<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the transition period from _____________ to _______________
Commission File Number: 0-21231
MATRIX CAPITAL CORPORATION
--------------------------------------------
(Exact name of registrant as specified in its charter)
Colorado 84-1233716
- ------------------------------- --------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1380 Lawrence Street, Suite 1410
Denver, Colorado 80204
-------------------------------------- ---------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 595-9898
Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.0001 per share.
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 the 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.
Yes No
--- ---
As of March 5, 1997, 6,681,031 shares of common stock were outstanding. The
aggregate market value of common stock held by nonaffiliates of the registrant
based on the closing price of such stock on the Nasdaq National Market on March
4, 1997 was $38,010,033. For purposes of this computation, all executive
officers, directors and 10% beneficial owners of registrant are deemed to be
affiliates. Such determination should not be deemed an admission that such
executive officers, directors and 10% beneficial owners are affiliates.
DOCUMENTS INCORPORATED BY REFERENCE:
The Company's definitive proxy statement in connection with the Annual Meeting
of the Shareholders to be held May 1, 1997, to be filed with the Commission
pursuant to Regulation 14A, is incorporated by reference into Part III of this
report.
<PAGE>
PAGE
----
PART I
ITEM 1. BUSINESS. 3
ITEM 2. PROPERTIES. 16
ITEM 3. LEGAL PROCEEDINGS. 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS. 18
ITEM 6. SELECTED FINANCIAL DATA. 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS. 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. 35
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE. 35
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. 36
ITEM 11. EXECUTIVE COMPENSATION. 36
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT. 36
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. 36
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K. 37
<PAGE>
PART I
ITEM 1. BUSINESS
--------
GENERAL
Matrix Capital Corporation (the "Company") is a specialized financial
services company that, through its subsidiaries, (the "Subsidiaries") focuses on
mortgage merchant banking by purchasing and selling residential mortgage loans
and residential mortgage servicing rights; offering brokerage, consulting and
analytical services to other financial services companies and financial
institutions; servicing residential mortgage portfolios for investors;
originating residential mortgages; providing real estate management and
disposition services. The Company also provides self-directed qualified
retirement plans, individual retirement accounts, custodial and directed trust
accounts, and broker dealer services to individuals and deferred contribution
plans. The Company is a unitary thrift holding company that was incorporated in
Colorado in June 1993. Its principal executive offices are located at 1380
Lawrence Street, Suite 1410, Denver, Colorado 80204, and its telephone number is
(303) 595-9898.
THE SUBSIDIARIES
The Company's core business operations are conducted through the following
operating Subsidiaries:
UNITED FINANCIAL. United Financial, Inc. ("United Financial") provides
brokerage and consulting services to financial institutions and financial
services companies in the mortgage banking industry. These services include the
brokering and analysis of residential mortgage loan servicing rights, corporate
and mortgage loan servicing portfolio valuations (which includes the complex
valuation and analysis required under Statement of Financial Accounting
Standards No. 122, Accounting for Mortgage Servicing Rights ("FAS 122")), and,
to a lesser extent, consultation and brokerage services in connection with
mergers and acquisitions of mortgage banking entities. United Financial provides
brokerage services to several of the nation's largest financial institutions,
such as Banc One Mortgage Corporation, Chase Manhattan Mortgage Corporation, and
Mellon Mortgage Corporation. During 1995 and 1996, United Financial brokered the
sale of 103 and 92 mortgage loan servicing portfolios totaling $32.6 billion and
$26.4 billion in outstanding mortgage loan principal balances, respectively. As
a result of this volume of brokerage activity, the Company has access to a wide
array of information relating to the mortgage banking industry, including
emerging market trends, prevailing market prices, pending regulatory changes,
and changes in levels of supply and demand. Consequently, the Company is able to
identify certain types of mortgage servicing portfolios that are well suited to
its particular servicing platform and unique corporate structure.
MATRIX FINANCIAL. Matrix Financial Services Corporation ("Matrix Financial")
acquires residential mortgage loan servicing rights on a nationwide basis
through purchases in the secondary market, services the loans underlying these
rights, and originates mortgage loans through its wholesale loan origination
network. As of December 31, 1996, Matrix Financial serviced 50,599 borrower
accounts representing $2.6 billion in principal balances (including $140.0
million in subservicing for non-affiliates of the Company), the majority of
which were seasoned loans having lower principal and higher custodial escrow
balances than newly originated mortgage loans. As a servicer of mortgage loans,
Matrix Financial is required to establish custodial escrow accounts for the
deposit of borrowers' payments, which may include principal, interest, taxes and
insurance. These payments are held at Matrix Capital Bank ("Matrix Bank"). At
December 31, 1996, the custodial escrow accounts related to the Company's
servicing portfolio maintained at Matrix Bank were $27.4 million in the
aggregate. For the calendar year 1996, Matrix Financial originated $583.3
million in wholesale mortgage loans through its regional production offices
located in Atlanta, Denver, and Phoenix. The loans originated by Matrix
Financial on a wholesale basis are typically sold in the secondary market.
MATRIX BANK. With its main office in Las Cruces, New Mexico and a full
service branch in Sun City, Arizona, Matrix Bank serves its local communities by
providing a broad range of personal and business depository services, offering
residential loans, and providing, on a limited basis, consumer loans and
commercial real estate loans. In addition, in January 1997, a branch was
established in Evergreen, Colorado that primarily will originate residential
real estate construction loans and commercial loans in the Colorado market.
Matrix Bank also holds the non-interest bearing custodial escrow deposits
related to the residential mortgage loan servicing portfolio serviced by Matrix
Financial. These custodial escrow deposits, as well as other traditional
deposits, are used to fund bulk purchases of mortgage loan portfolios throughout
the United States, a substantial portion of which are subserviced by Matrix
Financial following their purchase. As of December 31, 1996, Matrix Bank was
deemed to be "well-capitalized" under applicable regulatory standards.
3
<PAGE>
UNITED SPECIAL SERVICES. United Special Services, Inc. ("USS") provides real
estate management and disposition services to financial services companies and
financial institutions. In addition to the unaffiliated clients currently served
by USS, Matrix Financial uses USS exclusively in handling the disposition of its
foreclosed real estate. USS also provides limited collateral valuation opinions
to clients, such as the Federal Home Loan Mortgage Corporation ("FHLMC"), that
are interested in assessing the value of the collateral underlying mortgage
loans, as well as to clients such as Matrix Bank and other third-party mortgage
loan buyers evaluating potential bulk purchases of mortgage loans.
UNITED CAPITAL MARKETS. United Capital Markets, Inc. ("UCM") is a wholly
owned subsidiary of the Company, formed in December 1996. UCM will focus on risk
management services for institutional clients. It will provide a professional
outsourcing alternative to in-house risk management departments or Wall Street
derivative products. The focus will be on interest rate and prepayment risk as
it relates to specific client objectives. The strategy will include modeling
asset risk, setting up and trading individual hedge accounts and mirroring
accounting practice and management goals. Although many asset classes will be
considered for management and advice, mortgage servicing rights (sometimes
referred to herein as MSRs') will be the initial focus. UCM is managed by former
senior executives from nationally recognized investment banks and the mortgage
banking industry with many years of experience in risk management and hedging
strategies. UCM generated no revenues in 1996 and there can be no assurance that
its operations will generate significant revenues during 1997 or future years.
THE VINTAGE GROUP INC. On February 5, 1997 the Company completed its
acquisition of The Vintage Group Inc. ("Vintage"). Vintage's subsidiaries,
Sterling Trust Company ("Sterling Trust") and First Matrix Investment Services
Corp. ("First Matrix") are located in Waco, and Arlington, Texas, respectively.
Sterling Trust was incorporated in 1984 as a Texas independent, non-bank trust
company specializing in self-directed qualified retirement plans, individual
retirement accounts, custodial, and directed trust accounts. As of December 31,
1996, Sterling Trust had in excess of 23,000 accounts with assets under
administration of over $1.1 billion. First Matrix is a NASD broker/dealer that
provides services to individuals and deferred contribution plans. The purchase
price was $11.25 million, which was paid through the issuance of 779,592 shares
of common stock of the Company. The transaction was accounted for as a
pooling of interests.
BROKERAGE AND CONSULTING SERVICES
BROKERAGE SERVICES. United Financial operates as a national,
full-service mortgage servicing broker. It is capable of analyzing, packaging,
marketing and closing servicing portfolio and selected corporate merger and
acquisition transactions. United Financial markets its services to all types and
sizes of market participants, thereby developing diverse relationships. United
Financial has provided brokerage services to each of the following clients
during the last 12 months:
<TABLE>
<S> <C>
Banc One Mortgage Corporation Knutson Mortgage
Bank of America Mellon Mortgage Corporation
Chase Manhattan Mortgage Corporation NVR Mortgage Finance, Inc.
First of America Loan Services, Inc. Principal Residential Mortgage, Inc.
Firstar Bank Resource Bancshares Mortgage Group
</TABLE>
The Company believes that the client relationships developed by United
Financial through its national network of contacts with commercial banks,
mortgage companies, savings associations, and other institutional investors
represent a significant competitive advantage and form the basis for United
Financial's national market presence. These contacts also enable United
Financial to identify prospective clients for other Subsidiaries and make
referrals where appropriate.
The secondary market for purchasing and selling mortgage servicing rights
has become increasingly more active since its inception during the early 1980s.
While servicing rights are the primary asset of most mortgage companies, other
institutions such as commercial banks and savings associations also build
portfolios of mortgage servicing rights, which can serve as significant sources
of non-interest income. Most institutions that own mortgage servicing rights
have found that careful management of these assets is necessary due to their
susceptibility to interest rate cycles, changing prepayment patterns of mortgage
loans, and fluctuating earnings rates achieved on custodial escrow balances.
With the implementation of FAS 122, which requires companies to capitalize
originated mortgage servicing rights, management of mortgage servicing assets
has become even more critical. These managerial efforts, combined with interest
rate sensitivity of the assets and the growth strategies of market participants,
create constantly changing supply and demand and, therefore, price levels in the
secondary market for mortgage servicing rights.
4
<PAGE>
The sale and transfer of mortgage servicing rights occurs in a market that
is inefficient and often requires an intermediary to facilitate matching buyers
and sellers. Prices are unpublished and closely guarded by market participants,
unlike most other major financial secondary markets. This lack of pricing
information complicates an already difficult process of differentiating between
servicing product types, evaluating regional, economic and socioeconomic trends
and predicting the impact of interest rate movements. Due to its significant
contacts, United Financial has access to information on the availability of
mortgage servicing portfolios and helps bring together interested buyers and
sellers.
CONSULTING AND ANALYTIC SERVICES. The analytics group of United Financial
has developed expertise in helping companies implement and, on an ongoing basis,
track their FAS 122 valuations and analyses. Expansion into the FAS 122
valuations arena represented a logical progression for United Financial. In
connection with the consulting services performed by United Financial on pools
of mortgage servicing rights held for sale by United Financial's clients, United
Financial performed many of the same types of analyses required by FAS 122.
Therefore, United Financial was able to enhance its existing valuation models
and create a software program that could be customized to fit its customers'
many different needs and unique situations in performing FAS 122 analyses. In
addition, United Financial has the infrastructure and management information
system capabilities necessary to undertake the complex analyses required by FAS
122. Many of the companies affected by the implementation of FAS 122 have
determined to outsource this function to a third party rather than dedicate the
resources necessary to develop systems for and perform their own FAS 122
valuations. To provide an additional consulting service to the mortgage banking
industry, the Company formed UCM in December 1996. FAS 122 requires that
servicing portfolios be valued at lower of cost or market. As a result, the
management of the servicing asset has become a critical component to the holders
of mortgage servicing rights. Due to the of risk of companies incurring an
impairment of their servicing portfolio, the need to hedge has become much more
prevalent. UCM will market to many of the same companies as United Financial and
will focus its efforts on providing hedging strategies for institutional clients
servicing portfolios. Management believes that providing these consulting and
analytic services enhances the Company's ability to attract and retain client
relationships.
RESIDENTIAL LOAN SERVICING ACTIVITIES
RESIDENTIAL MORTGAGE LOAN SERVICING. Matrix Financial and Matrix Bank each
has its own mortgage servicing portfolio, but the Company conducts its servicing
activities exclusively through Matrix Financial. Matrix Bank's mortgage
servicing rights are subserviced under a contract with Matrix Financial. At
December 31, 1996, Matrix Financial serviced approximately $2.6 billion of
mortgage loans, including $424.0 million for Matrix Bank and $140.0 million
subserviced for non-affiliates of the Company.
Servicing mortgage loans involves a contractual right to receive a fee for
processing and administering loan payments. This processing involves collecting
monthly mortgage payments on behalf of investors, reporting information to those
investors on a monthly basis and maintaining custodial escrow accounts for the
payment of principal and interest to investors and property taxes and insurance
premiums on behalf of borrowers. These payments are held in custodial escrow
accounts at Matrix Bank, where the money can be invested by the Company in
interest-earning assets at returns that historically have been greater than
could be realized by the Company using the custodial escrow deposits as
compensating balances to reduce the effective borrowing cost on existing
warehouse credit facilities.
As compensation for its mortgage servicing activities, the Company receives
servicing fees usually ranging from 0.25% to 0.75% per annum of the loan
balances serviced, plus any late charges collected from delinquent borrowers and
other fees incidental to the services provided. At December 31, 1996, the
Company's weighted average servicing fee was 0.40 %. In the event of a default
by the borrower, the Company receives no servicing fees until the default is
cured.
Servicing is provided on mortgage loans on a recourse or nonrecourse basis.
The Company's policy is to accept only a limited number of servicing assets on a
recourse basis. As of December 31, 1995 and 1996, on the basis of outstanding
principal balances only 0.7% and 0.4%, respectively, of the mortgage servicing
contracts owned by the Company involved recourse servicing. To the extent that
servicing is done on a recourse basis, the Company is exposed to credit risk
with respect to the underlying loan in the event of a repurchase. Additionally,
many of the nonrecourse mortgage servicing contracts owned by the Company
require the Company to advance all or part of the scheduled payments to the
owner of the mortgage loan in the event of a default by the borrower. Many
owners of mortgage loans also require the servicer to advance insurance premiums
and tax payments on schedule even though sufficient escrow funds may not be
available. The Company, therefore, must bear the funding costs associated with
making such advances. If the delinquent loan does not become current, these
advances are typically recovered at the time of the foreclosure sale.
Foreclosure expenses are
5
<PAGE>
generally not fully reimbursable by the Federal National Mortgage Association
("FNMA"), FHLMC or the Government National Mortgage Association ("GNMA"), for
whom the Company provides significant amounts of mortgage loan servicing.
Mortgage servicing rights represent a contract right to service and not a
beneficial ownership interest in underlying mortgage loans. Failure to service
the loans in accordance with contract requirements may lead to the termination
of the servicing rights and the loss of future servicing fees. To date, there
have been no terminations of mortgage servicing rights by any mortgage loan
owners because of the Company's failure to service the loans in accordance with
its contractual obligations.
In order to track information on its servicing portfolio, the Company
utilizes a data processing system provided by Alltel Information Services, Inc.
("Alltel"), one of the largest mortgage banking service bureaus in the United
States. Management believes that this system gives the Company sufficient
capacity to support anticipated expansion of its residential mortgage loan
servicing portfolio.
The following table sets forth certain information regarding the composition
of the Company's mortgage servicing portfolio (excluding loans subserviced for
others) as of the dates indicated:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------
1994 1995 1996
------------- ------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
FHA--insured/VA guaranteed residential............. $ 28,630 $ 37,135 $ 318,145
Conventional loans................................. 980,003 1,544,808 2,171,016
Other loans........................................ 33,152 14,442 15,875
------------ ------------ -----------
Total mortgage servicing portfolio............ $ 1,041,785 $ 1,596,385 $ 2,505,036
============ ============ ===========
Fixed rate loans................................... $ 669,933 $ 1,073,803 $ 1,986,599
Adjustable rate loans.............................. 371,852 522,582 518,437
------------ ------------ -----------
Total mortgage servicing portfolio............. $ 1,041,785 $ 1,596,385 $ 2,505,036
============ ============ ===========
</TABLE>
The following table shows the delinquency statistics for the mortgage loans
serviced by the Company (excluding loans subserviced for others) compared with
national average delinquency rates as of the dates presented:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------------------------------------------------------------
1994 1995 1996
-------------------------------- -------------------------------- ----------------------------------
NATIONAL NATIONAL NATIONAL
COMPANY AVERAGE(1) COMPANY AVERAGE(2) COMPANY AVERAGE(3)
------------------ ---------- ------------------- ---------- --------------------- ----------
PERCENTAGE PERCENTAGE PERCENTAGE
NUMBER OF PERCENTAGE NUMBER OF PERCENTAGE NUMBER OF PERCENTAGE
OF SERVICING OF OF SERVICING OF OF SERVICING OF
LOANS PORTFOLIO(4) LOANS LOANS PORTFOLIO(4) LOANS LOANS PORTFOLIO(4) LOANS
------ ------------ ---------- ------- ------------ ----------- ------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans delinquent for:
30-59 days.............. 648 3.28 % 2.76 % 843 3.37 % 3.07 % 2,607 5.45 % 3.04 %
60-89 days.............. 223 1.13 0.67 195 0.78 0.70 667 1.40 0.71
90 days and over........ 287 1.46 0.74 166 0.67 0.71 684 1.43 0.62
----- ---- ---- ----- ---- ---- ----- ---- ----
Total delinquencies..... 1,158 5.87 % 4.17 % 1,204 4.82 % 4.48 % 3,958 8.28 % 4.37 %
===== ==== ==== ===== ==== ==== ===== ==== ====
Foreclosures............ 236 1.20 % 0.86 % 277 1.11 % 0.87 % 264 .55 % 1.03 %
- ----------
</TABLE>
(1) Source: Mortgage Bankers Association, "Delinquency Rates of 1- to 4-Unit
Residential Mortgage Loans" (Seasonally Adjusted) (March 7, 1995 report).
(2) Source: Mortgage Bankers Association, "Delinquency Rates of 1- to 4-Unit
Residential Mortgage Loans" (Seasonally Adjusted) (March 14, 1996 report).
(3) Source: Mortgage Bankers Association, "Delinquency Rates of 1- to 4-Unit
Residential Mortgage Loans" (Seasonally Adjusted) (March 6, 1997 report).
(4) Delinquencies and foreclosures generally exceed the national average due to
high rates of delinquencies and foreclosures on certain bulk loan and bulk
servicing portfolios acquired by the Company at a discount. In the fourth
quarter of 1996, the Company acquired a seasoned servicing portfolio which
had higher delinquencies primarily in the 30 day category. The higher
delinquencies were considered in the pricing of the portfolio.
6
<PAGE>
During periods of declining interest rates, prepayments of mortgage loans
increase as homeowners seek to refinance at lower interest rates, resulting in a
decrease in the value of the servicing portfolio. Mortgage loans with higher
interest rates are more likely to result in prepayments. The following table
sets forth certain information regarding the number and aggregate principal
balance of the mortgage loans serviced by the Company, including both fixed and
adjustable rate loans (excluding loans subserviced for others), at various
mortgage interest rates:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------------------------------------------------------------------------
1994 1995 1996
---------------------------------- ---------------------------------------- ------------------------------------
PERCENTAGE PERCENTAGE PERCENTAGE
NUMBER AGGREGATE OF AGGREGATE NUMBER AGGREGATE OF AGGREGATE NUMBER AGGREGATE OF AGGREGATE
OF PRINCIPAL PRINCIPAL OF PRINCIPAL PRINCIPAL OF PRINCIPAL PRINCIPAL
RATE LOANS BALANCE BALANCE LOANS BALANCE BALANCE LOANS BALANCE BALANCE
---- ------ --------- ------------ ------- ------------- ------------ -------- ----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Less than 7.00%. 2,113 $ 162,274 15.58 % 2,781 $ 218,914 13.71 % 3,545 $ 145,720 5.82 %
7.00%--7.99%... 3,798 204,024 19.58 7,386 576,255 36.10 12,269 726,800 29.01
8.00%--8.99%... 4,894 261,630 25.11 7,160 442,634 27.73 14,011 838,215 33.46
9.00%--9.99%... 4,314 200,025 19.20 4,460 191,549 12.00 9,567 413,598 16.51
10.00%--10.99%.. 2,179 142,504 13.68 2,005 125,544 7.86 6,322 301,837 12.05
11.00%--11.99%.. 756 33,772 3.24 519 24,220 1.52 1,144 45,111 1.80
12.00% and over. 1,667 37,556 3.61 647 17,269 1.08 924 33,755 1.35
------ ---------- ------- ------ ----------- ------ ------ ----------- ------
Total......... 19,721 $1,041,785 100.00 % 24,958 $ 1,596,385 100.00 % 47,782 $ 2,505,036 100.00 %
====== =========== ======= ====== =========== ====== ====== =========== ======
</TABLE>
Loan administration fees decrease as the principal balance on the
outstanding loan decreases and as the remaining time to maturity of the loan
shortens. The following table sets forth certain information regarding the
remaining maturity of the mortgage loans serviced by the Company (excluding
loans subserviced for others) as of the dates shown:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------
1994
------------------------------------------------
PERCENTAGE
NUMBER PERCENTAGE UNPAID UNPAID
OF OF NUMBER PRINCIPAL PRINCIPAL
MATURITY LOANS OF LOANS AMOUNT AM0UNT
- -------- ------ --------- --------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
1--5 years..................... 2,116 10.73 % $ 43,818 4.21 %
6--10 years.................... 5,538 28.08 125,648 12.06
11--15 years.................... 4,131 20.95 155,598 14.94
16--20 years.................... 1,529 7.75 92,028 8.83
21--25 years.................... 3,989 20.23 322,703 30.98
More than 25
years......................... 2,418 12.26 301,990 28.98
------ ------ ---------- ------
Total......................... 19,721 100.00 % $1,041,785 100.00 %
====== ====== ========== ======
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------
1995
---------------------------------------------------
PERCENTAGE
NUMBER PERCENTAGE UNPAID UNPAID
OF OF NUMBER PRINCIPAL PRINCIPAL
MATURITY LOANS OF LOANS AMOUNT AM0UNT
- -------- ------- --------- ----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
1--5 years.................... 3,077 12.33 % 60,496 3.79 %
6--10 years................... 4,898 19.62 118,928 7.45
11--15 years................... 5,263 21.09 302,332 18.94
16--20 years................... 2,608 10.45 168,166 10.53
21--25 years................... 4,880 19.55 472,613 29.61
More than 25
years........................ 4,232 16.96 473,850 29.68
------ ------ ----------- ------
Total........................ 24,958 100.00 % $ 1,596,385 100.00
====== ====== =========== ======
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------
1996
-------------------------------------------------
PERCENTAGE
NUMBER PERCENTAGE UNPAID UNPAID
OF OF NUMBER PRINCIPAL PRINCIPAL
MATURITY LOANS OF LOANS AMOUNT AM0UNT
- -------- ------- --------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
1--5 years................... 5,020 10.51 % $ 77,136 3.08 %
6--10 years.................. 8,784 18.39 184,629 7.37
11--15 years.................. 6,418 13.43 340,282 13.58
16--20 years.................. 14,066 29.44 566,862 22.63
21--25 years.................. 7,006 14.66 545,336 21.77
More than 25
years....................... 6,488 13.57 790,791 31.57
------ ------ ---------- ------
Total....................... 47,782 100.00 % $2,505,036 100.00 %
====== ====== ========== ======
</TABLE>
The following table sets forth the geographic distribution of the mortgage
loans (including delinquencies) serviced by the Company (excluding loans
subserviced for others) by state:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------
1994
------------------------------------------------
PERCENTAGE PERCENTAGE
OF OF
NUMBER AGGREGATE AGGREGATE TOTAL
OF PRINCIPAL PRINCIPAL DELINQS.
STATE LOANS BALANCE BALANCE BY STATE(1)
- ----- ----- ----------- ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
CA(2).......................... 2,822 $ 343,135 32.94 % 29.24 %
TX(2).......................... 945 25,721 2.47 6.64
NY............................. 943 36,831 3.54 7.49
MD............................. 1,828 104,384 10.02 4.80
AZ............................. 4,132 145,980 14.01 7.49
MA............................. 353 21,625 2.08 3.53
Other(3)....................... 8,698 364,109 34.94 40.81
------ ----------- ------ -----
Total.......................... 19,721 $ 1,041,785 100.00 % 100.00 %
====== =========== ====== ======
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------
1995
-----------------------------------------------------
PERCENTAGE PERCENTAGE
OF OF
NUMBER AGGREGATE AGGREGATE TOTAL
OF PRINCIPAL PRINCIPAL DELINQS.
STATE LOANS BALANCE BALANCE BY STATE(1)
- ----- ----- --------- ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
CA(2).......................... 4,948 $ 533,590 33.42 % 39.04 %
TX(2).......................... 4,291 265,242 16.62 7.31
NY............................. 532 32,620 2.04 3.49
MD............................. 1,628 93,495 5.86 4.65
AZ............................. 3,787 139,038 8.71 7.89
MA............................. 890 83,593 5.24 2.82
Other(3)....................... 8,882 448,807 28.11 34.80
------ ----------- ------- ------
Total.......................... 24,958 $ 1,596,385 100.00 % 100.00 %
====== =========== ======= ======
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------
1996
-----------------------------------------------
PERCENTAGE PERCENTAGE
OF OF
NUMBER AGGREGATE AGGREGATE TOTAL
OF PRINCIPAL PRINCIPAL DELINQS.
STATE LOANS BALANCE BALANCE BY STATE(1)
- ----- ----- ------------ ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
CA(2)......................... 6,971 $ 680,075 27.15 % 14.60%
TX(2)......................... 12,257 410,892 16.40 37.34
NY............................ 2,396 214,228 8.55 3.87
MD............................ 2,415 133,298 5.32 2.17
AZ............................ 3,265 128,251 5.12 4.17
MA............................ 953 81,170 3.24 1.37
Other(3)...................... 19,525 857,122 34.22 36.48
------ ----------- ------ ------
Total......................... 47,782 $ 2,505,036 100.00 % 100.00 %
====== =========== ====== ======
</TABLE>
- --------------
(1) In terms of number of loans outstanding.
(2) The concentration in California and Texas does not reflect a business
strategy of the Company but rather the pursuit of specific opportunities.
(3) No other state accounted for greater than 5.0%, based on aggregate principal
balances, of the Company's mortgage loan servicing portfolio as of December
31, 1996.
7
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ACQUISITION OF SERVICING RIGHTS. The Company acquires substantially all of
its mortgage servicing rights in the secondary market. The secondary market for
purchasing and selling mortgage servicing rights is inefficient in several
respects, including the lack of a centralized exchange for conducting trading,
the lack of definitive market prices, and the lack of conformity in modeling
assumptions. The industry expertise of United Financial's and Matrix Financial's
employees allows the Company to capitalize upon these inefficiencies when
acquiring mortgage servicing rights. Prior to completing any such acquisition,
the Company analyzes a wide range of characteristics of each portfolio
considered for purchase. This analysis includes projecting revenues and expenses
and reviewing geographic distribution, interest rate distribution, loan-to-value
ratios, outstanding balances, delinquency history, and other pertinent
statistics. Due diligence is performed either by Matrix Financial's employees or
a designated independent contractor on a representative sample of the mortgages
involved. The purchase price is based on the present value of the expected
future cash flow, calculated by using a discount rate and loan prepayment
assumptions that management considers to be appropriate to reflect the risk
associated with the investment.
SERVICING SALES. The Company periodically sells its purchased mortgage
servicing portfolios and generally sells all of its originated mortgage loan
servicing rights. Such sales increase revenue, as reflected in loan origination
income and gain on sale of servicing, and generate cash at the time of sale, but
reduce future servicing fee income. Originated mortgage servicing rights were
sold on a bulk and flow basis on loans having an aggregate principal amount of
$89.0 million and $303.3 million during the years ended December 31, 1995 and
1996, respectively. Periodically, the Company may also sell purchased mortgage
servicing rights to restructure its portfolio or generate revenues. Purchased
mortgage servicing rights were sold on loans having an aggregate principal
amount of $31.8 million and $646.0 million during the years ended December 31,
1995 and 1996, for net gains of $1.2 million and $3.2 million, respectively.
The Company anticipates that it will continue to adhere to its policy of
selling substantially all of its originated mortgage servicing rights. The
Company also may sell purchased mortgage servicing rights. Management intends to
base decisions regarding future mortgage servicing sales upon the Company's cash
requirements, purchasing opportunities, capital needs, earnings and the market
price for mortgage servicing rights. During a quarter in which a sale occurs,
reported income will tend to be greater than if such sale had not occurred
during that quarter. Prices obtained for mortgage servicing rights vary
depending on servicing fee rates, anticipated prepayment rates, average loan
balances, remaining time to maturity, servicing costs, custodial escrow
balances, delinquency and foreclosure experience, and purchasers' required rates
of return.
In the ordinary course of selling mortgage servicing rights, the Company, in
accordance with industry standards, makes certain representations and warranties
to purchasers of mortgage servicing rights. If a loan defaults when there has
been a breach of representations or warranties and the Company has no
third-party recourse, the Company may become liable for the unpaid principal and
interest on defaulted loans. In such a case, the Company may be required to
repurchase the mortgage loan and bear any subsequent loss on the loan. In
connection with any purchases by the Company of mortgage servicing rights, the
Company also is exposed to liability to the extent that an originator or seller
of the servicing rights is unable to honor its representations and warranties.
During 1995 and 1996, the Company recognized losses of $205,000 and $150,000
respectively, on loan repurchases resulting from a particular servicing
portfolio purchased by the Company. The Company does not anticipate any
additional material losses with respect to this or any other servicing portfolio
due to breaches of representations and warranties; however, there can be no
assurance that the Company will not experience such losses.
PURCHASE AND SALE OF BULK LOAN PORTFOLIOS
LOAN PURCHASES. In addition to its traditional mortgage loan origination and
servicing-related activities, the Company makes bulk purchases of mortgage loans
through Matrix Bank. The Company believes that its structure provides advantages
over its competitors in the purchase of bulk mortgage loan packages. United
Financial, through its networking within the mortgage banking industry, is able
to refer to Matrix Bank mortgage banking companies that are interested in
selling mortgage loan portfolios. The direct contacts reduce the number of
portfolios that must be purchased through competitive bid situations, thereby
reducing the cost associated with the acquisition of bulk mortgage loan
portfolios.
Because the Company services mortgage loans for more than 200 private
investors, including banks, savings associations, and insurance companies, it is
presented with opportunities to purchase the underlying mortgages. In many
cases, the mortgage loans increase in value solely due to the increased
liquidity provided by uniting ownership of the
8
<PAGE>
mortgage servicing rights with the underlying mortgage loans. As servicer,
Matrix Financial possesses information about the quality and performance history
related to each of these loans, and, in many cases, the Company acts as
custodian for the legal and credit documents on the underlying loans. With such
information available, the Company is in a position to negotiate advantageous
pricing on loans, which provides the Company an opportunity to resell the
mortgage loans at a higher price (an "arbitrage" opportunity). Controlling
ownership of the mortgage servicing and the underlying mortgage loan provides
the Company maximum arbitrage opportunity in a sale. During the years ended
December 31, 1995 and 1996, the Company made bulk purchases of approximately
$91.8 million and $159.0 million in mortgage loans, respectively.
TYPES OF LOANS PURCHASED. The Company reviews many loan portfolios for
prospective acquisition. The Company primarily focuses on acquiring seasoned
first lien priority loans secured primarily by one-to-four single family
residential properties valued at less than $350,000. The purchased loan
portfolios typically include both fixed and adjustable rate mortgage loans.
Mortgage loan portfolios are purchased from various sellers who, in some cases,
have originated the loans; but in most cases such sellers have acquired the loan
portfolios in bulk purchases.
The Company considers several factors prior to the purchase. Among others,
the Company considers the product type, the current loan balance, the current
interest rate environment, the seasoning of the mortgage loans, payment
histories, geographic location of the underlying collateral, price, the current
liquidity of the Company, and the product mix in its existing mortgage loan
portfolio.
In many cases, the mortgage loan portfolios that the Company acquires are
purchased at a discount to par. Some of the loans in these portfolios are
considered performing loans that have had payment problems in the past or have
had document deficiencies. These types of portfolios afford the Company an
arbitrage opportunity if the purchase discount on such portfolios accurately
reflects the additional risks associated with purchasing these types of loans.
Loan document deficiencies are identified in the due diligence process and, to
the extent practical, are cured by the Company prior to reselling the loans. The
Company also analyzes the payment history on each mortgage loan portfolio. Many
prior problems may be a result of inefficient servicing or may be attributable
to several servicing transfers of the loans over a short period of time. Because
many considerations may impact pricing or yield, each loan package evaluated is
priced based on the specific underlying loan characteristics. The Company
purchased fewer loan portfolios at a discount in 1996 versus historical levels.
The higher prices paid in 1996 resulted primarily from the Company acquiring
loan portfolios believed to have better payment histories and fewer document
deficiencies on average.
DUE DILIGENCE. The Company performs comprehensive due diligence on each
mortgage loan portfolio that the Company desires to purchase on a bulk basis.
These procedures consist of analyzing a representative sample of the mortgage
loans in the portfolio and are typically performed by Company employees, but
occasionally are outsourced to third party contractors. The underwriter takes
into account many factors in analyzing the sample of mortgage loans in the
subject portfolio, including the general economic conditions in the geographic
area or areas in which the underlying residential properties are situated, the
loan-to-value ratios on the underlying loans, the payment histories of the
borrowers, and other pertinent statistics. In addition, the underwriter attempts
to verify that each sample loan conforms to the standards for loan documentation
set by FNMA and FHLMC and, in cases where a significant portion of the sample
loans contains non-conforming documentation, the Company assesses the additional
risk involved in purchasing such loans. Once the underwriting and due diligence
process is complete, the Company categorizes each loan pool into one of four
categories. This process helps the Company determine whether the mortgage loan
portfolio meets the Company's investment criteria and, if it does, the range of
pricing that the Company feels is appropriate.
LOAN SALES. Substantially all of the mortgage loans in the Company's loan
portfolio are classified as held for sale. The Company continually monitors the
secondary market for purchases and sales of mortgage loan portfolios and
typically undertakes a sale of a particular loan portfolio held by the Company
in an attempt to "match" an anticipated bulk purchase of a particular mortgage
loan portfolio or to generate current period earnings and cash flow. To the
extent that the Company is unsuccessful in matching its purchases and sales of
mortgage loans, the Company may have excess capital at Matrix Bank, resulting in
less than optimum leverage and capital ratios. During the years ended December
31, 1995 and 1996, the Company made bulk sales of approximately $70.2 million
and $79.0 million in loans, for gains on sale of bulk mortgage loans of $3.3
million and $3.4 million, respectively.
9
<PAGE>
RESIDENTIAL MORTGAGE LOAN ORIGINATION
WHOLESALE ORIGINATIONS. The Company originates residential mortgage loans
primarily on a wholesale basis through Matrix Financial. For the years ended
December 31, 1995 and 1996, Matrix Financial originated a total of $388.9
million and $583.3 million in wholesale residential mortgage loans,
respectively.
Matrix Financial's source of mortgage loan originations is its wholesale
division, which originates mortgage loans through approved independent mortgage
loan brokers that qualify to participate in Matrix Financial's program through a
formal application process that includes an analysis of the broker's financial
condition and sample loan files, as well as the broker's reputation, general
lending expertise and references. As of December 31, 1996, Matrix Financial had
approved relationships with approximately 500 mortgage loan brokers. From Matrix
Financial's offices in Atlanta, Denver and Phoenix, the sales staff solicit
mortgage loan brokers throughout the Southeastern and Rocky Mountain areas of
the United States for loan packages that meet Matrix Financial's criteria.
Mortgage loans submitted by brokers are funded after being underwritten by
Matrix Financial.
Mortgage loan brokers act as intermediaries between borrowers and Matrix
Financial in arranging mortgage loans. Matrix Financial, as an approved FNMA,
FHLMC and GNMA seller/servicer, provides such brokers access to the secondary
market for the sale of mortgage loans that they otherwise cannot access because
they do not meet the applicable seller/servicer net worth requirements. Matrix
Financial attracts and maintains relationships with mortgage loan brokers by
offering a variety of services and products.
By concentrating on wholesale mortgage banking services through independent
mortgage loan brokers, Matrix Financial is able to originate mortgage loans in a
cost-effective manner. Historically, retail mortgage loan origination has
involved higher fixed overhead costs such as offices, furniture, computer
equipment and telephones, as well as additional personnel costs such as sales
representatives and loan processors. By limiting the number of offices and
personnel needed to generate business, Matrix Financial has transferred the
overhead burden of mortgage origination to the independent mortgage loan brokers
that originate the loans. As a result, Matrix Financial can match its
origination costs more directly to loan origination volume so that a substantial
portion of its costs are variable rather than fixed.
In June 1996, the Company implemented a program to supplement its product
offerings made through its wholesale loan origination networks by adding
products tailored to borrowers who are unable or unwilling to obtain mortgage
financing from conventional mortgage sources. The borrowers who need this type
of loan product often have impaired or unsubstantiated credit histories and/or
unverifiable income and require or seek a high degree of personalized services
and swift response to their loan applications. As a result, these borrowers
generally are not averse to paying higher interest rates that the Company will
charge for this loan product type as compared with the interest rates charged by
conventional lending sources. The Company has established classifications with
respect to the credit profiles of these borrowers. The classifications range
from A-minus through D depending upon a number of factors, including the
borrower's credit history and employment status. To date, the operations of the
B/C Lending Division have not been material to those of the Company.
RETAIL ORIGINATIONS. On a limited basis, and primarily in order to serve the
communities in which it operates, Matrix Bank originates residential loans on a
retail basis through its branches in Las Cruces, New Mexico and Sun City,
Arizona. In early 1997, the Bank opened a lending branch in Evergreen, Colorado,
which is anticipated to increase the amount of Matrix Bank's retail
originations. This location will primarily originate residential construction
loans and some commercial loans in the local market place. It is anticipated
that the construction loans will be converted to permanent mortgage loans and
funded through Matrix Bank. The retail loans originated by Matrix Bank consist
of a broad range of residential (both at fixed and at adjustable rates) and
consumer loan products and on a more limited basis, consumer loan products and
commercial real estate loans.
QUALITY CONTROL. The Company has a loan quality control process designed to
ensure sound lending practices and compliance with FNMA, FHLMC, and applicable
private investor guidelines. Prior to funding any wholesale or retail loan, the
Company performs a pre-funding quality control audit that consists of the
verification of a borrower's credit and employment and utilizes a detailed
checklist. Subsequent to funding, the Company on a monthly basis selects 10% of
all closed loans for a detailed audit conducted by its own personnel or a
third-party service provider. The quality control process entails performing a
complete underwriting review and independent reverification of all employment
information, tax returns, source of down payment funds, bank accounts, and
credit. Furthermore, 10% of the audited loans are chosen for an independent
field review and standard factual credit report. All discovered deficiencies in
these audits are reported
10
<PAGE>
to senior management of the Company to determine trends and additional training
needs. All resolvable issues are addressed and cured by the Company. Any loans
that fail to meet applicable investment criteria of an investor are reported to
such investor, which could result in a requirement by the investor for the
Company to repurchase the loan. The Company also performs a quality control
audit on all early payment defaults, first payment defaults, and 60-day
delinquent loans; the findings are reported to the appropriate investor and/or
senior management.
SALE OF LOAN ORIGINATIONS. The Company generally sells the loans that it
originates. In the future, however, it is anticipated that Matrix Bank will hold
for investment certain mortgage loans that it has originated. Under ongoing
programs established with FNMA and FHLMC, conforming conventional loans may be
sold on a cash basis or pooled by the Company and exchanged for securities
guaranteed by FNMA or FHLMC. These securities are then sold by Matrix Financial
and Matrix Bank to national or regional broker/dealers. Mortgage loans sold to
FNMA or FHLMC are sold on a nonrecourse basis so that foreclosure losses are
generally borne by FNMA or FHLMC and not by the Company.
The Company also sells nonconforming mortgage loans on a nonrecourse basis
to other secondary market investors. These loans are typically first lien
mortgage loans that do not meet all of the agencies' underwriting guidelines,
and are originated instead for other institutional investors with whom the
Company has previously negotiated purchase commitments, and for which the
Company occasionally pays a fee. This practice would also apply to the sale of
residential mortgage loans originated through the Company's B/C Lending
Division.
The Company sells mortgage loans on a servicing-retained or servicing-
released basis. Certain purchasers of mortgage loans require that the loan be
sold to them servicing released. In all other cases the decision is left to the
Company. Generally, the Company sells conforming loans on a servicing-retained
basis and nonconforming loans on a servicing-released basis. See "--Residential
Loan Servicing Activities."
In connection with the Company's mortgage loan originations and sales, the
Company makes customary representations and warranties, similar in nature and
scope to those provided in connection with sales of mortgage servicing rights.
To date, they have not resulted in any significant repurchases of loans by the
Company or any pending or threatened claims by the purchasers against the
Company. However, there can be no assurance that losses will not occur in the
future due to the representations and warranties issued.
The sale of mortgage loans may generate a gain or loss for the Company.
Gains or losses result primarily from two factors. First, the Company may make a
loan to a borrower at a price that is higher or lower than it would receive if
it immediately sold the loan in the secondary market. These price differences
occur primarily as a result of competitive pricing conditions in the primary
loan origination market. Second, gains or losses may result from the changes in
interest rates that result in changes in the market value of the mortgage loans
from the time that the price commitment is given to the borrower until the time
that the mortgage loan is sold to the investor.
In order to hedge against the interest rate risk resulting from these timing
differences, the Company historically has committed to sell all closed
originated mortgage loans held for sale and a portion of the mortgage loans that
are not yet closed but for which the interest rate has been established
("pipeline loans"). The Company adjusts its net commitment position daily either
by entering into new commitments to sell or by buying back commitments to sell
depending upon its projection of the portion of the pipeline loans that it
expects to close. These projections are based on numerous factors, including
changes in interest rates and general economic trends. The accuracy of the
underlying assumptions bears directly upon the effectiveness of the Company's
use of forward commitments and subsequent profitability. At December 31, 1995,
the Company had approximately $93.1 million in pipeline and funded loans offset
with mandatory forward commitments of approximately $64.7 million and
non-mandatory forward commitments of approximately $15.3 million. At, December
31, 1996, the Company had approximately $62.6 million in pipeline and funded
loans offset with mandatory forward commitments of approximately $49.1 million
and non-mandatory forward commitments of approximately $8.1 million. The
inherent value of the forward commitments is considered in the determination of
the lower of cost or market in valuing the Company's pipeline and funded loans
at any given time. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Comparison of Results of Operations for the
Years Ended December 31, 1996 and 1995--Loan Origination."
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<PAGE>
REAL ESTATE MANAGEMENT AND DISPOSITION SERVICES
USS, which began operations in June 1995, provides real estate management
and disposition services to customers across the United States. In addition to
the unaffiliated clients currently served by USS, Matrix Financial uses USS
exclusively in handling the disposition of its foreclosed real estate. Having
USS provide this service as opposed to Matrix Financial transforms the
disposition process into a revenue generator for the Company, since USS
typically collects a fee of 1% of the value of the foreclosed real estate from
the real estate broker involved in the sale transaction. USS is able to provide
this disposition service on an outsourced basis and at no additional cost to the
mortgage loan servicer, since USS collects its fee from the real estate broker.
USS is able to pass the cost of the disposition on to the real estate broker
because of the volume it generates. In addition, USS provides limited collateral
valuation opinions to clients such as FHLMC who are interested in assessing the
value of the underlying collateral on non-performing mortgage loans, as well as
to clients such as Matrix Bank and other third-party mortgage loan originators
and buyers interested in evaluating potential bulk purchase of mortgage loans.
To date, the operations of USS have not been material to those of the Company.
SAVINGS BANK ACTIVITIES
With branches in Las Cruces, New Mexico and Sun City, Arizona, Matrix Bank
serves its local communities by providing a broad range of personal and business
depository services, offering residential and consumer loans and providing, on a
more limited basis, commercial real estate loans. In May 1996, a subsidiary of
Matrix Bank, Sterling Finance Co., Inc. ("Sterling"), purchased substantially
all of the assets of a Denver-based originator and seller of sub-prime
automobile retail installment sales contracts. On December 31, 1996, Matrix Bank
sold the fixed assets of Sterling Finance Co., Inc. to a third party buyer and
ceased operations. In conjunction with contractual obligations associated with
selling loans into the secondary market, Matrix Bank repurchased approximately
$2.5 million of installment loans and repossessed automobiles that Sterling sold
to outside investors. These assets will be disposed of or serviced under the
direction of Matrix Bank. In January 1997, a loan production branch was
established in Evergreen, Colorado that will primarily originate residential
real estate construction loans and commercial loans in the Colorado market. For
a discussion of the depository services offered by Matrix Bank, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." For a discussion of the historical
loan portfolio of the Company, including that of Matrix Bank, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Asset
and Liability Management--Lending Activities."
SELF-DIRECTED TRUST ACTIVITIES
Sterling Trust provides services for self-directed individual retirement
accounts, qualified business retirement plans, personal custodial accounts, and
a variety of corporate trust and escrow arrangements. Sterling Trust actively
markets its services on a nationwide basis to the financial services industry,
specifically broker/dealers, registered representatives, insurance agents, tax
professionals, financial planners and advisors, and investment product sponsors.
At December 31, 1996, Sterling Trust Co. was administering assets in excess of
$1.1 billion. Historically, approximately 6% to 8% of the assets under
administration are maintained in money market accounts. Sterling retains no
discretion with respect to the investment of trust assets, and executes no
investment transaction until so instructed by the client or the client's
designated representative. In February 1997, Sterling Trust Co. moved
approximately $80.0 million of money market balances from a third party
institution to Matrix Capital Bank.
COMPETITION
The industries in which the Company competes are highly competitive. The
Company competes for the acquisition of mortgage loan servicing rights and bulk
loan portfolios mainly with mortgage companies, savings associations, commercial
banks, and other institutional investors. The Company believes that it has
competed successfully for the acquisition of mortgage loan servicing rights and
bulk loan portfolios by relying on the advantages provided by its unique
corporate structure and the secondary marketing expertise of the employees in
each Subsidiary.
Competition in mortgage loan and mortgage servicing rights brokerage and
consulting arises mainly from other mortgage banking consulting firms, national
and regional investment banking companies, and accounting firms. Management
believes that the distinction among market participants is based primarily on
customer service. United Financial competes for its brokerage and consulting
activities by recruiting qualified and experienced sales people, by
12
<PAGE>
developing innovative sales techniques, by providing financing opportunities to
its customers through its affiliation with Matrix Bank, and by seeking to
provide a higher level of service than is furnished by its competitors.
Competition in originating mortgage loans arises mainly from other mortgage
companies, savings associations, and commercial banks. The distinction among
market participants is based primarily on price and, to a lesser extent, the
quality of customer service and name recognition. Aggressive pricing policies of
the Company's competitors, especially during a declining period of mortgage loan
originations, could in the future result in a decrease in the Company's mortgage
loan origination volume and/or a decrease in the profitability of the Company's
loan originations, thereby reducing the Company's revenues and net income. The
Company competes for loans by offering competitive interest rates and product
types, and by seeking to provide a higher level of personal service to mortgage
brokers and borrowers than is furnished by competitors. However, the Company
does not have a significant market share of the lending markets in which it
conducts operations.
Management believes that Matrix Bank's most direct competition for deposits
comes from local financial institutions. The distinction among market
participants is based primarily on price and, to a lesser extent, the quality of
customer service and name recognition. Matrix Bank's cost of funds fluctuates
with general market interest rates. During certain interest rate environments,
additional significant competition for deposits may be expected from corporate
and governmental debt securities, as well as money market mutual funds. Matrix
Bank competes for conventional deposits by emphasizing quality of service,
extensive product lines, and competitive pricing.
Sterling Trust faces considerable competition in all of the services and
products which it offers. The main competition comes from the other
self-directed trust companies. However, Sterling Trust also faces competition
from other trust companies and trust divisions of other financial institutions.
Sterling's niche has been, and will continue to be providing high quality
customer service and servicing niche retirement products. In an effort to
increase market share, Sterling Trust will endeavor to provide superior service,
expand its marketing efforts, provide competitive pricing, and continue to
diversify its product mix.
EMPLOYEES
At December 31, 1996, the Company had 192 employees. Management believes
that its relations with its employees are good. Neither Matrix Capital nor any
of the Subsidiaries is a party to any collective bargaining agreement.
REGULATION AND SUPERVISION
Set forth below is a brief description of various laws and regulations
affecting the operations of the Company. The description of laws and regulations
contained herein does not purport to be complete and is qualified in its
entirety by reference to applicable laws and regulations. Any change in
applicable laws, regulations or regulatory policies may have a material effect
on the business, operations and prospects of the Company.
MATRIX CAPITAL. The Company is a unitary thrift holding company within the
meaning of the Home Owners' Loan Act of 1933, as amended ("HOLA"). As such,
Matrix Capital has registered with the OTS and is subject to OTS regulation,
examination, supervision and reporting requirements. In addition, the OTS has
enforcement authority over Matrix Capital and its non-savings institution
subsidiaries. Among other things, this authority permits the OTS to restrict or
prohibit activities that are determined to be a serious risk to Matrix Bank. In
addition, Matrix Bank must notify the OTS at least 30 days before making any
distribution to Matrix Capital.
As a unitary thrift holding company, Matrix Capital generally is not
restricted under existing laws as to the types of business activities in which
it may engage, provided that Matrix Bank continues to be a "qualified thrift
lender" under HOLA ("QTL"). Upon any nonsupervisory acquisition by Matrix
Capital of another savings association or savings bank that meets the QTL test
and is deemed to be a savings institution by OTS, Matrix Capital would become a
multiple thrift holding company (if the acquired institution is held as a
separate subsidiary) and would be subject to extensive limitations on the types
of business activities in which it could engage. HOLA limits the activities of a
multiple thrift holding company and its uninsured institution subsidiaries
primarily to activities permissible for bank holding companies under Section
4(c)(8) of the Bank Holding Company Act of 1956, as amended (the "BHC Act"),
subject to the prior approval of the OTS, and activities authorized by OTS
regulation.
13
<PAGE>
Legislation has been proposed that would impose limits on the nonbanking
activities of companies that acquire savings associations. It is anticipated
that Matrix Capital's holding company status would be "grandfathered" under such
legislation, but there can be no assurance that Matrix Capital would be exempt
from such limits. Furthermore, any available grandfathering might not continue
to be available to Matrix Capital as a result of a possible merger of the
federal regulatory agencies. Several proposals have been introduced in Congress
over a number of years with increasing frequency and interest in such a merger.
If the OTS and Office of the Comptroller of the Currency were merged, as one
proposal would require, the federal thrift charter would actually be eliminated.
If adopted, such a proposal would require that Matrix Bank become a national
bank and would subject it to regulation as such. One effect of such a
requirement would be that Matrix Capital could not engage in activities not
permitted for national banks. In addition, the ability to branch interstate
would become subject to the restrictions of the Riegle-Neal Interstate Banking
and Branching Efficiency Act of 1994 ("Riegle Act"). Accordingly, any
out-of-state branches of Matrix Bank in existence upon the effectiveness of such
a proposal that are not permissible under the Riegle Act and, if not
grandfathered, could be required to be divested. There are also some benefits to
such a charter conversion. For example, Matrix Bank would not, under regulations
currently applicable to national banks, be subject to the QTL test.
MORTGAGE BANKING OPERATIONS. The rules and regulations applicable to the
Company's mortgage banking operations establish underwriting guidelines that,
among other things, include anti-discrimination provisions, require provisions
for inspections, appraisals, and credit reports on prospective borrowers and fix
maximum loan amounts. Moreover, lenders, such as the Company, are required
annually to submit to the HUD, FNMA and FHLMC audited financial statements, and
each regulatory entity maintains its own financial guidelines for determining
net worth and eligibility requirements. The Company's affairs are also subject
to examination by HUD, FNMA and FHLMC at any time to assure compliance with the
applicable regulations, policies and procedures. Mortgage loan origination
activities are subject to, among others, the Equal Credit Opportunity Act,
Federal Truth-in-Lending Act and the Real Estate Settlement Procedures Act of
1974, as amended, and the regulations promulgated thereunder that prohibit
discrimination and require the disclosure of certain basic information to
mortgagors concerning credit terms and settlement costs.
Additionally, there are various state and local laws and regulations
affecting the Company's operations. The Company is licensed in those states in
which it does business requiring such a license where the failure to be licensed
would have a material adverse effect on the Company, its business or assets.
Conventional mortgage operations also may be subject to state usury statutes.
