<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended January 31, 1998
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
--------------- ---------------
Commission File No. 33-98644
MCA FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
MICHIGAN 38-3014001
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
23999 NORTHWESTERN HWY.
SOUTHFIELD, MICHIGAN 48075
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (248) 358-5555
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the registrant's outstanding voting stock held by
non-affiliates as of April 1, 1998, computed by reference to the book value of
the Company's common stock as of January 31, 1998 (because there is no market
for the Registrant's common stock) was $ 2,492,191.
At April 1, 1998, there were outstanding 622,413 shares of the registrant's
common stock (including shares subject to forfeiture).
Documents Incorporated By Reference: None.
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ITEM 1. 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 mortgage loan rates,
soliciting loan applications, performing title and credit review and funding
loans at
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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>
TABLE 1
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.
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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>
TABLE 2
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.
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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 3
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
------------------------------------------
1998 1997 1996
---- ---- ----
(DOLLARS IN THOUSANDS EXCEPT AVERAGE LOAN BALANCES)
<S> <C> <C> <C>
RETAIL LOANS
Conventional Loans:
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
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experience, the Company anticipates that 65% to 70% of the loan applications
will close within 45 to 90 days.
Warehousing. Warehousing is the term used to describe the process of
holding mortgage loans pending their sale to investors (typically financial
institutions) or into the secondary market. During the warehousing period the
Company earns income equal to the difference between the interest received on
the mortgage loans and the interest paid on short-term advances from banks which
are used typically to fund the mortgage loans. During periods when short-term
warehouse borrowing rates exceed long-term mortgage lending rates, the
warehousing of mortgage loans can result in a loss.
Pending sale and delivery to investors, the Company's mortgage loans
are funded almost entirely by borrowings under warehousing lines of credit from
banks. The Company typically holds mortgage loans for a period of up to 60 days
after closing in order to prepare them for sale. Borrowed funds are repaid when
the Company receives payment upon the sale of the loans. Accordingly, the
Company is dependent on loan sales to free warehousing credit lines in order
that new loans can be closed.
Among its short-term financing sources, the Company maintains a loan
agreement with Texas Commerce Bank N.A. and a mortgage loan agreement with Paine
Webber Real Estate Securities. As is customary in the industry, these credit
facilities can be terminated on demand or upon relatively short notice. In such
an event, the Company would seek replacement or new credit facilities from other
lenders for these existing lines of credit on terms at least as favorable. See
Item 7, "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.
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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 4
<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.
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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 5
<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
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Ginnie Mae receives an annual fee, up to 0.50% of the declining principal amount
of the loan pool. The Company, through investment bankers, may then sell these
MBSs to investors or hold them for investment.
Loan pools may be sold to Freddie Mac or Fannie Mae, or securitized in
the form of Ginnie Mae mortgaged-backed securities and sold to institutional
investors with or without recourse in the event of default by the borrowers. If
a loan pool is sold without recourse, Freddie Mac will typically charge a fee
for issuing the MBS which is 0.05% to 0.07% higher than if such loan pool were
sold with recourse. The Company decides to sell loan pools with or without
recourse based primarily upon capital market conditions and perceived risks of
the terms of such mortgage loan documents. To date all of the loan pools sold by
the Company to Freddie Mac or Fannie Mae or through Ginnie Mae programs have
been sold on a non-recourse basis.
Mortgage loans are also sold on a loan-by-loan basis to banks, mortgage
companies and other private investors and, in the case of conforming loans, may
be sold to Freddie Mac or Fannie Mae. Such individual loan sales are typically
made by the Company on a non-recourse basis. During fiscal 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
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to the difference between the weighted average coupon rate of the loan it
originated and the security's stated yield, less a normal servicing fee and
certain other fees.
Servicing. At January 31, 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 increase significantly its servicing of residential mortgage
loans, and to maintain a mortgage and land contract servicing system that
emphasizes cash management and compliance with investor servicing requirements.
The Company also obtains additional servicing through the retention of
servicing with respect to mortgages and land contracts that it originates and
sells to others. For residential mortgage loans which it originates, the Company
retains the servicing related to most of these loans temporarily, then sells the
servicing rights from time to time on the open market. The Company intends to
restrict its purchases of mortgage servicing to servicing that can be purchased
at a price that provides targeted rates of return, and is compatible with the
Company's systems and processes. During fiscal 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%.
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The following table sets forth information about the Company's retail
and wholesale loan origination and servicing activities:
TABLE 6
<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>
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 7
<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%
</TABLE>
11
<PAGE> 12
<TABLE>
<S> <C> <C> <C> <C> <C>
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.
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.
12
<PAGE> 13
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 8
<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 affilated 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.
13
<PAGE> 14
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
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
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<PAGE> 15
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.
ITEM 2. 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.
ITEM 3. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of the security holders
during the fourth quarter of the fiscal year ended January 31, 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS.
There is no established public trading market for any class of
common equity of the Company. As of April 1, 1998, there were 117 shareholders
of record of the Company's common stock. The Company has never paid a dividend
on its common stock and has no present plans to pay dividends in the future. The
15
<PAGE> 16
Company is restricted in its ability to pay dividends under the terms of
Indentures with respect to its outstanding 11% Asset-Backed Subordinated
Debentures, Series 1994 due June 30, 2000, its 11% Subordinated Debentures,
Series 1996 due June 30, 2002 and its 11% Subordinated Debentures, Series 1997
due June 30, 2003.
The following table shows the Company's sales of unregistered
securities for the fiscal year ended January 31, 1998. The securities were sold
pursuant to transactions which did not involve any public offerings, and thus,
were exempt under Section 4(2) of the Securities Act of 1933. None of the
Company's securities were sold for cash, and thus, no underwriting discounts or
commissions were paid.
TABLE 9
<TABLE>
<CAPTION>
Nature of Transaction
and Aggregate Amount
Class of of Consideration as to
Title of Date Amount or Identity Persons Securities Sold for
Securities of Sale Sold to whom Sold Other than Cash
- ---------- ------- ------ ---------------- -----------------------
<S> <C> <C> <C> <C>
Common Stock 5/23/97 5,870 Loan Officer Compensation /$71,966.20
Common Stock 5/23/97 47,325 Manager Compensation/$580,204.50
Common Stock 6/11/97 250 Loan Officer Compensation/$3,065.00
Common Stock 7/15/97 500 Manager Compensation/$6,130.00
Common Stock 7/21/97 500 Loan Officer Compensation/$6,130.00
Common Stock 8/1/97 6,666 Manager Compensation/$81,725.16
Common Stock 8/1/97 32,508 Executive Officer Compensation/$398,548.08
Common Stock 10/20/97 1,759 Detroit Police & Investment/$21,565.34
Firemen Retirement System
Common Stock 12/1/97 3,333 Executive Officer Compensation/$40,862.58
Common Stock 12/19/97 7,418 Manager Compensation/$90,944.68
Common Stock 12/19/97 8,361 Executive Officer Compensation/$102,505.86
Common Stock 1/15/98 3,297 Loan Officer Compensation/$40,421.22
Common Stock 1/31/98 2,462 Detroit Police & Investment/$30,184.12
Firemen Retirement System
</TABLE>
16
<PAGE> 17
ITEM 6. SELECTED 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. 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 Annual Report on Form 10-K. 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
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Revenues: (Dollars in thousands, except per share data)
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 .............................................. 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) ............ 1.25x 1.11x 1.13x n/a 1.20x
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 .............................................. 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(2) ................................... $ 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(3) .......................... 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) See Note 2 of Notes to Consolidated Financial Statements.
(3) See Note 4 of Notes to Consolidated Financial Statements
17
<PAGE> 18
ITEM 7. 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 incuding loan funding activities, financing residual interest in
securitizations, 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 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
18
<PAGE> 19
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 fully 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 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.
19
<PAGE> 20
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. Non-conforming 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. 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
20
<PAGE> 21
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 $4.2 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 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
21
<PAGE> 22
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.
The Company's strategy of increasing its servicing portfolio may also
act as an inflationary hedge. As interest rates increase, prepayments decrease,
which decreases amortization expense and increases the earnings potential of the
servicing portfolio. However, during periods of low inflation and decreasing
interest rates, prepayments increase, which increases amortization expense and
results in a decrease in the earnings potential of the servicing portfolio.
SEASONALITY
The mortgage banking industry is usually subject to an unpredictable
degree of seasonal trends. These trends reflect the general pattern of
nationwide home sales. Such sales typically peak during the spring and summer
seasons and decline to lower levels from October through January. In an effort
to mitigate this, the Company has opened branch offices in Florida, Texas,
California, Georgia, Louisiana and North and South Carolina.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this Item 8 is hereby incorporated by
reference from the Company's Consolidated Financial Statements, including the
reports of independent certified public accountants thereon, beginning at page
F-1 of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
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<PAGE> 23
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information about the directors and
executive officers of MCAFC.
<TABLE>
<CAPTION>
Name and Age Principal Position(s) Held with MCAFC
- ------------ -------------------------------------
<S> <C>
Patrick D. Quinlan, 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.
PATRICK D. QUINLAN has been Chairman of the Board, Chief Executive Officer and a
director of MCAFC since its inception and served as President of MCAFC from its
inception until July 1995. Mr. Quinlan was a founder and served as Chairman of
the Board, President and a director of MCA Mortgage from 1985 until July 1992.
Mr. Quinlan is the brother of James B. Quinlan. See Item 12 "Security Ownership
of Certain Beneficial Owners and Management."
THOMAS P. CRONIN has been Vice Chairman of MCAFC since July 1995 and a director
of MCAFC 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 MCAFC since July
1995 and has been a director of MCAFC since its inception. Mr. Wells served as
Executive Vice President of MCAFC from its inception until July 1995, and served
as Executive Vice President of MCA Mortgage from 1990 until November 1993 and
was a director of MCA Mortgage from 1990 until July 1992. Mr. Wells is
responsible for land contract originations and syndication of land contracts and
mortgages into pass-through pools which are sold to private mortgage investors.
From 1987 until 1990 Mr. Wells was a Vice President of MCA Mortgage, and served
as the Controller of MCA Mortgage from 1987 until 1988. Mr. Wells is the son of
C. Thompson Wells, Jr. See Item 12 "Security Ownership of Certain Beneficial
Owners and Management."
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<PAGE> 24
KEITH D. PIETILA has been Executive Vice President and Chief Financial Officer
of MCAFC since July 1995 and has been a director of MCAFC since its inception.
Mr. Pietila served as Chief Operating Officer and Vice President of MCAFC from
MCAFC's inception until July 1995. Mr. Pietila also was a Vice President, Chief
Financial Officer and Chief Operating Officer and a director of MCA Mortgage
from 1990 until July 1992. Mr. Pietila has been a Director of U.S. Mutual
Financial Corporation since 1991. From 1982 until 1990, Mr. Pietila was employed
by Acorn Building Components, Inc., and served in several positions, the last of
which was as Chief Operating Officer.
ALEXANDER J. AJEMIAN has been a Senior Vice President of MCAFC since July 1995
and has been Controller and Treasurer of MCAFC since its inception. Mr. Ajemian
served as Vice President of MCAFC from its inception until July 1995, served as
Vice President of MCA Mortgage since November 1992 and has served as Treasurer
of MCA Mortgage since November 1993. Mr. Ajemian was the Controller of MCA
Mortgage from 1990 until July 1992 and was the Vice President and Assistant
Secretary of MCA Mortgage from 1991 until July 1992. From 1986 until 1990, Mr.
Ajemian was in the audit department of BDO Seidman, independent certified public
accountants. Mr. Ajemian is a Certified Public Accountant licensed in Michigan.
JAMES B. QUINLAN has been a director of MCAFC since its inception. Mr. Quinlan
is the President of Standard Home Mortgage, Inc., a residential mortgage broker
located in Grosse Pointe, Michigan. Mr. Quinlan served as Senior Vice President
of MCAFC from 1991 until August 1993. Mr. Quinlan has served as a director of
MCA Mortgage since 1985 and served as a Senior Vice President of MCA Mortgage
from 1985 until August 1993. Mr. Quinlan also served as Treasurer of MCA
Mortgage from 1985 until August 1993. Mr. Quinlan is the brother of Patrick D.
Quinlan and the brother-in-law of David C. Wells. See Item 12 "Security
Ownership of Certain Beneficial Owners and Management."
C. THOMPSON WELLS, JR., has been a director of MCAFC since its inception and
previously served in the same capacity with MCA Mortgage from 1990 until July
1992. Since September 1996, Mr. Wells has served as President and Chief
Executive Officer of RIMCO Financial Corp., a company affiliated with MCAFC.
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 Item 12 "Security
Ownership of Certain Beneficial Owners and Management."
D. MICHAEL JEHLE has been a director of MCAFC since November 1993 and has served
as a director of MCA Mortgage since November 1993. Mr. Jehle served as President
and Chief Operating Officer of MCA Mortgage from November 1993 to November 1994
and since March 1996 has been the Chairman-Office of Production for MCA
Mortgage. Mr. Jehle served as the President and Chief Executive Officer of Rimco
Financial Corporation from November 1994 to February 1996 and currently serves
as a director of Rimco Financial Corporation. Prior to joining the Company, Mr.
Jehle was employed by First Fidelity Thrift and Loan in San Diego, California,
from 1991 to 1993 in both loan production and servicing capacities. From 1989 to
1991, Mr. Jehle was self-employed in both residential and commercial loan
originations and prior to that he was President of ABQ MoneyCenter, Inc., in San
Diego, California.
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<PAGE> 25
Certain of the directors and executive officers of MCAFC are also directors or
officers of MCAFC's other subsidiaries.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth, for the fiscal years shown, information
regarding amounts paid to or accrued for the Chief Executive Officer of MCAFC,
and the other four most highly compensated executive officers of MCAFC (the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------------- Other -------------
Name Annual Restricted All Other
Principal Fiscal Compen- Stock Compen-
Position Year Salary Bonus sation Awards(1) sation (2)
- ------------------- ---- -------- ------- -------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Patrick D. Quinlan - 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.
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.
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<PAGE> 26
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.
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 the Company recognized a gain of $3,711,011 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, the Company paid commissions in connection
with the acquisition of these properties totaling $1,689,600 to RIMCO Financial
Corp. which is owned equally by Patrick D. Quinlan, Lee P. Wells and Leroy G.
Rogers.
During the year 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 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 fiscal 1998. 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 their 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 the Company paid
$77,000 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, 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, the Company's accounts
receivable
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<PAGE> 27
from these related entities, net of accounts payable to these entities, were
$934,000 due from RIMCO Financial Corp., a company owned by Patrick D.
Quinlan, Lee P. Wells and Leroy G. Rogers, $1,265,000 due from PCA, the
common stock of which is owned by Patrick D. Quinlan and Lee P. Wells and
$1,100,000 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.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
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 112,135(2) 18.02%
James B. Quinlan 55,734(3) 8.95%
17150 Kercheval Ave.
Grosse Pointe, Michigan 48230
C. Thompson Wells, Jr. 89,553(4) 14.38%
Lee P. Wells 48,372(2) 7.77%
NML, Inc. 33,700(2) 5.41%
David C. Wells 27,722 4.45%
Keith D. Pietila 28,167 4.53%
Thomas P. Cronin 14,865(5) 2.39%
D. Michael Jehle 25,000(5) 4.02%
Janet K. Wells 86,200(4) 13.85%
3 Sycamore
Grosse Pointe, Michigan 48230
Alexander J. Ajemian 11,613(5) 1.87%
All executive officers and
directors as a group (8 persons) 419,119(2)(4)(5) 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.
27
<PAGE> 28
(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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From time to time, the Company and its subsidiaries have entered into
various contracts and other transactions with affiliates of the company,
including certain officers and directors of the Company. The terms and
conditions of such transactions were not negotiated at arm's length and may not
have been as favorable to the Company as terms and conditions that would have
been obtained with unaffiliated parties. The additional disclosure provided
under Item 11 "Executive Compensation - Compensation Committee Interlocks and
Insider Participation" is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K.
(a) Financial Statements, Schedules and Exhibits
1. The following consolidated financial statements are filed herewith:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets as of January 31, 1998 and 1997
Consolidated Statements of Income for the years ended January 31, 1998, 1997,
and 1996
Consolidated Statements of Stockholders' Equity for the years ended
January 31, 1998, 1997, and 1996
Consolidated Statements of Cash Flows for the years ended January 31, 1998,
1997, and 1996.
Notes to Consolidated Financial Statements
2. Financial Statement Schedules: NONE
3. Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------ ----------------------
<S> <C>
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 Indenture, dated as of December 30, 1994, between the Registrant and First Fidelity Bank,
N.A., as Trustee, relating to the Registrant's 11% Asset-Backed Subordinated Debentures,
</TABLE>
28
<PAGE> 29
<TABLE>
<S> <C>
Series 1996, Due June 30, 2000 (previously filed as Exhibit 4.1 to the Registrant's
Registration Statement on Form S-1, File No. 33-98644, and incorporated herein by reference).
4.2 First Supplemental Indenture between the Registrant and First Fidelity Bank, N.A. dated
as of October 10, 1995 (previously filed as Exhibit 4.2 to the Registrant's Annual Report
on Form 10-K for the period ended January 31, 1996, and incorporated herein by reference).
4.3 Indenture 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).
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
</TABLE>
29
<PAGE> 30
<TABLE>
<S> <C>
of Detroit, amending Exhibit No. 10.7 (previously filed as Exhibit 10.31 to Amendment No. 2
to the Registrant's Registration Statement on Form SB-2, File No. 33-79190, and incorporated
herein by reference).
10.8 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 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).
</TABLE>
30
<PAGE> 31
<TABLE>
<S> <C>
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 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 (filed herewith).
</TABLE>
31
<PAGE> 32
<TABLE>
<S> <C>
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 (filed herewith).
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 (filed herewith).
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 (filed herewith).
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 (filed herewith).
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 (filed
herewith).
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 (filed herewith).
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 (filed herewith).
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 (filed herewith).
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 (filed herewith).
12 Computation of Ratio of Earnings to Fixed Charges (filed herewith).
21 Subsidiaries of the Registrant (previously filed as Exhibit 10.21 to the Registrant's
Registration Statement on Form S-1, File No. 33-98644, and incorporated herein by
reference).
27 Financial Data Schedule (EDGAR filing only)(filed herewith).
</TABLE>
- -------------
* Management contract or compensatory plan.
32
<PAGE> 33
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the quarter
ended January 31, 1998.
33
<PAGE> 34
MCA FINANCIAL CORP.
CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
<PAGE> 35
C O N T E N T S
PAGE
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants F-2
Consolidated balance sheets F-3
Consolidated statements of income F-4
Consolidated statements of stockholders' equity F-5
Consolidated statements of cash flows F-6
Notes to consolidated financial statements F-9
<PAGE> 36
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> 37
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> 38
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> 39
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> 40
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> 41
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> 42
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> 43
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> 44
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> 45
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> 46
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> 47
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> 48
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> 49
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> 50
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> 51
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> 52
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> 53
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> 54
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> 55
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> 56
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> 57
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> 58
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> 59
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> 60
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> 61
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> 62
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> 63
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> 64
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> 65
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> 66
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> 67
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on April 29, 1998.
MCA FINANCIAL CORP.
By: /s/ Patrick D. Quinlan
-------------------------------
Patrick D. Quinlan, Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on April 29, 1998.
Signature Title (Capacity)
- --------- ----------------
/s/ Patrick D. Quinlan Chairman and Director
- ------------------------- (Principal Executive Officer)
Patrick D. Quinlan
/s/ Keith D. Pietila Executive Vice President and Director
- ------------------------- (Principal Financial and Accounting Officer)
Keith D. Pietila
/s/ Lee P. Wells Director
- -------------------------
Lee P. Wells
/s/ C. Thompson Wells Director
- -------------------------
C. Thompson Wells
/s/ Thomas P. Cronin Director
- -------------------------
Thomas P. Cronin
/s/ D. Michael Jehle Director
- -------------------------
D. Michael Jehle
/s/ James B. Quinlan Director
- -------------------------
James B. Quinlan
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT.
S-1
<PAGE> 68
No Annual Report or Proxy Materials have been or will be sent to security
holders.
<PAGE> 69
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------ ----------------------
<S> <C>
10.26 *MCA Financial Corp. 1997 Employee Stock Incentive Plan
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
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
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
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
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
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
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
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
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
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule (EDGAR filing only)
</TABLE>
<PAGE> 1
EXHIBIT 10.26
MCA FINANCIAL CORP.
1997 EMPLOYEE STOCK INCENTIVE PLAN
(Effective May 1, 1997)
I. GENERAL PROVISIONS
1.1 Adoption of Plan. Effective May 1, 1997, the plan described herein
is hereby adopted as the MCA Financial Corp. 1997 Employee Stock Incentive Plan
(the "Plan").
1.2 Purpose. The purpose of the Plan is to promote the best interests
of the Corporation and its shareholders by encouraging Employees of the
Corporation and its Subsidiaries to acquire a proprietary interest in the
Company through Options, Stock Appreciation Rights, Restricted Stock grants or
Performance Share awards and by rewarding outstanding performance of Employees
through Bonus Share awards, thus identifying their interests with those of
shareholders and encouraging Employees to make greater efforts on behalf of the
Corporation to achieve the Corporation's long-term business plans and
objectives.
1.3 Definitions. As used in this Plan, the following terms have the
meaning described below:
(a) "Agreement" means the written agreement that sets forth the terms
of a Participant's Option, Stock Appreciation Right, Restricted Stock grant or
Performance Share Award.
(b) "Board" means the Board of Directors of the Corporation.
(c) "Bonus Share award" means an award granted in accordance with
Article VI of the Plan.
(d) "Change in Control" means the occurrence of any of the following
events: (i) if any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act, or group of persons acting in concert, other than the
Corporation, a Subsidiary or an employee benefit plan or employee benefit plan
trust maintained by the Corporation or a Subsidiary becomes the "beneficial
owner" (as such term is defined in Rule 13d-3 of the Exchange Act, except that a
person also shall be deemed the beneficial owner of all securities which such
person may have a right to acquire, whether or not such right is presently
exercisable), directly or indirectly, of securities of the Corporation
representing 50% or more of the combined voting power of the Corporation's then
outstanding securities ordinarily having the right to vote in the election of
directors; or (ii) a liquidation or dissolution of the Corporation, sale of
substantially all of the assets of the Corporation, or a merger, consolidation
or combination in which the Corporation is not the survivor; or (iii) the
addition of new members to the Board within any consecutive 24-month period,
which members constitute a majority of the Board, unless a majority of the Board
consists of (i) incumbent members of the Board in office prior to the
commencement of such 24-month period, plus (ii) new members who were recommended
or appointed by a majority of the incumbent directors in office immediately
prior to the addition of such new members to the Board.
<PAGE> 2
(e) "Code" means the Internal Revenue Code of 1986, as amended.
(f) "Committee" means any two or more directors of the Corporation who
have been specifically authorized as a committee to administer this Plan.
(g) "Common Stock" means shares of the Corporation's authorized common
stock.
(h) "Corporation" means MCA Financial Corp., a Michigan corporation.
(i) "Disability" means total and permanent disability, as defined in
Code Section 22(e).
(j) "Employee" means an employee of the Corporation or Subsidiary, who
has an "employment relationship" with the Corporation or a Subsidiary, as
defined in Treasury Regulation 1.421-7(h), and the term "employment" means
employment with the Corporation, or a Subsidiary of the Corporation.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and any successor thereto.
(l) "Fair Market Value" means for purposes of determining the value of
Common Stock on the Grant Date or on the date of exercise, the book value per
share of Common Stock as of the end of the fiscal quarter next preceding the
Grant Date or date of exercise, or, if the Common Stock is eligible for trading
on a nationally-recognized inter-dealer quotation system or a national
securities exchange, the average of the bid and asked prices of Common Stock
transactions as reported in The Wall Street Journal on the Grant Date or the
date of exercise, as applicable. In the event that there are no Common Stock
transactions on such date, the Fair Market Value shall be determined as of the
immediately preceding date on which there were Common Stock transactions.
(m) "Grant Date" means the date on which the Committee authorizes an
individual Option, Stock Appreciation Right, Restricted Stock grant, Performance
Share Award or Bonus Share Award, or such later date as shall be designated by
the Committee.
(n) "Incentive Stock Option" means an Option that is intended to meet
the requirements of Section 422 of the Code.
(o) "Nonqualified Stock Option" means an Option that is not intended to
constitute an Incentive Stock Option.
(p) "Option" means either an Incentive Stock Option or a Nonqualified
Stock Option.
(q) "Participant" means an Employee designated by the Committee to
participate in the Plan.
2
<PAGE> 3
(r) "Performance Share Award" means an award granted in accordance with
Article V of the Plan.
(s) "Restriction Period" means the period of time during which a
Participant's Restricted Stock grant is subject to restrictions and is
nontransferable.
(t) "Restricted Stock" means Common Stock that is subject to
restrictions.
(u) "Stock Appreciation Right" means the right to receive a cash or
Common Stock payment from the Corporation upon the surrender of a tandem Option,
in accordance with Article III of the Plan. Where pertinent, all provisions of
this Plan affecting the use of Options shall apply in the same manner to Stock
Appreciation Rights related to such Options.
(v) "Subsidiary" means a corporation defined in Code Section 424(f).
1.4 Administration. The Plan shall be administered by the Committee, in
accordance with Securities and Exchange Commission Rule 16b-3. The Committee
shall interpret the Plan, prescribe, amend, and rescind rules and regulations
relating to the Plan, and make all other determinations necessary or advisable
for its administration. The decision of the Committee on any question concerning
the interpretation of the Plan or any Option, Stock Appreciation Right,
Restricted Stock grant, Performance Share Award or Bonus Share award granted
under the Plan shall be final and binding upon all Participants.
1.5 Participants. Participants in the Plan shall be such Employees
(including Employees who are directors) of the Corporation and its Subsidiaries
as the Committee may select from time to time. The Committee may grant Options,
Stock Appreciation Rights, Restricted Stock and Performance Share Awards to an
individual upon the condition that the individual become an Employee of the
Corporation or of a Subsidiary, provided that the Option, Stock Appreciation
Right, Restricted Stock grant or Performance Share Award shall be deemed to be
granted only on the date that the individual becomes an Employee.
1.6 Stock. Subject to adjustment as provided in Article VII, the total
number of shares of Common Stock available for grants and awards under the Plan
in each calendar year during any part of which the Plan is in effect shall be
200,000 shares. Shares subject to any unexercised portion of a terminated,
canceled or expired Option, Restricted Stock grant or Performance Share Award
granted hereunder may again be subjected to grants under the Plan, but shares
surrendered pursuant to the exercise of a tandem Option or Restricted Stock
grant are not available for future grants.
II. STOCK OPTIONS
2.1 Grant of Options. (a) The Committee, at any time and from time to
time, subject to Section 8.7, may grant Options to such Employees and for such
number of shares of Common Stock as it shall designate. Any Participant may hold
more than one Option under the Plan and any other
3
<PAGE> 4
Plan of the Corporation or Subsidiary. The Committee shall determine the general
terms and conditions of exercise, including any applicable vesting requirements,
which shall be set forth in a Participant's Option Agreement. The Committee may
designate any Option granted as either an Incentive Stock Option or a
Nonqualified Stock Option, or the Committee may designate a portion of an Option
as an Incentive Stock Option or a Nonqualified Stock Option. At the discretion
of the Committee, an Option may be granted in tandem with a Stock Appreciation
Right or Restricted Stock Award.
(b) Each Option granted under the Plan shall meet all of the terms and
conditions of the Plan, except that an Incentive Stock Option shall comply with
the additional requirements of Section 2.2.
2.2 Incentive Stock Options. Any Option intended to constitute an
Incentive Stock Option shall comply with the requirements of this Section 2.2.
No Incentive Stock Option shall be granted with an exercise price below its Fair
Market Value on the Grant Date or with an exercise term that extends beyond 10
years from the Grant Date. An Incentive Stock Option shall not be granted to any
Participant who owns (within the meaning of Code Section 424(d)) stock of the
Corporation or any Subsidiary possessing more than 10% of the total combined
voting power of all classes of stock of the Corporation or a Subsidiary unless,
at the Grant Date, the exercise price for the Option is at least 110% of the
Fair Market Value of the shares subject to the Option and the Option, by its
terms, is not exercisable more than five (5) years after the Grant Date. The
aggregate Fair Market Value of the underlying Common Stock (determined at the
Grant Date) as to which Incentive Stock Options granted under the Plan
(including a plan of a Subsidiary) may first be exercised by a Participant in
any one calendar year shall not exceed $100,000. To the extent that an Option
intended to constitute an Incentive Stock Option shall violate the foregoing
$100,000 limitation, the portion of the Option that exceeds the $100,000
limitation shall be deemed to constitute a Nonqualified Stock Option.
2.3 Option Price. The Committee shall determine the Option price per
share for each Option granted under the Plan. The Committee, at its discretion,
may grant Nonqualified Stock Options with an exercise price below 100% of the
Fair Market Value of Common Stock on the Grant Date.
2.4 Payment for Option Shares. (a) The purchase price for shares of
Common Stock to be acquired upon exercise of an Option granted hereunder shall
be paid in full in cash or by personal check, bank draft or money order at the
time of exercise; provided, however, that in lieu of such form of payment a
Participant may pay such purchase price in whole or in part by tendering shares
of Common Stock, duly endorsed for transfer (or with duly executed stock powers
attached), or in any combination of the above. Shares of Common Stock
surrendered upon exercise shall be valued at Fair Market Value (as defined
above). Participants who are subject to short swing profit restrictions under
the Exchange Act and who exercise an Option by tendering previously-acquired
shares shall do so only in accordance with the provisions of Rule 16b-3 of the
Exchange Act.
4
<PAGE> 5
(b) Notwithstanding the foregoing, any Options granted under this Plan
shall be deemed exercised by delivery to the Corporation of a properly executed
exercise notice, acceptable to the Corporation, together with irrevocable
instructions to the Participant's broker to deliver to the Corporation
sufficient cash to pay the exercise price and any applicable income and
employment withholding taxes, in accordance with a written agreement between the
Corporation and the brokerage firm ("cashless exercise procedure").
III. STOCK APPRECIATION RIGHTS
3.1 Grant of Stock Appreciation Rights. Stock Appreciation Rights may
be granted, held and exercised in such form as set by the Committee on an
individual basis. The Committee may grant a Stock Appreciation Right at the time
an Option is granted or may subsequently amend a Participant's Option Agreement
to add a Stock Appreciation Right to a Nonqualified Stock Option. A Stock
Appreciation Right may be granted to a Participant with respect to such number
of shares of Common Stock as the Committee may determine. The number of shares
covered by the Stock Appreciation Right shall not exceed the number of shares of
Common Stock which the Participant may purchase upon the exercise of the related
Option.
3.2 Exercise of Stock Appreciation Rights. A Stock Appreciation Right
shall be deemed exercised upon receipt by the Corporation of the Participant's
written notice. Except as permitted under Securities and Exchange Commission
Rule 16b-3, notice of exercise of a Stock Appreciation Right by a Participant,
who is subject to the insider trading restrictions of Section 16(b) of the
Exchange Act, shall be limited to the period beginning on the third day
following the release of the Corporation's quarterly or annual summary of
earnings and ending on the twelfth business day after such release. The exercise
term of each Stock Appreciation Right shall be the period set by the related
Option. A Stock appreciation right shall be exercisable only at such times and
in such amounts as the related Option may be exercised.
3.3 Stock Appreciation Right Entitlement. Upon the exercise of a Stock
Appreciation Right, the Participant shall be required to surrender the
associated Option, and shall be entitled to a payment from the Corporation in
cash, shares, or partly in each (as determined by the Committee in accordance
with any applicable terms in the Agreement), of an amount equal to the
difference between --
(a) the Fair Market Value of the number of shares subject to
the Stock Appreciation Right on the date of exercise, and
(b) the exercise price of the associated Option multiplied by
the number of shares available under the Option.
5
<PAGE> 6
IV. RESTRICTED STOCK
4.1 Grant of Restricted Stock. Subject to the terms and conditions of
the Plan, the Committee, at any time and from time to time, may grant shares of
Restricted Stock under this Plan to such Employees and in such amounts as it
shall determine.
4.2 Restricted Stock Agreement. Each grant of Restricted Stock shall be
evidenced by a Restricted Stock Agreement that shall specify the terms of the
restrictions, including the restriction period, or periods, the number of
Restricted Stock shares subject to the grant, and such other provisions as the
Committee shall determine.
