<PAGE> 1
As filed with the Securities and Exchange Commission on May 19, 1998
Registration No. 333-27307
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
MCA FINANCIAL CORP.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<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)
<TABLE>
Copy to:
<S> <C>
Lee P. Wells, President Paul R. Rentenbach
MCA Financial Corp. Dykema Gossett 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.
</TABLE>
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. [ ] Reg.
No.: 333-_______.
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. [ ]
================================================================================
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.
================================================================================
<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
<TABLE>
<CAPTION>
ITEMS OF FORM S-1 HEADINGS IN PROSPECTUS
- ----------------- ----------------------
<S> <C> <C>
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
</TABLE>
<PAGE> 3
PROSPECTUS MCA FINANCIAL CORP.
$10,000,000
11% 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 11% 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.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Price to Sales Proceeds to
the Public(1) Commissions(2) Company(1)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Debenture.................. 100% 6.5% 93.5%
Total ........................ $10,000,000 $650,000 $9,350,000
- -------------------------------------------------------------------------------------------------------------------
</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 $106,975, 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.
----------
As of May 11, 1998, MCA Financial had sold $1,002,000 principal amount of Series
1997 Debentures. This Offering will continue until all Series 1997 Debentures
are sold or until June 15, 1999, 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 __, 1998
<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 indicated,
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, 1998, the Company operated 41 offices in the states
of Michigan, Illinois, Indiana, Kentucky, Ohio, Colorado, Connecticut, Georgia,
Florida, North Carolina, South Carolina, Louisiana, Texas, 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 11% Subordinated Debentures,
Series 1997, Due June 1, 2003. The Series 1997
Debentures are subordinated unsecured obligations of
MCA Financial Corp. The minimum subscription amount
which the Company will accept in this offering is
$1,000. As of May 11, 1998, MCA Financial had sold
$1,002,000 principal amount of Series 1997
Debentures.
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 - Holders'
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 totaled
approximately $83.7 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 $15.9 million in principal amount. As of
the date hereof, the Company's subsidiaries had
outstanding indebtedness which totaled approximately
$148.3 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 obligations under the Indenture, regardless
of whether the transaction is a leveraged
2
<PAGE> 7
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, 1998, which were derived from the audited consolidated
financial statements of the Company for the periods in the five-year period
ended January 31, 1998. The audited consolidated financial statements of the
Company for each of the periods in the three-year period ended January 31, 1998,
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>
FISCAL YEAR ENDED JANUARY 31,
--------------------------------------------------------------
1998 1997 1996 1995 1994
------ -------- -------- ------ -----
(dollars in thousands, except per share data)
INCOME DATA:
<S> <C> <C> <C> <C> <C>
Revenues............................... $ 79,849 $ 58,926 $ 41,951 $ 33,371 $ 29,534
Expenses............................... 75,329 57,522 40,823 33,547 28,562
Income (loss) before federal
income taxes........................... 4,520 1,404 1,128 (176) 972
Net income (loss)...................... 2,830 765 616 (278) 551
Basic earnings (loss) per share........ 4.48 0.59 0.30 (2.07) 0.83
Ratio of earnings over fixed charges (1)
Historical......................... 1.25x 1.11x 1.13x n/a 1.20x
Pro forma (2)...................... 1.23x 1.01x 1.01x n/a n/a
Earnings (deficiency of earnings) over
fixed charges...................... 4,520 1,404 1,128 (176) 972
BALANCE SHEET DATA:
Mortgages held for resale.............. $ 102,190 $ 54,430 $ 63,306 $ 15,702 $ 39,250
Total assets........................... 259,013 144,992 135,191 77,112 76,845
Notes payable(3)....................... 178,438 83,975 86,598 44,843 54,549
11% Subordinated Debentures
due 1997(4)............................ 0 4,921 4,921 4,938 4,938
11% Subordinated Debentures due 2000... 9,944 10,000 4,253 -- --
11% Subordinated Debentures due 2002... 5,993 621 -- -- --
11% Subordinated Debentures due 2003... 117 -- -- -- --
10% Subordinated Notes Payable......... 15,000 15,000 -- -- --
Total liabilities...................... 245,398 134,087 125,030 67,822 67,982
Redeemable Common Stock(3)............. 278 256 -- -- 300
Stockholders' equity................... 13,337 10,649 10,161 9,290 8,563
OPERATING DATA:
Loan production:
Number of loans originated......... 12,686 10,107 7,928 8,224 8,910
Average loan balance............... $ 75 80 $ 80 $ 69 $ 77
Total loans originated............. $ 948,005 $ 809,756 $ 632,281 $ 564,235 $ 687,484
Number of full-time employees.......... 652 433 412 336 448
</TABLE>
(1) 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 1.22x, 1.12x, 1.12x and 1.19x for the
years ended January 31, 1998, 1997, 1996 and 1994, 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.
(2) 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.
(3) See Note 2 of Notes to Consolidated Financial Statements.
(4) The Subordinated Debentures due 1997 were redeemed in full as of March 17,
1997.
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 $1,093,840, on $9.94 million and (iv) the holders of
its outstanding 11% Subordinated Debentures Due 2002 (the "1996 Debentures") are
entitled to receive annual interest of approximately $659,230 on $5.99 million.
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 LIBOR plus 0.85% to LIBOR plus 2.5% (fluctuating from 6.9% to 8.15%).
The amount of this indebtedness at January 31, 1998, was $178.4 million.
At the then-current interest rates, the Company would be obligated to
pay $15.82 million in annual interest on its existing indebtedness as of January
31, 1998. 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.
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
5
<PAGE> 10
"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
$263.8 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 Debenture Holders, as
creditors, to participate in the assets of MCA Mortgage, MCA, MCA Realty,
MCA-Ohio or the Company's other subsidiaries in the event of their liquidation
or reorganization, will be subordinate to the claims of any and all other
creditors of MCA Mortgage, MCA, MCA Realty, MCA-Ohio or the Company's other
subsidiaries.
LIMITED MARKET FOR SERIES 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 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."
6
<PAGE> 11
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 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 1998, Freddie Mac purchased
$127.9 million of conventional mortgage loans from the Company, Fannie Mae
purchased $27.6 million of conventional mortgage loans from the Company and
$170.6 million of conventional mortgage loans of the Company were converted into
Ginnie Mae mortgage-backed securities and sold to various institutional
investors. 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. The Company has
strategically changed its focus from a conventional mortgage lender to a
non-conforming mortgage lender. This is reflected in the decrease of the
above-referenced conventional mortgage numbers. 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
7
<PAGE> 12
release premiums, escrow deficiencies and any other amounts associated with the
loan. Although the Company is approved as a correspondent with numerous
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 $117.6 million in fiscal 1998 to nine different
non-conforming mortgage investors. None of the non-conforming mortgage investors
has purchased more than 42% of the aggregate non-conforming mortgage bulk sales
to date. During fiscal 1997, the Company sold $141 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
$205 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 Texas Commerce Bank, N.A. that is secured by a stand-by Note
Purchase Agreement between Texas Commerce Bank, N.A. and the Detroit Policemen
and Firemen Retirement System of the whereby the pension fund has agreed to
provide payment to Texas Commerce Bank, N.A. 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
notes payable to expand its non-conforming originations.
On March 6, 1998, the Company executed a $30.0 million subordinated
term loan with the Fund. This loan has been provided to allow the Company to
continue to expand its non-conforming lending business and finance residual
interest in securitization. The loan accrues interest at 12% and is payable
quarterly. Commencing March 1, 2007, equal quarterly payments of principal and
interest will be paid until the loan terminates on January 31, 2010. Upon
execution of the agreement, the Fund was issued warrants convertible to 4% of
the Company's outstanding common shares on a diluted basis.
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
8
<PAGE> 13
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
$185 million and $20 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. 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. In fiscal 1998, mortgage
origination fees increased to $51.2 million. 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. For fiscal 1998, the Company's
originations increased to $948 million. 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. In fiscal 1998, a significant increase in the origination of
non-conforming mortgages generated a substantial increase in refinancings to
approximately $404 million. This is due to the nature of non-conforming lending.
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.
9
<PAGE> 14
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 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.
10
<PAGE> 15
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.
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 $9,245,200 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, expanding the non-conforming mortgage segment, as well as the
possible acquisition 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, 1998, and as adjusted to give effect to the sale of
the Series 1997 Debentures offered hereby:
<TABLE>
<CAPTION>
JANUARY 31, 1998
----------------
ACTUAL AS ADJUSTED
------ -----------
Long-term debt:
<S> <C> <C>
Capitalized lease obligations ...................... $ 158,193 $ 158,193
11% Subordinated Debentures due 2000................ 9,944,000 9,944,000
11% Subordinated Debentures due 2002................ 5,993,000 5,993,000
10% Subordinated Notes due 2006..................... 15,000,000 15,000,000
11% Subordinated Debentures due 2003
(offered hereby)................................ 117,000 10,000,000
----------- -----------
Total long-term debt............................ 31,212,193 41,095,193
----------- -----------
Redeemable Common Stock.................................. 278,261 278,261
Stockholders' equity:
Common Stock--3,750,000 shares
authorized, 544,312 shares issued............... 5,443 5,443
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.......................... 4,007,854 4,007,854
Retained earnings................................... 3,926,742 3,926,742
----------- -----------
Total stockholders' equity...................... 13,336,449 13,336,449
----------- -----------
Total capitalization............................ $44,826,903 $54,709,903
=========== ===========
- ---------------
</TABLE>
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, 1998, which were derived from the audited consolidated financial
statements of the Company for the periods in the five-year period ended January
31, 1998. The audited consolidated financial statements of the Company for each
of the periods in the three-year period ended January 31, 1998, 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,
--------------------------------------------------------------
INCOME DATA: 1998 1997 1996 1995 1994
------ -------- -------- ------ -----
Revenues: (Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Gain on sale of land contracts........... $ 4,049 $ 3,438 $ 2,981 $ 2,983 $ 1,753
Gain on sale of real estate............... -- -- 751 -- 67
Gain on sale of real estate-related
parties................................... 4,249 8,247 6,530 7,365 4,811
Gain on bulk sales of servicing rights.... 4,468 5,231 4,726 7,475 5,579
Mortgage origination fees and gain
on sale of mortgages................. 51,240 24,862 14,339 5,584 11,282
Servicing fees............................ 4,559 8,499 6,244 4,617 1,917
Interest income........................... 9,336 8,168 5,903 5,106 3,948
Other revenues............................ 1,948 481 478 241 177
-------- -------- -------- -------- --------
Total revenues.......................... 79,849 58,926 41,951 33,371 29,534
Expenses ................................... 75,329 57,522 40,823 33,547 28,562
-------- -------- -------- -------- --------
Income (loss) before federal income
taxes................................... 4,520 1,404 1,128 (176) 972
Provision for federal income taxes.......... 1,690 639 512 102 421
-------- -------- -------- -------- --------
Net income (loss)....................... 2,830 765 616 (278) 551
======== ======== ======== ======== ========
Basic earnings (loss) per share............. 4.48 0.59 0.30 (2.07) 0.83
Ratio of earnings over fixed charges (1)
Historical ........................ 1.25x 1.11x 1.13x n/a 1.20x
Pro forma (2)...................... 1.23x 1.01x 1.01x n/a n/a
Earnings (deficiency of earnings) over
fixed charges........................... 4,520 1,404 1,128 (176) 972
BALANCE SHEET DATA:
Assets:
Cash...................................... $ 1,533 $ 3,097 $ 2,730 $ 2,931 $ 4,782
Mortgages held for resale................. 102,190 54,430 63,306 15,702 39,250
Other assets.............................. 155,290 87,465 69,155 58,479 32,813
-------- -------- -------- -------- --------
Total assets............................ 259,013 144,992 135,191 77,112 76,845
======== ======== ======== ======== ========
Liabilities:
Notes payable (3)......................... 178,438 83,975 86,598 44,843 54,549
11% Subordinated Debentures due 2000,
2002 and 2003........................ 16,054 15,542 9,174 4,938 4,938
10% Subordinated Notes Payable............ 15,000 15,000 -- -- --
Other..................................... 35,906 19,570 29,258 18,041 8,495
-------- -------- -------- -------- --------
Total liabilities....................... 245,398 134,087 125,030 67,822 67,982
Redeemable Common Stock (4)................. 278 256 -- -- 300
Stockholders' equity........................ 13,337 10,649 10,161 9,290 8,563
-------- -------- -------- -------- --------
Total liabilities and stockholders'
equity.................................. $259,013 $144,992 $135,191 $ 77,112 $ 76,845
======== ======== ======== ======== ========
OPERATING DATA:
Loan production:
Number of loans originated.............. 12,686 10,107 7,928 8,224 8,910
Average loan balance.................... $ 75 $ 80 $ 80 $ 69 $ 77
Total loans originated.................. $948,005 $809,756 $632,281 $564,235 $687,484
Number of full-time employees.............. 652 433 412 336 448
</TABLE>
(1) 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 1.22x, 1.12x, 1.12x and 1.19x for the
years ended January 31, 1998, 1997, 1996 and 1994, 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.