FEDERAL SAVINGS BANK OPERATIONS. Matrix Bank is subject to extensive
regulation, examination and supervision by the OTS, as its chartering authority
and primary regulator, and by the FDIC, which insures its deposits up to
applicable limits. Such regulation and supervision (i) establishes a
comprehensive framework of activities in which Matrix Bank can engage (ii)
limits the ability of Matrix Bank to extend credit to any given borrower, (iii)
imposes specified liquidity requirements, (iv) specifically restricts the
transactions in which Matrix Bank may engage with its affiliates, (v) requires
Matrix Bank to meet a "Qualified Thrift Lender" test that imposes a level of
portfolio assets in which Matrix Bank must invest (primarily residential
mortgages and related investments, (vi) places limitations on capital
distributions by savings associations such as Matrix Bank, including cash
dividends, (vii) imposes assessments to the OTS to fund its operations, (viii)
establishes a continuing and affirmative obligation, consistent with Matrix
Bank's safe and sound operation, to help meet the credit needs of the entire
community, including low and moderate income neighborhoods, (ix) requires Matrix
Bank to maintain certain non-interest bearing reserves against its transaction
account, (x) establishes various capital categories resulting in various levels
of regulatory scrutiny applied to the institutions in a particular category, and
(xi) establishes standards for safety and soundness. The regulatory structure is
designed primarily for the protection of the insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities. Any change in
such regulations, whether by the OTS, the FDIC or the Congress could have a
material impact on the Bank and its operations.
Insurance of Accounts and Regulation by the FDIC. Matrix Bank is a member of
the SAIF, which is administered by the FDIC. Savings deposits are insured up to
$100,000 per insured member (as defined by law and regulation) by the FDIC. Such
insurance is backed by the full faith and credit of the United States. As
insurer, the FDIC imposes deposit insurance assessments and is authorized to
conduct examinations of and to require reporting by the FDIC-insured
institutions. It also may prohibit any FDIC-insured institution from engaging in
any activity the FDIC determines by regulation or order to pose a serious risk
to the FDIC. The FDIC also may initiate enforcement actions against savings
associations and may terminate the deposit insurance if it determines that the
institution has engaged or is engaging in unsafe or unsound practices, or is in
an unsafe or unsound condition.
14
<PAGE>
FDICIA required the FDIC to implement a risk-based deposit insurance
assessment system. Pursuant to this requirement, the FDIC has adopted a
risk-based assessment system under which all SAIF insured depository
associations are placed into one of nine categories and assessed insurance
assessments based upon their level of capital and supervisory evaluation. Under
this system, associations classified as well capitalized and considered healthy
pay the lowest assessment while associations that are less than adequately
capitalized and considered of substantial supervisory concern pay the highest
assessment. In addition, under FDICIA, the FDIC may impose special assessments
on SAIF members to repay amounts borrowed from the United States Treasury or for
any other reason deemed necessary by the FDIC. The FDIC may increase assessment
rates, on a semiannual basis, if it determines that the reserve ratio of the
SAIF will be less than the designated reserve ratio of 1.25% of SAIF insured
deposits. In setting these increased assessments, the FDIC must seek to restore
the reserve ratio to that designated reserve level, or such higher reserve ratio
as established by the FDIC. Matrix Bank's current assessment is .064% of
deposits, which is the lowest rate.
By contrast, financial institutions that are members of the Bank Insurance
Fund ("BIF"), which has higher reserves, experienced lower deposit insurance
assessments. The disparity in deposit insurance assessments between SAIF and BIF
members was exacerbated by the statutory requirement that both the SAIF and the
BIF funds be recapitalized to a 1.25% reserved deposits ratio and that a portion
of most thrift's deposit insurance assessments be used to service bonds issued
by the Financial Corporation ("FICO"). BIF reached the required reserve ratio in
1995. As a result, financial institutions that have deposits insured by the SAIF
were subject to a potential competitive disadvantage as compared to BIF members.
To address this rate disparity, on September 30, 1996, the President signed
legislation intended to enable SAIF to reach the designated reserve ratio. The
legislation provides for a one-time special assessment of .657% to be imposed
upon all SAIF deposits as of March 31, 1995. Based on the company's SAIF
deposits as of March 31, 1995, the cost of the one-time special assessment was
approximately $450,000 (pre-tax). This amount was accrued in the third quarter
of 1996 and paid in the fourth quarter of 1996.
The legislation also provides for BIF members to service a growing portion
of the FICO bond payments. Until January 1, 2000, annual assessments of .013% of
BIF deposits and .064% of SAIF deposits will service the annual payments due on
the FICO bonds. Accordingly, Matrix Bank's portion of the payment on the FICO
bonds is .064% of the deposits. The legislation provides for subsequent full pro
rata sharing of FICO bond payments by BIF and SAIF institutions. The legislation
called for a merger of the SAIF and BIF as of January 1, 1999, but only if the
thrift charter has been eliminated.
The financing corporations created by FIRREA and the Competitive Equality
Banking Act of 1987 are also empowered to assess premiums on savings
associations to help fund the liquidation or sale of troubled associations. Such
premiums cannot, however, exceed the amount of SAIF assessments and are paid in
lieu thereof.
MATRIX BANK'S CAPITAL RATIOS. The following table indicates Matrix Bank's
regulatory capital ratios at December 31, 1996:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1996
-------------------------
CORE RISK-BASED
CAPITAL CAPITAL
---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Shareholder's equity/GAAP capital..................... $ 11,367 $ 11,367
Additional capital items:
General valuation allowances...................... -- 1,039
---------- ----------
Regulatory capital as reported to the OTS............. 11,367 12,406
Minimum capital requirement as reported to the OTS.... 7,875 8,979
---------- ----------
Regulatory capital--excess............................. $ 3,492 $ 3,427
========== ==========
Capital ratios........................................ 5.77 % 11.05 %
Well-capitalized requirement.......................... 5.00 % 10.00 %
</TABLE>
FEDERAL HOME LOAN BANK SYSTEM. Matrix Bank is a member of the Federal Home
Loan Bank ("FHLB") system, which consists of 12 regional FHLBs. The FHLB
provides a central credit facility primarily for member associations and
15
<PAGE>
administers the home financing credit function of savings associations. FHLB
advances must be secured by specified types of collateral and may only be
obtained for the purpose of providing funds for residential housing finance. The
FHLB funds its operations primarily from proceeds derived from the sale of
consolidated obligations of the FHLB system. Matrix Bank, as a member of the
FHLB system, must acquire and hold shares of capital stock in FHLB in an amount
at least equal to 1% of the aggregate principal amount of its unpaid residential
mortgage loans and similar obligations at the beginning of each year, or 1/20 of
its advances (borrowings) from the FHLB, whichever is greater. Matrix Bank was
in compliance with this requirement with an investment in FHLB stock at December
31, 1996 of $2.9 million.
REGULATION OF SUB-PRIME AUTOMOBILE LENDING. On December 31, 1996, Matrix
Bank sold the assets of Sterling to a third party buyer. However, during the
time that Matrix Bank owned Sterling, it purchased approximately $18.5 million
automobile retail installment contracts and sold them into the secondary market,
subject to certain recourse provisions. In conjunction with the contractual
obligations associated with those sales, Matrix Bank had, as of December 31,
1996, repurchased approximately $2.5 million of installment loans and
repossessed automobiles that Sterling sold to outside investors. Matrix Bank
bears the risk of additional repurchases subject to certain terms and conditions
of the various sale agreements which are primarily restricted to fraud. The
loans will be disposed of or serviced under the direction of Matrix Bank. The
automobile lending activities are subject to various federal and state laws and
regulations. Consumer lending laws generally require licensing of the lender and
purchasers of loans and adequate disclosure of loan terms and impose limitations
on the terms of consumer loans and on collection policies and creditor remedies.
Federal consumer credit statutes primarily require disclosures of credit terms
in consumer finance transactions. In general, the Company's sub-prime automobile
lending activities were conducted under licenses issued by individual states and
were also subject to the provisions of the federal Consumer Credit Protection
Act and its related regulations. Due to the consumer-oriented nature of the
industry in which Sterling operated and uncertainties with respect to the
application of various laws and regulations in certain circumstances, industry
participants are named from time to time as defendants in litigation involving
alleged violations of federal and state consumer lending or other similar laws
and regulations. A significant judgment against Sterling in connection with any
litigation could have a material adverse affect on the Company's financial
condition and results of operations. In addition, if it were determined that a
material number of loans purchased by Sterling involved violations of applicable
lending laws or fraudulent actions by the automobile dealers, the Company's
financial condition and results of operations could be materially adversely
affected.
REGULATION OF STERLING TRUST COMPANY. Sterling Trust Company provides
custodial services and directed (nondiscretionary) trustee services. Sterling
Trust was chartered under the laws of the State of Texas as a Texas trust
company is subject to supervision, regulation and examination by the Texas
Department of Banking.
ITEM 2. PROPERTIES
The executive and administrative offices of the Company, United Financial
and USS are located at 1380 Lawrence Street, Suite 1410, Denver, Colorado 80204.
The lease on these premises extends through January 1999 and the current annual
rent is approximately $120,000. The Company also owns a building in Phoenix,
that houses the majority of Matrix Financial's operations. This building was
purchased by the Company in 1994 and is subject to third party mortgage
indebtedness. See Note 4 to the Consolidated Financial Statements included
elsewhere herein. The Company utilizes approximately 18,000 of the 30,000 square
feet in this building, and the balance is leased to an affiliated company at
current market rates. The Company also leases two smaller office facilities in
Atlanta and Denver, where Matrix Financial conducts its wholesale loan
origination activities.
Matrix Bank owns an approximately 30,000 square foot building in Las Cruces,
New Mexico. Of this 30,000 square feet, approximately 9,200 square feet serve as
the headquarters for Matrix Bank. Substantially all of the remaining footage is
rented to unaffiliated third-party tenants at market rates. Matrix Bank also
owns a newly opened 1,800 square foot detached branch in Las Cruces and an
approximately 3,000 square foot branch in Sun City, Arizona. In January, 1997,
Matrix Bank opened an approximately 1,500 square foot loan origination branch in
Evergreen, Colorado. The lease on the Evergreen property provides for a one-year
term at an annual cost of $24,000.
Sterling Trust occupies approximately 11,300 square feet in Waco, Texas,
under a lease agreement that is in place until June 30, 2001, at a monthly rent
payment of $13,553. The lease agreement provides for renewal options and
allocation of certain expenses the lessee would reimburse over a specified
amount during the life of the lease.
16
<PAGE>
First Matrix is located in Arlington, Texas and operates in a 1,446 square
foot office suite. The current lease requires a monthly payment of $1,265 and
matures on April 30, 1997. A 24 month renewal option is available at current
market rates which the Company anticipates renewing.
The Company believes that all of its present facilities are adequate for its
current needs and that additional space is available for future expansion upon
acceptable terms.
ITEM 3. LEGAL PROCEEDINGS
Matrix Financial is a defendant in two lawsuits, Limper v. Matrix Financial
Services Corporation (Court of Common Pleas, Ottawa County, Ohio, January 29,
1996), and Mogavero v. Matrix Financial Services Corporation (United States
District Court for the District of Massachusetts, June 17, 1996) that purport to
cover a nationwide class of plaintiffs and involve similar facts and legal
claims. In both cases, the plaintiffs allege that Matrix Financial breached the
terms of plaintiffs' promissory notes and mortgages by imposing certain fax and
payoff statement fees at the time the plaintiffs prepaid their loans. The
plaintiffs claim that such fees constitute unauthorized charges in violation of
the terms of the notes, and demand restitution and attorneys' fees. In addition,
the plaintiffs in Mogavero seek treble damages for Matrix Financial's alleged
violation of 18 U.S.C. ss.1964.
Matrix Financial has entered into an agreement, which is subject to court
approval, to settle the Limper action and the Mogavero action. The settlement
agreement provides for the administration of the settlement in the Limper action
and the dismissal of the Mogavero action. Accordingly, a settlement order of
dismissal was entered in the Mogavero action on November 13, 1996.
The Court in the Limper action granted preliminary approval of the
settlement in January 1997. Accordingly, as provided by the settlement
agreement, Matrix Financial established a settlement fund of $640,000. The costs
of notice and class administration, attorneys' fees, and recovery to class
members are all to come from the settlement fund. Notice to class members was
mailed in January 1997 and published in February 1997. The final approval
hearing for the settlement is scheduled for April 10, 1997. The Company
established a reserve in the third quarter of 1996 to account for this
contingency.
The Company is involved from time to time in routine litigation incidental
to its business. However, other than described above, the Company believes that
it is not a party to any material pending litigation that, if decided adversely
to the Company, would have a significant adverse effect on the Company's
consolidated financial condition, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
17
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock, $.0001 par value ("Common Stock"), is traded
on the Nasdaq National Market under the symbol "MTXC." The initial public
offering of Common Stock occurred on October 18, 1996.
<TABLE>
<CAPTION>
1996
------------------
High Low
-------- -------
<S> <C> <C>
Fourth Quarter (beginning October 18, 1996) $ 15.88 $ 10.00
</TABLE>
On March 4, 1997, the closing price of the Common Stock was $13.50 per
share. Also as of that date the approximate number of holders of record of the
Company's Common Stock was 76. This number does not include beneficial owners
who hold their shares in a depository trust in "street" name.
Since its organization in June 1993, the Company has not paid any dividends
on its Common Stock, except for an aggregate of $88,000 in dividends paid to the
shareholders of the Company in 1993. The Company expects that it will retain all
available earnings generated by its operations for the development and growth of
its business and does not anticipate paying any cash dividends in the
foreseeable future. Any future determination as to dividend policy will be made
at the discretion of the Board of Directors of the Company and will depend on a
number of factors, including the future earnings, capital requirements,
financial condition and future prospects of the Company and such other factors
as the Board of Directors may deem relevant. Under the terms of the Company's
13% Senior Subordinated Notes issued in August 1995 (the "13% Senior
Subordinated Notes") and the Company's bank stock loan issued in March 1997, the
Company's ability to pay cash dividends to its shareholders is limited. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." In addition, the ability of Matrix
Financial and Matrix Bank to pay dividends to the Company may be restricted in
certain instances, including covenants under Matrix Financial's existing
warehouse facilities and certain other debt covenants of the Company.
During 1996, the Company issued the following unregistered securities in
reliance on the exemption from registration set forth in Section 4(2) of the
Securities Act of 1933, as amended. In October 1996, the Company granted options
exercisable for a total of 10,000 shares of Common Stock to the two nonemployee
directors of the Company, 5,000 shares of Common Stock to an advisory director
of the Company, 75,000 shares of Common Stock to three executive officers of the
Company, and 39,600 shares of Common Stock to various non-executive employees of
the Company. All such options are exercisable at $10.00 per share, which was the
fair market value of the Common Stock on the date of grant of such options. The
Company also issued warrants exercisable for an aggregate of 75,000 shares of
its common stock to its primary underwriters upon the closing of the Company's
initial public offering. The warrants are excercisable from time to time during
the four years after the one year anniversary of their date of grant, and are
not transferable during the first year after their grant. The exercise price of
the shares of common stock underlying such warrant is $12.00 per share.
18
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected financial data should be read in conjunction with the
Consolidated Financial Statements and Notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
AS OF AND FOR THE
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------
1992 1993(1) 1994 1995 1996
-------------- ------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Net interest income (loss) before
provision for loan and
valuation losses.................... $ (554) $ 944 $ 3,989 $ 3,536 $ 6,002
Provision for loan and valuation
losses............................. -- 15 216 401 143
-------- --------- --------- --------- ----------
Net interest income (loss) after
provision for loan and valuation
losses............................. (554) 929 3,773 3,135 5,859
-------- --------- --------- --------- ----------
Non-interest income:
Loan administration............... 6,025 6,427 6,926 7,749 8,827
Brokerage......................... 1,842 2,132 4,017 4,787 4,364
Gain on sale of loans............. 546 2,361 1,590 3,272 3,369
Gain on sale of mortgage
servicing rights................. 348 38 684 1,164 3,232
Loan origination(2)............... -- 221 1,294 2,069 1,561
Other............................. 186 466 487 781 1,118
-------- --------- --------- --------- ----------
Total non-interest income....... 8,947 11,645 14,998 19,822 22,471
Non-interest expense................ 8,281 10,464 14,279 17,136 22,951
-------- --------- --------- --------- ----------
Income before income taxes.......... 112 2,110 4,492 5,821 5,379
Income taxes(3)..................... -- 404 1,846 2,260 2,106
-------- --------- --------- --------- ----------
Net income.......................... $ 112 $ 1,706 $ 2,646 $ 3,561 $ 3,273 (4)
======== ========= ========= ========= ==========
Net income per common and common
equivalent share(5)................. $ .71 $ .91 $ .76
Pro forma net income(6)............. $ 67 $ 1,266
Pro forma net income per common and
common equivalent share(6).......... $ .02 $ .35
Weighted average common and common
equivalent shares outstanding...... 3,442,501 3,596,251 3,750,001 3,927,629 4,297,448
Cash dividends...................... $ -- $ 88 $ -- $ -- $ --
BALANCE SHEET DATA
Total assets........................ $ 10,140 $ 95,747 $ 112,051 $ 184,732 $ 272,863
Total loans (excluding allowance
for loan and valuation losses)...... 497 77,034 90,068 147,608 213,400
Allowance for loan and valuation
losses............................. -- 538 728 943 1,039
Nonperforming loans(7).............. -- 853 3,314 5,538 3,903
Mortgage servicing rights........... 6,200 1,818 6,183 13,817 23,680
Foreclosed real estate(7)........... 69 726 543 835 788
Deposits............................ -- 45,517 41,910 48,877 90,179
Custodial escrow balances........... -- 31,794 24,687 27,011 37,881
FHLB borrowings..................... -- -- 14,600 19,000 51,250
Borrowed money...................... 5,347 8,791 18,438 65,093 42,431
Total shareholders' equity.......... 1,369 3,030 5,676 9,338 30,802
OPERATING RATIOS AND OTHER SELECTED
DATA
Return on average assets(8)........ 1.13 % 4.98 % 2.69 % 2.38 % 1.57 %
Return on average equity(8)........ 7.73 88.44 58.49 51.38 24.90
Average equity to average assets(8) 14.57 5.63 4.60 4.63 6.29
Net interest margin(8)(9).......... -- 4.15 4.63 2.81 3.43
Operating efficiency ratio(10)..... 98.67 83.22 76.07 74.64 81.01
Total amount of loans purchased.... $ -- $ 32,231 $ 80,048 $ 91,774 $ 159,015
Balance of owned servicing
portfolio (end of period).......... $ 855,506 $ 1,007,286 $ 1,041,785 $ 1,596,385 $ 2,505,036
Wholesale loan origination volume.. $ -- $ 126,200 $ 183,130 $ 388,937 $ 583,279
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
AS OF AND FOR THE
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1992 1993(1) 1994 1995 1996
-------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
LOAN PERFORMANCE RATIOS
Nonperforming loans/total loans(7)..... -- % 1.11 % 3.68 % 3.75 % 1.83 %
Nonperforming assets/total assets(7)... -- 1.65 3.44 3.45 1.90
Net loan charge offs/average
loans(8).............................. -- 0.18 0.03 0.15 0.03
Allowance for loan and valuation
losses/total loans(11)................ -- 0.70 0.81 0.64 0.49
Allowance for loan and valuation
losses/nonperforming loans(11)........ -- 63.07 21.97 17.03 26.62
- ----------
</TABLE>
(1) The Company acquired all of the outstanding capital stock of Matrix Bank on
September 23, 1993. The operations of Matrix Bank have been included in the
consolidated operations of the Company from the date of acquisition.
(2) On January 1, 1995, the Company adopted FAS 122. Since FAS 122 prohibits
retroactive application, the historical accounting results for 1995 and
1996 are not directly comparable to the results for prior periods.
(3) Prior to the formation of Matrix Capital in June 1993, Matrix Financial and
United Financial had elected for certain periods to be taxed under the
provisions of subchapter "s" of the Code and accordingly did not pay income
taxes on their respective earnings; instead the shareholders of Matrix
Financial and United Financial were liable for such taxes. As a result,
there is no income tax provision for earnings during the periods in which
subchapter "s" treatment had been elected.
(4) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Comparison of Results of Operations for the Years
Ended December 31, 1996 and 1995--Loan Origination Income" for a discussion
of the impact on net income of a secondary marketing loss incurred in March
1996.
(5) Net income per common and common equivalent share is based on the weighted
average number of common shares outstanding during each period and the
dilutive effect, if any, of stock options and warrants outstanding. There
are no other dilutive securities.
(6) Pro forma net income and pro forma net income per share are presented for
periods in which the Company was not a taxable entity as a result of its
subchapter "s" election. The pro forma net income assumes an effective tax
rate of 40%. Pro forma net income per share is computed by dividing pro
forma net income by the weighted average number of shares of Common Stock
and Common Stock equivalents outstanding during the year.
(7) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Asset and Liability Management--Nonperforming
Assets" for a discussion of the impact of certain bulk purchases of
mortgage loan portfolios on the level of nonperforming loans and foreclosed
real estate, and the effect of repurchasing sub-prime automobile loans.
(8) Calculations are based on average daily balances where available and
monthly averages otherwise.
(9) Net interest margin has been calculated by dividing net interest income
before loan and valuation loss provision by average interest-earning
assets.
(10) The operating efficiency ratio has been calculated by dividing non-interest
expense by operating income (net interest income plus non-interest income).
(11) The allowance for loan and valuation losses does not include a $600,000
liability reserve account to cover potential losses associated with sub-
prime auto loans repurchased by Matrix Bank. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--
Nonperforming Assets".
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
The following management's discussion and analysis of the financial
condition and results of operations of the Company should be read in conjunction
with the preceding "Selected Consolidated Financial and Operating Information."
Additionally, the Company's Consolidated Financial Statements and the Notes
thereto, as well as other data included herein, should be read and analyzed in
combination with the analysis below.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND
1995
NET INCOME; RETURN ON AVERAGE EQUITY. Net income decreased $288,000, or
8.1%, to $3.3 million for the year ended December 31, 1996 as compared to $3.6
million for the year ended December 31, 1995. Return on average equity decreased
to 24.9% for the year ended December 31, 1996 as compared to 51.4% for the year
ended December 31, 1995.
20
<PAGE>
The decrease in return on average equity was primarily due to the Company's
policy of retaining all of its earning, the issuance of 2,012,500 shares of
additional stock in the fourth quarter, the one time expense for the SAIF
capitalization, the first quarter secondary marketing loss, the reserve for the
probable settlement of certain outstanding litigation and the recourse losses
related to the sub-prime autos repurchased at Sterling. See "--Loan Origination"
for a discussion of the secondary marketing loss. See "--Asset Liability
Management--Nonperforming Assets" for a discussion of the loss relating to the
disposition of Sterling.
NET INTEREST INCOME. Net interest income before provision for loan and
valuation losses increased $2.5 million, or 69.7%, to $6.0 million for the year
ended December 31, 1996, as compared to $3.5 million for the year ended December
31, 1995. The increase for the year ended December 31, 1996 was attributable to
the increase in the Company's yield on interest earning assets, which increased
to 9.42% for the year ended December 31, 1996, as compared to 8.52% for the year
ended December 31, 1995, and a decrease in the cost of interest-bearing
liabilities, which decreased to 6.59% for the year ended December 31, 1996, as
compared to 7.14% for the year ended December 31, 1995. The increase in the
Company's yield on interest-earning assets was primarily attributable to an
increase in the yield on the Company's adjustable rate loan portfolio, the
amortization and payoffs of loans which had significant discounts, and the
origination of higher yielding consumer loans. The decrease in the cost of
interest-bearing liabilities was attributable to the lower cost of borrowed
funds. The Company's net interest margin increased to 3.43% for the year ended
December 31, 1996, as compared to 2.81% for the year ended December 31, 1995.
The Company's average interest-earning assets increased $49.2 million, or 39.1%,
to $175.1 million for the year ended December 31, 1996, as compared to $125.9
million for the year ended December 31, 1995. This increase was attributable
primarily to the increase in the size of the Company's loan portfolio held for
sale. For a tabular presentation of the changes in net interest income due to
changes in volume of interest-earning assets and changes in interest rates, see
"--Analysis of Changes in Net Interest Income Due to Changes in Interest Rates
and Volumes."
PROVISION FOR LOAN AND VALUATION LOSSES. Provision for loan and
valuation losses decreased $258,000, or 64.3%, to $143,000 for the year ended
December 31, 1996 as compared to $401,000 for the year ended December 31, 1995.
This decrease was primarily attributable to the improvement in the portion of
the Company's residential loan portfolio classified as non-accrual. For a
discussion of the Company's allowance for loan and valuation losses as it
relates to nonperforming assets, see "--Asset and Liability
Management-Nonperforming Assets."
LOAN ADMINISTRATION. Loan administration fees increased $1.1 million, or
13.9%, to $8.8 million for the year ended December 31, 1996, as compared to $7.7
million for the year ended December 31, 1995. This increase was primarily
attributable to the increase in the average outstanding principal balance
underlying the Company's mortgage servicing rights portfolio for the year ended
December 31, 1996, as compared to the year ended December 31, 1995. Loan
administration fees are affected by factors that include the size of the
Company's residential mortgage loan servicing portfolio, the servicing spread,
the timing of payment collections, and the amount of ancillary fees collected.
The mortgage loan servicing portfolio owned increased by $908.7 million, or
56.9%, to $2.5 billion for the year ended December 31, 1996, as compared to $1.6
billion for the year ended December 31, 1995, with the majority of the increase
occurring in the fourth quarter of 1996.
BROKERAGE FEES. Brokerage fees decreased $423,000, or 8.8%, to $4.4
million for the year ended December 31, 1996, as compared to $4.8 million for
the year ended December 31, 1995. This decrease is a direct result of the amount
of the residential mortgage servicing portfolios brokered by United Financial.
The balance of residential mortgage servicing portfolios brokered by United
Financial, in terms of aggregate unpaid principal balances on the underlying
loans, decreased $6.2 billion, or 19.0%, to $26.4 billion the year ended
December 31, 1996, as compared to $32.6 billion for the year ended December 31,
1995. The decrease was primarily due to the amount of servicing brokered in the
first quarter of 1996 as mortgage banking firms and financial institutions
deferred servicing sales pending their review of the impact of FAS 122 on their
portfolios.
GAIN ON SALE OF LOANS AND MORTGAGE BACKED SECURITIES. Gain on the sale
of loans and mortgage backed securities increased $97,000, or 3.0%, to $3.4
million the year ended December 31, 1996, as compared to $3.3 million for the
year ended December 31, 1995. Gain on sale of loans can fluctuate significantly
from quarter to quarter and from year to year based on a variety of factors,
such as the current interest rate environment, the supply of loan portfolios in
the market, the mix of loan portfolios available in the market, the type of loan
portfolios the Company purchases, and the particular loan portfolios the Company
elects to sell. The Company's strategy has been and will continue to be to match
its purchases and sales while managing its desired growth.
21
<PAGE>
GAIN ON SALE OF MORTGAGE SERVICING RIGHTS. Gain on the sale of mortgage
servicing rights increased $2.0 million, or 177.7%, to $3.2 million for the year
ended December 31, 1996, as compared to $1.2 million for the year ended December
31, 1995. In terms of aggregate outstanding principal balances of mortgage loans
underlying such servicing rights, the Company sold $646.0 million in purchased
mortgage servicing rights for the year ended December 31, 1996 as compared to
$31.8 million for the year ended December 31, 1995. A portion of the servicing
rights sold in 1996 pertained to mortgage servicing portfolios that the Company
combined with the related loan participation interests, and then sold as one
asset. The servicing portfolio sold in 1995 consisted of loans with non-standard
payment accrual methodologies, including the Rule of 78's and daily simple
interest accruals, and were secured by second liens. The sales in 1996 were
consummated primarily to generate additional cash flow in order to acquire more
desirable residential servicing portfolios and to generate revenues.
LOAN ORIGINATION. Loan origination income decreased $508,000, or 24.6%,
to $1.6 million for the year ended December 31, 1996, as compared to $2.1
million for the year ended December 31, 1995, even though the Company
experienced an increase in wholesale residential mortgage loan production of
$194.4 million, or 50.0%, to $583.3 million for the year ended December 31,
1996, as compared to $388.9 million for the year ended December 31, 1995. This
decrease was primarily attributable to a $1.9 million secondary marketing loss
that occurred in March 1996. The secondary marketing loss was attributable to
the failure of a former officer of Matrix Financial to adhere to the established
hedging policies. As a result, certain closed loans were not adequately hedged
which resulted in a $1.9 million loss when interest rates increased dramatically
in March 1996, thereby causing the funded loans and pipeline commitments to
decline in market value. Had the policies been followed, the Company would still
have recognized a loss, albeit significantly smaller, since it is difficult for
the Company to be completely hedged when interest rates rapidly and
significantly change. The Company has implemented several management and
reporting changes to help ensure that the hedging policies established by Matrix
Financial's board of directors are adhered to so as to mitigate secondary losses
in volatile interest rate markets. Loan origination income includes all mortgage
loan fees, secondary marketing activity on new loan originations, servicing
release premiums on new originations sold, net of outside origination costs.
NONINTEREST EXPENSE. Noninterest expense increased $5.8 million, or
33.9% to $23.0 million for the year ended December 31, 1996, as compared to
$17.1 million for the year ended December 31, 1995. This increase was primarily
due to the one time SAIF assessment of $450,000 (pre-tax), reserve for the
probable settlement of certain outstanding litigation, expenses related to new
operating subsidiaries and expenses related to the operating loss and recourse
losses on sub-prime automobile installment contracts sold by Sterling and the
ceasing of its operations in December 1996. The following table details the
major components of noninterest expense for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1995 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Compensation and employee benefits ................................. $ 8,586 $ 10,604
Amortization of mortgage servicing rights .......................... 1,817 2,432
Occupancy and equipment............................................. 1,124 1,415
Professional fees................................................... 660 468
Data processing..................................................... 529 604
Other............................................................... 4,420 7,428
------- -------
Total........................................................... $ 17,136 $ 22,951
======= =======
</TABLE>
Compensation and employee benefits increased $2.0 million, or 23.5% to
$10.6 million for the year ended December 31, 1996, as compared to $8.6 million
for the year ended December 31, 1995. This increase was the result of the
expansion of the Company's business lines in 1996, including the opening of two
new branches of Matrix Bank, the formation of two new operating subsidiaries,
and the increased amount of wholesale mortgage loan originations (i.e.,
employees in the mortgage loan origination area are typically compensated on a
commission basis). The Company had an increase of 29 employees, or 17.8%, to 192
employees at year end December 31, 1996, as compared to 163 employees at year
end December 31, 1995. The Company also employed an additional 20 employees
during portions of 1996 at Sterling.
Amortization of mortgage servicing rights increased $615,000, or 33.8%,
to $2.4 million for the year ended December 31, 1996, as compared to $1.8
million for the year ended December 31, 1995. Amortization of mortgage
22
<PAGE>
servicing rights fluctuates based on the size of the Company's mortgage
servicing portfolio and the prepayment rates experienced with respect to the
underlying mortgage loan portfolio.
The remainder of noninterest expense, which includes occupancy and
equipment expenses, professional fees, data processing costs and other expenses
increased $3.2 million, or 47.3%, to $9.9 million for the year ended December
31, 1996, as compared to $6.7 million for the year ended December 31, 1995. The
increase was primarily attributable to the one-time SAIF assessment, the reserve
for the probable settlement of certain outstanding litigation, expansion of both
existing and new business lines, the formation of two operating subsidiaries,
the opening of two bank branches, and the recourse losses on automobile
installment contracts sold by Sterling and the ceasing of operations in December
1996.
PROVISION FOR INCOME TAXES. Provision for income taxes decreased
$154,000, or 6.8%, to $2.1 million for the year ended December 31, 1996, as
compared to $2.3 million for the year ended December 31, 1995. The decrease was
due to the decline in pre-tax income. The two periods had comparable effective
income tax rates of 39.2% and 38.8% respectively.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995 AND
1994
NET INCOME; RETURN ON AVERAGE EQUITY. Net income increased $915,000, or
34.6%, to $3.6 million for the year ended December 31, 1995, as compared to $2.6
million for the year ended December 31, 1994. Return on average equity decreased
to 51.4% for the year ended December 31, 1995, as compared to 58.5% for the year
ended December 31, 1994. The decrease in return on average equity was primarily
due to the Company's policy of retaining all of its earnings, which increased
the Company's equity base.
NET INTEREST INCOME. Net interest income before provision for loan and
valuation losses decreased $453,000, or 11.4%, to $3.5 million for the year
ended December 31, 1995, as compared to $4.0 million for the year ended December
31, 1994. The decrease for the year ended December 31, 1995 was attributable
primarily to the increase in the Company's cost of interest-bearing liabilities,
which increased to 7.14% for the year ended December 31, 1995, as compared to
5.16% for the year ended December 31, 1994. The increase in the cost of
interest-bearing liabilities was primarily related to borrowings used to fund
the increase in the mortgage loan originations. The Company's mortgage loan
originations are funded through borrowings based on short-term interest rates.
The interest rate spread between short-term interest rates and long-term
interest rates generally was lower during the year ended December 31, 1995, as
compared to the year ended December 31, 1994. The decrease occurred primarily
because the cost of interest-bearing liabilities increased more rapidly than the
yield on interest-earning assets. The effect of smaller spreads between
long-term interest rates and short-term interest rates means generally that the
Company earns less net interest income on its wholesale mortgage loan
originations which, in turn, reduces its net interest margin (net interest
income before provision for loan losses divided by average interest-earning
assets). The Company's net interest margin decreased to 2.81% for the year ended
December 31, 1995, as compared to 4.63% for the year ended December 31, 1994.
The effect of the lower interest rate margin was partially offset by an increase
in the Company's average interest-earning assets. The Company's average
interest-earning assets increased $39.8 million, or 46.3%, to $125.9 million for
the year ended December 31, 1995, as compared to $86.1 million for the year
ended December 31, 1994. This increase was attributable primarily to the
increase in the size of the Company's loan portfolio held for sale. For a
tabular presentation of the changes in net interest income due to changes in
volume of interest-earning assets and changes in interest rates, see "--Analysis
of Changes in Net Interest Income Due to Changes in Interest Rates and Volumes."
PROVISION FOR LOAN AND VALUATION LOSSES. The provision for loan and
valuation losses increased $185,000, or 85.6%, to $401,000 for the year ended
December 31, 1995, as compared to $216,000 for the year ended December 31, 1994.
This increase was attributable primarily to the corresponding increase in the
size of the Company's loan portfolio. For a discussion of the Company's
allowance for loan and valuation losses as it relates to nonperforming assets,
see "--Asset and Liability Management--Nonperforming Assets."
LOAN ADMINISTRATION. Loan administration fees increased $823,000, or 11.9%,
to $7.7 million for the year ended December 31, 1995, as compared to $6.9
million for the year ended December 31, 1994. This increase was attributable
primarily to the increase in the average outstanding principal balance
underlying the Company's mortgage servicing rights portfolio for the year ended
December 31, 1995, as compared to the year ended December 31, 1994.
BROKERAGE FEES. Brokerage fees increased $770,000, or 19.2%, to $4.8 million
for the year ended December 31, 1995, as compared to $4.0 million for the year
ended December 31, 1994. The increase was primarily attributable to an
23
<PAGE>
increase in the volume of residential mortgage servicing portfolios brokered by
United Financial. The balance of residential mortgage servicing portfolios
brokered by United Financial, in terms of aggregate unpaid principal balances on
the underlying loans, increased $3.7 billion, or 12.8%, to $32.6 billion for the
year ended December 31, 1995, as compared to $28.9 billion for the year ended
December 31, 1994.
GAIN ON SALE OF LOANS AND MORTGAGE-BACKED SECURITIES. Gain on sale of
mortgage loans and mortgage-backed securities increased by $1.7 million, or
105.8%, to $3.3 million for the year ended December 31, 1995, as compared to
$1.6 million for the year ended December 31, 1994. The increase was attributable
primarily to the type of loan portfolios that the Company purchased during 1995.
The Company's strategy has been and will continue to be to match its purchases
and sales while managing its desired growth. Therefore, the increase of $1.7
million in gain on loan sales was attributable to the Company's loan purchases,
which affect the mix, and to a limited extent the amount of the loan portfolios
that the Company sold.
GAIN ON SALE OF MORTGAGE SERVICING RIGHTS. Gain on sale of mortgage
servicing rights increased $480,000, or 70.2%, to $1.2 million for the year
ended December 31, 1995, as compared to $684,000 for the year ended December 31,
1994. This increase resulted primarily from one particular sale of mortgage
servicing rights with aggregate unpaid principal balances of $16.2 million,
resulting in a gain of $1.0 million. The servicing portfolio sold consisted of
loans with non-standard payment accrual methodologies, including the Rule of 78s
and daily simple interest accruals, and were secured by second liens. The sale
allowed the Company to deploy the cash generated to purchase new servicing
portfolios considered by the Company to be more conforming in nature and,
thereby, enhance the efficiencies of the Company's servicing operations.
LOAN ORIGINATION. Loan origination income increased $775,000, or 59.9%, to
$2.1 million for the year ended December 31, 1995, as compared to $1.3 million
for the year ended December 31, 1994. The increase of $775,000 was primarily the
result of the increase in new loan origination volume experienced by Matrix
Financial during 1995. The new loan origination volume increased $205.8 million,
or 112.4%, to $388.9 million for the year ended December 31, 1995, as compared
to $183.1 million for the year ended December 31, 1994.
NONINTEREST EXPENSE. Noninterest expense increased $2.8 million, or 20.0%,
to $17.1 million for the year ended December 31, 1995, as compared to $14.3
million for the year ended December 31, 1994. This increase was primarily a
result of the continued expansion and diversification of the Company's
operations during 1995. The following table details the major components of
noninterest expense for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1994 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Compensation and employee benefits................................... $ 7,719 $ 8,586
Amortization of mortgage servicing rights............................ 1,185 1,817
Occupancy and equipment.............................................. 1,067 1,124
Professional fees.................................................... 485 660
Data processing...................................................... 492 529
Other................................................................ 3,331 4,420
------- -------
Total............................................................ $ 14,279 $ 17,136
======= =======
</TABLE>
Compensation and employee benefits increased $867,000, or 11.2%, to $8.6
million for the year ended December 31, 1995, as compared to $7.7 million for
the year ended December 31, 1994. The majority of the increase was directly
related to the increase in the brokerage volume at United Financial and the loan
origination volume at Matrix Financial. The majority of employees engaged in
these activities are paid on a commission basis. The brokerage volume increased
$3.7 billion, or 12.8%, and the loan originations increased $205.8 million, or
112.4%, resulting in an increase in compensation of approximately $800,000. The
remainder of the increase is attributable to the Company's development and
expansion of both existing and new business lines during 1995, which also
resulted in the expansion of the Company's employee base. The Company had a
total of 163 employees at December 31, 1995, as compared to 153 at December 31,
1994.
24
<PAGE>
Amortization of mortgage servicing rights increased $632,000, or 53.3%, to
$1.8 million for the year ended December 31, 1995, as compared to $1.2 million
for the year ended December 31, 1994. This increase was due to the growth in the
Company's average outstanding balance of servicing rights, but was partially
offset by the slower rate of prepayments experienced during the year ended
December 31, 1995, as compared to the year ended December 31, 1994.
The remaining non-interest expense, including occupancy and equipment
expenses, professional fees, data processing costs, and other expenses, such as
telephone, postage, advertising and insurance, increased $1.3 million, or 25.3%,
to $6.7 million for the year ended December 31, 1995, as compared to $5.4
million for the year ended December 31, 1994. The increase was the result of the
development and expansion of both existing and new business lines.
PROVISIONS FOR INCOME TAXES. Provisions for income taxes increased $414,000,
or 22.4%, to $2.3 million for the year ended December 31, 1995, as compared to
$1.8 million for the year ended December 31, 1994. The increase was due to the
increase in pre-tax income. The two periods had comparable effective tax rates
of 39% and 41%, respectively.
AVERAGE BALANCE SHEET
The following table sets forth for the periods and as of the dates indicated
information regarding the Company's average balances of assets and liabilities
as well as the dollar amounts of interest income from interest-earning assets
and interest expense on interest-bearing liabilities and the resultant yields or
costs. Ratio, yield and rate information are based on average daily balances
where available; otherwise, average monthly balances have been used. Nonaccrual
loans are included in the calculation of average balances for loans for the
periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------
1994 1995 1996
---------------------------- ----------------------------- -----------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
---------- -------- ------- ----------- -------- ------- ----------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:.
Loans receivable, net of
discounts.....................$ 79,393 $ 6,681 8.42 % $ 121,206 $ 10,412 8.59 % $ 162,648 $ 15,733 9.67 %
Mortgage-backed securities..... -- -- -- -- -- -- 4,653 351 7.54
Interest-earning deposits...... 5,974 299 5.01 3,381 232 6.86 5,191 255 4.91
FHLB stock..................... 716 35 4.89 1,321 86 6.51 2,585 153 5.92
-------- ------ ------- --------- -------- ------ --------- -------- -------
Total interest-earning assets. 86,083 7,015 8.15 125,908 10,730 8.52 175,077 16,492 9.42
Noninterest earning assets:
Cash........................... 1,618 2,046 2,543
Allowance for loan and
valuation losses.............. (690) (836) (964)
Premises and equipment......... 3,639 4,909 6,540
Other assets................... 7,624 17,611 25,704
-------- --------- ---------
Total noninterest-earning
assets....................... 12,191 23,730 33,823
-------- --------- ---------
Total assets..................$ 98,274 $ 149,638 $ 208,900
======== ========= =========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing liabilities:
Passbook accounts..............$ 2,788 72 2.58 $ 2,394 85 3.55 $ 2,389 82 3.45
Money market and negotiable
order of withdrawal
("NOW") accounts.............. 9,481 271 2.86 8,320 292 3.51 11,964 468 3.91
Certificates of deposit........ 29,273 1,138 3.89 33,332 1,807 5.42 54,824 3,210 5.85
FHLB borrowings................ 3,071 213 6.94 17,662 1,113 6.30 35,838 2,039 5.69
Borrowed money................. 14,008 1,332 9.51 39,021 3,897 9.98 54,171 4,691 8.66
-------- ------ ------- --------- -------- ------ --------- -------- -------
Total interest-bearing
liabilities.................. 58,621 3,026 5.16 100,729 7,194 7.14 159,186 10,490 6.59
-------- ------ ------- --------- -------- ------ --------- -------- -------
Noninterest-bearing liabilities:
Demand deposits (including
custodial escrow balances).... 30,559 35,794 27,934
Other liabilities.............. 4,570 6,184 8,633
-------- --------- ---------
Total noninterest bearing
liabilities................... 35,129 41,978 36,567
Shareholders' equity........... 4,524 6,931 13,147
-------- --------- ---------
Total liabilities and
shareholders' equity.........$ 98,274 $ 149,638 $ 208,900
======== ========= =========
Net interest income before
provision for loan
and valuation losses............ $ 3,989 $ 3,536 $ 6,002
====== ======= =======
Interest rate spread............. 2.99 % 1.38 % 2.83 %
======= ====== ======
Net interest margin.............. 4.63 % 2.81 % 3.43 %
======= ====== ======
Ratio of average
interest-earning assets to
average interest-bearing
liabilities..................... 146.8 % 125.00 % 109.98 %
======= ====== ======
</TABLE>
25
<PAGE>
ANALYSIS OF CHANGES IN NET INTEREST INCOME DUE TO CHANGES IN INTEREST RATES AND
VOLUMES
The following table presents the dollar amount of changes in interest income
and interest expense for major components of interest-earning assets and
interest-bearing liabilities. It distinguishes between the increase or decrease
related to changes in balances and changes in interest rates. For each category
of interest-earning assets and interest-bearing liabilities, information is
provided on changes attributable to (i) changes in volume (i.e., changes in
volume multiplied by old rate) and (ii) changes in rate (i.e., changes in rate
multiplied by old volume). For purposes of this table, changes attributable to
both rate and volume, which cannot be segregated, have been allocated
proportionately to the change due to volume and the change due to rate.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 VS 1994 1996 VS 1995
------------------------------- ---------------------------------
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO CHANGE IN DUE TO CHANGE IN
------------------------------- ---------------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
---------- ---------- --------- --------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net of discounts........... $ 3,519 $ 212 $ 3,731 $ 3,561 $ 1,760 $ 5,321
Mortgage-backed securities................... -- -- -- -- 351 351
Interest-earning deposits.................... (130) 63 (67) 124 (101) 23
FHLB stock................................... 30 21 51 82 (15) 67
------- ------- -------- ------ ------- --------
Total interest-earning assets.............. 3,419 296 3,715 3,767 1,995 5,762
------- ------- -------- ------ ------- --------
Interest-bearing liabilities:
Passbook accounts............................ (10) 23 13 -- (3) (3)
Money market and NOW accounts................ (33) 54 21 128 48 176
Certificates of deposit...................... 158 512 670 1,165 238 1,403
FHLB advances................................ 1,012 (112) 900 1,145 (219) 926
Borrowed money............................... 2,378 186 2,564 1,513 (719) 794
------- ------- -------- ------ ------- --------
Total interest-bearing liabilities......... 3,505 663 4,168 3,951 (655) 3,296
------- ------- -------- ------ ------- --------
Change in net interest income before
provision for loan and valuation losses........ $ (86) $ (367) $ (453) $ (184) $ 2,650 $ 2,466
======== ======= ======== ======= ======= ========
</TABLE>
ASSET AND LIABILITY MANAGEMENT
GENERAL. The Company structures its operations to derive the majority of its
revenues and earnings from noninterest income. However, a portion of the
Company's revenues and net income is derived from net interest income and,
accordingly, the Company strives to manage its interest-earning assets and
interest-bearing liabilities to generate what management believes to be an
appropriate contribution from net interest income. Asset and liability
management seeks to control the volatility of the Company's performance due to
changes in interest rates. The Company constantly attempts to achieve an
appropriate relationship between rate sensitive assets and rate sensitive
liabilities. The Company has responded to interest rate volatility by developing
and implementing asset and liability management strategies designed to increase
its noninterest income and improve the match between interest-earning assets and
interest-bearing liabilities. These strategies include:
. Utilizing mortgage servicing rights as a source of noninterest income and
as a countermeasure against the decline in the value of mortgage loans
during a rising interest rate environment. Increases in interest rates
tend to increase the value of mortgage servicing rights because of the
resulting decrease in prepayment rates on the underlying loans;
. Increasing the noninterest bearing custodial escrow balances related to
the Company's mortgage servicing rights;
. Increasing focus on lines of business that are less interest rate
sensitive, such as brokerage activities, consulting services, self-
directed trust services, and real estate disposition;
. Maintaining a wholesale loan origination operation. Wholesale originations
provide a form of hedge against the balance of mortgage loan servicing
rights. In a decreasing interest rate environment, the value of the
servicing portfolio tends to decrease due to increased prepayments of the
underlying loans. During this same period, however, the volume of loan
originations generally increases;
26
<PAGE>
. Originating and purchasing adjustable rate mortgages and selling newly
originated fixed rate residential mortgages in the secondary market;
. Increasing emphasis on the origination of construction and commercial
real estate lending, which tend to have higher interest rates with
shorter loan maturities than residential mortgage loans;
. Increasing retail deposits, which are less susceptible to changes in
interest rates than other funding sources; and
. Pursuing strategic acquisitions that provide fee-based income or generate
liabilities that are less expensive or less interest rate sensitive than
retail deposits or borrowings from third party institutions to fund the
Companies investing activities
LENDING ACTIVITIES. The major interest earning asset of the Company is the
loan portfolio. Consequently, a significant part of the Company's asset and
liability management is monitoring the composition of the Company's loan
portfolio, including the corresponding maturities. The table below sets forth
the composition of the Company's loan portfolio by loan type as of the dates
indicated. The amounts in the table below are shown net of discounts and other
deductions.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------------------------------------
1993 1994 1995 1996
------------------ ------------------- ------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- ------ ------- ------ ------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Residential...................... $ 65,858 86.10 % $ 80,010 89.56 % $ 136,741 93.23 % $198,736 93.59 %
Multi-family and commercial real
estate......................... 7,813 10.21 7,518 8.41 7,544 5.15 8,734 4.11
Construction..................... 125 0.16 106 0.12 78 0.05 1,061 0.50
Consumer......................... 3,238 4.23 2,434 2.72 3,245 2.21 4,869 2.29
------- ------ ------- ------ --------- ------ ------ -----
Total loans.................. 77,034 100.70 90,068 100.81 147,608 100.64 213,400 100.49
Less allowance for loan and
valuation losses............. 538 0.70 728 0.81 943 0.64 1,039 0.49
-------- ------ -------- ------ --------- ------ -------- ------
Loans receivable, net............ $ 76,496 100.00 % $ 89,340 100.00 % $ 146,665 100.00 % $212,361 100.00 %
======== ====== ======== ====== ========= ====== ======== ======
</TABLE>
The following table presents the aggregate maturities of loans in each major
category of the Company's loan portfolio as of December 31, 1996. Loans held for
sale are classified as maturing within one year. Actual maturities may differ
from the contractual maturities shown below as a result of renewals and
prepayments or the timing of loan sales.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
--------------------------------------------
LESS THAN ONE TO OVER FIVE
ONE YEAR FIVE YEARS YEARS TOTAL
--------- ---------- --------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Residential.................................... $ 186,324 $ 618 $11,794 $ 198,736
Multi-family and commercial real estate........ 5 108 8,621 8,734
Construction................................... 1,061 -- -- 1,061
Consumer....................................... 1,159 2,446 1,264 4,869
--------- --------- ------- ---------
Total loans................................ $ 188,549 $ 3,172 $21,679 $ 213,400
========= ========= ======= =========
</TABLE>
NONPERFORMING ASSETS. As part of asset and liability management, the
Company monitors nonperforming assets ("NPAs") on a monthly basis. NPAs consist
primarily of nonaccrual loans and foreclosed real estate. Loans are placed on
nonaccrual when full payment of principal or interest is in doubt or when they
are past due 90 days as to either principal or interest. Foreclosed real estate
arises primarily through foreclosure on mortgage loans owned. The following
table sets forth the Company's NPAs as of the dates indicated:
27
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------------
1993 1994 1995 1996
----------- ----------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Nonaccrual mortgage loans....................... $ 657 $ 3,275 $ 5,523 $ 3,031
Nonaccrual consumer loans....................... 196 39 15 872
----------- ---------- ----------- ------------
Total nonperforming loans................... 853 3,314 5,538 3,903
Foreclosed real estate.......................... 726 543 835 788
Repossessed automobiles......................... -- -- -- 506
----------- ----------- ----------- ------------
Total nonperforming assets.................. $ 1,579 $ 3,857 $ 6,373 $ 5,197
=========== =========== =========== ============
Total nonperforming assets to total assets...... 1.65% 3.44 % 3.45 % 1.90 %
Total nonperforming loans to total loans........ 1.11% 3.68 % 3.75 % 1.83 %
Ratio of allowance for loan and valuation losses
to total non-performing loans............... 63.07% 21.97 % 17.03 % 26.62 %
Interest income on non-performing loans not
included in interest income................... $ 23 $ 140 $ 156 $ 120
</TABLE>
As of December 31, 1996, the Company had no accruing loans that were
contractually past due 90 days or more. The higher levels of mortgage nonaccrual
loans during 1994 and 1995 were primarily attributable to purchases by Matrix
Bank of bulk residential loan portfolios in those years. As part of its business
strategy, Matrix Bank purchases loans at a discount that have had delinquencies
in the past. Due to the past delinquency problems, there is often an increase in
delinquencies after the loans are purchased as a result of the servicing being
transferred to the Company. The Company's experience has been that it generally
takes 90 to 120 days after the servicing transfer to see an improvement in the
delinquency statistics. The decrease in the mortgage nonaccrual loans at
December 31, 1996 is attributable to the improvement of the loans that had past
delinquency problems and the credit quality of the loan portfolios the Company
acquired in 1996. In 1996, Matrix Bank acquired loans with less delinquency
problems and/or document deficiencies, which also resulted in a decrease in the
nonaccrual loans.
The increase in the nonaccrual consumer loans pertains to sub-prime auto
loans that the Company repurchased pursuant to limited representations and
warranties included in loan sale agreements. The Company has a separate reserve
of $600,000 included in other liabilities for anticipated losses relating to the
repurchased sub-prime auto loans at December 31, 1996. Included in repossessed
assets for 1996 is $506,000 of automobiles that the Company was required to
repurchase pursuant to the same limited representations and warranties. The
balance of the repossessed assets have been written down to the anticipated
recoverable amount. The Company sold the fixed assets of Sterling Finance in
December 1996 and it is anticipated it will originate no additional sub-prime
automobile contracts.
