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 1997 Debentures, the Holders of a
majority in principal amount of the Series 1997 Debentures Outstanding may
waive an Event of Default resulting in acceleration of such Series 1997
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 1997 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 1997 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 1997 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 1997 Debenture will have an absolute right to receive payment of and the
principal of and interest on such Series 1997 Debenture on or after the
respective due dates and to institute suit for the enforcement of any such
payment.
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 1997 Debentures; provided, however,
that no such changes shall, without the consent of the holder of each
Outstanding Series 1997 Debenture affected thereby (i) change the Stated
Maturity of the principal of, or any installment of interest on any Series 1997
Debenture, (ii) reduce the principal of, or the rate of interest on, any Series
1997 Debenture (iii) change the coin or currency in which any Series 1997
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 1997 Debentures, the
consent of whose Holders
43
<PAGE> 48
is required to modify the Indenture, (vi) reduce the percentage in principal
amount of the Outstanding Series 1997 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 1997 Debentures to any Indebtedness of the Company
other than Senior Indebtedness, or (viii) impair or restrict the rights of the
Holders of the Series 1997 Debentures to redemption of the Series 1997
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 1997
Debentures at the time the Series 1997 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, 1997,
there were 523,283 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 stockholders 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.
There is no established public trading market for the Company's Common
Stock. At April 1, 1997, there were 67 stockholders 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
1997 Debentures.
PLAN OF DISTRIBUTION
The Series 1997 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 1997 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, Sigma Financial Corporation, Chapel
Hill Securities, Inc., Martha R. Seger & Associates, Inc., Delta Equity
44
<PAGE> 49
Services Corporation, Vestax Securities Corporation, Magellan Securities, Inc.
and Sabel Management, Inc., 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 will not have any firm
commitment for the purchase of Series 1997 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 1997 Debentures sold by them, provided, however, that if a
broker-dealer sells $250,000 or more of the Series 1997 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 1997 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.
LEGAL MATTERS
The validity of the Series 1997 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, 1997 and 1996,
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended January 31, 1997, 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.
45
<PAGE> 50
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets as of January 31, 1997 and 1996 F-3
Consolidated Statements of Operations for the years ended
January 31, 1997, 1996 and 1995 F-4
Consolidated Statements of Stockholders' Equity for the years
ended January 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Cash Flows for the years ended
January 31, 1997, 1996 and 1995 F-6
Notes to Consolidated Financial Statements F-9
</TABLE>
F-1
<PAGE> 51
Report of Independent Certified Public Accountants
To the Board of Directors of
MCA FINANCIAL CORP.
We have audited the accompanying consolidated balance sheets of MCA Financial
Corp. and Subsidiaries as of January 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended January 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of MCA
Financial Corp. and its Subsidiaries as of January 31, 1997 and 1996, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended January 31, 1997, in conformity
with generally accepted accounting principles.
As described in Note 1, in February 1996, the Company adopted Statement of
Financial Accounting Standards No. 122, "Accounting for Certain Mortgage
Servicing Rights".
Moore Stephens Grant Thornton LLP
Doeren Mayhew, P.C. Detroit, Michigan
April 28, 1997
Troy, Michigan
F-2
<PAGE> 52
MCA FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JANUARY 31,
1997 1996
------------ ------------
<S> <C> <C>
Cash $ 3,096,993 $ 2,730,408
Land contracts held-for-resale 10,351,425 11,484,877
Mortgages held-for-resale 54,430,155 63,306,372
Accounts receivable - mortgages sold 15,489,908 -
Accounts receivable 16,997,311 9,722,527
Accounts receivable - related parties 6,827,285 8,256,090
Mortgage servicing rights - net 16,324,263 27,293,358
Excess interest spread receivable 7,987,053 -
Investments 2,571,750 2,492,816
Property and office equipment 5,582,612 4,856,330
Deferred charges and other assets 5,333,058 5,047,863
------------ ------------
Total assets $144,991,813 $135,190,641
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Notes payable $ 83,975,834 $ 86,597,703
Subordinated debentures 15,542,000 9,174,000
Subordinated notes payable 15,000,000 -
Accounts payable 15,705,913 25,206,687
Accounts payable - related parties 1,043,842 1,693,311
Accrued interest and other expenses 2,419,048 2,058,080
Deferred federal income tax 400,000 300,000
------------ ------------
Total liabilities 134,086,637 125,029,781
------------ ------------
COMMITMENTS AND CONTINGENCIES - -
REDEEMABLE COMMON STOCK 256,373 -
STOCKHOLDERS' EQUITY
Common stock
Authorized 3,750,000 shares at January 31,
1997 and 1996. No par, stated value $.01 each.
Issued and outstanding, 503,281 shares at
January 31, 1997 and 448,617 shares at
January 31, 1996 5,033 4,486
Preferred stock (Series A)
Authorized 350,000 shares, $10 stated value,
issued and outstanding 203,022 shares at
January 31, 1997 and 1996 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, 1997 and 1996 3,366,190 3,366,190
Additional paid-in capital 3,664,976 1,457,251
Retained earnings 1,582,384 1,302,713
------------ ------------
Total stockholders' equity 10,648,803 10,160,860
------------ ------------
Total liabilities and stockholder's equity $144,991,813 $135,190,641
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE> 53
MCA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1997 1996 1995
---------- ----------- -----------
<S> <C> <C> <C>
REVENUES
Gain on sale of land contracts $ 3,437,662 $ 2,981,138 $ 2,983,022
Gain on sale of real estate 707,754 750,800 --
Gain on sale of real estate - related parties 7,539,447 6,529,708 7,365,199
Gain on bulk sales of servicing rights 5,231,163 4,725,872 7,475,444
Mortgage origination fees and gain on sale
of mortgages 24,861,881 14,339,220 5,584,454
Servicing fees 8,499,396 6,243,748 4,616,738
Interest income 8,167,899 5,902,714 5,106,041
Other income 481,138 477,810 240,783
---------- ---------- ----------
Total revenues 58,926,340 41,951,010 33,371,681
---------- ---------- ----------
EXPENSES
Payroll 15,775,097 11,955,536 10,985,576
Interest 11,426,082 7,565,044 6,018,518
Commissions 8,257,703 5,929,844 4,591,079
Professional services 1,879,525 1,447,810 1,511,215
Depreciation 687,333 554,904 351,964
Amortization 4,869,475 3,259,131 1,924,872
General and administrative 14,626,787 10,111,211 8,163,619
---------- ---------- ----------
Total expenses 57,522,002 40,823,480 33,546,843
---------- ---------- ----------
INCOME (LOSS) BEFORE FEDERAL INCOME TAXES 1,404,338 1,127,530 (175,162)
PROVISION FOR FEDERAL INCOME TAXES 639,000 512,000 102,384
---------- ---------- ----------
NET INCOME (LOSS) $ 765,338 $ 615,530 $ (277,546)
========== ========== ==========
EARNINGS (LOSS) PER SHARE $ 0.59 $ 0.30 $ (1.80)
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE> 54
MCA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED JANUARY 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
PREFERRED
ADDITIONAL STOCK
COMMON PREFERRED PAID-IN RETAINED SUB-
STOCK STOCK CAPITAL EARNINGS SCRIPTIONS TOTAL
------ --------- ---------- -------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance - February 1, 1994 $4,023 $4,698,870 $2,848,350 $1,897,815 $(886,000) $ 8,563,058
Net loss -- -- -- (277,546) -- (277,546)
Issuance of common stock 26 -- 28,211 -- -- 28,237
Issuance of preferred stock -- 697,540 (159,531) -- 886,000 1,424,009
Preferred stock dividends -- -- -- (447,446) -- (447,446)
------ ---------- ---------- ---------- ---------- -----------
Balance - January 31, 1995 4,049 5,396,410 2,717,030 1,172,823 -- 9,290,312
Net income -- -- -- 615,530 -- 615,530
Issuance of common stock 444 -- 764,300 -- -- 764,744
Repurchase of common stock (7) -- (24,079) -- -- (24,086)
Preferred stock dividends -- -- -- (485,640) -- (485,640)
------ ---------- ---------- ---------- ---------- -----------
Balance - January 31, 1996 4,486 5,396,410 3,457,251 1,302,713 -- 10,160,860
Net income -- -- -- 765,338 -- 765,338
Issuance of common stock 547 -- 207,725 -- -- 208,272
Preferred stock dividends -- -- -- (485,667) -- (485,667)
------ ---------- ---------- ---------- ---------- -----------
Balance - January 31, 1997 $5,033 $5,396,410 $3,664,976 $1,582,384 $ -- $10,648,803
====== ========== ========== ========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 55
MCA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 765,338 $ 615,530 $ (277,546)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization 5,556,808 3,814,035 2,276,836
Stock award compensation 207,970 165,744 28,237
Decrease (increase) in land contracts
held-for-resale 1,133,452 (2,175,379) (5,439,497)
Origination and purchase of mortgages
held-for-resale (794,266,291) (632,281,000) (564,235,000)
Sale of mortgages held-for-resale 803,142,508 585,277,031 587,782,628
Increase in accounts receivable -
mortgages sold (15,489,908) -- --
Decrease (increase) in accounts receivable (7,274,784) 4,432,277 (7,325,104)