(2) 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.
(3) See Note 2 of Notes to Consolidated Financial Statements.
(4) See Note 4 of Notes to Consolidated Financial Statements.
13
<PAGE> 18
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 including loan funding activities, financing residual interest in
securitization, mortgage servicing rights, and operating cash flows necessary
for growth.
Loan funding activities are primarily financed through the use of
mortgage warehouse lines of credit with commercial banks. See Note 2 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.
On October 31, 1997, the Company executed senior secured warehouse
agreements with a syndicate of warehouse lenders totaling $185 million. Texas
Commerce Bank N.A. is the acting warehouse agent. These warehousing lines of
credit provide financing for the funding and origination of a variety of
residential mortgage loans including, but not limited to, conforming mortgages,
non-conforming mortgages and land contracts. These facilities are schedules to
expire October 31, 1998. Interest on bank borrowings are based on LIBOR plus
0.85% to 2.5% depending on the type of loan. Mortgages held for resale are
pledged as collateral. The Company also has a $20 million warehousing line of
credit with Paine Webber Real Estate Securities, Inc. Interest on borrowings
under this facility are based on LIBOR plus 1.5%. Mortgages held for resale are
pledged as collateral. This facility is scheduled to expire on November 1, 1998.
At January 31, 1998 a total of $153.2 million was outstanding these facilities.
The Company utilizes mortgage loan repurchase agreements with Paine
Webber Real Estate Securities, Inc. and Prudential Securities Realty Funding
Corporation pursuant to which Paine Webber and Prudential purchase mortgage
loans until such time as the loans are pooled for resale to an end investor at
which time the Company repurchases such loans. Such agreements provide for
interest payments based on the federal funds rate. These agreements can be
terminated on demand.
The Company utilizes four funding sources to finance its residual
interest in securitizations and mortgage servicing rights: proceeds from $4.9
million and $10 million debenture offerings that were completed in July 1993 and
December 1996, a bank credit facility, which was first made available to the
Company in April 1993, and a subordinated term loan closed in July 1996. 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 in April 1993 was
terminated March 17, 1997. The credit facility, which is currently at $28.5
million, is with Texas Commerce Bank, N.A. and is enhanced by a stand-by Note
Purchase Agreement between Texas Commerce Bank, N.A. and the Policemen and
Firemen Retirement System of the City of Detroit (the "Fund") whereby the Fund
has agreed to provide payment to Texas Commerce Bank, N.A. upon the occurrence
of certain events of default by the Company. This credit enhancement permits the
Company to obtain a more favorable interest
14
<PAGE> 19
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, 1998, $22.9 million was outstanding under the Texas
Commerce Bank, N.A. credit facility. The subordinated term loan, a $15 million
loan and financing agreement with the Fund, has been provided to expand the
Company's non-conforming lending business and to finance residual interest in
securitizations. 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.
On March 6, 1998, the Company executed a $30.0 million subordinated
term loan with the Fund. This loan has been provided to allow the Company to
continue to expand its non-conforming lending business and finance residual
interest in securitizations. The loan accrues interest at 12% and is payable
quarterly. Commencing March 1, 2007, equal quarterly payments of principal and
interest will be paid until the loan terminates on January 31, 2010. Upon
execution of the agreement, the Fund was issued warrants convertible to 4% of
the Company's outstanding common shares on a diluted basis.
The Company also utilizes proceeds from a $6.0 million debenture
offering completed in December 1997 and a $10.0 million debenture offering
currently being sold, as well as operating cash flows, to finance its expansion
into new markets and products.
During fiscal 1998, the Company's operating activities used $105.2
million. Increases in "Mortgages Held for Resale" and "Accounts
Receivable-Mortgages Sold" used $102.3 million. The Company used $24.7 million
to increase residual interest in securitizations. These uses of cash were offset
by a $13.4 million increase in accounts payable. Sales of mortgage servicing
rights were primarily responsible for the $9.2 million provided by investing
activities. In financing activities, the Company used proceeds from notes
payable of $974.2 million to fund mortgage loans, land contracts, interest
spread receivable and mortgage servicing rights. Proceeds from sales of these
assets of $879.8 million were used to make payments on notes payable.
RESULTS OF OPERATIONS
Revenue for the year ended January 31, 1998 increased by 35.5% to $79.8
million. Revenue for the year ended January 31, 1997, increased by 40.5% to
$58.9 million as compared to $42.0 million for the fiscal year ended January 31,
1996. Net earnings increased by 269.8% to $2,830,035 for fiscal 1998 as compared
to net earnings of $765,338 for fiscal 1997. Net earnings in fiscal 1997 had
increased from a net earnings of $615,530 in fiscal 1996. Revenues increased in
fiscal 1998 in gains on sales of land contracts and real estate, mortgage
origination fees and gains on sales of mortgages, interest income and other
income. The $26,378,418 increase in origination fees and gains on sales of
mortgages was the most significant. Revenues related to sales of real estate to
related parties, sales of servicing rights and loan servicing fees decreased
during fiscal 1998. 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
15
<PAGE> 20
and servicing fees increased $2,265,185 and $2,255,648, respectively. The
$2,064,697 earnings increase in fiscal 1998 primarily resulted from the
significant increase in the origination and subsequent sale of non-conforming
mortgages. The increase in earnings in fiscal 1997 resulted from increased
overall revenues, specifically in non-conforming originations.
Mortgage origination fees, including gains on sale from loan resale
transactions, for fiscal 1998, increased to $51.24 million as compared to $24.86
million in fiscal 1997, an increase of 106.1%. Such mortgage origination fees
had increased in fiscal 1997 from $14.34 million in fiscal 1996. The total
dollar volume of loans originated increased by 17.0% to $948 million, for fiscal
1998, up from $810 million for fiscal 1997 which represented a 28.2% increase
from $632 million in fiscal 1996. The total number of loans produced increased
25.5% from 10,107 in fiscal 1997 to 12,686 in fiscal 1998. The total number of
loans produced increased 27.5% from 7,928 in fiscal 1996 to 10,107 in fiscal
1997. The average loan balance decreased to $74,728 in fiscal 1998 from $80,118
in fiscal 1997 and $79,753 in fiscal 1996. Increased mortgage originations in
fiscal 1998 and 1997 resulted from steady (relatively low) interest rates,
strong home buying and building markets and the continued addition of new loan
origination branches. Included in mortgage origination fees are gains and losses
on sale from loan resale transactions of $43.30 million in fiscal 1998, $12.51
million in fiscal 1997 and $(6.07) million in fiscal 1996.
In fiscal 1998, wholesale originations totaled $395.94 million, in
fiscal 1997, approximately $195.71 million and in fiscal 1996, approximately
$140.71 million. The increase in wholesale originations from fiscal 1997 to
fiscal 1998 was the result of the Company focusing its wholesale efforts on
non-conforming wholesale originations which increased from $108.93 million to
$288.62 million, respectively. Nonconforming wholesale originations in fiscal
1997 increased to $108.93 million from $52.49 million in fiscal 1996.
Mortgage origination revenues as a percent of total mortgage
origination volume increased from 2.3% in fiscal 1996 to 3.1% in fiscal 1997 to
5.4% in fiscal 1998. The increase in fiscal 1997 was attributable, primarily, to
the continued increase in the volume of non-conforming loan production. Fiscal
1998's increase also can be attributed to increased volumes of non-conforming
loan production as well as more favorable pricing the Company received on its
bulk sales and increased sales to a third party for purposes of securitization
during the year.
The Company recorded revenues of $4.47 million related to the sale of
bulk servicing rights of $1.3 billion during fiscal 1998 as compared to $5.23
million on bulk sales of $1.8 billion in fiscal 1997. Gains on bulk sales as a
percent of servicing rights sold increased to 0.34% for fiscal 1998 from 0.29%
in fiscal 1997. Revenues from bulk sales of servicing in fiscal 1996 were $4.73
million, 0.5% of servicing rights sold. Prices obtained in the market for these
servicing rights have remained consistent over the three year period. The amount
of servicing rights sold involving servicing previously purchased has the most
significant impact in these revenues. The Company's basis in these servicing
rights is much greater than in originated servicing.
Interest income increased from $5.90 million in fiscal 1996 to $8.20
million in fiscal 1997, an increase of 39.0%, and increased to $9.3 million in
fiscal 1998, an increase of 13.4% as compared to fiscal 1997. Interest income is
earned primarily on loans held by the Company pending resale in the secondary
market. The increases in fiscal 1998 and fiscal 1997 resulted from increased
production volumes in general and specifically increased non-conforming
production volumes which typically carry higher interest rates.
16
<PAGE> 21
In fiscal 1998 the Company also typically held inventory of non-conforming
mortgages for longer periods to take advantage of better pricing offered in the
market for larger bulk sales.
Servicing fee revenue increased from $6.24 million in fiscal 1996 to
$8.50 million in fiscal 1997, an increase of 36.2%, and decreased to $4.56
million in fiscal 1998, a decrease of 46.4% as compared to fiscal 1997. In
fiscal 1997 as compared to fiscal 1996, the Company's loan servicing portfolio
decreased from $2.2 billion to $1.6 billion. The increased servicing fee revenue
over the period was due to the timing of the Company's acquisition and sales of
servicing rights. The Company sold $1 billion of servicing rights at the end of
fiscal 1997. The Company also sold $188 million of servicing rights at the end
of fiscal 1998. The average servicing revenue per loan increased from $286 to
$350 for the years ended January 31, 1996 and 1997, respectively and decreased
to $276 for the year ended January 31, 1998. 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 gains on the sale of real estate-related parties increased from
approximately $6.5 million in fiscal 1996 to $8.2 million in fiscal 1997 and
decreased in fiscal 1998 to $4.2 million. This reflects the Company's strategy
to develop its business of real estate limited partnership syndications through
a former subsidiary. During fiscal 1998, 1997, and 1996, 704, 820, and 723
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 $3.0 million during fiscal
1996, increased to $3.4 million in fiscal 1997 and again increased to $4.0
million in fiscal 1998. These increases are due primarily to an increase in the
number of loan originators employed by the Company and increased marketing
efforts. The Company syndicated 12 pass-through pools and sold land contracts
with a total of $20.6 million of real estate related loans in fiscal 1998. In
fiscal 1997, the Company syndicated 16 pass-through pools of real estate related
loans and sold land contracts with a total of $20.9 million of loans, as
compared to 15 pools with a total of $21.9 million of loans in fiscal 1996.
Gains as a percentage of total syndication and sales increased from 13.6% in
fiscal 1996, to 13.6 % in fiscal 1997, and 19.4% in fiscal 1998. These
percentages are consistent with past results.
Expenses for fiscal 1998 increased by $17.8 million over fiscal 1997,
from a total of $57.5 million to a total of $75.3 million, an increase of 31.0%.
Expenses for fiscal 1997 increased by $16.7 million over fiscal 1996, from a
total of $40.8 million to $57.5 million, an increase of 40.9%. 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 42.6% to 40.8% and 40.8% for fiscal 1996,
fiscal 1997 and fiscal 1998, 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 1998
to $16.9 million from $11.4 million in fiscal 1997 and $7.6 million in fiscal
1996, following increased production levels. As a percentage of revenue,
interest expense has been 21.2%, 19.4% and 18.0% for fiscal 1998, 1997 and 1996,
respectively. General and administrative expense remained consistent at 24.1%,
24.8% and 24.1%, as a percentage of revenue for fiscal 1998, 1997 and 1996,
respectively. Amortization expense increased from $3.3 million in fiscal 1996 to
$4.9 million in fiscal 1997 and decreased to $3.7
17
<PAGE> 22
million in fiscal 1998. The increase in fiscal 1997 was due primarily to the
size of the servicing portfolio over the period. Fiscal 1998's decreases
corresponded to the decreasing servicing portfolio.