The prior delinquency and anticipated future delinquencies are taken into
consideration in the pricing of the loans acquired. The Company generally
purchases such loans at discounts and, in some instances, receives recourse or
credit enhancement from the seller to further reduce the Company's risk of loss
associated with the loans' nonaccrual status. At December 31, 1996, $2.8
million, or 72.50%, of the nonaccrual loans were loans that were residential
loans purchased in bulk loan portfolios and remain classified as "held for
sale." Total loans held for sale at December 31, 1996, were $182.8 million, of
which $2.8 million or 1.5% were nonaccrual loans. However, against the $182.8
million of total loans held for sale, the Company has $2.8 million of purchase
discounts plus an additional $1.8 million of credit enhancements related to
specific segments of the loan portfolio.
The percentage of the allowance for loan and valuation losses to nonaccrual
loans varies widely due to the nature of the Company's portfolio of mortgage
loans, which are collateralized primarily by residential real estate. The
Company analyzes the collateral for each nonperforming mortgage loan to
determine potential loss exposure. In conjunction with other factors, this loss
exposure contributes to the overall assessment of the adequacy of the allowance
for loan and valuation losses. See "--Comparison of Results of Operations for
the Years Ended December 31, 1996 and 1995."
28
<PAGE>
ANALYSIS OF ALLOWANCE FOR LOAN AND VALUATION LOSSES. The following table
sets forth information regarding changes in the Company's allowance for loan and
valuation losses for the periods indicated. The table includes the allowance for
both the loans held for investment and the loans held for sale.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1993 1994 1995 1996
----------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of period................................. $ -- $ 538 $ 728 $ 943
Charge-offs:
Real estate-mortgage....................................... 33 26 198 64
Real estate-construction................................... -- -- 35 --
Consumer................................................... -- -- 7 6
--------- --------- --------- ---------
Total charge-offs...................................... 33 26 240 70
Recoveries:
Real estate-mortgage....................................... -- -- 5 8
Consumer................................................... -- -- 49 15
--------- --------- --------- ---------
Total recoveries....................................... -- -- 54 23
--------- --------- --------- ---------
Net charge-offs................................................ 33 26 186 47
Allowance for loan losses established in connection with the
acquisition of Matrix Bank................................. 556 -- -- --
--------- --------- --------- ---------
Provision for loan losses charged to operations................ 15 216 401 143
--------- --------- --------- ---------
Balance at end of period....................................... $ 538 $ 728 $ 943 $ 1,039
========= ========= ========= =========
Ratio of net charge-offs to average loans...................... .18 % .03 % .15 % .03 %
========= ========= ========= =========
Average loans outstanding during the period.................... $ 18,608 $ 79,393 $ 121,206 $ 162,648
========= ========= ========= =========
</TABLE>
The allowance for loan and valuation losses is increased by the provision
for loan and valuation losses (which is charged to operations) for particular
loans where management considers ultimate collection to be questionable. The
allowance for loan and valuation losses is calculated, in part, based on
historical loss experience. In addition, management takes into consideration
other factors such as certain qualitative evaluations of individual classified
assets, trends in the portfolio, geographic and portfolio concentrations, new
products or markets, evaluations of the changes in the historical loss
experience component, and projections of this component into the current and
future periods based on current knowledge and conditions. Due to the nature of
the Company's loan portfolio, substantially all of the allowance for loan and
valuation losses relates to residential loans. The ratio of the allowance for
loan and valuation losses to total loans was .81%, .64% and .49% at December 31,
1994, 1995, and 1996, respectively. The allowance for loan and valuation losses
is reduced by loans charged off, net of recoveries.
RISK SENSITIVE ASSETS AND LIABILITIES. A traditional indicator of interest
rate risk is gap analysis. Gap analysis focuses on the difference (or gap)
between available repricing opportunities for assets and liabilities within
defined time periods. If the dollar amount of interest rate sensitive assets is
closely matched with the dollar amount of interest rate sensitive liabilities in
a given period, then the changes in interest income and interest expense over
this time frame should also be closely matched.
The following table sets forth the estimated maturity or repricing, and the
resulting interest rate gap, of the Company's interest-earning assets and
interest-bearing liabilities as of December 31, 1996. The amounts in the table
are derived from internal data of the Company and could be significantly
affected by external factors such as changes in prepayment assumptions, early
withdrawals of deposits, and competition. Loans held for sale are classified as
maturing within one year due to the Company's expectation of selling its loans
held for sale within one year.
29
<PAGE>
<TABLE>
<CAPTION>
ESTIMATED MATURITY OR REPRICING
----------------------------------------------------------------------------
THREE MONTHS TO
LESS THAN THREE LESS THAN ONE TO OVER
MONTHS ONE YEAR FIVE YEARS FIVE YEARS TOTAL
--------------- --------------- ---------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Fixed-rate loans............... $ 34,182 $ 48,288 $ 2,950 $ 5,426 $ 90,846
Adjustable-rate loans.......... 27,659 80,709 14,186 -- 122,554
Interest-earning deposits...... 9,499 -- -- -- 9,499
FHLB stock..................... 2,871 -- -- -- 2,871
-------- ------------ ----------- -------- ---------
Total interest-earning assets 74,211 128,997 17,136 5,426 225,770
Interest-bearing liabilities:
Passbook, NOW and money market
accounts..................... 16,944 -- -- -- 16,944
Certificates of deposit over
$100,000..................... 1,688 2,689 1,080 -- 5,457
Other certificates of deposit.. 13,458 36,772 17,548 -- 67,778
FHLB borrowings................ 51,250 -- -- -- 51,250
Short term borrowings.......... 31,504 -- -- -- 31,504
Other borrowings............... 101 738 7,460 2,628 10,927
-------- ------------ ----------- -------- ---------
Total interest-bearing
liabilities............... 114,945 40,199 26,088 2,628 183,860
-------- ------------ ----------- -------- ---------
Interest rate gap................ $ (40,734) $ 88,798 $ (8,952) $ 2,798 $ 41,910
======== ============ =========== ======== =========
Cumulative interest rate gap..... $ (40,734) $ 48,064 $ 39,112 $ 41,910
Gap/assets ratio................. (18.04) % 39.33 % (3.97) % 1.24 %
Cumulative gap/assets ratio...... (18.04) % 21.29 % 17.32 % 18.56 %
</TABLE>
Gap analysis attempts to capture interest rate risk, which is attributable
to the mismatching of interest rate sensitive assets and liabilities. The actual
impact of interest rate movements on the Company's net interest income may
differ from that implied by any gap measurement, depending on the direction and
magnitude of the interest rate movements, the repricing characteristics of
various on and off-balance sheet instruments, as well as competitive pressures.
These factors are not fully reflected in the foregoing gap analysis and, as a
result, the gap report may not provide a complete assessment of the Company's
interest rate risk.
The generally positive cumulative gap value means that over the periods
indicated the assets of the Company will reprice slightly faster than the
Company's liabilities. This means generally that, in a rising interest rate
environment, net interest income can be expected to increase and that, in a
declining interest rate environment, net interest income can be expected to
decrease.
SHORT-TERM BORROWINGS. A primary function of asset and liability management
is to assure adequate liquidity. In addition to cash and cash equivalents, the
Company relies heavily on short-term borrowing capabilities for liquidity and as
funding vehicle. The primary sources for short-term borrowing are the FHLB for
Matrix Bank and unaffiliated financial institutions for Matrix Financial. See
"--Liquidity and Capital Resources."
30
<PAGE>
The following table sets forth a summary of the short-term borrowings of the
Company during 1994, 1995, and 1996 and as of the end of each such period:
<TABLE>
<CAPTION>
AVERAGE WEIGHTED WEIGHTED
AMOUNT AMOUNT MAXIMUM AVERAGE AVERAGE
OUTSTANDING OUTSTANDING OUTSTANDING INTEREST INTEREST
AT DURING THE AT ANY RATE DURING RATE AT
YEAR END YEAR(1) MONTH END THE YEAR (%) YEAR END (%)
------------- ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
At or for the year ended December 31, 1994: (DOLLARS IN THOUSANDS)
FHLB borrowings.................. $ 14,600 $ 3,071 $ 15,000 6.94 % 6.50 %
Revolving lines of credit........ 9,890 4,917 11,042 9.29 9.21
Repurchase agreements............ 2,529 4,320 6,157 8.03 7.18
At or for the year ended December 31, 1995:
FHLB borrowings.................. 19,000 17,662 33,000 6.30 6.30
Revolving lines of credit........ 46,833 22,842 46,833 7.57 7.30
Repurchase agreements............ 570 4,559 14,129 8.97 8.70
At or for the year ended December 31, 1996:
FHLB borrowings.................. 51,250 35,838 53,650 5.69 5.84
Revolving lines of credit........ 31,504 35,489 60,804 7.17 6.50
Repurchase agreements............ -- 991 4,962 12.58 --
- ---------
</TABLE>
(1) Calculations are based on daily averages where available and monthly
averages otherwise.
PIPELINE MANAGEMENT. In the ordinary course of business, the Company makes
commitments to originate residential mortgage loans and holds originated loans
until delivery to an investor. Inherent in this business are risks associated
with changes in interest rates and the resulting change in the market value of
the pipeline loans. The Company mitigates this risk through the use of mandatory
and nonmandatory forward commitments to sell loans. As of December 31, 1996, the
Company had $62.6 million in pipeline and funded loans offset with mandatory
forward commitments of $49.1 million and nonmandatory forward commitments of
$8.1 million. The inherent value of the forward commitments is considered in the
determination of the lower of cost or market for such loans.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the ability of the Company to generate funds to support asset
growth, satisfy disbursement needs, maintain reserve requirements and otherwise
operate on an ongoing basis. To date, Matrix Capital's principal source of
funding for its investing activities has been secured senior debt provided by
unaffiliated financial institutions, the issuance of the 13% Senior Subordinated
Notes in August 1995, a bank stock loan and the Company's initial public
offering. As of December 31, 1996, Matrix Capital Corporation had $6.4
million in indebtedness outstanding. The borrowed funds have been used
historically as capital injections to Matrix Bank and Matrix Financial, as well
as to acquire the office building in Phoenix where Matrix Financial maintains
its headquarters. See "Properties."
The trend experienced over the reported periods of cash used by the
Company's operating activities results primarily from the growth that Matrix
Financial has experienced in its origination activities and the growth that
Matrix Bank has experienced in its whole loan purchasing activity. The growth in
the loan originations experienced by the Company has been due to a conscious
effort to increase loan originations and, to a lesser extent, market conditions.
The Company does not anticipate significant increases in loan origination
activities other than increases directly related to market conditions.
Nevertheless, the Company anticipates the trend of a net use of cash from
operations to continue for the foreseeable future. This anticipation results
from the expected growth at Matrix Bank, which management believes will consist
primarily of increased activity in the purchasing of loan portfolios. The
Company anticipates such growth will be funded through retail deposits,
custodial escrow deposits, directed trust deposits and FHLB borrowings.
The Company's principal source of funding for its servicing acquisition
activities consists of line of credit facilities provided to Matrix Financial by
unaffiliated financial institutions. In prior years, including the year ended
December 31, 1996, Matrix Financial relied on various sources for funding its
servicing acquisition activities, including servicing acquisition lines, the
sale of mortgage servicing rights that were accounted for as financings, and
capital contributions from the Company. As of December 31, 1996, Matrix
Financial's servicing acquisition facilities aggregated $13.5 million, of which
$12.0 million was available to be utilized after deducting drawn amounts.
Borrowings under the servicing acquisition lines of credit are secured by
mortgage servicing rights owned by Matrix Financial, bear interest at the
federal
31
<PAGE>
funds rate plus a negotiated margin and are due at the earlier of the maturity
of the mortgage servicing rights or amortized over five to six years from the
date of borrowing. At December 31, 1996, $1.5 million was outstanding under the
servicing acquisition line and the interest rate on funds outstanding under this
facility at December 1996 was 8.05%.
The Company's principal source of funding for its loan origination business
consists of warehouse lines of credit and sale/repurchase facilities provided to
Matrix Financial by financial institutions and brokerage firms. As of December
31, 1996, Matrix Financial's warehouse lines of credit aggregated $50.0 million,
of which $18.5 million was available to be utilized. Borrowings under the
warehouse lines of credit are secured by all of the mortgage loans funded with
warehouse loan proceeds and bear interest at the federal funds rate plus a
negotiated margin. At December 31, 1996, $31.5 million was outstanding under the
warehouse lines of credit at a weighted average interest rate of 6.50%. As of
December 31, 1996, Matrix Financial's sale/repurchase facilities aggregated
$20.0 million, with no balances outstanding. Borrowings under the
sale/repurchase facilities are secured by all of the mortgage loans funded with
sale/repurchase facility proceeds and bear interest at either the prime rate or
the LIBOR rate plus a negotiated margin (depending on the facility).
The Company's principal source of funding for the working capital needs of
Matrix Financial consists of working capital facilities provided to Matrix
Financial by unaffiliated financial institutions. As of December 31, 1996,
Matrix Financial's working capital facilities aggregated $2.5 million, of which
$2.5 million was available. The amount of credit available for working capital
borrowings is a sublimit of the warehouse lines of credit, and therefore, any
amounts borrowed are netted against the amount of credit available from the
warehouse lines of credit. Borrowings under the working capital facilities are
secured by mortgage servicing rights, eligible servicing advance receivables,
and eligible delinquent mortgage loans and bear interest at the federal funds
rate plus a negotiated margin. At December 31, 1996, no amounts were outstanding
under the working capital facilities.
The amounts outstanding as stated above under Matrix Financial's servicing
acquisition facility, warehouse lines of credit, sale/repurchase facility, and
working capital facility were significantly reduced as a result of the Company's
completion of its initial public offering. The net proceeds raised from the
public offering were used to reduce balances outstanding on revolving credit
facilitities. With the acquisition of additional residential mortgage loan
servicing portfolios subsequent to the offering, the Company expects to fully
utilize all of its credit facilities.
On January 31, 1997, the Company renegotiated its revolving credit
facilities for warehouse lending, servicing acquisitions and working capital.
With this renegotiation, the aggregate amount of warehouse lines of credit
facilities was increased to $60.0 million, the aggregate amount of the servicing
acquisition facility was increased to $30.0 million, and the aggregate amount of
the working capital facility was increased to $10.0 million. The $10.0 million
working capital facility became a separate component to the revolving credit
facilities, and is no longer a sublimit to the warehouse line of credit. The new
credit facility agreement requires Matrix Financial to maintain (i) total
shareholder's equity of at least $10.0 million plus 100% of capital contributed
after January 1, 1997, plus 50% of cumulative quarterly net income, (ii)
adjusted net worth, as defined, of at least $12.0 million, (iii) a servicing
portfolio of at least $2.0 billion and (iv) principal debt of term line
borrowings of no more than the lesser of 70% of the appraised value of the
mortgage servicing portfolio or 1.25% of the unpaid principal balance of the
mortgage servicing portfolio.
In March 1997, the Company refinanced its bank stock loan and increased the
credit available under the loan by an additional $6.0 million. The new bank
stock loan has two components of the loan, a $2.0 million term loan, which was
used to refinance the bank stock loan in place at December 31, 1996, and a
revolving line of credit of $6.0 million. In March of 1998, the balance of the
revolving line of credit will be converted to a term loan. The additional
proceeds from the loan will be used as capital at Matrix Bank. The new bank
stock loan requires the Company to maintain (i) total stockholders' equity of
$27.5 million plus 100% of all future equity contributions, plus 50% of
cumulative quarterly net income (ii) dividends less than 50% of the Company's
net cash income after adjustments and (iii) total adjusted debt to stockholders'
equity less than 4 : 1.
In August 1995, the Company issued $2.9 million in aggregate principal
amount of 13% Senior Subordinated Notes. Interest on the 13% Senior Subordinated
Notes is payable semi-annually on January 15 and July 15, and the 13% Senior
Subordinated Notes mature on July 15, 2002, with earlier mandatory redemptions
of $727,500, or 25% of the 13% Senior Subordinated Notes, scheduled on July 15,
1999, 2000, and 2001, respectively. The Company is restricted from paying cash
dividends under the 13% (which adjusted to 14% in February 1997) Senior
Subordinated Notes. However, the Company may pay cash dividends in an amount
equal to 50% of the consolidated net income of the Company as long as there has
been no default under the terms of the 13% Senior Subordinated
32
<PAGE>
Notes and as long as the dividend does not exceed 10% of the consolidated net
worth of the Company. The Company may redeem the 13% Senior Subordinated Notes,
in whole or in part, at any time on or after July 15, 1998; at a redemption
price equal to (i) 102% of par through July 14, 1999 and, thereafter, at par,
plus (ii) all accrued but unpaid interest.
Matrix Bank's primary source of funds for use in lending, purchasing bulk
loan portfolios, investing and other general purposes are retail deposits,
custodial escrow balances, FHLB borrowings, sales of loan portfolios and
proceeds from principal and interest payments on loans. Contractual loan
payments and deposit inflows and outflows are a generally predictable source of
funds, while loan prepayments and loan sales are significantly influenced by
general market interest rates and economic conditions. Borrowings on a
short-term basis are used as a cash management vehicle to compensate for
seasonal or other reductions in normal sources of funds. Matrix Bank utilizes
advances from the FHLB as its primary source for borrowings. At December 31,
1996, Matrix Bank had overnight borrowings from the FHLB of $51.3 million. The
custodial escrow balances held by Matrix Bank fluctuate based upon the mix and
size of the related servicing rights portfolios. For a tabular presentation of
the Company's short-term borrowings, see "--Short-term Borrowings."
Matrix Bank offers a variety of deposit accounts having a range of interest
rates and terms. Matrix Bank's deposits principally consist of demand deposits
and certificates of deposit. The flow of deposits is influenced significantly by
general economic conditions, changes in prevailing interest rates, and
competition. Matrix Bank's retail deposits are obtained primarily from areas in
which it is located and, therefore, its retail deposits are concentrated
primarily in Las Cruces and Sun City. Matrix Bank relies principally on customer
service, marketing programs, and its relationships with customers to attract and
retain these deposits. Matrix Bank currently does not solicit or accept brokered
deposits. In pricing deposit rates, management considers profitability, the
matching of term lengths with assets, the attractiveness to customers and rates
offered by competitors. Matrix Bank intends to continue its efforts to attract
deposits as a primary source of funds to support its lending and investing
activities.
In January 1996, Matrix Bank opened a retail branch in Sun City, Arizona.
The Company has been successful in attracting deposits at the Sun City location
and this success has been the primary reason for the increased deposit growth
that the Company has experienced for the year ended December 31, 1996. In
October 1996, Matrix Bank opened a second retail branch in Las Cruces. The
following table sets forth the average balances for each major category of
Matrix Bank's deposit accounts and the weighted average interest rates paid for
interest-bearing deposits for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1994 1995 1996
------------------------ ------------------------ -------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
---------- --------- ---------- ---------- ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Passbook accounts...... $ 2,788 2.58 % $ 2,394 3.55 % $ 2,389 3.45 %
NOW accounts........... 2,131 1.69 2,460 2.11 2,813 2.24
Money market accounts.. 7,350 3.20 5,860 4.10 9,151 4.43
Time deposits.......... 29,273 3.89 33,332 5.42 54,824 5.85
-------- ----- ---------- ---- --------- ------
Total deposits..... $ 41,542 3.57 % $ 44,046 4.96 % $ 69,177 5.43 %
========== ===== ========== ==== ========= ======
</TABLE>
The following table sets forth the amount of Matrix Bank's certificates of
deposit that are greater than $100,000 by time remaining until maturity as of
December 31, 1996:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
-------------------------------
WEIGHTED
AMOUNT AVERAGE
RATE PAID
-------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Three months or less......................................... $ 1,687 5.63 %
Over three months through six months......................... 1,815 5.85
Over six months through twelve months........................ 874 5.94
Over twelve months........................................... 1,081 6.21
--------- ---------
Total.................................................... $ 5,457 5.86 %
========= =========
</TABLE>
The Company actively monitors Matrix Bank's compliance with regulatory
capital requirements. Historically Matrix Bank has increased it core capital
through the retention of a portion of its earnings. Matrix Bank's future growth
is expected to be achieved through deposit growth, borrowings from the FHLB, and
custodial deposits from affiliates which
33
<PAGE>
is anticipated to require additional capital. The capital requirements related
to the anticipated growth will in part be fulfilled through retaining of
earnings, increasing the Company's bank stock loan and the use of a portion of
the proceeds raised from the sale of common stock which was completed in the
fourth quarter of 1996. See "Regulation and Supervision--Matrix Bank's Capital
Ratios."
Matrix Bank and Matrix Financial are restricted from paying dividends to
Matrix Capital due to restrictions of certain debt agreements and regulatory
requirements. At December 31, 1996, the Company was in compliance with all debt
covenants. See "Regulation and Supervision."
In June 1996, the Company purchased 154 acres of land for $1.3 million in
cash for the purpose of developing 750 residential and multi-family lots in Ft.
Lupton, Colorado. The purchase was completed with operating funds of the Company
and a loan from a third-party financial institution. As part of the acquisition,
the Company entered into a Residential Facilities Development Agreement (the
"Development Agreement") with the City of Ft. Lupton. The Development Agreement
is a residential and planned unit development agreement providing for the
orderly planning, engineering and development of a golf course and surrounding
residential community. The City of Ft. Lupton is responsible for the development
of the golf course and the Company is responsible for the development of the
surrounding residential lots.
The Development Agreement sets forth a mandatory obligation on the part of
the Company to pay the City of Ft. Lupton pledged enhancement assessments of
$600,000. These pledged enhancement assessments require the Company to pay the
city a $2,000 fee each time the Company sells a developed residential lot. The
Company is obligated to pay a minimum of $60,000 in assessment fees per year
beginning in the year 1998 through the year 2007. The Company also entered into
a development management agreement with a local developer to complete the
development of the land. The terms of the agreement specify that the Company is
to earn a preferred rate of return on its investment and, once the initial
amount of its investment has been returned plus the preferred rate of return,
the remaining profits are split equally. The development management agreement
obligates the Company to provide up to an additional $500,000 of funds for
development. The Company has no other financial obligations to the developer
beyond the $500,000.
It is anticipated that the Company will obtain a loan from an unaffiliated
financial institution for a portion of the future development costs. The Company
expects development to begin during the second quarter of 1997.
INFLATION AND CHANGING PRICES
The Consolidated Financial Statements and related data presented herein have
been prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars without considering changes in the relative purchasing power
of money over time due to inflation. Unlike most industrial companies,
substantially all of the assets and liabilities of the Company are monetary in
nature. As a result, interest rates have a more significant impact on the
Company's performance than the effects of general levels of inflation. Interest
rates do not necessarily move in the same direction or in the same magnitude as
prices of goods and services. The Company discloses the estimated fair market
value of its financial instruments in accordance with Statement of Financial
Accounting Standards No. 107. See Note 14 to the Consolidated Financial
Statements included elsewhere herein.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1996, the FASB issued Statement of Financial Accounting
Standards No. 125, Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities ("FAS 125"). This statement provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities and is effective for the above that
occur after December 31, 1996. Transactions covered by FAS 125 include
securitizations, sales of partial interests in financial assets, repurchase
agreements, securities lending, pledges of collateral, loan syndications and
participations, sales of receivables with recourse, servicing of mortgages and
other loans, and in-substance defeasances. The statement uses a "financial
components" approach that focuses on control to determine the proper accounting
for financial asset transfers. Under that approach, after financial assets are
transferred, an entity would recognize on the balance sheet all assets it
controls and liabilities it has incurred. It would remove from the balance sheet
those assets it no longer controls and liabilities it has satisfied. If the
entity has surrendered control over the transferred assets, the transaction
would be considered a sale. Control is considered surrendered only if the assets
are isolated from the transferor; the
34
<PAGE>
transferee has the right to pledge or exchange the assets or is a qualifying
special-purpose entity; and the transferor does not maintain effective control
over the assets through an agreement to repurchase or redeem them. If those
conditions do not exist, the transfer would be accounted for as a secured
borrowing. The Company will adopt FAS 125 in the first quarter of 1997 and,
based on current circumstances, does not believe the effect of adoption will be
material to its consolidated financial statements.
FORWARD LOOKING STATEMENTS
Certain information contained in this annual report constitutes
"Forward-Looking Statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, which can be identified by the use of forward-looking terminology
such as "may," "will," "expect," "anticipate," "estimate," or "continue" or the
negative thereof or other variations thereon or comparable terminology. The
statements in "Risk Factors" contained in the Company's current report on Form
8-K, filed with the Securities and Exchange Commission on March 25, 1997,
constitute cautionary statements identifying important factors, including
certain risks and uncertainties, with respect to such forward-looking statements
that could cause actual results to differ materially from those reflected in
such forward-looking statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See index to financial statements, beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
35
<PAGE>
PART III
ITEMS 10 THROUGH 13.
The information for these items has been omitted inasmuch as the registrant
will file a definitive proxy statement with the Commission pursuant to the
Regulation 14A within 120 days of the close of the fiscal year ended December
31, 1996.
36
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) and (a) (2) Financial statements and financial statement
schedules See "Item 8- Financial Statements and Supplementary
Information."
(b) Reports on Form 8-K
See Form 8-K filed by the Company, dated February 20, 1997 and
Form 8-K filed by the Company, dated
March 25, 1997.
(c) Exhibits
See Exhibit Index, beginning on page 39.
(d) Financial Statement Schedules
None.
37
<PAGE>
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 the 25th day of
March, 1997.
Matrix Capital Corporation
By: /s/
-------------------------
Guy A. Gibson
President and Chief Executive Officer
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 and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ President, Chief Executive March 25, 1997
- --------------------------------- Officer and a Director
Guy A. Gibson (Principal Executive Officer)
/s/ Chairman of the Board March 25, 1997
- ---------------------------------
Richard V. Schmitz
/s/ Vice Chairman of the Board March 25, 1997
- ---------------------------------
D. Mark Spencer
/s/ Director March 25, 1997
- ---------------------------------
Thomas M. Piercy
/s/ Senior Vice President and March 25, 1997
- --------------------------------- Chief Financial Officer,
David W. Kloos and a Director
(Principal Accounting and
Financial Officer)
/s/ Director March 25, 1997
- ---------------------------------
Stephen Skiba
/s/ Director March 25, 1997
- ---------------------------------
David A. Frank
</TABLE>
38
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<S> <C>
3.1 + Amended and Restated Articles of Incorporation of the Registrant
(3.1)
3.2 + Bylaws, as amended, of the Registrant (3.2)
4.1 + Specimen certificate for Common Stock of the Registrant (4.1)
4.2 + o Amended and Restated 1996 Stock Option Plan (4.2)
4.3 ++o Employee Stock Purchase Plan, as amended (4.1)
4.4 + Form of Common Stock Purchase Warrant by and between the Registrant
and Piper Jaffray, Inc. (4.4)
4.5 + Form of Common Stock Purchase Warrant by and between the Registrant
and Keefe, Bruyette & Woods, Inc. (4.5)
10.1 + Note and Agency Agreement, dated as of August 1, 1995, by and
between the Registrant and PHS Mortgage, Inc. as agent (10.1)
10.2 + First Amendment to Note and Agency Agreement, dated as of August 2,
1995, by and between the Registrant and PHS Mortgage, Inc., as
agent (10.2)
10.3 + Form of 13% Senior Subordinated Note (10.3)
10.4 + o Executive Employment Agreement, dated as of January 1, 1996, by and
between the Registrant and David Kloos (10.4)
10.5 + o Employment Agreement, dated as of January 1, 1995, between Matrix
Capital Bank and Gary Lenzo and as amended January 1, 1996
(10.5)
10.6 + Loan Agreement, dated as of October 2, 1995, by and between Matrix
Diversified, Inc. and the Registrant (10.6)
10.7 + Multiple Advance Term Loan Agreement, dated as of June 27, 1994, by
and between Matrix Capital Corporation and CorTrust Bank (10.8)
10.8 + Multiple Advance Fixed Rate Term Loan Promissory Note, dated as of
June 30, 1994, from Matrix Capital Corporation, as maker, to
CorTrust Bank, as payee (10.9)
10.9 + Mortgage Loan Purchase and Servicing Agreement, dated as of August
1, 1993, by and between Argo Federal Savings Bank, FSB, and
Matrix Financial Services Corporation (10.11)
10.10 + Mortgage Loan Repurchase Agreement, dated as of March 30, 1995, by
and between PaineWebber Real Estate Securities, Inc. and Matrix
Financial Services Corporation (10.27)
10.11 + Multiple Advance Fixed Rate Term Loan Promissory Note, dated as of
October 19, 1994, from Matrix Capital Corporation, as maker, to
CorTrust, as payee (10.29)
10.12 + Assignment and Assumption Agreement, dated as of June 28, 1996, by
and among Mariano C. DeCola, William M. Howdon, R. James
Nicholson and Matrix Funding Corp. (10.30)
10.13 + Development Management Agreement, dated as of June 28, 1996, by and
among Fort Lupton, L.L.C. and Matrix Funding Corp. (10.31)
10.14 + Assignment and Assumption of PUD Agreement, dated as of June 28,
1996, by and among Fort Lupton, L.L.C. and Matrix Funding Corp.
(10.32)
10.15 + Lease, dated as of October 1, 1995, by and between the Registrant
and Matrix Financial Services Corporation (10.33)
10.16 + Promissory Note, dated as of December 31, 1995, from D. Mark
Spencer, as maker, to the Registrant, as payee (10.35)
10.17 + Fort Lupton Golf course Residential and Planned Unit Development
Agreement, dated as of November 28, 1995 (10.36)
10.18 + Loan Agreement, dated as of December 10, 1994, by and between the
Registrant and Bankers' Bank of the West (10.37)
10.19 + Continuing Guaranty of D. Mark Spencer, dated as of December 10,
1994 (10.38)
10.20 + Continuing Guaranty of Richard V. Schmitz, dated as of December 10,
1994 (10.39)
10.21 + Continuing Guaranty of Guy A. Gibson, dated as of December 10, 1994
(10.40)
10.22 + Loan Agreement, dated as of June 21, 1996, by and between Matrix
Funding Corporation and The First Security Bank (10.41)
10.23 + Loan Agreement, dated as of June 29, 1995, by and between the
Registrant and Bank One, Arizona, N.A. (10.42)
</TABLE>
39
<PAGE>
<TABLE>
<S> <C>
10.24 + Promissory Note, dated as of June 29, 1995, from the Registrant to
Bank One, Arizona, N.A. (10.43)
10.25 + Deed of Trust, Assignment of Rents, Security Agreement and Fixture
Filing, dated as of June 29, 1995, from the Registrant to
Arizona Trust Deed Corporation, as trustee (10.44)
10.26 + Loan Agreement, dated July 10, 1992, by and between American
Strategic Income Portfolio Inc. and Matrix Financial Services
Corporation (10.45)
10.27 + Promissory Note, dated as of July 10, 1992, by Matrix Financial
Services Corporation, as maker, to American Strategic Income
Portfolio, Inc., as payee (10.46)
10.28 +++ Agreement and Plan of Merger, dated as of November 22, 1996, by and
among the Registrant, The Vintage Group, Inc. and
Matrix/Vintage Acquisition, Inc. (10.1)
10.29 +++ Asset Purchase and Exchange Agreement, dated as of February 4, 1997,
by and among the Registrant and STC Holdings, Inc. (10.2)
10.30 * Lease, dated as of October 1, 1996, by and between the Registrant
and Creative Networks, LLC
10.31 * Revolving Subordinated Loan Agreement, dated as of October 18,
1996, by and between Matrix Financial Services Corporation and
the Registrant
10.32 * Amended and Restated Loan Agreement, dated as of January 31, 1997,
by and between Matrix Financial Services Corporation, as
borrower, and Bank One, Texas, N.A., as agent, and certain
lenders, as lenders
10.33 * Amended and Restated Warehouse Note, dated as of January 31, 1997,
from Matrix Financial Services Corporation, as borrower, and
Bank One, Texas, N.A., as lender
10.34 * Amended and Restated Swing Note, dated as of January 31, 1997, from
Matrix Financial Services Corporation, as borrower, and Bank
One, Texas, N.A., as lender
10.35 * Amended and Restated Working-Capital Note, dated as of January 31,
1997, from Matrix Financial Services Corporation, as borrower,
and Bank One, Texas, N.A., as lender
10.36 * Amended and Restated Term-Line Note, dated as of January 31, 1997,
from Matrix Financial Services Corporation, as borrower, and
Bank One, Texas, N.A., as lender
10.37 * Amended and Restated Guaranty, dated as of January 31, 1997, from
the Registrant to Bank One, Texas, N.A.
10.38 * o Employment Agreement, dated as of February 4, 1997, by and between
the Registrant and Paul Skretny
10.39 * Credit Agreement, dated as of March 12, 1997, by and between Matrix
Capital Corporation, as borrower, and Bank One, Texas, N.A., as
agent, and certain lenders, as lenders
10.40 * Term Note, dated as of March 12, 1997, from Matrix Capital
Corporation, as borrower, and Bank One, Texas, N.A., as lender
10.41 * Revolving Note, dated as of March 12, 1997, from Matrix Capital
Corporation, as borrower, and Bank One, Texas, N.A., as lender
10.42 * Guaranty Form, dated as of March 12, 1997, from each of the
Registrant's significant subsidiaries to Bank One, Texas,
N.A.,as agent
11 * Statement regarding computation of per share earnings
21 * Subsidiaries of the Registrant
27 * Financial Data Schedule
</TABLE>
- ------------------------
* Filed herewith
+ Incorporated by reference from the exhibit number shown in parenthesis
from the Registrant's registration statement on Form S-1 (No. 333-
10223), filed by the Registrant with the Commission.
40
<PAGE>
++ Incorporated by reference from the exhibit number shown in parenthesis
form the Registrant's quarterly report on Form 10-Q for the quarter
ended September 30, 1996, filed by the Registrant with the Commission.
+++ Incorporated by reference from the exhibit number shown in parenthesis
form the Registrant's current report on Form 8-K, filed with the
Commission on February 20, 1997.
o Management contract or compensatory plan or arrangement
41
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Consolidated Financial Statements of Matrix Capital Corporation
PAGE
----
Report of Independent Auditors.......................................... F-2
Consolidated Balance Sheets - December 31, 1995 and 1996................ F-3
Consolidated Statements of Income - for the years ended
December 31, 1994, 1995 and 1996 ................................ F-4
Consolidated Statements of Shareholders' Equity - for the years ended
December 31, 1994, 1995 and 1996................................. F-5
Consolidated Statements of Cash Flows - for the years ended
December 31, 1994, 1995 and 1996................................. F-6
Notes to Consolidated Financial Statements - December 31, 1996.......... F-7
F-1
<PAGE>
Report of Independent Auditors
Shareholders and Board of Directors
Matrix Capital Corporation
We have audited the accompanying consolidated balance sheets of Matrix Capital
Corporation (Company) as of December 31, 1995 and 1996, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1996. These consolidated
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 audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated 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 the
Company at December 31, 1995 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, in 1995 the
Company changed its method of accounting for mortgage servicing rights as a
result of adopting Statement of Financial Accounting Standards No. 122,
Accounting for Mortgage Servicing Rights.
/s/ Ernst & Young LLP
Phoenix, Arizona
March 6, 1997
F-2
<PAGE>
Matrix Capital Corporation
Consolidated Balance Sheets
(Dollars In thousands)
<TABLE>
<CAPTION>
DECEMBER 31
1995 1996
---------------------
<S> <C> <C>
ASSETS
Cash $ 1,381 $ 2,319
Interest earning deposits 5,586 9,499
Loans held for sale, net 127,090 182,801
Loans held for investment, net 19,575 29,560
Mortgage servicing rights, net 13,817 23,680
Other receivables 5,609 9,353
Federal Home Loan Bank of Dallas stock 1,954 2,871
Premises and equipment, net 5,904 7,279
Deferred income tax benefit - 54
Other assets 3,816 5,447
---------------------
Total assets $184,732 $272,863
=====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits $ 48,877 $ 90,179
Custodial escrow balances 27,011 37,881
Drafts payable 8,817 5,961
Payable for purchase of mortgage
servicing rights 1,312 8,044
Federal Home Loan Bank of Dallas
borrowings 19,000 51,250
Borrowed money 65,093 42,431
Other liabilities 4,409 5,292
Income taxes payable 875 1,023
---------------------
Total liabilities 175,394 242,061
Commitments and contingencies
Shareholders' equity:
Preferred stock, par value $.0001;
authorized 5,000,000 shares; no shares
outstanding
Common stock, par value $.0001;
authorized 50,000,000 shares; issued
and outstanding 3,888,939 and
5,901,439 shares at December 31, 1995
and 1996, respectively - 1
Additional paid in capital 2,626 20,816
Retained earnings 6,712 9,985
---------------------
Total shareholders' equity 9,338 30,802
---------------------
Total liabilities and shareholders'
equity $184,732 $272,863
=====================
</TABLE>
See accompanying notes.
F-3
<PAGE>
Matrix Capital Corporation
Consolidated Statements of Income
(Dollars In thousands except per share information)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1995 1996
----------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Loans and mortgage backed securities $ 6,681 $ 10,412 $ 16,084
Interest earning deposits 334 318 408
----------------------------------
Total interest income 7,015 10,730 16,492
INTEREST EXPENSE
Savings and time deposits 1,210 1,892 3,292
Demand and money market deposits 271 292 468
FHLB borrowings 213 1,113 2,039
Borrowed money 1,332 3,897 4,691
----------------------------------
Total interest expense 3,026 7,194 10,490
----------------------------------
Net interest income before provision
for loan and valuation losses 3,989 3,536 6,002
Provision for loan and valuation losses 216 401 143
----------------------------------
Net interest income 3,773 3,135 5,859
NONINTEREST INCOME
Loan administration 6,926 7,749 8,827
Brokerage 4,017 4,787 4,364
Gain on sale of loans and mortgage
backed securities 1,590 3,272 3,369
Gain on sale of mortgage servicing
rights 684 1,164 3,232
Loan origination 1,294 2,069 1,561
Other 487 781 1,118
----------------------------------
Total noninterest income 14,998 19,822 22,471
NONINTEREST EXPENSES
Compensation and employee benefits 7,719 8,586 10,604
Amortization of mortgage servicing
rights 1,185 1,817 2,432
Occupancy and equipment 1,067 1,124 1,415
Professional fees 485 660 468
Data processing 492 529 604
Losses related to recourse sales - - 787
Federal Deposit Insurance Corporation
premiums 176 155 635
Other general and administrative 3,155 4,265 6,006
----------------------------------
Total noninterest expense 14,279 17,136 22,951
----------------------------------
Income before income taxes 4,492 5,821 5,379
Provision for income taxes 1,846 2,260 2,106
----------------------------------
Net income $ 2,646 $ 3,561 $ 3,273
==================================
Net income per common and common
equivalent share $.71 $.91 $.76
==================================
Weighted average common and common
equivalent shares 3,750,001 3,927,629 4,297,448
==================================
See accompanying notes.
</TABLE>
F-4
<PAGE>
Matrix Capital Corporation
Consolidated Statements of Shareholders' Equity
(Dollars In thousands)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------- PAID IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 3,750,001 $ - $ 2,525 $ 505 $ 3,030
Net income - - - 2,646 2,646
---------------------------------------------------
Balance at December 31, 1994 3,750,001 - 2,525 3,151 5,676
Issuance of stock for services 138,938 - 101 - 101
Net income - - - 3,561 3,561
---------------------------------------------------
Balance at December 31, 1995 3,888,939 - 2,626 6,712 9,338
Issuance of stock, net of issuance
costs of $1,934 2,012,500 1 18,190 - 18,191
Net income - - - 3,273 3,273
---------------------------------------------------
Balance at December 31, 1996 5,901,439 $ 1 $20,816 $9,985 $30,802
===================================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
Matrix Capital Corporation
Consolidated Statements of Cash Flows
(Dollars In thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1995 1996
----------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,646 $ 3,561 $ 3,273
Adjustments to reconcile net income to
net cash used by operating activities:
Depreciation and amortization 414 743 893
Provision for loan losses 216 401 143
Amortization of mortgage servicing
rights 1,185 1,817 2,432
Noncash compensation expense - 101 -
Accretion of premium on deposits (68) (28) (7)
Deferred income taxes 286 212 (54)
Gain on sale of loans and mortgage
backed securities (1,590) (3,272) (3,369)
Gain on sale of mortgage servicing
rights (684) (1,164) (3,232)
Losses related to recourse sales - - 787
Loans originated for sale, net of loans
sold (4,681) (38,591) 8,099
Loans purchased for sale (80,048) (91,774) (159,015)
Proceeds from sale of loans purchased
for sale 62,727 70,159 57,395
Gain on sale of premises and equipment - - (78)
Originated mortgage servicing rights,
net - (885) (441)
Increase in other receivables and other
assets (2,116) (3,685) (750)
Increase in other liabilities and
income taxes payable 684 307 (2,315)
----------------------------------
Net cash used by operating activities (21,029) (62,098) (96,239)
INVESTING ACTIVITIES
Loans originated and purchased for
investment (423) (2,919) (15,048)
Principal repayments on loans 10,962 17,517 22,982
Purchase of Federal Home Loan Bank of
Dallas stock (536) (814) (917)
Purchases of premises and equipment (1,804) (1,910) (2,181)
Purchase of land under development - - (1,431)
Purchase of revenue anticipation
warrants - - (818)
Purchase of residential homes - - (1,003)
Acquisition of mortgage servicing rights (3,920) (9,654) (10,410)
Proceeds from sale of mortgage
servicing rights 677 1,769 8,410
Proceeds from sale of available for
sale securities - - 21,548
----------------------------------
Net cash provided by investing
activities 4,956 3,989 21,132
FINANCING ACTIVITIES
Net increase (decrease) in deposits (3,539) 6,995 41,309
Net increase (decrease) in custodial
escrow balances (7,107) 2,324 10,870
Increase in revolving lines and
repurchase agreements, net 20,409 39,384 17,151
Repayments of notes payable (605) (3,865) (13,923)
Proceeds from notes payable 2,893 12,933 6,924
Proceeds from senior subordinated notes - 2,910 -
Repayment of financing arrangements (639) (307) (564)
Proceeds from issuance of common stock - - 18,191
----------------------------------
Net cash provided by financing
activities 11,412 60,374 79,958
----------------------------------
Increase (decrease) in cash and cash
equivalents (4,661) 2,265 4,851
Cash and cash equivalents at beginning
of year 9,363 4,702 6,967
----------------------------------
Cash and cash equivalents at end of year $ 4,702 $ 6,967 $ 11,818
==================================
SUPPLEMENTAL DISCLOSURE OF NONCASH
ACTIVITY
Payable for purchase of mortgage
servicing rights $ 1,763 $ 1,312 $ 8,044
==================================
Drafts payable $ - $ 8,817 $ 5,961
==================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid for interest expense $ 2,949 $ 6,489 $ 10,598
==================================
Cash paid for income taxes $ 1,702 $ 1,530 $ 2,016
==================================
</TABLE>
See accompanying notes.
F-6
<PAGE>
Matrix Capital Corporation
Notes to Consolidated Financial Statements
December 31, 1996
1. ORGANIZATION
On June 30, 1993, Matrix Capital Corporation (Company) was formed and exchanged
1,000,000 shares of its common stock for 100 percent of the common stock of
United Financial, Inc. (United Financial), Matrix Financial Services Corporation
(Matrix Financial) and another company with minimal assets or operations. The
merger was accounted for as a pooling of interests and, accordingly, the 1993
consolidated financial statements were restated to include the accounts and
operations of the companies prior to the merger.
On October 18, 1996, the Company completed its initial public offering by
selling 1,750,000 shares of common stock at a price of $10.00 per share. On
November 18, 1996, the underwriters exercised their option to purchase an
additional 262,500 shares of the Company's common stock (over-allotment) at the
initial public offering price of $10.00. The net proceeds received in the
offering were approximately $18.2 million.
On September 23, 1993 the Company acquired Dona Ana Savings Bank, FSB (changed
its name to Matrix Capital Bank, herein referred to as Matrix Bank), a federally
chartered savings and loan association. Upon the acquisition of Matrix Bank,
the Company became a unitary savings and loan holding company which, through its
subsidiaries, is engaged in a single industry segment, the financial services
industries.
The Company's mortgage banking business is conducted through Matrix Financial,
and was established with the primary objective of acquiring, originating and
servicing residential mortgage loan servicing rights. Servicing mortgage loans
involves the contractual right to receive a fee for processing and administering
mortgage loan payments. The Company acquires servicing rights in the secondary
market as well as through Matrix FinancialOs wholesale loan origination offices
in the Atlanta, Denver, and Phoenix metropolitan areas, and through Matrix Bank
with offices in Las Cruces, New Mexico and Sun City, Arizona.
In June 1996, Matrix Financial formed an operating subsidiary, Matrix Funding
Corp., which purchased 154 acres of land for $1.3 million in cash for the
purpose of developing residential and multi-family lots in Ft. Lupton, Colorado.
Matrix Bank serves its local community by providing a full range of personal and
business depository services, offering residential and consumer loans, and
providing, on a limited basis, commercial real estate loans. Matrix Bank's
participation in the mortgage banking business includes the purchase of bulk
residential loan portfolios, with the intent of reselling the majority of the
loans, and extends to acquisitions of servicing portfolios, which are in turn
subserviced by Matrix Financial.
F-7
<PAGE>
Matrix Capital Corporation
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION (CONTINUED)
In May 1996, Matrix Bank formed an operating subsidiary, Sterling Finance Co.,
Inc. (Sterling Finance), which acquired substantially all the assets of an
origination and seller of subprime automobile retail installment sales contracts
for approximately $47,000 in cash. The assets acquired (fixed assets and
prepaid expenses) were purchased at their estimated fair value and no goodwill
was recorded. On December 31, 1996, Matrix Bank sold the fixed assets and the
name of Sterling Finance to a third party buyer and ceased its subprime auto
lending operations.
United Financial provides brokerage and consulting services to financial
institutions and financial services companies in the mortgage banking industry,
primarily related to the brokerage and analysis of residential mortgage loan
servicing rights, corporate and mortgage loan servicing portfolio valuations,
and, to a lesser extent, consultation and brokerage services in connection with
mergers and acquisitions of mortgage banking entities.
United Special Services, Inc. (USS), a wholly owned subsidiary of the Company
formed in June 1995, provides real estate management and disposition services to
financial services companies and financial institutions, including Matrix
Financial and Matrix Bank.
United Capital Markets (UCM), a wholly owned subsidiary of the Company formed in
December 1996, focuses on risk management services for institutional clients.
2. SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of the Company and its subsidiaries
conform to generally accepted accounting principles and to general practices
within the financial services industry.
The following is a description of the more significant policies which the
Company follows in preparing and presenting its consolidated financial
statements.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and the
accompanying notes. Actual results could differ from these estimates.
F-8
<PAGE>
Matrix Capital Corporation
Notes to Consolidated Financial Statements (continued)
2. ACCOUNTING POLICIES (CONTINUED)
Loans Held for Sale
Loans originated or purchased with the intent for sale in the secondary market
are carried at the lower of cost, net of discounts or premiums, or estimated
market value in the aggregate. Market value is determined using forward sale
commitments to permanent investors or current market rates for loans of similar
quality and type. Net unrealized losses, if any, would be recognized in a
valuation allowance by charges to income. Discounts or premiums on loans held
for sale are not accreted or amortized into income on an interest method,
however discounts and premiums related to payments of loan principal are
recorded in interest income. The loans are primarily secured by one to four
family residential real estate located throughout the United States.
Gains and losses on loan sales are recognized at the time of sale. Gains and
losses are calculated based upon the total consideration received, after
provisions to cover estimated future servicing costs and recourse provisions.
Losses related to recourse provisions in excess of the amount originally
provided are accrued as a liability at the time such additional losses are
determined, and recorded as part of noninterest expense.
Loans Held for Investment
Loans held for investment are stated at unpaid principal balances (since it is
the Company's intention to hold the loans until maturity), less unearned
discounts and premiums, deferred loan fees, loans in process, and allowance for
loan losses. Premiums, discounts and net origination fees on loans are
amortized to interest income over the contractual life of the related loans
using the interest method.
Allowance for Loan Losses
In January 1995, the Company adopted Statement of Financial Accounting Standards
No. 114, Accounting by Creditors for Impairment of a Loan, amended in October
1994 by Statement No. 118, Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures, hereinafter collectively referred to as
Statement No. 114. Under Statement No. 114, a loan is considered impaired when,
based on current information and events, it is probable that a creditor will be
unable to collect all amounts due according to the contractual terms of the
loan. Statement No. 114 applies to all loans except large groups of smaller-
balance homogeneous loans, which are collectively evaluated, loans measured at
fair value or at the lower of cost or fair value, leases and debt securities.
The statement does not address the overall adequacy of the allowance for loan
losses.
F-9
<PAGE>
Matrix Capital Corporation
Notes to Consolidated Financial Statements (continued)
2. ACCOUNTING POLICIES (CONTINUED)
Potential impaired loans of the Company, as defined by Statement No. 114,
include only commercial, real estate construction and commercial real estate
mortgage loans classified as nonperforming loans. Impairment allowances are
considered by the Company in determining the overall adequacy of the allowance
for loan losses. The adoption of Statement No. 114 resulted in no material
change in the allowance for loan losses. When a loan is identified as
"impaired," accrual of interest ceases. The Company had no impaired loans, as
defined by Statement No. 114, as of or for the years ended December 31, 1995 and
1996, respectively.
The Company evaluates its mortgage loans collectively due to their homogeneous
nature. The allowance for loan losses is calculated, in part, based on
historical loss experience. In addition, management takes into consideration
other factors such as any qualitative evaluations of individual classified
assets, geographic and portfolio concentrations, new products or markets,
evaluations of the changes in the historical loss experience component, and
projections of this component into the current and future periods based on
current knowledge and conditions. After an allowance has been established for
the loan portfolio, management establishes an unallocated portion of the
allowance for loan losses, which is attributable to factors that cannot be
associated with a specific loan or loan portfolio. These factors include
general economic conditions, recognition of specific regional geographic
concerns, and trends in portfolio growth. Loan losses are charged against the
allowance when the probability of collection is considered remote. In the
opinion of management, the allowance, when taken as a whole, is adequate to
absorb reasonably foreseeable losses in the current loan portfolio.
Loans are placed on nonaccrual status when full payment of principal or interest
is in doubt, or generally when they are past due ninety days as to either
principal or interest. Previously accrued but unpaid interest is reversed and
charged against interest income and future accruals are discontinued. Interest
payments received on nonaccrual loans are recorded as interest income unless
there is doubt as to the collectibility of the recorded investment. In those
cases, cash received is recorded as a reduction in principal.
Premises and Equipment
Premises and equipment are carried at cost less accumulated depreciation.
Depreciation is computed using the straight line method over the estimated lives
of the assets, which range from three to seven years for office furniture,
equipment and software and 30 years for buildings.
F-10
<PAGE>
Matrix Capital Corporation
Notes to Consolidated Financial Statements (continued)
2. ACCOUNTING POLICIES (CONTINUED)
Mortgage Servicing Rights (MSR)
On January 1, 1995, the Company adopted Statement No. 122, Accounting for
Mortgage Servicing Rights. Since Statement No. 122 prohibits retroactive
application, the historical accounting results for 1994 have not been restated,
and accordingly, the accounting results for 1995 and 1996 are not directly
comparable to the results for prior periods.
With the adoption of this statement, the Company recognizes originated mortgage
servicing rights (OMSRs) as an asset separate from the underlying originated
mortgage loan by allocating the total cost of originating a mortgage loan
between the loan and the servicing right based on their respective fair values.
Mortgage servicing rights are carried at the lower of cost (allocated cost for
OMSRs), less accumulated amortization, or fair value. Mortgage servicing rights
are amortized in proportion to and over the period of the estimated future net
servicing income.
The fair value of mortgage servicing rights is determined based on the
discounted future servicing income stratified based on one or more predominant
risk characteristics of the underlying loans. The Company stratifies its
mortgage servicing rights by product type and investor to reflect the
predominant risk characteristics. To determine the fair value of mortgage
servicing rights, the Company uses a valuation model that calculates the present
value of future cash flows to determine the fair value of the mortgage servicing
rights. In using this valuation method, the Company incorporates assumptions
that market participants would use in estimating future net servicing income
which includes estimates of the cost of servicing per loan, the discount rate,
float value, an inflation rate, ancillary income per loan, prepayment speeds and
default rates. As of December 31, 1996, no valuation allowance was required and
the fair value of the aggregate mortgage servicing rights was approximately
$29,900,000.
Gain on Sale of Servicing Rights
The Company complies with EITF Issue No. 95-5, Determination of What Constitutes
a Sale of Mortgage Loan Servicing Rights, such that the gain on sale of
servicing rights is recognized when substantially all the risks and rewards
inherent in owning the mortgage servicing rights have been transferred to the
buyer, and any protection provisions retained by the Company are minor and can
be reasonably estimated.