4.3 Transferability. Except as provided in this Article IV of the Plan,
the shares of Restricted Stock granted hereunder may not be transferred,
pledged, assigned, or otherwise alienated or hypothecated until the termination
of the applicable Period of Restriction or for such period of time as shall be
established by the Committee and as shall be specified in the Restricted Stock
Agreement, or upon the earlier satisfaction of other conditions as specified by
the Committee in its sole discretion and as set forth in the Restricted Stock
Agreement. All rights with respect to the Restricted Stock granted to a Employee
shall be exercisable during a Participant's lifetime only by the Participant.
4.4 Other Restrictions. The Committee shall impose such other
restrictions on any shares of Restricted Stock granted under the Plan as it may
deem advisable including, without limitation, restrictions under applicable
Federal or State securities laws, and may legend the certificates representing
Restricted Stock to give appropriate notice of such restrictions.
4.5 Certificate Legend. In addition to any legends placed on
certificates pursuant to Sections 4.3 and 4.4, each certificate representing
shares of Restricted Stock shall bear the following legend:
"The sale, transfer, disposition, pledge,
hypothecation or encumbrance, whether voluntary,
involuntary or by operation of law, of the
securities represented by this certificate is
subject to certain restrictions on transfer set
forth in the MCA Financial Corp. 1997 Employee
Stock Incentive Plan ("Plan"), rules and
administrative guidelines adopted pursuant to
such Plan and a Restricted Stock Agreement, which
also provides for forfeiture of said securities
under certain circumstances. Copies of all of the
foregoing may be obtained from the Secretary of
the corporation."
4.6 Removal of Restrictions. Except as otherwise provided in this
Article IV of the Plan, and subject to applicable federal and state securities
laws, shares covered by each Restricted Stock grant made under the Plan shall
become freely transferable by the Participant after the last day of the
6
<PAGE> 7
Restriction Period. Once the shares are released from the restrictions, the
Participant shall be entitled to have the legend required by Section 4.5 of this
Plan removed from his Stock certificate; provided, that the Committee shall have
the discretion to accelerate the lapse of such restrictions in the applicable
Restriction Period with respect to all or any part of a Restricted Stock grant.
4.7 Voting Rights. During the Restriction Period, Participants holding
shares of Restricted Stock granted hereunder (including Restricted Stock that
has been granted in tandem with an Option) may exercise full voting rights with
respect to the Restricted Stock.
4.8 Dividends and Other Distributions. During the Restriction Period, a
Participant shall be entitled to receive all dividends and other distributions
paid with respect to such Restricted shares. If any dividends or distributions
are paid in shares of Common Stock during the Restriction Period, the dividend
or other distribution shares shall be subject to the same restrictions on
transferability as the shares of Restricted Stock with respect to which they
were paid.
V. PERFORMANCE SHARE AWARDS
5.1 Grant of Performance Share Awards. The Committee, at its
discretion, may grant Performance Share Awards to Employees of the Corporation
or its Subsidiaries.
5.2 Terms of Performance Share Awards. In general, Performance Share
Awards shall consist of rights to receive cash, Common Stock or a combination of
each, if designated performance goals are achieved. The terms of a Participant's
Share Performance Award shall be set forth in his individual Share Performance
Agreement. Each Agreement shall specify the performance goals applicable to a
particular Employee or group of Employees, the period over which the targeted
goals are to be attained, the payment schedule if the goals are attained, and
any other terms, conditions and restrictions applicable to an individual
Performance Share Award and not inconsistent with the provisions of the Plan.
VI. OTHER SHARE AWARDS
6.1 Award of Shares. The Committee, at its discretion, may award Shares
to Employees or prospective employees of the Corporation or its subsidiaries,
which may be (but are not required to be) based upon an Employee's performance
during a particular period of time in comparison to what was expected from such
Employee at the beginning of such period. The Committee need not specify
performance expectations prior to deciding to award Shares to an Employee.
6.2 Terms of Share Awards. An award of Shares by the Committee pursuant
to this Article VI shall be approved or subsequently ratified by the Company's
Board of Directors, and such approval or ratification by the Board shall also
include specific authorization for the issuance of such shares and their
delivery to the Employee. Upon issuance, all Shares awarded pursuant to Article
VI shall be fully-paid and nonassessable, and shall not be subject to any
restrictions on their resale
7
<PAGE> 8
by the Employee, other than restrictions imposed on Affiliates of the Company
under the Securities Act of 1933, as amended.
VII. TERMINATION OF EMPLOYMENT
7.1 Options and Stock Appreciation Rights. (a) If, prior to the date
that an Option or Stock Appreciation Right first becomes exercisable, a
Participant's employment is terminated for any reason other than death,
Disability or Retirement, or if the Participant resigns or otherwise initiates a
termination of employment, the Participant's right to exercise the Option or
Stock Appreciation Right shall immediately terminate and all rights thereunder
shall cease.
(b) If, on or after the date that an Option or Stock Appreciation Right
first becomes exercisable, a Participant's employment is terminated due to
death, Disability, or Retirement, the Participant or the estate or personal
representative of a deceased Participant shall have the right, by the earlier of
(i) the expiration date of the Option or Stock Appreciation Right, and (ii)
three months after termination of employment for an Incentive Stock Option and
the period designated in the Participant's Agreement for a Nonqualified Stock
Option, to exercise the Option or Stock Appreciation Right to the extent that it
was exercisable and unexercised on the date of the Participant's termination of
employment, subject to any other limitation on the exercise of the Option or
Stock Appreciation Right in effect on the date of exercise. The Committee may
designate in a Participant's Agreement that an Option or Stock Appreciation
Right shall terminate at an earlier time than set forth above.
(c) The Committee, at the time of a Participant's termination, may
accelerate the term of an Option or extend the exercise period of an Option or
Stock Appreciation Right.
7.2 Restricted Stock. If a Participant's employment terminates for any
reason during the Restriction Period (including death, Disability or
Retirement), the Participant's Restricted Stock still subject to the Restriction
Period automatically shall be forfeited to the Corporation; provided, however,
that the Committee, in its sole discretion, may waive the restrictions remaining
on any or all shares of Restricted Stock and add such new restrictions to such
shares of Restricted Stock as it deems appropriate.
7.3 Performance Shares. Performance Share Awards shall be forfeited
upon a Participant's termination of employment for any reason other than death,
Disability or Retirement.
7.4 Bonus Shares. The termination of employment of a Participant shall
not affect his or her ownership of shares received as part of a Bonus Share
award.
7.5 Employment with Competitor. For Options, Stock Appreciation Rights,
Restricted Stock grants and Performance Share Awards granted, the Committee may
provide that if a Participant accepts employment with a competitor of the
Corporation or a Subsidiary at any time
8
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within two years after the exercise of an Option or Stock Appreciation Right
hereunder, or the lapse of the Restriction Period on Restricted Stock granted
hereunder, or the payment of a Performance Share Award granted hereunder, the
Participant shall return to the Corporation either (a) the shares awarded or (b)
a cash amount equal to the (i) Option spread on the date of exercise, (ii) Fair
Market Value of Common Stock or amount of any cash payment received by the
Participant from a Stock Appreciation Right, (iii) Fair Market Value of
Restricted Stock received by the Participant on the date the Restriction Period
lapsed, or (iv) Fair Market Value of Common Stock or the amount of any cash
payment received by the Participant from a Performance Share Award, as
applicable.
7.6 Other Provisions. The transfer of an Employee from one corporation
to another among the Corporation and any of its Subsidiaries, or a leave of
absence that has been approved by the Board shall not be a termination of
employment for purposes of the Plan.
VIII. ADJUSTMENTS AND CHANGE IN CONTROL
8.1 Adjustments. (a) The total amount of Common Stock for which
Options, Stock Appreciation Rights, Restricted Stock and Performance Share
Awards may be granted under the Plan, and the number of shares subject to any
such grants or awards (both as to the number of shares of Common Stock and the
Option price), shall be appropriately adjusted for any increase or decrease in
the number of outstanding shares of Common Stock resulting from payment of a
stock dividend on Common Stock, a subdivision or combination of shares of Common
Stock, or a reclassification of Common Stock, and, pursuant to the paragraph
below, in the event of a merger in which the Corporation shall be the surviving
corporation.
(b) The foregoing adjustments and the manner of application of the
foregoing provisions shall be determined by the Board in its sole discretion.
Any such adjustment may provide for the elimination of any fractional share
which might otherwise become subject to an Option, Stock Appreciation Right,
Restricted Stock grant or Performance Share Award.
8.2 Change in Control. (a) Anything contained herein to the contrary,
upon a Change in Control, any outstanding Option or Stock Appreciation Right
granted hereunder shall immediately become exercisable in full, regardless of
any installment provision applicable to such Option or Stock Appreciation Right,
and the remaining Restriction Period on any Restricted Stock granted hereunder
immediately shall lapse and the shares shall become fully transferable, subject
to any applicable federal or state securities laws. Any outstanding Performance
Share Award shall become immediately payable to the extent that the performance
goals have been attained as of the Change in Control, and prorated for the
portion of the performance term that has expired as of the date of the Change in
Control.
(b) Notwithstanding the foregoing, to the extent that the acceleration
of a grant or award is deemed to constitute a "golden parachute payment" under
Code Section 280G and such payment, when aggregated with other golden parachute
payments to the Participant results in an "excess golden parachute payment"
under Code Section 280G, any accelerated payment under this Section
9
<PAGE> 10
8.2 shall be reduced to the highest permissible amount that shall not subject
the Participant to an excess golden parachute excise tax under Code Section 4999
and shall entitle the Corporation to retain its full compensation tax deduction
for the payment.
IX. MISCELLANEOUS
9.1 Partial Exercise/Fractional Shares. The Committee may permit, and
shall establish procedures for, the partial exercise of Options and Stock
Appreciation Rights granted under the Plan. No fractional shares shall be issued
in connection with the exercise of a Stock Appreciation Right or Performance
Share Award; instead, the Fair Market Value of the fractional shares shall be
paid in cash, or at the discretion of the Committee, the number of shares shall
be rounded down to the nearest whole number of shares and any fractional shares
shall be disregarded.
9.2 Rule 16b-3 Requirements. Notwithstanding any other provision of the
Plan, the Committee may impose such conditions on the exercise of an Option or
Stock Appreciation Right, or the grant of Restricted Stock or a Performance
Share Award (including, without limitation, the right of the Committee to limit
the time of exercise to specified periods) as may be required to satisfy the
requirements of Rule 16b-3 of the Exchange Act.
9.3 Rights Prior to Issuance of Shares. No Participant shall have any
rights as a shareholder with respect to shares covered by an Option, Stock
Appreciation Right, Restricted Stock grant or Share Performance Award until the
issuance of a stock certificate for such shares. No adjustment shall be made for
dividends or other rights with respect to such shares for which the record date
is prior to the date the certificate is issued.
9.4 Non-Assignability. No Option, Stock Appreciation Right, Restricted
Stock grant or Performance Share Award shall be transferable by a Participant
except by will or the laws of descent and distribution. During the lifetime of a
Participant, an Option or Stock Appreciation Right shall be exercised only by
the Participant. No transfer of an Option, Stock Appreciation Right, Restricted
Stock grant or Performance Share Award by will or the laws of descent and
distribution shall be effective to bind the Corporation unless the Corporation
shall have been furnished with written notice thereof and a copy of the will or
such evidence as the Corporation may deem necessary to establish the validity of
the transfer and the acceptance by the transferee of the terms and conditions of
the Option, Stock Appreciation Right, Restricted Stock grant or Performance
Share Award.
9.5. Securities Laws. (a) Anything to the contrary herein
notwithstanding, the Corporation's obligation to sell and deliver Common Stock
pursuant to the exercise of an Option or Stock Appreciation Right or deliver
Common Stock pursuant to a Restricted Stock grant or Performance Share Award is
subject to such compliance with federal and state laws, rules and regulations
applying to the authorization, issuance or sale of securities as the Corporation
deems necessary or advisable. The Corporation shall not be required to sell and
deliver Common Stock unless and until it receives satisfactory assurance that
the issuance or transfer of such shares shall not violate any of the provisions
of the Securities Act of 1933 or the Securities Exchange Act of
10
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1934, or the rules and regulations of the Securities Exchange Commission
promulgated thereunder or those of the Nasdaq Stock Market or any stock exchange
on which the Common Stock may be listed, the provisions of any state laws
governing the sale of securities, or that there has been compliance with the
provisions of such acts, rules, regulations and laws.
(b) The Committee may impose such restrictions on any shares of Common
Stock acquired pursuant to the exercise of an Option or Stock Appreciation Right
or the grant of Restricted Stock or a Performance Share Award under the Plan as
it may deem advisable, including, without limitation, restrictions (i) under
applicable federal securities laws, (ii) under the requirements of NASDAQ or any
stock exchange or other recognized trading market upon which such shares of
Common Stock are then listed or traded, and (iii) under any blue sky or state
securities laws applicable to such shares. No shares shall be issued until
counsel for the Corporation has determined that the Corporation has complied
with all requirements under appropriate securities laws.
9.6 Withholding Taxes. (a) The Corporation shall have the right to
withhold from a Participant's compensation or require a Participant to remit
sufficient funds to satisfy applicable withholding for income and employment
taxes upon the exercise of an Option or Stock Appreciation Right or the lapse of
the Restriction Period on a Restricted Stock grant or the payment of a
Performance Share Award or the payment of a Bonus Share award. In connection
with the exercise of an Option, a Participant may make a written election to
tender previously-acquired shares of Common Stock or have shares of stock
withheld from the exercise, provided that the shares have an aggregate Fair
Market Value sufficient to satisfy in whole or in part the applicable
withholding taxes. The cashless exercise procedure of Section 2.4 may be
utilized to satisfy the withholding requirements related to the exercise of an
Option.
(b) Except as permitted under Rule 16b-3, a Participant subject to the
insider trading restrictions of Section 16(b) of the Exchange Act may use Common
Stock to satisfy the applicable withholding requirements only if notice of
election to exercise is given to the Committee within the 10-day "window
periods" set forth in Rule 16b-3, or such election is made at least six months
prior to the date on which the exercise of the Option or Stock Appreciation
Right, or the receipt of the Restricted Stock grant or Performance Share Award
becomes taxable. Any election by a Participant to utilize Common Stock for
withholding purposes is subject to the discretion of the Committee.
9.7 Termination and Amendment. (a) The Board may terminate the Plan, or
the granting of Options, Stock Appreciation Rights, Restricted Stock,
Performance Share Awards or Bonus Share awards under the Plan, at any time. No
Incentive Stock Option shall be granted under the Plan 10 years after adoption
of the Plan by the Board of Directors.
(b) The Board may amend or modify the Plan at any time and from time to
time, but no amendment or modification shall (i) materially increase the
benefits accruing to Participants under the Plan; (ii) increase the amount of
Common Stock for which grants and awards may be made under the Plan, except as
permitted under Sections 1.6 and 7.1; or (iii) change the provisions relating to
the eligibility of individuals to whom grants and awards may be made under the
Plan.
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(c) No amendment, modification, or termination of the Plan shall in any
manner affect any Option, Stock Appreciation Right, Restricted Stock grant or
Performance Share Award granted under the Plan without the consent of the
Participant holding the Option, Stock Appreciation Right, Restricted Stock grant
or Performance Share Award.
9.8 Effect on Employment. Neither the adoption of the Plan nor the
granting of any Option, Stock Appreciation Right, Restricted Stock, Performance
Share Award or Bonus Share award pursuant to the Plan shall be deemed to create
any right in any individual to be retained or continued in the employment of the
Corporation or a Subsidiary.
9.9 Use of Proceeds. The proceeds received from the sale of Common
Stock pursuant to the Plan will be used for general corporate purposes of the
Corporation.
12
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EXHIBIT 10.27
==========================================================
SECOND LOAN AND FINANCING AGREEMENT
LENDER:
THE BOARD OF TRUSTEES OF THE POLICEMEN AND FIREMEN RETIREMENT
SYSTEM OF THE CITY OF DETROIT
BORROWERS:
MCA FINANCIAL CORP.
MCA MORTGAGE CORPORATION
MORTGAGE CORPORATION OF AMERICA
MORTGAGE CORPORATION OF AMERICA, INC.
RIMCO REALTY AND MORTGAGE CO.
COMPLETE FINANCIAL CORP.
SECURITIES CORPORATION OF AMERICA
TYPE/AMOUNT:
SUBORDINATED TERM LOAN ($30,000,000)
==========================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. DEFINITIONS...................................................................................................2
1.1 Affiliate.................................................................................................2
1.2 Agreement.................................................................................................2
1.3 Authorized Signatory......................................................................................2
1.4 Borrowers.................................................................................................2
1.5 Business Days.............................................................................................2
1.6 Credit Enhancement Agreement..............................................................................2
1.7 Certified Resolutions.....................................................................................2
1.8 Cure Period...............................................................................................2
1.9 Escrow Account............................................................................................2
1.10 Escrow Agreement.........................................................................................3
1.11 Escrow Agent.............................................................................................3
1.12 Escrow Funds.............................................................................................3
1.13 Event of Default.........................................................................................3
1.14 Existing Financial Arrangements..........................................................................3
1.15 Existing Enhancement Documents...........................................................................3
1.16 Financial Statements.....................................................................................3
1.17 First Loan Agreement.....................................................................................3
1.18 Indebtedness.............................................................................................4
1.19 Insolvency Event.........................................................................................4
1.20 Lender's Authorized Agent................................................................................4
1.21 Loan Base................................................................................................4
1.22 Loan.....................................................................................................5
1.23 Matured Event of Default.................................................................................5
1.24 Monetary Event of Default................................................................................5
1.25 Money Advance............................................................................................5
1.26 Net Worth................................................................................................5
1.27 Non-Conforming Loan......................................................................................5
1.28 Non-Monetary Event of Default............................................................................5
1.29 Note.....................................................................................................6
1.30 Notice of Default........................................................................................6
1.31 Person...................................................................................................6
1.32 Public Offering..........................................................................................6
1.33 Put Agreement............................................................................................6
1.34 Qualifying Equipment.....................................................................................6
1.35 Qualifying Equity........................................................................................6
1.36 Qualifying Non-Conforming Loan...........................................................................6
1.37 Qualifying Uses of Proceeds..............................................................................6
1.38 Qualifying Working Capital...............................................................................7
1.39 Receipt Date.............................................................................................7
1.40 Related Documents........................................................................................7
1.41 Request For Advance......................................................................................7
</TABLE>
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<TABLE>
<S> <C>
1.42 Required Escrow Principal Payments.......................................................................7
1.43 Rimco....................................................................................................7
1.44 Senior Debt..............................................................................................7
1.45 Senior Debt Default......................................................................................8
1.46 Senior Debt Documents....................................................................................8
1.47 Senior Debt To Net Worth Ratio...........................................................................8
1.48 Senior Lenders...........................................................................................8
1.49 Subordination Agreements.................................................................................8
1.50 Termination Date.........................................................................................8
1.51 Value....................................................................................................8
1.52 Warrant..................................................................................................9
1.53 Warrant Put Agreement....................................................................................9
2. LOAN COMMITMENT...............................................................................................9
2.1 Subordinated Term Loan Commitment.........................................................................9
(a) Commitment.............................................................................................9
(b) Conditions.............................................................................................9
2.2 Procedure for Money Advances by Escrow Agent..............................................................9
(a) Authorization to Escrow Agent..........................................................................9
(b) Conditions.............................................................................................9
(c) Timing of Requests....................................................................................10
3. DEPOSITS/CREDITS.............................................................................................11
4. EVIDENCE OF INDEBTEDNESS.....................................................................................11
5. INCORPORATION BY REFERENCE...................................................................................11
5.1 General Rules of Construction............................................................................11
5.2 Interpretation of Terms in Existing Enhancement Documents................................................12
6. RELATED DOCUMENTS............................................................................................12
7. REPRESENTATIONS AND WARRANTIES...............................................................................12
7.1 Authorization, Validity, and Enforceability of this Agreement............................................12
7.2 Organization and Qualification...........................................................................12
7.3 Subsidiaries and Affiliates..............................................................................13
7.4 Capitalization...........................................................................................13
7.5 Qualifying Equipment.....................................................................................13
7.6 Qualifying Equity........................................................................................13
7.7 Qualifying Non-Conforming Loan...........................................................................13
7.8 Senior Debt..............................................................................................13
7.9 Request for Advance......................................................................................13
</TABLE>
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<TABLE>
<S> <C>
7.10 Payments................................................................................................14
7.11 Borrowers' Common Interests.............................................................................14
7.12 Survival and Continuation...............................................................................14
8. AFFIRMATIVE COVENANTS........................................................................................14
8.1 Payments of Principal and Interest on Indebtedness.......................................................15
8.2 Performance of Obligations...............................................................................15
8.3 Information..............................................................................................15
8.4 Financial Covenants......................................................................................15
(a) Ratios................................................................................................15
(b) Minimum Net Worth.....................................................................................16
8.5 Fees and Expenses........................................................................................16
(a) Payments..............................................................................................16
(b) Routine Expenses......................................................................................16
(c) Survival of Obligation................................................................................17
8.6 Related Party Accounts Receivable Restriction............................................................17
9. NEGATIVE COVENANTS...........................................................................................17
9.1 Event of Default.........................................................................................17
9.2 Disposition of Non-Conforming Loans......................................................................17
9.3 Default in Payment.......................................................................................18
9.4 Transaction with Affiliates..............................................................................18
9.5 Land Contract Inventory..................................................................................18
10. BOOKS/RECORDS/FINANCIAL REPORTS/CERTIFICATES................................................................18
10.1 Financial Statements....................................................................................18
10.2 Monthly Reports.........................................................................................18
10.3 Officer's Certificates..................................................................................19
10.4 Accountant's Certificates...............................................................................19
10.5 Inspection of Books and Records.........................................................................19
10.6 Rimco Financial Statements..............................................................................20
11. NOTICE OF DEFAULT...........................................................................................20
11.1 Required Notice of Default..............................................................................20
11.2 No Required Notice of Default...........................................................................20
11.3 Commercially Reasonable.................................................................................20
12. REMEDIES IN EVENT OF DEFAULT................................................................................20
12.1 Acceleration............................................................................................21
12.2 Waivers.................................................................................................21
</TABLE>
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<TABLE>
<S> <C>
12.3 Appointment of Receiver.................................................................................21
12.4 Injunctions.............................................................................................21
12.5 Expenses................................................................................................21
12.6 Enforcement of Rights...................................................................................21
13. NOTICES.....................................................................................................21
13.1 Delivery of Notices.....................................................................................21
14. TERMINATION.................................................................................................22
14.1 Termination by Lender...................................................................................22
14.2 Effect of Termination...................................................................................23
15. CONDITIONS PRECEDENT TO ADVANCE.............................................................................23
15.1 Conditions Precedent to Initial Money Advances..........................................................23
(a) Corporate Status......................................................................................23
(b) Resolutions...........................................................................................23
(c) Certified Documents...................................................................................23
(d) Opinion of Borrower's Counsel.........................................................................24
(e) Schedules/Exhibits....................................................................................24
(f) Related Documents.....................................................................................24
16. ISSUANCE OF WARRANT.........................................................................................24
16.1 Warrant.................................................................................................24
16.2 Warrant Put Agreement...................................................................................24
17. MISCELLANEOUS...............................................................................................24
17.1 Binding Effect..........................................................................................24
17.2 Delay/Waiver............................................................................................24
17.3 Incorporation by Reference..............................................................................24
17.4 Applicable Law..........................................................................................24
17.5 Survival................................................................................................24
17.6 Further Assurances......................................................................................25
17.7 Hold Harmless/Indemnity.................................................................................25
17.8 Complete Agreement......................................................................................25
17.9 Invalidity..............................................................................................25
17.10 Amendment..............................................................................................25
17.11 Duplicate Originals....................................................................................25
17.12 Time of Essence........................................................................................25
17.13 Authorized Agent Authority.............................................................................25
</TABLE>
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SECOND LOAN AND FINANCING AGREEMENT
This Agreement made this ____ day of March, 1998, by and among The
Board of Trustees of the Policemen and Firemen Retirement System of the City of
Detroit, whose address is 908 City-County Building, Detroit, Michigan 48226
(hereinafter referred to as "Lender"), and MCA Financial Corp., a Michigan
corporation, MCA Mortgage Corporation, a Michigan corporation, Mortgage
Corporation of America, a Michigan corporation, Mortgage Corporation of America,
Inc., an Ohio corporation, Rimco Realty Corporation, a Michigan corporation,
Complete Financial Corp., a Michigan corporation, and Securities Corporation of
America, a Michigan corporation, whose addresses are set forth in Section 13
hereof (hereinafter defined and referred to as "Borrowers").
RECITALS
A. The Lender and the Borrowers are party to a Loan and Financing
Agreement dated as of July 18, 1996 pursuant to which the Lender has provided to
the Borrowers $15,000,000 in subordinated debt financing.
B. The Lender and certain of the Borrowers are also parties to an
Amended and Restated Credit Enhancement Umbrella Agreement dated as of June 30,
1997 (the "Credit Enhancement Agreement"), pursuant to which the Lender has
provided to those Borrowers a credit enhancement in the aggregate amount of
$30,000,000 to secure borrowings by those Borrowers for the purpose of financing
certain mortgage servicing rights and certain residual interests in pools of
securitized mortgages.
C. The Lender and the Borrowers wish to enter into this Agreement to
provide additional subordinated debt financing to the Borrowers in the aggregate
principal amount of $30,000,000, on the terms and conditions set forth in this
Agreement.
D. The Lender, the Senior Lenders (as hereinafter defined), and other
Persons, rely on the Financial Statements and the interests of the Borrowers as
affiliates and otherwise reflected therein, including, but not by way of
limitation, any commercial bank providing a Credit Facility as contemplated by
Section 2.1 of the Credit Enhancement Agreement.
E. The parties acknowledge that, concurrently herewith, they are
amending the Credit Enhancement Agreement, inter alia, to reduce the aggregate
credit enhancement provided by the Lender thereunder to $15,000,000.
NOW THEREFORE, in consideration of the mutual promises and covenants
hereinafter contained, in reliance on the Recitals and the representations and
warranties hereinafter contained, and subject to the terms and conditions
hereinafter contained, it is hereby agreed among the parties as follows:
<PAGE> 7
1. DEFINITIONS
In this Agreement the following words, phrases, and expressions shall
have the following respective meanings, to be equally applicable to both the
singular and plural forms:
1.1 "AFFILIATE" of a Person means (a) any Person which, directly or
indirectly, controls, is controlled by or is under common control with such
Person and (b) any member of a controlled group of corporations or a group of
trades or businesses under common control with the Person and (c) any director
or executive officer of such Person. Control (including, with correlative
meanings, the terms "controlled by" and "under common control with"), as used
herein, means the possession, directly or indirectly, of the power in any form
to direct or cause the direction of the management and policies of the Person in
question.
1.2 "AGREEMENT" means this Second Loan and Financing Agreement, and all
amendments, modifications, and extensions thereto, and restatements hereof.
1.3 "AUTHORIZED SIGNATORY" means any Person designated in any Certified
Resolution.
1.4 "BORROWERS" means MCA Financial Corp., a Michigan corporation, MCA
Mortgage Corporation, a Michigan corporation, Mortgage Corporation of America, a
Michigan corporation, Mortgage Corporation of Michigan, Inc., an Ohio
corporation, MCA Realty Corporation, a Michigan corporation, Complete Financial
Corp., a Michigan corporation, and Securities Corporation of America, a Michigan
corporation, jointly, jointly and severally, and severally, and "BORROWER" means
any of the foregoing individually.
1.5 "BUSINESS DAYS" means each weekday on which federally chartered
banks located in the State of Michigan are open.
1.6 "CREDIT ENHANCEMENT AGREEMENT" means that certain Amended and
Restated Credit Enhancement Umbrella Agreement by and among MCA Financial Corp.,
MCA Mortgage Corporation, Mortgage Corporation of America and the Board of
Trustees of the Policemen and Firemen Retirement System of the City of Detroit,
dated June 30, 1997, as the same may be amended, supplemented, or otherwise
modified from time to time in accordance with the terms thereof.
1.7 "CERTIFIED RESOLUTIONS" means any Certified Copy of Corporate
Resolutions of any of the Borrowers, delivered to Lender and Escrow Agent from
time to time, authorizing transactions between and/or among the Lender and
Borrowers, designating the Persons of such Borrower authorized to act for and on
behalf of such Borrower, and containing a certificate of incumbency of such
Persons, together with such other provisions, representations and warranties as
required by Lender.
1.8 "CURE PERIOD" means with respect to an Event of Default requiring a
Notice of Default under Section 11.1 hereof:
(a) Seven (7) Business Days following the Receipt Date of the
Notice of Default
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with respect to a Monetary Event of Default; and
(b) Twenty (20) Business Days following the Receipt Date of the
Notice of Default with respect to a Non-Monetary Event of Default.
1.9 "ESCROW ACCOUNT" means the Escrow Account as defined in and
established by the Escrow Agreement.
1.10 "ESCROW AGREEMENT" means that certain Escrow Agreement among
Borrowers, Lender, and Escrow Agent, dated of even date herewith, including any
amendments, modifications, and extensions thereto, or restatement thereof, a
copy of which is attached as Exhibit 1.10.
1.11 "ESCROW AGENT" means (Sterling Bank & Trust Company), or any
substitute Escrow Agent acting in such capacity pursuant to the Escrow
Agreement.
1.12 "ESCROW FUNDS" means the monies contained in the Escrow Account,
from time to time, including all interest accrued thereon.
1.13 "EVENT OF DEFAULT" means:
(a) a Default as defined in the Credit Enhancement Agreement or an
Event of Default as defined in the First Loan Agreement; or
(b) the occurrence of any event, act, omission, breach, failure,
violation or other non-observance or non-performance by any of the
Borrowers or any Person, of any covenant, condition, agreement, duty,
provision, or undertaking under this Agreement or any of the Related
Documents.
1.14 "EXISTING FINANCIAL ARRANGEMENTS" means the transactions set forth
in the Existing Enhancement Documents, as the same exist from time to time.
1.15 "EXISTING ENHANCEMENT DOCUMENTS" means the Credit Enhancement
Agreement, and all documents and instruments executed in connection therewith,
related thereto and/or to any Credit Enhancement, and/or referenced in any of
the foregoing, now or hereafter existing.
1.16 "FINANCIAL STATEMENTS" means, as of any date, (a) the annual
audited balance sheet and related statements of income, cash flows and changes
in stockholders equity as of the end of the Borrowers' most recently-ended
fiscal year and for the twelve months then ended, and (b) the quarterly
unaudited balance sheet and related statements of income and cash flows as of
the most recently-ended fiscal quarter and for the three months and year-to-date
period then ended, certified by its chief financial officer, in each case
prepared in accordance with GAAP consistently applied, subject in the case of
unaudited financial statements to normal year-end audit adjustments.
1.17 "FIRST LOAN AGREEMENT" means the Loan and Financing Agreement
among Lender and the Borrowers dated as of July 18, 1996 pursuant to which the
Lender has provided to
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the Borrowers $15,000,000 in subordinated debt financing, together with all
amendments, modifications, extensions and restatements thereof.
1.18 "INDEBTEDNESS" means and include:
(a) all indebtedness, obligations and liabilities of the Borrowers
referred to in this Agreement, in any of the Related Documents, or
otherwise, of whatsoever kind, nature and description, primary or
secondary, direct, indirect or contingent, due or to become due, and
whether now existing or hereafter arising and howsoever evidenced or
acquired, and whether joint, several, or joint and several; and
(b) all present and future Money Advances made by Lender or Escrow
Agent in connection with this Agreement or the Related Documents, or
otherwise, and whether made at Lender's option or otherwise, and the Loan
and Note, now or hereafter executed or existing in connection herewith,
and interest accrued thereon, from time to time; and
(c) all future advances made by Lender or the Escrow Agent for the
protection, enforcement, or preservation of Lender's rights and interests
under this Agreement or any of the Related Documents, including, but not
by way of limitation, and reasonable attorneys fees and consultants; and
(d) all costs and expenses incurred by Lender or the Escrow Agent
in connection with or arising out of the protection, enforcement or
collection of any of the foregoing, including, without limitation,
reasonable attorneys and consultant fee.
1.19 "INSOLVENCY EVENT" means any of the Borrowers becomes insolvent,
is unable to pay its debts as they become due in ordinary course, makes an
assignment for the benefit of creditors, files a voluntary petition under the
United States Bankruptcy Code or any other insolvency or moratorium statute, or
there is filed against any Company an involuntary petition under any such
statute, provided however if such involuntary petition is dismissed within sixty
(60) calendar days after filing, if no other Event of Default or Matured Event
of Default exists, the Matured Event of Default based upon the Insolvency Event
shall no longer be deemed to exist.