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, 1996, 1997 and 1998, respectively, the Company had approved loans
that had not yet closed amounting to approximately $74.3 million, $40.1 million
and $104.4 million. See Note 9 of Notes to Consolidated Financial Statements.
INFLATION
Inflation affects the Company primarily in the mortgage banking
operations as a result of its impact on interest rates. Historically, interest
rates have increased during periods of high inflation and this has had a
negative impact on the Company's mortgage origination volume. Conversely, during
periods of low inflation interest rates have also been low and this has had a
positive impact on mortgage originations.
The total dollar volume of land contracts purchased and originated have
been consistent at $21.9 million, $20.9 million and $20.6 million for fiscal
1996, fiscal 1997, and fiscal 1998, 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.
As interest rates increase, prepayments decrease, which decreases
amortization expense and increases the earnings potential of the servicing
portfolio. However, during periods of low inflation and decreasing interest
rates, prepayments increase, which increases amortization expense and results in
a decrease in the earnings potential of the servicing portfolio.
SEASONALITY
The mortgage banking industry is usually subject to an unpredictable
degree of seasonal trends. These trends reflect the general pattern of
nationwide home sales. Such sales typically peak during the spring and summer
seasons and decline to lower levels from October through January. In an effort
to mitigate this, the Company has opened branch offices in Florida, Texas,
California, Georgia, Louisiana and North and South Carolina.
18
<PAGE> 23
BUSINESS
GENERAL
MCA Financial Corp. ("MCAFC" or the "Company") is a holding company
which, through its principal subsidiaries and certain affiliates, engages in
mortgage banking, land contract and mortgage syndication, loan originating and
servicing and real estate acquisitions, rehabilitation, leasing and sales. MCAFC
is a Michigan corporation which was formed in 1989 and was inactive until 1991
when it became a holding company for its principal subsidiaries.
Currently, MCAFC operates through the following wholly-owned
subsidiaries:
- MCA Mortgage Corporation ("MCA Mortgage") is a Michigan
corporation that was incorporated in 1985 and has conducted a
mortgage banking business since that date. It was known as
Primary Mortgage Corporation until that date and was known as
Mortgage Corporation of America from August 1985 until March
1993.
- Mortgage Corporation of America ("MCA") is a Michigan
corporation that was incorporated in 1984 and has conducted a
mortgage banking business since that date. It was known as
First American Mortgage Corporation, Inc. until September 1989
and as First American Mortgage Associates, Inc. from September
1989 until October 1993.
- RIMCO Realty & Mortgage Company, doing business as MCA Realty
Corporation ("MCA Realty"), is a Michigan corporation that was
incorporated in 1993 and was acquired by MCAFC on January 31,
1995. MCA Realty is engaged in the purchase and sale of
residential real estate.
- Mortgage Corporation of America, Inc. ("MCA-Ohio") is an
Ohio Corporation that was incorporated in 1993 and has
conducted a mortgage banking business, emphasizing non-
conforming loans, since that date. It was known as Charter
1st Mortgage Banc, Inc. from May 1993 until July 1995 when it
was acquired by MCA.
MCAFC has two other subsidiaries, Complete Financial Corporation and
Securities Corporation of America, both Michigan corporations, which are
currently inactive. Unless otherwise indicated, MCAFC and its subsidiaries are
hereinafter collectively referred to as the "Company."
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
19
<PAGE> 24
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.
The following table sets 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>
1998 Michigan $ 290 million 53%
Indiana 72 million 13%
Florida 38 million 7%
Ohio 27 million 5%
Illinois 100 million 18%
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%
</TABLE>
The remaining retail loans for fiscal 1998, 1997 and 1996 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.
20
<PAGE> 25
The following table sets 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>
1998 Florida $ 60 million 15%
Michigan 91 million 23%
Illinois 40 million 10%
Ohio 57 million 14%
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%
Indiana 28 million 20%
Oregon 25 million 18%
</TABLE>
The remaining wholesale loans for fiscal 1998, 1997 and 1996 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 $227,150) 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.
21
<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:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
1998 1997 1996
---- ---- ----
(DOLLARS IN THOUSANDS EXCEPT AVERAGE LOAN BALANCES)
RETAIL LOANS
Conventional Loans:
<S> <C> <C> <C>
Number of Loans......................... 1,640 3,076 2,715
Volume of Loans......................... $145,903 $272,943 $243,154
Percent of Total Volume................. 15.39% 33.71% 38.47%
FHA/VA Loans:
Number of Loans......................... 3,615 3,765 2,669
Volume of Loans......................... $292,557 $291,601 $202,803
Percent of Total Volume................. 30.86% 36.01% 32.07%
Non-Conforming Loans:
Number of Loans. . . . . . . . . . . ... 1,751 418 581
Volume of Loans......................... $86,270 $32,012 $ 34,133
Percent of Total Volume................. 9.10% 3.96% 5.40%
Jumbo Loans
Number of Loans......................... 98 68 40
Volume of Loans......................... $27,335 17,491 $ 11,478
Percent of Total Volume................. 2.88% 2.16% 1.81%
Average Loan Balance......................... $77,711 $83,806 $ 81,860
Total Volume of Loans........................ $552,065 $614,047 $491,568
WHOLESALE LOANS(1) Conventional Loans:
Number of Loans......................... 310 546 617
Volume of Loans......................... $24,397 $48,048 $ 60,590
Percent of Total Volume................. 2.57% 5.93% 9.58%
FHA/VA Loans:
Number of Loans......................... 436 427 309
Volume of Loans......................... $36,994 $37,904 $ 27,158
Percent of Total Volume................. 3.90% 4.68% 4.30%
Non-Conforming Loans:
Number of Loans......................... 4,680 1,803 995
Volume of Loans......................... $288,623 $108,928 $ 52,485
Percent of Total Volume................. 30.44% 13.45% 8.30%
Jumbo Loans
Number of Loans......................... 156 4 2
Volume of Loans......................... $45,926 $829 $ 480
Percent of Total Volume................. 4.84% 0.10% 0.07%
Average Loan Balance......................... $70,931 $70,400 $ 73,174
Total Volume of Loans(1)..................... $395,940 $195,709 $140,713
TOTAL LOANS
Number of Loans.............................. 12,686 10,107 7,928
Volume of Loans.............................. $948,005 $809,756 $632,281
Average Loan Balance......................... $74,728 $80,118 $ 79,753
</TABLE>
- -------------
(1) During fiscal 1998 and fiscal 1997, no single company was responsible for
greater 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.
At January 31, 1998, the Company had applications in process for
approximately 5,497 mortgage loans, aggregating approximately $417 million. At
January 31, 1997, the Company had applications in process for approximately
2,022 mortgage loans, aggregating approximately $154 million. Based on
experience, the Company anticipates that 65% to 70% of the loan applications
will close within 45 to 90 days.
22
<PAGE> 27
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,
----------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
30-year Fixed Rate:
Number of Loans........................ 4,965 6,092 5,349 4,569 5,084
Volume of Loans........................ $391,662 $492,949 $424,994 $339,394 $448,762
Percent of Total Volume................ 41.31% 60.88% 67.22% 60.15% 65.28%
15-year Fixed Rate:
Number of Loans........................ 1,288 785 611 844 1,953
Volume of Loans........................ $56,280 $49,149 $ 40,137 $ 49,536 $142,340
Percent of Total Volume................ 5.93% 6.07% 6.35% 8.78% 20.70%
Adjustable Rate ("ARMS"):
Number of Loans........................ 3,991 1,487 1,239 1,217 299
Volume of Loans......................... $357,796 $143,453 $114,619 $108,983 $ 34,073
Percent of Total Volume................ 37.74% 17.71% 18.13% 19.32% 4.96%
Other (1):
Number of Loans........................ 0 0 69 352 194
Volume of Loans........................ 0 0 $ 5,225 $ 6,154 $ 3,121
Percent of Total Volume................ 0% 0% 0.82% 1.09% 0.45%
Balloon Payment:
Number of Loans........................ 2,442 1,743 660 1,242 1,380
Volume of Loans........................ $142,267 $124,205 $ 47,306 $ 60,167 $ 59,188
Percent of Total Volume................ 15.01% 15.34% 7.48% 10.66% 8.61%
Total Number of Loans.................... 12,686 10,107 7,928 8,224 8,910
Total Volume............................. $948,005 $809,756 $632,281 $564,235 $687,484
Total Loan to Value Percent.............. 81.06% 84.13% 83.8% 90.5% 94.5%
</TABLE>
(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,
--------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Detached - Single Family
Owner Occupied:
Number of Loans..................... 10,781 8,939 6,943 6,916 7,441
Volume of Loans..................... $823,917 $724,011 $578,154 $506,714 $636,440
Percent of Total Volume............. 86.91% 89.41% 91.44% 89.81% 92.58%
Non-owner occupied:
Number of Loans..................... 998 442 133 947 1,088
Volume of Loans..................... $43,855 $20,733 $ 6,121 $ 28,603 $ 23,441
Percent of Total Volume............. 4.62% 2.56% 0.97% 5.07% 3.41%
Other (1):
Number of Loans..................... 45 76 66 39 64
Volume of Loans..................... $5,054 $6,022 $ 5,929 $ 3,310 $ 4,894
Percent of Total Volume............. 0.54% 0.75% 0.94% 0.59% 0.71%
Multi-Unit and Commercial
Owner Occupied:
Number of Loans..................... 559 523 360 262 265
Volume of Loans..................... $56,336 $52,489 $ 28,919 $ 19,909 $ 18,895
Percent of Total Volume............. 5.94% 6.48% 4.57% 3.53% 2.75%
Non-owner occupied:
Number of Loans..................... 303 127 426 60 52
Volume of Loans..................... $18,843 $6,501 $ 13,158 $ 5,699 $ 3,814
Percent of Total Volume............. 1.99% 0.80% 2.08% 1.00% 0.55%
</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") 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.
25
<PAGE> 30
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 1998, 1997 and 1996,
the Company made $948.0 million, $809.8 million and $632.3 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 quarter of fiscal 1997,
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.
26
<PAGE> 31
Servicing. At January 31, 1998, the Company owned servicing rights for
mortgages with outstanding balances of approximately $431 million and to land
contracts with outstanding net balances of approximately $168 million. The
Company intends to maintain its servicing of residential mortgage loans, and to
retain its mortgage and land contract servicing system that emphasizes cash
management and compliance with investor servicing requirements.
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. During fiscal 1998, the Company
did not purchase any servicing and has sold servicing with respect to
approximately $1.3 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
non-conforming 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, 1998, the
weighted average rate on mortgages serviced by the Company but owned by others
was 8.33% 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
11.17%.