Drafts Payable
Drafts payable represent the in transit outstanding funding of a new loan by the
Company via a negotiable instrument, however, the instrument has not yet been
presented to the bank for payment. Presentation to the bank generally occurs
within one to three days.
F-11
<PAGE>
Matrix Capital Corporation
Notes to Consolidated Financial Statements (continued)
2. ACCOUNTING POLICIES (CONTINUED)
Loan Administration Income
Loan administration income represents service fees and other income earned from
servicing loans for various investors. Loan administration income includes
service fees that are based on a contractual percentage of the outstanding
principal balance plus late fees and other ancillary charges. Income is
recognized when the related payments are received.
Brokerage Income
Brokerage income represents fees earned related to brokerage and consulting
services. Brokerage income is recognized when earned.
Loan Origination Income
Loan origination income for loans originated for sale, which includes all
mortgage origination fees, secondary marketing activity and servicing-released
premiums on mortgage loans sold, net of outside origination costs, is recognized
as income at the time the loan is sold.
Loan origination income for loans originated for investment, which includes
mortgage origination fees and certain direct costs associated with loan
originations, is deferred and amortized as a yield adjustment over the
contractual life of the related loan using the interest method, adjusted for
estimated prepayments.
Stock Based Compensation
The Company grants stock options for a fixed number of shares to employees with
an exercise price equal to the fair value of the shares at the date of grant.
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, which provides an alternative to APB Opinion No. 25, Accounting
for Stock Issued to Employees, in accounting for stock-based compensation issued
to employees. Statement No. 123 allows for a fair value based method of
accounting for employee stock options and similar equity instruments awarded
after December 31, 1995. The Company has elected to account for stock-based
compensation plans in accordance with APB Opinion No. 25 and to follow the pro
forma net income, pro forma earnings per share, and stock-based compensation
plan disclosure requirements set forth in Statement No. 123.
F-12
<PAGE>
Matrix Capital Corporation
Notes to Consolidated Financial Statements (continued)
2. ACCOUNTING POLICIES (CONTINUED)
Foreclosed Real Estate
Real estate acquired through foreclosure, deed in lieu of foreclosure or in
judgment is carried at the lower of fair value, minus estimated costs to sell,
or the related loan balance at the date of foreclosure. Valuations are
periodically performed by management and an allowance for loss is established by
a charge to operations if the carrying value of a property exceeds its fair
value, minus estimated costs to sell. The net carrying value of foreclosed real
estate, which is classified in other assets, was $835,000 and $788,000 at
December 31, 1995 and 1996, respectively.
Acquired Real Estate
Costs directly attributable to the acquisition, development, and construction of
land development are capitalized. Such costs include preacquisition costs,
direct project costs, and holding costs. The investment in land development is
carried at the lower of cost, which includes capitalized costs, or net
realizable value. Net unrealized losses, if any, would be recognized in a
valuation allowance. As of December 31, 1996 there was no valuation allowance
necessary for the land development.
Income Taxes
The Company and its subsidiaries file consolidated federal and state income tax
returns. The subsidiaries are charged for the taxes applicable to their profits
calculated on the basis of filing separate income tax returns. Matrix Bank
qualifies as a savings and loan association for income tax purposes.
The Company follows Statement No. 109, Accounting for Income Taxes, which uses
the liability method in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax basis of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
Fair Value of Financial Instruments
In 1995, the Company adopted Statement No. 107, Disclosures about Fair Value of
Financial Instruments, which requires disclosure of fair value information about
financial instruments, whether or not recognized in the balance sheet, where it
is practicable to estimate their value. In cases where quoted market prices are
not available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard,
F-13
<PAGE>
Matrix Capital Corporation
Notes to Consolidated Financial Statements (continued)
2. ACCOUNTING POLICIES (CONTINUED)
the derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instruments. Statement No. 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. For additional information refer to Note 14 -
Financial Instruments.
Cash and Cash Equivalents
Cash equivalents, for purposes of the statements of cash flows, consist of cash
and interest earning deposits with banks with original maturities when purchased
of three months or less.
Net Income Per Share
Net income per common and common equivalent share are computed based on the
weighted average number of common shares outstanding during each period and the
dilutive effect, if any, of stock options outstanding.
Impact of Recently Issued Accounting Standards
In June 1996, the FASB issued Statement No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. This
statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities and is
effective for periods beginning after December 31, 1996. Transactions covered
by Statement No. 125 include securitizations, sales of partial interests in
financial assets, repurchase agreements, securities lending, pledges of
collateral, loan syndications and participations, sales of receivables with
recourse, servicing of mortgages and other loans, and in-substance defeasances.
The statement uses a "financial components" approach that focuses on control to
determine the proper accounting for financial asset transfers. Under that
approach, after financial assets are transferred, an entity would recognize on
the balance sheet all assets it controls and liabilities it has incurred. It
would remove from the balance sheet those assets it no longer controls and
liabilities it has satisfied.
If the entity has surrendered control over the transferred assets, the
transaction would be considered a sale. Control is considered surrendered only
if the assets are isolated from the transferor; the transferee has the right to
pledge or exchange the assets or is a qualifying special-purpose entity; and the
transferor does not maintain effective control over the assets through an
agreement to repurchase or redeem them. If those conditions do not exist, the
transfer would be accounted for as a secured borrowing.
F-14
<PAGE>
Matrix Capital Corporation
Notes to Consolidated Financial Statements (continued)
2. ACCOUNTING POLICIES (CONTINUED)
The Company will adopt Statement No. 125 in the first quarter of 1997 and, based
on current circumstances, does not believe the effect of adoption will be
material to its consolidated financial statements.
Reclassifications
Certain amounts in the prior year financial statements have been reclassified to
conform to the current year presentation.
3. LOANS RECEIVABLE
Loans Held for Investment
Loans held for investment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1995 1996
---------------------
(In thousands)
<S> <C> <C>
Residential loans $ 9,349 $16,625
Multi-family and commercial real estate 7,544 8,734
Construction loans 577 1,319
Consumer loans and other 3,381 3,704
---------------------
20,851 30,382
Less:
Loans in process 499 254
Purchase discounts, net 414 239
Unearned discounts on consumer loans 14 9
Allowance for loan losses 227 270
Specific valuation allowance on purchased loans 122 50
---------------------
1,276 822
---------------------
$19,575 $29,560
=====================
Activity in the allowance for loan
losses is summarized as follows:
YEAR ENDED DECEMBER 31
1994 1995 1996
------------------------------
(In thousands)
Balance at beginning of year $ 196 $ 220 $ 227
Provision for loan losses 24 - 34
Charge-offs - (42) (6)
Recoveries - 49 15
------------------------------
Balance at end of year $ 220 $ 227 $ 270
==============================
</TABLE>
F-15
<PAGE>
Matrix Capital Corporation
Notes to Consolidated Financial Statements (continued)
3. LOANS RECEIVABLE (CONTINUED)
Nonaccrual loans in the loans held for investment portfolio totaled
approximately $440,000 and $335,000 or 2.1 percent and 1.1 percent of the total
loans held for investment portfolio at December 31, 1995 and 1996, respectively.
Matrix Bank at December 31, 1996 had commitments to extend credit on consumer
and construction loans of approximately $3,885,000.
Loans Held for Sale
Loans held for sale consist of the following as of December 31:
<TABLE>
<CAPTION>
1995 1996
---------------------
(In thousands)
<S> <C> <C>
First mortgage loans $133,622 $185,080
Automobile installment contracts - 1,315
---------------------
133,622 186,395
Less:
Purchase discounts, net 5,816 2,825
Valuation allowance 716 769
---------------------
6,532 3,594
---------------------
$127,090 $182,801
=====================
Activity in the valuation allowance is
summarized as follows:
YEAR ENDED DECEMBER 31
1994 1995 1996
-------------------------------
(In thousands)
Balance at beginning of year $ 342 $ 508 $ 716
Provision for valuation allowance 192 401 109
Charge-offs (26) (198) (64)
Recoveries - 5 8
-------------------------------
Balance at end of year $ 508 $ 716 $ 769
===============================
</TABLE>
F-16
<PAGE>
Matrix Capital Corporation
Notes to Consolidated Financial Statements (continued)
3. LOANS RECEIVABLE (CONTINUED)
Nonaccrual loans related to the loans held for sale portfolio aggregated
approximately $5,098,000 and $3,568,000 at December 31, 1995 and 1996,
respectively. Approximately $1,123,000 and $722,000 at December 31, 1995 and
1996, respectively, of the nonaccrual loans relate to a 90 percent senior
participation interest acquired by the Company in a $22,000,000 passthrough
certificate, with an outstanding balance of $5,115,000 at December 31, 1996,
secured by single family residential real estate mortgages which are classified
as loans held for sale. Losses incurred related to loans underlying the
passthrough certificate are first charged to the subordinate participation
interest, which was approximately $1.8 million at December 31, 1996.
Interest income that would have been recorded for all nonaccrual loans was
approximately $140,000, $156,000, and $120,000 during the years ended December
31, 1994, 1995, and 1996, respectively.
During 1996, the Bank formed two mortgage backed securities with an unpaid
principal balance of approximately $21,000,000 from its loans held for sale
portfolio. During the year ended December 31, 1996, the Company recognized a
gross gain on the sale of mortgage backed securities of approximately $171,000
and the taxes related to this sale were approximately $68,000.
On December 31, 1996, Matrix Bank sold the fixed assets and the right to the
name of Sterling Finance to a third party buyer and ceased its subprime auto
lending operations. During the time that Matrix Bank owned Sterling Finance, it
purchased numerous automobile retail installment contracts and sold
approximately $18,500,000 of such contracts, subject to certain recourse
provisions. During 1996, Sterling Finance was required to repurchase
approximately $2,500,000 of automobile installment contracts and repossessed
automobiles pursuant to the recourse provisions. Included in loans held for sale
at December 31, 1996 is approximately $1,220,000, net of discount, of these
automobile installment contracts. Matrix Bank had a recourse liability recorded
of approximately $600,000 at December 31, 1996 for the potential loss exposure
related to these automobile installment contracts and repossessed automobiles.
Matrix Bank has received a signed letter from the purchaser of the automobile
retail installment contracts that no additional repurchases will be required,
except with respect to certain terms and conditions in the purchase and sale
agreement, which are primarily limited to fraudulent misrepresentations by the
borrowers under the contracts. No instances of significant fraudulent
misrepresentations have been identified to date and it is the opinion of the
Company's management that there are no material repurchase obligations remaining
under the purchase and sale agreement.
Additionally, in other assets is approximately $500,000 in repossessed
automobiles which represents the estimated fair value of the automobiles, less
estimated costs to sell.
F-17
<PAGE>
Matrix Capital Corporation
Notes to Consolidated Financial Statements (continued)
4. PREMISES AND EQUIPMENT
Premises and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1994 1995 1996
----------------------
(In thousands)
<S> <C> <C> <C>
Land $ 417 $ 532 $ 692
Buildings 3,068 3,761 4,257
Leasehold improvements 118 127 248
Office furniture and equipment 1,407 1,721 2,863
Other equipment 186 960 975
----------------------
5,196 7,101 9,035
Less: accumulated depreciation and
amortization 738 1,197 1,756
----------------------
$4,458 $5,904 $7,279
======================
</TABLE>
Included in occupancy and equipment expense is depreciation and amortization
expense of premises and equipment of approximately $414,000, $467,000, and
$659,000 for the years ended December 31, 1994, 1995 and 1996, respectively.
5. MORTGAGE SERVICING RIGHTS
The activity in the MSRs is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1995 1996
---------------------------------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 1,818 $ 6,183 $13,817
Purchases 5,550 9,203 17,142
Originated, net of OMSRs sold - 885 441
Amortization (1,185) (1,817) (2,432)
Transfer of MSR to FHLMC (Note 12) - - (110)
Sales - (637) (5,178)
---------------------------------
Balance at end of year $ 6,183 $13,817 $23,680
=================================
</TABLE>
Accumulated amortization of mortgage servicing rights aggregated approximately
$9,495,000 and $11,347,000 at December 31, 1995 and 1996, respectively.
F-18
<PAGE>
Matrix Capital Corporation
Notes to Consolidated Financial Statements (continued)
5. MORTGAGE SERVICING RIGHTS (CONTINUED)
The Company's servicing activity is diversified throughout 48 states with
concentrations at December 31, 1996 in California, New York and Texas of
approximately 27.2 percent, 8.6 percent and 16.4 percent, respectively, based on
aggregate outstanding unpaid principal balances of the mortgage loans serviced.
As of December 31, 1995 and 1996, the Company subserviced loans for others of
approximately $85,000,000 and $140,000,000, respectively.
The Company's servicing portfolio (excluding subserviced loans) comprised the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1996
--------------------------------------------------
PRINCIPAL
NUMBER BALANCE NUMBER PRINCIPAL BALANCE
OF LOANS OUTSTANDING OF LOANS OUTSTANDING
--------------------------------------------------
<S> <C> <C> <C> <C>
(Dollars In thousands)
FHLMC 9,453 $ 671,966 12,107 $ 666,218
FNMA 7,820 483,947 13,426 764,632
GNMA 271 12,883 9,379 278,700
Other VA, FHA, and conventional loans 7,414 427,589 12,870 795,486
------------------------------------------------
24,958 $1,596,385 47,782 $2,505,036
================================================
</TABLE>
The Company's custodial escrow balances shown in the accompanying consolidated
balance sheets pertain to escrowed payments of taxes and insurance and the float
on principal and interest payments on loans serviced on behalf of others and
owned by the Company, aggregating approximately $26,769,000 and $27,381,000 at
December 31, 1995 and 1996, respectively. The Company also has custodial
accounts on deposit from other mortgage companies aggregating approximately
$242,000 and $10,500,000 at December 31, 1995 and 1996, respectively. The
Companies custodial accounts are maintained at Matrix Bank in noninterest
bearing accounts. The balance of the custodial accounts fluctuate from month to
month based on the pass-through of the principal and interest payments to the
ultimate investors and the timing of the taxes and insurance payments.
The mortgage servicing portfolio includes recourse servicing equal to
approximately 0.7 and 0.4 percent of the total owned at December 31, 1995 and
1996, respectively. A reserve for losses is recorded, as appropriate, for loans
serviced for others, in which the investor has recourse to the Company, which
had a balance of approximately $52,000, $49,000 and $61,000 at December 31, 1994
and 1995 and 1996, respectively. Additionally, in certain circumstances the
Company is required to make advances for escrow and foreclosure costs for loans
which it services. The Company experienced losses for unrecoverable advances of
approximately $34,000, $144,000, and $28,000 for the years ended December 31,
1994, 1995 and 1996, respectively.
F-19
<PAGE>
Matrix Capital Corporation
Notes to Consolidated Financial Statements (continued)
6. DEPOSITS
Deposit account balances are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------------------------------
1995 1996
----------------------------------------------------------
(Dollars In thousands)
WEIGHTED WEIGHTED
AVERAGE AVERAGE
AMOUNT PERCENT RATE AMOUNT PERCENT RATE
----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Passbook accounts $ 2,358 4.82% 3.40% $ 2,757 3.06% 3.45%
NOW accounts 3,832 7.84 1.49 4,732 5.25 1.66
Money market accounts 6,167 12.62 4.38 9,455 10.48 4.43
------- ------ ---- ------- ------ ----
12,357 25.28 3.18 16,944 18.79 3.59
Certificate accounts 36,513 74.72 5.97 73,235 81.21 5.85
------- ------ ---- ------- ------ ----
48,870 100.00% 90,179 100.00%
====== ======
Purchase premium 7 -
------- -------
$48,877 $90,179
======= =======
Weighted-average interest rate 5.23% 5.36%
==== ====
</TABLE>
Contractual maturities of certificate accounts as of December 31, 1996:
<TABLE>
<CAPTION>
Under 12 12 to 36 36 to 60
months months months
------------------------------------------
<S> <C> <C> <C>
(In thousands)
3.00-3.99% $ 104 $ - $ -
4.00-4.99% 807 - -
5.00-5.99% 43,211 5,663 318
6.00-6.99% 8,078 8,737 3,211
7.00-7.99% 2,409 258 395
8.00-10.50% - 41 3
------------------------------------------
$54,609 $ 14,699 $ 3,927
==========================================
</TABLE>
F-20
<PAGE>
Matrix Capital Corporation
Notes to Consolidated Financial Statements (continued)
6. DEPOSITS (CONTINUED)
Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1995 1996
-------------------------------
(In thousands)
<S> <C> <C> <C>
Passbook accounts $ 72 $ 85 $ 82
NOW accounts 76 52 63
Money market 195 240 405
Certificates of deposit 1,138 1,807 3,210
-------------------------------
$1,481 $2,184 $3,760
===============================
</TABLE>
The aggregate amount of deposit accounts with a balance greater than $100,000
was approximately $2,066,000 and $5,457,000 at December 31, 1995 and 1996
respectively.
F-21
<PAGE>
Matrix Capital Corporation
Notes to Consolidated Financial Statements (continued)
7. BORROWED MONEY
Borrowed money is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1995 1996
----------------------
(In thousands)
<S> <C> <C>
Term Notes Payable
Note payable to a third-party financial
institution due in annual principal
installments of $286,101, plus
interest, through 2003, collateralized
by the common stock of Matrix Bank;
interest at prime plus 1.0 percent. $ 2,289 $2,003
Notes payable to a third-party
financial institution due in 28
consecutive quarterly installments,
secured by MSRs; interest at prime
plus 2.0 percent and fixed at 10
percent. 631 521
Note payable to a bank, secured by a
deed of trust on real estate, unpaid
principal balance plus interest due
June 1998; interest at prime plus 1.0
percent. 921 938
$13,500,000 servicing acquisition loan
agreement with a bank, secured by
MSRs, due at the earlier of the
maturity of the MSRs or amortized over
five to six years from the date of the
borrowing through June 2002; interest
at federal funds rate plus 2.75
percent (8.05 percent at December 31,
1996); $12,000,000 available at
December 31, 1996. 8,709 1,500
Senior subordinated notes, interest at
13 percent payable semiannually,
unsecured and maturing July 2002, with
mandatory redemptions of $727,500 on
each of July 15, 1999, 2000 and 2001. 2,910 2,910
Note payable to a third-party financial
institution due in monthly
installments through 2000, secured by
equipment; interest at the one year
treasury rate plus 2.4 percent. 786 731
Note payable to a bank, secured by a
deed of trust on real estate, interest
due monthly at prime plus 1 percent,
unpaid principal due July 21, 1998. - 845
Other, interest at prime plus 2.0 percent 201 -
----------------------
Total term notes 16,447 9,448
</TABLE>
F-22
<PAGE>
Matrix Capital Corporation
Notes to Consolidated Financial Statements (continued)
7. BORROWED MONEY (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31
1995 1996
----------------------
(In thousands)
Revolving Lines
<S> <C> <C>
$50,000,000 revolving warehouse loan
agreement (with a $2,500,000 working
capital sublimit) with banks, secured
by mortgage loans held for sale,
mortgage servicing rights, eligible
servicing advance receivables and
eligible delinquent mortgage
receivables; interest at federal funds
rate plus 1.0 to 2.25 percent (6.50
and 7.55 percent average rate at
December 31, 1996 for the warehouse
loan and working capital loan,
respectively); $18,496,000 available
overall and $2,500,000 available under
the working capital sublimit at
December 31, 1996. $46,833 $31,504
----------------------
46,833 31,504
Other
Financing agreement with a bank,
secured by Ft. Lupton Subordinated
Series 1996 A1 revenue anticipation
warrants, interest is at 5 percent and
is due based on the semi-annual bonds
payments, unpaid principal due at bond
maturity. - 800
Agreements with a bank and an
investment bank to sell mortgage loans
originated by the Company under
agreements to repurchase. The
agreement can be terminated upon 90
days written notice by either party;
interest at the higher of the prime
rate or note rate on the loans. Total
commitment amount of these agreements
is $20,000,000, with $20,000,000
available at December 31, 1996. 570 -
MSR financing (see below). 1,243 679
----------------------
1,813 1,479
----------------------
$65,093 $42,431
======================
</TABLE>
F-23
<PAGE>
Matrix Capital Corporation
Notes to Consolidated Financial Statements (continued)
7. BORROWED MONEY (CONTINUED)
On January 31, 1997, the Company renegotiated the revolving credit facilities
for its $50,000,000 warehouse loan agreement, including the working capital
element, and its $13,500,000 servicing acquisition loan agreement. With this
renegotiation, the aggregate amount of revolving warehouse lines of credit
facilities was increased to $60.0 million, the aggregate amount of the servicing
acquisition facility was increased to $30.0 million, and the aggregate amount of
the working capital facility was increased to $10.0 million. The $10.0 million
working capital facility became a separate component to the revolving credit
facilities, and is no longer a sublimit to the warehouse loan agreement. The new
credit facility agreement requires Matrix Financial to maintain, among other
things, (i) total shareholder's equity of at least $10.0 million plus 100
percent of capital contributed after January 1, 1997, plus 50 percent of
cumulative quarterly net income, (ii) adjusted net worth, as defined, of at
least $12.0 million, (iii) a servicing portfolio of at least $2.0 billion, (iv)
principal debt of term line borrowings of no more than the lesser of 70 percent
of the appraised value of the mortgage servicing portfolio or 1.25 percent of
the unpaid principal balance of the mortgage servicing portfolio, (v) a ratio of
total adjusted debt to adjusted tangible net worth of no more than eight to one,
and (vi) a ratio of cash flow to current maturities of long-term debt and any
capital leases of at least 1.3 to 1.0.
The terms of the senior subordinated notes limit cash dividends to an amount
equal to 50 percent of consolidated net income as long as the dividend does not
exceed 10 percent of consolidated shareholders' equity. The Company may redeem
the senior subordinated notes, in whole or in part, at any time after July 15,
1998 at a redemption price of 102 percent of par through July 14, 1999 and,
thereafter, at par, plus accrued and unpaid interest. The Company was obligated
to register under the Securities Act of 1933 the senior subordinated notes on or
before February 1, 1997. Since such registration statement was not effected by
February 1, 1997, the interest rate increased to 14 percent.
As of December 31, 1996 the maturities of term notes payable during the next
five years and thereafter are as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
1997 $ 648
1998 2,500
1999 1,493
2000 1,499
2001 1,479
Thereafter 1,829
--------------
$9,448
==============
</TABLE>
F-24
<PAGE>
Matrix Capital Corporation
Notes to Consolidated Financial Statements (continued)
7. BORROWED MONEY (CONTINUED)
The Company must comply with certain financial and other covenants related to
the foregoing debt agreements including the maintenance of specific ratios, net
worth and other amounts as defined in the credit agreements. At December 31,
1996, the Company was in compliance with these covenants.
MSR Financing
In 1992 and 1994 the Company entered into two unrelated transactions with
portions of its owned servicing portfolio which were accounted for as financings
due to various terms of the agreements regarding continuing involvement. Amounts
due to the other parties under the financings had balances of approximately
$1,243,000 and $679,000 at December 31, 1995 and 1996, respectively. The MSRs
pledged as collateral for the loans relate to mortgage loans with unpaid
principal balances of approximately $125,000,000 and $74,000,000 at December 31,
1995 and 1996, respectively. One of these financing arrangements was completely
paid off in 1996. In the remaining financing arrangement, the Company retains a
portion of the servicing income associated with the pledged or related MSRs,
with the balance of the servicing income paid to the other parties as a
reduction of the debt and interest. The implicit interest rate of the financing
varies depending on the servicing income derived from the MSRs.
A portion of the payment made under this arrangement is recorded as interest
expense on the level yield method. The amounts due the other parties are payable
solely from the servicing income derived from the MSRs, and there is no implicit
or explicit guarantee as to repayment. The total amounts paid to the other
parties aggregated approximately $717,000, $620,000 and $785,000 during the
years ended December 31, 1994, 1995 and 1996, respectively.
8. FEDERAL HOME LOAN BANK OF DALLAS BORROWINGS
Federal Home Loan Bank of Dallas borrowings aggregated $19,000,000 and
$51,250,000 at December 31, 1995 and 1996, respectively. The advances bear
interest at rates which adjust daily and are based on the mortgage repo rate.
All advances are secured by first mortgage loans of Matrix Bank and all Federal
Home Loan Bank of Dallas stock.
Matrix Bank has a commitment from the Federal Home Loan Bank of Dallas for
advances of approximately $55,000,000 at December 31, 1996. Matrix Bank adopted
a collateral pledge agreement whereby it has agreed to keep on hand, at all
times, first mortgages free of all other pledges, liens, and encumbrances with
unpaid principal balances aggregating no less than 170 percent of the
outstanding secured advances from the Federal Home Loan Bank of Dallas. All
stock in the Federal Home Loan Bank of Dallas is pledged as additional
collateral for these advances.
F-25
<PAGE>
Matrix Capital Corporation
Notes to Consolidated Financial Statements (continued)
9. INCOME TAXES
The income tax provision consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1995 1996
-------------------------
(In thousands)
Current
<S> <C> <C> <C>
Federal $1,350 $1,630 $1,720
State 210 418 440
Deferred
Federal 236 169 (42)
State 50 43 (12)
-------------------------
$1,846 $2,260 $2,106
=========================
</TABLE>
A reconciliation of the provision for income taxes with the expected income
taxes based on the statutory federal income tax rate follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1995 1996
-------------------------
(In thousands)
<S> <C> <C> <C>
Expected income tax provision $1,530 $1,979 $1,829
State income taxes 270 293 282
Other 46 (12) (5)
-------------------------
$1,846 $2,260 $2,106
=========================
</TABLE>
F-26
<PAGE>
Matrix Capital Corporation
Notes to Consolidated Financial Statements (continued)
9. INCOME TAXES (CONTINUED))
Deferred tax assets and liabilities result from the tax effects of temporary
differences between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes shown below.
<TABLE>
<CAPTION>
DECEMBER 31
1995 1996
---------------------
(In thousands)
Deferred tax assets:
<S> <C> <C>
Allowance for losses $ 190 $ 551
Discounts and premiums 177 108
Amortization of servicing rights 160 -
Other 51 82
---------------------
Total deferred tax assets 578 741
Deferred tax liabilities:
Gain on sale of loans (275) (279)
Amortization of servicing rights - (106)
Depreciation (241) (302)
Other (62) -
----------------------
Total deferred tax liabilities (578) (687)
----------------------
Net deferred tax asset $ - $ 54
======================
</TABLE>
10. REGULATORY
The Company is a unitary thrift holding company and, as such, is subject to the
regulation, examination and supervision of the Office of Thrift Supervision
(OTS).
Matrix Bank is also subject to various regulatory capital requirements
administered by the OTS. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary actions,
actions by regulators that, if undertaken, could have a direct material effect
on Matrix Bank's financial statements. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, Matrix Bank must meet
specific capital guidelines that involve quantitative measures of the Matrix
Bank's assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. Matrix Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
F-27
<PAGE>
Matrix Capital Corporation
Notes to Consolidated Financial Statements (continued)
10. REGULATORY (CONTINUED)
Quantitative measures established by regulation to ensure capital adequacy
require Matrix Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to total
assets (as defined). Management believes, as of December 31, 1996, that Matrix
Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the OTS categorized
Matrix Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized Matrix Bank must
maintain minimum total risk-based, Tier I risk based and Tier I leverage ratios
as set forth in the table. There are no conditions or events since that
notification that management believes have changed the institution's category.
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------- ----------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- --------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996
Total Capital (to Risk
Weighted Assets) $12,406 11.1% $8,979 8.0% $11,224 10.0%
Tier I Capital (to Risk
Weighted Assets) 11,367 10.1 4,489 4.0 6,734 6.0
Tier I Capital (to Average
Assets) 11,367 7.8 5,803 4.0 7,254 5.0
As of December 31, 1995
Total Capital (to Risk
Weighted Assets) 8,321 13.3% 4,997 8.0% 6,246 10.0%
Tier I Capital (to Risk
Weighted Assets) 7,540 12.1 2,499 4.0 3,748 6.0
Tier I Capital (to Average
Assets) 7,540 7.2 4,195 4.0 5,243 5.0
</TABLE>
The various federal banking statutes to which Matrix Bank is subject also
include other limitations regarding the nature of the transactions in which it
can engage or assets it may hold or liabilities it may incur.
Matrix Bank is required to maintain balances with the Federal Reserve Bank of
Dallas in a noninterest earning account based on a percentage of deposit
liabilities. Such balances averaged $888,0000 and $659,000 in 1995 and 1996,
respectively.
F-28
<PAGE>
Matrix Capital Corporation
Notes to Consolidated Financial Statements (continued)
10. REGULATORY (CONTINUED)
Matrix Bank is required by Federal regulations to maintain a minimum level of
liquid assets of five percent. Matrix Bank exceeded the Federal requirement at
December 31, 1995 and 1996, respectively.
Matrix Financial is subject to examination by various regulatory agencies
involved in the mortgage banking industry. Each regulatory agency requires the
maintenance of a certain amount of net worth, the most restrictive of which
required $1,224,000 at December 31, 1995 and $1,709,000 at December 31, 1996.
11. SHAREHOLDERS' EQUITY
Common Stock
The authorized common stock of the Company consists of 50,000,000 shares with a
par value of $.0001 per share. There were 3,888,939 and 5,901,439 shares of
common stock outstanding at December 31, 1995 and 1996, respectively. Holders
of common stock are entitled to receive dividends when, and if, declared by the
board of directors. Each share of common stock entitles the holders thereof to
one vote, and cumulative voting is not permitted.
Preferred Stock
The authorized preferred stock of the Company consists of 5,000,000 shares with
a par value of $.0001 per share. The board of directors is authorized, without
further action of the shareholders of the Company, to issue from time to time
shares of preferred stock in one or more series and with such relative rights,
powers, preferences, and limitations as the board of directors may determine at
the time of issuance. Such shares may be convertible into common stock and may
be superior to the common stock in the payment of dividends, liquidation, voting
and other rights, preferences and privileges.
Stock Option Plan
The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25) and related Interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
Accounting for Stock-Based Compensation, requires use of option valuation models
that were not developed for use in valuing employee stock options. Under APB
25, because the exercise price of the Company's employee stock options equals
the market price of the underlying stock on the date of grant, no compensation
expense is recognized.
F-29
<PAGE>
Matrix Capital Corporation
Notes to Consolidated Financial Statements (continued)
11. SHAREHOLDERS' EQUITY (CONTINUED)
In September 1996, the board of directors and shareholders adopted the 1996
Stock Option Plan, which amended and restated the Company's stock option plan
adopted in 1995. The Company's 1996 Stock Option Plan has authorized the grant
of options to substantially all of the Company's full-time employees and
directors for up to 525,000 shares of the Company's common stock. All options
granted have ten year terms and vest based on the determination by the Company's
compensation committee.
The 1996 Stock Option Plan authorized the granting of incentive stock options
("Incentive Options") and nonqualified stock options ("Nonqualified Options") to
purchase common stock to eligible persons. The 1996 Stock Option Plan is
currently administered by the compensation committee (administrator) of the
board of directors. The 1996 Stock Option Plan provides for adjustments to the
number of shares and to the exercise price of outstanding options in the event
of a declaration of stock dividend or any recapitalization resulting in a stock
split-up, combination or exchange of shares of common stock.
No Incentive Option may be granted with an exercise price per share less than
the fair market value of the common stock at the date of grant. The
Nonqualified Options may be granted with any exercise price determined by the
administrator of the 1996 Stock Option Plan. The expiration date of an option
is determined by the administrator at the time of the grant, but in no event may
an option be exercisable after the expiration of ten years from the date of
grant of the option.
The 1996 Stock Option Plan further provides that in most instances an option
must be exercised by the optionee within 30 days after the termination of the
consulting contract between such consultant and the Company or termination of
the optionee's employment with the Company, as the case may be, if and to the
extent such option was exercisable on the date of such termination.
Pro forma information regarding net income and earnings per share is required by
Statement 123, which also requires that the information be determined as if the
Company had accounted for its employee stock options granted subsequent to
December 31, 1994 under the fair value method of that Statement. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1995
and 1996, respectively: risk-free interest rates of 5.4 percent and 6.0
percent; a dividend yield of zero percent; volatility factors of the expected
market price of the Company's common stock of .39 and .39; and a weighted-
average expected life of the option of four years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
F-30
<PAGE>
Matrix Capital Corporation
Notes to Consolidated Financial Statements (continued)
11. SHAREHOLDERS' EQUITY (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows (in thousands except for earnings per share
information):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1996
---------------------
<S> <C> <C>
Pro forma net income $3,446 $3,237
Pro forma earnings per share:
Primary 0.88 0.75
Fully diluted 0.88 0.75
</TABLE>
Because Statement 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until 1997.
A summary of the Company's stock option activity, and related information for
the years ended December 31 follows:
<TABLE>
<CAPTION>
1995 1996
---------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE XERCISE
OPTIONS PRICE OPTIONS PRICE
----------------------------------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year - $ - 79,500 $ 5.13
Granted 79,500 5.13 129,600 10.00
Exercised - - - -
Forfeited - - - -
------ -------
Outstanding, end of year 79,500 $ 5.13 209,100 $ 8.15
====== =======
Exercisable at end of year 39,750 $ 5.13 87,000 $ 5.55
Weighted average fair value of options
granted during the year $ 2.19 $ 4.06
</TABLE>
Exercise prices for options outstanding as of December 31, 1996 ranged from
$5.13 to $10.00. The weighted average remaining contractual life of those
options is 9.1 years.
Restricted Net Assets
As a result of the regulatory requirements and debt covenants, substantially all
of the net assets of the Company are restricted at December 31, 1995 and 1996.
F-31
<PAGE>
Matrix Capital Corporation
Notes to Consolidated Financial Statements (continued)
11. SHAREHOLDERS' EQUITY (CONTINUED)
Warrants
The Company issued warrants exercisable for an aggregate of 75,000 shares of its
common stock to its primary underwriters upon the closing of the Company's
initial public offering. The warrants are exercisable from time to time during
the four years after the one year anniversary of their date of grant, and are
not transferable during the first year after their grant. The exercise price for
the shares of common stock underlying such warrants is $12 per share. The shares
of common stock underlying such warrants are entitled to certain demand and
incidental registration rights.
12. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
Employee Stock Purchase Plan
In September 1996, the board of directors and shareholders adopted the Matrix
Capital Corporation Employee Stock Purchase Plan ("Purchase Plan") and reserved
125,000 shares of common stock ("ESPP Shares") for issuance thereunder. The
Purchase Plan became effective upon consummation of the initial public offering.
The price at which ESPP shares are sold under the Purchase Plan is 85 percent of
the lower of the fair market value per share of common stock on the enrollment
or the purchase date.
Leases
The Company leases office space and certain equipment under noncancelable
operating leases. Annual amounts due under the office and equipment leases as of
December 31, 1996 are approximately as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
1997 $370
1998 267
1999 54
2000 21
2001 1
-------------
$713
=============
</TABLE>
Total rent expense aggregated approximately $481,000, $437,000 and $349,000, for
the years ended December 31, 1994, 1995 and 1996, respectively.
F-32
<PAGE>
Matrix Capital Corporation
Notes to Consolidated Financial Statements (continued)
12. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS (CONTINUED)
Loan Commitments and Hedging
In the ordinary course of business, the Company makes commitments to originate
residential mortgage loans (Pipeline) and holds originated loans until delivery
to an investor. Inherent in this business is a risk associated with changes in
interest rates and the resulting change in the market value of the Pipeline and
funded loans. The Company mitigates this risk through the use of mandatory and
nonmandatory forward commitments to sell loans. At December 31, 1995, the
Company had $93,133,000 in Pipeline and funded loans offset with mandatory
forward commitments of $64,743,000 and nonmandatory forward commitments of
$15,267,000. At December 31, 1996, the Company had $62,578,000 in Pipeline and
funded loans offset with mandatory forward commitments of $49,150,000 and
nonmandatory forward commitments of $8,144,000. The inherent value of the
forward commitments is considered in the determination of the lower of cost or
market for the Pipeline and funded loans. The Company does not hold any other
derivatives at December 31, 1995 or 1996.
Land Development Commitment
In June 1996, the Company purchased 154 acres of land for $1.3 million in cash
for the purpose of developing residential and multi-family lots in Ft. Lupton,
Colorado. As part of the acquisition, the Company entered into a Residential
Facilities Development Agreement (Development Agreement) with the City of Ft.
Lupton. The Development Agreement is a residential and planned unit development
agreement providing for the orderly planning, engineering and development of a
golf course and surrounding residential community. The City of Ft. Lupton is
responsible for the development of the golf course and the Company is
responsible for the development of the surrounding residential lots.
The Development Agreement sets forth a mandatory obligation on the part of the
Company to pay the City of Ft. Lupton pledged enhancement assessments of
$600,000. These pledged enhancement assessments require the Company to pay the
city a $2,000 fee each time the Company sells a developed residential lot. The
Company is obligated to pay a minimum of $60,000 in assessment fees per year
beginning in 1998 through 2007.
The Company also entered into a development management agreement with a local
developer to complete the development of the land. The terms of the agreement
specify that the Company is to earn a preferred rate of return on its investment
and, once the initial amount of its investment has been returned, the remaining
profits are split equally. The development management agreement obligates the
Company to provide up to an additional $500,000 of funds for development. The
Company has no other financial obligations to the developer beyond the $500,000.
As of December 31, 1996, the Company has included in its basis in the
development $38,000 in capitalized interest costs. At December 31, 1996, the
total basis of the land development is $1,431,000 and is classified in other
assets in the accompanying consolidated balance sheets.
F-33
<PAGE>
Matrix Capital Corporation
Notes to Consolidated Financial Statements (continued)
12. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS (CONTINUED)
Financing Agreement
In 1996, the Company purchased $800,000 of City of Fort Lupton Subordinated
Series 1996 A1 revenue anticipation warrants, with interest at 9.75 percent and
due December 15, 2015. The warrants are classified as other receivables in the
accompanying consolidated balance sheets. The Company entered into an agreement
with a bank to sell the warrants, subject to certain repurchase obligations
resulting from the bank's annual remarketing of the bonds, with interest at five
percent. The Company entered into a letter of credit agreement of $825,000 to
guarantee its repurchase obligation.
Contingencies
Matrix Bank has received demands from an investor for repurchase of loans
related to a servicing portfolio purchased by Matrix Bank from an unrelated
third-party mortgage banker (Seller). The repurchase demand is pursuant to a
claim of breach of covenants and warranties by the Seller related to
documentation deficiencies in connection with the origination and sale of the
loans. In January 1996, Matrix Bank commenced suit against the Seller to
recover, among other things, the purchase price paid for certain residential
mortgage loans. In connection with the lawsuit and the servicing portfolio at
issue, Matrix Bank has full representations and warranties from the Seller.
Since the representations and warranties have not been honored by the Seller,
Matrix Bank included a cause of action in the lawsuit seeking to compel the
Seller to repurchase the portfolio. During 1996, the servicing relating to FHLMC
was transferred to FHLMC for no consideration. Matrix Bank accrued a liability
of approximately $500,000 at December 31, 1995 and $420,000 at December 31, 1996
for the potential loss exposure related to the pending repurchase requests
which, in the opinion of management, is adequate for estimated future losses.
The Company is a defendant in two lawsuits filed in 1996 that seek class action
status, which allege that the Company breached the terms of plaintiffs'
promissory notes and mortgages by imposing certain changes at the time the
plaintiffs prepaid their mortgage loans. The Company has entered into an
agreement, which is subject to court approval, to settle one lawsuit and dismiss
the other lawsuit. A settlement order of dismissal was entered into for the
dismissed lawsuit on November 13, 1996.
In January 1997, a preliminary approval of the settlement was granted by the
Court. Notice to class members was mailed in January 1997 and published in
February 1997. The settlement agreement requires the Company to establish a
settlement fund of $640,000 which covers the costs of notice and class
administration, attorneys' fees, and recovery to class members. As of December
31, 1996, the Company accrued a liability of approximately $600,000 related to
the settlement. In the opinion of management, the accrued liability at December
31, 1996 is adequate as the actual payments made from the settlement fund is
dependent on the response rate from the plaintiff class members. The final
approval hearing for the settlement is scheduled for April 1997.
F-34
<PAGE>
Matrix Capital Corporation
Notes to Consolidated Financial Statements (continued)
12. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS (CONTINUED)
The Company and its subsidiaries are parties to various other litigation
matters, in most cases involving ordinary and routine claims incidental to the
business of the Company. The ultimate legal and financial liability of the
Company, if any, with respect to such pending litigation cannot be estimated
with certainty, but the Company believes, based on its examination of such
matters, that such ultimate liability will not have a material adverse effect on
the consolidated financial position, results of operations or cash flows of the
Company.
Related Party Transactions
The Company has a note receivable from an affiliate of $750,000 at December 31,
1995 and 1996, which bears interest at 13 percent and is due October 1, 2000.
The note is secured by a secondary lien on the assets of the affiliate. The
Company leases office space to the affiliate for approximately $8,500 per month.
The lease expires in September 1997, but the Company anticipates that it will be
renewed.
At December 31, 1995 and December 31, 1996, the Company had an unsecured loan
receivable from a shareholder of approximately $80,000, which bears interest at
the prime rate and is due December 31, 1997.
13. DEFINED CONTRIBUTION PLAN
The Company has a 401(k) defined contribution plan (Plan) covering all employees
who have elected to participate in the Plan. Each participant may make pretax
contributions to the Plan up to 15 percent of such participant's earnings with a
maximum of $9,500 in 1996. The Company makes a matching contribution of 25
percent of the participant's total contribution. Matching contributions made by
the Company vest over six years. The cost of the plan approximated $46,000,
$61,000 and $83,000 during the years ended December 31, 1994, 1995 and 1996,
respectively.
14. FINANCIAL INSTRUMENTS
Off-Balance Sheet Risk and Concentration of Commitments
The Company is a party to financial instruments with off-balance sheet risk in
the normal course of its business. These instruments are commitments to
originate or purchase first mortgage loans and forward loan sale commitments
(see Note 12) and involve credit and interest rate risk in excess of the amount
recognized in the consolidated balance sheet.
Commitments to originate or purchase mortgage loans amounted to approximately
$18,900,000 at DecemberE31, 1996. Additionally, the Company has a $400,000
commitment to lend funds on a secured basis. The Company plans to fund the
commitments in its normal commitment period. The Company evaluates each
customer's creditworthiness on a case-by-case basis.
F-35
<PAGE>
Matrix Capital Corporation
Notes to Consolidated Financial Statements (continued)
14. FINANCIAL INSTRUMENTS (CONTINUED)
The Company's credit risks comprised the outstanding loans held for sale and
loans held for investment as shown in the consolidated balance sheets, and loans
sold with recourse aggregating approximately $354,000 and $16,214,000 at
December 31, 1995 and 1996, respectively. The loans are located throughout the
United States and are collateralized primarily by a first mortgage on the
property.
Fair Value of Financial Instruments
The carrying amounts and estimated fair value of financial instruments are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
1995 1996
------------------ ------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------------------------------------
(In thousands)
Financial assets:
<S> <C> <C> <C> <C>
Cash $ 1,381 $ 1,381 $ 2,319 $ 2,319
Interest earnings deposits 5,586 5,586 9,499 9,499
Loans held for sale, net 127,090 130,638 182,801 183,741
Loans held for investment, net 19,575 19,829 29,560 29,824
Federal Home Loan Bank of Dallas stock 1,954 1,954 2,871 2,871
Financial liabilities:
Deposits 48,877 49,283 90,179 90,401
Custodial escrow balances 27,011 27,011 37,881 37,881
Drafts payable 8,817 8,817 5,961 5,961
Payable for purchase of MSRs 1,312 1,312 8,044 8,044
Federal Home Loan Bank of Dallas
borrowings 19,000 19,000 51,250 51,250
Borrowed money 65,093 65,093 42,431 42,431
</TABLE>
The following methods and assumptions were used by the Company in estimating the
fair value of the financial instruments:
The carrying amounts reported in the balance sheet for cash, interest earnings
deposits, Federal Home Loan Bank of Dallas stock, drafts payable, payable for
purchase of MSRs, Federal Home Loan Bank of Dallas borrowings, and borrowed
money approximate those assets and liabilities' fair values.
F-36
<PAGE>
Matrix Capital Corporation
Notes to Consolidated Financial Statements (continued)
14. FINANCIAL INSTRUMENTS (CONTINUED)
The fair values of loans are based on quoted market prices where available or
outstanding commitments from investors. If quoted market prices are not
available, fair values are based on quoted market prices of similar loans sold
in securitization transactions, adjusted for differences in loan
characteristics. The fair value of forward sale commitments are included in the
determination of the fair value of loans held for sale.
The fair value disclosed for demand deposits (e.g., interest and noninterest
checking, savings, and money market accounts) are, by definition, equal to the
amount payable on demand at the reporting date (i.e., their carrying amounts).
Fair values for fixed-rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated expected periodic maturities
on time deposits. The component commonly referred to as deposit base intangible,
was not estimated at December 31, 1995 and 1996 and is not considered in the
fair value amount. The fair value disclosed for custodial escrow balances
liabilities (noninterest checking) is, by definition, equal to the amount
payable on demand at the reporting date (i.e., their carrying amounts).
F-37
<PAGE>
Matrix Capital Corporation
Notes to Consolidated Financial Statements (continued)
15. PARENT COMPANY CONDENSED FINANCIAL INFORMATION
Condensed financial information of Matrix Capital Corporation (Parent Company)
is as follows:
<TABLE>
<CAPTION>
December 31
1994 1995 1996
--------------------------
CONDENSED BALANCE SHEETS (In thousands)
<S> <C> <C> <C>
Assets:
Cash $ 180 $ 11 $ 45
Other receivables - 804 872
Premises and equipment, net 1,154 1,371 1,405
Other assets 303 515 507
Investment in and advances to
subsidiaries 8,924 13,853 34,731
--------------------------
Total assets $10,561 $16,554 $37,560
==========================
Liabilities and shareholders' equity:
Borrowed money (a) $ 4,052 $ 6,751 $ 6,372
Other liabilities 833 465 386
--------------------------
Total liabilities 4,885 7,216 6,758
Shareholders' equity:
Common stock - - 1
Additional paid in capital 2,525 2,626 20,816
Retained earnings 3,151 6,712 9,985
--------------------------
Total shareholders' equity 5,676 9,338 30,802
--------------------------
Total liabilities and shareholders'
equity $10,561 $16,554 $37,560
==========================
</TABLE>
(a) The Parent's debt consists of a note payable to a third party financial
institution secured by common stock at Matrix Bank, note payable to a bank
secured by a deed of trust on real estate, senior subordinated notes and a
note payable to a third party financial institution secured by MSRs. The
Parent also guarantees the revolving warehouse and servicing acquisition
loan agreements. See Note 7 for additional information regarding the debt.
F-38
<PAGE>
Matrix Capital Corporation
Notes to Consolidated Financial Statements (continued)
15. PARENT COMPANY CONDENSED FINANCIAL INFORMATION (CONTINUED)
As of December 31, 1995, the maturities of term notes payable during the next
five years and thereafter are as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
1997 $ 439
1998 1,291
1999 1,123
2000 1,123
2001 1,096
Thereafter 1,300
------
$6,372
======
Year Ended December 31
1994 1995 1996
----------------------------------
(In thousands)
CONDENSED STATEMENTS OF INCOME
Income:
Interest income on loans $ - $ 44 $ 142
Other 472 374 130
----------------------------------
Total income 472 418 272
Expenses:
Compensation and employee benefits 767 1,042 1,344
Occupancy and equipment 18 92 299
Interest on borrowed money 170 592 805
Professional fees 82 112 138
Other general and administrative 81 704 328
----------------------------------
Total expenses 1,118 2,542 2,914
----------------------------------
Loss before income taxes and equity in
income of subsidiaries (646) (2,124) (2,642)
Income taxes (b) - - -
----------------------------------
Loss before equity in income of
subsidiaries (646) (2,124) (2,642)
Equity in income of subsidiaries 3,292 5,685 5,915
----------------------------------
Net income $2,646 $ 3,561 $ 3,273
==================================
</TABLE>
(b) The Company's tax sharing agreement with its subsidiaries provides that the
subsidiaries will pay the Parent an amount equal to its individual current
income tax provision calculated on the basis of the subsidiary filing a
separate return. In the event a subsidiary incurs a net operating loss in
future periods, the subsidiary will be paid an amount equal to the current
income tax refund the subsidiary would be due as a result of carryback of
such loss, calculated on the basis of the subsidiary filing a separate
return. Accordingly, the parent's condensed statements of income do not
include any income tax benefit for the current losses.
F-39
<PAGE>
Matrix Capital Corporation
Notes to Consolidated Financial Statements (continued)
15. PARENT COMPANY CONDENSED FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
Year Ended December 31
1994 1995 1996
---------------------------------
(In thousands)
<S> <C> <C> <C>
CONDENSED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net income $ 2,646 $ 3,561 $ 3,273
Adjustments to reconcile net income to
net cash provided (used) by operating
activities:
Equity in income of subsidiaries (3,292) (5,685) (5,915)
Dividend from subsidiaries 1,368 2,207 1,642
Depreciation and amortization 5 34 127
Increase (decrease) in other liabilities 410 (368) (78)
Increase in other receivables and other (202) (1,016) (133)
assets
Noncash compensation expense - 101 -
---------------------------------
Net cash provided (used) by operating 935 (1,166) (1,084)
activities
Investing activities:
Purchases of premises and equipment (1,159) (251) (88)
Investment in and advances to (1,904) (1,451) (16,606)
subsidiaries ---------------------------------
Net cash used by investing activities (3,063) (1,702) (16,694)
Financing activities:
Repayments of notes payable (185) (1,133) (438)
Proceeds from notes payable 2,487 922 59
Proceeds from senior subordinated notes - 2,910 -
Proceeds from the sale of common stock - - 18,191
---------------------------------
Net cash provided by financing
activities 2,302 2,699 17,812
---------------------------------
Increase (decrease) in cash and cash 174 (169) 34
equivalents
Cash and cash equivalents at beginning
of year 6 180 11
---------------------------------
Cash and cash equivalents at end of year $ 180 $ 11 $ 45
=================================
</TABLE>
16. SUBSEQUENT EVENT
On February 5, 1997, the Company acquired The Vintage Group Inc. ("Vintage")
with the issuance of 779,592 shares of the Company's common stock. The
transaction will be accounted for as a pooling of interests. Vintage's
subsidiaries, Sterling Trust Company ("Sterling Trust") and Vintage Financial
Services Corporation ("VFSC") are located in Waco, and Arlington, Texas,
respectively. Sterling Trust is a nonbank trust company specializing in self-
directed qualified retirement plans, individual retirement accounts, custodial,
and directed trust accounts. As of December 31, 1996, Sterling Trust had in
excess of 23,000 accounts with assets under administration of over $1.1 billion.
VFSC, whose name has been changed to First Matrix Investment Services Corp., is
a NASD broker/dealer that provides services to individuals and deferred
contribution plans.
F-40
<PAGE>
Exhibit 10.30
LEASE
DATE: OCTOBER 1, 1996
LANDLORD: MATRIX CAPITAL CORPORATION
TENANT: CREATIVE NETWORKS, LLC
1. LEASED PREMISES
The leased premises (the "Leased Premises") are as shown on Exhibit "A"
attached hereto and are further defined as:
7360 Rentable Square Feet at 201 West Coolidge Street, Phoenix, Arizona
85013. The Rentable Square Feet includes a common area factor of 12% for
computation of the area of the Leased Premises
II. LEASE
The Landlord hereby leases to the Tenant, and the Tenant hereby leases from
the Landlord, the Leased Premises, upon the terms and conditions set forth in
this Lease (the "Lease").
III. TERM
The Lease is for a term of twelve (12) months commencing October 1, 1996,
(the "Commencement Date") and terminating September 30, 1997, (the "Termination
Date").
IV. SECURITY DEPOSIT
Tenant has paid Landlord at the execution hereof, the amount of zero
dollars ($0.00) as security for the performance by Tenant of the terms hereof,
which amount shall be returned to Tenant at the Termination Date if Tenant has
discharged its obligations to Landlord in full pursuant to this Lease and all
amendments thereto.
V. RENTAL, DEFINITIONS
Tenant agrees to pay as base rental one hundred eight thousand four hundred
thirty three and thirty three one hundredths dollars ($8,433.33) per month (the
"Base Rent") for each and every month of the Lease (plus any excise, privilege
or sales taxes levied on the rentals or the receipt thereof, except Landlord's
income tax), payable in advance, without offset or deduction, on the first day
of each month commencing with the Commencement Date of the Lease.
Each year of this Lease, Landlord may elect to require that the rental
be adjusted for that year on the basis of Landlord's incurred Operating Costs,
which adjusted rental Tenant agrees to pay in accordance with the statements
rendered. Operating Costs shall be assessed at Tenant's Proportionate Share of
the Building.