1.20 "LENDER'S AUTHORIZED AGENT" means Plante & Moran, L.L.P. or any
Person substituted thereafter by Lender, from time to time, upon written notice
to Borrowers.
1.21 "LOAN BASE" means an amount which is the lesser of:
(a) Thirty Million ($30,000,000.00) Dollars, or
(b) the aggregate of
(i) the amount of the Escrow Funds (excluding interest); and
(ii) the outstanding Money Advances made for Qualifying
Equipment and Qualifying Working Capital, provided, however the amount
of Money Advances made
4
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under this Section 1.21(b)(ii) shall not exceed Fifteen Million
($15,000,000.00) Dollars; and
(iii) the amount of the Qualifying Equity.
The Loan Base shall be computed at the option of Lender, as of the
First (lst) Business Day of any calendar month, at the time of any Request For
Advance, or at any other time reasonably selected by the Lender.
1.22 "LOAN" means the Subordinated Term Loan referenced in Section 2
hereof.
1.23 "MATURED EVENT OF DEFAULT" means:
(a) an Event of Default (as defined in the Credit Enhancement
Agreement);
(b) a Matured Event of Default under the First Loan Agreement;
(c) any Event of Default (excluding any Event of Default (as
defined in the Credit Enhancement Agreement)) which remains uncured
in-full after:
(i) the lapse of time applicable thereto during which the same
may be performed in accordance with the terms of this Agreement or the
Related Documents;
(ii) the giving of a required Notice of Default and failure to
cure in full within the applicable Cure Period;
(d) a Senior Debt Default; or
(e) an Insolvency Event (notwithstanding the provisions of Section
11.1(g) of the Credit Enhancement Agreement).
1.24 "MONETARY EVENT OF DEFAULT" means any event of Default which may
be cured by the payment of money to Lender or Escrow Agent.
1.25 "MONEY ADVANCE" means a loan or disbursement of money by Lender or
the Escrow Agent, which is part of the Indebtedness.
1.26 "NET WORTH" means, at any date, the amount which would be set
forth opposite the caption "total shareholders' equity" (or any like caption) on
the consolidated balance sheet of the Companies at such date, determined in
conformity with GAAP.
1.27 "NON-CONFORMING LOAN" means a mortgage loan properly secured by a
perfected lien on real estate with a constructed 1-4 residential dwelling that
is not a Qualifying Origination Loan (as defined in the Credit Enhancement
Agreement).
1.28 "NON-MONETARY EVENT OF DEFAULT" means any Event of Default which
is not a Monetary Event of Default.
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1.29 "NOTE" means the Subordinated Promissory Note (1998 Term Loan) and
any other notes evidencing the Loan, now or hereafter executed by Borrowers,
including all renewals, extensions, amendments, modifications, restatements,
roll-overs or substitutions thereof, from time to time.
1.30 "NOTICE OF DEFAULT" means that written notice of an Event of
Default required to be given by Lender pursuant to Section 11.
1.31 "PERSON" means any individual, sole proprietorship, general or
limited partnership, joint venture, trust, unincorporated organization,
association, corporation, public authority or any other entity.
1.32 "PUBLIC OFFERING" means a firm commitment underwritten sale to the
public by MCAF pursuant to an effective registration statement under the
Securities Act of 1933, (a) of a number of shares of its common stock which,
when added to any other outstanding shares then eligible for public trading
without registration or other restriction under the Securities Act, constitute
at least 25% of the number of shares of common stock outstanding, on a
Fully-Diluted Basis, after completion of such offering and (b) for an aggregate
offering price (before payment of underwriters, or brokers, commissions or
discounts and the expenses of the offering) which, when added to the aggregate
offering price received by MCAF from all other offerings of its common stock
pursuant to effective Securities Act registration statements, equals not less
than $10 million.
1.33 "PUT AGREEMENT" means the Put Agreement between the Lender and MCA
Financial Corp dated as of July 18, 1996, together with all amendments,
modifications, extensions and restatements thereof.
1.34 "QUALIFYING EQUIPMENT" means equipment, furniture, fixtures, and
trade fixtures, and software, purchased or leased (provided Borrowers shall only
be entitled to include in a Request for Advance lease payments, as and when due)
with the proceeds of the Loan, as certified to in accordance with any Request
For Advance.
1.35 "QUALIFYING EQUITY" means the Value of Qualifying Non-Conforming
Loans.
1.36 "QUALIFYING NON-CONFORMING LOAN" means a Non-Conforming Loan in
which any of the Borrowers has an interest in, and to the extent of, the Value
thereof.
1.37 "QUALIFYING USES OF PROCEEDS" means Money Advances made by the
Escrow Agent for Qualifying Working Capital, Qualifying Equipment and Qualifying
Equity.
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1.38 "QUALIFYING WORKING CAPITAL" means money used to pay for the
Borrowers' operations directly related and attributable, on a reasonable basis,
to its operations in connection with Non-Conforming Loans (including without
limitation expenses related to assembling, packaging or holding such loans for
inclusion in pools of securitized mortgage loans) as certified in accordance
with any Request for Advance and shall include by way of example, but not by way
of limitation, money paid or payable for the items identified in Schedule 1.38,
and which are currently due or payable, excluding any prepayments thereof in
circumstances where prepayment thereof is not in the ordinary course of business
in connection with such item.
1.39 "RECEIPT DATE" means with respect to a Notice of Default, the
earlier of:
(a) the actual date of receipt by Borrowers; or
(b) three (3) Business Days following the date of delivery by
Lender to any expedited mail delivery service; or
(c) five (5) Business Days following the date of delivery by Lender
to the U.S. Postal Service if mailed by first class postage.
1.40 "RELATED DOCUMENTS" means any and all documents, instruments,
notes, agreements, and written memoranda, referred to in this Agreement or
referred to in any of the foregoing, and simultaneously or hereafter executed
and/or delivered in connection herewith or therewith, and specifically, but not
by way of limitation, those documents identified in Section 6 hereof.
1.41 "REQUEST FOR ADVANCE" means the Request For Advance as defined in
Section 2.2(b)(ii) of this Agreement.
1.42 "REQUIRED ESCROW PRINCIPAL PAYMENTS" means all amounts outstanding
at any time, in excess of the Loan Base, which shall be delivered to Escrow
Agent no later than the close of business on the date each such excess exists.
1.43 "RIMCO" means, collectively, Rimco Financial Corp. and its
subsidiaries.
1.44 "SENIOR DEBT" means existing or future indebtedness due under any
term loan, revolving credit facility, or other financing provided to Borrowers
by a Person acceptable to Lender (as evidenced by a Request for Approval as
required by the Note or as otherwise deemed approved under the Note), that is
not subordinated to the payment of any other Debt (as defined in Section
1.11(ii) of the Credit Enhancement Agreement) for the exclusive purposes of (a)
warehousing of residential mortgage loans pending sale thereof to investors
(including financing new mortgage loans originated or purchased from originators
by that Borrower prior to their sale, or the refinancing of existing mortgage
loans), and (b) the acquisition or retention of Qualifying Servicing Rights (as
defined in the Credit Enhancement Agreement) by that Borrower, and (c) the
financing of residual interests in pools of mortgages formed for the purpose of
creating securitized interests and (d) working capital, and which is secured by
first liens on specified assets of Borrowers related to that financing.
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1.45 "SENIOR DEBT DEFAULT" means the occurrence of any event, act,
omission,, failure, violation or other nonobservance or non-performance by any
of the Borrowers or any Person, of any covenant, condition, agreement, duty,
provision, or undertaking under the Senior Debt Documents.
1.46 "SENIOR DEBT DOCUMENTS" means any and all documents, instruments,
notes, agreements, and written memoranda, delivered in connection with,
evidencing, and/or securing any Senior Debt, now or hereafter existing.
1.47 "SENIOR DEBT TO NET WORTH RATIO" means, as of the date of
determination, that ratio, determined by a fraction:
(a) the numerator of which is the aggregate amount of Senior Debt
outstanding; and
(b) the denominator of which is Net Worth plus (i) the amount then
accrued under Section 3(a)(1) of the Put Agreement and (ii) the amount
then accrued under Section 3(a)(1) of the Warrant Put Agreement, to the
extent such amounts are reflected in the Financial Statements.
1.48 "SENIOR LENDERS" means the holders of the Senior Debt approved (or
deemed approved) in accordance with the Note and a Request for Approval as
therein set forth.
1.49 "SUBORDINATION AGREEMENTS" shall have the meaning set forth in the
Note.
1.50 "TERMINATION DATE" means January 31, 2010.
1.51 "VALUE" means the dollar denominated amount in accordance with
GAAP (as defined in the Credit Enhancement Agreement) of the following interests
of Borrowers:
(a) In the case of whole loans purchased and held in inventory by
any of the Borrowers, valued at cost or, in the case of loans originated
by any of the Borrowers, valued in accordance with GAAP (as defined in
the Credit Enhancement Agreement) and, with respect to whole loans
pledged as collateral to a warehouse credit facility, valued at net of
the amount of any borrowings against such loans according to the terms of
that credit facility.
(b) In the case of securitization, valued at the present value of
excess service fees receivable attributable to securitized originated
loans to the extent permitted by GAAP.
(c) In the case of any non-conforming mortgage securities issued by
any of the Borrowers, valued at an amount equal to cash deposits required
to be set aside by any of the Borrowers as a reserve therefor, plus the
principal amount of such securities retained by a Borrower.
(d) Servicing rights held separately from the ownership rights with
respect to the mortgages that are security for a Non-Conforming Loan.
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(e) Any other non-conforming mortgage asset as approved in writing
by the Lender's Authorized Agent and the Lender (if the Lender's
Authorized Agent so requires such approval by the Lender).
1.52 "WARRANT" means the convertible warrant issued by MCA Financial
Corp. to Lender concurrently herewith which may be converted by Lender, in
accordance with the conditions set forth therein, into a number of shares of the
common stock of MCA Financial Corp. equal to 4% of the total amount of stock
outstanding on a Fully Diluted Basis (as defined therein).
1.53 "WARRANT PUT AGREEMENT" means the Warrant Put Agreement between
MCA Financial Corp. and Lender being executed and delivered concurrently
herewith, which governs the terms under which the Warrant or the shares acquired
thereunder may be tendered by Lender to MCA Financial Corp. for repurchase,
together with all amendments, modifications, extensions and restatements
thereof.
2. LOAN COMMITMENT
Subject to the terms and conditions contained herein, and upon the
condition that no Event of Default shall exist, Lender agrees that it shall fund
the Loan pursuant to the following commitment (hereinafter referred to as
"Subordinated Term Loan Commitment"):
2.1 SUBORDINATED TERM LOAN COMMITMENT.
(a) Commitment. Lender agrees to make a Money Advance to the Escrow
Agent in the amount of Thirty Million ($30,000,000.00) Dollars (herein
referred to as "Subordinated Term Loan") to be used solely for Qualifying
Uses of Proceeds, to be repaid in accordance with the Note.
(b) Conditions. Subject to the terms and conditions contained in
this Agreement, and upon the condition that no Event of Default or
Matured Event of Default shall then exist, and further provided all
conditions precedent hereto or thereto have been met in the sole
discretion of Lender as of the date hereof, Lender shall make the Money
Advance set forth in Section 2.1.
2.2 PROCEDURE FOR MONEY ADVANCES BY ESCROW AGENT.
(a) Authorization to Escrow Agent. The Escrow Agreement shall
provide that the Escrow Agent is authorized, up to January 31, 2003, to
make Money Advances for Qualifying Uses of Loan Proceeds, from time to
time, subject to, and in accordance with the conditions set forth in
Section 2.2.(b) of this Agreement.
(b) Conditions. The Escrow Agreement shall provide that the Escrow
Agent's obligation to make Money Advances is conditioned upon the
following:
(i) No Event of Default or Matured Event of Default shall then
exist as determined by Lender's Authorized Agent; and
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(ii) Escrow Agent and Lender's Authorized Agent shall have
received a written request for advance ("Request for Advance") at least
Five (5) Business Days prior thereto executed by an Authorized
Signatory, which contains the following:
(A) the amount of the Money Advance requested; and
(B) a certification of an Authorized Signatory of the amount
of each Money Advance requested to be respectively allocated to and
used for Qualifying Equity, Qualifying Equipment and Qualifying
Working Capital, together with all supporting documentation
reasonably required by Lender's Authorized Agent; and
(C) a certification of an Authorized Signatory that no Event
of Default or Matured Event of Default exists, or after giving
effect to such Request For Advance, will be created thereby; and
(D) a certification of an Authorized Signatory (irrespective
of whether a duplication of the matters set forth in
2.2(b)(ii)(3)), that after giving effect to such Request for
Advance, there will be no sums outstanding in excess of the Loan
Base; and
(E) a certification of an Authorized Signatory of the amount
of the Senior Debt then outstanding; and
(F) a certification of an Authorized Signatory (irrespective
of whether a duplication of the matters set forth in 2.2(b)(ii)(3))
that after giving effect to the Request For Advance, Borrowers will
not be in violation of the Senior Debt To Net Worth Ratio;
(G) a certification of an Authorized Signatory stating the
Value of Qualifying Non-Conforming Loans.
(iii) the Escrow Agent not having received a written (including
facsimile) notice that Lender or Lender's Authorized Agent does-not
approve the Request For Advance.
(c) Timing of Requests. Borrower may only make a Request For
Advance on:
(i) the date of execution hereof; and
(ii) the first (lst) Business Day of each calendar month; and
(iii) the fifteenth (15th) calendar day of each month, or the
next Business Day thereafter, if the fifteenth (15th) calendar day is
not a Business Day.
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3. DEPOSITS/CREDITS
Payments received by either the Escrow Agent or Lender shall be
deposited no later than the next Business Day following the day of receipt by
the Escrow Agent or Lender, and shall be credited to Borrowers upon receipt of
good U.S. funds therefor. Such credits, however, are conditional upon final
payment to the Lender or Escrow Agent at its own offices in cash or solvent
credits of all items giving rise to the credits, and if any item is not so paid,
any credit given for it shall be reversed, whether or not the item is returned.
4. EVIDENCE OF INDEBTEDNESS
Notwithstanding Paragraph 2 hereof, Borrowers shall execute a
Subordinated Promissory Note (1998 Term Loan) in the amount of Thirty Million
($30,000,000.00) Dollars, evidencing the maximum amount provided for under the
Subordinated Term Loan Commitment, and all renewals, extensions, modifications,
rollovers and substitutions of any of the foregoing, from time to time.
5. INCORPORATION BY REFERENCE
The Existing Enhancement Documents are incorporated herein by reference
as if the same were more fully set forth herein, subject to the following:
5.1 GENERAL RULES OF CONSTRUCTION. In incorporating the Existing
Enhancement Documents, the parties acknowledge and agree as follows:
(a) The Existing Enhancement Documents shall be deemed incorporated
herein, and continue in full force and effect with respect to this
Agreement, notwithstanding any of the following:
(i) a Default (as defined in the Credit Enhancement Agreement)
or Event of Default (as defined in the Credit Enhancement Agreement);
or
(ii) the expiration of the credit enhancement provided in the
Credit Enhancement Agreement as set forth in Section 3.1 of that
Agreement; or
(iii) the termination of the Credit Enhancement Agreement as set
forth in Section 3.2 of that Agreement.
(b) The incorporation of the Existing Enhancement Documents is
intended to make the representations, warranties and covenants of the
Borrowers contained in the Existing Enhancement Documents equally
applicable to the Loan, this Agreement and the Related Documents, as
though set forth herein. Nothing contained herein shall be deemed to
extend or modify the Existing Enhancement Documents.
(c) Any specific reference to the Credit Enhancement Agreement or
Existing Enhancement Documents herein made, shall be deemed duplicative
and for specificity, and shall not be deemed inconsistent with Sections
5.1(a), 5.1(b) or 5.2 of this Agreement.
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5.2 INTERPRETATION OF TERMS IN EXISTING ENHANCEMENT DOCUMENTS. In
incorporating the Existing Enhancement Documents, the parties agree that the
term "Companies," as used in the Credit Enhancement Agreement, means the
Borrowers when applied to this Agreement, and the term "Fund," as used in the
Credit Enhancement Agreement, means the Lender when applied to this Agreement
6. RELATED DOCUMENTS
Borrowers have executed and delivered to Lender, or will execute and
deliver to Lender, the Note, the Warrant, the Warrant Put Agreement and the
Escrow Agreement, which are part of the Related Documents.
7. REPRESENTATIONS AND WARRANTIES
Borrowers, jointly and severally, represent and warrant to Lender as
follows:
7.1 AUTHORIZATION, VALIDITY, AND ENFORCEABILITY OF THIS AGREEMENT. Each
of the Borrowers has the corporate power and authority to execute, deliver and
perform its obligations under this Agreement and the Related Documents. Each of
the Borrowers has taken all necessary corporate action to authorize its
execution, delivery, and performance of this Agreement and the Related
Documents. No consent, approval, or authorization of, or declaration or filing
with, any Public Authority (as defined in the Credit Enhancement Agreement), and
no consent of any other Person (as defined in the Credit Enhancement Agreement),
is required in connection with any Borrower's execution, delivery and
performance of this Agreement and the Related Documents, except for those
already duly obtained. This Agreement has been duly executed and delivered by
each of the Borrowers, and the Related Documents have been duly executed and
delivered by each Borrower that is a party thereto, and each constitutes the
legal, valid and binding obligation of the respective Borrowers, enforceable
against it in accordance with its terms except as applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting the
enforcement of creditors' rights generally or by general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law) limiting availability of equitable remedies. The execution,
delivery, and performance of this Agreement and the Related Documents do not and
will not conflict with, or constitute a violation or breach of, or constitute a
default under, or result in the creation or imposition of any Lien (as defined
in the Credit Enhancement Agreement) upon the property of any of the Borrowers
by reason of the terms of (i) any contract, mortgage, Lien, lease, agreement,
indenture, or instrument to which any of the Borrowers is a party of which is
binding upon, it (ii) any Requirements of Law (as defined in the Credit
Enhancement Agreement) applicable to any of the Borrowers, or (iii) the Articles
of Incorporation or By-Laws of any of the Borrowers, or the Code of Regulations
of Mortgage Corporation of America, Inc.
7.2 ORGANIZATION AND QUALIFICATION. Each of the Borrowers is duly
incorporated and validly existing and in good standing under the laws of the
State of its incorporation and each has all requisite power and authority to
conduct its respective business and to own its respective properties. Each of
the Borrowers is duly qualified and in good standing, and authorized to conduct
business in each of the jurisdictions set forth on Schedule 7.2 hereto, and
there are no
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jurisdictions in which any of the Borrowers is not qualified where the failure
to be so qualified could have a material adverse affect on their respective
business, properties or affairs. Each of the Borrowers has all corporate power
to own its properties and conduct its business in the matter presently conducted
and as contemplated by this Agreement.
7.3 SUBSIDIARIES AND AFFILIATES. Schedule 7.3 is a correct and complete
list of the name and relationship to each of the Borrowers of each and all of
its Subsidiaries (as defined in the Credit Enhancement Agreement) and other
Affiliates.
7.4 CAPITALIZATION. The capitalization of each of the Borrowers,
including all authorized stock or other securities, authorized but unissued
stock or other securities, and the par value thereof, are set forth on Schedule
7.4. All outstanding shares of common stock and Preferred Stock (as defined in
the Credit Enhancement Agreement) are validly issued, fully paid and
non-assessable and have been issued in accordance with all applicable securities
laws. Except as set forth on Schedule 7.4, there are no outstanding rights to
acquire any stock or other securities of any of the Borrowers or commitments to
issue any such rights. The stock or securities of any of the Borrowers owned by
any of the Borrowers are free of liens and encumbrances and there are no rights
to acquire or commitments to dispose of any of such stock or securities. There
are no pre-emptive rights to acquire shares or securities of any of the
Borrowers, and to each Borrowers' actual knowledge, there are no voting trusts,
voting agreements or other agreements among any shareholders of any of the
Borrowers relating to the voting of any stock or securities of any of the
Borrowers, stock. There are no options, warrants or rights to acquire equity
securities of any of the Borrowers except as set forth on Schedule 7.4.
7.5 QUALIFYING EQUIPMENT. Each item of Qualifying Equipment, as of the
date of each Request for Advance with respect thereto, meets the criteria
therefor as herein set forth, except for those set forth on Schedule 7.5.
7.6 QUALIFYING EQUITY. Each item of Qualifying Equity, as of the date
of each Request For Advance with respect thereto, meets the criteria therefor as
herein set forth.
7.7 QUALIFYING NON-CONFORMING LOAN. Each Qualifying Non-Conforming
Loan, as of the date of each Request for Advance with respect thereto, meets the
criteria therefore as herein set forth.
7.8 SENIOR DEBT. No Senior Debt:
(a) shall be incurred, agreed to, or outstanding in excess of the
amount that would result in a violation of the Senior Debt To Net Worth
Ratio; and/or
(b) shall be incurred, agreed to, or outstanding that is not
consented to in writing by Lender; and/or
(c) shall be incurred or required to be approved while any Event of
Default or Matured Event of Default exists.
7.9 REQUEST FOR ADVANCE. No Request For Advance will be made by
Borrowers that
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after giving effect thereto:
(a) will result in any sums being outstanding in excess of the Loan
Base; and
(b) is not true and correct.
7.10 PAYMENTS. Borrowers shall make all Required Escrow Principal
Payments to the Escrow Agent, as and when due, and shall make all payments due
under the Note to Lender, as and when due.
7.11 BORROWERS' COMMON INTERESTS. The Borrowers:
(a) have collective and mutual intertwined, interdependent, and
common interests and business transactions between and/or among them,
including, but not by way of limitation, financial interests evidenced by
the Financial Statements, interests in various assets and properties and
the uses thereof, and interests in operations (including in the
financing, purchase, and origination of mortgage loans and servicing
rights with respect to mortgage loans, the securitization of pools of
mortgage loans and the acquisition or retention of residual interests
therein and other related activities), which common interests are further
evidenced by the Financial Statements;
(b) are under common Control (as defined in Section 1.1 of the
Credit Enhancement Agreement) and the nature of their common interests
and common Control benefits all of them collectively;
(c) will collectively and/or singularly derive, directly and/or
indirectly, substantial benefits from the Loan and the transactions
hereinafter contemplated, and the disbursements and uses of the proceeds
of the Loan, directly and/or indirectly, by any one or more of them
irrespective of the disbursement to, or use of the proceeds by, any of
the particular Borrowers; and
(d) in consideration of all of the foregoing, have received fair
and adequate consideration and have induced the Fund to make the Loan and
enter into this Agreement, and accept the Note.
7.12 SURVIVAL AND CONTINUATION. Each of the representations and
warranties contained herein, and the representations and warranties contained in
Article 8 of the Credit Enhancement Agreement incorporated herein, shall be true
and accurate as of the date hereof except for (x) Sections 8.1 and 8.3 and 8.4
of the Credit Enhancement Agreement (which are respectively superseded by
Sections 7.1., 7.2., 7.3 and 7.4 hereof), and (y) updating any Schedules,
Exhibits and/or representations otherwise contained in Article 8 of the Credit
Enhancement Agreement (after giving effect to Section 5 of this Agreement).
8. AFFIRMATIVE COVENANTS
Borrowers covenant and agree, that so long as any Money Advances are
outstanding and until all Indebtedness due Lender is paid in full, they will.
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8.1 PAYMENTS OF PRINCIPAL AND INTEREST ON INDEBTEDNESS. Pay the
principal amount of each Money Advance and accrued interest thereon when due in
accordance with the terms of the Note, whether by acceleration or otherwise, and
have no Money Advances outstanding hereunder contrary to any provisions,
limitations or restrictions hereof, pay all Indebtedness due Lender no later
than the Termination Date, and pay all amounts owing under Section 16 hereunder
when due; provided, that any sums due under the Warrant Put Agreement shall
survive and continue in full force and effect thereafter in accordance with the
terms of the Warrant Put Agreement.
8.2 PERFORMANCE OF OBLIGATIONS. Perform or cause to be performed, all
of the obligations and covenants of Borrowers or any Affiliate of the Borrowers
as required by this Agreement, the Related Documents, or any other agreement,
note or other document executed between the Lender and any of the Borrowers
and/or any Affiliate of the Borrowers, whether now existing or hereafter
created, and maintain and take all action (or not fail to take any action or
suffer or permit any omission) necessary to maintain the representations and
warranties made, as true and accurate.
8.3 INFORMATION. Furnish promptly and in a form satisfactory to Lender,
such information as Lender may reasonably request, from to time, and permit a
representative of Lender access to any of its premises.
8.4 FINANCIAL COVENANTS. Maintain the following:
(a) Ratios. A Senior Debt To Net Worth Ratio not to exceed the
ratios set forth below as of the end of each corresponding Fiscal Year,
and as of the end of each fiscal quarter thereafter until the subsequent
Fiscal Year end:
8.5:1 For the Fiscal Year ending January 31, 1999
6.5:1 For the Fiscal Year ending January 31, 2000
5.5:1 For the Fiscal Year ending January 31, 2001
5:1 For the Fiscal Year ending January 31, 2002
5:1 For the Fiscal Year ending January 31, 2003
4:1 For the Fiscal Year ending January 31, 2004
4:1 For the Fiscal Year ending January 31, 2005
4:1 For the Fiscal Year ending January 31, 2006
4:1 For the Fiscal Year ending January 31, 2007
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4:1 For the Fiscal Year ending January 31, 2008
4:1 For the Fiscal Year ending January 31, 2009
4:1 For the Fiscal Year ending January 31, 2010
(b) Minimum Net Worth. A minimum Net Worth as of the end of each
Fiscal Year of Borrowers. The required minimum Net Worth will be not less
than $10,000,000 for the Fiscal Year ending January 31, 1998. For each
subsequent Fiscal Year, the minimum required Net Worth amount will be the
sum of the preceding Fiscal Year's minimum required Net Worth plus an
amount equal to Eighty (80%) percent of any net income of the Borrowers
on a consolidated basis, as determined in accordance with GAAP, for the
Fiscal Year then ended, less any dividends on the Class A and Class B
Preferred Stock of MCA Financial Corp.
8.5 FEES AND EXPENSES.
(a) Payments. Pay to the Lender on demand all reasonable costs and
expenses that the Lender pays or incurs in connection with the
administration, enforcement, and termination of this Agreement,
including, without limitation: (i) reasonable fees and disbursements of
counsel to the Lender; (ii) reasonable costs and expenses (including fees
and disbursements of counsel) for any amendment, supplement, waiver,
consent, or subsequent closing in connection with the transactions.
contemplated; (iii) reasonable costs and expenses of consultants and
Lender's Authorized Agent retained by the Lender in connection with the
negotiation, execution and performance of this Agreement or any
transaction contemplated hereunder; (iv) costs and expenses (including
fees and disbursements of counsel) paid or incurred to obtain performance
of any Borrowers' obligations hereunder, or to exercise any rights with
respect to an Event of Default. Upon request by the Borrowers, the Lender
will provide supporting documentation within its possession detailing
such costs, fees and expenses.
(b) Routine Expenses. As used herein, the costs for the Lender's
Authorized Agent incurred by the Lender to monitor the Borrowers,
compliance with this Agreement, in the absence of an Event of Default,
are referred to as "Routine Expenses." These shall include but not be
limited to review of financial statements, review of certificates
delivered hereunder, and review of ongoing compliance by the Borrowers
with the requirements of this Agreement. The fees and expenses
attributable to Routine Expenses with respect to which the Borrowers are
required to reimburse or pay the Lender hereunder shall not exceed (which
include, and are not in addition to, Routine Expenses due under the
Credit Enhancement Agreement so long as the Credit Enhancement Agreement
exists and the First Loan Agreement so long as the First Loan Agreement
exists, and thereafter the following provisions of this Section 8.5(b)
shall apply) (1) $52,500.00 for Borrowers' fiscal years ending January
31, 1998 and 1999, (2) $54,600.00 for Borrowers' fiscal year ending
January 31, 2001, (4) $59,100.00 for Borrowers' fiscal year ending
January 31, 2002, (5) $61,500.00 for Borrowers' fiscal year ending
January 31, 2003, (6) $64,000.00 for Borrowers' fiscal year ending
January 31, 2004, (7) $66,600.00 for Borrowers' fiscal year ending
January 31, 2005,
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(8) $69,300.00 for Borrowers' fiscal year ending January 31, 2006, (9)
$72,100.00 for Borrowers fiscal year ending January 31, 2007, (10)
$75,000 for Borrowers fiscal year ending January 31, 2008, (11) $78,000
for Borrowers fiscal year ending January 31, 2009, and (12) $81,200 for
Borrowers fiscal year ending January 31, 2010. In the event the Credit
Enhancement Agreement Lender's Authorized Agent is replaced, the amounts
set forth above will be subject to reasonable redetermination by the
then existing Lender's Authorized Agent. Expenses related to
investigations of Events of Default and analysis of requests for
exceptions to or waivers of covenants are expressly excluded from the
definition of "Routine Expenses." The foregoing shall be subject to any
other provisions of this Agreement specifically relating to the payment
of costs and expenses.
(c) Survival of Obligation. The obligation of the Borrowers to make
payments to the Lender pursuant to this Section 8.5 shall survive the
termination of this Agreement, until the earlier of (i) the occurrence of
a Public Offering (as defined in the Put Agreement), or (ii) the
repurchase by MCA Financial Corp. of the Shares (as defined in the Put
Agreement) and the Warrant (or the shares into which the Warrant has been
converted) pursuant to the provisions of the Put Agreement and the
Warrant Put Agreement, provided that costs and expenses described in
clauses (ii) and (iii) of Section 8.5 (a) shall be paid by any Company to
the Fund only to the extent incurred prior to termination. After such
termination, Lender's Authorized Agent shall be entitled to reasonable
fees and expenses for services provided thereafter.
8.6 RELATED PARTY ACCOUNTS RECEIVABLE RESTRICTION. Reduce related party
accounts receivable (as reflected in the balance sheet line item captioned
"Accounts Receivable - Related Parties" less the amount of related party
accounts payable identified in Note 8 - Related Party Transactions" of the
Financial Statements of Borrowers (as required by Section 10.12 of the Credit
Enhancement Agreement) to an amount which by July 31, 2001 is no more than
thirty (30%) percent, and by July 31, 2006 is no more than twenty (20%) percent,
of total Stockholders' Equity (as reflected in the total of the balance sheet
section captioned "Stockholders' Equity" (provided however in calculating
Stockholders' Equity there shall be evidenced in liabilities the amount then
accrued under Section 3(a) (1) of the Put Agreement and Section 3(a)(1) of the
Warrant Put Agreement)), as calculated taking the most current Financial
Statements available at that time, and will maintain related party accounts
receivable (as referenced herein) at an amount which is no more than twenty
(20%) percent of total Stockholders' Equity (as referenced and calculated
herein) after July 31, 2006.
9. NEGATIVE COVENANTS
Borrowers covenant and agree, that so long as any Money Advances are
outstanding, and until all Indebtedness due Lender is paid in full, they will
not:
9.1 EVENT OF DEFAULT. Permit any Event of Default or Matured Event of
Default to occur.
9.2 DISPOSITION OF NON-CONFORMING LOANS. Voluntarily or involuntarily
dispose of any Qualifying Non-Conforming Loan without simultaneous payment to
the Escrow Agent of the
17
<PAGE> 23
Required Escrow Principal Payments.
9.3 DEFAULT IN PAYMENT. Default in any payment of the principal of or
interest on any Indebtedness to Lender when and as the same shall have become
due and payable, whether at maturity, by acceleration or otherwise, which
Default shall remain uncured for a period of five (5) Business Days, whether
such Indebtedness is now existing or hereafter created.
9.4 TRANSACTION WITH AFFILIATES. Permit the consolidated net income of
Rimco to exceed Fifty Thousand and 00/100 ($50,000.00) Dollars in any Fiscal
Year, provided further that all such excess shall be for the benefit of
Borrowers, received by Borrowers, and reflected in the Financial Statements.