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,
---------------------------------------------------------------
1998 1997 1996 1995 1994
------ -------- -------- ------ -----
(DOLLARS IN THOUSANDS, EXCEPT AVERAGE LOAN BALANCE)
<S> <C> <C> <C> <C> <C>
Beginning loan servicing portfolio..... $1,601,042 $2,206,460 $1,303,628 $1,105,534 $234,743
Add:
Loans purchased and
originated by the
Company for resale.................. 923,185 727,007 632,281 536,881 687,484
Loans purchased by the
Company for syndication............. 24,820 20,849 25,597 27,354 19,188
Mortgage servicing
purchased (net of sales)............ (1,296,497) (862,569) 618,780 (166,577) 471,587
----------- ----------- ------------ ------------ ----------
$1,252,550 $2,091,747 $2,580,286 $1,503,192 $1,413,002
Less:
Amortization......................... (14,837) (53,761) (43,491) (43,228) (36,832)
Prepayments of loans................. (98,814) (237,196) (172,100) (107,571) (210,305)
Loans sold with servicing sold....... (550,163) (199,748) (158,235) (48,765) (60,331)
--------- --------- ------------ ----------- -----------
Ending loan servicing portfolio........ $588,736 $1,601,042 $2,206,460 $1,303,628 $1,105,534
======== ========== ========== ========== ==========
Number of loans serviced
(end of period).................. 11,814 21,248 27,357 16,372 15,900
Average loan balance................... $49,834 $75,350 $80,650 $79,625 $69,530
</TABLE>
28
<PAGE> 33
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,
----------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Delinquent mortgage loans at-- Period end:
30 days:
Number of loans...................... 398 838 227 359 259
Percent of total loans............... 3.37% 3.99% 0.83% 2.19% 1.87%
60 days:
Number of loans...................... 127 216 49 97 77
Percent of total loans............... 1.07% 1.02% 0.18% 0.59% 0.56%
90 days or more:
Number of loans...................... 277 367 75 143 43
Percent of total loans............... 2.34% 1.73% 0.27% 0.87% 0.31%
Total delinquencies:
Number of loans...................... 802 1,421 351 599 379
Percent of total loans............... 6.78% 6.69% 1.28% 3.65% 2.74%
Foreclosed Properties:
Beginning inventory.................... 113 122 84 83 84
Properties acquired.................... 120 106 136 89 122
Ending inventory ...................... 112 113 122 84 83
Aggregate carrying
value, net (-000's)................ $2,950 $2,576 $2,288 $1,500 $1,495
Average carrying value................. $26,339 $22,798 $18,754 $17,854 $18,012
</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.
29
<PAGE> 34
Through January 31, 1998, the Company had sponsored 126 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 master pooling and servicing agreement relating to the pools, 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, 1998, the maximum amount of these future purchase commitments
totaled approximately $10 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.
30
<PAGE> 35
The following table shows the growth of the Company's originations and
purchases of loans for syndication in pass-through pools and sales to third
party investors during the fiscal years indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
--------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Number of Land Contracts
purchased for syndication............... 602 855 933 1,002 798
Average balance........................... $34,248 $24,418 $23,485 $22,453 $17,759
Total amount of Land
Contracts purchased for
syndication............................$20,617,235 $20,877,360 $21,911,707 $22,498,079 $14,172,104
Number of Mortgage Notes
purchased for syndication............... 131 46 78 212 344
Average loan balance...................... $32,086 $62,930 $47,246 $22,906 $14,580
Total amount of Mortgage
Notes purchased for
syndication.............................$4,203,271 $2,894,797 $3,685,207 $4,856,239 $5,015,723
Total number of loans
purchased for syndication............... 733 901 1,011 1,214 1,142
Average loan balance...................... $33,862 $26,384 $25,318 $22,513 $16,802
Total amount purchased for
syndication.............................$24,820,506 $23,772,157 $25,596,914 $27,354,318 $19,187,827
</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 an affiliated non-profit entity and non-related
individuals. During the year ended January 31, 1998, the Company acquired and
sold 704 single family homes for a total gain of $4.2 million, all of which
represented sales to the limited partnerships and the non-profit entity
described above. During fiscal 1997 and 1996, the Company acquired and sold 820
and 723 single-family homes for total gains of $8.2 million and $7.3 million,
respectively, of which $8.2 million and $6.5 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 unaffiliated real estate
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, or to
unrelated third party investors. The remaining balance of income-producing real
estate is sold to unrelated third parties on land contracts or mortgages.
31
<PAGE> 36
Because most of the income-producing real estate sales are directed to
affiliated entities, the normal real estate concerns associated with purchasers
and fluctuating market values are not applicable. These entities 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, or the real estate pass through pools the Company
sponsors pursuant to the land contract receivables are dependent upon the
ability of these partnerships to generate rental income.
Other. During fiscal 1996, the Company made a common stock investment
of approximately $1.0 million in a Delaware Limited Liability Company. This
start-up company participates in the used vehicle retail industry through
providing floor plan financing and joint venture activities with existing
dealers. The Company's investment in the Class B Securities issued by this
Limited Liability Company provides it the right to participate in earnings and
distributions, if any, subject to the preferential right of certain other
shareholders. Subsequent to year end the Company exchanged its interest in the
LLC for a limited partnership interest in a partnership engaged in rental real
estate activities. The partnership was held by an officer and board member of
the Company.
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
32
<PAGE> 37
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, Pennsylvania, Louisiana, Georgia, Connecticut, South Carolina
and Colorado.
EMPLOYEES
At January 31, 1998, approximately 665 individuals were employed by the
Company, of which 652 were full-time employees, including 297 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.
In October 1997 the Company entered into a lease agreement for
approximately 71,000 square feet of office space in Southfield, Michigan. The
Company expects to move its executive and administrative offices and certain of
its mortgage banking and real estate operation in June 1998. The basic annual
rent for this lease is $1,336,000. The Company's executive and administrative
offices and its mortgage banking and real estate operations are currently
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 Company has negotiated to have this lease terminated
on September 30, 1998. As of January 31, 1998, the Company leased office space
in 41 other locations: thirteen in Michigan, five in Indiana, four in Florida,
six in Ohio, three in Illinois, two in Texas and one in each of Kentucky, North
Carolina, California, Louisiana, Georgia, Connecticut, South Carolina and
Colorado. 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.
33
<PAGE> 38
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, 51 Chairman, Chief Executive Officer and Director
Thomas P. Cronin, 51 Vice Chairman and Director
Lee P. Wells, 37 President, Chief Operating Officer and Director
Keith D. Pietila, 48 Executive Vice President, Chief Financial Officer and Director
Alexander J. Ajemian, 34 Senior Vice President, Controller and Treasurer
James B. Quinlan, 46 Director
C. Thompson Wells, Jr., 57 Director
D. Michael Jehle, 48 Director
</TABLE>
The Board of Directors is divided into three classes, with each class
serving a three-year term. At each annual meeting of the shareholders, directors
in the class whose term expires are elected to serve a three-year term. Patrick
D. Quinlan, C. Thompson Wells and D. Michael Jehle are serving for a term ending
at the annual meeting of shareholders to be held in 1998. Keith D. Pietila and
James B. Quinlan are serving for a term ending at the annual meeting of
shareholders to be held in 1999. Lee P. Wells and Thomas P. Cronin are serving
for a term ending at the annual meeting of shareholders to be held in 2000.
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 and 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 also serves as Vice
Chairman of Matrix Capital Bank, an unaffiliated third party. Mr. Cronin served
as Chief Executive Officer of MCA Mortgage from November 1993 until November
1996. 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
34
<PAGE> 39
pools which are sold to private mortgage investors. From 1987 until 1990
Mr. Wells was a Vice President of MCA Mortgage, and served as the Controller of
MCA Mortgage from 1987 until 1988. Mr. Wells is the son of C. Thompson Wells,
Jr. See "Principal 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 and a director 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 September 1996, Mr. Wells has served as President and Chief
Executive Officer of RIMCO Financial Corp., a company affiliated with MCA
Financial. 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. 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
35
<PAGE> 40
RIMCO Financial Corporation. Prior to joining the Company, Mr. Jehle was
employed by First Fidelity Thrift and Loan in San Diego, California, from 1991
to 1993 in both loan production and servicing capacities. From 1989 to 1991, Mr.
Jehle was self-employed in both residential and commercial loan originations and
prior to that he was President of ABQ MoneyCenter, Inc., in San Diego,
California.
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
RESTRICTED
FISCAL STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS (1) COMPENSATION (2)
- --------------------------- ---- ------ ----- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Patrick D. Quinlan - 1998 $216,250 $32,500 $ -- $23,256
Chairman 1997 208,061 -- -- 23,172
and Chief Executive Officer 1996 206,458 -- -- 16,048
Thomas P. Cronin - 1998 $143,149 $ -- $14,819 $ 9,670
Vice Chairman 1997 224,136 -- -- 9,670
1996 218,099 -- -- 9,670
Lee P. Wells - 1998 $200,133 $40,000 $ -- $ 1,956
President and Chief 1997 170,000 26,675 -- 1,766
Operating Officer 1996 159,583 19,500 -- 2,146
Keith D. Pietila - 1998 $176,333 $30,000 $ -- $11,742
Chief Financial 1997 160,000 30,000 -- 11,640
Officer and Executive 1996 153,333 25,000 -- 11,552
Vice President
Alexander J. Ajemian 1998 $115,500 $10,000 $29,664 $ --
Controller, Treasurer and 1997 100,000 15,000 -- --
Senior Vice President 1996 94,375 10,000 -- --
</TABLE>
(1) During fiscal 1998, Mr. Cronin was awarded 1,665 shares of restricted
stock with a value of $14,819 with 555 shares vesting in each of fiscal
1998, 1999 and 2000. As of January 31, 1998, Mr. Cronin held 1,110 shares
of restricted stock with a value of $9,879. During fiscal 1998, Mr.
Ajemian was awarded 3,333 shares of restricted stock with a value of
$29,664, with 1,111 shares vesting in each of fiscal 1998, 1999 and 2000.
As of January 31, 1998, Mr. Ajemian held 2,222 shares of restricted stock
with a value of $19,776. 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.
36
<PAGE> 41
For the year ended January 31, 1998, 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.
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, 1998. 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.
37
<PAGE> 42
Included in other income is $300,000 for fiscal 1998 attributable to
rental charges to RIMCO Financial Corporation for use of a portion of the
Company's office space.
During fiscal 1998, 1997, and 1996, the Company recognized a gain of
$3,711,011, $7,539,447, and $6,529,708, 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 1998, 1997, and 1996, the Company paid commissions in
connection with the acquisition of these properties totaling $1,689,600,
$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.
During the years ended January 31, 1998 the Company and certain
affiliated companies entered into real estate and financing transactions with
Detroit Revitalization, Inc. ("DRI"). DRI is a not-for-profit corporation formed
in 1994 to assist in the revitalization of Detroit housing stock. The Chairman
of the Board of DRI functions as a consultant to the Company and also is a
member of the Board of the U. S. Mutual Financial Corporation ("U. S. Mutual").
In fiscal 1998 the Company recognized net gains of $539,000 on sales of real
estate to DRI and $980,000 of real estate commissions in connection with DRI's
sales of homes to individuals.
The Company provides accounting and administrative services to 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. The service
arrangement between the Company and U.S. Mutual 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 1998,
1997, and 1996. Keith D. Pietila is a director of U.S. Mutual.
From time to time the Company has retained Consulting Services of
America, Inc. ("CSA") as a consultant for specific long range planning and other
projects. John E. Quinlan, the brother of Patrick and James Quinlan, is a
shareholder, director and executive officer of CSA. 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 1998, 1997, and 1996, the
Company paid $77,000, $105,000 and $120,000, respectively, in consulting fees to
CSA.
In February 1993, Patrick D. Quinlan and Lee P. Wells each purchased
500 shares of common stock of PCA for $5,000 in cash, as part of the
reorganization of PCA. In connection with such reorganization, the Company
exchanged its PCA common stock for shares of PCA non-voting preferred stock. As
a result of the reorganization, Messrs. Quinlan and Wells became the owners of
all of the outstanding voting common stock of PCA and the Company's property
management subsidiary became a wholly-owned subsidiary of PCA.
In July 1995, Janet K. Wells purchased 20,000 shares of common stock of
the Company for $30 per share in exchange for promissory notes with an aggregate
principal amount of $600,000, secured by mortgages on certain appraised real
estate. The appraisal was performed by the Real Estate Appraisal Group,
38
<PAGE> 43
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, 1998, 1997, and 1996, the Company's
accounts receivable from these related entities, net of accounts payable to
these entities, were $934,000, $571,000, and $793,000, respectively, due from
RIMCO Financial Corp., a company owned by Patrick D. Quinlan, Lee P. Wells and
Leroy G. Rogers, $1.27 million, $1.67 million, and $1.68 million, respectively,
due from Property Corporation of America, the common stock of which is owned by
Patrick D. Quinlan and Lee P. Wells. At January 31, 1998, $1,100,000 was due
from DRI. In addition, there is $3,170,000 due from investor pass-through pools
sponsored by MCA Mortgage or MCA and limited partnerships sponsored by other
affiliates of the Company.