"Operating Costs" shall be determined on the basis for each year of this
Lease by taking into account, on a consistent basis, all costs of management,
maintenance, and operation of the Building, including but not limited to the
costs of Real and Personal Property taxes, cleaning, utilities, air conditioning
and heating, plumbing, elevator, insurance, ground rent, landscaping costs and
the cost of improvements installed to reduce the above-listed operating costs
together
<PAGE>
with interest at the Prime Rate (as hereinafter defined) on the unamortized
portion of such cost, amortized over such reasonable period as Landlord shall
determine, and all other costs which can properly be considered operating
expenses incurred in the management, maintenance and operation of the Building.
For the purposes of this Paragraph V. Rental, Definitions, the following
terms shall have the following meanings:
1. "Real and Personal Property taxes" shall mean and include a) all real
property taxes and personal property taxes, charges and general and special
assessments which are levied or assessed upon or with respect to the Building
and any improvements, fixtures, and equipment and all other personal property of
Landlord located on, in or about the Building and/or used in connection with the
operation thereof and b) all taxes which shall be levied or assessed in addition
to or in lieu of such real or personal property taxes, but shall not include any
net income, franchise, capital stock, estate or inheritance taxes.
2. Tenant's "Proportionate Share" shall mean the ratio, expressed as a
percentage, of the rentable area of the Leased Premises to the rentable area of
the Building, which the parties hereby stipulate to be twenty-five percent
(25%).
3. As used in this Lease, the term "Building" includes the building
and/or buildings and adjoining parking areas, if any, and the land and/or air
space which is the site and grounds for such buildings and parking areas,
regardless of the name under which such buildings may be known.
4. As used in this Lease, the term "Prime Rate" shall mean the sum of (a)
that rate of interest, charged by Bank One, Arizona, N.A. a national banking
association (or any successor to the business of such bank), and announced by
such bank, from time to time, as its "prime rate", and (b) two (2) percentage
points above the annual rate of interest specified in clause (a) immediately
hereinabove.
VI. INITIAL CONSTRUCTION
Construction, if any, to be completed by Landlord will be in accordance
with the plans, specifications and agreements approved by both parties, which
are attached hereto, as Exhibit "A" (the "Plans and Specifications") and made
part of this Lease. Landlord will not be obligated to construct or install any
improvements or facilities of any kind other than those called for on the Plans
and Specifications. Landlord agrees to commence and complete such Construction
with reasonable diligence. All such improvements are to be the property of
Landlord, and upon termination of this Lease, Tenant shall deliver the Leased
premises to Landlord in good condition and repair, broom clean, normal wear and
tear excepted.
VII. REPAIRS AND ALTERATIONS
Landlord agrees to make all necessary repairs to the exterior walls,
exterior doors, windows and corridors of the Building. Landlord agrees to keep
the Building in a clean, neat and attractive condition. Landlord agrees to keep
all building standard equipment such as elevators, plumbing, heating, air
conditioning and similar equipment in good repair, but Landlord shall not be
liable or responsible for breakdowns or temporary interruptions in service when
reasonable efforts are used to restore service.
Tenant agrees that it will pay for the cost of all repairs to the Leased
Premises not required above to be made by Landlord and be responsible for all
redecorating, remodeling, alteration and painting required by it during the term
of this Lease. Tenant shall pay for any repairs to the Leased Premises, or the
Building, made necessary by any negligence or carelessness of Tenant, its
employees or invitees. Tenant agree to maintain the Leased Premises in a clean,
neat and sanitary condition.
<PAGE>
Tenant may place partitions and fixtures and make improvements and other
alternations to the interior of the Leased Premises at Tenant's expense,
provided however, that prior to commencing any such work Tenant shall first
obtain the written consent of Landlord to the proposed work and Landlord shall
have right to review and approve all plans. Landlord may require that said work
be done by Landlord's own employees or under Landlord's direction but at the
expense of Tenant, and Landlord may, as a condition to consenting to such work,
require that Tenant give security that the Leased Premises will be completed
free and clear of liens and in a manner satisfactory to Landlord.
Notwithstanding the foregoing, any such improvements or alterations by Tenant
shall conform to and be in substantial accordance in quality and appearance with
the quality and appearance of the improvements in the remainder of the Building.
Any such improvements shall become the property of Landlord upon expiration of
this Lease. Tenant shall remove any movable furniture and equipment upon
termination of this Lease and shall deliver the Leased Premises to Landlord in
as good condition as received, broom clean, normal wear and tear excepted. In
the event Tenant receives consent of the Landlord and uses Tenant's own
contractor for any such improvements then Tenant must provide Landlord with
contractor's evidence of workmen's compensation and liability insurance in
amounts sufficient to Landlord and have acquired the necessary building permits
prior to commencing any such construction.
VII. FIRE OR CASUALTY INSURANCE
In the event that the Leased Premises are wholly or partially destroyed by
fire or other casualty covered by the usual form of fire and extended coverage
insurance rendering them untenantable, Landlord shall, to the extent of
insurance proceeds actually received by Landlord, rebuild, repair or restore the
Leased Premises to substantially the same condition as when the same were
furnished to Tenant and this Lease shall remain in effect during such period. In
the event of total destruction, rent shall abate during the period of
reconstruction, and in the event of partial destruction, rent shall abate
prorata during the period of reconstruction. In the event, however, that the
building containing the Leased Premises is damaged or destroyed to the extent of
more than one-third (1/3) of its replacement cost, Landlord may elect to
terminate this Lease.
Tenant shall be responsible for and shall provide Tenant's own insurance
coverage, and supply Landlord with evidence of such coverage with respect to any
furniture, fixtures, improvements, betterments, equipment and personal property
belonging to Tenant and placed by Tenant in or upon the Leased Premises. Tenant
agrees and warrants to Landlord that any fire insurance policy, extended
coverage policy, casualty and loss policy, or other policy or policies carried
by Tenant in connection with this Lease or the Leased Premises and/or insuring
Tenant's property or effects located in or upon the Leased Premises shall each
contain a provision whereby the insurance carrier waives any right of
subrogation against the Landlord.
Provided Landlord can obtain such waiver of subrogation rights with regard
to policies of fire or casualty insurance obtained by Landlord with regard to
the Building, Landlord hereby releases and waives any and all rights of
subrogation against Tenant which, in the absence of this release and waiver,
would arise in favor of any insurance company insuring Landlord against loss of
fire, extended coverage casualty and loss of any other type, resulting from
damage to or destruction of the building of which the Leased Premises form a
part or any portion thereof in damage to or destruction of the property of
Landlord in the Building. Landlord shall not be required to obtain such
insurance policies except through insurance companies satisfactory to the
Landlord and the holder of any mortgage covering the Leased Premises.
IX. USE OF LEASED PREMISES
The Leased Premises are leased to Tenant for the sole purpose of
professional administration and for no other purpose whatsoever. Tenant agrees
that it will use the Leased Premises in such manner as to not interfere with or
infringe upon the rights of other tenants in the Building. Tenants agrees to
comply with all applicable laws, ordinances and regulations in connection with
its use of and/or transfer of any interest in the Leased Premises and in
performing all repairs, remodeling and alterations to the Leased Premises,
including all Environmental Laws and obtaining all necessary permits, licenses
or other authorizations required pursuant to such
<PAGE>
laws. Tenant shall supply all documentation regarding compliance with the law,
including written documentation by the appropriate governmental authority that
all such laws have been complied with.
X. SIGNS
Landlord shall retain absolute control over the exterior appearance of the
Building and the exterior appearance of the Leased Premises as viewed from the
public halls. Tenant will not install, or permit to be installed, any drapes,
shutters, lettering, advertising or any items that will in any way alter the
exterior appearance of the Building or the exterior appearance of the Leased
Premises as viewed from the public halls or exterior.
XI. CONFIDENCE REPOSED IN TENANT AND TENANT'S REPRESENTATIONS AND
WARRANTIES
It is agreed that one of the conditions moving Landlord to make this Lease
is the personal confidence reposed by it in Tenant, combined with the belief
that Tenant will be a tenant and occupant satisfactory to Landlord and the other
occupants of the Building. Should Tenant vacate or abandon the Leased Premises
during the term hereof, Landlord, at Landlord's discretion, shall have the right
to cancel this Lease without obligation to Tenant.
Tenant represents and warrants as follows:
A. Tenant has never been in violation of or investigated for violation of
any Environmental Laws.
B. Tenant will not engage in any activity involving Hazardous Substances
or which could cause an Environmental Condition on the Leased Premises or permit
any third party to do so, without Landlord's written consent.
C. Tenant will immediately notify Landlord of (i) any investigation,
proceeding, notice or claim regarding a violation of any Environmental Law
relating to the Leased Premises or other premises which Tenant occupies, an
Environmental Condition on the Leased Premises, or a Release of Hazardous
Substances on the Leased Premises, (ii) any submissions or notifications made by
Tenant to governmental authorities or others concerning Environmental Conditions
or Hazardous Substances on the Leased Premises, and (iii) the existence of any
Hazardous Substances or Environmental Conditions on or about the Leased Premises
or on property adjoining or in the vicinity of the Leased Premises that may be
in violation of an Environmental Law (regardless of whether Tenant is
responsible for its existence). Tenant will take all appropriate response
actions in the event of an occurrence of an Environmental Condition on the
Leased Premises and shall resolve all environmental problems to the satisfaction
of Landlord. In the event of any investigation, notice of violation or other
action taken by a governmental agency or private person relating in any way to
Tenant's operation on the Leased Premises. Tenant shall be solely responsible
for complying with all legal requirements, including cleanup of the Leased
Premises, and requirements imposed by the governmental authority. Tenant shall
not, however take any remedial action in response to the presence of any
Hazardous Substance or Environment Condition, nor enter into any settlement
agreement, consent decree or other compromise without first notifying Landlord
and affording Landlord ample opportunity to appear, intervene, or otherwise
appropriately assert and protect Landlord's interest.
As used in this Lease, the following terms shall have the meanings
specified below:
A. "Environmental Law(s) shall mean any federal, state or local law,
including statutes, ordinances, rules, common law and guidelines, now in effect
or hereinafter enacted, pertaining to health, industrial hygiene, or the
environment, including without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, the Resource Conservation and Recovery
Act, the Toxic Substances Control Act, the Superfund Amendments
<PAGE>
and Reauthorization Act, the Clean Air Act, the Federal Water Pollution Control
Act, the Safe Drinking Water Act, and the Solid Waste Disposal Act.
B. "Hazardous Substances" shall mean any material or sublease which may
or could pose risk of injury or threat to health or the environment and any
substance that is or becomes regulated by any federal, state or local law.
C. "Environmental Condition" shall mean any condition with respect to
soil, air, surface or groundwater which could require remedial action and/or may
result in claims, demands, and/or liabilities by or to third parties, including
without limitation, governmental entities.
D. "Release" shall mean any releasing, spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
disposing or dumping.
Tenant's failure to perform or observe any of the above representations and
warranties shall constitute a substantial breach of the Lease and shall entitle
Landlord to pursue any and all remedies allowed by law or at equity, including
without limitation cancelling and terminating the Lease and imposing a rent
surcharge.
XII. ASSIGNMENT AND SUBLETTING
(a) Tenant for itself, its heirs, distributees, successors and assigns,
expressly covenants that it shall not, by operation of law or otherwise, assign,
sublet, mortgage or encumber all or any part of this Lease or the Leased
Premises, including environment liens in favor of a governmental entity, or
permit the Leased Premises to be used by others without the prior written
consent of Landlord in each instance. Any attempt to do so by the Tenant shall
be void. The consent by Landlord to any assignment, sublet, mortgage or
encumbrance or use of all or any part of the Leased Premises by others, shall
not constitute a waiver of Landlord's right to withhold its consent to any other
assignment, sublet, mortgage, or encumbrance or use of all or any part of the
Leased Premises by others. Without the prior written consent of Landlord, this
Lease and the interest of Tenant therein or any assignee of Tenant therein,
shall not pass by operation of law, and shall not be subject to garnishment or
sale under execution in any lawsuit or proceeding which may be brought against
or by Tenant or any sublessee or assignee of Tenant.
(b) If Tenant requests Landlord's consent to an assignment of this Lease
or subletting of all or any part of the Leased Premises, Tenant shall submit to
Landlord: (1) the name of the proposed assignee or subtenant, (2) the terms of
the proposed assignment or subletting, (3) the nature of the proposed
subtenant's or assignee's business: and (4) such information as to such
subtenant's or assignee's financial responsibility and general reputation as
Landlord may require.
(c) Upon the receipt of the request pursuant to paragraph XII (b)
hereinabove and information from Tenant, Landlord shall have the option, at
Landlord's discretion, to be exercised in writing within thirty (30) days after
such receipt, to either (1) cancel and terminate the Lease, if the request is to
assign or sublet all of the Lease and/or the Leased Premises or, if the request
is to sublet or assign a portion of the Lease and/or the Leased Premises, to
cancel and terminate this Lease with respect to such portion, in each case as of
the date set forth in Landlord's notice of exercise of such option: (2) to grant
said request, or (3) deny said request if Landlord finds such subtenant or
assignee unacceptable.
(d) In the event Landlord shall cancel this Lease, Tenant shall surrender
possession of the Leased Premises, or the portion of the Leased Premises which
is the subject of the request, as the case may be, on the date set forth in such
notice in accordance with the provisions of this Lease relating to surrender of
the Leased Premises. If the lease shall be cancelled as to a portion of the
Leased Premises only, the rent and other charges payable by Tenant hereunder
shall be reduced proportionately according to the ratio that the number of
square feet in the portion of space surrendered bears to the square feet of
space at the initial Leased Premises.
(e) In the event that Landlord shall consent to a sublease or assignment
pursuant to the request from Tenant, Tenant shall cause to be executed by its
assignee or subtenant an
<PAGE>
agreement satisfactory to Landlord, whereby such assignee or subtenant agrees to
perform faithfully and to assume and be bound by all of the terms, covenants,
provisions and agreements of this Lease for the period covered by the assignment
or sublease and to the extent of the space sublet or assigned. In addition,
Tenant agrees that with regard to each such sublease or assignment so consented
to by Landlord, Tenant: (1) will not collect more than one month's rent in
advance, (2) will not terminate or cancel such sublease or assignment without
Landlord's prior written consent, (3) will be responsible for all the acts and
omissions of said sublessees or assignees, (4) will only sublease at the rental
which Tenant is then paying to Landlord, (5) shall pay to Landlord promptly,
following receipt of the amount of the value of any consideration received by
Tenant from any assignment of this lease, (6) shall not assign or sublet the
premises to another existing tenant in the building housing the Leased Premises,
and (7) an executed copy of each sublease or assignment and assumption of
performance by the sublessee or assignee, on Landlord's standard form, shall be
delivered to Landlord within five (5) days prior to the commencement of
occupancy set forth in such assignment of sublease. No such assignment or
sublease shall be binding on Landlord until Landlord shall have actually
received such copies as required herein.
(f) In no event shall any assignment or subletting to which Landlord may
consent, release or relieve Tenant from its obligations to fully perform all of
the terms, covenants and conditions of this Lease on its part to be performed.
(g) In the event this Lease is cancelled at Landlord's option as provided
hereinabove, neither of the parties shall have any further obligations
hereunder, except as may be expressly provided herein and except Tenant shall
pay all rents, charges and all other amounts due, as set out in the Lease, to
the date Tenant is notified of such cancellation.
XIII. EMINENT - DOMAIN
In the event any portion of the Leased Premises is taken from Tenant under
eminent domain proceedings, Tenant shall have no right, title or interest in any
award made for such taking.
XIV. WAIVER AND SEVERABILITY
The consent of the Landlord in any instance to any variation of the terms
of the Lease, or the receipt of rent with knowledge of any breach, shall not be
deemed to be a waiver as to any breach of any covenant or condition herein
contained, nor shall any waiver be claimed as to any provisions of this Lease
unless the same be in writing, signed by Landlord. This Lease and any written
amendment, exhibits or addenda hereto contain the entire agreement between the
parties. If any term or provision of this Lease or any application thereof shall
be invalid or unenforceable, then the remaining terms and provisions of this
Lease and any other application of such term or provision shall not be affected
thereby.
XV. USE OF COMMON FACILITIES
All elevators stairways, halls and areas for the common use of all tenants
at the Building shall be open to reasonable use by Tenant, its customers,
clients and employees. Tenant and its officers, agents and employees agree to
park their motor vehicles only in areas designated from time to time for that
purpose or otherwise as permitted in writing by Landlord.
XVI. SERVICES
(a) Landlord agrees to provide air conditioning, heat, water and
electricity for lighting and normal office usage during the customary business
hours of the Building as established by Landlord, and to provide janitor
services of the type customarily furnished by comparable buildings, which shall
consist essentially of a nightly clean-up five (5) days per week, the cost of
which shall be included in Operating Costs hereunder.
<PAGE>
(b) Tenant agrees to pay for all utilities and other services and expenses
used or incurred by Landlord on Tenant's behalf not specifically provided for
above.
XVII. ENTRY OF LANDLORD
Landlord reserves the right, without abatement of rent and other charges
due hereunder from Tenant to enter upon or have its agent enter the Leased
Premises at reasonable times for the inspection of the same, including
environmental assessments and audits, to make necessary repairs, including any
actions necessary to remediate, abate or cleanup any Hazardous Substances or
Environmental Conditions on the Leased Premises, the cost of which Tenant will
be responsible pursuant to paragraph XXV below, to post notices of non-
responsibility and Landlord reserves the right, during the last six (6) months
of the term of this Lease to show the Leased Premises, at reasonable times, to
prospective purchasers or tenants.
Tenant hereby waives any claim for damages for any injury or inconvenience
to or interference with Tenant's business, any loss of occupancy or quiet
enforcement of the Leased Premises, and any other loss occasioned by Landlord's
entry. Landlord shall at all times have and retain a key with which to unlock
all of the doors in, upon and about the Leased Premises, excluding Tenant's
vaults and safes (as the same are permitted by Landlord to be upon the Leased
Premises), and Landlord shall have the right to use any and all means which
Landlord may deem proper to open said doors in an emergency in order to obtain
entry to the Leased Premises and any entry into the Leased Premises obtained by
Landlord by any of said means, or otherwise, shall not under any circumstances
be construed or deemed to be a forcible or unlawful entry into, or a detainer
of, the Leased Premises or an eviction of Tenant from the Leased Premises or any
portion thereof.
XIII. SUBSTITUTED PREMISES
Landlord reserves the right upon thirty (30) days' written notice to Tenant
to substitute other premises within the Building for the Leased Premises for all
uses and purposes as though originally leased to Tenant pursuant to this Lease.
The substituted premises shall contain approximately the same number of square
feet as the Leased Premises without increase of Base Rent. Landlord shall pay
all reasonable moving expenses of Tenant incidental to such substitution of
premises.
XIX. SUBORDINATION AND ATTORNMENT
Landlord reserves the right to place liens and encumbrances on the Leased
Premises superior in lien and effect to this Lease. This Lease and any and all
renewals, modifications, replacements or extensions thereof, at the option of
the Landlord, shall be subject and subordinate to any liens and encumbrances now
or hereinafter imposed by Landlord upon the Leased Premises or the Building and
Tenant agrees to execute and deliver upon demand (and to cause all sublessees
and assignees under Tenant to execute and deliver upon demand) such instruments
subordinating this Lease (and all subleases and assignments pursuant to this
Lease) to any such lien or encumbrance as shall be required by Landlord.
In the event Landlord's interest in the Leased Premises is derived from a
lease from another party and said Lease should be terminated by the other party.
Tenant agrees to attorn (and to cause all sublessees and assignees under Tenant
to so attorn) to the other party, its successors and assigns as Landlord on this
Lease.
In the event any proceedings are brought for the foreclosure of any
mortgage on the Leased Premises, Tenant will attorn (and Tenant will cause all
sublessees and assignees under Tenant to so attorn) to the purchaser at
foreclosure sale and recognize the purchaser as the Landlord under this Lease.
The purchaser by virtue of such foreclosure shall be deemed to have assumed, as
substitute Landlord, the terms and conditions of this Lease until the resale or
other disposition of its interest by such purchaser. Such assumption, however,
shall not be deemed of
<PAGE>
itself an acknowledgment by the purchaser of the validity of any then existing
claims of Tenant (or the claims of any sublessees or assignees under Tenant)
against the prior Landlord.
Tenant agrees to execute and deliver (and to cause all sublessees and
assignees under Tenant to execute and deliver) such further assurance and other
documents (including but not limited to a new lease upon the same terms and
conditions as this lease) confirming the foregoing as such purchaser may
reasonably request. Tenant on behalf of itself and on behalf of all sublessees
and assignees under Tenant waives any right of election to terminate this Lease
because of any such foreclosure proceedings. Tenant hereby irrevocably
constitutes and appoints Landlord as Tenant's attorney-in-fact to execute (and
to deliver to any third party) any documents hereinabove required to be executed
by Tenant, for and on behalf of Tenant, if Tenant shall have failed to do so
within ten (10) days after the request therefor by Landlord.
XX. NOTICES
Any notices or demands to be given hereunder shall be in writing and shall
be given to Landlord and to Landlord's managing agent with regard to the
Building, at their respective offices and to Tenant at the Leased Premises, or
at such other address as either party shall designate, and shall be by
registered or certified United States mail, postage prepaid or, at the election
of Landlord, hand delivered.
XXI. DEFAULT
In the event Tenant fails to pay any rental due hereunder or fails to keep
and perform any of the other terms or conditions hereof, time being of the
essence, then five (5) days after written notice of default from Landlord, the
Landlord may, if such default has not been corrected, resort to any and all
legal remedies or combination of remedies which Landlord may desire to assert
including but not limited to one or more of the following: (1) lock the doors to
the Leased Premises and exclude Tenant therefrom, (2) retain or take possession
of any property on the Leased Premises pursuant to Landlord's statutory lien,
(3) enter the Leased Premises and remove all persons and property therefrom, (4)
declare this Lease at an end and terminated, (5) sue for the rent due and to
become due under this Lease, and for any damages sustained by Landlord, (6)
collect, directly from any sublease or assignee under Tenant all subrents and
other charges payable by such sublessees or assignees, Tenant hereby assigning
to Landlord such subrents and other charges in the event of a default by Tenant
under this lease, and (7) continue this Lease in effect and relet the Leased
Premises on such terms and conditions as Landlord may deem advisable with Tenant
remaining liable for the monthly rent plus the reasonable cost of obtaining
possession of the Leased Premises and of any repairs and alterations necessary
to prepare the Leased Premises for reletting, less the rentals received from
such reletting, if any. No action of Landlord shall be construed as an election
to terminate this Lease unless written notice of such intention be given to
Tenant. Tenant agrees to pay as additional rental all attorney's fees and other
costs and expenses incurred by Landlord in enforcing any of Tenant's obligations
under this Lease. Any amount due from Tenant to Landlord under this Lease which
is not paid when due shall bear interest at the "Prime Rate" that is in effect
on the date such amount is due, accruing from such date until paid. Furthermore,
that rate of interest paid by Tenant on any such amount shall be adjusted as the
"Prime Rate" is adjusted.
XXII. LATE PAYMENTS
Tenant hereby acknowledges that the late payment by Tenant to Landlord of
rent or any additional rent or other sums due hereunder will cause Landlord to
incur costs not contemplated in this Lease, the exact amount which will be
extremely difficult and impracticable to ascertain. Such costs include but are
not limited to processing, administrative and accounting costs.
Accordingly, if any installment of rent or any additional rent or any other
sum due from Tenant shall not be received by Landlord within five (5) days after
such amount shall be due, Tenant shall pay to Landlord a late charge equal to
five percent (5%) of such overdue amount. If
<PAGE>
any installment of rent or any additional rent or any other sum due from Tenant
shall not be received within thirty (30) days after such amount shall be due,
Landlord shall incur additional processing, administrative and accounting costs.
In order to compensate Landlord therefor, Tenant shall pay to Landlord an
additional late charge equal to five percent (5%) of such overdue amount,
including previous penalties. The parties hereby agree that such late charges
represent a fair and reasonable estimate of the costs Landlord will incur by
reason of late payment by Tenant. Neither assessment nor acceptance of such late
charge by Landlord shall constitute a waiver of Tenant's default with respect to
such overdue amount, nor prevent Landlord from exercising any of the other
rights and remedies granted under the Lease. Nothing contained in this paragraph
shall be deemed to condone, authorize, sanction or grant to Tenant an option for
the late payment of rent, and Tenant shall be deemed in default in the payment
of its rent should the same not be paid by the date on which it is due.
XXIII. BUILDING RULES AND REGULATIONS
Tenant agrees to abide by all rules and regulations of the Building imposed
by Landlord. Such rules and regulations are imposed for the cleanliness, good
appearance, proper maintenance, good order and reasonable use of the Leased
Premises and the Building, and as may be necessary for the proper enjoyment of
the Building by all Tenants and their clients, customers and employees. The
rules and regulations may be changed from time to time upon ten (10) days notice
to Tenant. Breach of the rules and regulations of the Building shall not be
ground for termination of the Lease unless Tenant continues to breach the same
after ten (10) days written notice by Landlord. Landlord shall not be
responsible to Tenant for nonperformance by any tenant or occupant of the
Building of any rules or regulations.
XXIV. LIENS
Tenant shall keep the Landlord, Leased Premises and building harmless from
and against any liens or claims arising out of any work performed, materials
furnished or obligations incurred by Tenant, and shall indemnify and hold
Landlord harmless against the same, together with all costs of suit and
attorney's fees incurred by Landlord in connection therewith.
XXV. INDEMNIFICATION OF LANDLORD
Landlord shall not be liable to Tenant and Tenant hereby waives all claims
against Landlord for any injury (including death) or damage to any person or
property in or about the Leased Premises by or from any cause whatsoever and
Tenant shall indemnify and hold Landlord, its successors, officers and employees
harmless from any and all claims, costs, expenses or liability of any kind
(including without limitation a decrease in the value of the Leased Premises and
reasonable consultants' and attorneys' fees) arising directly or indirectly
from: (i) injury (including death) or damage to any person or property
whatsoever occurring on or about the Leased Premises, (ii) Hazardous Substances
or an Environmental Condition on or about the Leased Premises, or (iii)
violations or claims of violations by Tenant of an Environmental Law. This
indemnification obligation shall be in addition to any other obligations and
liabilities Tenant may have to Landlord at law or equity, and shall survive the
term of this Lease and shall not be subject to any other provisions of this
Lease that operate to limit Tenant's liability.
Tenant shall obtain and keep in effect during the term of this Lease a
policy of comprehensive liability insurance, including public liability and
property damage, with a minimum combined single limit of liability of One
Million Dollars ($1,000,000.00). Said policy or policies shall name Landlord
and its agents as additional insureds and shall be issued by an insurance
company, licensed to do business in the State of Arizona, and acceptable to
Landlord. Said policy or policies shall additionally provide that the insurance
shall not be cancelled or modified unless thirty (30) days prior written notice
has been given to Landlord. Tenant shall supply Landlord with a certificate of
the insurance which it has obtained prior to its occupation of the Leased
Premises. Landlord shall have the right to request Tenant to provide additional
or other form of
<PAGE>
security satisfactory to Lender in the event that Tenant's activities on the
Leased Premises involve Hazardous Substances.
XXVI. TAXES
Tenant agrees to pay or cause to be paid, before delinquency, any and all
taxes levied or assessed and which become payable during the term hereof upon
all of Tenant's equipment, furniture, fixtures and other personal property
located in the Leased Premises.
XXVII. HOLDING OVER
Upon the expiration of this Lease, Tenant shall immediately surrender the
Leased Premises to Landlord, such Leased Premises to be broom clean, in good
condition and repair, ordinary wear and tear excepted. If the Tenant or any
sublessee or assignee under Tenant holds over the expiration or earlier
termination of this Lease without Landlord's express written consent, Tenant
shall be in default hereunder and in addition to all of the rights or remedies
available to Landlord, Tenant shall be obligated to pay to Landlord rent at a
rate established by Landlord with regard to the Leased Premises for the time
during which Tenant retains possession, which payment shall not constitute a
waiver of any of Landlord's other rights or remedies provided herein.
XXVIII. INSOLVENCY OR BANKRUPTCY
Either (a) the appointment of a receiver to take possession of all or
substantially all of the assets of Tenant; or (b) an assignment by Tenant for
the benefit of creditors; or (c) any action taken or suffered by Tenant under
any insolvency, bankruptcy or reorganization act, shall constitute a default and
breach of this Lease by Tenant. Upon the happening of any such event, Landlord
shall have all the rights herein provided in the event of any such default or
breach, including without limitation the right, at Landlord's option, to
terminate this Lease and enter the Leased Premises and remove all persons and
property therefrom. In no event shall this Lease be assigned or assignable by
operation of law or by voluntary or involuntary bankruptcy proceedings or
otherwise and in no event shall this Lease or any rights or privileges hereunder
be an asset of Tenant under any bankruptcy, insolvency or reorganization
proceedings.
XXIX. SALE BY LANDLORD
In the event of a sale or conveyance by Landlord of the Leased Premises,
the same shall operate to release Landlord from any further liability upon any
of the covenants or conditions, express or implied, herein contained in favor of
Tenant and in such event Tenant agrees to look solely to the responsibility of
the successor in interest of Landlord in and to this Lease. This Lease shall not
be affected by any such sale, and Tenant agrees to attorn to the purchaser of
assignee upon Landlord's request. Tenant shall deliver to such purchaser an
offset statement and an estoppel certificate in such form as Landlord may
request, and, in the event Tenant fails to deliver said statement and
certificate within ten (10) days after demand by Landlord, Tenant hereby
constitutes and appoints Landlord as Tenant's attorney-in-fact to execute said
statement and certificate.
XXX. ATTORNEY'S FEES
In the event of any action or proceeding brought by either party against
the other under this Lease, the prevailing party shall be entitled to recover
its attorney's fees and costs in such action or proceeding. In the event
Landlord intervenes in or becomes a party or is made a party to any action or
proceeding arising in connection with this Lease in order to protect its rights,
then Tenant shall pay to Landlord the fees of Landlord's attorneys therein as
fixed by the court.
<PAGE>
XXXI. SURRENDER OF PREMISES
The voluntary or other surrender of this Lease by Tenant, or a mutual
cancellation thereof, shall not work a merger, and shall, at the option of
Landlord, terminate all or any existing subleases or subtenancies, or may, at
the option of Landlord, operate as an assignment to Landlord of any or all such
subleases or subtenancies. Tenant agrees that there shall be no value to the
leasehold upon termination or cancellation of the Lease under its terms.
XXXII. LIMITATION OF LANDLORD'S LIABILITY
Tenant covenants and agrees that any claims that Tenant may have now or
hereafter against Landlord shall be asserted solely against and satisfied only
out of Landlord's right, title and interest in the Building and not from any
other thing or asset of Landlord.
XXXIII. TIME OF THE ESSENCE
Time is of the essence of this Lease and all of its provisions.
XXXIV. BINDING EFFECT
The covenants and conditions herein contained shall, subject to the
provisions restricting Tenant's assignment and subletting, apply to and bind the
heirs, executors, administrators, personal representatives, successors and
assigns of the parties hereto.
XXXV. RECORDATION
Tenant shall not record this Lease or any short form memorandum thereof,
without the prior written consent of Landlord.
XXXXVI. NAME OF BUILDING
Tenant shall not use the name of the Building for any purpose other than as
an address of the business to be conducted by Tenant in the Leased Premises.
XXXVII. GOVERNING LAW
This Lease and all the terms and conditions thereof shall be governed by
the laws of the State of Arizona.
XXXVIII. DEFINED TERMS AN PARAGRAPH HEADINGS
The words "Landlord" and "Tenant" as used herein shall include the plural
as well as the singular. Words used in masculine gender include the feminine
and neuter. If there is more than one Tenant, the obligations hereunder imposed
upon Tenant shall be joint and several. The paragraph headings and titles to
the paragraphs of this Lease are not a part of this Lease and shall have no
effect upon the construction or interpretation of any party thereof.
CREATIVE NETWORKS, LLC MATRIX CAPITAL CORPORATION
- --------------------------- ------------------------------------
Name of Tenant Name of Landlord
<PAGE>
___________________________ ______________________________
By xxxxxxxxxx By xxxxxxxx
- --------------------------- ------------------------------
(Authorized Signature)
Date September 26, 1996
___________________________ ------------------------------
Date September 26, 1996
- ---------------------------
<PAGE>
Exhibit 10.31
REVOLVING SUBORDINATED LOAN AGREEMENT
THIS AGREEMENT is entered into as of October 18, 1996, between MATRIX
FINANCIAL SERVICES CORPORATION, an Arizona corporation ("Borrower") and MATRIX
CAPITAL CORPORATION, a Colorado corporation ("Lender").
ARTICLE 1
RECITALS
--------
Section 1.1. BORROWER. Borrower originates, acquires, markets, sells,
--------
and services mortgage loans and servicing rights.
Section 1.2. BANK ONE, TEXAS, N.A. Borrower is party to and Lender is
--------------------
guarantor for that certain Conformed and Amended Loan Agreement, dated July
12, 1995 and amended through July 10, 1996, with Bank One, Texas, N.A.,
which requires Lender to lend funds to Borrower on a subordinated basis in
such amounts as set forth in this Agreement.
Section 1.3. BORROWER REQUESTS. Borrower has requested Lender to provide
-----------------
Advances up to an amount not to exceed $20,000,000.00 for the purpose of
maintaining certain financial covenants as set forth in its Loan Agreement
with Bank One, Texas, N.A.
Section 1.4. LENDER GRANTS. Lender has agreed to provide Advances, in
-------------
amounts as described in Section 1.3 above, but subject to the conditions
set forth below.
ACCORDINGLY, for adequate and sufficient consideration, Borrower and Lender
agree as follows:
ARTICLE 2
DEFINITIONS
-----------
Section 2.1. DEFINITIONS. In addition to the terms defined elsewhere in
-----------
this Agreement, the terms defined in this Article 2 shall, for all purposes
of this Agreement, have the respective meanings herein specified unless the
context expressly or by necessary implication otherwise requires:
(a) ADVANCE. Each disbursement of funds by the Lender to or for the
-------
account of the Borrower under this Agreement.
<PAGE>
(b) ADVANCE REQUEST FORM. The certificate in the form attached
--------------------
hereto as Exhibit A, to be delivered by the Borrower to the Lender as a
condition of each Advance pursuant to Section 3.2 hereof.
(c) AGREEMENT. This Revolving Subordinated Loan October 18, 1996,
---------
between the Borrower and the Agreement, dated as of Lender, as each may be
amended from time to time.
(d) BUSINESS DAY. Any day other than Saturday or Sunday or a
------------
recognized national holiday.
(e) INDEBTEDNESS. Without duplication, with respect to any Person,
------------
(i) all obligations of such Person (A) in respect to borrowed money (B)
evidenced by bonds, notes, debentures or similar instruments, (C)
representing the balance deferred and unpaid. of the purchase price of any
property or services (other than accounts payable or other obligations
arising in the ordinary course of business), (D) evidenced by bankers'
acceptances or similar instruments issued or accepted by banks, or (E)
evidenced by a letter of credit or a reimbursement obligation of such
Person with respect to any letter of credit; (ii) all liabilities of others
of the kind described in the preceding clause (i) that such Person has
guaranteed or that are otherwise its legal liability; and (iii) any and all
deferrals, renewals, extensions, refinancings and refundings (whether
direct or indirect) of, or amendments, modifications or supplements to, any
liability of the kind described in any of the preceding clauses (i), (ii),
or this clause (iii), whether or not between or among the same parties.
(f) LOAN. The outstanding principal 3 of this Agreement, together
----
balance of Advances made under with interest, if any, accrued Article
thereon.
(g) LOAN DOCUMENTS. Collectively, this Agreement, the Note, and all
--------------
amendments to those documents, and such additional documents and
instruments that are executed by or otherwise transferred or delivered by
or for the benefit of the Borrower pursuant to or in connection with this
Agreement.
(h) NOTE. The promissory note of the Borrower, in the form of
----
Exhibit B attached hereto and delivered pursuant to Section 3.3 of this
Agreement, evidencing the Loan, and all amendments, extensions, renewals
and replacements thereof.
(i) PERSON. Any individual, corporation, limited liability company,
------
partnership, joint venture, trust, estate, unincorporated organization,
or governmental or any agency or political subdivision thereof.
(j) SENIOR INDEBTEDNESS. Any indebtedness of a Person (whether
-------------------
outstanding on the date hereof or hereafter incurred), unless such
indebtedness is Subordinated Indebtedness.
<PAGE>
(k) SUBORDINATED INDEBTEDNESS. Means any indebtedness of a Person
--------------------------
(whether outstanding on the date hereof or hereafter incurred), which is
pari passu with or contractually subordinate or junior in right of payment
to the Advances.
ARTICLE 3
THE REVOLVING SUBORDINATED LOAN
-------------------------------
Section 3.1. AMOUNT. From time to time, subject to the other terms and
------
conditions of this Agreement, the Lender shall make Advances to the
Borrower up to an aggregate principal amount not to exceed at any time
$20,000,000.00. Within such limits and pursuant to the other terms of
this Agreement, the Borrower may, at any time or from time to time, borrow,
repay and reborrow.
Section 3.2. BORROWING PROCEDURE. Borrower shall give the Lender prior
-------------------
written notice specifying the amount and date of each Advance requested
under this Agreement. Such notice shall be in the form of the Advance
Request Form attached hereto as Exhibit A.
Section 3.3. NOTE. The obligations of the Borrower to the Lender under
----
the Loan shall be evidenced by a promissory note, made payable to the order
of the Lender by the Borrower, in the form of Exhibit B attached hereto.
The original principal amount of the Note will be $20,000,000.00. All
Advances made by the Lender under the Note and all payments to be credited
against the principal thereunder shall be recorded by the Lender on a
schedule attached to the Note (provided that any failure by the Lender to
record any such Advance or repayment shall not affect the obligations of
the Borrower hereunder, under the Note or with respect to the Loan).
Section 3.4. INTEREST. Borrower and Lender agree that Advances made
--------
pursuant to this Agreement and the Note shall not bear a stated rate of
interest. Any interest paid by Borrower to Lender shall be at such rate as
mutually agreed to by Borrower and Lender.
Section 3.5. REPAYMENTS. Lender may call due Advances made to Borrower
----------
pursuant to this Agreement and the Note only at such time as Borrower has
repaid all amounts borrowed from Bank One, Texas, N.A. under that Conformed
and Amended Loan Agreement, dated July 12, 1995, and amended through July
10, 1996, and said Conformed and AmendedLoan Agreement and all commitments
as provided therein have been terminated.
Section 3.6. PAYMENTS. All payments of principal, interest, and other
--------
amounts payable by the Borrower hereunder and under the Note shall be made
in U.S. dollars in immediately available funds, or the date such payment is
due to the Lender at its office at 1380 Lawrence Street, Suite 1410,
Denver, Colorado 80204, or at such other place as the Lender may designate
from time to time in writing. If the due date of any payment
<PAGE>
hereunder would otherwise fall on a day which is not a Business Day, such
date shall be extended to the next succeeding Business Day.
ARTICLE 4
SUBORDINATION OF ADVANCES
-------------------------
Section 4.1. ADVANCES SUBORDINATED TO SENIOR INDEBTEDNESS. The Lender
---------------------------------------------
agrees that the payment of the principal and interest, if any, on the
Advances is subordinated, to the extent and in the manner provided in this
Article 4, to the prior payment in full of all Senior Indebtedness of the
Borrower. The provisions of this Article 4 are made for the benefit of
the holders of Senior Indebtedness, and such holders are made obligees
under this Agreement and any one or more of them may enforce such
provisions.
Section 4.2. NO PAYMENT ON ADVANCES IN CERTAIN CIRCUMSTANCES.
------------------------------------------------
(a) Upon the maturity of any Senior Indebtedness by lapse of
time, acceleration or otherwise, unless and until all principal thereof,
premium, if any, interest thereon and other amounts due thereon shall first
be paid in full, no payment shall be made by or on behalf of the Borrower
with respect to the principal of or interest, if any, on the Advances.
(b) Upon the happening of any default in the payment of any
principal of or interest on or other amounts due on any Senior
Indebtedness, then, unless and until such default shall have been cured or
waived or shall have ceased to exist, no payment shall be made by or on
behalf of the Borrower with respect to the principal of or interest, if
any, on the Advances.
Section 4.3. ADVANCES SUBORDINATED TO PRIOR PAYMENT OF ALL SENIOR
----------------------------------------------------
INDEBTEDNESS ON DISSOLUTION, LIQUIDATION OR REORGANIZATION OF THE
------------------------------------------------------------------
BORROWER. In the event of any insolvency or liquidation proceeding with
---------
respect to the Borrower, all amounts payable in respect of any Senior
Indebtedness shall first be paid in full before the Lender is entitled to
receive any direct or indirect payment or distribution of any cash,
property or securities on account of principal of or interest on the
Advances.
Section 4.4. OBLIGATIONS OF THE BORROWER UNCONDITIONAL. Nothing contained
------------------------------------------
in this Article 4 or elsewhere in this Agreement is intended to or shall
impair, as between the Borrower and the Lender, the obligations of the
Borrower , which are absolute and unconditional, to pay to the Lender the
principal of and interest, if any, on the Advances as and when the same
shall become due and payable in accordance with their terms, or is intended
to or shall affect the relative rights of the Lender and creditors of the
Borrower, other than the holders of the Senior Indebtedness, nor shall
anything herein or therein prevent the Lender from exercising all remedies
otherwise permitted by applicable law
<PAGE>
upon default under this Agreement, subject to the rights, if any, under
this Article 4, of the holders of Senior Indebtedness in respect of cash,
property or securities of the Borrower received upon the exercise of any
such remedy.
ARTICLE 5
GENERAL REPRESENTATIONS AND WARRANTIES
--------------------------------------
The Borrower represents and warrants to the Lender that:
Section 5.1. FORMATION AND AUTHORITY OF THE BORROWER; VALIDITY OF THE
--------------------------------------------------------
LOAN DOCUMENTS.
- ---------------
(a) The Borrower (i) is a corporation duly formed, validly
existing and in good standing under the laws of the State of Arizona, (ii)
has the power and authority to carry on its business as now conducted, and
(iii) is duly qualified to do business in all jurisdictions where the
failure to be so qualified would have a material adverse effect.
(b) The execution and delivery of the Loan Documents and the
performance and observance by the Borrower of all of its obligations
thereunder have been authorized by all necessary corporate and shareholder
approval and are authorized by the Borrower's Articles of Incorporation and
Bylaws.
ARTICLE 6
MISCELLANEOUS PROVISIONS
------------------------
Section 6.1. NOTICES. All written notices required hereunder shall be
--------
sent via certified or registered mail, postage prepaid, or delivered in
person or sent via reliable overnight courier, addressed to the party for
whom intended at the address specified on the signature pages hereto.
Section 6.2. TERM OF AGREEMENT. This Agreement shall continue in force
------------------
and effect until such time as Borrower has repaid all amounts borrowed from
Bank One, Texas, N.A. under that Conformed and Amended Loan Agreement,
dated July 12, 1995, and amended through July 10, 1996, and said Conformed
and Amended Loan Agreement and all commitments as provided therein have
been terminated.
Section 6.3. JURISDICTION. This Agreement, the Note and the other Loan
-------------
Documents shall be construed in accordance with and governed by the laws of
the State of Colorado.
<PAGE>
Section 6.4. BINDING EFFECT OF AGREEMENT. This Agreement shall be binding
----------------------------
upon and inure to the benefit of the Borrower, the Lender, and their
respective successors and assigns, provided that the Borrower may not
assign or transfer its rights or obligations hereunder without the prior
written consent of the Lender.
Section 6.5. HEADINGS. Headings or captions have been inserted for
---------
convenience only and shall not be construed as limiting or affecting in any
way the meaning or provisions of this Agreement.
Section 6.6. SEVERABILITY. If any provision of this Agreement or the
-------------
application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the
application of such provisions to other persons or circumstances shall not
be affected thereby and shall be enforced to the greatest extent permitted
by law.
Section 6.7. COUNTERPARTS. This Agreement may be signed in any number of
-------------
counterparts with the same effect as if the signatures hereto and thereto
were upon the same instrument.
Section 6.8. ENTIRE AGREEMENT. This Agreement constitutes the entire
-----------------
understanding and agreement between the parties hereto concerning the
subject matter hereof and supersedes any prior written or oral
communications between the parties hereto.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their respective duly authorized officers as of the
day and year first above written.
ADDRESS LENDER:
-------
1380 Lawrence MATRIX CAPITAL CORPORATION
Suite 1410
Denver, CO 80204 By: /s/ David W. Klen
-------------------------------------
Telephone: 303-595-9898 Name: David W. Klen
Facsimile: 303-595-9906 Title: S.V.P
ADDRESS: BORROWER:
-
201 West Coolidge Street
Suite 100 MATRIX FINANCIAL SERVICES CORPORATION
Phoenix, AZ 85013
Telephone: 602-631-4357 By: /s/ Thomas J. Osselaer
-------------------------------------
Facsimile: 602-631-4370 Name: Thomas J. Osselaer
Title: EVP
<PAGE>
EXHIBIT A
ADVANCE REQUEST FORM
--------------------
In accordance with Section 3.2 of the Revolving Subordinated Loan
Agreement as amended from time to time, the ("Agreement") dated October 18,
1996, by and among Matrix Capital Corporation ("Lender"), and Matrix
Financial Services Corporation ("Borrower"), Borrower hereby requests an
Advance under the Agreement.
The undersigned hereby requests, represents and certifies that as of
the date hereof and the date of the requested Advance (receipt of such
Advance being deemed an affirmation of paragraphs (a) through (d) below:
(a) The aggregate amount of the requested Advance is $______________,
(b) The date on which the requested Advance is to be made is
_________________, 199___;
(c) New loan balance outstanding after such Advance is made will be
$____________, which amount does not exceed $20,000,000.00; and
(d) The representations and warranties set forth in Article 5 of the
Agreement are true and correct on and as of the date hereof and as of the
date of the requested Advance, after giving effect to such Advance and the
application of proceeds therefrom.
Capitalized terms used herein which are not defined herein shall have
the respective meanings set forth in the Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Advance Request
Form this __ day of ________________, 199___.
MATRIX FINANCIAL SERVICES CORPORATION
By:_______________________________________
Name:
Title:
<PAGE>
EXHIBIT B
PROMISSORY NOTE
---------------
U.S. $20,000,000.00 OCTOBER 18, 1996
FOR VALUE RECEIVED, MATRIX FINANCIAL SERVICES CORPORATION, an Arizona
corporation (the "Borrower"), hereby promises to pay to the order of Matrix
Capital Corporation, a Colorado corporation (the "Lender"), at its office
at 1380 Lawrence , Suite 1410, Denver, Colorado 80204, or such other
location as the holder hereof may designate in writing, the principal sum
of $20,000,000.00 (or such lesser amount as shall equal the aggregate
unpaid principal amount extended to the Borrower by the Lender and
reflected on the schedule attached hereto, which schedule shall be
considered a part hereof), in lawful money of the United States of America
in immediately available funds.
No interest shall accrue on the unpaid principal balance owed
hereunder except at the applicable rates agreed to by Borrower and Lender.
The obligation of this Note shall be subordinated to any and all
obligations of Borrower to Bank One, Texas, N.A. with said subordination
subject to the terms and conditions of the Conformed and Amended Loan
Agreement dated July 15, 1995 and, amended through July 10, 1996 (the "Loan
Agreement"). The outstanding principal balance owed hereunder shall be due
and payable only at such time as Borrower has repaid all amounts borrowed
from Bank One, Texas, N.A. under that Conformed and Amended Loan Agreement
and said Conformed and Amended Loan Agreement and all commitments as
provided therein have been terminated.
If the due date of any payment owed hereunder falls on a day which is
not a weekday, such date shall be extended to the next succeeding weekday
and interest, if any, shall be payable on any such amounts extended for the
period of such extension.
The Lender is hereby authorized by the Borrower to record on the
schedule attached to this Note the amount of each advance of principal made
to the Borrower by the Lender, the date each such advance is made, and the
amount of each payment or prepayment of principal received by the Lender.
This Note is the promissory note referred to in the Agreement dated as
of October 18, 1996 among the Borrower and the Lender (as amended from time
to time, the "Agreement"). Capitalized terms used but not otherwise defined
in this Note shall have the meanings given to them in the Agreement.
The Borrower hereby waives presentment, demand, notice of dishonor,
protest, and all other demands and notices in connection with the delivery,
acceptance, performance, and enforcement of this Note, and the Borrower
shall pay all expenses
<PAGE>
incurred in the collection of this Note, including, without limitation,
reasonable attorneys' fees.
This Note shall be binding upon the Borrower and its successors and
assigns and shall inure to the benefit of the Lender and its successors and
assigns. This Note shall be governed as to validity, interpretation and
effect by the laws of the State of Colorado.
IN WITNESS WHEREOF, the Borrower has executed this Note as of the day
and year first above written.
MATRIX FINANCIAL SERVICES CORPORATION
By: /s/ Thomas J. Osselaer
------------------------------------------
Name: Thomas J. Osselaer
Title: EVP
<PAGE>
EXHIBIT 10.32
AMENDED AND RESTATED LOAN AGREEMENT
between
MATRIX FINANCIAL SERVICES CORPORATION,
as Borrower
BANK ONE, TEXAS, N.A.,
as Agent,
and
CERTAIN LENDERS,
as Lenders
$100,000,000
DATED AS OF JANUARY 31, 1997
[LOGO OF MATRIX FINANCIAL SERVICES CORPORATION]
--------------------------------------
PREPARED BY HAYNES AND BOONE, L.L.P.