Decrease (increase) in accounts receivable -
related parties 1,428,805 (986,951) (1,333,086)
Increase in excess interest spread receivable (7,987,053) -- --
Increase in deferred charges and other assets (1,104,199) (2,123,743) (1,538,268)
Increase (decrease) in accounts payable (9,500,774) 9,852,602 9,047,933
Increase (decrease) in accounts payable -
related parties (649,469) 193,729 194,211
Increase in accrued interest and other expenses 360,968 1,071,831 205,166
Increase in deferred Federal income taxes 100,000 100,000 20,000
------------- ----------- -----------
Net cash provided by (used in) operating activities (23,579,629) (32,044,292) 19,406,510
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE> 56
MCA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Net cash provided by (used in) operating
activities - total from previous page $ (23,576,629) $(32,044,294) $ 19,406,510
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of MCA Realty Corporation - - 163,341
Investment in mortgage servicing rights-net 7,175,299 (12,125,632) (10,645,117)
Decrease (increase) in investments (78,934) 36,912 (224,702)
Capital expenditures (1,207,774) (1,073,420) (232,962)
------------- ------------ --------------
Net cash provided by (used in)
investing activities 5,888,591 (13,162,140) (10,939,440)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 814,899,838 548,960,490 529,181,111
Payments on notes payable (817,727,548) (597,680,156) (540,175,700)
Proceeds from subordinated debentures 6,368,000 4,236,000 -
Proceeds from subordinated notes payable 15,000,000 - -
Redemption of common stock - - (300,000)
Repurchase of common stock - (25,086) -
Proceeds from issuance of preferred stock - - 1,583,540
Preferred stock issuance costs - - (159,531)
Dividends on preferred stock (485,667) (485,640) (447,446)
------------- ------------ --------------
Net cash provided by (used in)
financing activities 18,054,623 45,005,608 (10,318,026)
------------- ------------ --------------
NET INCREASE (DECREASE) IN CASH 366,585 (200,826) (1,850,956)
CASH - BEGINNING 2,730,408 2,931,234 4,782,190
------------- ------------ --------------
CASH - ENDING $ 3,096,993 $ 2,730,408 $ 2,931,234
============= ============ ==============
</TABLE>
See accompanying notes to consolidated financial statements
F-7
<PAGE> 57
MCA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Cash paid during the period for:
Interest $10,950,833 $7,435,339 $5,943,047
=========== ========== ==========
Income taxes $ 412,000 $ 66,506 $ 325,878
=========== ========== ==========
</TABLE>
During the year ended January 31, 1997, the Company issued 24,467 shares of
common stock to employees and recognized $207,970 in compensation expense. The
Company also issued 30,197 shares of redeemable common stock as part of a loan
agreement with The Board of Trustees of the Policemen and Firemen Retirement
System of the City of Detroit and recorded $256,675 in deferred charges.
Capital leases totaling $205,841 were entered into for the purchase of various
property and equipment during the year ended January 31, 1997.
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 stockholder/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 totaling $474,077 were entered into for the purchase
of various property 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
property 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 equipment 947,967
Deferred charges and other 18,918
Notes payable (521,634)
Accounts payable (77,601)
---------
$ 945,117
=========
</TABLE>
See accompanying notes to consolidated financial statements
F-8
<PAGE> 58
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements at January 31, 1997, 1996 and
1995 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 $12,513,000, $6,068,000 and
$430,000 for the years ending January 31, 1997, 1996 and 1995,
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).
F-9
<PAGE> 59
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
NATURE OF OPERATIONS -- CONTINUED
--------------------
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.
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,
1997 1996
--------- ---------
<S> <C> <C>
Land contracts receivable $11,684,696 $12,158,775
Discount (197,796) (416,418)
Senior liens payable (1,135,475) (257,480)
----------- -----------
$10,351,425 $11,484,877
=========== ===========
</TABLE>
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, 1997
and 1996.
F-10
<PAGE> 60
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
ACCOUNTS RECEIVABLE - MORTGAGES SOLD
Accounts receivable - mortgages sold represents amounts due from the
purchaser on sales of non-conforming mortgages. Management believes the
outstanding balance is fully collectible at January 31, 1997, and
accordingly no allowance for doubtful accounts has been provided.
ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following at:
<TABLE>
<CAPTION>
JANUARY 31,
1997 1996
----------- ----------
<S> <C> <C>
Accounts receivable - sales of mortgage servicing rights $14,136,266 $5,912,243
Accrued fees and commissions 919,155 1,505,378
Accounts receivable - syndication sales 154,352 662,577
Accounts receivable - escrows on closed loans 983,971 563,061
Accounts receivable - stockholders 233,342 182,679
Accrued interest 181,420 211,843
Employee commission draws 128,178 113,799
Other 260,627 570,947
----------- ----------
$16,997,311 $9,722,527
=========== ==========
</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.
Included in accounts receivable - related parties at January 31, 1997
and 1996, respectively, are approximately $571,000 and $793,000 due from
an entity owned by certain directors and stockholders of the Company;
$1,674,000 and $1,676,000 due from Property Corporation of America
(PCA), an entity owned by certain directors and stockholders of the
Company, and $3,384,000 and $4,568,000 due from investor pass-through
trusts and limited partnerships is substantially dependent upon
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, 1997 and 1996.
F-11
<PAGE> 61
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
MORTGAGE SERVICING RIGHTS
In February 1996, the Company adopted SFAS No. 122, "Accounting for Mortgage
Servicing Rights". This requires the capitalization of a mortgage servicing
asset for every origination whether it be originated or purchased. SFAS No.
122 also dictates prescribed rules for the amortization, periodic valuation,
and the required valuation adjustment. As discussed in Note 1, the Company
adopted SFAS 122 in February 1996. The effect of the adoption was to
increase earnings by approximately $.73 million for Fiscal 1996 or $1.54
per share. Prior to adoption, a value was capitalized for purchased mortgage
servicing rights. This capitalization was in accordance with SFAS Statement
of Financial Accounting Standards No. 65, "Accounting for Certain Mortgage
Banking Practices".
The following is an analysis of the changes in mortgage servicing rights:
<TABLE>
<S> <C>
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
Additions 10,780,600
Scheduled amortization (3,699,194)
Amortization due to changes in
prepayment and other assumptions --
Sales (18,050,501)
-----------
Balance - January 31, 1997 $16,324,263
===========
</TABLE>
F-12
<PAGE> 62
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
MORTGAGE SERVICING RIGHTS -- CONTINUED
-------------------------
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. 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 $3,699,194,
$2,459,981 and $1,334,724 for the years ended January 31, 1997, 1996
and 1995, respectively. Accumulated amortization of purchased
servicing rights was $5,806,181, $2,887,705 and $427,704 at January
31, 1997, 1996 and 1995, respectively.
Properties securing the mortgage loans in the Company's servicing
portfolio are located throughout the United States.
At January 31, 1997, the net book value of the mortgage servicing
rights portfolio approximated fair value.
EXCESS INTEREST SPREAD RECEIVABLE
---------------------------------
The Company sells mortgage loans in bulk to a third party for purposes
of securitization. By agreement, the Company is entitled to the
difference between the weighted average coupon rate of the loans it
originated in the security and the security's stated yield, less a
normal servicing fee and certain other fees. The Company determines
fair value based on a discounted cash flow analysis. The analysis
takes into consideration projected prepayments, defaults, interest
rate and credit risks. Income is recognized at the time of sale and is
included in mortgage origination fees and gain on sale of mortgages.
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:
F-13
<PAGE> 63
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
INVESTMENTS - CONTINUED
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
-------- --------
<S> <C> <C>
Total assets $8,586,116 $9,327,310
Total liabilities 2,945,782 2,885,888
Partnership equity 5,640,334 6,441,422
Net income 432,499 510,748
</TABLE>
Included in investments at January 31, 1997 and 1996 is a $1,000,000
membership interest investment in a LLC which was made in December
1995. This start-up Company participates 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 interest issued by this LLC provides it the
right to participate in earnings and distributions, if any, subject to
preferential rights of certain other members. This investment is
being accounted for on the cost method.
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,
1997 1996
-------- ---------
<S> <C> <C>
Property and office equipment under
capital lease $ 2,370,809 $ 2,475,010
Property and office equipment 3,729,214 2,653,472
Building and improvements 1,498,614 1,090,714
----------- -----------
7,598,637 6,219,196
Less accumulated depreciation (2,016,025) (1,362,866)
----------- -----------
$ 5,582,612 $ 4,856,330
=========== ===========
</TABLE>
Depreciation expense for the year ended January 31, 1997, 1996 and 1995
amounted to $687,313, $554,904 and $351,964, respectively.