39
<PAGE> 44
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of April 1, 1998,
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 (2)............................ 112,135 18.02%
James B. Quinlan (3).............................. 55,734 8.95%
17150 Kercheval Ave.
Grosse Pointe, Michigan 48230
C. Thompson Wells, Jr. (4)........................ 89,553 14.38%
Lee P. Wells (2).................................. 48,372 7.77%
NML, Inc. (2)..................................... 33,700 5.41%
David C. Wells.................................... 27,722 4.45%
Keith D. Pietila.................................. 28,167 4.53%
Thomas P. Cronin (5).............................. 14,865 2.39%
D. Michael Jehle (5).............................. 25,000 4.02%
Janet K. Wells (4)................................ 86,200 13.85%
3 Sycamore
Grosse Pointe, Michigan 48230
Alexander J. Ajemian (5).......................... 11,613 1.87%
All executive officers and directors as a
group (8 persons) (2)(4)(5).................... 419,119 67.34%
</TABLE>
(1) As of April 1, 1998, there were 622,413 shares of Common Stock of the
Company outstanding. This number includes 78,101 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.
(4) Janet K. Wells holds 86,200 shares in a 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 the following shares that were issued pursuant to compensation
arrangements and are subject to forfeiture: Mr. Cronin - 1,110 shares;
Mr. Jehle - 8,000 shares; Mr. Ajemian - 2,222 shares; and all executive
officers and directors as a group - 11,332 shares.
40
<PAGE> 45
DESCRIPTION OF SERIES 1997 DEBENTURES
General. In this Offering the Company is offering for sale up to
$10,000,000 aggregate principal amount of 11% 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 marshaling 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 11% 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.
41
<PAGE> 46
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 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
42
<PAGE> 47
next following a duly made redemption request. Redemption requests shall be made
to the Trustee and contain the following: (i) a written request for redemption
signed by a Holder or the duly authorized representative of a deceased Holder,
which (in the case of a deceased Holder) shall indicate the name of the deceased
Holder and the date of his death and shall indicate the principal amount of
Series 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, 1998, MCA Financial had $41.9 million of Senior Indebtedness
outstanding. In addition, at January 31, 1998, MCA Mortgage and MCA, the
Company's principal subsidiaries, had $239.2 million aggregate indebtedness
outstanding, including amounts owing under all of their mortgage
43
<PAGE> 48
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 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
44
<PAGE> 49
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 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
45
<PAGE> 50
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 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 1,100,000 shares of
Preferred Stock and 3,750,000 shares of Common Stock. As of April 1, 1998, there
were 622,413 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, 1998, there were 117 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
46
<PAGE> 51
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 Apex Capital, L.L.C., to act as the Selling Group
Manager. The selling group will consist of Sigma Financial Corporation, Chapel
Hill Securities, Inc., Martha R. Seger & Associates, Inc., Delta Equity Services
Corporation, Pro Equities, Inc., Magellan Securities, Inc., Centennial Capital
Management, Inc., and Capital Strategies, Ltd., 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, 1998 and
1997, consolidated statements of operations, stockholders' equity and cash flows
for each of the three years in the period ended January 31, 1998, included in
this Prospectus have been audited by Doeren Mayhew 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.
47
<PAGE> 52
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, 1998 and 1997.............. F-3
Consolidated Statements of Income for the years ended
January 31, 1998, 1997 and 1996................................... F-4
Consolidated Statements of Stockholders' Equity for the years
ended January 31, 1998, 1997 and 1996............................. F-5
Consolidated Statements of Cash Flows for the years ended
January 31, 1998, 1997 and 1996................................... F-6
Notes to Consolidated Financial Statements............................... F-9
</TABLE>
F-1
<PAGE> 53
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, 1998 and 1997, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended January 31, 1998. 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 require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of MCA
Financial Corp. and its Subsidiaries as of January 31, 1998 and 1997, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended January 31, 1998, 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".
/s/ Doeren Mayhew /s/ Grant Thornton LLP
Doeren Mayhew Grant Thornton LLP
Troy, Michigan Detroit, Michigan
April 28, 1998
F-2
<PAGE> 54
MCA FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JANUARY 31,
1998 1997
------------ ------------
<S> <C> <C>
Cash $ 1,533,143 $ 3,096,993
Land contracts held-for-resale 20,741,228 10,351,425
Mortgages held-for-resale 102,190,985 54,430,155
Accounts receivable - mortgages sold 69,994,544 15,489,908
Accounts receivable 10,878,886 16,997,311
Accounts receivable - related parties 7,480,642 6,827,285
Mortgage servicing rights - net 3,270,904 16,324,263
Residual interests in securitizations-net 27,036,087 7,987,053
Investments 2,907,235 2,571,750
Property and office equipment 5,940,988 5,582,612
Deferred charges and other assets 7,038,120 5,333,058
------------ ------------
Total assets $259,012,762 $144,991,813
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Notes payable $178,438,476 $ 83,975,834
Subordinated debentures 16,054,000 15,542,000
Subordinated notes payable 15,000,000 15,000,000
Accounts payable 29,064,099 15,705,913
Accounts payable - related parties 921,913 1,043,842
Accrued interest and other expenses 4,440,564 2,419,048
Deferred federal income tax 1,479,000 400,000
------------ ------------
Total liabilities 245,398,052 134,086,637
------------ ------------
COMMITMENTS AND CONTINGENCIES -- --
REDEEMABLE COMMON STOCK 278,261 256,373
STOCKHOLDERS' EQUITY
Common stock
Authorized 3,750,000 shares at January 31, 1998 and 1997. No par,
stated value $.01 each. Issued and outstanding, 544,312 shares at
January 31, 1998 and 503,281 shares at January 31, 1997 5,443 5,033
Preferred stock (Series A)
Authorized 350,000 shares, $10 stated value, issued and outstanding
203,022 shares at January 31, 1998 and 1997 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, 1998 and 1997 3,366,190 3,366,190
Additional paid-in capital 4,007,854 3,664,976
Retained earnings 3,926,742 1,582,384
------------ ------------
Total stockholders' equity 13,336,449 10,648,803
------------ ------------
Total liabilities and stockholders' equity $259,012,762 $144,991,813
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE> 55
MCA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES
Gain on sale of land contracts $ 4,049,226 $ 3,437,662 $ 2,981,138
Gain on sale of real estate -- -- 750,800
Gain on sale of real estate - related parties 4,249,557 8,247,201 6,529,708
Gain on bulk sales of servicing rights 4,468,409 5,231,163 4,725,872
Mortgage origination fees and gain on sale
of mortgages 51,240,299 24,861,881 14,339,220
Servicing fees 4,559,228 8,499,396 6,243,748
Interest income 9,336,023 8,167,899 5,902,714
Other income 1,947,167 481,138 477,810
----------- ----------- -----------
Total revenues 79,849,909 58,926,340 41,951,010
----------- ----------- -----------
EXPENSES
Payroll 19,880,264 15,775,097 11,955,536
Interest 16,941,032 11,426,082 7,565,044
Commissions 12,810,421 8,257,703 5,929,844
Professional services 2,030,366 1,879,525 1,447,810
Depreciation 727,833 687,333 554,904
Amortization 3,714,979 4,869,475 3,259,131
General and administrative 19,224,979 14,626,787 10,111,211
----------- ----------- -----------
Total expenses 75,329,874 57,522,002 40,823,480
----------- ----------- -----------
INCOME BEFORE FEDERAL INCOME TAXES 4,520,035 1,404,338 1,127,530
PROVISION FOR FEDERAL INCOME TAXES 1,690,000 639,000 512,000
----------- ----------- -----------
NET INCOME $ 2,830,035 $ 765,338 $ 615,530
=========== =========== ===========
BASIC EARNINGS PER SHARE $ 4.48 $ .59 $ .30
=========== =========== ===========
DILUTED EARNINGS PER SHARE $ 4.02 $ .56 $ .28
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE> 56
MCA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED JANUARY 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PREFERRED PAID-IN RETAINED
STOCK STOCK CAPITAL EARNINGS TOTAL
----- ----- ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance - February 1, 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
Net income -- -- -- 2,830,035 2,830,035
Issuance of common stock 410 -- 342,878 -- 343,288
Preferred stock dividends -- -- -- (485,677) (485,677)
------------ ------------ ------------ ------------ ------------
Balance - January 31, 1998 $ 5,443 $ 5,396,410 $ 4,007,854 $ 3,926,742 $ 13,336,449
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 57
MCA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,830,035 $ 765,338 $ 615,530
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization 4,442,812 5,556,808 3,814,035
Issuance of common stock 365,176 207,970 165,744
Decrease (increase) in land contracts
held-for-resale (10,389,803) 1,133,452 (2,175,379)
Origination and purchase of mortgages
held-for-resale (948,005,000) (794,266,291) (632,281,000)
Sale of mortgages held-for-resale 900,244,170 803,142,508 585,277,031
Increase in accounts receivable -
mortgages sold (54,504,636) (15,489,908) --
Decrease (increase) in accounts receivable 6,118,425 (7,274,784) 4,432,277
Decrease (increase) in accounts receivable -
related parties (653,357) 1,428,805 (986,951)
Increase in residual interests in securitizations (19,049,034) (7,987,053) --
Increase in deferred charges and other assets (2,981,558) (1,104,199) (2,123,743)
Increase (decrease) in accounts payable 13,358,186 (9,500,774) 9,852,602
Increase (decrease) in accounts payable -
related parties (121,929) (649,469) 193,729
Increase in accrued interest and other expenses 2,021,516 360,968 1,071,831
Increase in deferred Federal income taxes 1,079,000 100,000 100,000
------------- ------------- -------------
Net cash used in operating activities (105,245,997) (23,576,629) (32,044,294)
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE> 58
MCA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Net cash used in operating activities -
total from previous page $(105,245,997) $ (23,576,629) $ (32,044,294)
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales (purchases) of mortgage servicing rights - net 10,614,876 7,175,299 (12,125,632)
Decrease (increase) in investments (335,485) (78,934) 36,912
Capital expenditures (1,086,209) (1,207,774) (1,073,420)
------------- ------------- -------------
Net cash provided by (used in)
investing activities 9,193,182 5,888,591 (13,162,140)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 974,220,438 814,899,838 548,960,490
Payments on notes payable (879,757,796) (817,727,548) (507,680,156)
Net proceeds from subordinated debentures 512,000 6,368,000 4,236,000
Proceeds from subordinated notes payable -- 15,000,000 --
Repurchase of common stock -- -- (25,086)
Dividends on preferred stock (485,677) (485,667) (485,640)
------------- ------------- -------------
Net cash provided by financing activities 94,488,965 18,054,623 45,005,608
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH (1,563,850) 366,585 (200,826)
CASH - BEGINNING 3,096,993 2,730,408 2,931,234
------------- ------------- -------------
CASH - ENDING $ 1,533,143 $ 3,096,993 $ 2,730,408
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements
F-7
<PAGE> 59
MCA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1997 1996
----------- ----------- ------------
<S> <C> <C> <C>
Cash paid during the period for:
Interest $16,267,847 $10,950,833 $ 7,435,339
=========== =========== ===========
Income taxes $ 250,000 $ 412,000 $ 66,506
=========== =========== ===========
</TABLE>
During the year ended January 31, 1998, the Company issued 38,569 shares of
common stock to employees and recognized $343,264 in compensation expense. The
Company also issued 2,462 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 $21,912 of expense.
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 shareholder/director of
the Company in exchange for $600,000 in notes receivable. Prior to January 31,
1996, the notes receivable were assigned to Investor Pass-Through Trusts in
satisfaction of amounts due the Trust by MCAFC. In December of 1995, the Company
exchanged a $1,000,000 investment in a real estate partnership acquired from a
related party in exchange for a reduction in amounts due the Company for an
interest in a limited liability company whose primary activity involves
providing financing for automobile dealerships. During the year ended January
31, 1996, capital leases totaling $474,077 were entered into for the purchase of
various property and equipment.
See accompanying notes to consolidated financial statements
F-8
<PAGE> 60
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements at January 31, 1998, 1997 and
1996 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 $42,801,000, $12,513,000 and
$6,068,000 for the years ending January 31, 1998, 1997 and 1996,
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> 61
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998, 1997 AND 1996
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.
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, 1998 and 1997.
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, 1998, and
accordingly no allowance for doubtful accounts has been provided.