--------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
SECTION 1. DEFINITIONS AND REFERENCES........................................... 1
1.1 Definitions.......................................................... 1
1.2 Time References...................................................... 19
1.3 Other References..................................................... 19
1.4 Accounting Principles................................................ 19
SECTION 2. BORROWING PROVISIONS................................................. 20
2.1 Commitments.......................................................... 20
2.2 Borrowing Request.................................................... 22
2.3 Fundings............................................................. 22
2.4 Wet-Borrowing Procedures............................................. 23
2.5 Swing-Borrowing Procedures........................................... 24
2.6 Letters of Credit.................................................... 24
2.7 Borrowing Requests and LC Requests................................... 26
2.8 Terminations......................................................... 26
SECTION 3. PAYMENT TERMS........................................................ 27
3.1 Notes................................................................ 27
3.2 Payment Procedures................................................... 27
3.3 Scheduled Payments................................................... 27
3.4 Prepayments.......................................................... 28
3.5 Order of Application................................................. 29
3.6 Sharing.............................................................. 31
3.7 Interest Rates....................................................... 31
3.8 Interest Periods..................................................... 32
3.9 Basis Unavailable or Inadequate for LIBOR Rate....................... 33
3.10 Additional Costs..................................................... 33
3.11 Change in Laws....................................................... 34
3.12 Funding Loss......................................................... 34
3.13 Foreign Lenders, Participants, and Purchasers........................ 34
3.14 Fees................................................................. 34
SECTION 4. COLLATERAL PROCEDURES................................................ 35
4.1 Eligible Collateral.................................................. 35
4.2 Borrowing Base....................................................... 35
4.3 Collateral Delivery.................................................. 35
4.4 Bailee and Agent..................................................... 36
4.5 Shipment for Sale.................................................... 36
4.6 Shipment for Correction.............................................. 37
4.7 Release of Collateral................................................ 37
SECTION 5. CONDITIONS PRECEDENT................................................. 37
SECTION 6. REPRESENTATIONS AND WARRANTIES....................................... 38
6.1 Purpose of Credit.................................................... 38
6.2 About the Companies.................................................. 38
6.3 Authorization and Contravention...................................... 38
</TABLE>
(i) AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------
<PAGE>
<TABLE>
<S> <C>
6.4 Binding Effect....................................................... 39
6.5 Fiscal Year.......................................................... 39
6.6 Current Financials................................................... 39
6.7 Debt................................................................. 39
6.8 Solvency............................................................. 39
6.9 Litigation........................................................... 39
6.10 Transactions with Affiliates......................................... 39
6.11 Taxes................................................................ 39
6.12 Employee Plans....................................................... 39
6.13 Property and Liens................................................... 40
6.14 Intellectual Property................................................ 40
6.15 Environmental Matters................................................ 40
6.16 Government Regulations............................................... 40
6.17 Insurance............................................................ 40
6.18 Appraisals........................................................... 40
6.19 Full Disclosure...................................................... 41
SECTION 7. AFFIRMATIVE COVENANTS................................................ 41
7.1 Reporting Requirements............................................... 41
7.2 Use of Proceeds...................................................... 42
7.3 Books and Records.................................................... 42
7.4 Inspections.......................................................... 42
7.5 Taxes................................................................ 42
7.6 Expenses............................................................. 42
7.7 Maintenance of Existence, Assets, and Business....................... 43
7.8 Insurance............................................................ 43
7.9 Take-Out Commitments................................................. 43
7.10 Appraisals........................................................... 43
7.11 Indemnification...................................................... 43
SECTION 8. NEGATIVE COVENANTS................................................... 44
8.1 Debt................................................................. 44
8.2 Liens................................................................ 45
8.3 Loans, Advances, and Investments..................................... 46
8.4 Distributions........................................................ 47
8.5 Merger or Consolidation.............................................. 47
8.6 Liquidations and Dispositions of Assets.............................. 47
8.7 Use of Proceeds...................................................... 47
8.8 Transactions with Affiliates......................................... 47
8.9 Employee Plans....................................................... 47
8.10 Compliance with Laws and Documents................................... 47
8.11 Government Regulations............................................... 48
8.12 Fiscal Year Accounting............................................... 48
8.13 New Businesses....................................................... 48
8.14 Assignment........................................................... 48
8.15 Other Facilities..................................................... 48
SECTION 9. FINANCIAL COVENANTS.................................................. 48
9.1 Net Worth............................................................ 48
9.2 Leverage............................................................. 49
</TABLE>
(ii) AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------
<PAGE>
<TABLE>
<S> <C>
9.3 Cash Flow............................................................ 49
9.4 Servicing Portfolio.................................................. 49
9.5 Debt to Servicing Portfolio.......................................... 49
SECTION 10. DEFAULTS AND REMEDIES................................................ 49
10.1 Default.............................................................. 49
10.2 Remedies............................................................. 51
10.3 Right of Offset...................................................... 51
10.4 Waivers.............................................................. 51
10.5 Performance by Agent................................................. 52
10.6 No Responsibility.................................................... 52
10.7 No Waiver............................................................ 52
10.8 Cumulative Rights.................................................... 52
10.9 Rights of Individual Lenders......................................... 52
10.10 Notice to Agent...................................................... 53
10.11 Costs................................................................ 53
SECTION 11 AGENT................................................................. 53
11.1 Authorization and Action............................................. 53
11.2 Agent's Reliance, Etc................................................ 53
11.3 Agent and Affiliates................................................. 53
11.4 Credit Decision...................................................... 54
11.5 Indemnification...................................................... 54
11.6 Successor Agent...................................................... 54
11.7 Inspection........................................................... 55
SECTION 12. MISCELLANEOUS........................................................ 55
12.1 Nonbusiness Days..................................................... 55
12.2 Communications....................................................... 55
12.3 Form and Number of Documents......................................... 55
12.4 Exceptions to Covenants.............................................. 55
12.5 Survival............................................................. 55
12.6 Governing Law........................................................ 55
12.7 Invalid Provisions................................................... 55
12.8 Conflicts Between Loan Documents..................................... 56
12.9 Discharge and Certain Reinstatement.................................. 56
12.10 Amendments, Consents, Conflicts, and Waivers......................... 56
12.11 Multiple Counterparts................................................ 56
12.12 Parties.............................................................. 57
12.13 Participations....................................................... 57
12.14 Transfers............................................................ 58
12.15 Jurisdiction; Venue; Service of Process; and Jury Trial.............. 58
12.16 Limitation of Liability.............................................. 59
12.17 Entire Agreement..................................................... 59
12.18 Restatement of Existing Loan Agreement, Repayment of Non-Participating
Existing Lenders, and Settlement of Funds............................ 59
</TABLE>
(iii) AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------
<PAGE>
SCHEDULES AND EXHIBITS
<TABLE>
<S> <C>
Schedule 2 - Lenders and Commitments
Schedule 4.1 - Eligibility Conditions
Schedule 4.2 - Borrowing-Base Calculations
Schedule 4.3 - Collateral Procedures
Schedule 5 - Closing Conditions
Schedule 6.2 - Companies
Schedule 6.9 - Litigation and Judgments
Schedule 6.10 - Affiliate Transactions
Exhibit A-1 - Amended and Restated Warehouse Note
Exhibit A-2 - Amended and Restated Swing Note
Exhibit A-3 - Amended and Restated Working-
Capital Note
Exhibit A-4 - Amended and Restated Term-Line Note
Exhibit B - Amended and Restated Guaranty
Exhibit C-1 - Amended and Restated Security
Agreement
Exhibit C-2 - Financing Statement
Exhibit C-3 - Shipping Request
Exhibit C-4 - Bailee Letter for Investors
Exhibit C-5 - Bailee Letter for Pool Custodian
Exhibit C-6 - Trust Receipt and Agreement
Exhibit C-7 - Release Request
Exhibit D-1 - Borrowing Request
Exhibit D-2 - Collateral-Delivery Notice
Exhibit D-3 - Borrowing-Base Report
Exhibit D-4 - Take-Out Report
Exhibit D-5 - Management Report
Exhibit D-6 - Compliance Certificate
Exhibit D-7 - Collateral-Conversion Notice
Exhibit E - Opinion of Counsel
Exhibit F-1 - Amendment
Exhibit F-2 - Assignment and Assumption Agreement
</TABLE>
(iv) AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------
<PAGE>
AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------
THIS AMENDED AND RESTATED LOAN AGREEMENT is entered into as of January 31,
1997, between MATRIX FINANCIAL SERVICES CORPORATION, an Arizona corporation
("BORROWER"), the Lenders described below, and BANK ONE, TEXAS, N.A., as Agent
for Lenders.
(See SECTION 1.1 for defined terms.)
A. Borrower, certain lenders, and Agent are parties to the Loan Agreement
(as renewed, extended, or amended, the "EXISTING LOAN AGREEMENT") dated as of
July 12, 1995, providing for, among other things, (i) a revolving line of credit
to finance Borrower's Mortgage Loan origination and acquisition until those
Mortgage Loans are sold in the secondary market, (ii) a sublimit of that
revolving line of credit to pay certain Servicing Payments, and (iii) a line of
credit with a term conversion feature to repay certain of Borrower's then-
existing-term Debt and to finance Borrower's Servicing Portfolio origination and
acquisition.
B. Borrower has requested that the lenders under the Existing Loan
Agreement (collectively, the "EXISTING LENDERS") entirely amend, modify, and
restate the Existing Loan Agreement in the form of this agreement in order to,
among other things, (i) renew, increase, and extend the indebtedness under the
Existing Loan Agreement, (ii) increase the aggregate Warehouse and Term-Line
Commitments, (iii) eliminate the receivables sublimit under the Warehouse
Commitment and add a new Working-Capital Commitment, (iv) amend certain existing
sublimits, (v) add new Second-Lien and Repurchase Sublimits under the Warehouse
Commitment, and (vi) modify certain financial covenants.
C. Upon and subject to the terms and conditions of this agreement,
Lenders are willing to entirely amend and restate the Existing Loan Agreement.
ACCORDINGLY, for adequate and sufficient consideration, Borrower, Lenders,
and Agent agree that the Existing Loan Agreement shall be amended and restated
in its entirety, as follows:
SECTION 1. DEFINITIONS AND REFERENCES. Unless stated otherwise, the
following provisions apply to each Loan Document, and annexes, exhibits, and
schedules to -- and certificates, reports, and other writings delivered under --
the Loan Documents.
1.1 DEFINITIONS.
"ACKNOWLEDGMENT AGREEMENT" means, at any time and as applicable, the form
of Acknowledgment Agreement then required by (a) FHLMC to be executed as a
condition to the creation of a security interest in Servicing Rights for
Mortgage Pools serviced for FHLMC, completed and executed by Borrower, Agent,
(if necessary) each Lender, and FHLMC, and otherwise in form acceptable to
Agent, together with every supplement to and replacement for that agreement in
accordance with the FHLMC Guide, (b) FNMA to be executed as a condition to the
creation of a security interest in Servicing Rights for Mortgage Pools serviced
for FNMA, completed and executed by Borrower, Agent, (if necessary) each Lender,
and FNMA, and otherwise in form acceptable to Agent, together with every
supplement to and replacement for that agreement in accordance with the FNMA
Guide, and (c) GNMA to be executed as a condition to the creation of a security
interest in Servicing Rights for Mortgage Pools guaranteed by GNMA, completed
and executed by Borrower, Agent, (if necessary) each Lender, and GNMA, and
otherwise in form acceptable to Agent, together with every supplement to and
replacement for that agreement in accordance with the GNMA Guide.
AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------
<PAGE>
"ADJUSTED-NET WORTH" means, at any time, the sum (without duplication) of
(a) the Companies' consolidated stockholders' equity plus (b) any Permitted Debt
outstanding under the Revolving Subordinated Loan Agreement between Borrower and
Guarantor referred to in SECTION 8.1(C).
"ADJUSTED-TANGIBLE-NET WORTH" means, at any time, the sum (without
duplication) of (a) the Companies' consolidated stockholders' equity, plus (b)
the lesser of either (i) 1.25% of the Servicing Portfolio or (ii) the Appraised
Value of the Servicing Portfolio, minus (c) purchased servicing, originated
mortgage servicing rights (sometimes known in the industry as "OMSRs"), deferred
excess servicing, rights with respect to the foregoing, and unamortized debt
discount and expense, minus (d) treasury stock, minus (e) any surplus resulting
from the write-up of assets, minus (f) goodwill, including, without limitation,
any amounts representing the excess of the purchase price paid for acquired
assets, stock, or interests over the book value assigned to them, minus (g)
patents, trademarks, service marks, trade names, and copyrights, minus (h)
Borrower's direct and indirect guaranties of Debt of any other Person, minus (i)
Borrower's obligation with respect to letters of credit, acceptances, and
similar obligations, minus (j) other intangible assets, plus (k) any Permitted
Debt expressly subordinated to the Obligation.
"AFFILIATE" of a Person means any other individual or entity who directly
or indirectly controls, is controlled by, or is under common control with that
Person. For purposes of this definition (a) "control," "controlled by," and
"under common control with" mean possession, directly or indirectly, of power to
direct or cause the direction of management or policies (whether through
ownership of voting securities or other interests, by contract, or otherwise),
and (b) the Companies are "Affiliates" of each other.
"AGENT" means, at any time, Bank One, Texas, N.A. (or its successor
appointed under SECTION 11.6), acting as administrative, collateral, managing,
and syndication agent for Lenders under the Loan Documents.
"AGENT'S REQUEST" is defined in SECTION 2.3(F).
"APPLICABLE-COVERED RATE" means -- for each Borrowing-Purpose Category in
the table below --the annual interest rate stated beside that category:
<TABLE>
<CAPTION>
====================================================================
Borrowing-Purpose Category Applicable-Covered Rate
====================================================================
<S> <C>
Gestation Borrowings 0.850%
--------------------------------------------------------------------
Repurchase Borrowings 1.375%
--------------------------------------------------------------------
Uncommitted-B/C-Paper Borrowings 2.000%
--------------------------------------------------------------------
Other Warehouse Borrowings 1.250%
--------------------------------------------------------------------
Working-Capital Borrowings 1.500%
--------------------------------------------------------------------
Term-Line Borrowings 2.000%
====================================================================
</TABLE>
2 AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------
<PAGE>
"APPLICABLE MARGIN" means -- for each Borrowing-Purpose Category and
relevant Borrowing-Price Category in the table below -- the positive or negative
interest margin beside those categories:
<TABLE>
<CAPTION>
Borrowing-Purpose Category Borrowing-Price Category Applicable Margin
==============================================================================
<S> <C> <C>
Gestation Borrowings Base Rate 0.000%
------------------------------------------------------------------------------
Fed-Funds Rate or LIBOR 0.850%
------------------------------------------------------------------------------
Swing Borrowings Base Rate 0.000%
------------------------------------------------------------------------------
Fed-Funds Rate 1.250%
------------------------------------------------------------------------------
Uncommitted-B/C-Paper Base Rate 1.000%
Borrowings
------------------------------------------------------------------------------
Fed-Funds Rate or LIBOR 2.000%
------------------------------------------------------------------------------
Repurchase Borrowings Base Rate 0.000%
------------------------------------------------------------------------------
Fed-Funds Rate or LIBOR 1.375%
------------------------------------------------------------------------------
Other Warehouse Borrowings Base Rate 0.000%
------------------------------------------------------------------------------
Fed-Funds Rate or LIBOR 1.250%
------------------------------------------------------------------------------
Working-Capital Borrowings Base Rate 0.500%
------------------------------------------------------------------------------
Fed-Funds Rate or LIBOR 1.500%
------------------------------------------------------------------------------
Term-Line Borrowings Base Rate 1.000%
Fed-Funds Rate or LIBOR 2.000%
==============================================================================
</TABLE>
"APPRAISAL" means, for any Mortgage Loan, a written statement of the market
value of the real property securing it.
"APPRAISAL LAW" means any Law that is applicable to appraisals of
mortgaged-residential property in connection with transactions involving that
property, including, without limitation, Title XI of the Financial Institutions
Reform, Recovery, and Enforcement Act of 1989, the Federal Deposit Insurance
Corporation Improvement Act of 1991, 12 C.F.R. Chapter I, Part 34, Subpart C, 12
C.F.R. Chapter II, Subchapter A, Part 225, Subpart G, and 12 C.F.R. Chapter III,
Subchapter B, Part 323.
"APPRAISED VALUE" means -- at any time -- the appraised value of the
Servicing Portfolio determined in the appraisal most recently delivered to Agent
by an appraiser and in a manner and form satisfactory to Agent.
"APPROVED INVESTOR" means (a) FHLMC, FNMA, and GNMA and (b) any other
Person from time to time named on lists (separate lists will be maintained for
Committed-B/C-Paper Borrowings, Second-Lien Borrowings, and for all other
Warehouse Borrowings) agreed to by Agent and Borrower -- which lists Agent shall
furnish to any Lender upon request -- as those lists may be amended from time to
time (i) by Borrower and Agent to remove or add other names as Agent and
Borrower may agree, (ii) by either Agent or Determining Lenders to remove any
such other Person after Agent has or Determining Lenders have given to Borrower
notice of -- and an opportunity to discuss -- the proposed removal of that
Person, or (iii) automatically -- without signing by any party -- to remove any
such Person who then (A) is not Solvent, (B) fails to pay its debts generally as
they become due, (C) voluntarily seeks, consents to, or acquiesces in the
benefit of any Debtor Law, or (D) becomes a party to or is made the subject of
any proceeding provided for by any Debtor Law -- other than as a creditor or
claimant -- that could suspend or otherwise adversely affect
3 AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------
<PAGE>
the Rights of any Company, Agent, or any Lender in connection with the
transactions contemplated in the Loan Documents. With respect to Jumbo Loans,
the term "Approved Investor" will be deemed to refer to an Approved-Jumbo
Investor.
"APPROVED-JUMBO INVESTOR" means (a) FHLMC, FNMA, and GNMA and (b) any other
Person from time to time named on a list agreed to by Agent and Borrower --
which Agent shall furnish to any Lender upon request -- as that list may be
amended from time to time (i) by Borrower and Agent to remove or add other names
as Agent and Borrower may agree, (ii) by either Agent or Determining Lenders to
remove any such other Person after Agent has or Determining Lenders have given
to Borrower notice of -- and an opportunity to discuss -- the proposed removal
of that Person, or (iii) automatically -- without signing by any party -- to
remove any such Person who then (A) is not Solvent, (B) fails to pay its debts
generally as they become due, (C) voluntarily seeks, consents to, or acquiesces
in the benefit of any Debtor Law, or (D) becomes a party to or is made the
subject of any proceeding provided for by any Debtor Law -- other than as a
creditor or claimant -- that could suspend or otherwise adversely affect the
Rights of either Borrower, Agent, or any Lender in connection with the
transactions contemplated in the Loan Documents.
"APPROVED PMI" means any private-mortgage insurance company from time to
time named on a list agreed to by Agent and Borrower -- which Agent shall
furnish to any Lender upon request -- as that list may be amended from time to
time (a) by Borrower and Agent to remove or add other names as Agent and
Borrower may agree, (b) by either Agent or Determining Lenders to remove any
Person on the list after Agent has or Determining Lenders have given to Borrower
notice of -- and an opportunity to discuss -- the proposed removal of that
Person, or (c) automatically -- without signing by any party --to remove any
such Person who then (i) is not Solvent, (ii) fails to pay its debts generally
as they become due, (iii) voluntarily seeks, consents to, or acquiesces in the
benefit of any Debtor Law, or (iv) becomes a party to or is made the subject of
any proceeding provided for by any Debtor Law -- other than as a creditor or
claimant -- that could suspend or otherwise adversely affect the Rights of
Borrower, Agent, or any Lender in connection with the transactions contemplated
in the Loan Documents.
"ASSIGNMENT" means an Assignment and Assumption Agreement executed by a
selling Lender and a Purchaser under SECTION 12.12 and SECTION 12.14 and
delivered to Agent in substantially the form of EXHIBIT F-2.
"AVERAGE-ADJUSTED-BASE RATE" means, for any period, an annual interest rate
equal to the quotient of (a) the sum of the Base Rate plus the Applicable Margin
for each calendar day during that period divided by (b) the number of days
during that period.
"AVERAGE-ADJUSTED-FED-FUNDS RATE" means, for any period, an annual interest
rate equal to the quotient of (a) the sum of the Fed-Funds Rate plus the
Applicable Margin for each calendar day during that period divided by (b) the
number of days during that period.
"AVERAGE-ADJUSTED-LIBOR RATE" means, for any period, an annual interest
rate equal to the quotient of (a) the sum of LIBOR plus the Applicable Margin
for each calendar day during that period divided by (b) the number of days
during that period.
"AVERAGE-DEPOSITARY BALANCES" means, for any period and for any Depositary,
(a) the quotient of (i) the sum of that Depository's Eligible Balances as of the
close of business for each calendar day (which for any day that is not a
Business Day are deemed for this definition to be those balances for the
preceding Business Day) during that period divided by (ii) the number of
calendar days during that period minus (b) amounts necessary to satisfy any
deposit insurance, reserve, special deposit, Tax (other than that Depository's
general corporate income or franchise Taxes), duty, or other imposition (in each
case at the applicable rates)
4 AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------
<PAGE>
requirements applicable to that Depository for those accounts, minus (c) amounts
required to compensate that Depository for direct processing and transaction
costs and other services rendered in connection with those accounts in
accordance with that Depository's system of charges for similar accounts, minus
(d) unless otherwise paid directly to that Depository, any amounts in those
accounts utilized as of that day in the calculation of interest on any other
Debt payable by any Company to that Depository or any other Person.
"AVERAGE-PRINCIPAL DEBT" means, for any period and any Lender, the quotient
of (a) the sum of the Principal Debt owed to that Lender as of the close of
business for each calendar day (which for any day that is not a Business Day is
deemed for this definition to be the Principal Debt as of the close of business
for the preceding Business Day) divided by (b) the number of days during that
period.
"BAILEE LETTER" means, as applicable under the circumstances, one of the
letters executed and delivered by Agent in substantially the form of EXHIBIT C-4
or EXHIBIT C-5.
"BASE RATE" means an annual interest rate equal from day to day to the
floating annual interest rate established by Agent from time to time as its
base-rate of interest, which may not be the lowest interest rate charged by
Agent on loans similar to Borrowings.
"BASE-RATE BORROWING" means any Borrowing bearing interest at the Average-
Adjusted-Base Rate.
"B/C-PAPER SUBLIMIT" means $35,000,000.
"BORROWER" is defined in the preamble to this agreement.
"BORROWING" means any amount disbursed (a) by any Lender to Borrower under
the Loan Documents as an original disbursement of funds, a renewal, extension,
or continuation of an amount outstanding, or a payment under an LC, or (b) by
Agent or any Lender in accordance with, and to satisfy a Company's obligations
under, any Loan Document.
"BORROWING BASE" means, at any time, the sum of the various borrowing bases
set forth on SCHEDULE 4.2.
"BORROWING-BASE REPORT" means a report executed by Agent and delivered to
Borrower and Lenders in substantially the form of EXHIBIT D-3.
"BORROWING DATE" means, for any Borrowing, the date it is disbursed.
"BORROWING EXCESS" means, at any time, the amount by which any of the
limitations of SECTION 2.1 are exceeded.
"BORROWING-PRICE CATEGORY" means any category of Borrowing determined with
respect to the applicable interest option, e.g., a Base-Rate Borrowing, Fed-
Funds Borrowing, or LIBOR Borrowing.
"BORROWING-PURPOSE CATEGORY" means any category of Borrowing determined
with respect to its purpose, e.g., a (a) Warehouse Borrowing, which may be a Dry
Borrowing, Wet Borrowing, Gestation Borrowing, Swing Borrowing, Committed-B/C-
Paper Borrowing, Uncommitted-B/C-Paper Borrowing, Second-Lien Borrowing, or
Repurchase Borrowing, (b) Working-Capital Borrowing, which may be a P&I
Borrowing, T&I Borrowing, or Foreclosure Borrowing, or (c) Term-Line Borrowing.
5 AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------
<PAGE>
"BORROWING REQUEST" means a request executed by a Responsible Officer of
Borrower requesting a Borrowing and delivered to Agent in substantially the form
of EXHIBIT D-1.
"BUSINESS DAY" means (a) for purposes of any LIBOR Borrowing, a day when
commercial banks are open for international business in London, England, and (b)
for all other purposes, any day other than Saturday, Sunday, and any other day
that commercial banks are authorized by applicable Laws to be closed in Texas.
"CALENDAR MONTH" means that portion of a calendar month that occurs at any
time from the date of this agreement to the date that the Obligation is paid in
full and all commitments to lend under this agreement have terminated or been
canceled.
"CALENDAR QUARTER" means that portion of any calendar quarter that occurs
at any time from the date of this agreement to the date that the Obligation is
paid in full and all commitments to lend under this agreement have terminated or
been canceled.
"CMLTD" means current maturities of long-term debt (inclusive of the term
debt extended under this agreement), plus current maturities of capital leases.
"CASH FLOW" means -- for any period on a consolidated basis for Borrower
and in accordance with GAAP, consistently applied -- the sum of (a) net income
(calculated as profit or loss after deducting tax expense and after recognizing
extraordinary losses and extraordinary gains but not non-cash income tax
recoveries) plus (b) to the extent actually deducted in calculating net income,
depreciation, and amortization minus (c) to the extent actually included in
calculating net income, any non-cash revenue minus (d) any Distributions paid to
Guarantor.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. (S)(S)9601 et seq.
"CLOSING DATE" means January 31, 1997.
"COLLATERAL" means all Collateral as defined in the Security Agreement or
as otherwise delivered by any Person as security for the Obligation.
"COLLATERAL-CONVERSION NOTICE" means a notice executed by Borrower and
delivered to Agent in substantially the form of EXHIBIT D-7.
"COLLATERAL-DELIVERY NOTICE" means a notice executed by Borrower and
delivered to Agent in substantially the form of EXHIBIT D-2.
"COLLATERAL DOCUMENTS" means the documents and other items described on
SCHEDULE 4.3 and required to be delivered to Agent under SECTION 4.3.
"COMBINED COMMITMENT" means, at any time and for any Lender, the sum of
that Lender's (a) Warehouse Commitment, (b) Working-Capital Commitment, and (c)
Term-Line Commitment.
"COMMITMENT PERCENTAGE" means, at any time for any Lender, (a) in relation
to the Warehouse Commitment, the proportion (stated as a percentage) that its
Warehouse Commitment bears to the total Warehouse Commitments of all Lenders,
(b) in relation to the Working-Capital Commitment, the proportion (stated as a
percentage) that its Working-Capital Commitment bears to the total Working-
Capital Commitments
6 AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------
<PAGE>
of all Lenders, (c) in relation to the Term-Line Commitment, the proportion
(stated as a percentage) that its Term-Line Commitment bears to the total Term-
Line Commitments of all Lenders, and (d) in relation to the determination of
Determining Lenders, the proportion (stated as a percentage) that its Combined
Commitment bears to the total Combined Commitments of all Lenders.
"COMMITTED-B/C-PAPER BORROWING" means a Warehouse Borrowing that is (a) a
Ratable Borrowing or Swing Borrowing, (b) subject to the B/C-Paper Sublimit and
(c) supported by the Borrowing Base for Eligible-Committed-B/C-Paper Loans.
"COMPANIES" means (a) at any time, Borrower and each of its Subsidiaries,
and (b) where appropriate in respect of any period unless otherwise provided,
includes all of their operations during that period whether discontinued or not.
"COMPLIANCE CERTIFICATE" means a certificate executed by a Responsible
Officer of Borrower and delivered to Agent in substantially the form of EXHIBIT
D-6.
"CONVENTIONAL LOAN" means a Mortgage Loan that (a) is not a FHA Loan or VA
Loan but (b) complies with all applicable requirements for purchase under the
FNMA or FHLMC standard form of conventional-mortgage-purchase contract.
"CORRECTION PERIOD" means 14 calendar days for any Collateral Documents
shipped under SECTION 4.6 for correction.
"CURRENT FINANCIALS" means either (a) the Companies' Financials for the
year ended December 31, 1995, and for the 11 months ended November 30, 1996, or
(b) at any time after the Companies' annual Financials are first delivered under
SECTION 7.1, the Companies' annual Financials then most recently delivered to
Agent and subsequent monthly Financials then most recently delivered to Agent.
"DEBT", for any Person and without duplication, means (a) all obligations
required by GAAP to be classified upon that Person's balance sheet as
liabilities, (b) liabilities secured (or for which the holder of the liabilities
has an existing Right, contingent or otherwise, to be so secured) by any Lien
existing on property owned or acquired by that Person, (c) obligations that
under GAAP should be capitalized for financial reporting purposes, and (d) all
guaranties, endorsements, and other contingent obligations with respect to Debt
of others or in respect of any Employee Plan.
"DEBTOR LAWS" means the Bankruptcy Code of the United States of America and
all other applicable liquidation, conservatorship, bankruptcy, moratorium,
rearrangement, receivership, insolvency, reorganization, suspension of payments,
or similar Laws affecting creditors' Rights.
"DEFAULT" is defined in SECTION 10.1.
"DEFAULT RATE" means, for any day, an annual interest rate equal to the
lesser of either (a) the Fed-Funds Rate plus 5% or (b) the Maximum Rate.
"DEPOSITARY" means any Lender with whom Borrower maintains non-interest
bearing demand deposit accounts in its name.
"DETERMINING LENDERS" means, at any time, any combination of Lenders whose
(a) Termination Percentages total at least 66 2/3% at any time on or after the
Warehouse-Actual-Termination Date, or (b) Commitment Percentages total at least
66 2/3% at all other times.
7 AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------
<PAGE>
"DISTRIBUTION" means, at any time and with respect to any shares of any
capital stock or other equity securities issued by a Person, (a) the retirement,
redemption, purchase, or other acquisition for value of those securities, (b)
the declaration or payment of any dividend with respect to those securities, (c)
any loan or advance by that Person to, or other investment by that Person in,
the holder of any of those securities, and (d) any other payment by that Person
with respect to those securities.
"DRY BORROWING" means a Warehouse Borrowing for which all of the Collateral
Documents have been delivered to Agent in accordance with SECTION 4.3.
"ELIGIBLE BALANCES" means, for any calendar day and any Depositary, the sum
(which for any day that is not a Business Day is deemed for this definition to
be that sum as determined as of the close of business on the preceding Business
Day) of collected balances as of the close of business on that day in all
identified non-interest bearing demand deposit accounts or money market zero
reserve accounts of or maintained by Borrower with that Depositary.
"ELIGIBLE-COMMITTED-B/C-PAPER LOAN" is defined in SCHEDULE 4.1.
"ELIGIBLE-FORECLOSURE RECEIVABLE" is defined in SCHEDULE 4.1.
"ELIGIBLE-GESTATION COLLATERAL" is defined in SCHEDULE 4.1.
"ELIGIBLE-MORTGAGE COLLATERAL" means, at any time, all Eligible-Mortgage
Loans and all Eligible-Mortgage Securities.
"ELIGIBLE-MORTGAGE LOAN" is defined in SCHEDULE 4.1.
"ELIGIBLE-MORTGAGE SECURITY" is defined in SCHEDULE 4.1.
"ELIGIBLE-P&I RECEIVABLE" is defined in SCHEDULE 4.1.
"ELIGIBLE-REPURCHASED LOAN" is defined in SCHEDULE 4.1.
"ELIGIBLE-SECOND-LIEN LOAN" is defined in SCHEDULE 4.1.
"ELIGIBLE-SERVICING PORTFOLIO" is defined in SCHEDULE 4.1.
"ELIGIBLE-T&I RECEIVABLE" is defined in SCHEDULE 4.1.
"ELIGIBLE-UNCOMMITTED-B/C-PAPER LOAN" is defined in SCHEDULE 4.1.
"EMPLOYEE PLAN" means any employee-pension-benefit plan (a) covered by
Title IV of ERISA and established or maintained by Borrower or any ERISA
Affiliate (other than a Multiemployer Plan) or (b) established or maintained by
Borrower or any ERISA Affiliate, or to which Borrower or any ERISA Affiliate
contributes, under the Laws of any foreign country.
"ENVIRONMENTAL LAW" means any applicable Law that relates to protection of
the environment or to the regulation of any Hazardous Substances, including,
without limitation, CERCLA, the Hazardous Materials Transportation Act (49
U.S.C. (S) 1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C.
(S) 6901 et seq.), the Clean Water Act (33 U.S.C. (S) 1251 et seq.), the Clean
Air Act (42 U.S.C. (S) 7401 et seq.), the Toxic Substances Control Act (15
U.S.C. (S) 2601 et seq.), the Federal Insecticide, Fungicide, and
8 AMENDED AND RESTATED LOAN AGREEMENT
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Rodenticide Act (7 U.S.C. (S) 136 et seq.), the Emergency Planning and Community
Right-to-Know Act (42 U.S.C. (S) 11001 et seq.), the Safe Drinking Water Act (42
U.S.C. (S) 201 and (S) 300f et seq.), the Rivers and Harbors Act (33 U.S.C. (S)
401 et seq.), the Oil Pollution Act (33 U.S.C. (S) 2701 et seq.), analogous
state and local Laws, and any analogous future enacted or adopted Laws.
"ERISA" means the Employee Retirement Income Security Act of 1974.
"ERISA AFFILIATE" means any Person that, for purposes of Title IV of ERISA,
is a member of Borrower's controlled group or is under common control with
Borrower within the meaning of Section 414 of the IRC.
"EXISTING LENDERS" is defined in the recitals of this agreement.
"EXISTING LOAN AGREEMENT" is defined in the recitals of this agreement.
"FED-FUNDS BORROWING" means any Borrowing bearing interest at the Average-
Adjusted-Fed-Funds Rate.
"FED-FUNDS RATE" means, for any day, the annual interest rate -- rounded
upwards, if necessary, to the nearest 0.01% -- determined by Agent to be either
(a) the weighted average of the rates on overnight-federal-funds transactions
with member banks of the Federal Reserve System arranged by federal-funds
brokers for that day (or, if not a Business Day on the preceding Business Day)
as published by the Federal Reserve Bank of New York (as published by Knight-
Ridder, page 73, utilizing the Fed-Effective Rate), or (b) if not so published
for any day, the average of the quotations for that day on those transactions
received by Agent from three federal-funds brokers of recognized standing it may
select.
"FHA" means the Federal Housing Administration within the United States
Department of Housing and Urban Development.
"FHA LOAN" means a Mortgage Loan which is either (a) fully or partially
insured by FHA under the National Housing Act or Title V of the Housing Act of
1949, (b) subject to a current, binding, and enforceable commitment issued by
FHA for that insurance, or (c) eligible for direct endorsement under the FHA
Direct Endorsement Program.
"FHLMC" means the Federal Home Loan Mortgage Corporation.
"FINANCIALS" of a Person means balance sheets, profit and loss statements,
reconciliations of capital and surplus, and statements of cash flow prepared (a)
according to GAAP (subject to year end audit adjustments with respect to interim
Financials) and (b) except as stated in SECTION 1.4, in comparative form to
prior year-end figures or corresponding periods of the preceding fiscal year or
other relevant period, as applicable.
"FNMA" means the Federal National Mortgage Association.
"FORECLOSURE BORROWING" means a Working-Capital Borrowing that is (a) a
Ratable Borrowing, (b) supported by the Borrowing Base for Receivables, and (c)
to be used by Borrower to reimburse itself for a Foreclosure Payment it has
made.
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"FORECLOSURE PAYMENT" means the unreimbursed purchase price paid by
Borrower to repurchase a defaulted Mortgage Loan out of a Mortgage Pool in
accordance with Borrower's obligations under the applicable Servicing Contract.
"FUNDING LOSS" means any reasonable, out-of-pocket loss or expense that any
Lender incurs because Borrower (a) fails or refuses, for any reason other than a
default by the Lender claiming that loss or expense, to take any LIBOR Borrowing
that it has requested under this agreement, or (b) prepays or pays any LIBOR
Borrowing at any time other than the last day of the applicable Interest Period.
"GAAP" means generally accepted accounting principles of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
the Financial Accounting Standards Board that are applicable from time to time.
"GESTATION BORROWING" means a Warehouse Borrowing that is (a) a Ratable
Borrowing, (b) subject to the Gestation Sublimit, and (c) supported by the
Borrowing Base for Gestation Collateral.
"GESTATION SUBLIMIT" means, at any time, 50% of the total Warehouse
Commitments.
"GNMA" means the Government National Mortgage Association.
"GUARANTOR" means Matrix Capital Corporation, a Colorado corporation.
"GUARANTY" means an Amended and Restated Guaranty in substantially the form
of EXHIBIT B.
"GUIDE" means the following, as applicable under the circumstances, for (a)
FHLMC, the Freddie Mac Sellers' & Servicers' Guide, (b) FNMA, the Fannie Mae
Servicing Guide, and (c) GNMA, as applicable, either (i) the GNMA I Mortgage
Securities Guide, Handbook GNMA 5500.1REV-6, or (ii) the GNMA II Mortgage
Securities Guide, Handbook GNMA 5500.2.
"HAZARDOUS SUBSTANCE" means any substance that is designated, defined,
classified, or regulated as a hazardous waste, hazardous material, pollutant,
contaminant, explosive, corrosive, flammable, infectious, carcinogenic,
mutagenic, radioactive, or toxic or hazardous substance under any Environmental
Law, including, without limitation, any hazardous substance within the meaning
of (S) 101(14) of CERCLA.
"HEDGE CONTRACT" means, for any Person, any present or future, whether
master or single, agreement, document or instrument providing for -- or
constituting an agreement to enter into (a) commodity hedges in the normal
course of business in accordance with prior practices of that Person before the
date of this agreement for purposes of hedging material purchases, (b) foreign-
currency purchases and swaps, (c) interest-rate swaps, and (d) interest-rate-
hedging products.
"INTEREST PERIOD" is determined in accordance with SECTION 3.8.
"IRC" means the Internal Revenue Code of 1986.
"JUMBO LOAN" means a Mortgage Loan (other than a FHA Loan or VA Loan) that
complies with all applicable requirements for purchase under the FNMA or FHLMC
standard form of conventional mortgage purchase contract then in effect except
that the amount of it exceeds the maximum loan amount under those requirements.
10 AMENDED AND RESTATED LOAN AGREEMENT
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"JUMBO SUBLIMIT", at any time, means, except as otherwise approved by Agent
in writing, (a) for all Jumbo Loans, 35% of the total Warehouse Commitments, and
(b) for any Jumbo Loan in excess of $750,000, only the first $750,000.
"LAWS" means all applicable statutes, laws, treaties, ordinances, rules,
regulations, orders, writs, injunctions, decrees, judgments, opinions, and
interpretations of any Tribunal.
"LC" means a standby letter of credit issued by Agent or any of its
Affiliates under this agreement and under an LC Agreement.
"LC AGREEMENT" means a letter of credit application and agreement (in form
and substance satisfactory to Agent) submitted and executed by Borrower to Agent
or any of its Affiliates for an LC for the account of any Company.
"LC EXPOSURE" means, without duplication, the sum of (a) the total face
amount of all undrawn and uncancelled LCs plus (b) the total unpaid
reimbursement obligations of Borrower under drawings or drafts under any LC.
"LC REQUEST" means a request by Borrower to Agent by electronic device or
in writing (in form acceptable to Agent) for an LC.
"LENDER LIEN" means any present or future first-priority (except as
otherwise specifically provided in the Loan Documents) Lien securing the
Obligation and assigned, conveyed, and granted to or created in favor of Agent
for the benefit of Lenders under the Loan Documents.
"LENDERS" means the financial institutions -- including, without
limitation, Agent in respect of its share of Borrowings -- named on SCHEDULE 2
or on the most-recently-amended SCHEDULE 2, if any, delivered by Agent under
this agreement, and, subject to this agreement, their respective successors and
permitted assigns (but not any Participant who is not otherwise a party to this
agreement).
"LIBOR" means, for a LIBOR Borrowing, the annual interest rate -- rounded
upwards, if necessary, to the nearest 0.01% -- equal to the annual interest rate
- -- rounded upwards, if necessary to the nearest 0.01% -- that is (a) the rate
determined by Agent -- at approximately 10:00 a.m. on the second Business Day
before the applicable Interest Period -- as the rate reported by Telerate
Mortgage Services or Knight-Ridder for deposits in United States dollars in the
London interbank market that are comparable in amount and maturity of that
Borrowing, or (b) if Agent cannot determine that rate, then the rate that
deposits in United States dollars are offered to Agent in the amount of that
LIBOR Borrowing in the London interbank market -- at approximately 11:00 a.m.,
London, England, time on the third Business Day before the applicable Interest
Period -- for deposits comparable in amount and maturity of that Borrowing.
"LIBOR BORROWING" means any Borrowing (other than a Swing Borrowing) that
bears interest at the Average-Adjusted-LIBOR Rate.
"LIEN" means any lien, mortgage, security interest, pledge, assignment,
charge, title retention agreement, or encumbrance of any kind and any other
arrangement for a creditor's claim to be satisfied from assets or proceeds prior
to the claims of other creditors or the owners.
"LITIGATION" means any action by or before any Tribunal.
11 AMENDED AND RESTATED LOAN AGREEMENT
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"LOAN DOCUMENTS" means (a) this agreement, certificates and reports
delivered under this agreement, and exhibits and schedules to this agreement,
(b) all agreements, documents, and instruments in favor of Agent or Lenders (or
Agent on behalf of Lenders) ever delivered under this agreement or otherwise
delivered in connection with any of the Obligation, (c) all LCs and LC
Agreements, and (d) all renewals, extensions, and restatements of, and
amendments and supplements to, any of the foregoing.
"MANAGEMENT REPORT" means a report delivered by a Responsible Officer of
Borrower to Agent in substantially the form of EXHIBIT D-5.
"MARKET VALUE" means, at any time (a) for Mortgage Loans -- except as
provided in CLAUSE (B) below -- a market value based upon the then-most recent
posted net yield for 30-day mandatory future delivery furnished by FNMA and
published and distributed by Telerate Mortgage Services or Knight-Ridder or (if
that posted net yield is not available from these services) obtained by Agent
from FNMA, (b) for Jumbo Loans or any other Mortgage Loan when the posted rate
is not available from FNMA, the value determined in good faith by Agent, and (c)
for Mortgage Securities, the applicable Take-Out Prices, as detailed in the then
most-recent Take-Out Report delivered by Borrower under this agreement of all
Take-Out Commitments relating to Mortgage Securities.
"MATERIAL-ADVERSE EVENT" means any circumstance or event that, individually
or collectively, is reasonably expected to result (at any time before the
commitments under this agreement are fully canceled or terminated and the
Obligation is fully paid and performed) in any (a) impairment of Borrower's or
Guarantor's ability to perform any of its payment or other material obligations
under any Loan Document or (ii) the ability of Agent or any Lender to enforce
any of those obligations or any of their respective Rights under the Loan
Documents, (b) material and adverse effect on Borrower's individual financial
condition or the Companies' consolidated financial condition as represented to
Lenders in the Current Financials most recently delivered before the date of
this agreement, (c) material and adverse effect on any Collateral, or (d)
Default or Potential Default.
"MATERIAL AGREEMENT" means, for any Person, any agreement to which that
Person is a party, by which that Person is bound, or to which any assets of that
Person may be subject, and that is not cancelable by that Person upon less than
30-days notice without liability for further payment other than nominal penalty,
and the default under which or cancellation or forfeiture of which would be a
Material-Adverse Event.
"MAXIMUM AMOUNT" and "MAXIMUM RATE" respectively mean, for any day and for
any Lender, the maximum non-usurious amount and the maximum non-usurious rate of
interest that, under applicable Law, the Lender is permitted to contract for,
charge, take, reserve, or receive on its portion of the Obligation.
"MORTGAGE COLLATERAL" means all Mortgage Loans, Mortgage Securities, and
related Collateral Documents offered as Collateral under the Loan Documents.
"MORTGAGE-COLLATERAL GROUP" is defined on SCHEDULE 4.2.
"MORTGAGE LOAN" means a loan that is not a construction or non-residential
commercial loan, is evidenced by a valid promissory note, and is secured by a
mortgage, deed of trust, or trust deed that grants a perfected first-priority
Lien (except as otherwise specifically provided in the Loan Documents) on
residential-real property.
"MORTGAGE POOL" means a (a) "group" or "grouping" of Mortgage Loans
assembled in accordance with -- and as that term is used in -- the FHLMC Guide,
(b) "pool" of Mortgage Loans assembled in accordance with -- and as that term is
used in -- the FNMA Guide or the GNMA I Guide, (c) "pool" of
12 AMENDED AND RESTATED LOAN AGREEMENT
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Mortgage Loans or a "loan package" consisting of Mortgage Loans assembled in
accordance with -- and as those terms are used in -- the GNMA II Guide, or (d)
any other pool of Mortgage Loans assembled by an Approved Investor securing --
and providing for pass-through payments of principal and interest on -- its
Mortgage Securities.
"MORTGAGE SECURITY" means a security -- in respect of an underlying pool of
related Mortgage Loans -- that provides for payment by the issuer to the holder
of specified principal installments and a fixed-interest rate on the unpaid
balance, with all prepayments being passed through to the holder, and is issued
in certificate or book-entry form.
"MULTIEMPLOYER PLAN" means a multiemployer plan as defined in Sections
3(37) or 4001(a)(3) of ERISA or Section 414(f) of the IRC (or any similar type
of plan established or regulated under the Laws of any foreign country) to which
Borrower or any ERISA Affiliate is making, or has made, or is accruing, or has
accrued, an obligation to make contributions.
"NET INCOME" means, for any period and any Person, the amount that should,
in accordance with GAAP, be reflected on that Person's income statement as net
income (reflecting that Person's profit or loss after deducting its Tax expense)
for that period after deduction of any minority interests.
"NET WORTH" means, for any period and any Person, that Person's
stockholder's equity as determined under GAAP.
"NOTES" means the Warehouse Notes, Swing Note, Working-Capital Notes, and
Term-Line Notes.
"OBLIGATION" means all (a) present and future indebtedness, obligations,
and liabilities of Borrower to Agent or any Lender and related to any Loan
Document, whether principal, interest, fees, costs, attorneys' fees, or
otherwise, (b) all present and future indebtedness, obligations, and liabilities
of Borrower to Agent or any Lender in respect of any Hedge Contract, (c) amounts
that would become due but for operation of 11 U.S.C. (S)(S) 502 and 503 or any
other provision of Title 11 of the United States Code, and all renewals,
extensions, and modifications of any of the foregoing, and (d) pre- and post-
maturity interest on any of the foregoing, including, without limitation, all
post-petition interest if any Company voluntarily or involuntarily files for
protection under any Debtor Law.
"PARTICIPANT" is defined in SECTION 12.13.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PERMITTED DEBT" is defined in SECTION 8.1.
"PERMITTED LIENS" is defined in SECTION 8.2.
"PERMITTED LOANS/INVESTMENTS" is defined in SECTION 8.3.
"PERSON" means any individual, entity, or Tribunal.
"P&I BORROWING" means a Working-Capital Borrowing that is (a) a Ratable
Borrowing, (b) supported by the Borrowing Base for Receivables, and (c) to be
used by Borrower to make a P&I Payment.
"P&I PAYMENT" means an unreimbursed advance or payment by Borrower to
effect the timely payment of scheduled principal and interest on Mortgage
Securities that are backed by a Mortgage Pool serviced by
13 AMENDED AND RESTATED LOAN AGREEMENT
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Borrower in accordance with Borrower's obligations under the applicable
Servicing Contract to cover a short-fall between the principal and interest
collected from mortgagors in respect of that Mortgage Pool and the principal and
interest due on those Mortgage Securities.
"POTENTIAL DEFAULT" means any event's occurrence or any circumstance's
existence that would --upon any required notice, time lapse, or both -- become a
Default.
"PRINCIPAL DEBT" means, at any time, the outstanding principal balance of
all Borrowings.
"PURCHASER" is defined in SECTION 12.14.
"RATABLE BORROWING" means a Borrowing that is advanced by Lenders to
Borrower in accordance with their Commitment Percentages.
"REGULATION Q" means Regulation Q promulgated by the Board of Governors of
the Federal Reserve System, 12 C.F.R. Part 17.
"REGULATION U" means Regulation U promulgated by the Board of Governors of
the Federal Reserve System, 12 C.F.R. Part 221.
"REGULATION X" means Regulation X promulgated by the Board of Governors of
the Federal Reserve System, 12 C.F.R. Part 224.
"RELEASE REQUEST" means a Release Request executed and delivered by
Borrower to Agent in substantially in the form of EXHIBIT C-7.
"REPRESENTATIVES" means representatives, officers, directors, employees,
attorneys, and agents.
"REPURCHASE BORROWING" means a Warehouse Borrowing that is (a) a Ratable
Borrowing or Swing Borrowing, (b) subject to the Repurchase Sublimit and (c)
supported by the Borrowing Base for Eligible-Repurchased Loans.
"REPURCHASE SUBLIMIT" means $10,000,000.
"RESPONSIBLE OFFICER" means (a) the chairman, president, chief executive
officer, any vice president, or chief financial officer of Borrower to the
extent that such officer's name, title, and signature have been certified to
Agent by the secretary or an assistant secretary of Borrower or (b) any other
officer designated as a "Responsible Officer" in writing to Administrative Agent
by any officer in CLAUSE (A) preceding.
"RIGHTS" means rights, remedies, powers, privileges, and benefits.
"SECOND-LIEN BORROWING" means a Warehouse Borrowing which is (a) a Ratable
Borrowing or Swing Borrowing, (b) subject to the Second-Lien Sublimit, and (c)
supported by the Borrowing Base for Eligible-Second-Lien Loans.
"SECOND-LIEN SUBLIMIT" means $15,000,000.
"SECURITY AGREEMENT" means the Security Agreement executed by Borrower and
Agent in substantially the form of EXHIBIT C-1.
14 AMENDED AND RESTATED LOAN AGREEMENT
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A "SERVICER" means variously a "seller," "servicer," "issuer," or "lender,"
as defined or used in the applicable Guide in respect of a Person having
Servicing Rights.
"SERVICING ACCOUNT" means a non-interest bearing deposit account
established by Borrower with Agent -- styled and numbered "Matrix Servicing
Account," Account No. 1886479342 -- for deposit of P&I Borrowings, T&I
Borrowings, Foreclosure Borrowings, and payments on the Obligation related to
P&I Borrowings, T&I Borrowings, and Foreclosure Borrowings.
"SERVICING CONTRACT" means, at any time, a Guide or any other present or
future written agreement between an investor and Borrower acting as a servicer -
- - or master servicer in the case of a sub-servicing arrangement -- providing for
Borrower to service mortgage loans or mortgage pools, as that Guide or agreement
may be supplemented by applicable manuals, guides, and Laws.
"SERVICING PAYMENTS" means P&I Payments, T&I Payments, and Foreclosure
Payments.
"SERVICING PORTFOLIO" means, at any time, the total unpaid principal amount
of Mortgage Loans serviced by Borrower for a fee other than any Mortgage Loans
serviced by Borrower under a subservicing agreement or a master servicing
agreement.
"SERVICING RECEIVABLES" means, at any time, all Eligible-Foreclosure
Receivables, Eligible-P&I Receivables, and Eligible-T&I Receivables.
"SERVICING RIGHTS" means -- for Borrower and at any time -- all present and
future Rights as servicer or master servicer under Servicing Contracts,
including, but not limited to, all Rights to receive Servicing Receivables and
all other compensation, payments, reimbursements, termination and other fees,
and proceeds of any disposition of those Rights.
"SETTLEMENT ACCOUNT" means a non-interest bearing deposit account
established by Borrower with Agent -- styled and numbered "Matrix Settlement
Account," Account No. 1886479318 -- for deposit of payments from investors, the
settlement of collections from Mortgage Securities in connection with Mortgage
Collateral, and deposit of payments on the Obligation.
"SHIPPING PERIOD" means 45 calendar days (60 calendar days for bond
programs) for the Collateral Documents for any Mortgage Loan shipped to or for
an investor under SECTION 4.5.
"SHIPPING REQUEST" means a Shipping Request executed and delivered by
Borrower to Agent in substantially the form of EXHIBIT C-3.
"SOLVENT" means, for any Person, that (a) the aggregate fair market value
of its assets exceeds its liabilities, (b) it has sufficient cash flow to enable
it to pay its Debts as they mature, and (c) it does not have unreasonably small
capital to conduct its businesses.
"SUBSIDIARY" of any Person means any entity of which at least 50% (in
number of votes) of the stock (or equivalent interests) is owned of record or
beneficially, directly or indirectly, by that Person.
"SWING BORROWING" means a Warehouse Borrowing that is (a) either a Dry
Borrowing or Wet Borrowing but not a Gestation Borrowing or a LIBOR Borrowing,
(b) advanced by Agent to Borrower under the Swing Sublimit, and (c) supported by
the Borrowing Base for Mortgage Collateral.
15 AMENDED AND RESTATED LOAN AGREEMENT
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"SWING NOTE" means a promissory note executed and delivered by Borrower,
payable to Agent's order, in the stated principal amount of the Swing Sublimit,
and substantially in the form of EXHIBIT A-2, as renewed, extended, amended, or
replaced.
"SWING SUBLIMIT" means $15,000,000.
"TAKE-OUT COMMITMENT" means a binding commitment from an Approved Investor
to purchase Mortgage Collateral, acceptable in form and substance to Agent, in
favor of Borrower, with respect to which there is be no condition which cannot
be reasonably anticipated to be satisfied or complied with before its
expiration.
"TAKE-OUT PRICE" means, at any time, the amount described and calculated as
provided on SCHEDULE 4.2.
"TAKE-OUT REPORT" means a report delivered by Borrower to Agent
substantially in the form of EXHIBIT D-4.
"TAXES" means, for any Person, taxes, assessments, or other governmental
charges or levies imposed upon it, its income, or any of its properties,
franchises, or assets.
"TERM-LINE BORROWING" means a Ratable Borrowing that is (a) advanced to
Borrower under the Term-Line Commitment and (b) supported by the Borrowing Base
for Term-Line.
"TERM-LINE COMMITMENT" means -- at any time and for any Lender -- the
amount stated beside its name and so designated on SCHEDULE 2, as that schedule
may be amended and as that amount may be canceled or terminated under this
agreement.
"TERM-LINE NOTE" means a promissory note executed and delivered by
Borrower, payable to a Lender's order, in the stated principal amount of its
Term-Line Commitment, and substantially in the form of EXHIBIT A-4, as renewed,
extended, or replaced.
"TERMINATION PERCENTAGE" means -- at any time for any Lender -- the
proportion (stated as a percentage) that its Principal Debt bears to the total
Principal Debt.
"T&I BORROWING" means a Working-Capital Borrowing that is (a) a Ratable
Borrowing, (b) supported by the Borrowing Base for Receivables, and (c) to be
used by Borrower to make a T&I Payment.
"T&I PAYMENT" means an unreimbursed advance or payment by Borrower to cover
tax- and insurance-escrow payments not paid when required by a mortgagor under a
Mortgage Loan in accordance with Borrower's obligations under the applicable
Servicing Contract.
"TOTAL-ADJUSTED DEBT" means -- for the Companies, on a consolidated basis,
and at any time --the sum of (a) total Debt, minus (b) obligations under
repurchase agreements, minus (c) obligations under escrow-arbitrage-type
facilities.
"TRANCHE A" means that portion of Term-Line Borrowings that (a) is advanced
for the purpose of leveraging certain portions of Borrower's existing Servicing
Portfolio, (b) may not be reborrowed under this agreement on or after the
Tranche A-Actual-Termination Date, and (c) may not exceed an amount (as that
amount is permanently reduced by payments or prepayments on Tranche A under
SECTION 3 on and after the
16 AMENDED AND RESTATED LOAN AGREEMENT
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Tranche A-Actual-Termination Date) equal at any time to the lesser of either (i)
the total Term-Line Commitments minus Tranche B or (ii) $10,000,000.
"TRANCHE A-ACTUAL-TERMINATION DATE" means the earlier of either (a) the
Tranche A-Stated-Termination Date or (b) the date on which all of the Term-Line
Commitments have otherwise terminated or been canceled.