F-14
<PAGE> 64
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
REVENUE RECOGNITION
Gains on the sale of mortgage 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.
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.
F-15
<PAGE> 65
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED
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.
EXCESS INTEREST SPREAD RECEIVABLE
The fair value is determined by using the discounted present value
of the net cash flows. Market estimates are used for servicing
costs, prepayment speeds and discount rates.
NOTES PAYABLE, SUBORDINATED DEBENTURES AND SUBORDINATED NOTES
PAYABLE
The carrying amount for these instruments approximates fair value.
The following table sets forth the fair value of the Company's
financial instruments:
<TABLE>
<CAPTION>
JANUARY 31,
1997 1996
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 3,096,993 $ 3,096,993 $ 2,730,408 $ 2,730,408
Land contracts held-for-resale 10,351,425 10,351,425 11,484,877 11,484,877
Mortgage held-for-resale 54,430,155 54,430,155 63,306,372 63,306,372
Mortgage servicing rights 16,324,263 16,324,263 27,293,358 27,293,358
Excess interest spread receivable 7,987,053 7,987,053 -- --
Liabilities:
Notes payable, subordinated debentures and
subordinated notes payable 114,517,834 114,517,834 95,771,703 95,771,703
</TABLE>
F-16
<PAGE> 66
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect 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. Net
income (loss) has been adjusted for preferred stock dividends. The
weighted average number of shares used in the determination of earnings
per share was 475,949, 426,762 and 403,622 for the years ended January
31, 1997, 1996 and 1995.
RECLASSIFICATION
Certain amounts in the prior year's financial statements have been
reclassified to conform to the January 31, 1997 presentation.
NEW PRONOUNCEMENTS
In June 1996, the FASB issued "SFAS No. 125 - Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities."
This statement provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are
secured borrowings. This statement was to have been effective
prospectively from December 31, 1996, but was deferred when the FASB
issued "SFAS No. 127 - Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125." The effective date of the
certain provisions have been deferred one year. The Company adopted
certain of the provisions for transactions entered into during
January, 1997. The effect of this adoption was not significant to net
income. Management does not believe adoption of the remaining
provisions will have a material effect on the financial statements.
F-17
<PAGE> 67
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
NEW PRONOUNCEMENTS - CONTINUED
In February 1997, the FASB issued SFAS No. 128. "Earnings Per Share,"
which replaces the presentation of primary earnings per share ("EPS")
with a presentation of basic EPS, requires dual presentation of basic
and diluted EPS on the face of the statement of earnings regardless of
whether basic and diluted EPS are the same, and requires a
reconciliation of the numerator and denominator used in computing basic
and diluted EPS. Basic EPS excludes dilution and is computed by
dividing earnings available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted EPS
is computed similarly to fully diluted EPS pursuant to APB Opinion 15.
Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock
that then shared in the earnings of the entity. This Statement is
effective for financial statements issued for periods ending after
December 15, 1997, including interim periods, earlier application is
not permitted, and requires restatement of all prior period EPS data
presented.
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
$511,000 and $378,000, respectively, at January 31, 1997 and 1996.
F-18
<PAGE> 68
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 3 - NOTES PAYABLE
<TABLE>
<CAPTION>
JANUARY 31,
1997 1996
-------- --------
<S> <C> <C>
Note payable under $115 million mortgage
warehouse credit facility, subject to renewal on
September 3, 1997, interest is computed at LIBOR
plus .85% to 2.5% depending on type of loan and
payable monthly, principal payable upon sale of
mortgage collateral (mortgages held-for-resale)
to institutional investors $ 48,369,064 $ -
Note payable under $25 million mortgage warehouse
credit facility, interest is computed at the bank's
prime rate less 1/2% and payable monthly; principal
payable upon sale of mortgage collateral (mortgages
held-for-resale) to institutional investors or on
demand. This facility was terminated January 8, 1997 - 22,557,781
Note payable under $28.5 million revolving credit
facility, subject to renewal on October 31, 1997,
interest is computed at the Federal Funds rate plus
1.5% (6.8% at January 31, 1997), collateralized by
mortgage servicing rights 28,305,175 28,500,000
Note payable under $30 million mortgage warehouse
facility, interest is computed at the federal
funds rate plus 1.5% 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. This facility
was terminated August 31, 1996 - 26,554,708
----------- -----------
Total - this page 76,674,239 77,612,489
</TABLE>
F-19
<PAGE> 69
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 3 - NOTES PAYABLE - CONTINUED
<TABLE>
<CAPTION>
JANUARY 31,
1997 1996
-------- --------
<S> <C> <C>
Total - previous page $ 76,674,239 $ 77,612,489
Note payable under $10 million mortgage warehouse
facility, subject to renewal on November 1, 1997,
interest is computed at LIBOR plus 1.5% (6.94%
at January 31, 1997), principal payable upon sale
of mortgage collateral (mortgages held-for-resale)
to institutional investors. 4,426,335 3,729,748
Note payable under $1 million line-of-credit for
the acquisition and rehabilitation of residential
real property subject to renewal on February 1,
1998, interest is computed at the bank's prime
rate plus 1% (9.25% at January 31, 1997) collateralized
by a first security interest in residential real property 284,200 -
Revolving line-of-credit/note payable, $.5 million
credit line for working capital, $1 million note
payable for purchases of land contracts, interest
is computed at the bank's prime rate plus 1% (9.25%
at January 31, 1997). Land contracts are assigned to
the bank as collateral, personally guaranteed by
certain officers of the Company, payable upon sale
of collateral. This facility was terminated April 14, 1997 250,000 1,500,000
---------- ----------
Total-this page 81,634,774 82,842,237
</TABLE>
F-20
<PAGE> 70
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 3 - NOTES PAYABLE - CONTINUED
<TABLE>
<CAPTION>
JANUARY 31,
1997 1996
-------- --------
<S> <C> <C>
Total - previous page $ 81,634,774 $ 82,842,237
Note payable under $1.5 million line-of-credit for
the acquisition and rehabilitation of residential
real property 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.
This facility was terminated December 13, 1996 - 1,448,042
Note payable under $1.5 million line-of-credit for
the acquisition and rehabilitation of residential
real property, 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. This facility was terminated
September 17, 1996 - 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 452,898 542,556
Other notes payable, including obligations under capital
leases, expiring at various times through 2002 1,888,162 1,356,095
------------ ------------
$ 83,975,834 $ 86,597,703
============ ============
</TABLE>
F-21
<PAGE> 71
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 3 - NOTES PAYABLE - CONTINUED
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 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 lease 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,
1997 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.
These debentures were redeemed in full on March 17, 1997.
Through January 31, 1997, 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 $840,000 and $686,000 at January 31, 1997 and 1996.
F-22
<PAGE> 72
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 4 - SUBORDINATED DEBENTURES - CONTINUED
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, 1997 there have been no redemptions. The Debentures are registered
with the Securities and Exchange Commission.
Through January 31, 1997, the Company has incurred approximately
$1,513,000 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 $405,000 and $109,000 at January 31, 1997 and 1996.
In June 1996, the Company began offering up to $6,000,000 of unsecured
11% subordinated debentures due June 30, 2002. Interest on the
Debentures is payable quarterly. The debentures are subordinate in right
of payment to all current and future indebtedness of the Company. 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.
The Debentures are registered with the Securities and Exchange
Commission.
Through January 31, 1997, the Company has incurred approximately $67,000
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 $1,000 at January 31, 1997.
F-23
<PAGE> 73
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 5 -- SUBORDINATED NOTES PAYABLE
In July 1996, the Company entered into a loan and financing agreement
with The Board of Trustees of the Policemen and Firemen Retirement
System of the City of Detroit ("The Fund") to provide the Company $15
million to expand its non-conforming lending business. Interest on this
borrowing is 10% and is payable quarterly. Commencing July 1, 2001 equal
quarterly installments of principal and interest will be paid until the
loan terminates and is repaid in full on June 30, 2006. As a result of
this agreement, the Fund was issued 30,197 shares, or 6% of the
Company's common stock at the time. Anti-dilution provisions of the
agreement may require the Company to issue additional shares in the
future. The Fund has the right to "put" these redeemable shares back to
the Company, under a number of different scenarios, on August 1, 2006,
or upon an event of default with a minimum guaranteed repurchase of
$1,400,000.
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, 1997 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, cumulated 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,
1997 there have been no redemptions. Dividends are payable quarterly.
Through January 31, 1997 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.