9.5 LAND CONTRACT INVENTORY. Permit their land contract inventory
(reflected in the balance sheet line item captioned "Land Contracts Held for
Resale", of the Financial Statements of Borrowers (as required by Section 10.12
of the Credit Enhancement Agreement) to include more than One Million
($1,000,000.00) Dollars of land contracts related to property located outside of
the state of Michigan until July 31, 1999. Commencing with each Fiscal Year
thereafter, the One Million ($1,000,000) Dollar limitation shall be increased or
decreased by the percentage change in Stockholders' Equity for the most recent
Fiscal Year then ended (as referenced in Section 8.6 hereof).
10. BOOKS/RECORDS/FINANCIAL REPORTS/CERTIFICATES
Borrowers covenant and agree, that so long as any Money Advances are
outstanding, and until all Indebtedness due Lender is paid in full, they will
keep proper books of accounts in a manner satisfactory to Lender; and:
10.1 FINANCIAL STATEMENTS. Borrowers shall deliver to Lender, the
Financial Statements (as required by Section 10.12 of the Credit Enhancement
Agreement excluding the last sentence thereof), together with a Supplemental
Schedule report specifically setting forth the Value of Qualifying
Non-Conforming Loans ("Supplemental Schedule"), which Supplemental Schedule
shall be true and accurate in all material respects.
10.2 MONTHLY REPORTS. Borrowers shall deliver to Lender, no later than
twenty (20) Business Days after the end of each month, the following reports,
certified to by the President or Chief Executive Officer or Chief Financial
Officer of Borrowers:
(a) Use of proceeds schedule.
(b) Income Statements for each of the operating entities
(unconsolidated) in a format which is consistent with the Financial
Reports herein required.
(c) Activity reports consisting of summaries of loan applications
and closing activity by product type and location.
(d) Balances outstanding on all Senior Debt.
18
<PAGE> 24
10.3 OFFICER'S CERTIFICATES. Borrower shal1 deliver to Lender with each
set of Financial Statements delivered pursuant to Sections 10.1 and 10.6, a
certificate signed by the President, or the chief executive or chief financial
officer, respectively of the Borrowers and Rimco (if not the President), setting
forth:
(a) the information (including detailed calculations) required in
order to establish whether the Borrowers were in compliance with the
requirements set forth in Section 8.4 of this Agreement during and as of
the end of the period covered by the Financial Statements then being
furnished; and
(b) that the signers have reviewed all of the relevant terms of
this Agreement and have made, or have caused to be made, under their
supervision, a review of the transactions and conditions of the Borrowers
from the beginning of the accounting period covered by the Financial
Statements being delivered therewith to the date of the certificate, and
that such review has not disclosed the existence during such period of
any Event of Default.
10.4 ACCOUNTANT'S CERTIFICATES. Borrowers shall deliver to Lender with
each set of Financial Statements delivered pursuant to Section 10.1 (relating
solely to the annual audited Financial Statements), a certificate of the
accountants preparing such Financial Statements, stating that they have reviewed
this Agreement and stating further:
(a) whether, in making their examination in connection with such
report, such accountants have become aware of any condition or event
(compliance with which is subject to verification by accountants in the
course of normal auditing procedures) which is an Event of Default,
specifying the nature and period of existence thereof; and
(b) that such Financial Statements fairly present the financial
condition and the results of operations of the Borrowers as of the end of
and for such period and have been prepared in accordance with GAAP and
that the examination of such accountants in connection with such report
has been made in accordance with generally accepted auditing standards,
and accordingly included such tests of the accounting records and such
other auditing procedures as were considered necessary in the
circumstances; and
(c) that the Supplemental Schedule(s) were, and are true, in all
material respects.
10.5 INSPECTION OF BOOKS AND RECORDS. Borrowers and Rimco authorize
Lender and/or Lender's Authorized Agent to inspect and confirm Borrowers' (and
any other subsidiaries of any of the Borrowers) and Rimco's books, records and
papers while in the custody of Borrowers or Rimco, or under the custody and
control of others, and Lender and/or Lender's Authorized Agent shall have the
right to make copies and abstracts thereof, during business hours and upon three
(3) Business Days prior notice. The Borrowers and Rimco shall also permit the
Lender or Lender's Authorized Agent to discuss the affairs, finances and
accounts of the Borrowers and Rimco with each of their respective directors,
officers, employees and independent auditors without restriction, and do hereby
authorize, grant permission to and agree to instruct such persons to respond
fully and without restriction to the Lender's reasonable inquiries and release
such information and documentation as the Lender may reasonably request.
19
<PAGE> 25
The information so obtained may be disclosed by the Lender to its advisors,
representatives, and Lender's Authorized Agent, but shall not be used for
purposes not properly related to this Agreement and shall not otherwise be
disclosed by the Lender, its advisors, representatives, or Lender's Authorized
Agent, except as required by law or to enforce the Lender's rights under this
Agreement or any of the Related Documents.
10.6 RIMCO FINANCIAL STATEMENTS. Rimco shall deliver to Lender,
financial statements of Rimco, prepared by management of Rimco in accordance
with GAAP, at the time the Financial Statements required by Section 10.1 hereof
are required to be delivered.
11. NOTICE OF DEFAULT
11.1 REQUIRED NOTICE OF DEFAULT. Lender shall be required to give
Borrowers a Notice of Default with respect to any Event of Default except as
provided in Section 11.2, and Borrowers shall be allowed to cure such Event of
Default within the applicable Cure Period.
11.2 NO REQUIRED NOTICE OF DEFAULT. Lender shall not be required to
give Borrower a Notice of Default. with respect to:
(a) any Event of Default arising out of the Borrowers' failure to
notify and/or report to Lender, those matters herein required; and
(b) any Event of Default arising from any Borrowers' breach of any
representations or warranties; and
(c) any Matured Event of Default that exists as a result of either
(i) a Senior Lender Default; or (ii) an Insolvency Event.
11.3 COMMERCIALLY REASONABLE. Borrowers agree that the Cure Periods
shall respectively constitute commercially reasonable notice.
12. REMEDIES IN EVENT OF DEFAULT
If a Matured Event of Default exists, or if Lender shall in good faith
believe that the prospect of prompt payment of any Indebtedness due Lender, in
full, as and when due, or the full performance of any of the Borrowers'
obligations, is or may be impaired, the Lender shall have the rights and
remedies set forth below. The rights and remedies contained herein or otherwise
available shall be cumulative and not exclusive, but in all events the same are
subject to the Subordination Agreements, and Lender shall have the right,
subject to the Subordination Agreements, to exercise any and all other rights
and remedies which may be available, whether contained in this Agreement, the
Related Documents, the Existing Enhancement Documents, or available by virtue of
law, or contained in any other instruments or agreements between the Lender and
any of the Borrowers and/or any other Affiliate of Borrowers, including under
the Existing Enhancement Documents, and any such action by Lender shall not
serve to release or discharge any other rights of Lender in connection with this
transaction. The Subordination Agreements shall in no way be deemed to impair or
modify the rights of the Fund under the Existing Enhancement Documents.
20
<PAGE> 26
12.1 ACCELERATION. All Indebtedness shall accelerate without notice or
demand, and immediately be due and payable, without presentation, notice or
demand, notwithstanding the maturity or due date therein to the contrary, all of
which are expressly waived by the Borrowers.
12.2 WAIVERS. To the extent permitted by applicable law, the Borrowers
agree to waive and do hereby absolutely and irrevocably waive and relinquish the
benefits and advantages of any valuation, stay, appraisal, extension or
redemption laws now or hereafter existing which, but for this provision, might
be applicable to any sale made under any judgment, order or decree of an court,
or otherwise, based on the Note, or on any claim for interest on the Note.
12.3 APPOINTMENT OF RECEIVER. Lender shall be entitled, to the extent
provided by law, to the appointment of a receiver of the business and premises
of Borrowers, and of the rents and profits derived therefrom. This appointment
shall be in addition to any other rights, relief or remedies afforded Lender.
Such receiver, in addition to any other rights to which he shall be entitled,
shall be authorized to sell any and all property of the Borrower for the benefit
of Lender pursuant to provisions of Michigan law and the Uniform Commercial Code
of Michigan. In the event of any deficiency, Borrowers shall remain liable
therefor.
12.4 INJUNCTIONS. Borrowers acknowledge that upon the occurrence of a
Matured Event of Default, no remedy at law will provide adequate relief to
Lender; therefore, Borrowers agree that Lender shall be entitled to temporary
and permanent injunctive, or other equitable relief in any such case without
proving actual damages, it being acknowledged that the nature of Borrowers,
business dictates such relief is necessary in order to preserve the rights of
the Lender.
12.5 EXPENSES. Borrowers shall pay to Lender, on demand, any and all
expenses, including reasonable attorneys' fees and legal expenses, and outside
consultants' fees reasonably incurred or paid by Lender in connection with the
Agreement and any of the Related Documents, including the preparation or
amendment thereof, or in connection with protecting or enforcing its rights
under this Agreement, the Related Documents or pursuant to any other document or
agreement (but excluding those expenses previously paid pursuant to Section
8.5). Lender shall not be required to proceed against any other party, or pursue
any other right or remedy hereunder, or under any other instrument or agreement,
but all such rights and remedies shall be cumulative and in addition to all
other rights and remedies of Lender.
12.6 ENFORCEMENT OF RIGHTS. Lender shall be entitled to enforce its
rights hereunder and to avail itself of said other rights or remedies
simultaneously or successively, in such order and priority as Lender shall
determine, and all such rights and remedies shall continue in full force and
effect until all Indebtedness of the Borrowers shall be satisfied in full, and
no one or more of such actions shall be deemed an election of remedies.
13. NOTICES
13.1 DELIVERY OF NOTICES. Except as otherwise provided herein, all
notices, demands and requests that any party is required or elects to give to
the other shall be in writing, or by a telecommunications device capable of
creating a written record, and any such notice shall become effective (a) upon
personal delivery thereof, including, but not limited to, delivery by
21
<PAGE> 27
overnight mail and courier service, (b) three (3) calendar days after it shall
have been mailed by United States mail, first class, certified or registered,
with postage prepaid, or (c) in the case of notice by such a telecommunications
device, when properly transmitted, in each case addressed to the party to be
notified as follows:
If to the Fund: Board of Trustees of the Policemen and Firemen System
of the City of Detroit
908 City-County Building
Detroit, Michigan 48226
Attention: Nicholas Degel, Asst. Administrator
Supervisor
Telecopy No.: (313) 224-3522
with a copy to: Couzens, Lansky, Fealk, Ellis, Roeder & Lazar, P.C.
33533 West 12 Mile Road, Suite 150
Farmington Hills, Michigan 48331-5645
Attention: Donald A. Wagner, Esq.
Telecopy No.: (248) 489-4156
with a copy to: Ronald Zajac, Esq.
243 W. Fort St. Suite 480
Detroit, Michigan 48226
Telecopy No.: (313) 961-6559
with a copy to: Plante & Moran, L.L.P.
27400 Northwestern Highway
P.O. Box 307
Southfield, Michigan 48034-0307
Attention: Jon Woods
Telecopy No.: (248) 352-0018
If to Borrowers: c/o MCA Financial Corp.
23999 Northwestern Highway, Suite 230
Southfield, Michigan 48075
Attention: Lee P. Wells, President
Telecopy No. (248) 358-7507
with a copy to: Butzel Long
150 West Jefferson, Suite 900
Detroit, Michigan 48226-4430
Attention: Justin G. Klimko, Esq.
Telecopy No. (313) 225-7080
or to such other address as each party may designate for itself by
like notice.
14. TERMINATION
14.1 TERMINATION BY LENDER. Lender may terminate this Agreement and its
obligations hereunder upon the occurrence of a Matured Event of Default.
Provided this
22
<PAGE> 28
Agreement shall not have been terminated earlier because of a Matured Event of
Default, this Agreement terminates on the Termination Date.
14.2 EFFECT OF TERMINATION. Upon termination of this Agreement as
described above:
(a) all of the Borrowers' obligations, duties, promises, covenants,
representations or warranties under this Agreement and the Borrowers or
others' obligations, duties, promises, covenants, representations or
warranties under the Related Documents, shall continue and remain in full
force and effect after the Termination Date until the Indebtedness is
paid in full, provided further that the Related Documents and the
provisions thereof, described in Section 6 and Borrowers' obligations
under Section 16 shall in all events survive thereafter, in accordance
with their respective terms; and
(b) in the event the Indebtedness is paid in full without the
existence of a Matured Event of Default, then the Related Documents
described in Sections 6.1, 6.2, and 6.3, together with all provisions of
this Agreement except Sections 2, 3, 4, 7.5, 7.6, 7.7, 7.8, 7.9, 7.10,
7.12, 8.1., 8.3., 8.4., 9.2., 9.3., 10.2, 10.5, 12.1, 12.3 and 15 shall
survive and remain in full force and effect; and
(c) subject to the Subordination Agreements, the Indebtedness, the
Note and Money Advances, and all other obligations due Lender from
Borrowers, shall then be immediately due and payable, notwithstanding any
Maturity Date or Due Date to the contrary, plus the interest accrued
thereon until payment in full.
15. CONDITIONS PRECEDENT TO ADVANCE
15.1 CONDITIONS PRECEDENT TO INITIAL MONEY ADVANCES. The obligation of
the Lender to make the initial Money Advance to the Escrow Agent is subject to
all the conditions and requirements of this Agreement and delivery of the
following required documents or. other action, all of which are conditions
precedent:
(a) Corporate Status. A Certificate of Good Standing of Borrowers
certified by the State of Michigan (and in the case of Mortgage
Corporation of America, Inc., the State of Ohio), and any other State in
which they conduct business, to the effect that the Borrowers are
authorized to do business within said jurisdiction.
(b) Resolutions. Certified Copies of Corporate Resolutions of
Borrowers authorizing the consummation of the transactions contemplated
hereby and providing for the execution of a written direction of payment
if proceeds are to be paid to a Person other than Borrowers.
(c) Certified Documents. A true copy, as of the date of execution
hereof, of the Articles of Incorporation, By-Laws (and the Code of
Regulations with respect to Mortgage Corporation of America, Inc.) and
shareholder list of the Borrowers (except for the holders of the
Preferred Stock of MCA Financial Corp.), including all amendments to the
foregoing, certified by the Secretary of the Borrowers.
23
<PAGE> 29
(d) Opinion of Borrower's Counsel. The opinion of counsel for the
Borrowers, dated as of the date of the closing, satisfactory in form and
substance to Lender's designated counsel.
(e) Schedules/Exhibits. The Schedules and Exhibits required by this
Agreement.
(f) Related Documents. Execution and delivery of the Related
Documents.
16. ISSUANCE OF WARRANT
16.1 WARRANT. Concurrently herewith, MCA Financial Corp. is issuing to
Lender the Warrant.
16.2 WARRANT PUT AGREEMENT. Concurrently herewith, MCA Financial Corp.
and Lender are executing and delivering the Warrant Put Agreeement.
17. MISCELLANEOUS:
17.1 BINDING EFFECT. This Agreement and the Related Documents shall be
binding upon and shall inure to the benefit of the Borrowers and Lender, and
their respective successors and assigns, provided that the foregoing shall not
authorize any assignment by any of the Borrowers of their rights or duties
hereunder, which assignment, in whole or in part, by any of the Borrowers shall
not be permissible.
17.2 DELAY/WAIVER. No delay or failure of Lender in exercising any
right, remedy, power or privilege hereunder shall affect such right, remedy,
power or privilege, nor shall any single or partial exercise thereof preclude
the exercise of any other right, remedy, power or privilege. No delay or failure
of Lender at any time to demand strict adherence to the terms of this Agreement
shall be deemed to constitute a course of conduct inconsistent with the Lender's
right at any time, before or after any Event of Default, to demand strict
adherence to the terms of this Agreement or the Related Documents.
17.3 INCORPORATION BY REFERENCE. The Related Documents are incorporated
herein by reference, and in the event any provision thereof is inconsistent with
the provisions of this Agreement, then this Agreement shall be deemed paramount
unless the rights and remedies of the Lender would be adversely affected or
diminished thereby, provided however the Related Documents described in Section
6 shall in all events survive, and remain in full force and effect in accordance
with their respective terms, after the Termination Date or other expiration or
termination of this Agreement.
17.4 APPLICABLE LAW. This Agreement and the Related Documents shall be
interpreted, and the rights of the parties hereunder shall be determined, under
the laws of the State of Michigan, without regard to choice of law principles
which would require the application of the laws of any other jurisdiction.
17.5 SURVIVAL. Subject to Section 14, hereof, all representations and
warranties contained herein, in the Related Documents, or in writing by the
Borrowers in connection
24
<PAGE> 30
herewith shall survive the execution and delivery of this Agreement.
17.6 FURTHER ASSURANCES. Borrowers, from time to time, upon written
request of Lender, will make, execute, acknowledge and deliver all such further
and additional instruments and take all such further action as may be reasonably
required, to carry out the intent and purpose of this Agreement and the Related
Documents and to provide for the payment of the Loan, Note, and Money Advances,
according to the intent and purpose herein and therein expressed.
17.7 HOLD HARMLESS/INDEMNITY. Borrowers hereby assume responsibility
and liability for, and hereby holds harmless and indemnify Lender from and
against, any and all, liabilities, demands, obligations, injuries, costs,
damages (direct, indirect or consequential), awards, loss of interest,
principal, or any portion of the Indebtedness, charges, expenses, payments of
monies and reasonable attorney fees, incurred or suffered, directly or
indirectly, by Lender and/or asserted against Lender by any Person whatsoever,
including Borrowers, arising out of this Agreement, or the Related Documents, or
the relationship herein set forth or the exercise of any right or remedy or the
exercise of any right in connection therewith, for which Lender may be liable,
for any reason whatsoever, except to the extent (on a comparative basis) the
above are related to the willful misconduct or gross negligence of Lender.
17.8 COMPLETE AGREEMENT. This Agreement and the Related Documents
(subject to the incorporation by reference of the Existing Enhancement
Documents) incorporate and/or contain the entire agreement of the parties hereto
and none of the parties shall be bound by anything not expressed in writing;
provided, that nothing herein shall be deemed to supersede, modify or alter the
First Loan Agreement and the documents defined therein as "Related Documents."
17.9 INVALIDITY. Should any part, term or provision of this Agreement
or the Existing Enhancement Documents be held by any court of competent
jurisdiction to be illegal or in conflict with any law of the State of Michigan,
the validity of the remaining portion or provisions of the Agreement and the
Existing Enhancement Documents shall not be affected thereby.
17.10 AMENDMENT. This Agreement, the Existing Enhancement Documents and
the Related Documents may only be amended, modified or extended by written
instrument executed by Lender and Borrowers.
17.11 DUPLICATE ORIGINALS. Two or more duplicate originals of this
Agreement may be signed by the parties, each of which shall be an original but
all of which together shall constitute one and the same instrument.
17.12 TIME OF ESSENCE. Time shall be of the essence of this Agreement.
17.13 AUTHORIZED AGENT AUTHORITY. Lender has appointed the Lender's
Authorized Agent as its agent to act for and on behalf of Lender in connection
with this Agreement and the Related Documents. Any approval, consent or other
matters which require the action of the Lender may be exercised by the Lender's
Authorized Agent. Notwithstanding the agency designation, the Lender's
Authorized Agent is an independent contractor, and the Lender's
25
<PAGE> 31
Authorized Agent may elect, from time to time, not to act for the Lender unless
the Lender has been specifically consulted.
26
<PAGE> 32
SIGNATURE PAGE TO SECOND LOAN AND FINANCING AGREEMENT
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first appearing above.
MCA FINANCIAL CORP., MCA MORTGAGE CORPORATION,
a Michigan corporation a Michigan corporation
By: _______________________________ By: _______________________________
Its: ______________________________ Its: ______________________________
MORTGAGE CORPORATON OF AMERICA, MORTGAGE CORPORATION OF
a Michigan corporation AMERICA, INC.,
an Ohio corporation
By: _______________________________ By: _______________________________
Its: ______________________________ Its: ______________________________
RIMCO REALTY AND MORTGAGE CO., COMPLETE FINANCIAL CORP.,
a Michigan corporation a Michigan corporation
By: _______________________________ By: _______________________________
Its: ______________________________ Its: ______________________________
SECURITIES CORPORATION OF AMERICA,
a Michigan corporation
By: _______________________________
Its: ________________________________
<PAGE> 33
SIGNATURE PAGE TO SECOND LOAN AND FINANCING AGREEMENT (CONT.)
THE BOARD OF TRUSTEES OF THE
POLICEMEN AND FIREMEN RETIREMENT
SYSTEM OF THE CITY OF DETROIT
By: ________________________________
Its: ________________________________
By: ________________________________
Its: ________________________________
The undersigned, Rimco Financial Corp., executes this Agreement solely
for the purposes of its undertakings in Sections 10.5 and 10.6.
RIMCO FINANCIAL CORP.,
a Michigan corporation
By: _______________________________
Its: ________________________________
<PAGE> 1
EXHIBIT 10.28
==========================================================
SUBORDINATED PROMISSORY NOTE
(1998 TERM LOAN)
Delivered To: The Board of Trustees of the Policemen and
Firemen Retirement System of the City of Detroit
By: MCA Financial Corp.
MCA Mortgage Corporation
Mortgage Corporation of America
Mortgage Corporation of America, Inc.
Rimco Realty and Mortgage Co.
Complete Financial Corp.
Securities Corporation of America
Date: March ___, 1998
==========================================================
<PAGE> 2
SUBORDINATED PROMISSORY NOTE
(1998 TERM LOAN)
PRINCIPAL AMOUNT: $30,000,000.00 DETROIT, MICHIGAN
DUE DATE: JANUARY 31, 2010 DATED: MARCH __, 1998
FOR VALUE RECEIVED, the undersigned (hereinafter referred to as
"Borrowers"), jointly and severally promise to pay to the order of The Board of
Trustees of the Policemen and Firemen Retirement System of the City of Detroit
(hereinafter referred to as "Lender") at its offices located at 908 City-County
Building, Detroit, Michigan 48221, or at such other place as Lender may
designate in writing, the principal sum of Thirty Million and No/100
($30,000,000.00) Dollars, or such lesser sum as has been advanced by Lender,
plus interest as hereinafter provided, in lawful money of the United States, due
Lender by Borrowers. This Subordinated Promissory Note (Term Loan) ("Note") is
executed and delivered pursuant to a Second Loan and Financing Agreement between
Lender and Borrowers dated of even date herewith, including all amendments,
modifications, alterations, and extensions thereto, and restatements thereof
("Loan Agreement") and all terms defined in the Loan Agreement and used herein
shall have the meaning ascribed to them in the Loan Agreement, except as
otherwise expressly provided herein.
1. INTEREST. The unpaid principal balance outstanding from time to time
under this Note shall bear interest on a basis of a year of 360 days for the
actual number of days elapsed in a month, at a per annum rate of twelve (12.00%)
percent (the "Effective Interest Rate") . For the purposes hereof, the Escrow
Funds shall not be a credit against the principal balance outstanding under this
Note.
2. PAYMENTS. This Note shall be repaid by (x) quarterly installments of
interest only ("Stipulated Quarterly Interest Payments"), commencing on the
first (1st) Business Day of March, 1998, and continuing on the first (lst)
Business Day of each June, September, December and March (each hereinafter
referred to as a "Quarterly Payment Date"), which shall be paid to Lender, and
(y) Required Escrow Principal Payments (as and when due under the Loan
Agreement), until the first (1st) Business Day in the month of March, 2007
(hereinafter referred to as the "Amortization Commencement Date"), which shall
be paid to Escrow Agent. Commencing on the Amortization Commencement Date, this
Note shall be repaid by consecutive equal quarterly installments of principal
and interest ("Stipulated Quarterly Principal and Interest Payments") paid to
Lender (such payments first applied to interest accrued hereunder and the
balance, if any, to principal) and continuing on each Quarterly Payment Date
thereafter, until the Due Date of this Note, in an amount sufficient to amortize
and pay in full the principal balance outstanding on the Amortization
Commencement Date, together with interest at the Effective Interest Rate, by the
Due Date of this Note. On the Due Date, the unpaid principal balance and all
accrued interest thereon shall be due and payable in full.
<PAGE> 3
3. METHOD OF PAYMENT. Any payment made by mail will be deemed tendered
and received only upon actual receipt at the address of Lender or Escrow Agent
designated for such payment whether or not Lender has authorized payment by mail
or any other manner. Borrowers hereby expressly assume all risk of loss or
liability resulting from non-delivery or delay in delivery of any payment
transmitted by mail or in any other manner.
4. NON-WAIVER. No delay or failure of Lender in exercising any right,
remedy, power or privilege hereunder shall affect such right, remedy, power or
privilege, nor shall any single or partial exercise thereof preclude the
exercise of any other right, remedy, power or privilege. No delay or failure of
Lender at any time to demand strict adherence to the terms of this Note shall be
deemed to constitute a course of conduct inconsistent with the Lender's right at
any time, before or after any Event of Default, to demand strict adherence to
the terms of this Note.
5. PREPAYMENT. Borrowers may prepay this Note, in whole but not in
part, at any time, in accordance with the following:
(a) Borrowers shall give to Lender and each Senior Lender, Twenty (20)
Business Days prior written notice of the prepayment date ("Prepayment Date");
and
(b) On the Prepayment Date, Borrowers shall pay to Lender in good U.S.
Funds, the total amount of the Indebtedness, plus a prepayment fee ("Prepayment
Fee") calculated in accordance with the following:
<TABLE>
<CAPTION>
Prepayment Fee
(Calculated by applying the following percentage(s) to
Prepayment Date the Principal Balance outstanding on the Prepayment
(Occurring in the following period(s)) Date)
<S> <C>
February 1, 1998 - January 31, 1999 5%
February 1, 1999 - January 31, 2000 4%
February 1, 2000 - January 31, 2001 3%
February 1, 2001 - January 31, 2002 2%
February 1, 2002 - January 31, 2003 1%
February 1, 2003 - January 31, 2004 1%
February 1, 2004 - January 31, 2005 1%
February 1, 2005 - January 31, 2006 1%
February 1, 2006 - January 31, 2007 1%
February 1, 2007 - January 31, 2008 1%
February 1, 2008 - January 31, 2009 1%
February 1, 2009 - January 31, 2010 1%
</TABLE>
(c) In addition to the foregoing, and in order to avoid Borrower's
evasion of the Prepayment Fee, the Prepayment Fee shall be calculated and be due
and payable, whether or not any prepayments are made, upon the date of
acceleration of the Indebtedness following the occurrence of a Matured Event of
Default.
2
<PAGE> 4
(d) Required Escrow Principal Payments shall not be deemed prepayments.
6. MAXIMUM RATE OF INTEREST. Nothing herein contained, nor any
transaction relating thereto, or hereto, shall be construed or will operate to
require the Borrowers to pay, or be charged, interest at a greater rate than the
maximum allowed by the applicable law relating to this Note. Should any interest
or other charges, charged, paid or payable by the Borrowers in connection with
this Note, or any other document delivered in connection herewith, result in the
charging, compensation, payment or earning of interest in excess of the maximum
allowed by the applicable law as aforesaid, then any and all such excess shall
be and the same is hereby waived by the holder, and any and all such excess paid
shall be automatically credited against and in reduction of the principal due
under this Note. If Lender shall reasonably determine that the Effective
Interest Rate (together with all other charges or payments related hereto that
may be deemed interest) stipulated under this Note is, or may be, usurious or
otherwise limited by law, the unpaid balance of this Note, with accrued interest
at the highest rate then permitted to be charged by stipulation in writing
between Lender and Borrowers, at the option of Lender, shall immediately become
due and payable.
7. ACCELERATION/COSTS OF COLLECTION/DEFAULT RATE/LATE CHARGES. Upon the
occurrence of a Matured Event of Default as set forth in the Loan Agreement and
acceleration by Lender, the entire unpaid principal balance and all accrued
interest shall be immediately due and payable, together with (to the extent
permitted under applicable law) the reasonable costs, attorney's fees, and
outside consultants' fees reasonably incurred by Lender in collecting or
enforcing payment, and all other portions of the Indebtedness. During any period
of an Event of Default as defined in the Loan Agreement, the outstanding
principal amount hereof shall bear interest at a rate which is equal to an
additional five (5%) percent per annum. If any required installment is not paid
within seven (7) Business Days from the date same is due, then, at the option of
Lender, in addition to all other sums due hereunder, a late charge of not more
than three cents ($.03) for each dollar of the installment so overdue may be
charged.
8. ESCROW FUNDS. Borrowers by execution hereof, and Senior Lenders by
execution of a counterpart of the Request for Approval hereinafter provided,
acknowledge that (x) the Escrow Agreement is solely for the benefit of Lender in
disbursing and collecting funds, (y) the Escrow Agent is solely the agent of
Lender, and (z) all Escrow Funds are the sole and exclusive property of Lender,
and Borrowers and Senior Lenders shall have no right, title or interest in any
of the Escrow Funds, or any claim for any of the foregoing with respect to the
Escrow Funds, provided however, that any sums delivered to the Escrow Agent by
Borrowers that are in excess of Required Escrow Principal Payments at the time
of delivery ("Excess Escrow Payments") shall be returned by Escrow Agent (to the
extent the amount of such Excess Escrow Payments are in the Escrow Account) to
Borrowers, provided Escrow Agent shall have received written demand of any
Senior Lender within One Hundred Eighty (180) calendar days of the date of
receipt of such Excess Escrow Payments.
9. APPLICATION OF PAYMENTS. Acceptance by Lender of any payment in an
amount less than the amount then due shall be deemed an acceptance on account
only, and the failure to pay the entire amount then due shall be and continue to
be an Event of Default, and at any time thereafter and until the entire amount
then due has been paid, and if such Event of Default
3
<PAGE> 5
becomes a Matured Event of Default, Lender shall be entitled to exercise all
rights conferred upon it by this instrument upon occurrence of a Matured Event
of Default.
10. WAIVERS. Borrowers hereby waive presentment for payment, demand,
notice of non-payment (except such notice, if any, as required under the Loan
Agreement), notice of protest and protest of this Note, diligence in collection
or bringing suit. The liability of Borrowers shall be absolute and
unconditional, without regard to the liability of any other party hereto.
Notwithstanding the foregoing if an Event of Default or Matured Event of Default
occurs (other than (x) an Insolvency Event, or (y) a Senior Lender Default),
Lender shall give Thirty (30) calendar days prior written notice to the Senior
Lenders before Lender (a) accelerates the Indebtedness, and (b) exercise or
enforces its rights under the Loan Agreement. In all events the Senior Lender,
Borrowers and Lender, agree that upon an Insolvency Event, or acceleration of
any Senior Debt, the Indebtedness evidenced by the Note shall be accelerated,
due and payable, without notice by Lender to Senior Lenders or Borrowers,
provided however, notwithstanding such acceleration, and the rights incident
thereto, the Indebtedness shall not be paid until the Senior Debt is paid in
full.
11. ADDITIONAL TERMS/INCORPORATION. This Note is executed pursuant to
the Loan Agreement and the Related Documents therein described. Reference is
hereby made to said Loan Agreement and Related Documents for additional terms
relating to the transaction giving rise to this Note, the security given for
this Note and additional terms and conditions under which this Note matures or
accelerates.
12. SUBORDINATION AGREEMENTS. Notwithstanding anything herein
contained, this Note and the payments due thereunder (excluding any Escrow
Funds, but subject to Section 8 of this Note), are hereby expressly subordinated
to the Senior Debt (as hereinafter defined), in accordance with, and subject to
the following ("Subordination Agreements"):
(a) All payments due hereunder from the Borrowers shall be paid in
accordance with the terms hereof, until Lender has received a written notice
from any Senior Lender that a Senior Debt Default exists, at which time no
payments under the Note may be paid by Borrowers nor collected or demanded by
Lender; provided further however, that any sums delivered to Lender by
Borrowers, whether or not a Senior Debt Default exists, that are in excess of
Stipulated Quarterly Interest Payments or Stipulated Quarterly Principal and
Interest Payments ("Excess Stipulated Payments") shall be returned to Borrowers,
provided Lender shall have received written demand of any Senior Lender within
one Hundred Eighty (180) calendar days of the receipt of such Excess Stipulated
Payments.
(b) In the event the Senior Debt Default referenced in Section 12(a)
above is cured or no longer exists, the Senior Lender sending the notice of the
Senior Debt Default shall promptly notify Lender and Lender's Authorized Agent
by facsimile at (810) 352-0018, Attn: Jon A. Woods (or as such notification may
be changed by Lender from time to time) , and the payments so deferred as a
result of Section 12(a) shall be paid within two (2) Business Days of such
notice and payments thereafter due hereunder shall be made and continue until
Section 12(a) is thereafter complied with. In the event a Senior Debt Default
continues, this Note and the payments due hereunder shall continue to be
subordinated to the full payment of the Senior Debt
4
<PAGE> 6
to which the Senior Debt Default applies. Any sums received by Lender in
violation of these Subordination Agreements after notice of a Senior Debt
Default as herein required shall be paid over to the Senior Lenders, and until
so paid shall be held by Lender in trust for the benefit of the Senior Lenders.