F-10
<PAGE> 62
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following at:
<TABLE>
<CAPTION>
JANUARY 31,
1998 1997
----------- -----------
<S> <C> <C>
Accounts receivable - sales of mortgage servicing rights $ 5,946,287 $14,136,266
Accrued fees and commissions 2,082,047 919,155
Accounts receivable - syndication sales 168,000 154,352
Accounts receivable - escrows on closed loans 1,032,893 983,971
Accounts receivable - shareholders 325,742 233,342
Accrued interest 675,656 181,420
Employee commission draws 132,816 128,178
Other 515,445 260,627
----------- -----------
$10,878,886 $16,997,311
=========== ===========
</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, 1998
and 1997, respectively, are approximately $934,000 and $571,000 due
from an entity owned by certain directors and shareholders of the
Company; $1,265,000 and $1,674,000 due from Property Corporation of
America (PCA), an entity owned by certain directors and shareholders of
the Company, and $3,170,000 and $3,384,000 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. Also included in
accounts receivable related parties at January 31, 1998 is
approximately $1,100,000 attributable to real estate transactions
entered into with Detroit Revitalization, Inc.
The Company uses the allowance method to account for possible losses of
accounts receivable, and no allowance was deemed necessary at January
31, 1998 and 1997.
F-11
<PAGE> 63
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998, 1997 AND 1996
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. The effect of the adoption was to increase earnings by
approximately $.73 million for fiscal 1996 or $1.53 per share - basic.
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, 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)
Sales (18,050,501)
------------
Balance - January 31, 1997 16,324,263
Additions 967,668
Scheduled amortization (2,387,997)
Sales (11,633,030)
------------
Balance - January 31, 1998 $ 3,270,904
============
</TABLE>
F-12
<PAGE> 64
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998, 1997 AND 1996
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 mortgage servicing rights was $2,438,483, $3,699,194
and $2,459,981 for the years ended January 31, 1998, 1997 and 1996,
respectively. Accumulated amortization of purchased servicing rights
was $4,266,924, $5,806,181 and $2,887,705 at January 31, 1998, 1997 and
1996, respectively.
Properties securing the mortgage loans in the Company's servicing
portfolio are located throughout the United States.
At January 31, 1998, the net book value of the mortgage servicing
rights portfolio approximated fair value.
RESIDUAL INTERESTS IN SECURITIZATIONS
Residual interests in securitizations are recorded as a result of the
sale of loans through securitization. At the closing of each
securitization, the Company removes from its balance sheet the mortgage
loans held for sale and adds to its balance sheet (i) the cash
received; and (ii) the estimated fair value of the residual interests
from the securitization, which consists of (a) an overcollateralization
amount (OC) and (b) a net interest receivable (NIR). The excess of the
cash received and assets retained by the Company over the carrying
value of the loans sold, less transaction costs, equals the gain on
sale of loans recorded by the Company.
The Company allocates its basis in the mortgage loans between the
portion of the mortgage loans sold through mortgage-backed securities
(the senior and junior certificates) and the portion retained (the
residual interests) based on the relative fair values of those portions
on the date of sale.
F-13
<PAGE> 65
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
RESIDUAL INTERESTS IN SECURITIZATION - CONTINUED
The Company will recognize gains or losses attributable to the change
in the fair value of the residual interests, which are recorded at
estimated fair value and accounted for as "held-for-trading"
securities. The Company is not aware of an active market for the
purchase or sale of residual interests; accordingly, the Company
estimates the fair value of the residual interests by calculating the
present value of the estimated expected future cash flows using a
discount rate commensurate with the risks involved.
NIRs are determined by using the amount of the excess of the
weighted-average coupon on the loans sold over the sum of: (1) the pass
through rate on the fixed and floating rate senior and junior
certificates; (2) a base servicing fee paid to the servicor of the
loans; (3) estimated losses to be incurred on the portfolio of loans
sold over the estimated lives of the loans; and (4) other expenses and
revenues, which include anticipated prepayment penalties. The
significant assumptions used by the Company to estimate NIR cash flows
are anticipated prepayments and estimated credit losses. The Company
estimates prepayments by evaluating historical prepayment performance
of comparable loans and the impact of trends in the industry. The
Company estimates credit losses using available historical loss data
for comparable loans and the specific characteristics of the loans
included in the Company's securitizations. At January 31, 1998, the
Company had a general loss reserve of $3,966,731 related to the NIR.
The OC primarily represents the excess interest collected and held by
the trust as overcollateralization for the senior and junior
certificates sold and, along with a certificate guarantor insurance
policy, if any, serves as credit enhancement to the senior and junior
certificate holders. The OC is required to be maintained at a specified
target level of the principal balance of the certificates, which can be
increased significantly in the event delinquencies and/or losses exceed
certain specified levels. Cash flows received by the trust in excess of
the obligations of the trust are deposited into the
overcollateralization account until the target OC is reached. Once the
target OC is reached, distributions of excess cash are remitted to the
Company.
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-14
<PAGE> 66
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
INVESTMENTS - CONTINUED
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
---------- ----------
<S> <C> <C>
Total assets $8,295,926 $8,586,116
Total liabilities 3,075,247 2,945,782
Partnership equity 5,220,679 5,640,334
Net income 377,837 432,499
</TABLE>
Included in investments at January 31, 1997 is a $1,000,000 membership
interest investment in a LLC which was formed in August 1995. This
company participates in the used vehicle retail industry through
providing floor plan financing and participating in joint venture
activities with existing dealers. Subsequent to year end, the Company
exchanged its interest in the LLC for a limited partnership interest in
a partnership engaged in rental real estate activities. The partnership
interest was held by an officer and board member of the Company.
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,
1998 1997
----------- -----------
<S> <C> <C>
Property and office equipment $ 6,814,919 $ 6,100,023
Building and improvements 1,838,041 1,498,614
----------- -----------
8,652,960 7,598,637
Less accumulated depreciation (2,711,972) (2,016,025)
----------- -----------
$ 5,940,988 $ 5,582,612
=========== ===========
</TABLE>
Depreciation expense for the year ended January 31, 1998, 1997 and 1996
amounted to $727,833, $687,333 and $554,904, respectively.
F-15
<PAGE> 67
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998, 1997 AND 1996
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.
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. The Company adopted certain of the provisions of
this pronouncement in January, 1997. The effect of this adoption was
not significant to net income.
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
For these short-term instruments, the carrying amount is a
reasonable estimate of fair value.
F-16
<PAGE> 68
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED
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.
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.
RESIDUAL INTERESTS IN SECURITIZATIONS
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.
F-17
<PAGE> 69
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
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,
1998 1997
--------------------------- ---------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Assets:
Cash $ 1,533,143 $ 1,533,143 $ 3,096,993 $ 3,096,993
Land contracts held-
for-resale 20,741,228 20,741,228 10,351,425 10,351,425
Mortgages held-for-resale 102,190,985 102,190,985 54,430,155 54,430,155
Mortgage servicing rights 3,270,904 3,270,904 16,324,263 16,324,263
Residual interests in
securitizations 27,036,087 27,036,087 7,987,053 7,987,053
Liabilities:
Notes payable, subordinated
debenture and subordinated
notes payable 209,492,476 209,492,476 114,517,834 114,517,834
</TABLE>
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.
F-18
<PAGE> 70
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
EARNINGS PER SHARE
The Company computes earnings per share pursuant to SFAS No. 128
"Earnings Per Share," which requires a presentation of basic EPS,
requires dual presentation of basic and diluted EPS on the face of the
statement of income 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. All per share data has been restated to conform
to the new pronouncement.
RECLASSIFICATION
Certain amounts in the prior year's financial statements have been
reclassified to conform to the January 31, 1998 presentation.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 130, "Reporting of Comprehensive
Income" ("SFAS 130"), which establishes standards for reporting and
display of comprehensive income and its components (revenues, expense,
gains and losses) in a full set of financial statements. This statement
also requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported
in a financial statement that is displayed with the same prominence as
other financial statements. This statement is effective for fiscal
years beginning after December 15, 1997. Earlier application is
permitted. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. The Company
does not anticipate that adoption of SFAS 130 will have a material
effect on the Company.
F-19
<PAGE> 71
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
RECENTLY ISSUED ACCOUNTING STANDARDS - CONTINUED
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS 131"), which
establishes standards for the way that public business enterprises
report information about operating segments in annual financial
statements and requires that those enterprises report selected
information about operating segments in interim financial reports
issued to stockholders. This statement also establishes standards for
related disclosures about products and services, geographic areas, and
major customers. This statement requires the reporting of financial
and descriptive information about an enterprise's reportable operating
segments. This statement is effective for financial statements for
periods beginning after December 15, 1997. In the initial year of
adoption, comparative information for earlier years is to be restated.
The Company does not anticipate that the adoption of SFAS 131 will have
a material effect on the Company.
F-20
<PAGE> 72
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998, 1997 AND 1996
NOTE 2 - NOTES PAYABLE
<TABLE>
<CAPTION>
JANUARY 31,
1998 1997
------------ -----------
<S> <C> <C>
Note payable under $185 million mortgage warehouse credit
facility, subject to renewal on October 31, 1998, 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
$140,226,333 $48,369,064
Note payable under $28.5 million revolving credit facility,
subject to renewal on October 31, 1998, interest is computed at
LIBOR plus 1.25% (6.9% at January 31, 1998), collateralized by
mortgage servicing rights and residual interests in securitizations 22,950,828 28,305,175
Note payable under $20 million mortgage warehouse facility,
subject to renewal on November 1, 1998, interest is computed at
LIBOR plus 1.5% (7.15% at January 31, 1998), principal payable
upon sale of mortgage collateral (mortgages
held-for-resale) to institutional investors. 12,964,161 4,426,335
Other notes payable expiring at various times through 2002 2,297,154 2,875,260
------------ -----------
Total
$178,438,476 $83,975,834
============ ===========
</TABLE>
F-21
<PAGE> 73
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998, 1997 AND 1996
NOTE 2 - 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 3 - SUBORDINATED DEBENTURES
In December 1991, the Company began offering up to $7,500,000 of 11%
Asset-Backed Subordinated Debentures due March 15, 1997. Interest on
the Debentures is payable quarterly. The Debentures are subordinate in
right of payment to all current and future senior indebtedness of the
Company. Payment of principal and interest on the Debentures is
collateralized by a security interest in and lien upon certain existing
and future contract rights to service mortgages and land contracts.
These rights must at all times have a formula value, as determined by
provisions of the Indenture, of at least 105% of the principal amount
of Debentures outstanding. Under certain limited conditions, the
Debentures are redeemable commencing June 15, 1993 only up to $25,000
per holder in each calendar year and only up to an aggregate of
$100,000 per calendar year for all holders. The right of redemption
does not exist if the Company is in default under any senior
indebtedness. Through January 31, 1998 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, 1998, 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 $866,000 and $840,000 at January 31, 1998
and 1997.
F-22
<PAGE> 74
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998, 1997 AND 1996
NOTE 3 - 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, 1998
there have been $56,000 in redemptions. The Debentures are registered
with the Securities and Exchange Commission.
Through January 31, 1998, 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 $765,000 and $405,000 at January 31, 1998
and 1997.
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. Through January 31, 1998 there have been $7,000 in
redemptions. The Debentures are registered with the Securities and
Exchange Commission.
Through January 31, 1998, the Company has incurred approximately
$560,000 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 $68,000 at January 31, 1998.
F-23
<PAGE> 75
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998, 1997 AND 1996
NOTE 3 - SUBORDINATED DEBENTURES - CONTINUED
In June 1997, the Company began offering up to $10,000,000 of unsecured
11% subordinated debentures due June 30, 2003. 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, 1998, the Company has incurred approximately
$79,000 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 $2,000 at January 31, 1998.
NOTE 4 - 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
$1,154,000.
F-24
<PAGE> 76
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998, 1997 AND 1996
NOTE 5 - 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 increased $.20
per year from $10.20 in 1993 to $11 in 1997 and thereafter. Through
January 31, 1998 there have been no redemptions. Dividends are payable
quarterly.
In June 1993, MCAFC began offering up to 750,000 units consisting of
one share of Series B 9%, $10 stated value, cumulative convertible
preferred stock. The stock is convertible only in the event of an
initial public offering of the Company's common stock. The preferred
stock is redeemable at any time on or after July 15, 1994 at the option
of the Company only at a redemption price of $10 per share. Through
January 31, 1998 there have been no redemptions. Dividends are payable
quarterly.