F-24
<PAGE> 74
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
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 cost and 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,
1997 1996
----------- ------------
<S> <C> <C>
Depreciation of property and
office equipment $ 518,000 $ 416,000
Amortization of goodwill (120,000) (108,000)
Other 2,000 (8,000)
--------- ---------
$ 400,000 $ 300,000
========= =========
</TABLE>
Components of income tax expense are:
<TABLE>
<CAPTION>
January 31,
1997 1996 1995
----------- ----------- ------------
<S> <C> <C> <C>
Current $539,000 $412,000 $ 82,384
Deferred 100,000 100,000 20,000
-------- -------- --------
$639,000 $512,000 $102,384
======== ======== ========
</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>
<S> <C> <C> <C>
Tax (benefit) at statutory
rate $478,000 $383,000 $(59,000)
Non-deductible items 161,000 169,000 107,000
Adjustment of prior year
accrual -- -- 38,000
Other -- (40,000) 16,384
-------- -------- --------
$639,000 $512,000 $102,384
======== ======== ========
</TABLE>
F-25
<PAGE> 75
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 8 - RELATED PARTY TRANSACTIONS
The Company purchased various real estate parcels during the years
ended January 31, 1997, 1996 and 1995. These parcels purchased from
unrelated third parties were subsequently sold to limited partnerships,
for which PCA is the general partner. Gains totaling $7,539,447,
$6,529,708 and $7,365,199 for the years ended January 31, 1997, 1996
and 1995 were recognized on the sales, respectively.
During the years ended January 31, 1997, 1996 and 1995 the Company
agreed to pay commissions of $1,968,000, $1,735,000 and $1,315,000,
respectively for the acquisition of properties acquired from unrelated
third parties to a Company owned by three stockholders 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, 1997, 1996 and 1995, respectively. Certain
stockholders of the Company are directors or major stockholders of
USMFC.
Included in accounts payable at January 31, 1997 and 1996 are
approximately $1,044,000 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-26
<PAGE> 76
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
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, 1997 and 1996, respectively,
the Company has approved loans that had not yet closed amounting to
approximately $40,081,000 and $74,259,000. 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 2002.
Rent expense on operating leases approximated $2,282,000, $1,803,000
and $1,251,000 for the years ended January 31, 1997, 1996 and 1995,
respectively, and is included in the caption "General and
Administrative" expense in the Consolidated Statements of Operations.
F-27
<PAGE> 77
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 10 -- LEASE COMMITMENTS - CONTINUED
As of January 31, 1997, 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
as of follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
-------- ----------
<S> <C> <C>
1998 $536,145 $1,314,462
1999 164,757 990,970
2000 1,555 645,592
2001 -- 32,679
2002 -- 15,000
-------- ----------
Total minimum lease payments 702,457 $2,998,703
==========
Less: amount representing interest 66,159
--------
Present value of minimum lease
payments $636,298
========
</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, 1997 and 1996, the
maximum amount of these future purchase commitments totaled
approximately $9,381,000 and $8,011,000.
Although the Company is approved as a correspondent with numerous
mortgage investors, three investors purchased substantially all of the
Company's mortgage loans originated during fiscal 1997, 1996 and 1995.
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.
F-28
<PAGE> 78
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
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 $86,000,
$22,000 and $17,000 for the years ended January 31, 1997, 1996 and
1995.
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, 1997, a total of 20,002 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, 1997 are as follows:
1998 $12,168
1999 7,834
F-29
<PAGE> 79
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 14 - SEGMENT INFORMATION
The Company and its subsidiaries operate primarily in two business
segments. Operations in mortgage banking involve the origination and
purchase 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,
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
REVENUE
Mortgage banking $ 46,512,944 $ 31,051,952 $22,512,856
Real estate 12,413,396 10,899,058 10,858,825
------------ ------------ -----------
Total $ 58,926,340 $ 41,951,010 $33,371,681
============ ============ ===========
INCOME (LOSS) BEFORE INCOME TAXES
Mortgage banking $ 824,964 $ (1,195,323) $(3,057,212)
Real estate 579,374 2,322,853 2,882,050
------------ ------------ -----------
Total $ 1,404,338 $ 1,127,530 $ (175,162)
============ ============ ===========
IDENTIFIABLE ASSETS
Mortgage banking $115,310,484 $104,990,975 $46,523,533
Real estate 19,256,062 27,147,572 23,238,535
Other 10,425,267 3,052,094 7,349,452
------------ ------------ -----------
Total $144,991,813 $135,190,641 $77,111,520
============ ============ ===========
</TABLE>
F-30
<PAGE> 80
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 15 -- BUSINESS ACQUISITION
On July 19, 1994, the Company purchased substantially all of the
revenue producing activities of Liberty National Mortgage Corporation
(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 down payment 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 and amortized 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 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 re-evaluation.
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-31
<PAGE> 81
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
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 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
=========== ========== ==========
Loss per share $ (1.80) $ (0.12) $ (0.80)
=========== ========== ==========
</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-32
<PAGE> 82
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 15 - BUSINESS ACQUISITION - CONTINUED
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 stockholder 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-33
<PAGE> 83
- --------------------------------------------------------------------------------
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 1997 DEBENTURES OFFERED
BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF ANY OFFER TO BUY SERIES 1997 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 i
Prospectus Summary 1
Risk Factors 5
The Company 11
Use of Proceeds 11
Capitalization 12
Selected Consolidated Financial Data 13
Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Business 19
Management 33
Compensation Committee Interlocks and
Insider Participation 36
Principal Stockholders 38
Description of Series 1997 Debentures 39
Description of Common Stock 44
Plan of Distribution 44
Legal Matters 45
Experts 45
Index to Financial Statements F-1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MCA FINANCIAL CORP.
$10,000,000
__% SUBORDINATED DEBENTURES,
SERIES 1997,
DUE JUNE 1, 2003
------------------
Prospectus
June __, 1997
------------------
- --------------------------------------------------------------------------------
<PAGE> 84
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>
<CAPTION>
<S> <C>
SEC registration fee $2,000
NASD fee 1,000
Blue Sky fees (excluding legal fees) 2,500
Accounting fees and expenses 20,000
Legal fees and expenses 40,000
Printing, engraving and miscellaneous 16,800
------
Total $82,300
======
</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 stockholders (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 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.
II-1
<PAGE> 85
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 8, 1994, September 20, 1994, and October 17, 1994, the
Registrant issued 38,000, 12,131, and 1,600 shares of common stock to a total of
16 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 and/or performance.
(b) 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.
(c) On May 31, 1996, the Registrant issued 14,133 shares of common stock
to a total of 28 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 and/or performance.
(d) On May 31, 1996, 2,000 shares of common stock were transferred from
Patrick D. Quinlan and Cheryl Quinlan, Tenants by the Entireties (Patrick
Quinlan is the Chairman and a majority stockholder of MCA Financial Corp.), to
Holly Quinlan Kubek (1,000 shares) and Patrick Quinlan Jr. (1,000 shares).
(e) On July 31, 1996, the Registrant issued 30,009 redeemable shares of
common stock to the Detroit Policemen and Firemen Retirement System, pursuant to
a condition in the loan agreement dated July 18, 1996.
(f) On August 31, 1996, the Registrant issued 310 shares of common stock
to 2 employees of the Registrant, who received such shares in recognition of
their service to the Registrant.
(g) On January 31, 1997, the Registrant issued 188 redeemable shares of
common stock to the Detroit Policemen and Firemen Retirement System, pursuant to
a condition in the loan agreement dated July 18, 1996.
Each issuance of shares described in (a) through (g) 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 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, 38,000 shares issued
in fiscal 1995 represent shares that are to be earned by the applicable
recipient on a prospective basis contingent upon continued employment and/or
performance. In addition, 12,131 shares issued on September 20, 1994 and 1,600
shares issued on October 17, 1994 are to be earned on a prospective basis.
Compensation expense and the accounting for shares are recognized when
vesting and employment requirements are met by the employee. The 2,567 shares
vested during fiscal 1995, as described on page F-8 of the Financial Statements
included with this registration statement, represent shares issued in prior
periods which vested in fiscal 1995, and the 24,410 shares vested during fiscal
1996, as described on page F-8, represent shares issued in prior periods which
vested in fiscal 1996. The 24,467 shares vested in fiscal 1997, as described on
page F-8, represent shares issued in prior periods which vested in fiscal 1997.
II-2
<PAGE> 86
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
Exhibit
Number Description of Exhibit
- ------- ----------------------
1.1 Form of Underwriting Agreement between Registrant and East West Capital
Corporation (filed herewith)
1.2 Form of Selling Agreement (filed herewith)
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 to be entered into by and between Registrant and
First Union National Bank relating to Registrant's ___% Subordinated
Debentures, Series 1997, Due June 1, 2003 (filed herewith).
5 Opinion of Dykema Gossett PLLC as to the legality of the securities
being registered (filed herewith)
10.1 Indenture, between Registrant and First Union National Bank, relating
to Registrant's 11% Subordinated Debentures, Series 1996, Due 2002
(previously filed as Exhibit 4.1 to Registrant's Registration
Statement on Form S-1, File No. 333-4837, and incorporated herein by
reference).
10.2 Indenture 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
Registrant's Registration Statement on Form S-1, File No. 33-98644,
and incorporated herein by reference).
10.3 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).
10.4 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).
10.5 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).
II-3
<PAGE> 87
10.6 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).
10.7 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).
10.8 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).
10.9 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).
10.10 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).
10.11 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).
10.12 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
II-4
<PAGE> 88
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 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).