(c) The amount of the Senior Debt owed to a Senior Lender to which this
Note and the payments due thereunder is subordinated, shall not exceed the
amount of such Senior Debt outstanding in accordance with each Request For
Approval applicable thereto.
(d) All Senior Debt shall rank pari passu (except to the extent
provided otherwise in the applicable Senior Debt Documents), but the same shall
not be deemed inconsistent with the other provisions hereof.
(e) Lender shall give the Senior Lenders a copy of any notice to any of
the Borrowers, which sets forth a Matured Event of Default (as defined in the
Loan Agreement).
13. ADDITIONAL DEFINITIONS. For purposes of this Note, the following
terms shall have the following meanings:
(a) "AUTHORIZED AGENT" shall mean Plante & Moran, L.L.P. or any
substitute thereof designated by Lender in writing to Borrowers, from time to
time.
(b) "SENIOR LENDERS" shall mean the holders of the Senior Debt, who:
(i) have been approved by Lender (or by Lender's Authorized Agent)
by the execution of a Senior Lender Approval in the form attached hereto
after receipt by Lender of a Request For Approval in the form attached
hereto; and
(ii) have been authorized by the Senior Lender Approval to receive
delivery of a true copy of this Note; and
(iii) have returned to Lender an executed counterpart of the Request
For Approval.
(iv) Notwithstanding the foregoing, any holder who on the date
hereof or at any time hereafter is approved as a Senior Lender under the
terms of Borrowers' Subordinated Promissory Note (Term Loan) to Lender
dated July 18, 1996 shall automatically be deemed to be a Senior Lender for
purposes of this Note without the need for submission of a Request for
Approval hereunder or the receipt of any additional approval from Lender or
Lender's Authorized Agent, and the debt held by any such holders shall
automatically be deemed to constitute Senior Debt for all purposes
hereunder.
14. AGENT FOR LENDERS. A Senior Lender who acts as agent for other
Senior Lenders or participants with respect to Senior Debt may execute and
deliver a Request for Approval on behalf of the Senior Lenders and participants
for whom it acts as agent as well as its own behalf, and such execution shall be
deemed equivalent to execution by such Senior Lenders or participants, subject
only to the right of Lender's Authorized Agent to verify the authority of the
Senior Lender who executes the Request for Approval to act on behalf of the
parties so bound.
5
<PAGE> 7
IN WITNESS WHEREOF, the undersigned have executed and delivered this Note as of
the date first above written.
MCA FINANCIAL CORP., MCA MORTGAGE CORPORATION,
A MICHIGAN CORPORATION A MICHIGAN CORPORATION
By: ________________________________ By: ________________________________
Its: _______________________________ Its: _______________________________
MORTGAGE CORPORATION OF AMERICA, MORTGAGE CORPORATION OF AMERICA,
A MICHIGAN CORPORATION INC. AN OHIO CORPORATION
By: ________________________________ By: ________________________________
Its: _______________________________ Its: _______________________________
RIMCO REALTY AND MORTGAGE CO., COMPLETE FINANCIAL CORP.,
A MICHIGAN CORPORATION A MICHIGAN CORPORATION
By: ________________________________ By: ________________________________
Its: _______________________________ Its: _______________________________
SECURITIES CORPORATION OF AMERICA,
A MICHIGAN CORPORATION
By: __________________________________
Its: _________________________________
6
<PAGE> 8
REQUEST FOR APPROVAL
The undersigned Borrowers and Senior Lender hereby request approval of the
following Senior Lender and Senior Debt; and (x) certify, represent, warrant and
covenant that the information and documents submitted herewith in Section 1, 2
and 3 are true and accurate, and (y) agree (except where separately stated as to
the Senior Lender or Borrowers) to the provisions of Section 4, 5, 6 and 7.
Terms defined in the Subordinated Promissory Note (1998 Term Loan) dated March
___, 1998, as amended, modified, extended, or restated from time to time
("Note") have the same meanings when used herein, unless otherwise defined
herein.
1. Name of Senior Lender
2. Terms and Conditions of Senior Debt:
(a) Type of Senior Debt:
(b) Maximum Principal Amount of Senior Debt that may be outstanding
(including any formulas):
(c) Interest Rate of Senior Debt:
(d) Use of Proceeds of Senior Debt:
(e) Expiration/Termination/Due Date of Senior Debt:
3. Copies of Senior Debt Documents. The undersigned hereby certify that
attached hereto are true and accurate copies of the Senior Debt Documents.
4. Amendment/Modification/Waivers The Senior Lender and Borrowers
hereby certify, represent, warrant and covenant that no amendments,
modifications, or waivers of any terms, conditions, covenants, agreements,
duties, provisions, or undertakings under the Senior Debt Document will be made
without Lender's written consent, and no waiver of any breach, failure,
violation, or other non-observance or non-performance under the Senior Debt
Documents
<PAGE> 9
will be made without Lender's written consent, in any such case that
results in an increase of the amount of the Senior Debt to which the
Indebtedness is subordinated (other than increases attributable to the
application of default rates of interest or other charges and expenses
payable by Borrowers upon default under any Senior Debt, as provided
in the Senior Debt Documents). The Lender's consent shall not be
unreasonably withheld. In the event of any such increase, the
provisions of Section 12C of the Subordinated Promissory Note (Term
Loan) shall apply.
5. Notice of Senior Debt Default. The Senior Lender hereby certifies,
represents, warrants and covenants that it will deliver to Lender, a copy of any
notice to any of the Borrowers, which sets forth a Senior Debt Default, provided
further the failure to deliver such notice shall not affect the Subordination
Agreements.
6. Senior Debt to Net Worth Ratio. The Borrowers hereby certify,
represent, warrant and covenant, that if this Request For Approval is approved,
that after giving effect thereto, there will not be, on the date of execution of
the Counterpart, (x) any violation of the Senior Debt to Net Worth Ratio, or (y)
any Senior Lender Default.
7. Defaults. The Borrowers hereby certify, represent, warrant and
covenant that if this Request For Approval is approved, that after giving effect
thereto, on the date of the execution of a Counterpart, that no Event of Default
exists or will be created thereby.
8. Senior Lender's Acknowledgment and Agreement. Effective upon the
execution by Lender's Authorized Agent of Lender's Approval of Senior Lender,
the undersigned Senior Lender, on behalf of itself and any lenders or
participants for which it is authorized to act as agent under the terms of the
Senior Debt Documents, agrees to the Subordination Agreements contained in the
Subordinated Promissory Note (Term Loan), subject to the matters set forth in
the Request For Approval. Without limiting the generality of the foregoing, the
undersigned Senior Lender specifically certifies, represents, warrants-and
covenants that as of the date hereof, the undersigned has not delivered a Notice
of Senior Debt Default.
2
<PAGE> 10
This Request for Approval is delivered in connection with the Note.
This Request for Approval is executed on _______________________.
SENIOR LENDER
By: __________________________________
Its: __________________________________
MCA FINANCIAL CORP., MCA MORTGAGE CORPORATION,
A MICHIGAN CORPORATION A MICHIGAN CORPORATION
By: __________________________________ By: ________________________________
Its: _________________________________ Its: _______________________________
MORTGAGE CORPORATION OF AMERICA, MORTGAGE CORPORATION OF
A MICHIGAN CORPORATION AMERICA, INC.
AN OHIO CORPORATION
By: __________________________________ By: ________________________________
Its: _________________________________ Its: _______________________________
RIMCO REALTY AND MORTGAGE CO., COMPLETE FINANCIAL CORP.,
A MICHIGAN CORPORATION A MICHIGAN CORPORATION
By: __________________________________ By: ________________________________
Its: _________________________________ Its: _______________________________
3
<PAGE> 11
LENDER'S APPROVAL OF SENIOR LENDER
The undersigned Authorized Agent of Lender hereby:
1. Approves the Senior Lender and Senior Debt in reliance on the
foregoing, provided however (x) a breach by the Borrowers of Section 6 and 7
shall not affect the rights of the Senior Lender under the Subordination
Agreements, and (y) a breach by Senior Lender of Section 4 or Section 5 shall be
limited to the effect as therein provided.
2. Authorizes a true copy of the Subordinated Promissory Note (1998
Term Loan) to be delivered to Senior Lender.
3. Agrees that the Subordination Agreements contained in the
Subordinated Promissory Note (1998 Term Loan) shall be in effect with respect to
the Senior Debt and Senior Lender herein referenced, subject to Sections 3 and 4
above, upon receipt by the undersigned Authorized Agent of an executed
Counterpart hereof.
THE BOARD OF TRUSTEES OF THE POLICEMEN AND FIREMEN
RETIREMENT SYSTEM OF THE CITY OF DETROIT
By: Plante & Moran, L.L.P., its Authorized Agent
By: __________________________________
Its: __________________________________
4
<PAGE> 1
EXHIBIT 10.29
=========================================================
ESCROW AGREEMENT
Delivered To: Sterling Bank and Trust Company
By: MCA Financial Corp.
MCA Mortgage Corporation
Mortgage Corporation of America
Mortgage Corporation of America, Inc.
Rimco Realty and Mortgage Co.
Complete Financial Corp.
Securities Corporation of America
and
The Board of Trustees of the Policemen and
Firemen Retirement System of the City of Detroit
Date: March ___, 1998
=========================================================
<PAGE> 2
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (including all amendments, modifications and
extension thereto, and restatements thereof, is hereinafter referred to as
"Agreement") is made this ____ day of March, 1998, by and among MCA Financial
Corp., MCA Mortgage Corporation, Mortgage Corporation of America, Mortgage
Corporation of America, Inc., Rimco Realty and Mortgage Co., Complete Financial
Corp., Securities Corporation of America ("Borrowers") , The Board of Trustees
of the Policemen and Firemen Retirement System of the City of Detroit ("Lender")
and Sterling Bank and Trust, FSB ("Escrow Agent").
RECITALS
A. Borrowers and Lender have entered into that certain Second Loan
and Financing Agreement dated of even date herewith ("Loan Agreement"), whereby
Lender has agreed to loan to Borrowers $30,000,000.00 (the "Loan Amount") for
the purposes set forth in the Loan Agreement. Capitalized terms used in this
Agreement, unless otherwise defined herein, have the meaning ascribed to them in
the Loan Agreement or in the other agreements related to the Loan Agreement.
B. Pursuant to the Loan Agreement, Lender will advance to Escrow Agent
the Loan Amount.
C. Borrowers, Lender and Escrow Agent wish to establish the terms and
conditions under which the Loan Amount will be held and disbursed.
NOW, THEREFORE, in consideration of the performance of the covenants
contained herein, Borrowers, Lender and Escrow Agent hereby agree as follows:
1. DUTIES OF ESCROW AGENT.
(a) Lender herewith deposits with Escrow Agent the Loan Amount, the
receipt of which is hereby acknowledged.
(b) Escrow Agent shall establish an interest bearing Escrow Account
("Escrow Account") into which shall be deposited the Loan Amount, together with
payments received by Escrow Agent from any of the Borrowers, from time to time,
which payments shall be deposited no later than the next Business Day after
receipt thereof, and which Escrow Account shall further contain interest accrued
thereon, from time to time (until disbursed to Borrowers or Lender as herein
required) (collectively the "Escrow Funds"). Escrow Agent shall deliver, no
later than the fifth (5th) Business Day of each month, to Lender's Authorized
Agent and Borrowers, as of the first (lst) Business Day of each month, a monthly
transaction and investment report showing an itemization of receipts and
disbursements of the Escrow Funds, interest earned thereon, the balance of the
Escrow Funds in the Escrow Account as of the date of such report, and such other
information as Lender or Lender's Authorized Agent may reasonably require and
that reasonably
<PAGE> 3
obtainable by Escrow Agent, provided further that the reasonable costs incurred
by Escrow Agent associated therewith shall be paid by Borrowers.
(c) Escrow Agent shall invest the Escrow Funds in such interest bearing
investments, from time to time, as directed by Borrowers, and approved by
Lender's Authorized Agent, such approval not to be unreasonably withheld.
Neither Lender nor Lender's Authorized Agent shall have any responsibility or
liability for any such investments (including the rate of interest earned
thereon, from time to time). Escrow Agent shall endeavor in good faith to abide
by Borrowers' directions regarding the interest bearing investments, but shall
not be or become liable to Borrowers or any other party unless it is
demonstrated that Escrow Agent willfully acted contrary to Borrowers' directions
or was grossly negligent in carrying out such directions. Escrow Agent shall not
be or become liable to Borrowers or any other party if the interest bearing
investments directed by Borrowers allow for liquidation according to a schedule
inconsistent with any of Borrowers' Requests for Advances.
(d) Escrow Agent shall make each Money Advance in response to a Request
for Advance from Borrowers. Borrowers shall submit Requests for Advances no more
often than once in any trailing Two (2) week period, and no more often than
twice in any calendar month.
(i) To make a Request for Advance, Borrowers shall notify Escrow
Agent of the amount of the Money Advance requested.
(ii) Simultaneously with notice to Escrow Agent noted in
Subsection 1(d)(i), Borrowers shall convey to Lender's Authorized Agent the
Request for Advance sent to Escrow Agent, together with each of the
following items:
(A) the amount of the Money Advance requested; and
(B) a certification by an Authorized signatory of the amount of
the requested Money Advance which will be allocated to and used for
Qualifying Equity, Qualifying Equipment and Qualifying Working
Capital, together with. all supporting documentation reasonably
required by Lender's Authorized Agent; and
(C) a certification by an Authorized Signatory that no Event of
Default or Matured Event of Default exists, or after giving effect to
such Request for Advance, will be created thereby; and
(D) a certification by an Authorized Signatory (irrespective of
whether a duplication of matters set forth in D (ii) (3)) that after
giving effect to such Request for Advance, there will be no sums
outstanding in excess of the Loan Base; and
(E) a certification by an Authorized Signatory of the amount of
the Senior Debt then outstanding; and
(F) a certification by an Authorized Signatory (irrespective of
whether a duplication of matters set forth in D(ii)(3)) that after
giving effect to the Request for Advance, Borrowers will not be in
violation of the Senior Debt To Net Worth Ratio; and
2
<PAGE> 4
(G) a certification by an Authorized Signatory stating the Value
of Qualifying Non-Conforming Loans.
(iii)Upon receipt of the Request for Advance, Escrow Agent shall
notify Lender and Lender's Authorized Agent of the effective date (which
shall be the close of business on the fifth (5th) Business Day following
the receipt date of the Request for Advance ("Effective Date")). If Escrow
Agent has not received written notice (which may be by facsimile) of
Lender's or Lender's Authorized Agent's disapproval of the Request for
Advance prior to the Effective Date, the Request for Advance shall be
honored on the next Business Day following the Effective Date.
(e) Notwithstanding anything herein contained, or the amount of the Escrow
Funds then existing, Borrowers shall make all payments due under the Note to the
Lender. Accrued interest on the investments received by Escrow Agent between
payment due dates as set forth in (or under) the Note shall be held in the
Escrow Account. On each such payment due date, Escrow Agent shall deliver to
Borrowers all interest on the investments received since the next previous
payment due date.
2. AGREEMENT SUPPLEMENTAL.
As between Lender and Borrowers, this Agreement is supplementary to, and
not in lieu of, the provisions of the Loan Agreement, and in the event of any
conflict between the provisions hereof and any provision of the Loan Agreement,
the provisions of the Loan Agreement shall be controlling.
3. AUTHORIZED AGENT.
Lender hereby notifies Borrowers and Escrow Agent that the Lender's
Authorized Agent is Plante & Moran, L.L.P., who is authorized to act for and on
behalf of Lender in connection with this Agreement. Lender may substitute any
other person or entity, from time to time, upon written notice to Borrowers and
Escrow Agent, who shall then be the Lender's Authorized Agent. Notwithstanding
the Agency designation, the Lender's Authorized Agent is an independent
contractor, and the Lender's Authorized Agent may elect, from time to time, not
to act for the Lender unless the Lender has been specifically consulted.
4. NOTICE.
Except as otherwise provided herein, all notices, demands and requests that
any party is required or elects to give to the other shall be in writing, or by
a telecommunications device capable of creating a written record, and any such
notice shall become effective (other than a Request For Advance which shall be
effective as provided in Section 1(d)(iii)) (a) upon personal delivery thereof,
including, but not limited to, delivery by overnight mail and courier service,
(b) three (3) calendar days after it shall have been mailed by United States
mail, first class, certified or registered, with postage prepaid, or (c) in the
case of notice by such a telecommunications device, when properly transmitted,
in each case addressed to the party to be notified as follows:
If To Lender: Board of Trustees of the Policemen and Firemen
3
<PAGE> 5
Retirement System of the City of Detroit
908 City-County Building
Detroit, Michigan 48226
Attn: Nicholas Degal, Assistant
Administrator Supervisor
Telecopy No.: (313) 224-3522
With A Copy To: Couzens, Lansky, Fealk, Ellis, Roeder & Lazar, P.C.
33533 West 12 Mile Road, Suite 150
Farmington Hills, Michigan 48331-5645
Attn: Donald A. Wagner, Esq.
Telecopy No.: (248) 489-4156
With A Copy To: Ronald Zajac, Esq.
243 W. Fort Street, Suite 480
Detroit, Michigan 48226
Telecopy No.: (313) 961-6559
With A Copy To: Plante & Moran, L.L.P.
27400 Northwestern Highway
P.O. Box 307
Southfield, Michigan 48034-0307
Attn: Jon Woods
Telecopy No.: (248) 352-6018
If To Borrowers: c/o MCA Financial Corp.
23999 Northwestern Highway, Suite 230
Southfield, Michigan 48075
Attn: Lee P. Wells, President
Telecopy No.: (248) 358-7507
With A Copy To: Butzel Long
150 West Jefferson, Suite 900
Detroit, Michigan 48226-4430
Attn: Justin G. Klimko, Esq.
Telecopy No.: (313) 225-7080
If To Escrow Agent: Sterling Bank and Trust, FSB
One Towne Square, 17th Floor
Southfield, Michigan 48076
Attn: Penelope Kinzer
Telecopy No.: (248) 351-3491
or to such other address as each party may designate for itself by like
notice.
5. DUTIES, DISPUTES, AND RESIGNATIONS.
4
<PAGE> 6
(a) Escrow Agent shall have no duties or responsibilities other than those
expressly set forth in this Agreement. Escrow Agent shall have no duty to
enforce any obligation of any person (other than Escrow Agent) to make any
payment or delivery or to direct or enforce any obligation of any person to
perform any other act. Escrow Agent will have no liability to anyone by reason
of any failure on the part of any party (other than Escrow Agent) to perform
such party's obligations under any agreement, instrument, or document pertaining
to (or contemplated in) the Loan Agreement or the Note. Except for this
Agreement and the instructions to Escrow Agent as provided in this Agreement,
Escrow Agent will not be obligated to recognize any agreement between any or all
of the parties, notwithstanding that it may have knowledge thereof.
(b) Escrow Agent may rely upon any written notice, request, waiver,
consent, certificate, receipt, authorization, power of attorney, or other
instrument or document which Escrow Agent in good faith believes to be genuine
and to be what it purports to be.
(c) In the event of any disagreement between the parties hereto resulting
in conflicting instructions to, or adverse claims or demands upon, Escrow Agent
with respect to the matters herein set forth, the Escrow Agent may refuse to
comply with any such instruction, claim or demand so long as such disagreement
shall continue, and in so refusing Escrow Agent shall not release the Escrow
Funds. Escrow Agent shall not be or become liable in any way for its failure or
refusal to comply with any such conflicting instructions or adverse claims or
demands, and it shall be entitled to continue to refrain from acting until such
conflicting instructions or adverse claims or demands (i) shall have been
resolved by agreement among Lender and Borrowers and Escrow Agent shall have
been notified in writing thereof by the Lender and Borrowers, or (ii) shall have
finally been determined in a court of competent jurisdiction.
(d) Escrow Agent may, in its sole discretion, resign by giving Thirty (30)
days written notice thereof to the parties hereto, and Lender or Lender's
Authorized Agent may, by giving thirty (30) days written notice, replace Escrow
Agent. In either of such event, Lender or Lender's Authorized Agent shall
furnish to Escrow Agent written instructions for disposition of the Escrow
Funds. If Escrow Agent shall not have received such written instructions within
the thirty (30) day period, Escrow Agent may petition any court of competent
jurisdiction for the appointment of a successor Escrow Agent and, upon such
appointment, Escrow Agent shall deliver the Escrow Funds to such successor.
6. INDEMNIFICATION, REIMBURSEMENT.
(a) Borrowers, jointly and severally, shall indemnify and hold harmless
Escrow Agent from and against any fees, costs, expenses, claims, damages or
losses (including reasonable counsel and/or attorney fees and disbursements)
suffered by Escrow Agent in connection with any claim or demand which in any
way, directly or indirectly, arises out of or relates to this Agreement, the
services of Escrow Agent hereunder, or the filing by Escrow Agent of any action
related to this Agreement, other than as a result of Escrow Agent's negligence
or willful misconduct.
(b) Escrow Agent shall be entitled to reimbursement from Borrowers for
out-of-pocket expenses paid or incurred by it in the administration of its
duties hereunder, including, but
5
<PAGE> 7
not limited to, all reasonable counsel, attorney, advisor, and agent fees and
disbursements and all taxes or other governmental charges. If Escrow Agent
incurs any costs, losses, liabilities, damages or expenses (including reasonable
counsel/attorney fees) in connection with its activity as Escrow Agent, its
holding of the Escrow Funds, or its filing of any interpleader or other action,
the same shall be paid by Borrowers, except to the extent that same result from
Escrow Agent's negligence or willful misconduct.
7. ESCROW AGENT SOLELY FOR BENEFIT OF LENDER.
The Borrowers and Escrow Agent acknowledge and agree that (a) this Escrow
Agreement is solely for the benefit of Lender in disbursing and collecting
funds, and (b) the Escrow Agent is solely the agent of Lender, and (c) all
Escrow Funds are the sole and exclusive property of Lender, and neither the
Borrowers nor any other person or entity shall have any right, title or interest
in any of the Escrow Funds, or any claim for any of the foregoing with respect
to the Escrow Funds, except as provided in Section 1(e) with respect to earnings
on the Escrow Funds, and (d) interest under the Note shall in all events accrue
as of the date hereof, and be due and payable, together with principal payments
as required under the Note, notwithstanding the other provision of this
Agreement and in particular, Section 7, and notwithstanding the rate of interest
on the investments (which may be less than the interest due under the Note),
which rate of interest is at the sole risk of the Borrowers.
8. ESCROW AGENT'S FEES.
The fees payable to the Escrow Agent for its performance of services under
this Agreement are set forth in Exhibit "A" which is attached to this Agreement
and made a part hereof. Notwithstanding that this Agreement is solely for the
benefit of the Lender, all fees due Escrow Agent shall be paid by Borrowers.
9. CHANGES.
Any changes in the terms or conditions hereof may be made only in writing
signed by all parties or their duly authorized representatives.
10. BINDING EFFECT.
This Agreement shall inure to the benefit of, and be binding, on the
parties hereto and their respective successors and assigns.
11. TERMINATION.
On the Amortization Commencement Date, or as soon thereafter as is
practicable, Borrowers and Lenders shall deliver to Escrow Agent a joint written
instruction (which may be executed on behalf of Lender by Lender's Authorized
Agent) certifying that the Amortization Commencement Date has occurred and
authorizing and directing Escrow Agent to deliver to the Lender all Escrow Funds
remaining in the Escrow Account (and funds in any investments made pursuant to
Section 1(c) of this Agreement). As soon as practical following receipt thereof,
Escrow Agent shall deliver such funds to Lender together with a final monthly
transaction and
6
<PAGE> 8
investment report. This Agreement shall terminate upon delivery to Lender of
such funds and report.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed on their behalf by their duly authorized officers or representatives,
on the day and year first above written.
MCA FINANCIAL CORP., MCA MORTGAGE CORPORATION,
A MICHIGAN CORPORATION A MICHIGAN CORPORATION
By: __________________________________ By: ____________________________
Its:__________________________________ Its: ____________________________
MORTGAGE CORPORATION OF AMERICA, MORTGAGE CORPORATION OF AMERICA, INC.
A MICHIGAN CORPORATION AN OHIO CORPORATION
By: __________________________________ By: ____________________________
Its:__________________________________ Its: ____________________________
7
<PAGE> 9
RIMCO REALTY AND MORTGAGE CO., COMPLETE FINANCIAL CORP.,
A MICHIGAN CORPORATION A MICHIGAN CORPORATION
By: __________________________________ By: ____________________________
Its:__________________________________ Its: ____________________________
STERLING BANK AND TRUST COMPANY, FSB
SECURITIES CORPORATION OF AMERICA,
A MICHIGAN CORPORATION
By: __________________________________ By: ____________________________
Its:__________________________________ Its: ____________________________
THE BOARD OF TRUSTEES OF THE
POLICEMEN AND FIREMEN RETIREMENT
SYSTEM OF THE CITY OF DETROIT
By: ________________________________
Its: ________________________________
By: ________________________________
Its: ________________________________
8
<PAGE> 10
EXHIBIT A
ESCROW AGENT'S FEES
This Exhibit is delivered pursuant to Section 8 of the Escrow Agreement .
Escrow fees payable to Sterling Bank, FSB shall be as follows:
1. $9,300 annually, payable on the date of the Escrow Agreement with
respect to the initial year of the escrow and upon each anniversary of the date
of this Escrow Agreement during the term hereof; and
2. An Account Maintenance Fee of $500 annually per account, payable on the
date of the Escrow Agreement with respect to the initial year of the escrow and
upon each anniversary of the date of this Escrow Agreement during the term
hereof; and
3. If Escrow Agent invests the Escrow Fund in investments other than a
Sterling Bank, FSB demand deposit account or money market account, 25 basis
points per year, charged monthly (based on the average amount invested).
4. Fees for unanticipated services, which will be quoted as needed.
9
<PAGE> 1
EXHIBIT 10.30
================================================================================
COMMON STOCK WARRANT
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND CANNOT BE
SOLD, OFFERED FOR SALE OR TRANSFERRED, UNLESS AND UNTIL THEY ARE SO REGISTERED
OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
MCA FINANCIAL CORP.
(A MICHIGAN CORPORATION)
CONVERTIBLE WARRANT TO ACQUIRE COMMON STOCK
MARCH ___, 1998
================================================================================
<PAGE> 2
This is to certify that THE BOARD OF TRUSTEES OF THE POLICEMEN AND
FIREMEN RETIREMENT SYSTEM OF THE CITY OF DETROIT, with its principal office at
908 City County Building, Detroit, Michigan 48226, is entitled to acquire a
number of shares of Common Stock of MCA FINANCIAL CORP. as set forth in Section
2 below upon the terms and subject to the conditions hereinafter set forth. This
Warrant is issued pursuant to a certain Second Loan and Financing Agreement of
even date herewith between the Fund, MCAF and certain other entities affiliated
with MCAF (together with all amendments, modifications, extensions and
restatements thereof, the "Loan Agreement").
1. DEFINITIONS
For purposes of this Warrant, the following terms shall have the
following meanings:
1.1. "ACQUISITION OF BUSINESS ASSETS" means any transaction pursuant to
which MCAF acquires the ownership of Business Assets, including but not
limited to a merger, asset purchase, share exchange or similar transaction.
1.2. "ADDITIONAL WARRANT SHARES" means Warrant Shares issued by MCAF to
the Fund, from time to time, that (a) will result in the Fund owning, on each
day, Warrant Shares equal to the Requisite Percentage and (b) are issued at no
cost or expense to the Fund.
1.3. "BUSINESS ASSETS" means (a) the capital stock of any corporation
or other equity interest in any entity, or (b) the assets of any entity or
person, which are acquired by MCAF in consideration, in whole or in part, of the
issuance of shares of Common Stock, but only if MCAF is required to account for
such acquisition as a "business combination" under generally accepted accounting
principles in effect on the closing date of the acquisition.
1.4. "BUSINESS ASSETS EARNINGS" means the greater of (a) the net
earnings attributable to Business Assets for the most recently completed fiscal
year of the Business Assets or the entity conveying the same to MCAF, or (b) the
average of the net earnings attributable to Business Assets for the three most
recently completed fiscal years of the Business Assets or the entity conveying
the same to MCAF. For purposes of this Section, the net earnings attributable to
Business Assets shall be determined in accordance with the rules for presenting
and preparing pro forma financial information set forth in Rules 11-01 and 11-02
of Regulation S-X promulgated by the Securities and Exchange Commission.
1.5. "CASH TRANSACTION" means the issuance of shares of Common Stock by
MCAF in exchange for cash or the promise to pay cash.
1.6. "COMMON STOCK" means the common stock of MCAF.
<PAGE> 3
1.7. "FAIR MARKET VALUE" means the value received by MCAF, as
consideration for the issuance of shares of Common Stock, as follows:
(a) in the case of a Cash Transaction, MCAF shall have issued
shares for Fair Market Value if the amount of cash received for the issued
shares is not less than the per share value of the outstanding Common
Stock, calculated in accordance with the formula set forth in Section
3(a)(3) of the Warrant Put Agreement;
(b) in the case of an Acquisition of Business Assets, MCAF shall
have issued shares for Fair Market Value, if
(i) the quotient of (A)(1) the Business Assets Earnings
multiplied by six (6), (2) minus the value of any consideration other
than Common Stock paid by MCAF in connection with the acquisition,
divided by (B) the number of shares of Common Stock issued by MCAF in
the Acquisition of Business Assets;
is not less than
(ii) the per share value of the outstanding shares of Common
Stock, calculated in accordance with the formula set forth in
Section 3(a)(3) of the Warrant Put Agreement;
(c) in the case of any Other Transaction, MCAF shall have issued
shares for Fair Market Value if the shares or assets acquired in connection
with the issuance of shares of Common Stock, as reasonably determined by
MCAF and agreed to by the Lender in its reasonable judgment, is not less
than the per share value of the outstanding shares of Common Stock,
calculated in accordance with the formula set forth in Section 3(a)(3) of
the Warrant Put Agreement.
1.8. "FULLY DILUTED BASIS" with respect to Common Stock means the
number of shares thereof deemed outstanding on any date, including the number
actually issued and outstanding on that date plus the number that would be
issued by MCAF as a result of
(a) the conversion of any debt or equity securities which are
outstanding on that date, or which are subject on that date to acquisition
upon exercise of any option, warrant or other right to acquire, and which
are convertible into shares of Common Stock, except to the extent that (i)
the principal amount of outstanding debt securities which would be
surrendered in any such conversion plus (ii) the amount of the exercise
price (if any) payable on the exercise of an option, warrant or right to
acquire such debt securities, divided by (iii) the number of shares of
Common Stock which would be issued upon conversion, would not be less than
the Fair Market Value on that date determined pursuant to Section 1.7(a);
(b) the exercise of any option, warrant or other right to acquire
Common Stock, except to the extent that the exercise price (if any) payable
on the exercise of the option, warrant or right to acquire, divided by the
number of shares of Common Stock which would be issued upon exercise, would
not be less than the Fair Market Value on that date determined pursuant to
Section 1.7(a); and
2
<PAGE> 4
(c) the issuance of any dividend or distribution, declared as of
that date, payable in shares of Common Stock.
Notwithstanding the foregoing, the number of shares of Common Stock
outstanding on a Fully Diluted Basis shall not include (i) shares of Common
Stock issued in connection with a Public Offering; (ii) shares of common stock
to the extent issued for Fair Market Value in connection with an Acquisition of
Business Assets, a Cash Transaction or an Other Transaction; (iii) shares of
common stock issuable upon exercise of any warrants issued in connection with
the sale of MCAF's Series A or Series B Preferred Stock except to the extent
that shares of Preferred Stock have been redeemed by MCAF.
1.9. "FUND" means The Board of Trustees of the Policemen and Firemen
Retirement System of the City of Detroit.
1.10. "MCAF" means MCA Financial Corp., a Michigan corporation.
1.11. "NOTICE OF CONVERSION" means a Notice of Conversion of this
Warrant in the form attached hereto as Exhibit A, containing the
representations, warranties and covenants set forth in Exhibit A and designating
the number of Warrant Shares with respect to which the Warrant is being
converted by the Fund.