"TRANCHE A-STATED-TERMINATION DATE" means the earlier of either (a) July 1,
1997, or (b) the 30th calendar day after the calendar day that $10,000,000 of
Tranche A has been disbursed (whether or not prepaid) under this agreement.
"TRANCHE B" means that portion of Term-Line Borrowings that (a) is advanced
for the purpose of financing certain Servicing Portfolio acquisitions, (b) may
not be reborrowed under this agreement on or after the Tranche B-Actual-
Termination Date, and (c) may not exceed an amount (as that amount is
permanently reduced by payments or prepayments on Tranche B under SECTION 3 on
and after the Tranche B-Actual-Termination Date) equal at any time to the lesser
of either (i) the total Term-Line Commitments minus Tranche A or (ii)
$20,000,000.
"TRANCHE B-ACTUAL-TERMINATION DATE" means the earlier of either (a) the
Tranche B-Stated-Termination Date or (b) the date on which all of the Term-Line
Commitments have otherwise terminated or been canceled.
"TRANCHE B-STATED-TERMINATION DATE" means the earlier of either (a) July
31, 1998, or (b) the 30th calendar day after the calendar day that at least
$18,000,000 of Tranche B has been disbursed (whether or not prepaid) under this
agreement.
"TRIBUNAL" means any (a) local, state, or federal judicial, executive, or
legislative instrumentality, (b) private arbitration board or panel, or (c)
central bank.
"TRUST RECEIPT" means a Trust Receipt and Agreement executed and delivered
by Borrower to Agent in substantially the form of EXHIBIT C-6.
"UCC" means the Uniform Commercial Code as enacted in Texas or other
applicable jurisdictions.
"UNCOMMITTED-B/C-PAPER BORROWING" means a Warehouse Borrowing that is (a) a
Ratable Borrowing or Swing Borrowing, (b) subject to the Uncommitted-B/C-Paper
Sublimit, and (c) supported by the Borrowing Base for Eligible-Uncommitted-B/C-
Paper Loans.
"UNCOMMITTED-B/C-PAPER SUBLIMIT" means $25,000,000.
"VA" means the Department of Veteran's Affairs.
"VA LOAN" means a Mortgage Loan (a) the full or partial payment of which is
guaranteed by the VA under the Servicemen's Readjustment Act of 1944 or Chapter
37 of Title 38 of the United States Code, (b) for which the VA has issued a
current binding and enforceable commitment for such a guaranty, or (c) that is
subject to automatic guarantee by the VA. In each case, the applicable
guaranty, commitment to guarantee, or automatic guaranty is for the maximum
amount permitted by Law.
17 AMENDED AND RESTATED LOAN AGREEMENT
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"WAREHOUSE ACCOUNT" means a non-interest bearing deposit account
established by Borrower with Agent -- styled and numbered "Matrix Funding
Account," Account No. 1886479326 -- for deposit of Warehouse Borrowings.
"WAREHOUSE-ACTUAL-TERMINATION DATE" means the earlier of either (a) the
Warehouse-Stated-Termination Date or (b) the date on which all of the Warehouse
Commitments have otherwise terminated or been canceled.
"WAREHOUSE BORROWING" means a Ratable Borrowing or Swing Borrowing that is
(a) advanced to Borrower under the Warehouse Commitment, (b) either a Dry
Borrowing, Wet Borrowing, Gestation Borrowing (which may not be a Swing
Borrowing), Committed-B/C-Paper Borrowing, Uncommitted-B/C-Paper Borrowing,
Second-Lien Borrowing, or Repurchase Borrowing, and (c) supported by the
Borrowing Base for Mortgage Collateral.
"WAREHOUSE COMMITMENT" means -- at any time and for any Lender -- the
amount stated beside its name and so designated on SCHEDULE 2, as that schedule
may be amended and as that amount may be canceled or terminated under this
agreement.
"WAREHOUSE NOTE" means a promissory note executed and delivered by
Borrower, payable to a Lender's order, in the stated principal amount of its
Warehouse Commitment, and substantially in the form of EXHIBIT A-1, as renewed,
extended, amended, or replaced.
"WAREHOUSE-STATED-TERMINATION DATE" means January 31, 1999.
"WET BORROWING" means a Borrowing for which all of the Collateral Documents
have not been delivered to Agent in accordance with SECTION 4.3.
"WET PERIOD" means seven Business Days for the Collateral Documents for any
Mortgage Loan that supports a Wet Borrowing.
"WET SUBLIMIT" means, at any time, a percentage of the total Warehouse
Commitments, which percentage is (a) 35% for the first five and last five
Business Days of each Calendar Month, and (b) 20% at all other times.
"WIRE INSTRUCTIONS" mean, for any Person, the information for wire
transfers of funds to that Person, which (until changed by written notice to all
other parties to this agreement) are stated for (a) Borrower and Agent, beside
their names on the signature pages below, and (b) each Lender, beside its name
on SCHEDULE 2.
"WORKING-CAPITAL BORROWING" means a Borrowing that is (a) a Ratable
Borrowing, (b) either a P&I Borrowing, T&I Borrowing, or Foreclosure Borrowing,
(c) subject to the Working-Capital Commitment, and (d) supported by the
Borrowing Base for Receivables.
"WORKING-CAPITAL COMMITMENT" means -- at any time and for any Lender -- the
amount stated beside its name and so designated on SCHEDULE 2, as that schedule
may be amended and as that amount may be canceled or terminated under this
agreement.
"WORKING-CAPITAL NOTE" means a promissory note executed and delivered by
Borrower, payable to a Lender's order, in the stated principal amount of its
Working-Capital Commitment, and substantially in the form of EXHIBIT A-3, as
renewed, extended, or replaced.
18 AMENDED AND RESTATED LOAN AGREEMENT
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1.2 TIME REFERENCES. Unless otherwise specified, in the Loan Documents
(a) time references (e.g., 10:00 a.m.) are to time in Dallas, Texas, and (b) in
calculating a period from one date to another, the word "from" means "from and
including" and the word "to" or "until" means "to but excluding."
1.3 OTHER REFERENCES. Unless otherwise specified, in the Loan Documents
(a) where appropriate, the singular includes the plural and vice versa, and
words of any gender include each other gender, (b) heading and caption
references may not be construed in interpreting provisions, (c) monetary
references are to currency of the United States of America, (d) section,
paragraph, annex, schedule, exhibit, and similar references are to the
particular Loan Document in which they are used, (e) references to "telefax,"
"telecopy," "facsimile," "fax," or similar terms are to facsimile or telecopy
transmissions, (f) references to "including" mean including without limiting the
generality of any description preceding that word, (g) the rule of construction
that references to general items that follow references to specific items as
being limited to the same type or character of those specific items is not
applicable in the Loan Documents, (h) references to any Person include that
Person's heirs, personal representatives, successors, trustees, receivers, and
permitted assigns, (i) references to any Law include every amendment or
supplement to it, rule and regulation adopted under it, and successor or
replacement for it, and (j) references to any Loan Document or other document
include every renewal and extension of it, amendment and supplement to it, and
replacement or substitution for it.
1.4 ACCOUNTING PRINCIPLES. Unless otherwise specified, in the Loan
Documents (a) GAAP in effect on the date of this agreement determines all
accounting and financial terms and compliance with all financial covenants, (b)
otherwise, all accounting principles applied in a current period must be
comparable in all material respects to those applied during the preceding
comparable period, and (c) while Borrower has any consolidated Subsidiaries (i)
all accounting and financial terms and compliance with reporting covenants must
be on a consolidating and consolidated basis, as applicable, and (ii) compliance
with financial covenants must be on a consolidated basis.
SECTION 2.BORROWING PROVISIONS. Subject to the provisions in the Loan
Documents, each Lender severally and not jointly agrees to extend credit to
Borrower under the Warehouse Commitments. the Working-Capital Commitments, and
the Term-Line Commitments in accordance with the following provisions.
2.1 COMMITMENTS.
(A) WAREHOUSE COMMITMENTS. Subject to the limitations below and
other provisions of the Loan Documents, on a revolving basis, and on
Business Days before the Warehouse-Actual-Termination Date, each Lender
severally agrees to provide its Commitment Percentage (except for Agent in
respect of Swing Borrowings) of Warehouse Borrowings so long as, in each
case, no Warehouse Borrowing may be disbursed that would cause any of the
following applicable limitations to be exceeded, which limitations must be
read together and are not mutually exclusive:
. The sum (without duplication) of the total Principal Debt plus the
total LC Exposure may never exceed the lesser of either (a) the total
Combined Commitments, or (b) the total Borrowing Base.
. The total Principal Debt of all Warehouse Borrowings may never exceed
the lesser of either (i) the total Warehouse Commitments or (ii) the
sum of the Borrowing Base for Mortgage Collateral plus the Borrowing
Base for Gestation Collateral.
. The total Principal Debt of all Swing Borrowings may never exceed the
Swing Sublimit.
19 AMENDED AND RESTATED LOAN AGREEMENT
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. The total Principal Debt of all Wet Borrowings may never exceed the
Wet Sublimit.
. The total Principal Debt of all Gestation Borrowings may never exceed
the lesser of either (i) the Gestation Sublimit or (ii) the Borrowing
Base for Gestation Collateral.
. The total Principal Debt of all Committed-B/C-Paper Borrowings and all
Uncommitted-B/C-Paper Borrowings may never exceed the lesser of either
(i) the B/C-Paper Sublimit or (ii) the sum of the Borrowing Base for
Eligible-Committed-B/C-Paper Loans plus the Borrowing Base for
Eligible-Uncommitted-B/C-Paper Loans.
. The total Principal Debt of all Committed-B/C-Paper Borrowings may
never exceed the Borrowing Base for Eligible-Committed-B/C-Paper
Loans.
. The total Principal Debt of all Uncommitted-B/C-Paper Borrowings may
never exceed the lesser of either (i) the Uncommitted-B/C-Paper
Sublimit or (ii) the Borrowing Base for Eligible-Uncommitted-B/C-Paper
Loans.
. The total Principal Debt of all Second-Lien Borrowings may never
exceed the lesser of either (i) the Second-Lien Sublimit or (ii) the
Borrowing Base for Eligible-Second-Lien Loans.
. The total Principal Debt of all Repurchase Borrowings may never exceed
the lesser of either (i) the Repurchase Sublimit or (ii) the Borrowing
Base for Eligible-Repurchased Loans.
. Except for Agent in respect of Swing Borrowings, no Lender's direct or
indirect portion of the Principal Debt under this CLAUSE (A) may ever
exceed either its Warehouse Commitment or its Commitment Percentage
for Warehouse Borrowings.
. No Warehouse Borrowing may be made on a day that is not a Business
Day, or on or after the Warehouse-Actual-Termination Date.
. Each disbursement of a Warehouse Borrowing must be at least $25,000.
(B) WORKING-CAPITAL COMMITMENTS. Subject to the limitations below
and other provisions of the Loan Documents, on a revolving basis, and on
Business Days before the Warehouse-Actual-Termination Date, each Lender
severally agrees to provide its Commitment Percentage of Working-Capital
Borrowings so long as, in each case, no Working-Capital Borrowing may be
disbursed that would cause any of the following applicable limitations to
be exceeded, which limitations must be read together and are not mutually
exclusive:
. The sum (without duplication) of the total Principal Debt plus the
total LC Exposure may never exceed the lesser of either (a) the total
Combined Commitments, or (b) the total Borrowing Base.
. The sum (without duplication) of the total Principal Debt of all
Working-Capital Borrowings plus the total LC Exposure may never exceed
the lesser of either (i) the total Working-Capital Commitments or (ii)
the Borrowing Base for Receivables.
. No Working-Capital Borrowing may be made on a day that is not a
Business Day, or on or after the Warehouse-Actual-Termination Date.
20 AMENDED AND RESTATED LOAN AGREEMENT
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. Each disbursement of a Working-Capital Borrowing must be at least
$25,000.
(C) TERM-LINE COMMITMENTS. Subject to the limitations below and
other provisions of the Loan Documents, on a revolving basis, and on
Business Days before the Tranche A-Actual-Termination Date or the Tranche
B-Actual-Termination Date (as applicable), each Lender severally agrees to
provide its Commitment Percentage of Term-Line Borrowings so long as, in
each case, no Term-line Borrowing may be disbursed that would cause any of
the following applicable limitations to be exceeded, which limitations must
be read together and are not mutually exclusive:
. The sum (without duplication) of the total Principal Debt plus the
total LC Exposure may never exceed the lesser of either (a) the total
Combined Commitments, or (b) the total Borrowing Base.
. The total Principal Debt of all Term-Line Borrowings may never exceed
the lesser of either (i) the total Term-Line Commitments or (ii) the
Borrowing Base for Term-Line.
. Term-Line Borrowings in respect of Tranche A and Tranche B may never
exceed the limitations for those Term-Line Borrowings in the
definitions of those terms in this agreement.
. No Term-Line Borrowings in respect of Tranche B may ever be made
unless the amount of Term-Line Borrowings in respect of Tranche A that
are converted from a revolving basis to a term-repayment basis on the
Tranche A-Actual-Termination Date equal $10,000,000.
. No Term-Line Borrowing may be made on a day that is not a Business
Day, or on or after the Tranche A-Actual-Termination Date or Tranche
B-Actual-Termination Date (as applicable) .
. Each disbursement of a Term-Line Borrowing must be at least $100,000.
Borrower may request that Term-Line Borrowings be made after the Tranche A-
Actual-Termination Date or Tranche B-Actual-Termination Date (as
applicable). Subject to all of the limitations of this SECTION 2.1(C) and
all other provisions of the Loan Documents, Lenders may in their sole and
absolute discretion provide such additional Term-Line Borrowings. If any
such additional Term-Line Borrowings are ever made, the payment schedule
for Tranche A and Tranche B (as applicable) shall be adjusted so that the
Principal Debt of such Term-Line Borrowings is repaid according to the
same repayment schedule (other than the adjustment to the amount of the
monthly payment) as set forth in SECTION 3.3. Borrower acknowledges that
(i) neither Agent nor any Lender has made any representations to Borrower
regarding its intent to agree to any such additional Term-Line Borrowings,
(ii) no Lender shall have any obligation to extend such additional Term-
Line Borrowings, and (iii) any extension of such additional Term-Line
Borrowings shall not commit Lenders to any further such extensions.
2.2 BORROWING REQUEST. Borrower may only request a Borrowing by timely
delivering to Agent a Collateral-Delivery Notice and required Collateral
Documents under SECTION 4.3 and by delivering to Agent a Borrowing Request for
the Borrowing before 11:00 a.m. on the Borrowing Date for it for a Fed-Funds
Borrowing or Base-Rate Borrowing or the third Business Day before the Borrowing
Date for a LIBOR Borrowing. A Borrowing Request is irrevocable and binding on
Borrower when delivered. Agent shall use its best efforts to promptly -- but at
least by 1:00 p.m. on the day it timely receives a Borrowing Request for a
Ratable Borrowing -- send a copy of it to each Lender by fax and confirm it by
telephone.
21 AMENDED AND RESTATED LOAN AGREEMENT
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2.3 FUNDINGS.
(A) REMITTANCE BY LENDERS. Each Lender shall remit its Commitment
Percentage of any Ratable Borrowing requested in a Borrowing Request to
Agent's principal office in Dallas, Texas, by wire transfer according to
Agent's Wire Instructions, in funds that are available for immediate use by
Agent by 2:00 p.m. on the Borrowing Date.
(B) FUNDING BY AGENT. Subject to receipt of those funds, Agent shall
(i) for a Borrowing under an Agent's Request, treat those funds as a
payment by Borrower on the Principal Debt of Swing Borrowings, and (ii) for
any other Borrowing on the Borrowing Date -- unless to its actual knowledge
any of the applicable conditions precedent have not been satisfied by
Borrower or waived by the requisite Lenders -- either (A) deposit those
funds into the Warehouse Account for a Dry Borrowing, (B) wire transfer
those funds in accordance with the Borrowing Request for a Wet Borrowing,
(C) deposit those funds into the Servicing Account for a Working-Capital
Borrowing, or (D) wire transfer those funds in accordance with the
Borrowing Request for a Term-Line Borrowing.
(C) NON-REMITTANCE UNDER BORROWING REQUEST. Absent contrary written
notice from a Lender received by Agent by 2:00 p.m. on the Borrowing Date,
Agent may assume that each Lender has made its Commitment Percentage of a
Ratable Borrowing under a Borrowing Request available to Agent on the
Borrowing Date and may -- but is not obligated to -- make available to
Borrower a corresponding amount. If a Lender fails to make its Commitment
Percentage of that Borrowing available to Agent on the Borrowing Date --
whether because of that Lender's default, because that Lender is not open
for business on that Business Day, or otherwise -- then Agent may recover
that amount on demand (i) from that Lender, together with interest at the
Fed-Funds Rate, during the period from the Borrowing Date to the date Agent
recovers that amount from that Lender -- which payment is then deemed to be
that Lender's Commitment Percentage of that Borrowing -- or (ii) if that
Lender fails to pay that amount upon demand, then from Borrower together
with interest at an annual interest rate equal to the rate applicable to
the requested Borrowing during the period from the Borrowing Date to the
date Agent recovers that amount from Borrower. Notwithstanding these
provisions, each Lender remains obligated to lend its Commitment Percentage
of that Borrowing, assumes the credit risk for that amount when the
Borrowing is made available to or for Borrower, and -- after Agent has
recovered the amount of interest provided for in CLAUSE (I) above -- is
entitled to interest on that amount from the Borrowing Date.
(D) NON-REMITTANCE UNDER AGENT'S REQUEST. If a Lender fails to make
its Commitment Percentage of a Ratable Borrowing under an Agent's Request
available to Agent on its Borrowing Date, then -- without acquiescing in
that Lender's default or waiving any Rights Agent has against that Lender -
- by 10:00 a.m. on the next Business Day, then Agent shall notify Borrower
of the amount of Principal Debt of Swing Borrowings that remains.
(E) OTHER LENDERS. Although no Lender is responsible for the failure
of any other Lender to make its Commitment Percentage of any Ratable
Borrowing, that failure does not excuse any other Lender from making its
Commitment Percentage of that Borrowing.
(F) AGENT'S REQUEST. On any Business Day on which there is any
Principal Debt for Swing Borrowings, Agent may -- but at least once per
calendar week when those circumstances exist, Agent shall (without any
liability for failing to) -- unilaterally request a Ratable Borrowing under
this SECTION 2.3, to be made in the amount of that Principal Debt on the
next Business Day, as a Fed-Funds Borrowing. That Ratable Borrowing is for
the account of Borrower, but does not require Borrower's joinder or other
action. Agent shall fax that request (an "AGENT'S REQUEST") to each
22 AMENDED AND RESTATED LOAN AGREEMENT
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Lender and Borrower and confirm it by telephone by 2:00 p.m. on the
Borrowing Date for the requested Ratable Borrowing. When so made, an
Agent's Request irrevocably binds Borrower.
2.4 WET-BORROWING PROCEDURES. The conditions and procedures of SECTION
2.2 and SECTION 2.3 apply to Wet Borrowings except as follows:
(A) COLLATERAL DOCUMENTS. A Wet Borrowing may be funded before
delivery to Agent of all of the required Collateral Documents for the
Eligible-Mortgage Loans supporting that Wet Borrowing. The Collateral-
Delivery Notice delivered to Agent for a Wet Borrowing may be sent to Agent
by fax but must identify and describe each Mortgage Loan that supports that
Wet Borrowing and the amount of the Borrowing Base for Mortgage Collateral
applicable to it. By delivering the Collateral-Delivery Notice, Borrower
confirms its grant under this agreement of Lender Liens -- from the
Borrowing Date for each Wet Borrowing -- on each Collateral Document
offered as Collateral in that Collateral-Delivery Notice that is perfected
subject to the delivery of the related promissory notes for those Mortgage
Loans to Agent or its bailee.
(B) FUNDING BY AGENT. Agent shall make the funds available to
Borrower by 4:00 p.m. on the Borrowing Date by depositing these funds into
the Warehouse Account or by wire transfer in accordance with the Borrowing
Request.
2.5 SWING-BORROWING PROCEDURES. The conditions and procedures of SECTION
2.2, SECTION 2.3, and SECTION 2.4 apply to Swing Borrowings except as follows:
(A) BORROWING REQUEST. The Borrowing Request for a Swing Borrowing
must be delivered to Agent by 3:00 p.m. on the Borrowing Date and may not
request a LIBOR Borrowing.
(B) ELECTION BY AGENT. Agent shall then elect in its sole discretion
whether to loan that Swing Borrowing. If Agent elects to loan that Swing
Borrowing, then it shall follow the funding procedures that are applicable
under SECTIONS 2.2, 2.3, and 2.4.
(C) PARTICIPATIONS. Immediately upon Agent's funding a Swing
Borrowing, Agent is deemed to have sold and transferred to each other
Lender -- and each other Lender is deemed irrevocably and unconditionally
to have purchased and received from Agent -- without recourse or warranty,
an undivided interest and participation in that Swing Borrowing to the
extent of that Lender's Commitment Percentage of the amount of it, which
participation must be paid for on demand by Agent.
2.6 LETTERS OF CREDIT.
(A) CONDITIONS. Subject to the terms and conditions of this agreement
and applicable Laws, Agent (itself or through one of its Affiliates, and
references in this SECTION 2.6 to Agent include those Affiliates) agrees to
issue LCs upon Borrower's making or delivering an LC Request and delivering
an LC Agreement, both of which must be received by Agent no later than on
the Business Day before the requested LC is to be issued, so long as (i) no
LC may expire after three Business Days before the Warehouse-Actual-
Termination Date, and (ii) the LC Exposure does not exceed $2,000,000.
(B) PARTICIPATION. Immediately upon Agent's issuance of any LC, Agent
shall be deemed to have sold and transferred to each other Lender, and each
other Lender shall be deemed irrevocably and unconditionally to have
purchased and received from Agent, without recourse or warranty, an
23 AMENDED AND RESTATED LOAN AGREEMENT
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undivided interest and participation to the extent of such Lender's
Commitment Percentage under the Working-Capital Commitment in the LC and
all applicable Rights of Agent in the LC -- other than Rights to receive
certain fees provided in SECTION 3.14(F) to be for Agent's sole account.
(C) REIMBURSEMENT OBLIGATIONS. To induce Agent to issue and maintain
LCs, and to induce Lenders to participate in issued LCs, Borrower agrees to
pay or reimburse Agent (i) on the date when any draft or draw request is
presented under any LC, the amount paid or to be paid by Agent and (ii)
promptly, upon demand, the amount of any additional fees Agent customarily
charges for the application and issuance of an LC, for amending LC
Agreements, for honoring drafts and draw requests, and for taking similar
action in connection with letters of credit. If Borrower has not
reimbursed Agent for any drafts or draws paid or to be paid on the date of
Agent's demand for reimbursement, Agent is irrevocably authorized to fund
Borrower's reimbursement obligations as a Base-Rate Borrowing under the
Working-Capital Commitment if proceeds are available under the Working-
Capital Commitment and if the conditions in this agreement for such a
Borrowing (other than any notice requirements or minimum funding amounts)
have, to Agent's knowledge, been satisfied. The proceeds of that Borrowing
shall be advanced directly to Agent to pay Borrower's unpaid reimbursement
obligations. If funds cannot be advanced under the Working-Capital
Commitment, then Borrower's reimbursement obligation shall constitute a
demand obligation. Borrower's obligations under this section are absolute
and unconditional under any and all circumstances and irrespective of any
setoff, counterclaim, or defense to payment that Borrower may have at any
time against Agent or any other Person. From Agent's demand for
reimbursement to the date paid (including any payment from proceeds of a
Base-Rate Borrowing), unpaid reimbursement amounts accrue interest that is
payable on demand at the Default Rate thereafter.
(D) GENERAL. Agent shall promptly notify Borrower of the date and
amount of any draft or draw request presented for honor under any LC (but
failure to give notice will not affect Borrower's obligations under this
agreement). Agent shall pay the requested amount upon presentment of a
draft or draw request unless presentment on its face does not comply with
the terms of the applicable LC. When making payment, Agent may disregard
(i) any default or potential default that exists under any other agreement
and (ii) obligations under any other agreement that have or have not been
performed by the beneficiary or any other Person (and Agent is not liable
for any of those obligations). Borrower's reimbursement obligations to
Agent and Lenders, and each Lender's obligations to Agent, under this
section are absolute and unconditional irrespective of, and Agent is not
responsible for, (i) the validity, enforceability, sufficiency, accuracy,
or genuineness of documents or endorsements (even if they are in any
respect invalid, unenforceable, insufficient, inaccurate, fraudulent, or
forged), (ii) any dispute by any Company with or any Company's claims,
setoffs, defenses, counterclaims, or other Rights against Agent, any
Lender, or any other Person, or (iii) the occurrence of any Potential
Default or Default. However, nothing in this agreement constitutes a
waiver of Borrower's Rights to assert any claim or defense based upon the
gross negligence or willful misconduct of Agent or any Lender. Agent shall
promptly distribute reimbursement payments received from Borrower to all
Lenders according to their Commitment Percentages of the total Working-
Capital Commitment.
(E) OBLIGATIONS OF LENDERS. If Borrower fails to reimburse Agent as
provided in SECTION 2.6(C) and SECTION 2.6(D) within 24 hours after Agent's
demand for reimbursement, and funds cannot be advanced under the Working-
Capital Commitment to satisfy the reimbursement obligations, Agent shall
promptly notify each Lender of Borrower's failure, of the date and amount
paid, and of each Lender's Commitment Percentage of the unreimbursed
amount. Each Lender shall promptly and unconditionally make available to
Agent in immediately available funds its Commitment Percentage of the
unpaid reimbursement obligation, subject to the limitations of SECTION 2.1.
Funds are due and
24 AMENDED AND RESTATED LOAN AGREEMENT
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payable to Agent before the close of business on the Business Day when
Agent gives notice to each Lender of Borrower's reimbursement failure (if
notice is given before 1:00 p.m.) or on the next succeeding Business Day
(if notice is given after 1:00 p.m.). All amounts payable by any Lender
accrue interest after the due date at the Federal-Funds Rate from the day
the applicable draft or draw is paid by Agent to (but not including) the
date the amount is paid by the Lender to Agent.
(F) DUTIES OF AGENT. Agent agrees with each Lender that it will
exercise and give the same care and attention to each LC as it gives to its
other letters of credit. Each Lender and Borrower agree that, in paying
any draft or draw under any LC, Agent has no responsibility to obtain any
document (other than any documents expressly required by the respective LC)
or to ascertain or inquire as to any document's validity, enforceability,
sufficiency, accuracy, or genuineness or the authority of any Person
delivering it. Neither Agent nor its Representatives will be liable to any
Lender or any Company for any LC's use or for any beneficiary's acts or
omissions. Any action, inaction, error, delay, or omission taken or
suffered by Agent or any of its Representatives in connection with any LC,
applicable draws, drafts, or documents, or the transmission, dispatch, or
delivery of any related message or advice, if in good faith and in
conformity with applicable Laws and in accordance with the standards of
care specified in the Uniform Customs and Practices for Documentary Credits
(1993 Revision), International Chamber of Commerce Publication No. 500 (as
amended or modified), is binding upon the Companies and Lenders and does
not place Agent or any of its Representatives under any resulting liability
to any Company or any Lender. Agent is not liable to any Company or any
Lender for any action taken or omitted, in the absence of gross negligence
or willful misconduct, by Agent or its Representative in connection with
any LC.
(G) CASH COLLATERAL. On the Warehouse-Actual-Termination Date and if
requested by Determining Lenders while a Default exists, Borrower shall
provide Agent, for the benefit of Lenders, cash collateral in an amount
equal to the then-existing LC Exposure.
(H) INDEMNIFICATION. BORROWER SHALL PROTECT, INDEMNIFY, PAY, AND SAVE
AGENT, EACH LENDER, AND THEIR RESPECTIVE REPRESENTATIVES HARMLESS FROM AND
AGAINST ANY AND ALL CLAIMS, DEMANDS, LIABILITIES, DAMAGES, LOSSES, COSTS,
CHARGES, AND EXPENSES (INCLUDING REASONABLE ATTORNEYS' FEES) WHICH ANY OF
THEM MAY INCUR OR BE SUBJECT TO AS A CONSEQUENCE OF THE ISSUANCE OF ANY LC,
ANY DISPUTE ABOUT IT, OR THE FAILURE OF AGENT TO HONOR A DRAFT OR DRAW
REQUEST UNDER ANY LC AS A RESULT OF ANY ACT OR OMISSION (WHETHER RIGHT OR
WRONG) OF ANY PRESENT OR FUTURE TRIBUNAL. HOWEVER, NO PERSON IS ENTITLED TO
INDEMNITY UNDER THE FOREGOING FOR ITS OWN GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT.
(I) LC AGREEMENTS. Although referenced in any LC, terms of any
particular agreement or other obligation to the beneficiary are not
incorporated into this agreement in any manner. The fees and other amounts
payable with respect to each LC are as provided in this agreement, drafts
and draws under each LC are part of the Obligation, only the events
specified in this agreement as a Default shall constitute a default under
any LC, and the terms of this agreement control any conflict between the
terms of this agreement and any LC Agreement.
2.7 BORROWING REQUESTS AND LC REQUESTS. Each Borrowing Request and LC
Request constitutes a representation and warranty by Borrower that as of the
Borrowing Date or the date of issuance of the requested LC, as the case may be,
that all of the conditions precedent in SECTION 5 have been satisfied.
25 AMENDED AND RESTATED LOAN AGREEMENT
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2.8 TERMINATIONS. All Warehouse Commitments and Working-Capital
Commitments automatically terminate in full on the Warehouse-Actual-Termination
Date, and all Term-Line Commitments automatically terminate in full on the
Tranche A-Actual-Termination Date or Tranche B-Actual-Termination Date (as
applicable). After giving written and irrevocable notice to Agent and each
Lender at least five Business Days before the effective date of any termination,
Borrower may fully or partially terminate the Warehouse Commitments, the
Working-Capital Commitments, or the Term-Line Commitments, or any combination of
them before those respective dates, and any partial termination must be ratable
in accordance with each Lender's Commitment Percentage. Once terminated, no
part of the Warehouse Commitment, the Working-Capital Commitment, or Term-Line
Commitment (as applicable) may be reinstated except by an amendment to this
agreement.
SECTION 3. PAYMENT TERMS.
3.1 NOTES. The Principal Debt (and related interest) of Warehouse
Borrowings that are Ratable Borrowings, Warehouse Borrowings that are Swing
Borrowings, Working-Capital Borrowings, and Term-Line Borrowings is respectively
evidenced by the Warehouse Notes, Swing Note, Working-Capital Notes, and Term-
Line Notes. Notwithstanding any sale of participating interests under SECTION
12.13 or any contrary notice, Borrower and Agent may deem and treat each Lender
as the absolute owner of its respective one or more Notes for all purposes.
3.2 PAYMENT PROCEDURES.
(A) PAYMENTS. Borrower shall make each payment and prepayment on the
Obligation to Agent, on behalf of Lenders, in accordance with Agent's Wire
Instructions in funds that are available for immediate use by Agent.
Payments that are received by 3:00 p.m. on a Business Day are deemed
received on that Business Day. Payments that are received after 3:00 pm on
a Business Day are deemed received on the next Business Day. Subject to
SECTION 3.7(F), applicable interest continues to accrue through the
calendar day immediately before the Business Day on which the payment is
deemed received. No Lender directly invoices Borrower for -- and only
Agent invoices Borrower for -- interest under the Loan Documents.
(B) DISTRIBUTIONS. When received under CLAUSE (A) above, Agent shall
distribute each payment to each Lender -- in accordance with SECTION 3.5
and each Lender's Wire Instructions --reasonably promptly after receipt but
by no later than 4:00 p.m. on the Business Day the payment is deemed to be
received by Agent under CLAUSE (A) above. If Agent fails to distribute any
payment to any Lender as required by this clause, then Agent shall pay to
that Lender on demand interest on that payment, from the date due under
this clause until paid, at an annual interest rate equal from day to day to
the Fed-Funds Rate.
3.3 SCHEDULED PAYMENTS. Unless otherwise provided in this agreement,
Borrower shall pay the Obligation in accordance with the following table:
<TABLE>
<CAPTION>
==================================================================================================================
Obligation Payable
==================================================================================================================
<S> <C>
Interest on each LIBOR Borrowing except at the As it accrues on (a) the last day of that Borrowing's
Default Rate Interest Period and -- if that Interest Period is longer than
three months -- 90 days after its first day and each 90 days
after that and (b) on the Warehouse-Actual-Termination
Date (for Warehouse and Working-Capital Borrowings) or
the final maturity date of the applicable tranche for Term-
Line Borrowings, as the case may be
-------------------------------------------------------------------------------------------------------------------
</TABLE>
26 AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------
<PAGE>
<TABLE>
====================================================================================================================
<S> <C>
Interest on each other Borrowing except at the On (a) the 15th day of each Calendar Month as it accrued
Default Rate on the last day of the preceding Calendar Month and (b) on
the Warehouse-Actual-Termination Date or the final
maturity date of the applicable tranche for Term-Line
Borrowings, as the case may be
--------------------------------------------------------------------------------------------------------------------
Interest at the Default Rate regardless of On demand as it accrues
Borrowing-Price Category
--------------------------------------------------------------------------------------------------------------------
Principal Debt of Swing Borrowings On demand
--------------------------------------------------------------------------------------------------------------------
Other Principal Debt of, and other Obligation On the Warehouse-Actual-Termination Date
related to, Warehouse Borrowings and Working-
Capital Borrowings
--------------------------------------------------------------------------------------------------------------------
Principal Debt of Tranche A outstanding on the In consecutive, equal, monthly installments commencing on
Tranche A-Actual-Termination Date the Tranche A-Actual-Termination Date and continuing on
the same day of each ensuing Calendar Month, with the last
installment being made on January 31, 2002, accompanied
by the balance of all related Obligation then remaining
unpaid
--------------------------------------------------------------------------------------------------------------------
Principal Debt of Tranche B outstanding on the In consecutive, equal, monthly installments commencing on
Tranche B-Actual-Termination Date the Tranche B-Actual Termination Date and continuing on
the same day of each ensuing Calendar Month, with the last
installment being made on January 31, 2003, accompanied
by the balance of all Obligation then remaining unpaid
====================================================================================================================
</TABLE>
3.4 PREPAYMENTS.
(A) P&I BORROWINGS. For at least 7-consecutive days during each 30-
consecutive-day period, Borrower shall pay all -- and not owe any --
Principal Debt for P&I Borrowings.
(B) T&I BORROWING. Borrower shall pay the Principal Debt of each T&I
Borrowing on or before the earlier of either 270 days after its Borrowing
Date or the Warehouse-Actual-Termination Date.
(C) FORECLOSURE BORROWING. Borrower shall pay the Principal Debt of
each Foreclosure Borrowing on or before the earlier of either 180 days
after its Borrowing Date or the Warehouse-Actual-Termination Date.
(D) COMMITMENT TERMINATION. Borrower shall -- on the date that full
or partial termination of a Lender's Warehouse Commitment, Working-Capital
Commitment, or Term-Line Commitment, as the case may be, becomes effective
under SECTION 2.8 -- pay to that Lender the full Obligation owed to it in
respect of that commitment in the case of a full termination or the
Principal Debt owed to it for the relevant Borrowings that exceed its
reduced commitment, as the case may be.
(E) BORROWING EXCESS. If at any time a Borrowing Excess exists,
then--on demand -- Borrower shall take the following applicable action that
eliminates that Borrowing Excess:
(i) For a Borrowing Excess that is not capable of elimination by
delivery of additional Collateral or an increase in the total or any
applicable Borrowing Base -- e.g., if the total Principal Debt were to
exceed the total Combined Commitments -- or when a Default exists,
prepay to Agent for distribution to the appropriate one or more
Lenders Principal Debt of the appropriate one or more Borrowing-
Purpose Categories (together with any related Funding Loss).
27 AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------
<PAGE>
(ii) For any other Borrowing Excess and only when no Default
exists, either (A) deliver to Agent, in accordance with this
agreement, additional Collateral that causes the total or the
applicable Borrowing Base, as the case may be, to increase, (B) prepay
to Agent for distribution to the appropriate one or more Lenders
Principal Debt of the appropriate one or more Borrowing-Purpose
Categories (together with any related Funding Loss), or (C) any
combination of the actions under CLAUSES (A) or (B) above.
(F) VOLUNTARY PREPAYMENTS. Borrower may voluntarily prepay all or any
of the Obligation at any time without premium or penalty, but with any
applicable Funding Loss.
3.5 ORDER OF APPLICATION. All payments and proceeds -- whether voluntary,
involuntary, through the exercise of any Right of set-off or other Right,
realization against any Collateral, or otherwise -- shall be applied in the
following order:
(A) NO DEFAULT. While no Default exists, in the order and manner as
Borrower directs, except that principal payments must always be applied in
the following order and manner:
(i) Principal Debt of Swing Borrowings -- in each case payable
solely to Agent, which Agent shall distribute in accordance with the
participation interests in that Principal Debt that any one or more
Lenders may have purchased and paid for under SECTION 2.5(C).
(ii) Principal Debt of all non-Swing Borrowings in the order
below -- payable ratably to each Lender in accordance with its
Commitment Percentage -- except as the order may be rearranged by
Agent to the extent possible to avoid the application of any Funding
Loss for LIBOR Borrowings. Principal Debt shall be applied (A) to the
Borrowing-Purpose Category to the extent the collections or proceeds
are from or arose in respect of the Collateral in its Borrowing Base
and (B) then in the following order:
. Term-Line Borrowings
. P&I Borrowings
. T&I Borrowings
. Foreclosure Borrowings
. Uncommitted-B/C-Paper Borrowings (Wet Borrowings first)
. Committed-B/C-Paper Borrowings (Wet Borrowings first)
. Repurchase Borrowings (Wet Borrowings first)
. Second-Lien Borrowings (Wet Borrowings first)
. Other Wet Borrowings
. Other Dry Borrowings (other than Gestation Borrowings)
. Gestation Borrowings
(B) DEFAULT OR NO DIRECTION. While a Default exists or if Borrower
fails to give any direction, in the following order and manner:
(i) All costs and expenses incurred by Agent in connection with
its duties under the Loan Documents -- including, without limitation,
fees and expenses paid by Agent to any servicing companies retained by
Agent to assist it in servicing any Collateral required to be
serviced, to any attorneys, or to any agents -- that have not been
reimbursed by Lenders, together with interest at the Default Rate,
payable solely to Agent.
28 AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------
<PAGE>
(ii) All costs and expenses incurred by any Lender in
connection with the Loan Documents that are reimbursable to it under
the Loan Documents and all amounts paid by that Lender to Agent as a
reimbursement to it of costs and expenses incurred by Agent in
connection with its duties under the Loan Documents, together with
interest at the Default Rate -- payable ratably to Lenders in the
proportion that each Lender's share of those costs and expenses bears
to the total of those costs and expenses for all Lenders.
(iii) Accrued and unpaid interest on the Obligation -- payable
ratably to Lenders in the proportion that the amount of interest owed
to each Lender bears to the total of all interest owed to all Lenders.
(iv) Except with respect to payments and proceeds identifiable
as relating solely to Working-Capital Borrowings or Term-Line
Borrowings, Principal Debt of Swing Borrowings -- in each case payable
solely to Agent, which Agent shall distribute in accordance with the
participation interests in that Principal Debt that any one or more
Lenders may have purchased and paid for under SECTION 2.5(C).
(v) Any LC reimbursement obligations that are due and payable
and that remain unfunded by any Borrowing under the Working-Capital
Commitment.
(vi) Principal Debt in the order below -- payable ratably to
each Lender in accordance with its Termination Percentage -- except as
the order may be rearranged by Agent to the extent possible to avoid
the application of any Funding Loss for LIBOR Borrowings. Principal
Debt shall be applied (A) to the Borrowing-Purpose Category to the
extent the collections or proceeds are from or arose in respect of the
Collateral in its Borrowing Base and (B) then in the following order:
. Term-Line Borrowings
. P&I Borrowings
. T&I Borrowings
. Foreclosure Borrowings
. Uncommitted-B/C-Paper Borrowings (Wet Borrowings first)
. Committed-B/C-Paper Borrowings (Wet Borrowings first)
. Repurchase Borrowings (Wet Borrowings first)
. Second-Lien Borrowings (Wet Borrowings first)
. Other Wet Borrowings
. Other Dry Borrowings (other than Gestation Borrowings)
. Gestation Borrowings
(vii) All other portions of the Obligation -- payable ratably to
Lenders in the proportion that each Lender's share of those amounts
bears to the total of those amounts for all Lenders.
(viii) As a deposit with Agent, for the benefit of Lenders, as
security for and payment of any subsequent LC reimbursement
obligations.
(ix) Either to Borrower or to its successors or assigns on behalf
of Borrower, to be divided between them as they may agree or as a
court of competent jurisdiction may direct.
29 AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------
<PAGE>
3.6 SHARING. If any Lender obtains any amount -- whether voluntary,
involuntary, or otherwise, including, without limitation, as a result of
exercising its Rights under SECTION 10.3 -- that exceeds the portion of that
amount it is otherwise entitled under the Loan Documents to receive, then that
Lender shall purchase from the other Lenders participations that result in the
purchasing Lender's sharing the excess amount ratably with each Lender in
accordance with the portion it is entitled to receive under the Loan Documents.
If all or any of that excess amount is subsequently recovered from that
purchasing Lender, then the purchase of participations in it is automatically
rescinded and the purchase price restored to that purchasing Lender to the
extent of the recovery. Any Lender purchasing a participation from another
Lender under this section may, to the extent lawful, exercise all of its Rights
of payment (including the Right of offset) with respect to that participation as
fully as if that Lender were the direct creditor of Borrower in the amount of
that participation.
3.7 INTEREST RATES.
(A) NON-DEFAULT RATE. Subject to CLAUSE (B) below, all Principal Debt
bears an annual interest rate equal to the lesser of either the Maximum
Rate or the rate applicable in the following table:
<TABLE>
<CAPTION>
====================================================================================================
PRINCIPAL DEBT RATE
====================================================================================================
<S> <C>
Principal Debt of each LIBOR Borrowing LIBOR applicable to its Interest Period
----------------------------------------------------------------------------------------------------
Average-Principal Debt of all other Borrowings Applicable-Covered Rate
owed to a Depositary during any Calendar Month
that does not exceed its Average-Depositary
Balances for that Calendar Month
----------------------------------------------------------------------------------------------------
Average-Principal Debt of all Borrowings owed to Average-Adjusted-Base Rate or Average-
any Lender and not bearing interest under the above Adjusted-Fed-Funds Rate for that
sections of this table for any Calendar Month Calendar Month, whichever is applicable
====================================================================================================
</TABLE>
(B) DEFAULT RATE. For all past-due Principal Debt and past-due
interest on the Principal Debt from the date due (stated or by
acceleration) until paid, whether or not payment is before or after entry
of a judgment, the rate applicable in the following table:
<TABLE>
<CAPTION>
====================================================================================================
PRINCIPAL DEBT AND PAST-DUE INTEREST RATE
====================================================================================================
<S> <C>
Average-Principal Debt owed to a Depositary during 5.0%
a Calendar Month and all past-due accrued interest
on that Principal Debt that does not exceed its
Average-Depositary Balances for that Calendar
Month
----------------------------------------------------------------------------------------------------
Average-Principal Debt owed to any Lender and not Default Rate
bearing interest under the above section of this table,
and all past-due interest on that Principal Debt, for
any Calendar Month
====================================================================================================
</TABLE>
(C) RATE CHANGES. Each change in LIBOR, the Fed-Funds Rate, the Base
Rate, and the Maximum Rate is effective upon the effective date of change
without notice to Borrower or any other Person.
(D) CALCULATIONS. Interest is calculated on the basis of actual days
(including the first but excluding the last) over a 360-day year -- unless
the calculation would result in an interest rate greater than the Maximum
Rate, in which event interest is calculated on the basis of the actual days
in that
30 AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------
<PAGE>
year. All interest rate determinations and calculations by Agent are
conclusive and binding absent manifest error.
(E) RECAPTURE. If the designated interest rate applicable to any
Borrowing exceeds the Maximum Rate, the interest rate on that Borrowing is
limited to the Maximum Rate. However, any subsequent reductions in the
designated rate shall not become effective until the total amount of
accrued interest equals the amount of interest that would have accrued if
that designated rate had always been in effect. If at maturity (stated or
by acceleration), or at final payment of the Notes, the total interest paid
or accrued is less than the interest that would have accrued if the
designated rates had always been in effect, then, at that time and to the
extent permitted by Law, Borrower shall pay an amount equal to the
difference of (i) the lesser of either the amount of interest that would
have accrued if the designated rates had always been in effect or the
amount of interest that would have accrued if the Maximum Rate had always
been in effect, minus (ii) the amount of interest actually paid or accrued
on the Notes.
(F) MAXIMUM RATE. Regardless of any Loan Document provision, no
Lender is entitled to contract for, charge, take, reserve, receive, or
apply, as interest on all or any of the Obligation any amount in excess of
the Maximum Rate. If a Lender ever does so, then any excess is treated as
a partial prepayment of principal, and any remaining excess shall be
refunded to Borrower, as the case may be. In determining if the interest
paid or payable exceeds the Maximum Rate, Borrower and Lenders shall, to
the extent lawful (i) treat all Borrowings as but a single extension of
credit, (ii) characterize any nonprincipal payment as an expense, fee, or
premium rather than as interest, (iii) exclude voluntary prepayments and
their effects, and (iv) amortize, prorate, allocate, and spread the total
amount of interest throughout the full-contemplated term of the Obligation.
However, if the Obligation is paid in full before the end of that full-
contemplated term and the interest received for the Obligation's actual
period of existence exceeds the Maximum Amount, then Lenders shall refund
any excess without being subject to any penalties provided by any Laws. If
Texas Laws are applicable for purposes of determining the "Maximum Rate" or
the "Maximum Amount," then those terms mean the "indicated rate ceiling"
from time to time in effect under Article 1.04, Title 79, Texas Revised
Civil Statutes, as amended. Chapter 15, Subtitle 79, Texas Revised Civil
Statutes, 1925 (which regulates certain revolving credit loan accounts and
revolving triparty accounts), does not apply to the Obligation.
3.8 INTEREST PERIODS. When Borrower requests any LIBOR Borrowing, it may
elect the applicable interest period (each an "INTEREST PERIOD") -- which may be
either one, two or three months at its option or such other period as it and
Agent may agree (after first obtaining Determining Lender approval if for more
than six months) -- subject to the following conditions: (a) The initial
Interest Period commences on the applicable Borrowing Date and each subsequent
applicable Interest Period commences on the day when the next preceding
applicable Interest Period expires; (b) if any Interest Period begins on a day
for which no numerically corresponding Business Day in the Calendar Month at the
end of the Interest Period exists, then the Interest Period ends on the last
Business Day of that Calendar Month; (c) if an Interest Period would otherwise
not end on a Business Day, it shall end on the immediately preceding Business
Day; (d) no Interest Period for any portion of the Obligation may extend beyond
the scheduled repayment date for that portion of the Obligation; and (e) no more
than three Interest Periods may be in effect at any time.
3.9 BASIS UNAVAILABLE OR INADEQUATE FOR LIBOR RATE. If, on or before any
date when a LIBOR Rate is to be determined for a Borrowing, Agent or any Lender
(upon notice to Agent) determines that the basis for determining the applicable
rate is not available or that the resulting rate does not accurately reflect the
cost to Lenders of making or converting Borrowings at that rate for the
applicable Interest Period, then Agent shall promptly notify Borrower of that
determination (which is conclusive and binding on Borrower,
31 AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------
<PAGE>
absent manifest error) and that Borrowing shall be a Fed-Funds Borrowing. Until
Agent notifies Borrower that it or the notifying Lender (upon notice to Agent)
has determined that those circumstances no longer exist -- which it shall
promptly do --Lenders' commitments under this agreement to make LIBOR Borrowings
are suspended.
3.10 ADDITIONAL COSTS. This section survives the full satisfaction of the
Obligation and termination of the Loan Documents, and release of Lender Liens.
(a) For any LIBOR Borrowing, if (i) (A) any change after the date of
this agreement in any present Law -- and for purposes of this SECTION 3.10,
Law includes interpretations and guidelines of any Tribunal whether or not
having the force of Law -- or any future Law imposes, modifies, or deems
applicable (or if compliance by any Lender with any requirement of any
Tribunal results in) any requirement that any reserves (including, without
limitation, any marginal, emergency, supplemental, or special reserves) be
maintained, (B) those reserves reduce any sums receivable by that Lender
under this agreement or increase the costs incurred by that Lender in
advancing or maintaining any portion of any LIBOR Borrowing, and (C) that
Lender determines that the reduction or increase is material (and it may,
in determining the material nature of the reduction or increase, utilize
reasonable assumptions and allocations of costs and expenses and use any
reasonable averaging or attribution method), then (ii) that Lender (through
Agent) shall deliver to Borrower a certificate stating in reasonable detail
the calculation of the amount necessary to compensate it for its reduction
or increase (which certificate is conclusive and binding absent manifest
error), and Borrower, shall pay that amount to that Lender within ten days
after demand.
(b) For any Borrowing, if (i) (A) any change after the date of this
agreement in any present Law or any future Law regarding capital adequacy
or compliance by any Lender with any request, directive, or requirement now
or in the future imposed by any Tribunal regarding capital adequacy or any
change in the risk category of this transaction reduces the rate of return
on its capital as a consequence of its obligations under this agreement to
a level below that which it otherwise could have achieved (taking into
consideration its policies with respect to capital adequacy) by an amount
deemed by it to be material (and it may, in determining the amount, utilize
reasonable assumptions and allocations of costs and expenses and use any
reasonable averaging or attribution method), then (ii) that Lender (through
Agent) shall notify Borrower and deliver to Borrower a certificate stating
in reasonable detail the calculation of the amount necessary to compensate
it (which certificate is presumed correct), and Borrower, shall pay that
amount to Lender within ten days after demand.
(c) Any Taxes payable by Agent or any Lender or ruled (by a Tribunal)
payable by Agent or any Lender in respect of any Loan Document shall -- if
permitted by Law and if deemed material by Agent or that Lender (who may,
in determining the material nature of the amount payable, utilize
reasonable assumptions and allocations of costs and expenses and use any
reasonable averaging or attribution method) -- be paid by Borrower,
together with interest and penalties, if any (except for Taxes payable on
the overall net income of Agent or that Lender and except for interest and
penalties incurred as a result of the gross negligence or willful
misconduct of Agent or any Lender). Agent or that Lender (through Agent)
shall notify Borrower and deliver to Borrower a certificate stating in
reasonable detail the calculation of the amount of payable Taxes, which
certificate is conclusive and binding (absent manifest error), and Borrower
shall pay that amount to Agent for the account of Agent or that Lender, as
the case may be, within ten days after demand. If Agent or that Lender
subsequently receives a refund of the Taxes paid to it by Borrower, then
the recipient shall promptly pay the refund to Borrower.
32 AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------
<PAGE>
3.11 CHANGE IN LAWS. If any change, after the date of this agreement, in
any present Law or any future Law makes it unlawful for any Lender to make or
maintain LIBOR Borrowings, then that Lender shall promptly notify Agent, who
shall promptly notify Borrower and (a) as to undisbursed funds, any requested
Borrowing shall be made as a Fed-Funds Borrowing, (b) as to any outstanding
Borrowing (i) if maintaining the Borrowing until the last day of the applicable
Interest Period is unlawful, the Borrowing shall be converted to a Fed-Funds
Borrowing as of the date of notice, but Borrower is not obligated to pay any
related Funding Loss, or (ii) if not prohibited by Law, the Borrowing shall be
converted to an Fed-Funds Borrowing as of the last day of the applicable
Interest Period, or (iii) if any conversion will not resolve the unlawfulness,
Borrower shall promptly prepay the Borrowing, without penalty, and without
payment of any related Funding Loss.
3.12 FUNDING LOSS. Subject to SECTION 3.11, BORROWER AGREES TO INDEMNIFY
EACH LENDER AGAINST -- AND PAY TO IT UPON DEMAND -- ANY FUNDING LOSS OF THAT
LENDER. When any Lender demands that Borrower pay any Funding Loss, that Lender
shall deliver to Agent who shall promptly deliver to Borrower a certificate
stating in reasonable detail the basis for imposing Funding Loss and the
calculation of the amount, which calculation shall be presumed correct. This
SECTION 3.12 survives the satisfaction and payment of the Obligation and
termination of the Loan Documents.