10.15 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).
10.16 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).
10.17 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).
10.18 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).
II-5
<PAGE> 89
10.19 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)
10.20 Seventh and Eighth Amendments to Exhibit 10.1 (previously filed as
Exhibit 10.27 to Registrant's Annual Report on Form 10-K for the
fiscal year ended January 31, 1996, and incorporated herein by
reference).
10.21 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 Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1996, and incorporated herein by reference).
10.22 Loan and Financing Agreement, dated July 18, 1996, by and among the
Company and its subsidiaries and the Board of Trustees of the
Policemen and Firemen Retirement System of the City of Detroit
(previously filed as Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q, and incorporated herein by reference).
10.23 Subordinated Promissory Note, dated July 18, 1996, by and among the
Company and its subsidiaries, and the Board of Trustees of the
Policemen and Firemen Retirement System of the City of Detroit
(previously filed as Exhibit 10.2 to the Registrant's Quarterly
Report on Form 10-Q, and incorporated herein by reference).
10.24 Piggyback Rights Agreement, dated July 18, 1996, by and among the
Company and the Board of Trustees of the Policemen and Firemen
Retirement System of the City of Detroit (previously filed as
Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q, and
incorporated herein by reference).
10.25 Put Agreement, dated July 18, 1996, by and among the Company and the
Board of Trustees of the Policemen and Firemen Retirement System of
the City of Detroit (previously filed as Exhibit 10.4 to the
Registrant's Quarterly Report on Form 10-Q, and incorporated herein
by reference).
10.26 Escrow Agreement, dated July 18, 1996, by and among the Company and
its subsidiaries, the Board of Trustees of the Policemen and Firemen
Retirement System of the City of Detroit (previously filed as Exhibit
10.5 to the Registrant's Quarterly Report on Form 10-Q, and
incorporated herein by reference).
10.27 Loan Agreement, dated September 3, 1996, by and among the Company, MCA
Mortgage Corporation, Mortgage Corporation of America and Texas
Commerce Bank National Association (previously filed as Exhibit 10.6
to the Registrant's Quarterly Report on Form 10-Q, and incorporated
herein by reference).
10.28 Securitization Access Agreement, dated November 1, 1996, by and among
MCA Financial Corp., MCA Mortgage Corporation, Mortgage Corporation of
America, Advanta Mortgage Conduit Services, Inc. and Advanta Mortgage
Corp. USA (previously filed as Exhibit 10.35
II-6
<PAGE> 90
to the Registrant's Annual Report on Form 10-K for the fiscal year
ended January 31, 1997, and incorporated herein by reference).
10.29 Amended and Restated Securitization Access Agreement, amended as of
February 21, 1997, by and among MCA Financial Corp., MCA Mortgage
Corporation, Mortgage Corporation of America, Advanta Mortgage Conduit
Services Inc. and Advanta Mortgage Corp. USA (previously filed as
Exhibit 10.36 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 31, 1997, and incorporated herein by
reference).
12 Computation of Ratio of Earnings to Fixed Charges filed herewith
21 Subsidiaries of the Registrant (previously filed as Exhibit 21 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1997, and incorporated herein by reference)
23.1 Consent of Moore Stephens Doeren Mayhew, P.C./GrantThornton LLP (filed
herewith)
23.2 Consent of Dykema Gossett PLLC (contained in its opinion filed as
Exhibit 5).
24 Power of Attorney (contained on signature page)
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 (to be filed by amendment).
(b) Financial Statements Schedules:
There are no Schedules required to be filed herewith.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933; (ii) To reflect in the prospectus any facts or
events arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change in
the information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the
low or high and of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant
to
II-7
<PAGE> 91
Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
table in the effective 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;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
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.
II-8
<PAGE> 92
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 15, 1997.
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 15, 1997.
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 President and 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-9
<PAGE> 93
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------- ----------------------
1.1 Form of Underwriting Agreement between Registrant and East West
Capital Corporation
1.2 Form of Selling Agreement
4.1 Form of Indenture to be entered into by and between Registrant and
First Union National Bank relating to Registrant's ___% Subordinated
Debentures, Series 1997, Due June 1, 2003
5 Opinion of Dykema Gossett PLLC as to the legality of the securities
being registered
12 Computation of Ratio of Earnings to Fixed Charges.
23.1 Consent of Moore Stephens Doeren Mayhew, P.C./GrantThornton LLP
23.2 Consent of Dykema Gossett PLLC (contained in its opinion filed as
Exhibit 5)
24 Power of Attorney (contained on signature page)
<PAGE> 1
EXHIBIT 1.1
UNDERWRITING AGREEMENT
$10,000,000 OF ___% SUBORDINATED DEBENTURES, SERIES 1997
DUE JUNE 1, 2003
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") $10,000,000 in aggregate principal amount of
% Subordinated Debentures, Series 1997, due June 1, 2003 (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 "Underwriter") with respect to the sale by the
Underwriter as agent for the Company, on a best efforts basis, of $10,000,000
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. Representations, Warranties, and Agreements of the Company. The Company
represents and warrants to and agrees with the Underwriter that:
(1) A registration statement on Form S-1 (File No.__) with respect to the
Debentures 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 have been delivered to the Underwriter. 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 Underwriter 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.
(2) As of the date (the "Effective Date") that the Registration Statement
is declared effective by the Commission and at all times thereafter up to the
termination of the Offering, (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
<PAGE> 2
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 Underwriter 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 termination of the Offering 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.
(5) The Debentures to be issued and sold by the Company have been duly
authorized for issuance and sale to investors, pursuant to this Underwriting
Agreement and the Indenture, as amended, with First Union National Bank, as
Trustee and, when issued and delivered by the Company pursuant to this
Underwriting 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
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<PAGE> 3
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
Underwriter 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 Underwriter 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.
II. Representations, Warranties and Agreements of the Underwriter. The
Underwriter represents and warrants to and agrees with the Company that:
(1) The Underwriter 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 Underwriter 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 Underwriter with
respect to such sales.
(3) 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.
(4) The Underwriter will comply with all applicable Sections of Article
III of the NASD Rules of Fair Practice with respect to the Offering.
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<PAGE> 4
III. Employment of Underwriter. Upon the foregoing representations, warranties
and agreements, and subject to the terms and conditions of this Underwriting
Agreement:
(1) The Company hereby employs the Underwriter as its agent to sell for
the account of the Company up to $10,000,000 in principal amount of Debentures
in multiples of $1,000 per Debenture. The Underwriter may engage Mariner
Financial Services, Inc. (the "Selected Dealer") to find investors for the
Series 1997 Debentures pursuant to a Selected Dealer Agreement substantially in
the form attached hereto as Exhibit A. However, failure to engage the Selected
Dealer shall not constitute a failure on the part of East West to discharge its
duties under this Agreement.
(2) The Underwriter will be paid a commission of 6.5% of the gross sales
price of the Debentures, provided, however, if the Underwriter sells $250,000
in principal amount of the Debentures it will be paid a commission of 7.0% on
all sales, and if the Underwriter sells $500,000 or more of the Debentures it
will be paid a commission of 8.0% on all sales.
(3) The Underwriter 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
Underwriter 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 Underwriter shall
instruct all purchasers to make their investment checks payable to
the Company and all checks or funds that the Underwriter receives
from purchasers of the Debentures shall be transmitted to the
Company.
(4) The Underwriter 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, Pennsylvania 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 Underwriter may reasonably request.
IV. Further Agreements of the Company. The Company agrees with the Underwriter
that:
(1) The Company will use its best efforts to cause the Registration
Statement to become effective and will advise the Underwriter promptly and, if
requested by the Underwriter, will confirm such advice in writing (i) when the
Registration Statement has become effective and when any
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<PAGE> 5
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 IV (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
Underwriting 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 Underwriter, without charge, conformed
copies of the Registration Statement as originally filed and of any amendment
thereto, including exhibits. The Company will also deliver to the Underwriter,
for distribution to the Selected Dealer, a conformed copy of such registration
statement (without exhibits) so that one copy may be distributed to the
Selected Dealer.
(4) The Company will not file any amendment to the Registration Statement
or make any amendment or supplement to the Prospectus of which the Underwriter
shall not previously have been advised or with respect to which the Underwriter
promptly after being so advised reasonably shall object in writing.
(5) On the Effective Date and thereafter from time to time for such period
as in the opinion of counsel for the Underwriter or the Selected Dealer the
Prospectus is required by law to be delivered in connection with sales by the
Underwriter or the Selected Dealer, the Company will deliver to the Underwriter
and the Underwriter must deliver such Prospectus to the Selected Dealer without
charge as many copies of the Prospectus (and of any amendments or supplements
thereto) as the Underwriter may reasonably request. The Company consents to
the use of the Prospectus (and of any amendments or 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 Underwriter or the
Selected Dealer, 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 Underwriter or the Selected Dealer, 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
5
<PAGE> 6
amendment or supplement thereto and will furnish to the Underwriter and the
Underwriter must deliver such Prospectus to the Selected Dealer, without
charge, a reasonable number of copies thereof, which the Underwriter and the
Selected Dealer shall use thereafter.