1.12. "OTHER TRANSACTION" means a transaction pursuant to which MCAF
issues shares of its Common Stock which is not a Cash Transaction or an
Acquisition of Business Assets.
1.13. "PUBLIC OFFERING" means the first firm commitment underwritten
sale to the public completed by MCAF after the date of this Agreement, pursuant
to an effective registration statement under the Securities Act of 1933, (a) of
a number of shares of its common stock which, when added to any other
outstanding shares then eligible for public trading without registration or
other restriction under the Securities Act, constitute at least 25% of the
number of shares of common stock outstanding, on a Fully-Diluted Basis, after
completion of such offering and (b) for an aggregate offering price (before
payment of underwriters, or brokers, commissions or discounts and the expenses
of the offering) which, when added to the aggregate offering price received by
MCAF from all other offerings of its common stock pursuant to effective
Securities Act registration statements, equals not less than $10 million.
1.14. "REQUISITE PERCENTAGE" means on any date, (a) if this Warrant has
been converted in full, four (4%) percent of all of the outstanding Common Stock
on a Fully Diluted Basis, and (b) if this Warrant has been converted in part but
not in full, the proportional percentage of all of the outstanding Common Stock
with respect to which the Warrant has been converted, on a Fully Diluted Basis.
As an example, if at any time the Warrant has been converted only with respect
to 2% of the outstanding Common Stock, the Requisite Percentage with respect to
the Warrant Shares owned by the Fund at that time shall be 2%, on a Fully
Diluted Basis.
3
<PAGE> 5
1.15. "WARRANT PUT AGREEMENT" means the Warrant Put Agreement between
MCAF and the Fund dated of even date herewith, together with all amendments,
modifications, extensions and restatements thereof.
1.16. "WARRANT SHARES" means the shares of Common Stock which the Fund
is entitled to acquire upon exercise of this Warrant.
1.17. "TERMINATION DATE" means the earlier of (a) the effective date of
the registration statement for a Public Offering or (b) 5:00 p.m. Eastern time
on January 31, 2010.
2. CONVERSION OF WARRANT
2.1. NUMBER OF WARRANT SHARES. The number of Warrant Shares which the
Fund is entitled to receive upon conversion of this Warrant is equal to 4% of
the total number outstanding on a Fully Diluted Basis at the time of conversion.
2.2. TIME OF CONVERSION. This Warrant may be converted in whole or in
part at any time, from time to time, from the date hereof through the
Termination Date.
2.3. MANNER OF CONVERSION. This warrant may be converted only upon the
surrender of this Warrant, and delivery of a Notice of Conversion duly executed
by the Fund, at the office of MCAF, located at 23999 Northwestern Highway, Suite
230, Southfield, Michigan 48075, or such other place as may be designated by
written notice delivered by MCAF to the Fund, on or before the Termination Date.
No payment or other consideration shall be due or owing from the Fund in
connection with the conversion of the Warrant. Upon delivery of the duly
executed Notice of Conversion, the Fund will become immediately entitled to the
issuance to it of a certificate or certificates (registered in its name or the
name of its nominee) representing the number of Warrant Shares indicated in the
Notice of Conversion (but in no event greater in the aggregate than the maximum
number of Warrant Shares issuable hereunder). Upon such issuance the Warrant
Shares shall be fully paid and nonassessable.
2.4. ADDITIONAL WARRANT SHARES. In addition to the Warrant Shares
issued upon conversion of this Warrant, from time to time after conversion of
this Warrant and at all times prior to completion of a Public Offering, MCAF
will issue to the Fund the Additional Warrant Shares. Additional Warrant Shares
will be deemed issued as of the date of the event giving rise to their issuance,
notwithstanding that the certificates therefor may be issued as of a later date.
2.5. STATUS PRIOR TO CONVERSION. The Warrant Shares which may be
acquired by the Fund pursuant to conversion of this Warrant shall not be deemed
to be outstanding or issued prior to acquisition by the Fund upon conversion,
and the Fund shall have no rights as a shareholder with respect to such Warrant
Shares (including but not limited to voting or distribution rights) until they
are so acquired.
4
<PAGE> 6
3. AUTOMATIC CONVERSION AND TERMINATION OF WARRANT
To the extent not previously converted, this Warrant will be deemed
automatically converted, without further action of the Fund, on the day prior to
the Termination Date, and shall thereafter be deemed terminated and of no
further force and effect.
4. PURCHASE OF WARRANT SHARES OR WARRANT
The parties acknowledge that, concurrently herewith, they are executing
and delivering the Warrant Put Agreement pursuant to which the Fund may require
MCAF to purchase from the Fund the Warrant Shares or this Warrant, under the
terms and conditions set forth in the Warrant Put Agreement.
5. NEGOTIATION OR TRANSFER OF WARRANT OR WARRANT SHARES
5.1. WARRANT NON-TRANSFERABLE. This Warrant shall not be transferable
or negotiable by the Fund without the written consent of MCAF.
5.2. TRANSFER OF WARRANT SHARES. Except with respect to Warrant Shares
to be included in a Public Offering, at the time of any conversion of this
Warrant the Fund shall deliver in writing to MCAF an acknowledgment that the
Warrant Shares acquired upon conversion have not been registered pursuant to the
Securities Act of 1933 or any applicable state securities law, an acknowledgment
that such shares are being acquired for investment and with no current intention
to resell, distribute, fractionalize or subdivide such shares, an undertaking
not to sell or transfer such shares unless they are registered under the
Securities Act of 1933 and all applicable state securities laws or such transfer
is exempt from the registration provisions thereof, and an undertaking to
refrain from making any sale or transfer of the shares, whether registered or
exempt, for a period of 90 days from the effective date of the registration
statement for the Public Offering or such longer period (not exceeding 270 days
after the effective date) to which holders of 2/3 in number of the shares
outstanding prior to such effective date, including all directors, executive
officers of each Company and all holders of 5% or more of the shares outstanding
prior to the Public Offering, have agreed.
5.3. RESTRICTIVE LEGEND. If the Warrant Shares issuable upon conversion
of this Warrant are freely transferable pursuant to Rule 144 or otherwise, the
certificates therefor shall be issued without legend; otherwise, the
certificates therefor shall bear the following legend:
5
<PAGE> 7
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES ACT. THEY MAY NOT BE TRANSFERRED UNLESS
THEY ARE REGISTERED UNDER ALL SUCH APPLICABLE ACTS OR THE TRANSFER
SATISFIES AVAILABLE EXEMPTIONS FROM THE REGISTRATION PROVISIONS
THEREOF. THE COMPANY SHALL HAVE NO OBLIGATION TO TRANSFER THESE
SECURITIES ON ITS BOOKS AND RECORDS UNLESS IT RECEIVES THE OPINION OF
COUNSEL TO THE TRANSFEROR, IN FORM AND SUBSTANCE REASONABLY
SATISFACTORY TO COUNSEL FOR THE COMPANY, TO THE EFFECT THAT SUCH
TRANSFER MAY BE MADE WITHOUT VIOLATION OF SUCH REGISTRATION
REQUIREMENTS, OR UNLESS THE TRANSFEROR DEMONSTRATES TO THE REASONABLE
SATISFACTION OF COUNSEL FOR THE COMPANY THAT THE TRANSFER IS MADE
PURSUANT TO PARAGRAPH (k) OF RULE 144 UNDER THE SECURITIES ACT OF 1933,
AS AMENDED.
6. COVENANTS OF MCAF
MCAF covenants and agrees as follows:
6.1. ISSUANCE AND AUTHORIZATION. When issued upon conversion of this
Warrant:
(a) the Warrant Shares will have been duly and validly issued in
accordance with the Articles of Incorporation and By-Laws of MCAF, and all
other laws applicable thereto;
(b) the issuance and delivery of the Warrant Shares will not
violate or cause a breach of any agreement to which MCAF is a party, nor
will the issuance and delivery of the Warrant Shares result in an
imposition of a lien on MCAF or any of its assets.
6.2. REQUISITE PERCENTAGE. From and after each conversion of this
Warrant through the Termination Date, the Warrant Shares held by the Fund will
at all time equal the Requisite Percentage.
6.3. RESTRICTIONS ON CORPORATE ACTION. In order to assure the Fund of
the economic benefit of (a) its ownership of the Warrant Shares, (b) its rights
under the Warrant Put Agreement and (c) its rights under this Agreement, MCAF
will not, nor permit any of its subsidiaries (including subsidiaries of any
subsidiary), or other entities included in MCAF's financial statements as of the
date hereof, or included at any time hereafter (collectively the
"Subsidiaries"), to take or participate in any Prohibited Transaction. A
Prohibited Transaction means any corporate action or series of corporate
transactions and/or any transfer, sale, exchange, assignment or disposition of
any shares of MCAF or any of its Subsidiaries, of, and/or between, and/or among,
in whole or in part, (x) MCAF, and/or (y) any of such Subsidiaries, and/or (z)
any other entity in which any of the officers, directors or shareholders of MCAF
or any of such subsidiaries have an interest, direct, indirect, contingent, or
convertible ("Related Entity"), which results in the Fund and the Warrant Shares
not receiving the same economic benefit as the other shareholders of MCAF
incident to their shares of (a) MCAF, or (b) any of such Subsidiaries, or
6
<PAGE> 8
(c) any Related Entity, including, but not by way of limitation, any (or any
combination of any) (i) sale of any securities of any such Subsidiaries or
Related Entity pursuant to, or in accordance with, the Securities Act of 1933
following any such corporate action, or series of corporate actions, (ii) sale,
transfer, exchange, assignment, or other disposition, or reorganization, or
recapitalization involving, in whole or in part, any securities of MCAF, any of
such Subsidiaries, or any Related Entity, or (iii) sale, transfer, assignment,
conveyance or other disposition, in whole or in part, of any assets of MCAF, any
such Subsidiaries, or any Related Entity.
7. GOVERNING LAW
This Warrant shall be interpreted, and the rights of the parties
hereunder shall be determined, under the laws of the State of Michigan, without
regard to choice of law principles which would require the application of the
laws of any other jurisdiction.
IN WITNESS WHEREOF, MCAF has caused this Warrant to be duly executed as
of the ___ day of March, 1998.
MCA FINANCIAL CORP.,
a Michigan corporation
By: _______________________________
Its: ________________________________
7
<PAGE> 9
EXHIBIT A
FORM OF NOTICE OF CONVERSION
To: MCA Financial Corp.
23999 Northwestern Highway, Suite 230
Southfield, Michigan 48075
Attention: President
The undersigned hereby converts the Warrant of MCA Financial Corp.
dated March ___, 1998 (the "Warrant") for the purpose of acquiring Warrant
Shares as set forth below. Capitalized terms used herein have the meaning
ascribed to them in the Warrant unless otherwise defined herein.
Number of Warrant Shares to be Acquired Upon Conversion: _______________________
Date of Conversion: _____________________________
To the extent that the number of Warrant Shares to be acquired upon
conversion, as indicated above, is less than the maximum aggregate number of
Warrant Shares which may be acquired upon conversion of the Warrant, the Warrant
shall remain valid and in full force and effect until the Termination Date, and
until such time may be converted into an additional number of Warrant Shares not
to exceed, in the aggregate, the maximum number permitted by the Warrant, or may
be tendered for purchase in accordance with the Warrant Put Agreement or the
Purchase Agreement between MCAF and the Fund dated March __, 1998 (together with
all amendments, modifications, extensions and restatements thereof).
In connection with the conversion hereby effected, the undersigned
hereby represents, warrants and covenants as follows:
1. The undersigned is acquiring the Warrant Shares to be issued upon
for investment and with no current intention to resell, distribute,
fractionalize or subdivide the Warrant Shares, and agrees that it will not sell
or transfer any Warrant Shares unless the transferred Warrant Shares are
registered under the Securities Act of 1933 and all applicable state securities
laws or such transfer is exempt from the registration provisions thereof.
2. The undersigned acknowledges that MCAF is not subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended, with
respect to the Common Stock and that Rule 144 under the Securities Act is not
presently available for public resale of the Warrant Shares. The undersigned
acknowledges that the Warrant Shares must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available. The undersigned has been advised and is aware of the
provisions of Rule 144 promulgated under the Securities Act, which permits
limited resales of shares purchased in a private placement subject to the
satisfaction of certain conditions.
<PAGE> 10
IN WITNESS WHEREOF, the undersigned has caused this Notice of
Conversion to be duly executed as of the ___ day of _____________________,
[19__] [20__].
THE BOARD OF TRUSTEES OF THE
POLICEMEN AND FIREMEN RETIREMENT
SYSTEM OF THE CITY OF DETROIT
By: ________________________________
Its: _______________________________
By: ________________________________
Its: _______________________________
2
<PAGE> 1
EXHIBIT 10.31
FIRST AMENDMENT
This First Amendment ("Amendment") entered into as of March 6, 1998,
amends the Amended and Restated Credit Enhancement Umbrella Agreement dated as
of June 30, 1997 ("Agreement"), among MCA FINANCIAL CORP., MCA MORTGAGE
CORPORATION, MORTGAGE CORPORATION OF AMERICA and the BOARD OF TRUSTEES OF THE
POLICEMEN & FIREMEN RETIREMENT SYSTEM OF THE CITY OF DETROIT.
The facts underlying this Amendment are as follows:
A. The parties wish to reduce permanently the aggregate amount of the
Credit Enhancement product which the Fund may provide under the Agreement.
B. The parties also wish to make certain other modifications to the
Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Definitions. Capitalized terms used in the Amendment and not
otherwise defined have the meanings those terms have in the Agreement.
2. Limit of Exposure. Section 2.3 of the Agreement is amended to read
in its entirety as follows:
2.3 Limit of Exposure. The maximum aggregate amount of all
obligations (including liabilities), actual or contingent, direct or indirect,
of the Fund for the Credit Enhancement shall never at one time exceed Fifteen
Million Dollars ($15,000,000.00).
3. Option to Acquire Stock. Article 7 of the Agreement is amended as
follows:
a. The first sentence of Section 7.2(b)(i)(A) is deleted and
replaced with the following:
The Fund may elect to purchase from MCAF up to the number of
shares of common stock of MCAF set forth in Section 7.4 at the purchase price
specified in Section 7.5, which election shall be effective immediately prior to
the effectiveness of the registration statement for the Public Offering. In
addition, simultaneously with the effectiveness of that election (that is,
immediately prior to the effective time of the registration statement for the
Public Offering), the shares so purchased by the Fund shall be deemed sold by
MCAF and purchased by the Fund and any shares surrendered by the Fund pursuant
to a cashless exercise under Section 7.5(c) shall be deemed canceled
b. The first sentence of Section 7.2(b)(i)(C) is deleted and
replaced with the following:
<PAGE> 2
If the Fund has delivered, and not withdrawn, a written
election pursuant to subsection (b)(i)(A) or has reaffirmed its election
pursuant to subsection (b)(i)(B), MCAF shall deliver to the Fund immediately
prior to the effective date of the registration statement for the Public
Offering a written notice setting forth the number of shares which the Fund is
obligated to purchase, the purchase price thereof and the manner in which it was
calculated, and the anticipated date, time and place of the closing of the
Public Offering.
c. A new paragraph (f) shall be added to Section 7.2 reading as
follows:
(f) MCAF covenants and agrees to fix prior to the
effectiveness of the registration statement for the Public Offering, by
agreement with the underwriters of the Public Offering, the price per share of
the Common Stock being sold in the Public Offering.
d. A new sentence is added at the end of Section 7.5(c) reading
as follows:
If the Fund elects to pay for the stock by a cashless
exercise, the election shall be effective immediately prior to the effectiveness
of the registration statement for the Public Offering.
e. A new Section 7.10 is added as follows:
Section 7.10. Demand Registration Rights Agreement. The
parties acknowledge that they will enter into a registration rights agreement
giving the Fund the right, at any time beginning nine months after the closing
of an initial public offering of MCAF common stock registered under the
Securities Act of 1933, as amended, at MCAF expense, to require MCAF to register
MCAF common stock held by the Fund. The terms of the agreement shall be
reasonably satisfactory to the parties.
4. Credit Agreement. The parties agree that on or prior to the
effectiveness of this Amendment, one of the following has occurred: (i) the
10/97 Revolving Credit Agreement (Secured) dated as of October 31, 1997 (the
"Credit Agreement"), among the Companies as Borrowers, Texas Commerce Bank
National Association (now known as Chase Bank of Texas, N.A.), as Agent (the
"Agent"), and the Lenders identified therein has been amended to reduce the
"Aggregate Committed Sum" to never more than a maximum of Fourteen Million Two
Hundred Fifty Thousand Dollars ($14,250,000.00), with no right to increase or
otherwise reinstate any of the amount reduced without the Fund's prior written
consent, such amendment to be in form and substance satisfactory to the Fund, or
(ii) the Agent has provided to the Fund such written assurances as the Fund
required under the Credit Agreement as have satisfied the Fund in its absolute
discretion that such "Aggregate Committed Sum" has been irreversibly so reduced.
5. Approval. The Agent will, as a condition precedent to the
effectiveness of this Amendment, consent thereto.
-2-
<PAGE> 3
6. Continued Effect. Except as specifically amended by this Amendment,
the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be
duly executed and delivered as of the date first set forth above.
MCA FINANCIAL CORP. MCA MORTGAGE CORPORATION
By: _______________________________ By: _________________________________
Its: ______________________________ Its: ________________________________
MORTGAGE CORPORATION OF AMERICA BOARD OF TRUSTEES OF THE
POLICEMEN & FIREMEN RETIREMENT
SYSTEM OF THE CITY OF DETROIT
By: _______________________________ By: _________________________________
Its: ______________________________ Its: ________________________________
By: _________________________________
Its: ________________________________
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<PAGE> 1
EXHIBIT 10.32
MCA FINANCIAL CORP.
PURCHASE AGREEMENT
This Agreement is made as of March 6, 1998, between MCA FINANCIAL
CORP., a Michigan corporation ("MCAF"), and the BOARD OF TRUSTEES OF THE
POLICEMEN & FIREMEN RETIREMENT SYSTEM OF THE CITY OF DETROIT (the "Fund").
The facts underlying this Agreement are as follows:
A. MCAF has issued to the Fund an option (the "Option") to acquire
MCAF common stock ("Option Stock") pursuant to a Credit Enhancement Umbrella
Agreement dated as of April 30, 1993, as amended and restated as of June 30,
1997, and as further amended as of March 6, 1998 (the "Umbrella Agreement").
B. MCAF and the Fund are parties to a Stock Purchase Agreement dated
July 18, 1996, as amended as of March 6, 1998, pursuant to which the Fund
acquired MCAF common stock and may in the future be issued additional MCAF
common stock as a consequence of anti-dilution protection (collectively, the
"Stock").
C. MCAF is issuing to the Fund on March 6, 1998, a warrant (the
"Warrant") convertible into MCAF common stock (the "Warrant Stock"), which
Warrant and a Warrant Put Agreement between MCAF and the Fund dated March 6,
1998 may in the future require MCAF to issue additional common stock as a
consequence of anti-dilution protection (the "Additional Warrant Stock").
D. The parties in connection with certain of the above-referenced
transactions and other related transactions have agreed to enter into this
Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
(a) "Additional Warrant Stock" shall have the meaning set forth
in the preamble.
(b) "Agreement" shall mean this MCA Financial Corp. Purchase
Agreement.
(c) "Fund" shall mean the Board of Trustees of the Policemen &
Firemen Retirement System of the City of Detroit.
(d) "IPO" shall mean the first public offering of MCAF Common
Stock registered under the Securities Act, other than a registration relating
solely to employee benefit plans
<PAGE> 2
or a registration relating solely to a Rule 145 transaction. The IPO, if it so
qualifies, shall be the Public Offering, in which case the terms shall be
identical.
(e) "MCAF" shall mean MCA Financial Corp., a Michigan
corporation.
(f) "Option" shall have the meaning set forth in the preamble.
(g) "Option Stock" shall have the meaning set forth in the
preamble.
(h) "Public Offering" shall have the meaning set forth in the
Umbrella Agreement.
(i) "Securities Act" means the Securities Act of 1933, as
amended.
(j) "Shares" shall mean (i) the Option Stock; (ii) the Stock;
(iii) the Warrant Stock; (iv) the Additional Warrant Stock; (v) shares of stock
issued with respect to or in exchange for or in replacement of the securities
included in clauses (i) through (iv); (vi) shares of stock issued in respect of
the stock referred to in clauses (i) through (v) as a result of a stock split,
stock dividend or the like; (vii) the Warrant; and (viii) the Option. Shares
shall exclude stock sold to the public pursuant to a registration statement
under the Securities Act or Rule 144 promulgated under the Securities Act.
(k) "Stock" shall have the meaning set forth in the preamble.
(l) "Umbrella Agreement" shall have the meaning set forth in the
preamble.
(m) "Warrant" shall have the meaning set forth in the preamble.
(n) "Warrant Stock" shall have the meaning set forth in the
preamble.
2. MCAF Purchase Obligation. Notwithstanding any other obligations of
MCAF with respect to the purchase of MCAF equity securities (including rights to
acquire equity securities) from the Fund, if immediately following either (i)
the closing of the IPO or (ii) the closing of the Public Offering the Shares
(without double counting of the Warrant and the Option to the extent
unexrecised) represent five percent (5%) or more of the total shares of MCAF
Common Stock then outstanding (without counting as outstanding any rights to
acquire MCAF Common Stock or securities or debt convertible into Common Stock,
other than the Shares), then in each instance the Fund may require MCAF to
purchase from the Fund the minimum number of Shares required so that immediately
after such purchase the number of Shares (without double counting of the Warrant
and the Option to the extent unexercised) represents less than five percent (5%)
of the total shares of MCAF Common Stock outstanding (without counting as
outstanding any rights to acquire MCAF Common Stock or securities or debt
convertible into Common Stock, other than the Shares). The per share purchase
price for the Shares so purchased by MCAF from the Fund shall be equal to the
per share price at which shares of MCAF Common Stock were sold to the public in
the IPO or the
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<PAGE> 3
Public Offering, as applicable; however, the purchase price shall be reduced by
the exercise price of any Option Stock that represents that portion of the
unexercised Option which was purchased and the exercise price of any Warrant
Stock that represents the portion of the unexercised Warrant that was purchased.
The Fund shall send to MCAF notice of its request to require the purchase not
later than ten days after the closing of the IPO or the Public Offering, as
applicable. The closing of any purchase of Shares by MCAF under this Section 2
shall occur within ten days after MCAF receives the Fund's notice. At such
closing, MCAF shall deliver to the Fund the purchase price specified herein in
immediately available funds, by wire transfer to an account designated by the
Fund, and the Fund shall deliver to MCAF certificates representing the Shares to
be purchased, duly endorsed for transfer or accompanied by duly executed stock
powers. The type and amount of the Shares to be purchased by MCAF shall be
determined by the Fund and communicated to MCAF at the time the Fund sends its
notice requesting the purchase. To the extent that only part of the Warrant is
purchased, then the amount of Warrant Stock and Additional Warrant Stock that
can be acquired upon exercise of the Warrant shall be reduced by the amount of
the Warrant purchased by MCAF. To the extent that only part of the Option is
purchased, then the amount of Option Stock that can be purchased upon exercise
of the Option shall be reduced by the amount of the Option purchased by MCAF. To
the extent that the certificates so delivered represent a number of Shares
greater than the number of those types being purchased, MCAF shall cause to be
issued to the Fund new certificates representing the unpurchased Shares of those
types, which certificates shall bear any legend required by applicable
agreements between MCAF and the Fund (other than certificates representing
shares, if any, which are freely transferable without restriction under
applicable securities laws, which shall not bear any legend). Notwithstanding
any other provision of this Section 2, if the Fund is permitted to include in
the IPO or the Public Offering and so sells that number of Shares which will
reduce the number of Shares (without double counting of the warrant and the
Option to the extent unexercised) immediately after the Public Offering to less
than five percent (5%) of the total MCAF Common Stock outstanding (without
counting as outstanding any rights to acquire MCAF Common Stock or securities or
debt convertible into Common Stock, other than Shares), then MCAF shall have no
obligation to purchase any Shares immediately after that offering as provided in
this Agreement.
3. Miscellaneous.
(a) Governing Law. This Agreement shall be governed, and the
rights and liabilities of the parties hereto determined in all respects, by the
internal laws of the State of Michigan without reference to choice of law
provisions.
(b) Remedies. Any person having rights under any provision of
this Agreement will be entitled to enforce such rights specifically, to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law.
(c) Amendments and Waivers. Except as otherwise provided herein,
the provisions of this Agreement may be amended only by written agreement signed
by the party against whom enforcement thereof is sought. Absent such written
agreement, MCAF may take any action herein prohibited, or omit to perform any
act herein required to be performed by it, only if MCAF has obtained the written
consent or waiver of the Fund.
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<PAGE> 4
(d) Successors and Assigns. All covenants and agreements in this
Agreement by or on behalf of any of the parties hereto will bind and inure to
the benefit of the respective successors and assigns of the parties hereto. MCAF
may not assign its rights or obligations hereunder without the prior written
consent of the Fund.
(e) Parallel Provisions. To the extent that MCA has an obligation
parallel to the obligation set forth in this Agreement to purchase any or all
Shares immediately following a Public Offering so as to reduce the holdings of
the Fund to five percent of the outstanding MCAF Common Stock following the
public offering and the Fund has rights to require such purchases, then the
rights of the Fund and the obligations of MCA as set forth in this Agreement
shall be in substitution of such other rights and obligations not in addition to
such other rights and obligations.
(f) Notices. Except as otherwise provided herein, all notices,
demands and requests that any party is required or elects to give to any other
shall be in writing, or by a telecommunications device capable or creating a
written record, and any such notice shall become effective (i) upon personal
delivery thereof, including, but not limited to, delivery by overnight mail and
courier service, (ii) three (3) days after it shall have been mailed by United
States mail, first class, certified or registered, return receipt requested,
with postage prepaid, or (iii) in the case of notice by such a
telecommunications device, when properly transmitted, in each case addressed to
the party to be notified as follows:
If to the Fund:
Board of Trustees of the Policemen & Firemen
Retirement System of the City of Detroit
908 City-County Building
Detroit, MI 48226
Attn: Nicholas Degel, Assistant Administrative Supervisor
Telecopier: 313-224-3522
with a copy to:
Ronald Zajac, Esq.
243 W. Congress, Suite 480
Detroit, MI 48226
Telecopier: 313-961-6559
with a copy to:
Plante & Moran
27400 Northwestern Highway
Southfield, MI 48034-0307
Attn: Jon A. Woods or Larry Cooley
Telecopier: 313-352-0018
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<PAGE> 5
with a copy to:
Pepper Hamilton LLP
100 Renaissance Center, 36th Floor
Detroit, MI 48243-1157
Attn: Hugh D. Camitta, Esq.
Telecopier: 313-259-7926
with a copy to:
Couzens, Lansky, Fealk, Ellis, Roeder & Lazar, P.C.
33533 W. Twelve Mile Road, Suite 150
Farmington Hills, MI 48333-9057
Attn: Donald A. Wagner, Esq.
Telecopier: 248-487-4156
If to MCAF:
MCA Financial Corp.
23999 Northwestern Highway, Suite 230
Southfield, MI 48075
Attn: Lee Wells, President
Telecopier: 248-358-7507
with a copy to:
Butzel Long
150 W. Jefferson, Suite 900
Detroit, MI 48226-4430
Attn: Justin G. Klimko, Esq.
Telecopier: 313-225-7080
or to such other address as each party may designate for itself by like notice.
(f) Captions. The captions contained in this Agreement are for
convenience only, are without substantive meaning and should not be construed to
modify, enlarge, or restrict any provision.
(g) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
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<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first set forth above.
MCA FINANCIAL CORP.,
a Michigan corporation
By:_________________________________
Its:________________________________
BOARD OF TRUSTEES OF THE
POLICEMEN & FIREMEN RETIREMENT
SYSTEM OF THE CITY OF DETROIT
By:_________________________________
Its:________________________________
By:_________________________________
Its:________________________________
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<PAGE> 1
EXHIBIT 10.33
DEMAND REGISTRATION RIGHTS AGREEMENT
BETWEEN
MCA FINANCIAL CORP.
AND
BOARD OF TRUSTEES OF THE
POLICEMEN & FIREMEN RETIREMENT SYSTEM
OF THE CITY OF DETROIT
<PAGE> 2
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Certain Definitions.............................................................................1
(a) "Additional Warrant Stock".............................................................1
(b) "Agreement"............................................................................1
(c) "Commission"...........................................................................1
(d) "Exchange Act".........................................................................1
(e) "Fund".................................................................................2
(f) "Indemnified Party"....................................................................2
(g) "Indemnifying Party"...................................................................2
(h) "MCAF".................................................................................2
(i) "Option"...............................................................................2
(j) "Option Stock".........................................................................2
(k) "Other Shareholders"...................................................................2
(l) "Public Offering"......................................................................2
(m) The terms "register", "registered" and "registration"..................................2
(n) "Registration Expenses"................................................................2
(o) "Securities Act".......................................................................2
(p) "Selling Expenses".....................................................................2
(q) "Shares"...............................................................................2
(r) "Stock"................................................................................3
(s) "Umbrella Agreement"...................................................................3
(t) "Warrant"..............................................................................3
(u) "Warrant Stock"........................................................................3
2. Requested Registration..........................................................................3
(a) Request for Registration...............................................................3
(b) Underwriting...........................................................................4
(c) Exchange Act Registration and Form S-3.................................................5
(d) Rule 144 Sales Without Restriction.....................................................5
(e) Withdrawal.............................................................................5
3. Expenses of Registration........................................................................5
4. Registration Procedures.........................................................................5
5. Indemnification.................................................................................7
(a) By MCAF................................................................................7
(b) By the Fund............................................................................7
(c) Procedures.............................................................................8
(d) From Other Shareholders................................................................9
6. Information From the Fund.......................................................................9
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
7. Rule 144 Reporting..............................................................................9
8. Transfer or Assignment of Registration Rights...................................................9
9. Limitations on Subsequent Rights...............................................................10
10. "Market Stand-Off" Agreement...................................................................10
11. Miscellaneous..................................................................................10
(a) Governing Law.........................................................................10
(b) Remedies..............................................................................10
(c) Amendments and Waivers................................................................10
(d) Successors and Assigns................................................................10
(e) Advance of Legal Fees.................................................................10
(f) Notices...............................................................................11
(g) Entire Agreement......................................................................12
(h) Captions..............................................................................13
(i) Counterparts..........................................................................13
</TABLE>
-ii-
<PAGE> 4
MCA FINANCIAL CORP.
DEMAND REGISTRATION RIGHTS AGREEMENT
This Agreement is made as of March 6, 1998, between
MCA FINANCIAL CORP., a Michigan corporation ("MCAF"), and the BOARD OF TRUSTEES
OF THE POLICEMEN & FIREMEN RETIREMENT SYSTEM OF THE CITY OF DETROIT (the
"Fund").
The facts underlying this Agreement are as follows:
A. MCAF has issued to the Fund an option (the "Option") to
acquire MCAF common stock ("Option Stock") pursuant to a Credit Enhancement
Umbrella Agreement dated as of April 30, 1993, as amended and restated as of
June 30, 1997, and as further amended as of March 6, 1998 (the "Umbrella
Agreement").
B. MCAF and the Fund are parties to a Stock Purchase Agreement
dated July 18, 1996, as amended as of March 6, 1998, pursuant to which the Fund
acquired MCAF common stock and may in the future be issued additional MCAF
common stock as a consequence of anti-dilution protection (collectively, the
"Stock").
C. MCAF is issuing to the Fund on March 6, 1998, a warrant
(the "Warrant") convertible into MCAF common stock (the "Warrant Stock"), which
Warrant and a Warrant Put Agreement between MCAF and the Fund dated March 6,
1998 may in the future require MCAF to issue additional common stock as a
consequence of anti-dilution protection (the "Additional Warrant Stock").
D. The parties in connection with certain of the
above-referenced transactions and other related transactions have agreed to
enter into this Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Certain Definitions. As used in this Agreement, the
following terms shall have the following respective meanings:
(a) "Additional Warrant Stock" shall have the
meaning set forth in the preamble.
(b) "Agreement" shall mean this MCA Financial
Corp. Demand Registration Rights Agreement.
(c) "Commission" shall mean the Securities and
Exchange Commission or any other federal agency at the time administering the
Securities Act.
(d) "Exchange Act" shall mean the Securities
Exchange Act of 1934, as the same has been or shall be amended.
<PAGE> 5
(e) "Fund" shall mean the Board of Trustees of
the Policemen & Firemen Retirement System of the City of Detroit.