Through January 31, 1998 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-25
<PAGE> 77
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998, 1997 AND 1996
NOTE 6 - 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,
1998 1997
----------- ----------
<S> <C> <C>
Residual interests in securitizations $ 638,000 $ --
Depreciation of property and office equipment 606,000 518,000
Originated mortgage service rights 372,000 --
Amortization of goodwill (137,000) (120,000)
Other -- 2,000
----------- -----------
$ 1,479,000 $ 400,000
=========== ===========
</TABLE>
Components of income tax expense are:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Current $ 611,000 $ 539,000 $ 412,000
Deferred 1,079,000 100,000 100,000
----------- ----------- -----------
$ 1,690,000 $ 639,000 $ 512,000
=========== =========== ===========
</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 at statutory rate $ 1,537,000 $ 478,000 $ 383,000
Non-deductible items 153,000 161,000 169,000
Other -- -- (40,000)
----------- ----------- -----------
$ 1,690,000 $ 639,000 $ 512,000
=========== =========== ===========
</TABLE>
F-26
<PAGE> 78
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998, 1997 AND 1996
NOTE 7 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per common share:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1997 1996
---------------- --------------- ---------
<S> <C> <C> <C>
Numerator:
Net income $ 2,830,035 $ 765,338 $ 615,530
Preferred dividends (485,677) (485,667) (485,640)
---------------- --------------- ----------------
Numerator for basic and diluted
earnings per common share $ 2,344,358 $ 279,671 $ 129,890
================ =============== ================
Denominator:
Denominator for basic earnings per
common share - weighted average
common shares 523,797 475,949 426,412
Dilutive potential common shares 59,053 21,681 37,565
---------------- --------------- ----------------
Denominator for dilutive
earnings per common share 582,850 497,630 463,977
================ =============== ================
</TABLE>
F-27
<PAGE> 79
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998, 1997 AND 1996
NOTE 8 - RELATED PARTY TRANSACTIONS
The Company purchased various real estate parcels during the years
ended January 31, 1998, 1997 and 1996. These parcels purchased from
unrelated third parties were subsequently sold to limited partnerships,
for which PCA is the general partner. Gains totaling $34,249,557,
$8,247,201 and $6,529,708 for the years ended January 31, 1998, 1997
and 1996 were recognized on the sales, respectively.
During the years ended January 31, 1998, 1997 and 1996 the Company
agreed to pay commissions of $1,689,600, $1,968,000 and $1,735,000,
respectively for the acquisition of properties acquired from unrelated
third parties to a Company owned by three shareholders of MCAFC. These
commissions reduced "Gain on Sale of Real Estate" in the Consolidated
Statements of Income.
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, 1998, 1997 and 1996, respectively. Certain
shareholders of the Company are directors or major shareholders in
USMFC.
Included in other income is $300,000 and $83,000 for 1998 and 1997,
respectively, attributable to rental charges made to an entity
controlled by certain board members of The Company which utilizes a
portion of the Company's office space. During the years ended January
31, 1998, and 1997, the Company and certain affiliated companies
entered into real estate and financing transactions with Detroit
Revitalization, Inc. (DRI).
Included in accounts payable - related parties at January 31, 1998 and
1997 are approximately $922,000 and $1,044,000 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.
DRI is a not-for-profit corporation formed in 1994 to assist in the
revitalization of Detroit's housing stock. During the year, the
Company sold homes to DRI for a gross selling price of approximately
$14,000,000 ($3,600,000 in 1997), realizing net gains of $539,000
($705,000 in 1997). Included in accounts receivable other at January
31, 1998 is $1,100,000 which is due from DRI. Included in other
income for the year ended January 31, 1998 is $980,000 ($120,000 on
January 31, 1997) of real estate commissions earned by the Company in
connection with DRI's sales of homes to individuals. The Chairman of
the Board of DRI functions as a consultant to the Company and also is
a member of the Board of USMFC.
F-28
<PAGE> 80
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998, 1997 AND 1996
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, 1998 and 1997, respectively, the
Company has approved loans that had not yet closed amounting to
approximately $104,373,000 and $40,081,000. 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
operating leases with varying terms which expire through 2003. Rent
expense on operating leases approximated $3,070,000, $2,282,000 and
$1,803,000 for the years ended January 31, 1998, 1997 and 1996,
respectively, and is included in the caption "General and
Administrative" expense in the Consolidated Statements of Income.
F-29
<PAGE> 81
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998, 1997 AND 1996
NOTE 10 - LEASE COMMITMENTS - CONTINUED
As of January 31, 1998, approximate future minimum lease payments
under operating leases that have initial or remaining noncancelable
terms in excess of one year are as of follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
----------
<S> <C>
1999 $2,518,660
2000 2,278,090
2001 1,779,620
2002 1,475,392
2003 1,468,016
----------
$9,519,778
==========
</TABLE>
NOTE 11 - COMMITMENTS AND CONTINGENCIES
In accordance with the terms of the investor Pass-though 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, 1998 and
1997, the maximum amount of these future purchase commitments totaled
approximately $10,000,000 and $9,400,000.
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 1998, 1997 and 1996.
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-30
<PAGE> 82
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998, 1997 AND 1996
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 $117,000,
$86,000 and $22,000 for the years ended January 31, 1998, 1997 and
1996.
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, 1998, a total of 78,101 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, 1998
are as follows:
<TABLE>
<S> <C>
1999 19,055
2000 -
2001 20,046
2002 -
2003 39,000
</TABLE>
F-31
<PAGE> 83
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998, 1997 AND 1996
NOTE 14 - SEGMENT INFORMATION
The Company and it's subsidiaries operate primarily in two business
segments. Operations in mortgage banking involve the origination and
purchase of mortgage loans 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,
1998 1997 1996
----------------- ------------------ ------------------
<S> <C> <C> <C>
REVENUE
Mortgage banking $ 69,366,461 $ 46,512,944 $ 31,051,952
Real estate 10,483,448 12,413,396 10,899,058
----------------- ------------------ ------------------
Total $ 79,849,909 $ 58,926,340 $ 41,951,010
================= ================== ==================
INCOME (LOSS) BEFORE INCOME TAXES
Mortgage banking $ 4,145,150 $ 824,964 $ (1,195,323)
Real estate 374,885 579,374 2,322,853
----------------- ------------------ ------------------
Total $ 4,520,035 $ 1,404,338 $ 1,127,530
================= ================== ==================
IDENTIFIABLE ASSETS
Mortgage banking $ 214,113,492 $ 115,310,484 $ 104,990,975
Real estate 31,585,302 19,256,062 27,147,572
Other 13,313,968 10,425,267 3,052,094
----------------- ------------------ ------------------
Total $ 259,012,762 $ 144,991,813 $ 135,190,641
================= ================== ==================
</TABLE>
F-32
<PAGE> 84
================================================================================
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
<TABLE>
<CAPTION>
Page
<S> <C>
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..................................................................................................... 34
Compensation Committee Interlocks and
Insider Participation........................................................................................ 37
Principal Stockholders......................................................................................... 40
Description of Series 1997 Debenture........................................................................... 41
Description of Common Stock.................................................................................... 46
Plan of Distribution........................................................................................... 46
Legal Matters.................................................................................................. 47
Experts........................................................................................................ 47
Index to Financial Statements.................................................................................. F-1
</TABLE>
MCA FINANCIAL CORP.
$10,000,000
11% SUBORDINATED DEBENTURES,
SERIES 1997,
DUE JUNE 1, 2003
PROSPECTUS
JUNE __, 1998
================================================================================
<PAGE> 85
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.
SEC registration fee............................ $ 2,000
NASD fee........................................ 1,000
Blue Sky fees (excluding legal fees)............ 4,675
Accounting fees and expenses ................... 23,500
Legal fees and expenses......................... 52,000
Printing, engraving and miscellaneous........... 23,800
--------
Total.................................. $106,975
========
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.
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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 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.
(c) 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).
(d) 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.
(e) 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.
(f) 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.
(g) On May 23, 1997, the Registrant issued 53,195 shares of common
stock to 44 employees of the Registrant, who received such shares in recognition
of their service to the Registrant.
(h) On June 11, 1997, the Registrant issued 250 shares to one employee
of the Registrant, with all of the shares to be earned on a prospective basis
contingent upon continued employment and performance.
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(i) On July 15, 1997, the Registrant issued 500 shares to one employee
of the Registrant, with such shares to be earned on a prospective basis
contingent upon continued employment and performance.
(j) On July 21, 1997, the Registrant issued 500 shares to one employee
of the Registrant, with such shares to be earned on a prospective basis
contingent upon continued employment and performance.
(k) On August 1, 1997, the Registrant issued 35,841 shares of common
stock to seven 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.
On August 1, 1997, the Registrant issued 3,333 shares of common stock to a
Director of the Registrant.
(l) On October 20, 1997, the Registrant issued 1,759 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.
(m) On December 1, 1997, the Registrant issued 3,333 shares to Wells'
Systems, Inc., who received such shares in recognition of service to the
Registrant. The President of Wells' Systems, Inc. is a Director of the
Registrant and is the father of Lee P. Wells.
(n) On December 19, 1997, the Registrant issued 15,779 shares of common
stock to seven employees of the Registrant, who received such shares in
recognition of their service to the Registrant. On December 19, 1997, Patrick D.
Quinlan assigned his right to receive 2,000 shares of common stock to Holly
Quinlan Kubek (1,000 shares) and Patrick Quinlan Jr. (1,000 shares). Patrick
Quinlan is the Chairman and a majority stockholder of MCA Financial Corp.
(o) On January 15, 1998, the Registrant issued 3,297 shares of common
stock to one employee of the Registrant, who received such shares in recognition
of service to the Registrant.
(p) On January 31, 1998, the Registrant issued 2,462 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 (p) 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
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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 24,410 shares
vested during fiscal 1996, as described on page F-8, represent shares issued in
prior periods which vested in fiscal 1996, and 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. The 38,569 shares vested during fiscal 1998, as
described on page F-8, represent shares issued in prior periods which vested in
fiscal 1998.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
Exhibit
Number Description of Exhibit
- ------- ----------------------
1.1 Selling Agreement between Registrant and Apex Capital,
L.L.C. (filed herewith).
1.2 Form of Selling Agreement (previously filed as Exhibit 1.2 to
the Registrant's Registration Statement on Form S-1, File No.
333-27307, and incorporated herein by reference).
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 Copy of Indenture to be entered into by and between Registrant
and First Union National Bank relating to Registrant's 11%
Subordinated Debentures, Series 1997, Due June 1, 2003
(previously filed as Exhibit 4.1 to the Registrant's
Registration Statement on Form S-1, File No. 333-27307, and
incorporated herein by reference).
5 Opinion of Dykema Gossett PLLC as to the legality of the
securities being registered (previously filed as Exhibit 5 to
the Registrant's Registration Statement on Form S-1, File No.
333-27307, and incorporated herein by reference).
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10.1 Lease Agreement, dated April 1, 1991, between Mortgage
Corporation of America and Multi-City Investment Company, as
amended by First Amendment (previously filed as Exhibit 10.15
to the Post-Effective Amendment No. 1 to the Registrant's
Registration Statement on Form S-18, File No. 33-43765C, and
incorporated herein by reference).
10.2 Second, Third, Fourth, Fifth and Sixth Amendments to Exhibit
10.1 (previously filed as Exhibit 10.12 to the Registrant's
Annual Report on Form 10-KSB for the fiscal year ended January
31, 1994, and incorporated herein by reference).
10.3 Seventh and Eighth Amendments to Exhibit 10.1 (previously
filed as Exhibit 10.27 to the Registrant's Annual Report on
Form 10-K for the period ended January 31, 1997, and
incorporated herein by reference).
10.4 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).
10.5 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).
10.6 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).
10.7 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).
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10.8 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).
10.9 *Form of Stock Redemption Agreement, dated January 20, 1994,
between the Registrant and each of Patrick D. Quinlan, James
B. Quinlan, Keith D. Pietila, Thomas P. Cronin, Lee P. Wells
and David C. Wells (previously filed as Exhibit 10.24 to the
Registrant's Annual Report on Form 10-KSB for the fiscal year
ended January 31, 1994, and incorporated herein by reference).