(6) From the date hereof until one year after the termination of the
Offering, the Company will furnish to the Underwriter and the Underwriter must
deliver to the Selected Dealer (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 Underwriter or the Selected Dealer
may reasonably request.
(7) The Company shall promptly notify the Underwriter of the filing of a
registration statement with the Commission pursuant to Section 12 of the
Securities Exchange Act of 1934, furnish the Underwriter with a copy of such
registration statement and promptly inform the Underwriter of its effectiveness
and the Underwriter shall notify the Selected Dealer of such filing, provide
the Selected Dealer with a copy of such registration statement and inform the
Selected Dealer of its effectiveness.
(8) 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 prior
to the termination of the Offering, it is determined that such application
would not be in the best interest of the Company and would not violate any
applicable law.
V. Indemnity and Contribution Provisions.
(1) The Company agrees to indemnify and hold harmless the Underwriter and
any person who controls any Underwriter within the meaning of Section 15 of the
Act and the Selected Dealer against any and all losses, claims, lawsuits,
damages or liabilities, joint and several, to which such Underwriter, such
controlling person or the Selected Dealer 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 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 Underwriter, each such controlling person and the Selected Dealer
for any and all costs and expenses, including reasonable counsel fees incurred
by such Underwriter, such controlling persons or the Selected Dealer 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 or omission made in the
Registration Statement or the Prospectus and related exhibits or any amendment
or supplement thereto in reliance upon and in conformity with
information furnished to the Company by or on behalf of the Underwriter or the
Selected Dealer specifically for use with
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<PAGE> 7
reference to such Underwriter and the Selected Dealer in preparation thereof.
This indemnity agreement will be in addition to any liability which the Company
may otherwise have.
(2) The Underwriter and the Selected Dealer 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 Underwriter or the Selected Dealer 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 Underwriter or the
Selected Dealer may otherwise have.
(3) Promptly after receipt by an indemnified party under this Article V 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 V, 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 V. 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 V is, for any reason other than as specified in such sections, held by
a court to be unavailable and the Company, the Underwriter or the Selected
Dealer has been required to pay damages as a result of a determination by a
court that the Registration Statement, 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 Underwriter or the Selected Dealer and the Underwriter or
the Selected Dealer shall contribute to the 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
Underwriter or the Selected Dealer 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 Underwriter or the Selected Dealer in such
7
<PAGE> 8
damages, as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Underwriter or the Selected Dealer
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 Underwriter, as set
forth in the table on the cover page of the Prospectus and received by the
Selected Dealer, as set forth by the Selected Dealer Agreement. 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, the Underwriter or the Selected
Dealer 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, the Underwriter or the
Selected Dealer 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, neither the Underwriter nor the
Selected Dealer shall 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
Underwriter or the Selected Dealer 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 V and the representations and
warranties of the Company and the Underwriter set forth in this Underwriting
Agreement shall remain operative and in full force and effect, regardless of
(a) any investigation made by or on behalf of the Underwriter or any person
controlling the Underwriter 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
Underwriting Agreement. A successor of the Underwriter or of the Company, or
any director or officer thereof or any person controlling the Underwriter or
the Company, as the case may be, shall be entitled to the benefits of the
agreements contained in this Article V.
VI. Conditions to Obligation of the Underwriter and the Selected Dealer. The
obligations of the Underwriter and the Selected Dealer 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
(2) That the Company shall have delivered to the Underwriter and the
Underwriter shall
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<PAGE> 9
have delivered to the Selected Dealer 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.
VII. Termination. This agreement may be terminated by either party upon thirty
(30) 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 Underwriter for commissions earned in accordance with Article
III hereof.
VIII. Miscellaneous. Except as otherwise provided herein, notice given
pursuant to any of the provisions of this Underwriting 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; (b)
to the Underwriter at the office of the Underwriter, set forth below or in each
case to such other address as the person to be notified may have requested in
writing, or (c) to the Selected Dealer, Mariner Financial Services, Inc., P.O.
Box 9011, Clearwater, FL 34618-9011.
This Underwriting Agreement has been and is made solely for the benefit of
the Underwriter, the Selected Dealer, the Company, the controlling persons,
directors and officers referred to in Article V hereof, and their respective
successors and assigns; and no other person shall acquire or have any right
under or by virtue of this Underwriting Agreement. The terms "successor" or
"successor and assigns" as used in this Underwriting Agreement shall not
include a purchaser from the Underwriter or the Selected Dealer of any of the
Debentures in his status as such purchaser.
This Underwriting 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 Underwriting Agreement shall be governed by and construed in
accordance with the laws of the State of Michigan.
MCA FINANCIAL CORP.
By: _______________________
Lee P. Wells, President
EAST WEST CAPITAL CORPORATION
(Underwriter)
By: _______________________
Craig Janutol, President
9
<PAGE> 10
ANNEX A
STATES IN WHICH AGENT IS REGISTERED
_____________________
_____________________
_____________________
_____________________
10
<PAGE> 11
Exhibit A
SELECTED DEALER AGREEMENT
$10,000,000 of ___% Subordinated Debentures, Series 1997
Due June 1, 2003
MCA FINANCIAL CORP.
June __, 1997
East West Capital Corporation
20520 Vernier Road
Harper Woods, Michigan 48225
Dear Sir:
MCA Financial Corp., a Michigan corporation (the "Company"), has entered
into an agreement, dated June __, 1997 (the "Underwriting Agreement"), with
East West Capital Corporation whereby East West Capital Corporation will act as
a best-efforts selling agent (the "Underwriter") in connection with the
offering of the Series 1997 Debentures on a best efforts basis. The Underwriter
and Mariner Financial Services, Inc. (the "Selected Dealer") are entering into
this Selected Dealer Agreement whereby the Selected Dealer will solicit
potential investors for the Series 1997 Debentures pursuant to the terms set
forth herein. The Selected Dealer acknowledges receipt of the Prospectus dated
June __, 1997 (the "Prospectus") relating to the offering by the Company of
$10,000,000 in aggregate principal amount of __% Subordinated Debentures,
Series 1997, Due June 1, 2003 (the "Series 1997 Debentures"). In soliciting
potential investors for the Series 1997 Debentures, the Selected Dealer will
rely only on the Prospectus and on no other statements whatsoever, written or
oral.
Dealer Commission: The Selected Dealer will be paid a selling commission by
the Underwriter of 4.5% of the purchase price of all
Series 1997 Debentures sold by the Selected Dealer,
provided, however, that if the Selected Dealer sells
$250,000 or more of the Series 1997 Debentures it will
be paid a commission of 5.25% on all sales by it, and if
the Selected Dealer sells $500,000 or more of the Series
1997 Debentures it will be paid a commission of 6.75% on
all sales by it.
Delivery and Payment: The commission to be paid to the Selected Dealer will be
paid by the Underwriter within three (3) business days
after the Company pays
<PAGE> 12
the Underwriter the selling commission specified in the
Prospectus.
Offer to Public: The Series 1997 Debentures must be sold to the public in
conformity with the terms of offering set forth in the
Prospectus and as provided herein.
Termination of this
Agreement: This Agreement shall continue for so long as the
Underwriter continues to sell the Series 1997 Debentures
under the Underwriting Agreement; provided that either
party may terminate this Agreement upon thirty (30) days
written notice to the other party.
The Selected Dealer represents that in connection with soliciting
potential investors for the Series 1997 Debentures (a) it will not solicit
potential investors for the Series 1997 Debentures in any jurisdiction except
in compliance with applicable laws and (b) it will furnish to each potential
investor that it solicits a copy of the then current prospectus or of the
Prospectus (as then amended or supplemented if the Company shall have furnished
any amendments or supplements thereto), as the case may be. Any offering
material in addition to the then current prospectus or the Prospectus
solicitations referred to in the proceeding sentence (i) shall be prepared and
so furnished at the Selected Dealer's sole risk and expense, and (ii) shall not
contain information relating to the Series 1997 Debentures or the Company which
is inconsistent in any respect with the information contained in the then
current prospectus or in the Prospectus (as then amended, or supplemented if
the Company shall have furnished any amendments or supplements thereto), as the
case may be.
The Selected Dealer will not give any information or make any
representations other than those contained in the Prospectus, or act as agent
for the Company or the Underwriter.
The Selected Dealer agrees that the Underwriter has full authority to take
such action as may seem advisable to the Underwriter in respect of all matters
pertaining to the offering of the Series 1997 Debentures with respect to the
Selected Dealer for any act or omission, except for obligations expressly
assumed by the Underwriter in this Agreement. No obligations on the part of
the Underwriter will be implied or inferred herefrom.