(f) "Indemnified Party" shall mean a party
entitled to indemnification under Section 5 of this Agreement.
(g) "Indemnifying Party" shall mean the party
required to provide indemnification under Section 5 of this Agreement.
(h) "MCAF" shall mean MCA Financial Corp., a
Michigan corporation.
(i) "Option" shall have the meaning set forth in
the preamble.
(j) "Option Stock" shall have the meaning set
forth in the preamble.
(k) "Other Shareholders" shall mean,
collectively, holders (including officers and directors of MCAF or MCA Mortgage
Corporation or Mortgage Corporation of America) of MCAF common stock who are
entitled, by contract with MCAF, to have their common stock included in a
registration of MCAF securities.
(l) "Public Offering" shall have the meaning set
forth in the Umbrella Agreement.
(m) The terms "register", "registered" and
"registration" shall refer to a registration effected by preparing and filing a
registration statement in compliance with the Securities Act and applicable
rules and regulations thereunder, and the declaration or ordering of the
effectiveness of such registration statement.
(n) "Registration Expenses" shall mean all
expenses incurred by MCAF in compliance with Sections 2 and 3, including,
without limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel for MCAF, blue sky fees and expenses, the fees and
disbursements of counsel to the Fund in connection with the registration of the
Shares and the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of MCAF, which
shall be paid in any event by MCAF).
(o) "Securities Act" shall mean the Securities
Act of 1933, as the same has been or shall be amended.
(p) "Selling Expenses" shall mean all
underwriting discounts and selling commissions applicable to the sale of
securities registered.
(q) "Shares" shall mean (i) the Option Stock;
(ii) the Stock; (iii) the Warrant Stock; (iv) the Additional Warrant Stock;
(v) shares of stock issued with respect to or in exchange for or in replacement
of the securities included in clauses (i) through (iv); and (vi) shares
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<PAGE> 6
of stock issued in respect of the stock referred to in clauses (i) through (v)
as a result of a stock split, stock dividend or the like. Shares shall exclude
stock sold to the public pursuant to a registration statement under the
Securities Act or Rule 144 promulgated under the Securities Act.
(r) "Stock" shall have the meaning set forth in
the preamble.
(s) "Umbrella Agreement" shall have the meaning
set forth in the preamble.
(t) "Warrant" shall have the meaning set forth
in the preamble.
(u) "Warrant Stock" shall have the meaning set
forth in the preamble.
2. Requested Registration.
(a) Request for Registration. If MCAF shall
receive from the Fund, at any time subsequent to the nine month anniversary
of the effective date of the registration statement for the Public Offering, a
written request that MCAF effect any registration with respect to all or a part
of the Shares, MCAF will as soon as practicable, use its diligent best efforts
to effect such registration (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualifications under
applicable blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act) as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of the Shares; however, MCAF shall not be obligated to effect, or
to take any action to effect, any such registration pursuant to this Section 2:
(i) In any particular jurisdiction in
which MCAF would be required to execute a general consent to service of process
in effecting such registration, qualification or compliance, unless MCAF is
already subject to service in such jurisdiction and except as may be required by
the Securities Act or applicable rules or regulations thereunder; or
(ii) After MCAF has effected one such
registration pursuant to this Section 2(a) and such registration has been
declared or ordered effective; or
(iii) If prior to the receipt by MCAF of
the request from the Fund, MCAF has given written notice to the Fund of
MCAF's intent to register in a proposed public offering MCAF Common Stock for
MCAF's own account under the Securities Act (other than a registration relating
solely to employee benefit plans), then, provided thereafter MCAF files the
registration statement with the Commission within 90 days after MCAF has given
notice to the Fund of its intent to register and provided the offering is
declared or becomes effective within 60 days after the initial filing of the
registration statement with the Commission, then either (A) if all Shares are
registered and sold in that public offering as a consequence of the Fund's
piggyback registration rights, then the Fund's rights under this Agreement shall
be extinguished, or (B) if all Shares are not registered and sold in that public
offering, the Fund may not make its request under this Section 2, prior to the
earlier of (1) one hundred fifty (150) days after the date MCAF sent out the
first notice
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<PAGE> 7
to the Fund of intent to register (provided the registration statement has not
become effective) or (2) six months after the effective date of the registration
statement. MCAF may not give any written notice of intent to register as
provided in this subparagraph (iii) prior to twelve months after it has
previously given any such notice; or
(iv) MCAF may delay filing a registration
statement for a period of not more than ninety (90) days after the date of
receipt of the request from the Fund if a majority of the Directors then
comprising MCAF's Board of Directors (including a majority of the independent
Directors) determine that compelling corporate requirements necessitate the
postponement.
Subject to the foregoing subparagraphs (i), (ii), (iii) and (iv), MCAF shall
file a registration statement covering the Shares so requested to be registered
as soon as practicable after receipt of the request of the Fund.
The registration statement filed pursuant to the
request of the Fund may, subject to the provisions of Section 2(b) below
and if the Fund so agrees in the exercise of its absolute discretion, include
MCAF Common Stock being sold by the Company for its own account and MCAF Common
Stock held by Other Shareholders.
(b) Underwriting. If the Fund intends to
distribute the Shares covered by its request by means of an underwriting, it
shall so advise MCAF as a part of its request made pursuant to Section 2(a).
The lead underwriter shall be chosen by the Fund, which underwriter shall be
acceptable to MCAF in the exercise of its reasonable judgment.
If MCAF wishes to include in the underwritten
registration requested by the Fund MCAF Common Stock to be sold for the account
of MCAF and if the Fund has consented to such inclusion, MCAF shall notify
the Fund in writing within thirty (30) days after MCAF has received the Fund's
initial registration request of the number of shares MCAF wishes to include in
the registration. If any Other Shareholders request inclusion of their MCAF
Common Stock in the underwritten offering in a written notice received by the
Fund within thirty (30) days after MCAF has received the initial registration
request from the Fund and if the Fund has consented to such inclusion, MCAF
shall, on behalf of the Fund, offer to include the securities of Other
Shareholders in the underwriting and shall condition such offer on their
acceptance of the further applicable provisions of this Agreement. MCAF shall
(together with the Fund and Other Shareholders proposing to distribute their
securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by the Fund and reasonably acceptable to MCAF. Notwithstanding any
other provision of this Section 2, if the underwriter advises the Fund in
writing that marketing factors require a limitation on the number of shares to
be underwritten, the securities of MCAF held by Other Shareholders shall be
excluded from such registration to the extent so required by such limitation in
proportion, as nearly as practicable to the respective amounts of securities
which each such Other Shareholder has a contractual right to be included; and,
if a limitation of the number of shares is still required, the number of shares
of MCAF Common Stock which MCAF has requested to be included in the registration
and underwriting shall be reduced or eliminated, as required. No securities
excluded
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<PAGE> 8
from the underwriting by reason of the underwriter's marketing limitation shall
be included in such registration. If any Other Shareholder who has requested
inclusion in such registration as provided above disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
MCAF, the underwriter and the Fund. The securities so withdrawn shall also be
withdrawn from registration.
If the Shares being registered pursuant to this
Section 2 are not to be distributed by means of an underwriting, then the Fund
will, to the extent required by law, conduct the offering of the Shares in
accordance with applicable law.
(c) Exchange Act Registration and Form S-3. At
the time MCAF initially registers its Common Stock under the Securities
Act, MCAF shall within thirty days of the effectiveness of such registration
register its Common Stock under Section 12 of the Exchange Act and use its best
efforts to maintain that Exchange Act registration. After MCAF has qualified for
the use of Form S-3, then (i) MCAF shall use Form S-3 for any registration
requested by the Fund pursuant to Section 2(a); and (ii) paragraph (ii) of
Section 2(a) shall not be applicable.
(d) Rule 144 Sales Without Restriction. If MCAF
delivers to the Fund within twenty (20) days after the initial request of
the Fund for registration pursuant to Section 2(a) an opinion (reasonably
acceptable to the Fund and its counsel) of outside counsel qualified in Federal
securities law issues that all Shares can be sold or disposed of in a single
public transaction without registration under the Securities Act and that the
resale of such securities to any purchaser does not require registration under
the Securities Act and if MCAF agrees to remove all restrictive legends on the
certificates evidencing the Shares, the Fund shall not be entitled to the
registration right set forth in Section 2(a). MCAF agrees to indemnify the Fund
against and to hold it harmless from all damages, losses and liabilities
(including liability for rescission), costs and expenses (including reasonable
attorneys' fees) based upon or arising out of the failure to comply with Section
5 of the Securities Act as a consequence of the Fund proceeding in accordance
with such outside counsel's opinion.
(e) Withdrawal. The Fund may withdraw a
registration request prior to the effective date of the registration
statement if a material adverse change has occurred in the condition, business
or prospects of MCAF and its subsidiaries from that known to the Fund at the
time of its initial request pursuant to Section 2(a).
3. Expenses of Registration. All Registration Expenses
incurred in connection with any registration, qualification or compliance
pursuant to this Agreement shall be borne by MCAF, and all Selling Expenses
shall be borne by the holders of the securities so registered (including the
Fund, Other Shareholders and MCAF, to the extent securities are offered for its
account) pro rata on the basis of the gross sales proceeds received by each in
the offering.
4. Registration Procedures. In the case of any
registration effected by MCAF pursuant to this Agreement, MCAF will keep
the Fund advised in writing as to the initiation of each registration and as to
the completion thereof. At its expense, MCAF will:
-5-
<PAGE> 9
(a) except for offerings pursuant to Rule 415 or
successors thereto under the Securities Act, keep such registration
effective for a period of one hundred twenty (120) days or until the Fund has
completed the distribution described in the registration statement relating
thereto, whichever first occurs;
(b) furnish such number of prospectuses
(including preliminary prospectuses conforming to the requirements of the
Securities Act and rules and regulations thereunder) and other documents
incident thereto as the Fund from time to time may reasonably request;
(c) to the extent requested, furnish to the
underwriter, in an underwritten offering, or to the Fund, in a
non-underwritten offering, (i) a signed opinion of MCAF's counsel, and (ii)
"comfort" letters signed by MCAF's independent public accountants who have
examined and reported on MCAF's financial statements included in the
registration statement, to the extent permitted by the American Institute of
Certified Public Accountants, covering the same matters with respect to the
registration statement (and prospectus included therein) and with respect to the
events subsequent to the date of the financial statements, as are customarily
covered in opinions of counsel and in accountants' "comfort" letters delivered
to the underwriters in underwritten public offerings of securities;
(d) notify the Fund, at any time when a
prospectus relating to Shares covered by a registration statement is
required to be delivered under the Securities Act, of the happening of any event
as a result of which the prospectus included in such registration statement
includes 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 in the light of circumstances then existing;
(e) in connection with any underwritten
offering, enter into any underwriting and other agreements reasonably
necessary to effect the offer and sale of the Shares and any other securities
being registered, provided any such underwriting agreement contains customary
underwriting provisions and provided further that if the underwriter so requests
the underwriting agreement will contain customary contribution provisions;
(f) make available for inspection during
business hours on reasonable advance notice by the Fund, any underwriter
participating in any disposition pursuant to a registration statement, and any
attorney, accountant or other professional retained by the Fund, or underwriter
(collectively, the "Inspectors"), all financial and other records, pertinent
corporate documents and properties of MCAF (collectively, the "Records") as
shall be reasonably necessary to enable them to exercise their due diligence
responsibility, and cause MCAF's officers, directors and employees to supply all
information reasonably requested by any such Inspector in connection with such
registration statement. Records which MCAF determines, in good faith, to be
confidential and which it notifies the Inspectors are confidential shall not be
disclosed by the Inspectors unless (i) the disclosure of such Records is
necessary to avoid or correct a material misstatement or omission in the
registration statement or (ii) the release of such Records is ordered pursuant
to a subpoena or other order from a court of competent jurisdiction; and
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<PAGE> 10
(g) notify the Fund and the managing
underwriters, if any, promptly, and (if requested by any such person)
confirm such advice in writing, (i) when the registration statement, the
prospectus or any prospectus supplement or post-effective amendment, has been
filed, and, with respect to the registration statement or any post-effective
amendment, when the same has become effective, (ii) of the issuance by the
Commission of any stop order suspending the effectiveness of a registration
statement or of any order preventing or suspending the use of any preliminary
prospectus or the initiation of any proceedings for that purpose and MCAF shall
promptly use its best efforts to prevent the issuance of any stop order or to
obtain a withdrawal of such stop order should the order be issued, and (iii) of
the receipt by MCAF of any notification with respect to the suspension of the
qualification or exemption from qualification of a registration statement of any
of the Shares for offer or sale in any jurisdiction, or the initiation or
threatening of any proceeding for such purpose.
5. Indemnification.
(a) By MCAF. MCAF will indemnify the Fund and
its officers, directors, trustees, members and agents, and each
underwriter, if any, and each person who controls any underwriter of the Shares,
against all claims, expenses, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any preliminary or final
prospectus, offering circular or other document (including any related
registration statement, notification or the like) incident to any registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation (or alleged violation)
by MCAF of the Securities Act, any state securities law or any rule or
regulation thereunder applicable to MCAF or relating to action or inaction
required of MCAF in connection with any such registration, qualification or
compliance, and will reimburse the Fund, each of its officers, directors,
trustees, members and agents, each such underwriter and each person who controls
any such underwriter, for any legal and any other expenses reasonably incurred
in connection with investigating, defending or settling (except as provided
below) any such claim, loss, damage, liability or action, except to the extent
that any such claim, loss, damage, liability or expense arises out of or is
based on (i) any untrue statement or omission made in reliance on and in
conformity with written information furnished to MCAF by the Fund or underwriter
and expressly for use therein, or (ii) any failure of the Fund or an underwriter
to deliver timely a copy of a final prospectus; provided, that MCAF shall have
no obligation to indemnify any underwriter or controlling person thereof if (i)
the person asserting the claim with respect to which indemnification is sought
acquired the securities on which such claim is based from such underwriter, (ii)
the claim is based on an alleged untrue statement or material omission made in
connection with such sale and (iii) the underwriter failed to send or deliver to
the claimant, at or prior to the time that written confirmation of the sale was
sent or delivered, a copy of a prospectus (as same may have been amended or
supplemented), if any then existed, which corrected such alleged misstatement or
omission.
(b) By the Fund. The Fund will indemnify (i)
MCAF, each of its directors, officers and agents and each underwriter, if
any, of MCAF's securities covered by such a registration
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<PAGE> 11
statement, (ii) each person who controls MCAF or such underwriter within the
meaning of the Securities Act and the rules and regulations thereunder, and
(iii) each Other Shareholder (who is not the Indemnifying party) and each of
their officers, directors and partners, and each person controlling such Other
Shareholder, against all claims, expenses, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such registration
statement, preliminary or final prospectus, offering circular or other document,
or any omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse such Indemnified Party for any legal or any other expenses
reasonably incurred in connection with investigating, defending or settling
(except as provided below) any such claim, loss, damage, liability or action, in
each case to the extent, but only to the extent, that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to MCAF by
the Fund expressly for use therein; provided, however, the obligations of the
Fund hereunder shall be limited to an amount equal to the proceeds received by
the Fund from the securities sold in such registration; provided further, that
the Fund shall have no obligation to indemnify any underwriter or controlling
person thereof if (i) the person asserting the claim with respect to which
indemnification is sought acquired the securities on which such claim is based
from such underwriter, (ii) the claim is based on an alleged untrue statement or
material omission made in connection with such sale, and (iii) the underwriter
failed to send or deliver to the claimant, at or prior to the time that written
confirmation of the sale was sent or delivered, a copy of a prospectus (as same
may have been amended or supplemented), if any then existed, which corrected
such alleged misstatement or omission.
(c) Procedures. Each Indemnified Party shall
give notice to the Indemnifying Party promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense. The failure of any Indemnified Party to give
notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 5 except to the extent the omission results in a
failure of actual notice to the Indemnifying Party and such Indemnifying Party
is materially prejudiced or damaged in its ability to defend such claim as a
result of the failure to give notice. No Indemnifying Party, in the defense of
any such claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation. No Indemnified Party shall settle any claim, action
or proceeding with respect to which indemnification is sought without the
written consent of the Indemnifying Party. Each Indemnified Party shall furnish
such information regarding itself or the claim in question as an Indemnifying
Party may reasonably request in writing and as shall be reasonably required in
connection with defense of such claim and litigation resulting therefrom.
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<PAGE> 12
(d) From Other Shareholders. MCAF agrees that,
to the extent that it shall grant to any Other Shareholders the right to
have MCAF securities held by them included in any registration of MCAF
securities, or to require MCAF to register their securities, it shall require as
a condition to such grant that such Other Shareholders agree to indemnify MCAF
and the Fund with respect to any registration of their securities on terms
substantially identical to that provided by the Fund hereunder.
6. Information From the Fund. The Fund shall furnish to
MCAF such information regarding the Fund, the Shares and the distribution
proposed by the Fund as MCAF may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification or
compliance referred to in this Agreement.
7. Rule 144 Reporting. With a view to making available
the benefits of certain rules and regulations of the Commission which may permit
the sale of the Shares to the public without registration, MCAF agrees to:
(a) make and keep public information available,
as those terms are understood and defined in Rule 144 under the Securities
Act, at all times from and after ten (10) days following the effective date of
the first registration statement under the Securities Act filed by MCAF for an
offering of its securities to the public;
(b) file with the Commission in a timely manner
all reports and other documents required of MCAF under the Securities Act
and the Exchange Act at any time after it has become subject to such reporting
requirements; and
(c) furnish the Fund upon request (i) a written
statement as to the status of its compliance during the previous 12 months
with the reporting requirements of Section 13 or Section 15(d) of the Securities
Exchange Act of 1934, and (ii) copies of the most recent annual report on Form
10-K and quarterly report on Form 10-Q and such other documents and reports
filed by MCAF as the Fund may request for the purpose of enabling it to utilize
available rules or regulation permitting the sale, disposition or transfer of
the Shares without registration under applicable securities laws.
8. Transfer or Assignment of Registration Rights. The
right to cause MCAF to register Shares granted under Section 2 and the
other rights granted the Fund hereunder may be transferred or assigned by the
Fund to one or more transferees or assignees of the Shares, provided that MCAF
is given written notice by the Fund at the time of or within a reasonable time
after said transfer or assignment, stating the name and address of each
transferee or assignee and identifying the number of Shares with respect to
which such registration rights are being transferred or assigned, and provided
further that the transferee or assignee of such rights assumes the obligations
of the Fund under this Agreement. Notwithstanding the foregoing, MCAF shall have
no obligation to recognize any assignment of Shares by the Fund, nor to cause
Shares to be transferred on its books or records, unless such transfer is made
in accordance with the registration or qualification requirements of the
Securities Act and all applicable blue sky or other state securities laws or
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<PAGE> 13
pursuant to available exemptions therefrom (as evidenced by an opinion of
counsel satisfactory in form and substance to counsel for MCAF).
9. Limitations on Subsequent Rights. From and after the
date hereof, MCAF shall not, without the prior written consent of the Fund,
grant to any other person any demand or piggyback registration right if (a) such
right would give the holder thereof a preferential right, when compared to the
rights of the Fund hereunder, to have MCAF securities included in a registration
statement, or (b) compliance therewith would conflict with the provisions
hereof. MCAF represents and warrants to the Fund that it has not prior to the
date of this Agreement granted or agreed to grant to any person any rights which
conflict with the provisions of this Agreement or MCAF's obligations hereunder.
10. "Market Stand-Off" Agreement. The Fund agrees, if
requested by MCAF and an underwriter of common stock (or other securities) of
MCAF, not to sell or otherwise transfer or dispose of any Shares (or other
securities) of MCAF held by it during the ninety (90) day period following the
effective date of the registration statement for the Public Offering, or such
longer period (not to exceed 270 days from the effective date) to which holders
of not less than 2/3 of the shares of MCAF common stock outstanding immediately
prior to such effective date (including but not limited to all directors and
executive officers of MCAF, MCA or FAMA and all holders of 5% or more of the
shares outstanding prior to the Public Offering) have agreed.
11. Miscellaneous.
(a) Governing Law. This Agreement shall be
governed, and the rights and liabilities of the parties hereto determined
in all respects, by the internal laws of the State of Michigan without reference
to choice of law provisions.
(b) Remedies. Any person having rights under
any provision of this Agreement will be entitled to enforce such rights
specifically, to recover damages caused by reason of any breach of any provision
of this Agreement and to exercise all other rights granted by law.
(c) Amendments and Waivers. Except as otherwise
provided herein, the provisions of this Agreement may be amended only by
written agreement signed by the party against whom enforcement thereof is
sought. Absent such written agreement, MCAF may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if MCAF has obtained the written consent or waiver of the Fund.
(d) Successors and Assigns. All covenants and
agreements in this Agreement by or on behalf of any of the parties hereto
will bind and inure to the benefit of the respective successors and assigns of
the parties hereto. MCAF may not assign its rights or obligations hereunder
without the prior written consent of the Fund.
(e) Advance of Legal Fees. If the Fund was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, administrative or
investigative (including but not limited to any action by or in the right of
MCAF)
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<PAGE> 14
with respect to the recovery of any profit or alleged profit from any purchases
and sales of MCAF securities (which term includes the Option, the Option Stock,
the Stock, the Warrant, the Warrants Stock and the Additional Warrant Stock and
rights and obligations related thereto in agreements between MCAF and the Fund)
which can be matched under Section 16(b) of the Exchange Act and the rules and
regulations promulgated thereunder, MCAF shall advance to the Fund, if requested
by the Fund, expenses (including attorneys' fees) incurred by the Fund in
defending any such action, suit or proceeding, provided the Fund agrees in
writing to repay such amount advanced with interest if either it shall
ultimately be determined by a final, nonappealable court judgment that the Fund
must repay to MCAF any of such profit the Fund realized or if the Fund enters
into a settlement which requires the Fund to repay to MCAF any of such profit
the Fund realized.
(f) Notices. Except as otherwise provided
herein, all notices, demands and requests that any party is required or
elects to give to any other shall be in writing, or by a telecommunications
device capable or creating a written record, and any such notice shall become
effective (i) upon personal delivery thereof, including, but not limited to,
delivery by overnight mail and courier service, (ii) three (3) days after it
shall have been mailed by United States mail, first class, certified or
registered, return receipt requested, with postage prepaid, or (iii) in the case
of notice by such a telecommunications device, when properly transmitted, in
each case addressed to the party to be notified as follows:
If to the Fund:
Board of Trustees of the Policemen & Firemen
Retirement System of the City of Detroit
908 City-County Building
Detroit, MI 48226
Attn: Nicholas Degel, Assistant
Administrative Supervisor
Telecopier: 313-224-3522
with a copy to:
Ronald Zajac, Esq.
243 W. Congress, Suite 480
Detroit, MI 48226
Telecopier: 313-961-6559
with a copy to:
Plante & Moran
27400 Northwestern Highway
Southfield, MI 48034-0307
Attn: Jon A. Woods or Larry Cooley
Telecopier: 313-352-0018
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<PAGE> 15
with a copy to:
Pepper Hamilton LLP
100 Renaissance Center, 36th Floor
Detroit, MI 48243-1157
Attn: Hugh D. Camitta, Esq.
Telecopier: 313-259-7926
with a copy to:
Couzens, Lansky, Fealk, Ellis, Roeder & Lazar, P.C.
33533 W. Twelve Mile Road, Suite 150
Farmington Hills, MI 48333-9057
Attn: Donald A. Wagner, Esq.
Telecopier: 248-487-4156
If to MCAF:
MCA Financial Corp.
23999 Northwestern Highway, Suite 230
Southfield, MI 48075
Attn: Lee Wells, President
Telecopier: 248-358-7507
with a copy to:
Butzel Long
150 W. Jefferson, Suite 900
Detroit, MI 48226-4430
Attn: Justin G. Klimko, Esq.
Telecopier: 313-225-7080
or to such other address as each party may designate for itself by like notice.
(g) Entire Agreement. This Agreement represents
the entire agreement of the parties hereto and supersedes all prior oral or
written agreements, negotiations, understandings or arrangements related to
the subject matter hereof; however, nothing in this Agreement supersedes,
replace or amends the agreements of the parties with respect to piggyback
registration and related rights, except that, to the extent the Fund has
piggyback registration rights which would otherwise be applicable to the demand
registration filed pursuant to this Agreement, those piggyback rights shall not
be applicable to the demand registration filed pursuant to this Agreement and
instead shall be applicable to subsequent registrations.
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<PAGE> 16
(h) Captions. The captions contained in this
Agreement are for convenience only, are without substantive meaning and
should not be construed to modify, enlarge, or restrict any provision.
(i) Counterparts. This Agreement may be
executed in any number of counterparts, each of which shall be an original,
but all of which together shall constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first set forth above.
MCA FINANCIAL CORP.,
a Michigan corporation
By:____________________________________
Its:___________________________________
BOARD OF TRUSTEES OF THE
POLICEMEN & FIREMEN RETIREMENT
SYSTEM OF THE CITY OF DETROIT
By:____________________________________
Its:___________________________________
By:____________________________________
Its:___________________________________
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<PAGE> 1
EXHIBIT 10.34
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- --------------------------------------------------------------------------------
WARRANT PUT AGREEMENT
DELIVERED TO: THE BOARD OF TRUSTEES
OF THE POLICEMEN
AND FIREMEN RETIREMENT SYSTEM OF THE
CITY OF DETROIT
BY: MCA FINANCIAL CORP.
DATE: MARCH 6, 1998
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<PAGE> 2
WARRANT PUT AGREEMENT
THIS WARRANT PUT AGREEMENT (hereinafter, together with all amendments
and modifications, and extensions hereto, and restatements thereof is
hereinafter referred to as "Agreement") dated this 6th day of March, 1998 by and
between MCA Financial Corp., a Michigan corporation (hereinafter referred to as
the "Company"), with an address at 23999 Northwestern Highway, Suite 230,
Southfield, Michigan 48075, and The Board of Trustees of the Policemen and
Firemen Retirement System of the City of Detroit (hereinafter referred to as the
"Fund"), with an address at 908 City-County Building, Detroit, Michigan 48226.
WHEREAS, the Company has issued to the Fund, a Common Stock Warrant
[dated of even date herewith (together with all amendments, modifications, and
extensions thereto, and restatements thereof) is hereinafter referred to as
"Warrant"], pursuant to which, among other things, the Fund has the right to
acquire the Warrant Shares (as therein defined).
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. DEFINITIONS:
In this Agreement, the following words, phrases, and
expressions shall have the respective meanings attributed to them:
1.1. "BOOK VALUE" shall mean the per share book value of the
Common Stock of the Company determined from the applicable Financial Statements
referenced herein, including market value of assets not included in such
Financial Statements.
1.2. "CLOSING DATE" shall mean the date no later than the
Thirtieth (30th) calendar day after the date of delivery of a Warrant Put
Notice.
1.3. "COMMON STOCK" shall have the meaning set forth in the
Warrant.
1.4. "EARNINGS" shall mean net income of the Company excluding
interest expense and federal income taxes, as determined by the applicable
Financial Statements, provided however in determining the amount of the interest
expense so excluded, interest expense directly attributable to warehoused loans
and land contracts may be offset by interest earned on such loans and land
contracts, but the amount of such offset may not exceed the total interest
expense directly attributable to warehoused loans and land contracts.
1.5. "FINANCIAL STATEMENTS" shall mean the Company's consolidated
(with all subsidiaries now or hereafter existing)
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<PAGE> 3
balance sheet as of a specified date, and related statements of income, cash
flows and changes in stockholders equity for the period then ended, prepared in
accordance with GAAP.
1.6. "FISCAL YEAR" shall mean the Company's, fiscal year for
financial accounting purposes, each of which ends on January 31.
1.7. "FULLY DILUTED BASIS" shall mean Fully Diluted Basis (as
defined in the Warrant)
1.8. "GAAP" shall mean at any particular time, generally accepted
accounting principles as in effect at such time, applied on a consistent basis
with past practices commencing with the Financial Statements ending as of the
Fiscal Year ended January 31, 1998.
1.9. "OTHER TRANSACTION" shall mean any transaction involving (a)
the merger of any Company with or into another entity [other than an Affiliate
(as defined in the Loan Agreement) of any Commpany], (b) the sale of all or
substantially all of a Company's assets, (c) a share exchange transaction, or
(d) any similar transaction.
1.10. "OPENING DAY BOOK VALUE" shall mean the aggregate Book Value
of the Warrant Shares as of January 31, 1998, as determined by the January 31,
1998 Financial Statements for the fiscal year then ended.
1.11. "PUBLIC OFFERING" shall mean a firm commitment underwritten
sale to the public by the Company pursuant to an effective registration
statement under the Securities Act of 1933, (a) of a number of shares of its
Common Stock which, when added to any other outstanding shares of Common Stock
then eligible for public trading without registration or other restriction under
the Securities Act, constitute at least 25% of the number of shares of Common
Stock outstanding, on a Fully-Diluted Basis, after completion of such offering,
and (b) for an aggregate offering price (before payment of underwriters, or
brokers, commissions or discounts and the expenses of the offering) which, when
added to the aggregate offering price received by the Company from all other
offerings of its Common Stock pursuant to effective Securities Act registration
statements, equals not less than $10 million.
1.12. "PERSON" shall mean any individual, sole proprietorship,
general or limited partnership, joint venture, trust, unincorporated
organization, association, corporation, public authority, or any other entity.
1.13. "PURCHASE PRICE" shall mean the greatest sum determined in
accordance with Section 3 of this Agreement.
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<PAGE> 4
1.14. "WARRANT" shall mean the Warrant as defined in the Recitals
hereof.
1.15. "WARRANT PUT DATE" shall mean:
(a) January 31, 2010; or
(b) the date of a Matured Event of Default, [as defined in a
Second Loan and Financing Agreement among the Company, MCA Mortgage Corporation,
Mortgage Corporation of America, Mortgage Corporation of America, Inc., Rimco
Realty and Mortgage Co., Complete Financial Corp. and Securities Corporation of
America (as Borrowers) and the Fund (as Lender) dated of even date herewith, as
the same may be amended, modified, extended, or restated, from time to time]
("Loan Agreement").
1.16. "WARRANT PUT NOTICE" shall mean a written notice from the
Fund to the Company demanding that the Company purchase all or any portion of
the Warrant Shares and/or Warrant on the Closing Date for the Purchase Price.
1.17. "WARRANT SHARES" shall have the meaning set forth in the
Warrant.
2. PUT PROVISIONS/PUBLIC OFFERING/OTHER TRANSACTIONS:
(A) NO PUBLIC OFFERING:
Provided that no Public Offering or Other Transaction has
previously been consummated, the Fund may deliver a Warrant Put Notice to the
Company at any time beginning on any Warrant Put Date and ending on the
thirtieth (30th) day thereafter, and the Company shall either (i) if the Warrant
has been converted, in wholeor in part, purchase all or any portions the Warrant
Shares as set forth in such Warrant Put Notice, on the Closing Date, for the
Purchase Price, or (ii) pay the Fund the amount the Company would have paid
under 2 (a)(i) hereof if the Warrant had been converted, to the extent specified
in the Warrant Put Notice, or (iii) abide by any combination of 2 (a)(i) or 2
(a)(ii), selected by the Fund.
(B) PUBLIC OFFERING:
If a Public Offering occurs prior to the Warrant Put Date or Other
Transaction (i) the Warrant will be deemed automatically converted, and (ii) the
Warrant Shares shall be issued to the Fund immediately prior to the
effectiveness of the registration statement for the Public Offering, and (iii)
the Fund shall no longer have the right to deliver a Warrant Put Notice, and
(iv) the provisions of the Warrant Piggyback Rights Agreement dated of even date
herewith between the Company and the Fund shall be applicable to the Warrant
Shares.
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<PAGE> 5
(C) OTHER TRANSACTION:
If no Public Offering has occurred or Warrant Put Notice has been
delivered, and if the Company shall execute a binding agreement with respect to
any Other Transaction and, as a result thereof, holders of Common Stock become
entitled to receive any consideration in respect of their shares(whether
directly through the transaction, as a result of a subsequent distribution
declared by the Company's Board of Directors, as a result of the liquidation or
winding up or otherwise), the Fund shall be entitled to elect to participate in
such distribution as though it were the owner of the Warrant Shares.
(1) The Fund shall be entitled to receive 4% (on a Fully Diluted
Basis) of amounts paid or distributed to shareholders arising from any such
transaction, which shall represent payment or distribution in respect of the
Fund's ownership of the Warrant Shares.