10.10 Mortgage Loan Participation Agreement, dated May 19, 1993,
between MCA Mortgage Corporation and Paine Webber Real Estate
Securities Inc. (previously filed as Exhibit 10.26 to the
Registrant's Annual Report on Form 10-KSB for the fiscal year
ended January 31, 1994, and incorporated herein by reference).
10.11 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).
10.12 Mortgage Loan Repurchase Agreement, dated November 1, 1995,
between MCA Mortgage Corporation, Mortgage Corporation of
America and Paine Webber Real Estate Securities Inc.
(previously filed as Exhibit 10.28 to the Registrant's Annual
Report on Form 10-K for the period ended January 31, 1996, and
incorporated herein by reference).
10.13 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 for the period
ended October 31, 1996, and incorporated herein by reference).
10.14 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 for the period
ended October 31, 1996, and incorporated herein by reference).
10.15 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
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of Detroit (previously filed as Exhibit 10.3 to the
Registrant's Quarterly Report on Form 10-Q for the period
ended October 31, 1996, and incorporated herein by reference).
10.16 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
for the period ended October 31, 1996, and incorporated herein
by reference).
10.17 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 for the period ended October 31,
1996, and incorporated herein by reference).
10.18 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 for the period ended October 31,
1996, and incorporated herein by reference).
10.19 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 to the Registrant's Annual Report for
the fiscal year ended January 31, 1997, and incorporated
herein by reference).
10.20 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 for the fiscal year ended January 31, 1997, and
incorporated herein by reference).
10.21 Revolving Credit Loan Agreement, dated June 30, 1997, by and
among the Company and its subsidiaries and Texas Commerce
Bank, N.A. (previously filed as Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the period
ended July 31, 1997, and incorporated herein by reference).
10.22 Mortgage Purchase and Sale Agreement, commencing March 1,
1997, by and among the Company and its subsidiaries and
Prudential Securities Realty Funding
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Corporation (previously filed as Exhibit 10.2 to the
Registrant's Quarterly Report on Form 10-Q for the period
ended July 31, 1997, and incorporated herein by reference).
10.23 Senior Secured Warehouse Credit Agreement, dated October 31,
1997, by and among the Company and its subsidiaries and a
Syndicate of Warehouse Lenders, Texas Commerce Bank, N.A.,
Warehouse Agent (previously filed as Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the period
ended October 31, 1997, and incorporated herein by reference).
10.24 Senior Secured Seasoned Warehouse Credit Agreement, dated
October 31, 1997, by and among the Company and its
subsidiaries and a Syndicate of Warehouse Lenders, Texas
Commerce Bank N.A., Warehouse Agent (previously filed as
Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q
for the period ended October 31, 1997, and incorporated herein
by reference).
10.25 Lease Agreement between the Company and Northwestern Corporate
Center Associates Limited Partnership (previously filed as
Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q
for the period ended October 31, 1997, and incorporated herein
by reference).
10.26 MCA Financial Corp. 1997 Employee Stock Incentive Plan
(previously filed as Exhibit 10.26 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended January 31,
1998, and incorporated herein by reference).
10.27 Second Loan and Financing Agreement, dated March 6, 1998, 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 10.27 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended January 31, 1998, and incorporated herein by reference).
10.28 Subordinated Promissory Note, dated March 6, 1998, 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 10.28 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended January 31, 1998, and incorporated herein by reference).
10.29 Escrow Agreement, dated March 6, 1998, 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 10.292 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended January 31,
1998, and incorporated herein by reference).
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10.30 Common Stock Warrant, dated March 6, 1998, 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 10.30 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended January 31,
1998, and incorporated herein by reference).
10.31 First Amendment to the Amended and Restated Credit Enhancement
Umbrella Agreement, dated as of June 30, 1997, 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 10.31 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended January
31, 1998, and incorporated herein by reference).
10.32 Purchase Agreement, dated March 6, 1998, 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 10.32 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended January 31,
1998, and incorporated herein by reference).
10.33 Demand Registration Rights Agreement, dated March 6, 1998, 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 10.33 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended January 31, 1998, and incorporated herein by reference).
10.34 Warrant Put Agreement, dated March 6, 1998, 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 10.34 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended January 31,
1998, and incorporated herein by reference).
10.35 Warrant Piggyback Rights Agreement, dated March 6, 1998, 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 10.35 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended January 31, 1998, 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)
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23.1 Consent of Doeren Mayhew and Grant Thornton LLP (filed
herewith).
23.2 Consent of Dykema Gossett PLLC (contained in its opinion
previously filed as Exhibit 5 and incorporated herein by
reference).
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 (previously filed as Exhibit 25 to
the Registrant's Registration Statement on Form S-1, File No.
333- 27307, and incorporated herein by reference).
(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 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.
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<PAGE> 95
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.
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<PAGE> 96
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Post-Effective Amendment to 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 19, 1998.
MCA FINANCIAL CORP.
By /s/ Lee P. Wells
----------------------------------
Lee P. Wells, President
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Lee P. Wells
or 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
Amendment to this Registration Statement has been signed by the following
persons in the capacities indicated on May 19, 1998.
Signature Title
- --------- -----
* Chairman and Director
- ---------------------------------- (Principal executive officer)
Patrick D. Quinlan
/s/ Keith D. Pietila Executive Vice President and Director
- ---------------------------------- (Principal financial and accounting
Keith D. Pietila officer)
/s/ Lee P. Wells President and Director
- ----------------------------------
Lee P. Wells
* Director
- ----------------------------------
C. Thompson Wells
* Director
- ----------------------------------
James B. Quinlan
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<PAGE> 97
* Director
- ----------------------------------
Thomas P. Cronin
* Director
- ----------------------------------
D. Michael Jehle
*Executed on behalf of the indicated person by the undersigned, pursuant to a
power of attorney previously filed and incorporated herein by reference.
By: /s/ Keith D. Pietila
--------------------------------------
Keith D. Pietila, Attorney-in-Fact
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<PAGE> 98
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------- ----------------------
1.1 Selling Agreement between Registrant and Apex
Capital, L.L.C.
12 Computation of Ratio of Earnings to Fixed Charges
23.1 Consent of Doeren Mayhew and Grant Thornton LLP
<PAGE> 1
EXHIBIT 1.1
SELLING AGREEMENT
$10,000,000 OF 11% 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
11% 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. 333-27307) 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 all
statements and information which are required to be included therein in
accordance with the Act and the Rules and
Page 1 of 9
<PAGE> 2
Regulations and will in all material respects conform to the requirements of the
Act and the Rules and Regulations and (ii) neither the Registration Statement
nor the Prospectus, nor any amendment or supplement thereto, will include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading;
provided, however, that the Company makes no representations and warranties as
to information contained in or omitted from the Registration Statement or the
Prospectus or any such amendment or supplement in reliance upon and in
conformity with information furnished to the Company by the Placement Agent
specifically for use in the preparation thereof.
(3) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of Michigan, with full power and
authority (corporate and other) to own, lease and operate its properties and
conduct its business as described in the Prospectus; this Agreement has been
duly authorized, executed and delivered by the Company and is binding upon the
Company in accordance with its terms; the performance of this Agreement and the
consummation of the transactions herein contemplated will not result in a breach
or violation of any of the terms and provisions of, or constitute a default
under, (i) any indenture, mortgage, deed of trust, loan agreement, bond,
debenture, note agreement, or other evidence of indebtedness, lease, contract,
or other agreement or instrument to which the Company is a party or by which the
property of the Company is bound, (ii) the Company's articles of incorporation
or bylaws, or (iii) any statute or any order, rule, or regulation of any court
or governmental agency or body having jurisdiction over the Company or over the
properties of the Company; and no consent, approval, authorization, or order of
any court or governmental agency or body is required for the consummation by the
Company of the transactions on its part contemplated herein, except such as may
be required under the Act or under state or other securities laws.
(4) Except as set forth in the Prospectus, there is not now and at or
prior to the closing date there will not be any action, suit, or proceeding, at
law or equity, against the Company by a private litigant, by any federal, state
or other commission, board or agency wherein any unfavorable result or decision
could materially adversely affect the business, property, financial condition or
income or earnings of the Company, or prevent consummation of the transactions
contemplated hereby; and there are no contracts or documents of the Company
which would be required to be filed as exhibits to the Registration Statement by
the Act or by the Rules and Regulations which have not been filed as exhibits to
the Registration Statement.
(5) The Debentures to be issued and sold by the Company have been duly
authorized for issuance and sale to investors, pursuant to this Selling
Agreement and the Indenture, as amended, with First Union National Bank, as
Trustee and, when issued and delivered by the Company pursuant to this Selling
Agreement against payment therefor, such Debentures will be duly and validly
issued, fully paid, and nonassessable, and will constitute legal, valid and
binding obligations of the Company in accordance with their terms.
(6) Moore Stephens Doeren Mayhew and Grant Thornton, acting in a joint
venture capacity 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
Page 2 of 9
<PAGE> 3
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 and with Rules 2730, 2740, 2750
and 2420 of the NASD Conduct Rules with respect to the Offering.
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
Page 3 of 9
<PAGE> 4
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 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
Page 4 of 9
<PAGE> 5
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.
(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 closing date, it is determined that such application would not be in the
best interest of the Company and would not violate any applicable law.
Page 5 of 9
<PAGE> 6
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 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
Page 6 of 9
<PAGE> 7
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
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.
VI. 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
Page 7 of 9
<PAGE> 8
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.
[INTENTIONALLY LEFT BLANK]
Page 8 of 9
<PAGE> 9
VII. 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.
VIII. 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 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 execute
agreement between the parties.
This Selling Agreement shall be governed governed by and construed
in accordance with the laws of the State of Michigan.
MCA FINANCIAL CORP.
By: /s/ Lee P. Wells
--------------------------------------
Its: President
--------------------------------------
PLACEMENT AGENT
Apex Capital, L.L.C.
--------------------------------------
Please Print Corporate Name
By: /s/ Margot Wundram
--------------------------------------
Signature of Corporate Officer
Margot Wundram
--------------------------------------
Please Print Name of Corporate Officer
Its: Chief Operating Officer
--------------------------------------
Please Print Title of Coporate Officer
Page 9 of 9
<PAGE> 10
ANNEX A
STATES IN WHICH AGENT IS REGISTERED
----------------------------
----------------------------
----------------------------
----------------------------
A-1
<PAGE> 1
EXHIBIT 12
MCA FINANCIAL CORP.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
PRO-FORMA FISCAL YEAR ENDED JANUARY 31,
----------------------------------------------------------------
1998 1997 1996 1995 1994
------ -------- -------- ------ ------
<S> <C> <C> <C> <C> <C>
Income (Loss) Before Federal
Income Taxes..................... $ 4,520,035 $ 1,404,338 $ 1,127,530 $ (175,162) $ 972,185
Add:
Portion of Rents
Representative of
the Interest Factor.............. 368,478 273,840 216,360 134,075 72,234
Interest on Indebtedness.......... 18,041,032 11,426,082 7,565,044 6,018,518 4,428,925
Amortization of
Debt Expense..................... 1,109,683 957,956 687,390 421,189 286,009
----------- ----------- ----------- ---------- ----------
$24,039,228 $14,062,216 $ 9,596,324 $6,398,620 $5,759,353
=========== =========== =========== ========== ==========
Fixed Charges:
Portion of Rents
Representative of
the Interest Factor.............. $ 368,478 $ 273,840 $ 216,360 $ 134,075 $ 72,234
Interest on Indebtedness.......... 18,041,032 11,426,082 7,565,044 6,018,518 4,428,925
Amortization of Debt Expense...... 1,109,683 957,956 687,390 421,189 286,009
----------- ----------- ----------- ---------- ----------
$19,519,193 $12,657,878 $ 8,468,794 $6,573,782 $4,787,168
=========== =========== =========== ========== ==========
Ratio of Earnings
to Fixed Charges................. 1.23x 1.11x 1.13x n/a 1.20x
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, 1998 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/ Doeren Mayhew /s/ Grant Thornton LLP
Doeren Mayhew Grant Thornton LLP
Troy, Michigan Detroit, Michigan
May 19, 1998 May 19, 1998