The Underwriter shall hold the Selected Dealer and each of its current and
former affiliates, officers and/or directors harmless against, and shall
further indemnify the Selected Dealer and each of its current and former
affiliates, officers and/or director for any and all claims, expenses
(including reasonable attorneys' fees), losses, damages, liabilities, or causes
of action arising out of or based upon (i) the Underwriter's performance,
non-performance or breach of this Agreement, (ii) the Underwriter's violation
of any applicable federal, state, or NASD law, rule regulation or requirement,
or (iii) any untrue statement or material omission contained in any sales
material, offering document, brochure or other material used in connection with
the distribution of the Series 1997 Debentures. This provision shall apply
only to the extent the Underwriter's actions in (i), (ii), or (iii) of the
previous sentence do not arise out of or are not based upon information
provided, or
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<PAGE> 13
actions taken by the Selected Dealer.
All communications to the Underwriter relating to the subject matter of
this Agreement shall be addressed to East West Capital Corporation, 20520
Vernier Road, Harper Woods, Michigan 48225, Attention: Craig A. Janutol, and
any notices to the Selected Dealer shall be deemed to have been duly given if
mailed or telegraphed to us at the address shown below.
The Underwriter will not have responsibility with respect to the right of
the Selected Dealer to sell Series 1997 Debentures in any jurisdiction,
notwithstanding any information the Underwriter may furnish in that connection.
This Agreement shall be governed by and construed in accordance with the
laws of the State of Michigan.
Sincerely,
MARINER FINANCIAL SERVICES, INC., the Selected Dealer
P.O. Box 9011
Clearwater, FL 34618-9011
By:_______________________
Its:______________________
EAST WEST CAPITAL CORPORATION, the Underwriter
20520 Vernier Road
Harper Woods, Michigan 48225
By:_______________________
Its:______________________
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<PAGE> 1
EXHHIBIT 1.2.
SELLING AGREEMENT
$10,000,000 OF ____% SUBORDINATED DEBENTURES, SERIES 1997
DUE JUNE 1, 2003
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") $10,000,000 in aggregate principal amount of
____% Subordinated Debentures, Series 1997, due June 1, 2003 (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
$10,000,000 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. 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 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 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.
(2) As of the date (the "Effective Date") that the Registration Statement
is declared effective by the Commission and at all times thereafter up to the
termination of the Offering (i) the Registration Statement and Prospectus, and
any amendments or supplements thereto, will contain
<PAGE> 2
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 termination of the Offering 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.
(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 _______________________________,
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.
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<PAGE> 3
(6) Moore Stephens Doeren Mayhew and Grant Thornton, acting in a joint
venture capacity who 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.
II. 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 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.
(3) 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.
(4) The Placement Agent will comply with all applicable Sections of
Article III of the NASD Rules of Fair Practice with respect to the Offering.
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<PAGE> 4
III. 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 $10,000,000 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, Pennsylvania, 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.
IV. 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
4
<PAGE> 5
Section IV (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) 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 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.
(6) 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.
5
<PAGE> 6
(7) 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.
(8) 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 termination of the Offering, it is determined that such application would
not be in the best interest of the Company and would not violate any applicable
law.
V. 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 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 or
omission made in the Registration Statement or the Prospectus and related
exhibits or any amendment or supplement thereto 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. 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 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
6
<PAGE> 7
which the Placement Agent may otherwise have.
(3) Promptly after receipt by an indemnified party under this Article
V 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 V, 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 V. 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 V 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, 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 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
7
<PAGE> 8
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 V 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 V.
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
(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 III 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 V 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
8
<PAGE> 9
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.
MCA FINANCIAL CORP.
By: ______________________
Its:
PLACEMENT AGENT
By: ______________________
______________________
Please Print Name
______________________
Company Name
Its: ______________________
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<PAGE> 10
ANNEX A
STATES IN WHICH AGENT IS REGISTERED
_________________
_________________
_________________
_________________
10
<PAGE> 1
EXHIBIT 4.1
================================================================================
INDENTURE
Dated as of June __, 1997
by and between
MCA FINANCIAL CORP.
(the "Company")
and
FIRST UNION NATIONAL BANK
(the "Trustee")
relating to
$20,000,000
__% Subordinated Debentures, Series 1997, Due June 1, 2003
================================================================================
<PAGE> 2
TABLE OF CONTENTS
ARTICLE ONE
Definitions and Other Provisions of
General Application
Section 1.01. Definitions.............................................. 1
Section 1.02. Compliance Certificates and Opinions..................... 5
Section 1.03. Form of Documents Delivered to Trustee................... 6
Section 1.04. Acts of Debentureholders................................. 6
Section 1.05. Notices, etc., to Trustee and Company.................... 7
Section 1.06. Notices to Debentureholders; Waiver...................... 7
Section 1.07 Record Date for Action by Debentureholders............... 7
Section 1.08 Communications by Holders with Other Holders............. 8
Section 1.09 Affiliates of Company Exempt from Individual Liability... 8
Section 1.10 Payments Due on Saturdays, Sundays and Holidays.......... 8
Section 1.11 Provisions Required by TIA to Control.................... 9
Section 1.12 Counterparts............................................. 9
Section 1.13. Effect of Headings and Table of Contents................. 9
Section 1.14. Successors and Assigns................................... 9
Section 1.15. Separability Clause...................................... 9
ARTICLE TWO
Debenture Forms
Section 2.01. Forms Generally.......................................... 9
Section 2.02. Title and Terms.......................................... 9
Section 2.03. Denominations............................................ 10
Section 2.04. Execution, Authentication and Delivery and Dating........ 10
Section 2.05. Temporary Debentures..................................... 10
Section 2.06. Registration, Transfer and Exchange...................... 11
Section 2.07. Mutilated, Destroyed, Lost and Stolen Debentures......... 11
Section 2.08. Payment of Interest; Interest Rights Preserved........... 12
Section 2.09. Persons Deemed Owners.................................... 13
Section 2.10. Cancellation............................................. 13
Section 2.11. Authentication and Delivery of Original Issue............ 14
Section 2.12. Computation of Interest.................................. 14
ARTICLE THREE
Redemption
Section 3.01. Optional Redemption...................................... 14
Section 3.02. Mandatory Redemption..................................... 14
Section 3.03. Redemption of Debentures................................. 16
Section 3.04. Debentures Redeemed in Part.............................. 17
ARTICLE FOUR
Satisfaction and Discharge
Section 4.01. Satisfaction and Discharge of Indenture.................. 17
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Section 4.02. Application of Trust Money..................................................... 18
ARTICLE FIVE
Remedies
Section 5.01. Events of Default.............................................................. 18
Section 5.02. Acceleration of Maturity; Rescission and Annulment............................. 19
Section 5.03. Collection of Indebtedness and Suits for Enforcement by Trustee................ 20
Section 5.04. Trustee May File Proofs of Claim............................................... 20
Section 5.05. Trustee May Enforce Claims Without Possession of Debentures.................... 21
Section 5.06. Application of Money Collected................................................. 21
Section 5.07. Limitation on Suits............................................................ 22
Section 5.08. Right of Debentureholders to Receive Principal and Interest.................... 22
Section 5.09. Restoration of Rights and Remedies............................................. 23
Section 5.10. Rights and Remedies Cumulative................................................. 23
Section 5.11. Delay or Omission Not Waiver................................................... 23
Section 5.12. Rights of Holders to Direct Trustee and to Waive Defaults...................... 23
Section 5.13. Undertaking for Costs.......................................................... 23
ARTICLE SIX
Section 6.01. Certain Duties and Responsibilities............................................ 24
Section 6.02. Notice of Defaults............................................................. 25
Section 6.03. Certain Powers of Trustee...................................................... 25
Section 6.04. Not Responsible for Recitals or Issuance of Debentures......................... 26
Section 6.05. May Hold Debentures............................................................ 26
Section 6.06. Money Held in Trust............................................................ 26
Section 6.07. Compensation and Indemnity..................................................... 26
Section 6.08. Eligibility; Disqualification.................................................. 27
Section 6.09. Resignation and Removal; Appointment of Successor.............................. 27
Section 6.10. Acceptance of Appointment by Successor......................................... 28
Section 6.11. Merger, Conversion, Consolidation or Succession to Business.................... 29
Section 6.12. Preferential Collection of Claims Against Company.............................. 29
Section 6.13. Reports by the Trustee......................................................... 29
Section 6.14. Lists of Debentureholders...................................................... 29
ARTICLE SEVEN
Supplemental Indentures
Section 7.01. Supplemental Indentures Without Consent of Debentureholders.................... 29
Section 7.02. Supplemental Indentures With Consent of Debentureholders....................... 30
Section 7.03. Execution of Supplemental Indentures........................................... 31
Section 7.04. Effect of Supplemental Indentures.............................................. 31
Section 7.05. Reference in Debentures to Supplemental Indentures............................. 31
Section 7.06. Effect on Senior Indebtedness.................................................. 31
ARTICLE EIGHT
Covenants
Section 8.01. Payment of Principal and Interest.............................................. 31
Section 8.02. Maintenance of Office or Agency................................................ 31
</TABLE>
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<S> <C> <C>
Section 8.03. Money for Debenture Payments to be Held In Trust............................... 31
Section 8.04. Payment of Taxes and Other Claims.............................................. 32
Section 8.05. Company Existence.............................................................. 33
Section 8.06. Company May Consolidate, etc., Only on Certain Terms........................... 33
Section 8.07. Restrictions on Dividends, Redemptions, etc.................................... 33
Section 8.08. Reports by the Company......................................................... 34
ARTICLE NINE
Subordination of Debentures
Section 9.01. Agreement to Subordinate....................................................... 34
Section 9.02. Distribution on Dissolution, Liquidation and Reorganization.................... 34
Section 9.03. Payments on Debentures Prohibited During Event of Default
under Senior Indebtedness...................................................... 34
Section 9.04. Subrogation.................................................................... 35
Section 9.05. Obligation of Company Unconditional............................................ 35
Section 9.06. Payments on Debentures Permitted............................................... 36
Section 9.07. Effectuation of Subordination by Trustee....................................... 36
Section 9.08. Knowledge of Trustee........................................................... 36
Section 9.09. Trustee May Hold Senior Indebtedness........................................... 36
Section 9.10. Rights of Holders of Senior Indebtedness Not Impaired.......................... 36
Section 9.11. Rights and Obligations Subject to Power of Court............................... 36
SIGNATURES.................................................................................... 37
Exhibit A - Form of Debenture
</TABLE>
iii
<PAGE> 5
THIS INDENTURE, dated as of June __, 1997, 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, a national banking association 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 1997,
Due June 1, 2003 (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.