(2) The Fund shall not be required to convert the Warrant to the
Warrant Shares in accordance with the Warrant as a precondition to participating
in any payment or distribution as set forth in this Section 2(c). However, any
such participation shall be lieu of its right to convert or put the Warrant and
the occurrence of any of the events set forth in this Section shall convert the
Fund's interest in the Warrant and Warrant Shares so that thereafter it
represents only the right to participate in further payments or distribution
from such Other Transaction.
(3) Notwithstanding the foregoing:
(i) In the event that a distribution or payment to the holders
of the Common Stock, in respect of any Other Transaction is not made within a
reasonable time after the consummation of the Other Transaction, the Company
will make a payment to the Fund in an amount substantially equivalent to that
which the Fund would have received pursuant to 2(c)(1) above had a distribution
or payment to all shareholders been made provided that such payment shall have
the same effect as set forth in the last sentence of Section 2 (c)(2); and
(ii) In the event that, subsequent to the distributions
required hereunder, the business and the affairs of the Company and Borrowers
(as defined in the Loan Agreement) are continued but cease to include the
origination, purchase, sale, servicing or securitization of mortgage loans as
the lines of business cumulatively generating the majority of the Company's
consolidated revenues, then the Fund may at its option require the Company to
pay to the Fund, in full satisfaction and discharge of the Fund's interest in
the Warrant, an amount which would be substantially equivalent to 4% on a Fully
Diluted Basis of the net proceeds which would be distributable to the Company's
shareholders
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<PAGE> 6
upon the dissolution and liquidation of the Company, adjusted to account for
distributions made to the Fund pursuant to 2(c)(2) and 2(c)(3)(i) above which
are disproportionate to distributions to other shareholders. The parties
acknowledge that they will be required to work together to determine the
appropriate amount of any such distributions, it being their intention to
provide to the Fund total distributions equaling the amount which would be
distributed to the Fund pursuant to 2(a) in a transaction involving the sale of
all the Company's assets following by the liquidation and winding up the Company
or a merger or other business combination in which the Company was not the
surviving entity.
3. PURCHASE PRICE:
(A) CALCULATION OF PURCHASE PRICE:
The Purchase Price shall be the aggregate per share Book
Value of the Warrant Shares designated in the Warrant Put Notice, calculated in
one of the following manners, as designated by the Fund:
(1) The Opening Day Book Value per share plus Fifteen
(15%) percent per annum of the Opening Day Book Value, compounded annually, but
annualized and determined monthly with respect to the number of months in the
Fiscal Year of the Closing Date; or
(2) Book Value per share as reflected in, at the option
of the Fund, the Financial Statements (i) for the most recent Fiscal Year ending
prior to the Warrant Put Date, or (ii) the most recent fiscal quarter ending
prior to the Warrant Put Date; or
(3) Six (6) times the aggregated per share value of the
greater of the following:
(i) Earnings reflected in, at the option of the Fund,
the Financial Statements, (x) for the most recent Fiscal Year ending prior to
the Warrant Put Date, or (y) the Four (4) most recent fiscal quarters ending
prior to the Warrant Put Date; or
(ii) The average of Earnings reflected, at the option
of the Fund, in the Financial Statements (x) for the most recent Three (3) full
Fiscal Years ending prior to the Warrant Put Date, or (y) the Twelve (12) most
recent fiscal quarters ending prior to the Warrant Put Date.
(B) ADDITIONAL PURCHASE PRICE:
In the event the Purchase Price is determined under Section
3(a) (1) (2), or (3), and there is a Public Offering within One Hundred Eighty
(180) calendar days from January 31, 2010, then
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<PAGE> 7
the Company shall pay to the Fund the additional sum (if any) equal to (a) the
amount by which the per share offering price on the date of the Public Offering
exceeds the per share Purchase Price theretofore paid, multiplied by (b) the
number of Warrant Shares purchased [or upon which the Purchase Price was based
under 2(a)(ii)] by the Company from the Fund.
4. COVENANTS:
The Company covenants that:
(A) FISCAL YEAR:
The Company and its subsidiaries will maintain a Twelve (12)
month Fiscal Year ending on January 31st of each year.
(B) BOOKS AND RECORDS:
The Company and its subsidiaries shall keep true books of
record and account in accordance with GAAP and in which full, true and correct
entries in accordance with sound accounting practice will be made of all income,
expenses, dealings and transactions in relation to their business activities.
(C) DELIVERY OF FINANCIAL STATEMENTS:
The Company shall deliver to the Fund and its Authorized Agent
[as set forth in Section 5(a) hereof], as soon as practicable and in any event
within One Hundred Twenty (120) calendar days after the close of each Fiscal
Year of the Company commencing with the Fiscal Year ending January 31, 1998,
consolidated (with all subsidiaries) audited Financial Statements prepared in
accordance with GAAP, all in reasonable detail and with an unqualified opinion
expressed by independent public accountants selected by the Company.
(D) DELIVERY OF CALCULATION OF PURCHASE PRICE:
Commencing with the Fiscal Year ending January 31, 1998, and
each year thereafter, the Company shall deliver to the Fund, together with
the Financial Statements required by Section 4 (c) hereof, a calculation as of
such Fiscal Year end of the Purchase Price for the alternatives set forth in
Section 3 (a) (1), (2) and (3) hereof, which calculations shall be certified as
correct by the Chief Financial Officer of the Company.
(E) INDEPENDENT PUBLIC ACCOUNTANTS:
The Company will retain independent public accountants of
recognized national or regional standing who shall certify the Financial
Statements.
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<PAGE> 8
5. MISCELLANEOUS. Except as otherwise provided herein, all notices,
demands and requests that any party is required or elects to give to the other
shall be in writing, or by a telecommunications device capable of creating a
written record, and any such notice shall become effective (a) upon personal
delivery thereof, including, but not limited to, delivery by overnight mail and
courier service, (b) Three (3) calendar days after it shall have been mailed by
United States mail, first class, certified or registered, with postage prepaid,
or (c) in the case of notice by such a telecommunications device, when properly
transmitted, in each case addressed to the party to be notified as follows:
IF TO FUND: Board of Trustees of the Policemen
and Firemen Retirement System of
the City of Detroit
908 City-County Building
Detroit, Michigan 48226
Attn: Nicholas Degal, Assistant
Administrator Supervisor
Telecopy No.: (313) 224-3522
WITH A COPY TO: Couzens, Lansky, Fealk, Ellis,
Roeder & Lazar, P.C.
33533 West 12 Mile Road, Suite 150
Farmington Hills, Michigan 48331-5645
Attn: Donald A. Wagner, Esq.
Telecopy No.: (248) 489-4156
WITH A COPY TO: Ronald Zajac, Esq.
243 W. Fort Street, Suite 480
Detroit, Michigan 48226
Telecopy No.: (313) 961-6559
WITH A COPY TO
LENDER'S AUTHORIZED
AGENT: Plante & Moran, L.L.P.
27400 Northwestern Highway
P.O. Box 307
Southfield, Michigan 48034-0307
Attn: Jon Woods
Telecopy No.: (248) 352-0018
IF TO COMPANY: MCA Financial Corp.
23999 Northwestern Highway, Suite 230
Southfield, Michigan 48074
Attn: Patrick D. Quinlan, Chairman
Telecopy No.: (248) 358-7507
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<PAGE> 9
WITH A COPY TO: Butzel Long
150 West Jefferson, Suite 900
Detroit, Michigan 48226-4430
Attn: Justin G. Klimko, Esq.
Telecopy No.: (313) 225-7080
or to such other address as each party may designate for itself by
like notice.
(B) ENTIRE AGREEMENT. This Agreement supersedes all prior
discussions and agreements between the parties with respect to the subject
matter hereof.
(C) AMENDMENT. This Agreement may be amended, supplemented or
modified only by a written instrument (which may be executed in any number of
counterparts) duly executed by or on behalf of the parties.
(D) WAIVER. Any term or condition of this Agreement may be
waived at any time by the party that is entitled to the benefit thereof, but not
such waiver shall be effective unless set forth in a written instrument duly
executed by or on behalf of the party waiving such term or condition. No waiver
by either party of any term or condition of this Agreement, in any one or more
instances, shall be deemed to be or construed as a waiver of the same term or
condition of this Agreement on any future occasion.
(E) NO THIRD PARTY BENEFICIARY. The terms and provisions of
this Agreement are intended solely for the benefit of each party hereto and
their respective successors or permitted assigns, and it is not the intention of
the parties to confer third-party beneficiary rights upon any other person or
entity.
(F) NO ASSIGNMENT; BINDING EFFECT. Neither this Agreement nor
any right, interest or obligation hereunder may be assigned or transferred by
the Company. Subject to the first sentence of this paragraph, this Agreement is
binding upon, inures to the benefit of and is enforceable by the parties hereto
and their respective successors and permitted assigns. The stock certificate
evidencing the Warrant Shares shall bear a legend to the effect that it is
subject to the rights and obligations set forth in this Agreement.
(G) HEADINGS. The headings used in this Agreement have been
inserted for convenience of reference only and do not define or limit the
provisions hereof.
(H) INVALID PROVISIONS. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under any present or future law,
(a) such provision will be fully severable, (b) this Agreement will be construed
and enforced as if such
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<PAGE> 10
illegal, invalid or unenforceable provision had never comprised a part hereof,
(c) the remaining provision of this Agreement will remain in full force and
effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom.
(I) REMEDIES. Except as otherwise expressly provided for
herein, no remedy conferred by any of the specific provisions of this Agreement
is intended to be exclusive of any other remedy, and each and every remedy shall
be cumulative and shall be in addition to every other remedy given hereunder or
now or hereafter existing at law or in equity or by statute or otherwise. The
election of any one or more remedies by either party hereto shall not constitute
a waiver by any such party of the right to pursue any other available remedies.
(J) DAMAGES. Damages in the event of breach of this Agreement
by a party hereto would be difficult, if not impossible, to ascertain, and it is
therefore agreed that each party hereto, in addition to and without limiting any
other remedy or right it may have, will have the right to an injunction or other
equitable relief in any court of competent jurisdiction, enjoining any such
breach, and enforcing specifically the terms and provisions hereof and each of
the Company and the Fund hereby waives any and all defenses it may have on the
ground of lack of jurisdiction or competence of the court to grant such an
injunction or other equitable relief. The existence of this right will not
preclude any such person from pursuing any other rights and remedies at law or
in equity which such person may have.
(K) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Michigan, without regard
to choice of law principles which may require application of the laws of any
other jurisdiction.
(L) COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
(M) TERMINATION. This Agreement shall terminate [except with
respect to 3(b)] upon the first to occur of (i) January 31, 2010, unless a
Warrant Put Notice shall have been previously delivered in accordance with the
provisions of this Agreement, which Warrant Put Notice shall be deemed to have
been delivered as to all Warrant Shares pursuant to (i) Section 2 (a)(ii), or
(ii) the closing date of a Public Offering, or (iii) the Closing Date hereunder.
(SIGNATURES CONTINUED ON NEXT PAGE)
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<PAGE> 11
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the duly authorized officer of each party hereto as of the date first above
written.
COMPANY:
MCA Financial Corp.
By:__________________________
Its:______________________
"FUND"
The Board of Trustees of the
Policemen and Firemen
Retirement System of the City
of Detroit
By:__________________________
Its:______________________
-and-
By:__________________________
Its:______________________
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<PAGE> 1
EXHIBIT 10.35
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
WARRANT PIGGYBACK RIGHTS AGREEMENT
DELIVERED TO: THE BOARD OF TRUSTEES OF THE
POLICEMEN AND FIREMEN RETIREMENT
SYSTEM OF THE CITY OF DETROIT
BY: MCA FINANCIAL CORP.
DATE: MARCH 6, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE> 2
WARRANT PIGGYBACK RIGHTS AGREEMENT
THIS WARRANT PIGGYBACK RIGHTS AGREEMENT ("AGREEMENT") is made this
March 6, 1998, between MCA Financial Corp., a Michigan corporation (the
"Company"), and The Board of Trustees of The Policemen and Firemen Retirement
System of The City of Detroit (the "Fund").
RECITALS
A. Simultaneously with the execution and delivery hereof, the Company
and the Fund are executing and delivering a Common Stock Warrant [dated of even
date herewith (together with all amendments, modifications, and extensions
thereto, and restatements thereof) is hereinafter referred to as "Warrant"] and
Warrant Put Agreement [dated of even date herewith (together with all
amendments, modifications, and extensions thereto, and restatements thereof) is
hereinafter referred to as "Warrant Put Agreement"].
B. Pursuant to the Warrant, the Company is obligated to deliver to the
Fund the Warrant Shares (as defined in the Warrant).
C. The execution and delivery of this Agreement is incident to the
execution and delivery of the Warrant and Warrant Put Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the
following terms shall have the following respective meanings:
(a) "AGREEMENT" shall mean this Agreement, and all
amendments, modifications and extensions thereto, and restatements
thereof, from time to time, in accordance with the terms hereof.
(b) "COMMISSION" shall mean the Securities and
Exchange Commission or any other federal agency at the time
administering the Securities Act.
(c) "COMPANY" shall mean MCA Financial Corp., a
Michigan corporation.
(d) "EXCHANGE ACT" shall mean the Securities Exchange
Act of 1934, as the same has been or shall be amended.
<PAGE> 3
(e) "FUND" shall mean The Board of Trustees of the
Policemen and Firemen Retirement System of the City of Detroit.
(f) "INDEMNIFIED PARTY" shall mean a party entitled
to indemnification under Section 5 of this Agreement.
(g) "INDEMNIFYING PARTY" shall mean the party
required to provide indemnification under Section 5 of this Agreement.
(h) "PUBLIC OFFERING" shall have the meaning set
forth in the Warrant Put Agreement.
(i) "OTHER SHAREHOLDERS" shall mean, collectively,
officers or directors of the Company or any of the subsidiaries who own
Common Stock of the Company or other holders of the Company Common
Stock who are entitled, by contract with the Company, to have their
common stock included in a registration of the Company securities.
(j) The terms "REGISTER", "REGISTERED" and
"REGISTRATION" shall refer to a registration effected by preparing and
filing a registration statement in compliance with the Securities Act
and applicable rules and regulations thereunder, and the declaration or
ordering of the effectiveness of such registration statement.
(k) "REGISTRATION EXPENSES" shall mean all expenses
incurred by the Company in compliance with Sections 2 and 3, including,
without limitation, all registration and filing fees, printing
expenses, fees and disbursements of counsel for the Company, blue sky
fees and expenses, the fees and disbursements of counsel to the Fund in
connection with the registration of the Warrant Shares and the expense
of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company,
which shall be paid in any event by the Company).
(l) "SECURITIES ACT" shall mean the Securities Act of
1933, as the same has been or shall be amended.
(m) "SELLING EXPENSES" shall mean all underwriting
discounts and selling commissions applicable to the sale of securities
registered.
(n) "WARRANT" shall mean the Warrant as defined in
the Recitals hereof.
(o) "WARRANT PUT AGREEMENT" shall mean the Warrant
Put Agreement between the Company and the Fund dated of even
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<PAGE> 4
date herewith, and all amendments, modifications and extensions
thereto, and statements thereof, from time to time.
(p) "WARRANT SHARES" shall mean the Warrant Shares as
defined in the Warrant.
2. PIGGYBACK RIGHT.
(a) INCLUSION IN OFFERING. If at any time prior to
January 31, 2010, the Company shall determine to register any of its
securities either for its own account or the account of a security
holder or holders, other than a registration relating solely to
employee benefit plans, a registration relating solely to a Commission
Rule 145 transaction, or a registration on any registration form which
does not include substantially the same information as would be
required to be included in a registration statement covering the sale
of the common stock of the Company , the Company will:
(i) promptly give to the Fund written notice
thereof (which shall include a list of the jurisdictions in
which the Company intends to attempt to qualify such
securities under the applicable blue sky or other state
securities laws and such other information as the Fund may
require including projected Registration Expenses and Selling
Expenses); and
(ii) include in such registration (and any
related qualification under blue sky laws or other compliance)
and in any underwriting involved therein all or any portion of
the Warrant Shares specified in a written request or requests
made by the Fund within Thirty (30) Business Days after
receipt of the written notice from the Company described in
Section 2(a)(i) above.
(b) UNDERWRITING. If the registration of which the
Company gives notice is for a registered public offering involving an
underwriting, the Company shall so advise the Fund as a part of the
written notice given pursuant to Section 2(a)(i). In such event the
right of the Fund to registration pursuant to this Section 2 shall be
conditioned upon the Fund's participation in such underwriting and the
inclusion of the Warrant Shares designated by the Fund in the
underwriting. The Fund shall (together with the Company and any Other
Shareholders distributing their securities through such underwriting)
enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for the underwriting by the
Company. Notwithstanding any other provision of this Section 2, if the
underwriter advises the Company and the Fund in writing that marketing
factors require a limitation on the number of shares to be
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<PAGE> 5
underwritten, the underwriter may limit, on a pro-rata basis based upon
the number of shares the Company, the Other Shareholders and the Fund
proposed to include in the registration and underwriting, the number of
securities of the Company, the Other Shareholders and the Fund, to be
included in the registration and underwriting. The Company shall so
advise the Fund and all other holders of securities requesting
registration, and the securities entitled to be included in the
registration and underwriting shall be allocated pro-rata. If the Fund
disapproves of the terms of any such underwriting, including the amount
of securities to be included in the registration after giving effect to
the foregoing sentence, the Fund may elect to withdraw therefrom by
written notice to the Company and the underwriter, the amount of
Warrant Shares it so designates, and the remaining Warrant Shares shall
be included in such underwriting. Any Warrant Shares or other
securities excluded or withdrawn from such underwriting shall be
withdrawn from such registration, and the allocation (if any) shall be
adjusted accordingly.
(c) WITHDRAWAL OR DELAY OF REGISTRATION. The
provisions of Sections 2(a) and (b) notwithstanding, if, at
any time after giving written notice of its intention to
register any securities and prior to the effective date of the
registration statement filed in connection with such
registration, the Company shall determine for any reason not
to register or to delay registration of such securities, the
Company may, at its election, give written notice of such
determination to the Fund and, thereupon, (i) in the case of
a determination not to register, shall be relieved of its
obligation to register all or any portion of Warrant Shares so
designated in connection with such registration (but not from
its obligation, if any, to pay Registration Expenses in
connection therewith), without prejudice, however, to the
right of the Fund, if applicable, to include all or any
portion of the Warrant Shares in a subsequent registration and
(ii) in the case of a determination to delay registering,
shall be permitted to delay registering any Warrant Shares,
for the same period as the delay in registering such other
securities.
3. EXPENSES OF REGISTRATION. All Registration Expenses
incurred in connection with any registration, qualification or compliance
pursuant to this Agreement shall be borne by the Company, and all Selling
Expenses shall be borne by the holders of the securities so registered
(including the Company, to the extent securities are offered for its account)
pro rata on the basis of the gross sales proceeds received by them in the
offering.
4. REGISTRATION PROCEDURES. In the case of any registration
effected by the Company pursuant to this Agreement, the Company will keep the
Fund advised in writing as to the
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<PAGE> 6
initiation of each registration and as to the completion thereof.
At its expense, the Company will:
(a) except for offerings pursuant to Rule 415 or
successors thereto under the Securities Act, keep such registration
effective for a period of one hundred twenty (120) days or until the
Fund has completed the distribution described in the registration
statement relating thereto, whichever first occurs;
(b) furnish such number of prospectuses (including
preliminary prospectuses conforming to the requirements of the
Securities Act and rules and regulations thereunder) and other
documents incident thereto as the Fund from time to time may reasonably
request;
(c) to the extent requested, furnish to the
underwriter, in an underwritten offering, or to the Fund, in a
non-underwritten offering, (i) a signed opinion of the Company's
counsel, and (ii) "comfort" letters signed by the Company's independent
public accountants who have examined and reported on the Company's
financial statements included in the registration statement, to the
extent permitted by the American Institute of Certified Public
Accountants, covering the same matters with respect to the registration
statement (and prospectus included therein) and with respect to the
events subsequent to the date of the financial statements, as are
customarily covered in opinions of counsel and in accountants'
"comfort" letters delivered to the underwriters in underwritten public
offerings of securities; and
(d) notify the Fund, at any time when a prospectus
relating to Warrant Shares covered by a registration statement is
required to be delivered under the Securities Act, of the happening of
any event as a result of which the prospectus included in such
registration statement includes 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 in the light of
circumstances then existing.
5. INDEMNIFICATION.
(a) BY THE COMPANY. The Company will indemnify the
Fund and its officers, directors, trustees, members and agents, and
each underwriter, if any, and each person who controls any underwriter
of the Warrant Shares, against all claims, expenses, losses, damages
and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material
fact contained in any preliminary or final prospectus, offering
circular or other document (including any related registration
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<PAGE> 7
statement, notification or the like) incident to any registration,
qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or
any violation (or alleged violation) by the Company of the Securities
Act, any state securities law or any rule or regulation thereunder
applicable to the Company or relating to action or inaction required of
the Company in connection with any such registration, qualification or
compliance, and will reimburse the Fund, each of its officers,
directors, trustees, members and agents, each such underwriter and each
person who controls any such underwriter, for any legal and any other
expenses reasonably incurred in connection with investigating,
defending or settling (except as provided below) any such claim, loss,
damage, liability or action, except to the extent that any such claim,
loss, damage, liability or expense arises out of or is based on (i) any
untrue statement or omission made in reliance on and in conformity with
written information furnished to the Company by the Fund or underwriter
and expressly for use therein or (ii) any failure of the Fund or an
underwriter to deliver timely a copy of a final prospectus; provided,
that the Company shall have no obligation to indemnify any underwriter
or controlling person thereof if (x) the person asserting the claim
with respect to which indemnification is sought acquired the securities
on which such claim is based from such underwriter, (y) the claim is
based on an alleged untrue statement or material omission made in
connection with such sale, and (z) the underwriter failed to send or
deliver to the claimant, at or prior to the time that written
confirmation of the sale was sent or delivered, a copy of a prospectus
(as same may have been amended or supplemented), if any then existed,
which corrected such alleged misstatement or omission.
(b) BY THE FUND. The Fund will indemnify the Company,
each of its directors, officers and agents and each underwriter, if
any, of the Company's securities covered by such a registration
statement, each person who controls the Company or such underwriter
within the meaning of the Securities Act and the rules and regulations
thereunder, each Other Shareholder and each of their officers,
directors and partners, and each person controlling such Other
Shareholder, against all claims, expenses, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on
any untrue statement (or alleged untrue statement) of a material fact
contained in any such registration statement, preliminary or final
prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company and such Other Shareholders,
directors, officers,
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<PAGE> 8
partners, persons, underwriters or control persons for any legal or any
other expenses reasonably incurred in connection with investigating,
defending or settling (except as provided below) any such claim, loss,
damage, liability or action, in each case to the extent, but only to
the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by the
Fund expressly for use therein; provided, however, the obligations of
the Fund hereunder shall be limited to an amount equal to the proceeds
received by the Fund from the Warrant Shares sold in such registration;
provided further, that the Fund shall have no obligation to indemnify
any underwriter or controlling person thereof if (i) the person
asserting the claim with respect to which indemnification is sought
acquired the securities on which such claim is based from such
underwriter, (ii) the claim is based on an alleged untrue statement or
material omission made in connection with such sale and (iii) the
underwriter failed to send or deliver to the claimant, at or prior to
the time that written confirmation of the sale was sent or delivered, a
copy of a prospectus (as same may have been amended or supplemented),
if any then existed, which corrected such alleged misstatement or
omission.
(c) PROCEDURES. Each Indemnified Party shall give
notice to the Indemnifying Party promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought,
and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided that counsel
for the Indemnifying Party, who shall conduct the defense of such claim
or any litigation resulting therefrom, shall be approved by the
Indemnified Party (whose approval shall not unreasonably be withheld),
and the Indemnified Party may participate in such defense at such
party's expense. The failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 5 except to the extent the omission
results in a failure of actual notice to the Indemnifying Party and
such Indemnifying Party is materially prejudiced or damaged in its
ability to defend such claim as a result of the failure to give notice.
No Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in
respect to such claim or litigation. No Indemnified Party shall settle
any claim, action or proceeding with respect to which indemnification
is sought without the
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<PAGE> 9
written consent of the Indemnifying Party. Each Indemnified Party shall
furnish such information regarding itself or the claim in question as
an Indemnifying Party may reasonably request in writing and as shall be
reasonably required in connection with defense of such claim and
litigation resulting therefrom.
(d) FROM OTHER SHAREHOLDERS. The Company agrees that,
to the extent that it shall grant to any Other Shareholders the right
to have the Company securities held by them included in any
registration of the Company's securities, or to require the Company to
register their securities, it shall require as a condition to such
grant that such Other Shareholders agree to indemnify the Company and
the Fund with respect to any registration of their securities on terms
substantially identical to that provided by the Fund hereunder.
6. INFORMATION FROM THE FUND. The Fund shall furnish to the
Company such information regarding the Fund, the Warrant Shares and the
distribution proposed by the Fund as the Company may reasonably request in
writing and as shall be reasonably required in connection with any registration,
qualification or compliance referred to in this Agreement.
7. RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the Commission which may permit the
sale of the Warrant Shares to the public without registration, the Company
agrees to:
(a) make and keep public information available, as
those terms are understood and defined in Rule 144 under the Securities
Act, at all times from and after ten (10) days following the effective
date of the first registration statement under the Securities Act filed
by the Company for an offering of its securities to the public; and
(b) file with the Commission in a timely manner all
reports and other documents required of the Company under the
Securities Act and the Exchange Act at any time after it has become
subject to such reporting requirements.
(c) furnish the Fund upon request (i) a written
statement as to the status of its compliance during the previous 12
months with the reporting requirements of Section 13 or Section 15(d)
of the Securities Exchange Act of 1934 and (ii) copies of the most
recent annual report on Form 10-K and quarterly report on Form 10-Q and
such other documents and reports filed by the Company as the Fund may
request for the purpose of enabling it to utilize available rules or
regulation permitting the sale, disposition or transfer of the Shares
without registration under applicable securities laws.
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<PAGE> 10
8. LIMITATIONS ON SUBSEQUENT RIGHTS. From and after the date
hereof, the Company shall not, without the prior written consent of the Fund,
grant to any other person any demand or piggyback registration right if (a) such
right would give the holder thereof a preferential right, when compared to the
rights of the Fund hereunder, to have the Company securities included in a
registration statement or (b) compliance therewith would conflict with the
provisions hereof.
9. "MARKET STAND-OFF" AGREEMENT. The Fund agrees, if requested
by the Company and an underwriter of Common Stock (or other securities) of the
Company, not to sell or otherwise transfer or dispose of any Warrant Shares (or
other securities) of the Company held by it during the ninety (90) day period
following the effective date of the registration statement for the Public
Offering, or such longer period (not to exceed 270 days from the effective date)
to which holders of not less than 2/3 of the shares of the Company Common Stock
outstanding immediately prior to such effective date (including but not limited
to all directors and executive officers of the Company, or any subsidiaries and
all holders of 5% or more of the shares outstanding prior to the Public
Offering) have agreed.
10. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed,
and the rights and liabilities of the parties hereto determined in all
respects, under by the laws of the State of Michigan, without regard to
choice of law principals which may require application of the laws of
any other jurisdiction.
(b) REMEDIES. Any person having rights under any
provision of this Agreement will be entitled to enforce such rights
specifically, to recover damages caused by reason of any breach of any
provision of this Agreement and to exercise all other rights granted by
law.
(c) AMENDMENTS AND WAIVERS. Except as otherwise
provided herein, the provisions of this Agreement may be amended only
by written agreement signed by the party against whom enforcement
thereof is sought. Absent such written agreement, the Company may take
any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company has obtained the
written consent or waiver of the Fund.
(d) SUCCESSORS AND ASSIGNS. All covenants and
agreements in this Agreement by or on behalf of any of the
parties hereto will bind and inure to the benefit of the
respective successors and assigns of the parties hereto. The
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<PAGE> 11
Company may not assign its rights or obligations hereunder without the
prior written consent of the Fund.
(e) NOTICES. Except as otherwise provided herein, all
notices, demands and requests that any party is required or elects to
give to the other shall be in writing, or by a telecommunications
device capable of creating a written record, and any such notice shall
become effective (a) upon personal delivery thereof, including, but not
limited to, delivery by overnight mail and courier service, (b) Three
(3) calendar days after it shall have been mailed by United States
mail, first class, certified or registered, with postage prepaid, or
(c) in the case of notice by such a telecommunications device, when
properly transmitted, in each case addressed to the party to be
notified as follows:
IF TO FUND: Board of Trustees of the Policemen
and Firemen Retirement System of
the City of Detroit
908 City-County Building
Detroit, Michigan 48226
Attn: Nicholas Degal, Assistant
Administrator Supervisor
Telecopy No.: (313) 224-3522
WITH A COPY TO: Couzens, Lansky, Fealk, Ellis,
Roeder & Lazar, P.C.
33533 West 12 Mile Road, Suite 150
Farmington Hills, Michigan 48331-5645
Attn: Donald A. Wagner, Esq.
Telecopy No.: (248) 489-4156
WITH A COPY TO: Ronald Zajac, Esq.
243 W. Fort Street, Suite 480
Detroit, Michigan 48226
Telecopy No.: (313) 961-6559
WITH A COPY TO
LENDER'S AUTHORIZED
AGENT: Plante & Moran, L.L.P.
27400 Northwestern Highway
P.O. Box 307
Southfield, Michigan 48034-0307
Attn: Jon Woods
Telecopy No.: (248) 352-0018
IF TO COMPANY: MCA Financial Corp.
23999 Northwestern Highway, Suite 230
Southfield, Michigan 48074
Attn: Patrick D. Quinlan, Chairman
Telecopy No.: (248) 358-7507
-10-
<PAGE> 12
WITH A COPY TO: Butzel Long
150 West Jefferson, Suite 900
Detroit, Michigan 48226-4430
Attn: Justin G. Klimko, Esq.
Telecopy No.: (313) 225-7080
or to such other address as each party may designate for itself by
like notice.
(f) ENTIRE AGREEMENT. This Agreement, together with
the Warrant and Warrant Put Agreement represent the entire agreement of
the parties hereto with respect to the subject matter hereof, and
supersedes all prior oral or written agreements, negotiations,
understandings or arrangements related to the subject matter hereof.
(g) CAPTIONS. The captions contained in this
Agreement are for convenience only, are without substantive meaning and
should not be construed to modify, enlarge, or restrict any provision.
(h) COUNTERPARTS. This Agreement may be executed in
any number of counterparts, each of which shall be an original, but all
of which together shall constitute one instrument.
(SIGNATURES CONTINUED ON NEXT PAGE)
-11-
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first written.
MCA FINANCIAL CORP.
a Michigan corporation
By:________________________________
Its:____________________________
THE BOARD OF TRUSTEES OF THE
POLICEMEN AND FIREMEN RETIREMENT
SYSTEM OF THE CITY OF DETROIT
By:________________________________
Its:____________________________
- and -
By:________________________________
Its:____________________________
-12-
<PAGE> 1
EXHIBIT 12
MCA FINANCIAL CORP.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
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 ... 16,941,032 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
----------- ----------- ----------- ----------- -----------
$22,939,228 $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 ... 16,941,032 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
----------- ----------- ----------- ----------- -----------
$18,419,193 $12,657,878 $ 8,468,794 $ 6,573,782 $ 4,787,168
=========== =========== =========== =========== ===========
Ratio of Earnings
to Fixed Charges .......... 1.25x 1.11x 1.13x n/a 1.20x
Deficiency of Earnings
over Fixed Charges ........ $ -- $ -- $ -- $ (175,162) $ --
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND UNAUDITED CONSOLIDATED
BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH UNAUDITED
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 1,533
<SECURITIES> 0
<RECEIVABLES> 88,354
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 8,653
<DEPRECIATION> 2,712
<TOTAL-ASSETS> 259,013
<CURRENT-LIABILITIES> 0
<BONDS> 16,054
0
5,396
<COMMON> 5
<OTHER-SE> 7,935
<TOTAL-LIABILITY-AND-EQUITY> 259,013
<SALES> 0
<TOTAL-REVENUES> 79,850
<CGS> 0
<TOTAL-COSTS> 75,330
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,941
<INCOME-PRETAX> 4,520
<INCOME-TAX> 1,690
<INCOME-CONTINUING> 2,830
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,830
<EPS-PRIMARY> 4.48
<EPS-DILUTED> 4.02
</TABLE>