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 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
<PAGE> 6
(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 Charlotte,
North Carolina 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.
"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.
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"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.
"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'
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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 canceled 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.
"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
preceding the 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.
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"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.
"TIA" means 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;
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(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
reasonable care should know, that the certificate or opinion or representations
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 acknowledgments 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
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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.
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
Debentureholders 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
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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 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 stockholder 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.
Provisions Required by TIA to Control. 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.
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.
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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 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 North
Carolina.
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 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 $20,000,000, 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 1997, due June 1, 2003, of the Company. The Debentures
shall bear interest from the date and at the rate per
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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 Charlotte, North Carolina, or in such
other office or agency as may be established by the Company pursuant to Section
8.02.
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.
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
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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 Trustee
shall authenticate and deliver, the Debentures which the Debentureholder 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
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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.
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
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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 accrued interest, which were carried by such other Debenture. The
Regular Record Date referred to in this Section for the payment of interest
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 preceding
the 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
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of $20,000,000 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 June 1, 1999, or some of them from time to
time on or after June 1, 1999, at the redemption prices (expressed in
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 1, commencing with
March 1, 1999 (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 1 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.
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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.
(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 1 preceding a Mandatory
Redemption Date, and will be honored by the Company in accordance with Section
3.03 on the next March 1 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 a
Debenture will, upon
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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 8.03, 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.
(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.
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(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 8.03, have been delivered to the Trustee canceled or for
cancellation; or (B) all such Debentures not theretofore delivered to the
Trustee canceled 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 to pay and discharge the entire indebtedness on such
Debentures not theretofore delivered to the Trustee canceled 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.
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Section 4.02. Appliction 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 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
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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
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; Recission 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
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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.
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
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irrespective of whether the Trustee shall have made any demand on the Company
for the payment of over-due 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 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 Applications 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;
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
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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. Limitations 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 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
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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 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
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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
(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.
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(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 30 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 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 Debenture-
holders 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
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(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.
Section 6.06. 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. 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. The indemnity provisions of this Section shall survive removal or
resignation of the Trustee.
As security for the performance of the obligations of the Company under
this Section, the Trustee shall have a lien prior to the Debentures upon all
property and funds held or collected by the Trustee as such, except funds held
in trust for the payment of principal of (and premium, if any) and of interest
on Debentures. The Trustee's right to receive payments due under this Section
6.07 shall not be subordinate to any other liability or indebtedness of the
Company, even though the Debentures may be so subordinated, and the Debentures
shall be subordinate to the Trustee's right to receive such payments. When the
Trustee incurs expenses or renders services in connection with an Event of
Default specified in 5.01(6), the expenses
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and compensation for the services are intended to constitute expenses of
administration under any bankruptcy law.
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.
(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
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(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, or
(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.
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.
(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.
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Section 6.11. Merger, Conversion, 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.
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, 1998, 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 Debentureholders.
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
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a 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 With Consent of Debentureholders. 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.
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
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<PAGE> 35
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.
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.
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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 satisfaction
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.
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
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<PAGE> 37
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 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, as amended. The Company also shall comply with the other
provisions of Section 314(a) of the TIA.
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<PAGE> 38
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
marshaling 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 (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.
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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 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
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<PAGE> 40
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.
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.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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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: ____________________________
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EXHIBIT A
[FRONT OF DEBENTURE]
MCA FINANCIAL CORP.
__% SUBORDINATED DEBENTURE, SERIES 1997
DUE JUNE 1, 2003
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 1, 2003, and to
pay interest thereon at the rate of __% per annum, quarterly, on March 1, June
1, September 1 and December 1 of each year, commencing September 1, 1997 (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 preceding the 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 Charlotte, North Carolina,
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.
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<PAGE> 43
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:___________________________
Its:__________________________
[Corporate Seal]
ATTEST:
By:____________________________
Its:___________________________
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> 44
[REVERSE OF DEBENTURE]
MCA FINANCIAL CORP.
__% SUBORDINATED DEBENTURE, SERIES 1997
DUE JUNE 1, 2003
This Debenture is one of a duly authorized issue of Debentures of the
Company designated as its __% Subordinated Debentures Due June 1, 2003 (herein
called the "Debentures"), limited in aggregate principal amount to $20,000,000
issued and to be issued under an Indenture dated as of June __, 1997 (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, 1999, or some of
them from time to time on or after June 1, 1999, 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, 1999 through May 31, 2000 .............. 102.0%
June 1, 2000 through May 31, 2001............... 101.0%
June 1, 2001 and thereafter..................... 100.0%
In addition to the foregoing optional redemption, on each March 1,
commencing with March 1, 1999, 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 1 Mandatory
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 1 preceding such March 1 Mandatory
Redemption Date, in
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<PAGE> 45
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 1 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 1 Mandatory Redemption Date) if the Debentureholder or the
authorized representative of a deceased Debentureholder duly requests such
redemption on or before the December 1 preceding such March 1 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 Charlotte,
North Carolina, 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
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.
A-4
<PAGE> 46
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 stockholder 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> 47
[FORM OF ASSIGNMENT]
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> 48
Reconciliation and Tie Sheet*
between
Provisions of the Trust Indenture Act of 1939
and
Indenture, Dated as of June __, 1997
between
MCA FINANCIAL CORP.
and
FIRST UNION NATIONAL BANK, as Trustee
Section Section of
of TIA Indenture
------- ----------
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
* This Reconciliation and Tie Sheet is not a part of the Indenture
<PAGE> 1
EXHIBIT 5
(DYKEMA GOSSETT LETTERHEAD)
Telecopier: (313) 568-6915
May 15, 1997
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 $10,000,000 of Subordinated Debentures due
June 1, 2003 (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
<PAGE> 2
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,
1997 --------------------------------------------------------------------
Pro-forma 1997 1996 1995 1994 1993
--------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income (Loss) Before Federal
Income Taxes............... $ 157,938 $ 1,404,338 $1,127,530 $ (175,162) $ 972,185 $ 915,602
Add:
Portion of Rents
Representative of
the Interest Factor....... 273,840 273,840 216,360 134,075 72,234 57,265
Interest on Indebtedness.. 12,526,082 11,426,082 7,565,044 6,018,518 4,428,925 962,439
Amortization of
Debt Expense............ 1,104,356 957,956 687,390 421,189 286,009 102,675
----------- ----------- ---------- ---------- ---------- ----------
$14,062,216 $14,062,216 $9,596,324 $6,398,620 $5,759,353 $2,037,981
=========== =========== ========== ========== ========== ==========
Fixed Charges:
Portion of Rents
Representative of
the Interest Factor....... $ 273,840 $ 273,840 $ 216,360 $ 134,075 $ 72,234 $ 57,265
Interest on Indebtedness.. 12,526,082 11,426,082 7,565,044 6,018,518 4,428,925 962,439
Amortization of
Debt Expense............. 1,104,356 957,956 687,390 421,189 286,009 102,675
----------- ----------- ---------- ---------- ---------- ----------
$13,904,278 $12,657,878 $8,468,794 $6,573,782 $4,787,168 $1,122,379
=========== =========== ========== ========== ========== ==========
Ratio of Earnings
to Fixed Charges.......... 1.01x 1.11x 1.13x n/a 1.20x 1.82x
Deficiency of Earnings
over Fixed Charges........ $ -- $ -- $ -- $ (175,162) $ -- $ --
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
MCA Financial Corp.
Southfield, Michigan
We have issued our report dated April 28, 1997 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 16, 1997 May 16, 1997