3.13 FOREIGN LENDERS, PARTICIPANTS, AND PURCHASERS. Each Lender,
Participant (by accepting a participation interest under this agreement), and
Purchaser (by executing an Assignment) that is not organized under the Laws of
the United States of America or one of its states (a) represents to Agent and
Borrower that (i) no Taxes are required to be withheld by Agent or Borrower with
respect to any payments to be made to it in respect of the Obligation and (ii)
it has furnished to Agent and Borrower two duly completed copies of either U.S.
Internal Revenue Service Form 4224, Form 1001, Form W-8, or any other form
acceptable to Agent that entitles it to exemption from U.S. federal withholding
Tax on all interest payments under the Loan Documents, and (b) covenants to (i)
provide Agent and Borrower a new Form 4224, Form 1001, Form W-8, or other form
acceptable to Agent upon the expiration or obsolescence of any previously
delivered form according to Law, duly executed and completed by it, and (ii)
comply from time to time with all Laws with regard to the withholding Tax
exemption. If any of the foregoing is not true or the applicable forms are not
provided, then Borrower and Agent (without duplication) may deduct and withhold
from interest payments under the Loan Documents United States federal income Tax
at the full rate applicable under the IRC.
3.14 FEES. The following are not compensation for the use, detention, or
forbearance of money, are in addition to and not in lieu of interest and
expenses otherwise described in the Loan Documents, are non-refundable, bear
interest if not paid when due at the Default Rate, and are calculated on the
basis of actual days (including the first but excluding the last) elapsed over a
year of 360 days (or actual days during that year, if the calculation would
otherwise result in exceeding the Maximum Amount and the payment were deemed to
be interest notwithstanding the above provisions to the contrary):
(A) AGENT'S FEES. Borrower shall pay to Agent -- for its sole
account--administrative, syndication, and custodial fees in amounts and
upon such payment terms as may be separately agreed upon by Borrower and
Agent in writing.
(B) WAREHOUSE UNUSED FACILITY FEE. Borrower shall pay to Agent an
unused facility fee for Lenders payable in arrears on the 15th day of each
Calendar Month for the preceding Calendar Month and on the Warehouse-
Actual-Termination Date. Each payment of the unused facility fee is a
percentage per annum calculated for the period in which it accrued as the
product of 0.125% multiplied by the amount by which (i) the average-daily
total Warehouse Commitment (excluding the amount of the Gestation Sublimit)
exceeds (ii) the average daily Principal Debt relating to Warehouse
Borrowings (excluding the average daily Principal Debt relating to
Gestation Borrowings).
33 AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------
<PAGE>
(C) GESTATION UNUSED FACILITY FEE. Borrower shall pay to Agent an
unused facility fee for Lenders payable in arrears on the 15th day of each
Calendar Month for the preceding Calendar Month and on the Warehouse-
Actual-Termination Date. Each payment of the unused facility fee is a
percentage per annum calculated for the period in which it accrued as the
product of 0.100% multiplied by the amount by which (i) the average-daily
total Gestation Sublimit exceeds (ii) the average daily Principal Debt
relating to Gestation Borrowings.
(D) WORKING-CAPITAL COMMITMENT FEE. On the Closing Date, Borrower
shall pay to Agent a $10,000 commitment fee for the Working-Capital
Commitments to be distributed to Lenders in shares to be determined by
Agent in its sole discretion.
(E) TERM-LINE-COMMITMENT FEE. On the Closing Date, Borrower shall pay
to Agent a $75,000 commitment fee for the Term-Line Commitments to be
distributed to Lenders in shares to be determined by Agent in its sole
discretion.
(F) LC ISSUANCE FEES. On the date that any LC is issued under this
agreement, Borrower shall pay to Agent -- for its sole account -- an LC
issuance fee of 1.25% multiplied by the face amount of the LC being issued.
SECTION 4. COLLATERAL PROCEDURES.
4.1 ELIGIBLE COLLATERAL. The eligibility requirements for Collateral to
be included in the Borrowing Base are listed on SCHEDULE 4.1. If at any time
any item of Collateral ceases to meet those requirements, then that item is
automatically excluded from all calculations of the applicable Borrowing Base.
4.2 BORROWING BASE. The elements for calculating the Borrowing Base are
listed on SCHEDULE 4.2. By 2:00 p.m. on the date of any Borrowing, any payment
of Principal Debt, or removal of any Collateral, Agent shall deliver to Borrower
and Lenders a Borrowing-Base Report prepared on the basis of the information
provided by Borrower in the most recent Take-Out Report and other information
then available to Agent as provided in this agreement.
4.3 COLLATERAL DELIVERY. Borrower must comply with all the required
procedures in SCHEDULE 4.3 for Mortgage Collateral offered in connection with
this agreement by no later than 11:00 a.m. on (i) the Borrowing Date for
Collateral supporting any Borrowing other than a Wet Borrowing and (ii) the
seventh Business Day after the Borrowing Date of any Wet Borrowing for
Collateral supporting that Borrowing. By 11:00 a.m. on the Business Day that
Borrower is converting any Dry Borrowing to a Gestation Borrowing, Borrower
shall execute and deliver to Agent a Collateral-Conversion Notice.
4.4 BAILEE AND AGENT. Agent and Lenders appoint Borrower -- and Borrower
shall act -- as their (a) special agent for the sole and limited purpose of
obtaining and maintaining Appraisals for Mortgage Loans as required by the Loan
Documents and (b) bailee to (i) hold in trust for Agent (A) the original
recorded copy of the mortgage, deed of trust, or trust deed securing each
Mortgage Loan, (B) a mortgagee policy of title insurance (or binding unexpired
and unconditional commitment to issue such insurance if the policy has not yet
been delivered to Borrower) insuring Borrower's perfected, first priority Lien
(or second-priority Lien with respect to Second-Lien Borrowings) created by that
mortgage, deed of trust, or trust deed, (C) the original insurance policies
referred to in PART A.6(C) on SCHEDULE 4.1, and (D) all other original
documents, including any undelivered Take-Out Commitments, promissory notes, and
Mortgage Securities, (ii) specifically identify those items in the appropriate
Collateral-Delivery Notice, and (iii) deliver to Agent any of the foregoing
items as soon as reasonably practicable upon Agent's request.
34 AMENDED AND RESTATED LOAN AGREEMENT
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4.5 SHIPMENT FOR SALE.
(A) SHIPMENT OF COLLATERAL. If no Default, Potential Default, or
Borrowing Excess exists and if shipment would not result in any Approved
Investor (other than FNMA, FHLMC, and GNMA, or any other investor that
Agent has approved in writing) or its servicers and custodians holding
Collateral Documents for Mortgage Loans with more than a total $5,000,000
face amount, then Borrower may -- by a Shipping Request delivered to Agent
by 11:00 a.m. on the Business Day of shipment -- request Agent to ship
Collateral Documents to an Approved Investor or its servicer or custodian
for purchase or pooling of the related Mortgage Loans. If Agent has no
actual knowledge that any of the above conditions have not been satisfied,
then Agent shall ship the Collateral Documents it holds for those Mortgage
Loans to that Approved Investor or its servicer or custodian under the
appropriate Bailee Letter.
(B) INELIGIBLE COLLATERAL. Collateral shipped under CLAUSE (A) above,
unless returned to Agent, ceases to be Eligible-Mortgage Collateral (i) to
the extent that Collateral Documents for Mortgage Loans with more than a
total face amount of $5,000,000 are held by or for any Approved Investor
(other than FNMA, FHLMC, and GNMA, or any other investor that Agent has
approved in writing) and (ii) upon the earlier of either the release of the
Lender Liens in that Collateral under CLAUSE (C) below or the expiration of
the Shipping Period for that Collateral.
(C) RELEASE OF LIENS. The Lender Liens on any Collateral shipped
under CLAUSE (A) above continue on that Collateral until either (i) Agent
receives payment in the Settlement Account in an amount at least equal to
the price paid by the purchaser for each Eligible-Mortgage Loan so sold or
(ii) in the case of Mortgage Loans being sold or exchanged for Mortgage
Securities, Eligible-Mortgage Securities are delivered to or for Agent in
accordance with SCHEDULE 4.3 and other applicable provisions of the Loan
Documents and become Collateral under this agreement for all purposes.
(D) CERTAIN CREDITS. Neither Agent nor any Lender is obligated at any
time to credit Borrower for any amounts due from any purchase of any
Mortgage Collateral contemplated under this agreement until Agent has
actually received immediately available funds for that Mortgage Collateral
in the amount required under this agreement. Neither Agent nor any Lender
is obligated at any time to collect any amounts or otherwise enforce any
obligations due from any purchaser in respect of any such purchase.
4.6 SHIPMENT FOR CORRECTION. If no Default, Potential Default, or
Borrowing Excess exists or occurs as a result of the shipment and if shipment
would not result in any Collateral Documents for Mortgage Loans with more than a
total face amount of $1,000,000 being outstanding for correction, then Borrower
may -- by a Trust Receipt delivered to Agent -- request that Agent ship to
Borrower the entire mortgage loan file of Collateral Documents for any Mortgage
Loan so that certain of those Collateral Documents may be corrected or replaced
for clerical or other non-substantive mistakes. If Agent has no actual
knowledge that any of the above conditions have not been satisfied, then and
subject to the limitations below, then Agent shall ship to Borrower the entire
mortgage loan file of Collateral Documents to be corrected or replaced.
Borrower shall re-deliver to Agent the corrected Collateral Documents (meeting
the requirements of SCHEDULE 4.3) before the expiration of the Correction Period
for that Collateral. Collateral shipped under this section, unless returned to
Agent, ceases to be Eligible-Mortgage Collateral (a) to the extent that
Collateral Documents for Mortgage Loans with more than a total face amount of
$1,000,000 are outstanding for correction at any time and (b) upon the
expiration of the Correction Period for that Collateral. The Lender Liens on
any Collateral shipped under this section continue in full force and effect.
35 AMENDED AND RESTATED LOAN AGREEMENT
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4.7 RELEASE OF COLLATERAL.
(A) EXCESS COLLATERAL. If no Default or Potential Default exists and
no Borrowing Excess exists or would occur (after taking into account any
corresponding payment on the Obligation) as a result of the release,
Borrower may -- by a Release Request delivered to Agent by 11:00 a.m. on
the Business Day of the release -- request that Agent release the Lender
Liens on any Collateral.
(B) SATISFACTION OF OBLIGATION. If the Obligation is fully paid and
performed and all commitments by each Lender to extend credit under the
Loan Documents are terminated or canceled, Borrower may -- by written
request to Agent -- request that Agent release the Lender Liens on all of
the Collateral, return to Borrower or its designee all Collateral Documents
then held by Agent, and execute a release of any financing statements or
other documents filed or recorded to perfect the Lender Liens.
(C) RELEASES. If Agent has no actual knowledge that any of the above
conditions for a release have not been satisfied, then Agent shall effect
those releases.
SECTION 5. CONDITIONS PRECEDENT. No Lender is obligated to fund its part of
any Borrowing and Agent is not obligated to issue any LC unless Agent has
received all of the documents and items described on SCHEDULE 5. In addition,
no Lender is obligated to fund its part of any Borrowing and Agent is not
obligated to issue any LC unless on the applicable Borrowing Date (and after
giving effect to the requested Borrowing or LC): (a) Agent has timely received a
Borrowing Request or LC Request (together with the applicable LC Agreement); (b)
Agent receives any applicable LC fees; (c) all of the representations and
warranties of Borrower in the Loan Documents are true and correct in all
material respects (unless they speak to a specific date or are based on facts
which have changed by transactions contemplated or permitted by this agreement);
(d) no Default or Potential Default exists; (e) the funding of the Borrowing or
the issuance of the LC is permitted by Law and does not cause a Borrowing
Excess; and (f) if reasonably requested by Agent, it has received evidence
substantiating any of the matters in the Loan Documents that are necessary to
enable Borrower to qualify for the Borrowing or the issuance of the LC, as the
case may be. Each condition precedent in this agreement (including, without
limitation, those on SCHEDULE 5) is material to the transactions contemplated by
this agreement, and time is of the essence with respect to each. Subject to
first obtaining the approval of all Lenders, Agent or any Lender may fund any
Borrowing or issue any LC without all conditions being satisfied. However, to
the extent lawful, that funding is not a waiver of the requirement that each
condition precedent be satisfied as a prerequisite for any subsequent funding or
issuance, unless all Lenders specifically waive an item in writing.
SECTION 6. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants
to Agent and Lenders as follows:
6.1 PURPOSE OF CREDIT. Borrower will use all proceeds of Borrowings for
one or more of the following: (a) Warehouse Borrowings will be used to finance
Borrower's Mortgage Loan origination and acquisition until those Mortgage Loans
are sold in the secondary market, (b) Working-Capital Borrowings will be used
either (i) to pay certain Servicing Payments until those payments are reimbursed
by either obligors under Mortgage Loans being serviced by Borrower or by the
appropriate governmental agencies or (ii) to issue letters of credit to support
sales of Servicing Rights, and (c) Term-Line Borrowings will be used to finance
the acquisition of various servicing portfolios and to provide funding for
Borrower's internally-generated Servicing Rights. In addition, the initial
Borrowing on the Closing Date will be used to repay the outstanding indebtedness
under the Existing Loan Agreement owed to any Existing Lender that is not a
Lender under this agreement. Borrower is not engaged principally (or as one of
its important activities) in the business of extending credit for the purpose of
purchasing or carrying any "margin stock" within the meaning of Regulation
36 AMENDED AND RESTATED LOAN AGREEMENT
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U. No part of the proceeds of any LC draft or drawing or any Borrowing is to be
used, directly or indirectly, for a purpose that violates any Law, including,
without limitation, the provisions of Regulation U.
6.2 ABOUT THE COMPANIES.
(A) SUBSIDIARIES AND TRADE NAMES. Except as described on SCHEDULE 6.2
(i) Borrower has no Subsidiaries and (ii) no Company has used or transacted
business under any other corporate or trade name in the six-month period
preceding the date of this agreement.
(B) EXISTENCE, QUALIFICATION, AND COMPLIANCE. Each Company is duly
organized, validly existing, and in good standing under the Laws of the
jurisdiction in which it is incorporated as stated on SCHEDULE 6.2. Except
where failure is not a Material-Adverse Event, each Company (i) is duly
qualified to transact business and is in good standing as a foreign
corporation or other entity in each jurisdiction where the nature and
extent of its business and properties require due qualification and good
standing (as described on SCHEDULE 6.2), (ii) possesses all requisite
authority, permits, and power to conduct its business as is now being -- or
is contemplated by this agreement to be -- conducted, and (iii) is in
compliance with all applicable Laws.
(C) OFFICES. Each Company's chief executive office and other
principal offices are described on SCHEDULE 6.2. The present and
foreseeable location of each Company's books and records concerning
accounts and accounts receivable is at its chief executive office, and all
of its books, and records are in its possession.
6.3 AUTHORIZATION AND CONTRAVENTION. The execution and delivery by each
Company of each Loan Document to which it is a party and the performance by it
of its related obligations (a) are within its corporate power, (b) have been
duly authorized by all necessary corporate action, (c) except for any action or
filing that has been taken or made on or before the date of this agreement,
require no action by or filing with any Tribunal, (d) do not violate any
provision of its charter or bylaws, (e) except where not a Material-Adverse
Event, do not violate any provision of Law applicable to it or any material
agreements to which it is a party, and (f) except for Lender Liens, do not
result in the creation or imposition of any Lien on any asset of any Company.
6.4 BINDING EFFECT. Upon execution and delivery by all parties to it,
each Loan Document will constitute a legal and binding obligation of each
Company party to it, enforceable against it in accordance with its terms, except
as enforceability may be limited by applicable Debtor Laws and general
principles of equity.
6.5 FISCAL YEAR. The Companies' fiscal year ends each December 31.
6.6 CURRENT FINANCIALS. The Current Financials were prepared in
accordance with GAAP and present fairly, in all material respects, the financial
condition, results of operations, and cash flows of the Companies as of, and for
the portion of the fiscal year ending on their date or dates (subject only to
normal year-end adjustments). All material liabilities of the Companies as of
the date or dates of the Current Financials are reflected in them or notes to
them. Except for transactions directly related to, or specifically contemplated
by, the Loan Documents, no subsequent material adverse changes have occurred in
the financial condition of the Companies from that shown in the Current
Financials, nor has any Company incurred any subsequent material liability.
6.7 DEBT. No Company has any Debt except Permitted Debt.
37 AMENDED AND RESTATED LOAN AGREEMENT
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6.8 SOLVENCY. On the date of each Borrowing or the issuance of any LC,
each Company is, and after giving effect to the requested Borrowing or LC will
be, Solvent.
6.9 LITIGATION. Except as disclosed on SCHEDULE 6.9 (a) no Company is
subject to, or aware of the threat of, any Litigation that is reasonably likely
to be determined adversely to it or, if so adversely determined, would be a
Material-Adverse Event, and (b) no outstanding or unpaid judgments against any
Company exists.
6.10 TRANSACTIONS WITH AFFILIATES. No Company is a party to a material
transaction with any of its Affiliates except (a) transactions in the ordinary
course of business and upon fair and reasonable terms not materially less
favorable than it could obtain or could become entitled to in an arm's-length
transaction with a Person that was not its Affiliate, and (b) transactions
described on SCHEDULE 6.10.
6.11 TAXES. All Tax returns of each Company required to be filed have been
filed (or extensions have been granted) before delinquency, except for returns
for which the failure to file is not a Material-Adverse Event, and all Taxes
imposed upon each Company that are due and payable have been paid before
delinquency.
6.12 EMPLOYEE PLANS. Except where occurrence or existence is not a
Material-Adverse Event, (a) no Employee Plan has incurred an "accumulated
funding deficiency" (as defined in (S) 302 of ERISA or (S) 412 of the IRC), (b)
no Company has incurred liability under ERISA to the PBGC in connection with any
Employee Plan, (c) no Company has withdrawn in whole or in part from
participation in a Multiemployer Plan, (d) no Company has engaged in any
"prohibited transaction" (as defined in (S) 406 of ERISA or (S) 4975 of the
IRC), and (e) no "reportable event" (as defined in (S) 4043 of ERISA) has
occurred in respect of any Employee Plan, excluding events for which the notice
requirement is waived under applicable PBGC regulations.
6.13 PROPERTY AND LIENS. Each Company has good and marketable title to all
its property reflected on the Current Financials except for property that is
obsolete or that has been disposed of in the ordinary course of business or,
after the date of this agreement, as otherwise permitted by this agreement. All
Collateral is free and clear of any Liens and adverse claims of any nature
except Permitted Liens.
6.14 INTELLECTUAL PROPERTY. Borrower owns all material licenses, patents,
patent applications, copyrights, service marks, trademarks, trademark
applications, and trade names necessary to continue to conduct its businesses as
presently conducted by it and proposed to be conducted by it immediately after
the date of this agreement. Borrower is conducting its business without
infringement or claim of infringement of any license, patent, copyright, service
mark, trademark, trade name, trade secret, or other intellectual property right
of others, other than any infringements or claims that, if successfully asserted
against or determined adversely to Borrower, are not a Material-Adverse Event.
To Borrower's knowledge, no infringement or claim of infringement by others of
any material license, patent, copyright, service mark, trademark, trade name,
trade secret, or other intellectual property of Borrower exists.
6.15 ENVIRONMENTAL MATTERS. Except where not a Material-Adverse Event, no
Company (a) knows of any environmental condition or circumstance adversely
affecting any Company's properties or operations or any material portion of the
properties subject to Mortgage Loans, (b) has received any report of any
Company's violation of any Environmental Law, or (c) knows that any Company is
under any obligation to remedy any violation of any Environmental Law. Each
Company has taken prudent steps to determine that its properties and operations
and that substantially all of the properties subject to Mortgage Loans do not
violate any Environmental Law except violations that are not a Material-Adverse
Event.
38 AMENDED AND RESTATED LOAN AGREEMENT
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6.16 GOVERNMENT REGULATIONS.
(A) INAPPLICABLE REGULATIONS. No Company is subject to regulation
under the Investment Company Act of 1940, as amended, or the Public Utility
Holding Company Act of 1935, as amended.
(B) BORROWER'S ELIGIBILITY. Borrower is approved and qualified and in
good standing as an issuer, mortgagee, or seller/servicer, as described
below, and meets all requirements applicable to its status as such: (i)
GNMA approved issuer of Mortgage-Backed Securities guaranteed by GNMA; (ii)
FNMA approved seller/servicer of Mortgage Loans, eligible to originate,
purchase, hold, sell, and service Mortgage Loans to be sold to FNMA; (iii)
FHLMC approved seller/servicer of Mortgage Loans, eligible to originate
purchase, hold, sell and service Mortgage Loans to be sold to FHLMC; (iv)
FHA approved mortgagee, eligible to originate, purchase, hold, sell and
service FHA Loans; and (v) VA approved mortgagee, eligible to originate,
purchase, hold, sell and service VA Loans.
6.17 INSURANCE. Each Company maintains with financially sound,
responsible, and reputable insurance companies or associations (or, as to
workers' compensation or similar insurance, with an insurance fund or by self-
insurance authorized by the jurisdictions in which it operates) insurance
concerning its properties and businesses against casualties and contingencies
and of types and in amounts (and with co-insurance and deductibles) as is
customary in the case of similar businesses.
6.18 APPRAISALS. With respect to the property the subject of any Mortgage
Loan, Borrower has obtained Appraisals in material compliance with all Appraisal
Laws.
6.19 FULL DISCLOSURE. Each material fact or condition relating to the Loan
Documents or the financial condition, business, or property of the Companies
that is a Material-Adverse Event has been disclosed in writing to Agent and
Lenders. All information previously furnished by any Company to Agent or any
Lender in connection with the Loan Documents was -- and all information
furnished in the future by any Company to Agent or any Lender will be -- true
and accurate in all material respects or based on reasonable estimates on the
date the information is stated or certified.
SECTION 7. AFFIRMATIVE COVENANTS. Until all commitments by Lenders to
extend credit under this agreement have been canceled or terminated and the
Obligation is fully paid and performed, Borrower jointly and severally covenants
and agrees with Agent and Lenders as follows:
7.1 REPORTING REQUIREMENTS. Borrower shall cause to be furnished to Agent
the following, all in form and detail reasonably satisfactory to Agent:
(A) ANNUAL FINANCIALS. Promptly when available but at least within 90
days after each fiscal-year end of Borrower, audited Financials of the
Companies as of that year end, each reflecting the corresponding figures
for the preceding fiscal year in comparative form, accompanied by (i) an
unqualified opinion of a firm of independent certified public accountants
acceptable to Agent stating that those Financials were prepared in
accordance with GAAP applied on a basis consistent with prior periods
except for such changes in GAAP concurred in by Borrower's independent
public accountants, and that the consolidated portion of those Financials
present fairly the consolidated and consolidating financial condition and
results of operations of the Companies as of (and for the fiscal year
ending on) that last day, and (ii) a Compliance Certificate.
(B) GUARANTOR FINANCIAL STATEMENTS. Promptly when available but at
least within 90 days after each fiscal year end of Guarantor, audited
financial statements and statements of cash flow
39 AMENDED AND RESTATED LOAN AGREEMENT
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for any Guarantor prepared as of the end of the previous calendar year in
form and detail reasonably acceptable to Agent.
(C) MONTHLY FINANCIALS. Promptly when available but at least within
45 days after each Calendar Month, Financials of the Companies as of the
end of that month, accompanied by (i) a Management Report and (ii) a
Compliance Certificate.
(D) TAKE-OUT REPORT. By 5:00 p.m. on each Monday (or, if any Monday
is not a Business Day, then by that time on the next Business Day) but only
to the extent that Borrower has elected not to deliver specifically-
designated Take-Out Commitments to Agent under SCHEDULES 4.2 and 4.3, a
Take-Out Report that is prepared as of the close of business on the
preceding Business Day and reports the Take-Out Prices of the Mortgage-
Collateral Groups comprising the Mortgage Collateral for which
specifically-designated Take-Out Commitments have not been delivered.
(E) INVESTOR INFORMATION. Promptly after the request by Agent or
Determining Lenders, financial information about any investor (other than
FNMA, FHLMC, and GNMA) for purposes of determining whether that investor
should become or remain an Approved Investor.
(F) APPRAISED VALUE REPORT. Promptly when available but at least
within 60 days after each Calendar Quarter, an appraisal of the Appraised
Value. Such appraisals shall be delivered at least once every Calendar
Quarter with respect to the Servicing Portfolio (Borrower's internally-
prepared appraisals are acceptable except that the appraisal due on the
Calendar Quarter ending each March 31 must be prepared by an independent
third-party appraiser acceptable to Agent in its sole discretion).
(G) NOTICES. Notice, promptly after any Company knows or has reason
to know, of (i) the existence and status of any Litigation that, if
determined adversely to any Company, would be a Material-Adverse Event,
(ii) any change in any material fact or circumstance represented or
warranted by any Company in any Loan Document that constitutes a Material-
Adverse Event, (iii) the receipt by any Company of notice of any violation
or alleged violation of ERISA or any Environmental Law or other Law if that
violation is a Material-Adverse Event, or (iv) a Default or Potential
Default specifying the nature thereof and what action Borrower have taken,
are taking, or propose to take with respect to it.
(H) OTHER INFORMATION. Promptly upon reasonable request by Agent or
Determining Lenders (through Agent), information (not otherwise required to
be furnished under the Loan Documents) respecting the business affairs,
assets, and liabilities of any Company and opinions, certifications, and
documents in addition to those mentioned in this agreement.
7.2 USE OF PROCEEDS. Borrower shall use the proceeds of Borrowings only
for the purposes represented in this agreement.
7.3 BOOKS AND RECORDS. Each Company shall maintain books, records, and
accounts necessary to prepare Financials in accordance with GAAP.
7.4 INSPECTIONS. Upon reasonable request, each Company shall allow Agent,
any Lender, or their respective Representatives to inspect any of its
properties, to review reports, files, and other records and to make and take
away copies, to conduct tests or investigations, and to discuss any of its
affairs, conditions, and finances with its directors, officers, employees, or
representatives from time to time during reasonable business hours.
40 AMENDED AND RESTATED LOAN AGREEMENT
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7.5 TAXES. Each Company shall promptly pay when due any and all Taxes
other than Taxes of which the failure to pay is not a Material-Adverse Event or
which are being contested in good faith by lawful proceedings diligently
conducted, against which reserve or other provision required by GAAP has been
made, and in respect of which levy and execution of any Lien have been and
continue to be stayed.
7.6 EXPENSES. Borrower shall pay (a) all reasonable legal fees and
expenses incurred by Agent in connection with the preparation, negotiation, and
execution of the Loan Documents, (b) all reasonable legal fees and expenses
incurred by Agent in connection with each separate future amendment, consent,
waiver, or approval executed in connection with any Loan Document, (c) all fees,
charges, or Taxes for the recording or filing of any Loan Document to create or
perfect Lender Liens, (d) all other reasonable out-of-pocket expenses of Agent
or any Lender in connection with the preparation, negotiation, execution, or
administration of the Loan Documents -- including, without limitation, courier
expenses incurred in connection with the Mortgage Collateral, (e) all amounts
expended, advanced, or incurred by Agent or any Lender to satisfy any obligation
of any Company under any Loan Document, to collect the Obligation, or to enforce
the Rights of Agent or any Lender under any Loan Document -- including, without
limitation, all court costs, attorneys' fees (whether for trial, appeal, other
proceedings, or otherwise), fees of auditors and accountants, and investigation
expenses reasonably incurred by Agent or any Lender in connection with any such
matters, (f) interest at an annual interest rate equal to the Default Rate on
each item specified in CLAUSES (A) through (E) above from 30 days after the date
of written demand or request for reimbursement to the date of reimbursement, and
(g) any and all stamp and other Taxes payable or determined to be payable in
connection with the execution, delivery, or recordation of any Loan Document --
IN CONNECTION WITH WHICH BORROWER SHALL INDEMNIFY AND SAVE AGENT AND EACH LENDER
HARMLESS FROM AND AGAINST ANY AND ALL LIABILITIES WITH RESPECT TO OR RESULTING
FROM ANY DELAY IN PAYING OR OMISSION TO PAY THOSE TAXES TO THE EXTENT THOSE
LIABILITIES ARISE SOLELY BECAUSE BORROWER FAILED TO PAY THE TAXES UPON DEMAND BY
AGENT OR ANY LENDER, WHICH INDEMNITY SURVIVES THE PAYMENT AND PERFORMANCE OF THE
OBLIGATION AND TERMINATION OF THE LOAN DOCUMENTS.
7.7 MAINTENANCE OF EXISTENCE, ASSETS, AND BUSINESS. Each Company shall
(a) except as permitted by SECTION 8.5, maintain its corporate existence and
good standing in its state of incorporation and its authority to transact
business in all other states where failure to maintain its authority to transact
business is a Material-Adverse Event, and (b) maintain all licenses, permits,
and franchises necessary for its business where failure to do so is a Material-
Adverse Event -- including, without limitation, Borrower's eligibility as
lender, seller/servicer, and issuer as described in SECTION 6.16(B).
7.8 INSURANCE. Borrower shall (a) maintain with financially sound and
reputable insurers, insurance with respect to its assets and business against
such liabilities, casualties, risks, and contingencies and in such types and
amounts -- including, without limitation, a fidelity bond or bonds in form and
with coverage, with a company, and with respect to such individuals or groups of
individuals -- as satisfy prevailing FNMA, FHLMC, and GNMA requirements
applicable to a qualified mortgage institution and otherwise as is customary in
the case of Persons engaged in the same or similar businesses and similarly
situated, and (b) upon Agent's request, furnish to Agent from time to time (i) a
summary of its insurance coverage, in form and substance satisfactory to Agent,
and (ii) originals or copies of the applicable policies.
7.9 TAKE-OUT COMMITMENTS. Borrower shall perform and observe in all
material respects each of the provisions of each Take-Out Commitment on its part
to be performed or observed and cause all things to be done that are necessary
to have each item of Mortgage Collateral and the Collateral Documents covered by
a Take-Out Commitment to comply with its requirements.
7.10 APPRAISALS. Borrower shall promptly (a) permit Agent's and any
Lender's authorized Representatives to discuss with Borrower's officers or with
the appraisers furnishing Appraisals the procedures
41 AMENDED AND RESTATED LOAN AGREEMENT
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for preparation, review, and retention of -- and to review and obtain copies
of --all Appraisals pertaining to any Mortgage Collateral, and (b) upon Agent's
or any Lender's request, cooperate with it to ascertain that the Appraisals
comply with all Appraisal Laws.
7.11 INDEMNIFICATION. IN CONSIDERATION OF THE COMMITMENTS BY AGENT AND
LENDERS UNDER THE LOAN DOCUMENTS, BORROWER SHALL INDEMNIFY AND DEFEND EACH
AGENT, LENDER, AND THEIR RESPECTIVE AFFILIATES AND REPRESENTATIVES
(COLLECTIVELY, THE "INDEMNIFIED PARTIES") -- AND DEFEND THEM AND HOLD EACH OF
THEM HARMLESS -- AGAINST ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES,
DEFICIENCIES, INTEREST, JUDGMENTS, COSTS, OR EXPENSES -- INCLUDING, WITHOUT
LIMITATION, REASONABLE ATTORNEYS' FEES -- INCURRED BY ANY OF THEM ARISING FROM
OR BECAUSE OF (A) ANY INVESTIGATION, LITIGATION, OR OTHER PROCEEDING BROUGHT OR
THREATENED IN CONNECTION WITH ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED
BY THE LOAN DOCUMENTS, INCLUDING, WITHOUT LIMITATION, ANY USE BY EITHER COMPANY
OF THE PROCEEDS OF BORROWINGS, (B) ANY IMPOUNDMENT, ATTACHMENT, OR RETENTION OF
ANY MORTGAGE COLLATERAL OR ANY FAILURE OF ANY INVESTOR TO PAY THE ENTIRE
PURCHASE PRICE OF ANY MORTGAGE COLLATERAL UNDER ANY TAKE-OUT COMMITMENT, (C) ANY
ALLEGED VIOLATION OF ANY FEDERAL OR STATE LAW RELATING TO USURY IN CONNECTION
WITH ANY MORTGAGE COLLATERAL, AND (D) ANY REPRESENTATION MADE BY ANY COMPANY
UNDER ANY LOAN DOCUMENT. ALTHOUGH EACH INDEMNIFIED PARTY IS ENTITLED TO
INDEMNIFICATION FOR ANY INDEMNIFIED PARTY'S ORDINARY NEGLIGENCE, NO INDEMNIFIED
PARTY IS ENTITLED TO INDEMNIFICATION FOR ITS OWN GROSS NEGLIGENCE, WILLFUL
MISCONDUCT, OR FRAUD. THIS INDEMNITY SURVIVES THE PAYMENT AND PERFORMANCE OF
THE OBLIGATION AND TERMINATION OF THE LOAN DOCUMENTS.
SECTION 8. NEGATIVE COVENANTS. Until all commitments by Lenders to extend
credit under this agreement have been canceled or terminated and the Obligation
is fully paid and performed, Borrower covenants and agrees with Agent and
Lenders as follows:
8.1 DEBT. No Company may directly or indirectly create, incur, permit to
exist, or commit to create or incur (a) any Wet Borrowings except in connection
with this agreement or in connection with any Permitted Debt whose description
specifically allows for Wet Borrowings, (b) any mortgage loan repurchase
agreements (except in connection with any Permitted Debt whose description
specifically allows for mortgage loan repurchase agreements or as otherwise
permitted by Agent in writing), or (c) any other Debt except the following
(collectively, the "PERMITTED DEBT"):
(i) Obligations to pay Taxes.
(ii) Liabilities for accounts payable, non-capitalized equipment
or operating leases, and similar liabilities if in each case incurred
in the ordinary course of business.
(iii) Accrued expenses, deferred credits, and loss contingencies
that are properly classified as liabilities under GAAP.
(iv) The Obligation.
(v) Up to $825,000 in Debt (including related letters of credit
and reimbursement agreements) under a municipal bond financing
facility with Colorado National Bank.
(vi) Up to $1,235,000 in Debt under a land acquisition loan from
First Security Bank.
42 AMENDED AND RESTATED LOAN AGREEMENT
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(vii) Up to $1,600,000 in Debt under a model-home financing
facility with Argo Federal Savings Bank.
(viii) Up to $679,495 in Debt (but not warehouse-type Debt) under a
facility with Piper-Jaffray (American Strategic Income Portfolio,
Inc.) as that amount may be reduced but not increased at any time on
or after the Closing Date.
(ix) Debt under a Revolving Subordinated Loan Agreement between
Borrower and Guarantor, providing (in terms acceptable to lender) that
any liabilities arising under the Revolving Subordinated Loan
Agreement are expressly subordinated to the Obligation.
(x) Debt (other than the above) incurred after the date of this
agreement, never to exceed $250,000 unless approved by Agent in
writing.
8.2 LIENS. No Company may (a) create, incur, permit to exist, enter into,
or commit to enter into any arrangement or agreement (except the Loan Documents)
that directly or indirectly prohibits any Company from creating or incurring any
Lien on any of its assets, or (b) create, incur, permit to exist, or commit to
create or incur any Lien on any of its assets except the following
(collectively, the "PERMITTED LIENS"):
(i) Any interest or title of a lessor in assets being leased
under any non-capitalized equipment or operating lease.
(ii) Pledges or deposits that (a) do not encumber any Collateral
and (b) are made to secure payment of workers' compensation,
unemployment insurance, or other forms of governmental insurance or
benefits or to participate in any fund in connection with workers'
compensation, unemployment insurance, pensions, or other social
security programs.
(iii) Good-faith pledges or deposits that (a) do not cover any
Collateral and (b) are either (i) not in excess of 10% (excluding
deposits put down for servicing portfolio purchases in the ordinary
course of business) of the amounts due under, and made to secure,
either Company's performance of bids, tenders, contracts (other than
for the repayment of borrowed money), or leases, or (ii) made to
secure statutory obligations, surety or appeal bonds, or indemnity,
performance, or other similar bonds benefitting any Company in the
ordinary course of its business.
(iv) Zoning and similar restrictions on the use of real property
that do not materially impair the use of the real property and that
are not violated by existing or proposed structures or land use.
(v) The following if no Lien has been filed in any jurisdiction
or agreed to: (a) Liens for Taxes not yet due and payable and (b) if,
to the extent they cover any Collateral, they are subordinate to the
Lender Liens in form and substance reasonably acceptable to Agent (c)
mechanic's Liens and materialman's Liens for services or materials for
which payment is not yet due and payable and (d) landlord's Liens for
rent not yet due and payable.
(vi) The following if the validity or amount thereof is being
contested in good faith and by appropriate and lawful proceedings
diligently conducted, reserve or other appropriate provision (if any)
required by GAAP has been made, levy and execution continue to be
stayed, any of which covering any Collateral must be subordinate to
the Lender Liens
43 AMENDED AND RESTATED LOAN AGREEMENT
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in form and substance reasonably acceptable to Agent, and any of which
do not in the aggregate materially detract from the value of the
property of the Company in question, or materially impair the use of
that property in the operation of its business: (a) claims and Liens
for Taxes due and payable; (b) claims and Liens upon, and defects of
title to, real or personal property (other than any Collateral),
including any attachment of personal or real property or other legal
process before adjudication of a dispute on the merits; (c) claims and
Liens of mechanics, materialmen, warehousemen, carriers, landlords, or
other like Liens; and (d) adverse judgments or orders on appeal for
the payment of money.
(vii) Lender Liens.
(viii) Liens (a) evidenced by any financing statements reflected
in any UCC Search Reports described on SCHEDULE 5 to the extent that
they are not required to be terminated, partially released, amended,
or subordinated as reflected in the conditions in SCHEDULE 5 or (b)
securing Permitted Debt.
8.3 LOANS, ADVANCES, AND INVESTMENTS. No Company may make or commit to
make any loan, advance, extension of credit, or capital contribution to, make or
commit to make any investment in, or purchase or commit to purchase any stock or
other securities or evidences of Debt of, or interests in, any other Person
except the following (collectively, "PERMITTED LOANS/INVESTMENTS"):
(i) Extensions of trade credit and other payables in the
ordinary course of business.
(ii) Loans and advances to officers or employees of any Company
that are (a) in the ordinary course of business for travel,
entertainment, or relocation or (b) not in the ordinary course and are
never more than a total outstanding of (i) $50,000 for any one
officer, director, or employee or (ii) $50,000 for all of the
Companies.
(iii) Mortgage Loans and Mortgaged Securities originated or
acquired by Borrower in the ordinary course of its business.
(iv) Acquisition of securities or evidences of Debt of others
when acquired by Borrower in settlement of accounts receivable or
other Debts arising in the ordinary course of business so long as the
total of all of those securities or evidences of Debt is not material
to Borrower's financial condition.
(v) Investments in obligations, with maturities of one year or
less, issued or unconditionally guaranteed by -- or issued by any of
its agencies and backed by the full faith and credit of -- the United
States of America.
(vi) Demand deposit accounts maintained in the ordinary course
of business.
(vii) Certificates of deposit issued by (a) any Lender or (b) any
other commercial bank organized under the Laws of the United States of
America or one of its states that has combined capital, surplus, and
undivided profits of at least $250,000,000 and a rating of C or better
by Thompson Bank Watch, Inc.
(viii) Eurodollar investments with (a) any Lender or (b) any other
financial institution that has (i) combined capital, surplus, and
undivided profits of at least
44 AMENDED AND RESTATED LOAN AGREEMENT
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$100,000,000 and (ii) a commercial-paper rating of at least P-1 or A-1
or (if it does not have a commercial-paper rating) a bond rating of at
least A-1 or A- by Moody's Investors Service, Inc., or Standard &
Poor's Corporation, respectively.
(ix) Investments in commercial paper (a) having a maturity of
one year or less and (b) given the highest rating by a nationally-
recognized-credit-rating agency.
(x) Investments in municipal bonds acquired on or before the
Closing Date.
(xi) An investment in real property in Ft. Lupton, Colorado,
valued at approximately $1,431,306.
(xii) Investments in Pulte Corporation model homes, valued at no
more than $2,000,000.
(xiii) Other loans, advances, or investments, so long as the
aggregate amount outstanding (defined as the amount of any such loans
or advances plus the cost of any such investments) is never more than
$100,000 at any one time.
At no time may the aggregate market value of all Permitted Loans/Investments
(other than Mortgage Loans and Mortgage Securities described in SECTION 8.3(III)
above) exceed an aggregate value of more than $6,000,000).
8.4 DISTRIBUTIONS. Borrower may not directly or indirectly pay or declare
any Distribution during any fiscal year except (a) dividends payable solely in
the form of capital stock, (b) cash distributions to Borrower's shareholders in
an amount not to exceed 50% of Borrower's net cash income (after adjustments for
non-cash income and cash taxes) so long as no Default or Potential Default
exists or would be created by the Distribution or (c) Distributions otherwise
approved in writing by Agent.
8.5 MERGER OR CONSOLIDATION. No Company may directly or indirectly merge
or consolidate with or into any other Person except that any Company may merge
into or be consolidated with any other Company so long as Borrower is the
surviving corporation if it is involved.
8.6 LIQUIDATIONS AND DISPOSITIONS OF ASSETS. No Company may directly or
indirectly dissolve or liquidate or sell, transfer, lease, or otherwise dispose
of any material portion of its assets or business except for sales or other
dispositions by Borrower, in the ordinary course of business, of (a) subject to
SECTION 9, part of its Servicing Portfolio, or (b) subject to SECTION 4,
Mortgage Loans, Mortgage Securities, or Servicing Receivables that are
Collateral, or (c) Mortgage Loans, Mortgage Securities, or Servicing Receivables
that are not Collateral.
8.7 USE OF PROCEEDS. Borrower may not directly or indirectly use the
proceeds of Borrowings (a) for any purpose other than as represented in this
agreement, (b) for the funding or acquisition of construction or commercial
loans, (c) for wages of employees, unless a timely payment to or deposit with
the United States of America of all amounts of Tax required to be deducted and
withheld with respect to such wages is also made, or (d) in violation of
Regulation U or (S) 7 of the Securities Exchange Act of 1934.
8.8 TRANSACTIONS WITH AFFILIATES. No Company may directly or indirectly
enter into any transaction with any of its Affiliates other than transactions in
the ordinary course of business or upon fair and reasonable terms not materially
less favorable than it could obtain or could become entitled to in an arm's-
length transaction with a Person that was not its Affiliate.
45 AMENDED AND RESTATED LOAN AGREEMENT
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8.9 EMPLOYEE PLANS. Except where a Material-Adverse Event would not
result, no Company may directly or indirectly permit any of the events or
circumstances described in SECTION 6.12 to exist or occur.
8.10 COMPLIANCE WITH LAWS AND DOCUMENTS. No Company may directly or
indirectly (a) violate the provisions of any Laws applicable to it or of any
Material Agreement to which it is a party if that violation alone or with all
other violations is a Material-Adverse Event or (b) violate the provisions of
its charter or bylaws or repeal, replace or amend any provision of its charter
or bylaws if any such action is a Material-Adverse Event.
8.11 GOVERNMENT REGULATIONS. No Company may directly or indirectly conduct
its business in a way that it becomes regulated under the Investment Company Act
of 1940.
8.12 FISCAL YEAR ACCOUNTING. No Company may directly or indirectly change
its fiscal year nor use any accounting method other than GAAP.
8.13 NEW BUSINESSES. No Company may directly or indirectly engage in any
business except the businesses in which it or any of its Affiliates is presently
engaged and any other reasonably-related business.
8.14 ASSIGNMENT. No Company may directly or indirectly assign or transfer
any of its Rights, duties, or obligations under any of the Loan Documents.
8.15 OTHER FACILITIES. No Company may directly or indirectly receive
advances under any other warehouse- or servicing-type facility except as
provided in this agreement or as approved in writing by Agent.
SECTION 9. FINANCIAL COVENANTS. Until all commitments by Lenders to extend
credit under this agreement have been canceled or terminated and the Obligation
is fully paid and performed, Borrower covenants and agrees with Agent and
Lenders as follows:
9.1 NET WORTH.
(a) The Companies' Net Worth may never be less than the sum of (i)
$10,000,000 plus (ii) 100% of all contributions to any Company's
stockholders' equity made on or after December 31, 1996, plus (iii) 50% of
the Companies' Net Income for each fiscal quarter ending after December 31,
1996, and added to the Companies' required Net Worth on the last day of
each successive fiscal quarter (provided that if the Companies' Net Income
for any fiscal quarter is less than $0, then the incremental amount added
to the Companies' required Net Worth for that fiscal quarter shall be $0).
(b) The Companies' Adjusted-Net Worth may never be less than the sum
of (i) $12,000,000, plus (ii) 100% of all contributions to any Company's
stockholders' equity made on or after December 31, 1996, plus (iii) 50% of
the Companies' Net Income for each fiscal quarter ending after December 31,
1996, and added to the Companies' required Adjusted-Net Worth on the last
day of each successive fiscal quarter (provided that if the Companies' Net
Income for any fiscal quarter is less than $0, then the incremental amount
added to the Companies' required Adjusted-Net Worth for that fiscal quarter
shall be $0).
(c) The Companies' Adjusted-Tangible-Net Worth may never be less than
the sum of (i) $10,000,000, plus (ii) 100% of all contributions to any
Company's stockholders' equity made on or after December 31, 1996, plus
(iii) 50% of the Companies' Net Income for each fiscal quarter ending after
December 31, 1996, and added to the Companies' required Adjusted-Tangible-
Net Worth on the
46 AMENDED AND RESTATED LOAN AGREEMENT
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last day of each successive fiscal quarter (provided that if the Companies'
Net Income for any fiscal quarter is less than $0, then the incremental
amount added to the Companies' required Adjusted-Tangible-Net Worth for
that fiscal quarter shall be $0).
9.2 LEVERAGE. The ratio of the Companies' Total-Adjusted Debt to
Adjusted-Tangible-Net Worth may never exceed 8.0 to 1.0.
9.3 CASH FLOW. The ratio of the Companies' historical Cash Flow to
historical CMLTD may never be less than 1.3 to 1.0 at the end of any 4-quarter
period, calculated as of the last day of each Calendar Quarter.
9.4 SERVICING PORTFOLIO. The Servicing Portfolio may never be less
than (a) $2,000,000,000 on or after June 30, 1997, so long as the "Vanderford"
acquisition has occurred and (b) $1,500,000,000 at all other times. Agency
servicing must represent a minimum of 65% of the total Servicing Portfolio.
9.5 DEBT TO SERVICING PORTFOLIO.
(a) The Principal Debt of Term-Line Borrowings may never exceed
the lesser of either (i) 1.25% of the unpaid principal balance of the
Servicing Portfolio, or (ii) 70% of the Appraised Value of the Servicing
Portfolio.
(b) The Principal Debt of Working-Capital Borrowings and Term-
Line Borrowings may never exceed the lesser of either (i) 1.25% of the
unpaid principal balance of the Servicing Portfolio, or (ii) 95% of the
Appraised Value of the Servicing Portfolio.
SECTION 10. DEFAULTS AND REMEDIES.
10.1 DEFAULT. The term "DEFAULT" means the existence or occurrence of
any one or more of the following:
(A) OBLIGATION. Borrower fails to pay (i) any interest on the
Obligation when due under the Loan Documents and that failure continues for
five days or (ii) any other part of the Obligation when due under the Loan
Documents.
(B) COVENANTS. Any Company fails to punctually and properly
perform, observe, and comply with any (i) any covenant, agreement, or
condition under SECTIONS 8 or 9 or (ii) any covenant, agreement, or
condition contained in any of the Loan Documents -- other than covenants to
pay the Obligation and the covenants listed in CLAUSE (I) above and that
failure continues for a period of 15 calendar days after any Company has,
or, with the exercise of reasonable investigation, should have, notice of
it.
(C) MISREPRESENTATION. Any material statement, warranty, or
representation by or on behalf of any Company or Guarantor in any Loan
Document or other writing authored by any Company or Guarantor and
furnished in connection with the Loan Documents, proves to have been
incorrect or misleading in any material respect as of the date made or
deemed made.
(D) DEBTOR LAW. Any Company or Guarantor (i) is not Solvent,
(ii) fails to pay its Debts generally as they become due, (iii) voluntarily
seeks, consents to, or acquiesces in the benefit of any Debtor Law, or (iv)
becomes a party to or is made the subject of any proceeding provided for by
any Debtor Law -- other than as a creditor or claimant -- that could
suspend or otherwise adversely affect
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the Rights of Agent or any Lender granted in the Loan Documents unless, if
the proceeding is involuntary, the applicable petition is dismissed within
60 days after its filing.
(E) OTHER DEBT. Any Company or Guarantor fails to make any
payment due on any Debt or security (with respect to which any Company or
Guarantor has redemption, sinking fund, or other purchase obligations) or
any event occurs or any condition exists in respect of any Debt or security
of any Company or Guarantor, the effect of which is (i) to cause or to
permit any holder of that Debt or security or a trustee to cause (whether
or not it elects to cause) any of that Debt or security to become due
before its stated maturity or its regularly scheduled payment dates, or
(ii) to permit a trustee or the holder of any security (other than common
stock of any Company or Guarantor) to elect (whether or not it does elect)
a majority of the directors on the board of directors of that Company or
Guarantor.
(F) JUDGMENTS. Any Company or Guarantor fails to pay any money
judgment against it at least ten days prior to the date on which any of the
assets of that Company or Guarantor may be lawfully sold to satisfy that
judgment.
(G) ATTACHMENTS. The failure to have discharged within a period
of 30 days after the commencement of any attachment, sequestration, or
similar proceeding against any of the assets of any Company or Guarantor.
(H) UNENFORCEABILITY. Any material provision of any Loan
Document for any reason ceases to be in full force and effect or is fully
or partially declared null and void or unenforceable or the validity or
enforceability of any Loan Document is challenged or denied by any Company.
(I) CHANGE OF CONTROL. Any (i) material change in the ownership
or management of Borrower or any Guarantor from that ownership and
management as it exists on the date of this agreement or (ii) failure to
provide advance notice of any change in ownership or management.
(J) AGENCY QUALIFICATIONS. (i) Borrower fails to meet any GNMA
seller or servicing standard or requirement that is a Material-Adverse
Event, (ii) GNMA revokes or terminates Borrower's Right to service for
GNMA, (iii) GNMA issues a letter of extinguishment under any GNMA guaranty
agreement, (iv) Borrower ceases to be an eligible issuer or servicer for
either FNMA or FHLMC, (v) FNMA or FHLMC impose any sanctions upon Borrower
resulting in a Material-Adverse Event, (vi) FNMA or FHLMC terminate or
revoke Borrower's Right to service for FNMA or FHLMC, or (vii) FNMA or
FHLMC initiate any transfer of servicing from Borrower.
(K) LCS. Agent is served with, or becomes subject to, a court
order, injunction, or other process or decree restraining or seeking to
restrain it from paying any amount under any LC and either (a) a drawing
has occurred under the LC, and Borrower has refused to reimburse Agent for
payment, or (b) the expiration date of the LC has occurred, but the Right
of the beneficiary to draw under the LC has been extended past the
expiration date in connection with the pendency of the related court action
or proceeding, and Borrower has failed to deposit with Agent cash
collateral in an amount equal to Agent's maximum exposure under the LC.
10.2 REMEDIES.
(A) DEBTOR LAW. Upon the occurrence of a Default under SECTION
10.1(D), the commitments of Lenders to extend credit under this agreement
automatically terminate and the full Obligation is automatically due and
payable, without presentment, demand, notice of default, notice
48 AMENDED AND RESTATED LOAN AGREEMENT
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of the intent to accelerate, notice of acceleration, or other requirements
of any kind, all of which are expressly waived by Borrower.
(B) OTHER DEFAULTS. While a Default exists -- other than those
described in CLAUSE (A) above -- Agent may and, upon the direction of
Determining Lenders, shall declare the Obligation to be immediately due and
payable, whereupon it shall be due and payable, whereupon the commitments
of Lenders to extend credit under this agreement are then automatically
terminated.
(C) OTHER REMEDIES. Following the termination of the
commitments of Lenders to extend credit under this agreement and the
acceleration of the Obligation, Agent may (and, at the direction of
Determining Lenders, shall) do any one or more of the following: (i) Reduce
any claim to judgment; (ii) foreclose upon or otherwise enforce any Lender
Liens; (iii) demand payment of an amount equal to the LC Exposure then
existing and retain as collateral for the LC Exposure any amounts received
from any Company or from any property of any Company, through offset, or
otherwise; and (iv) exercise any other Rights in the Loan Documents, at
Law, in equity, or otherwise that Determining Lenders may direct. Should
any Default continue that, in Agent's opinion, materially and adversely
affects the Collateral or the interests of the Lenders under this
agreement, Agent may, in a notice to the Lenders of that Default set forth
one or more actions that Agent, in its opinion, believes should be taken.
Unless otherwise directed by Determining Lenders (excluding the Lender
serving as Agent) within ten days following the date of the notice setting
forth the proposed action or actions, Agent may, but shall not be obligated
to, take the action or actions set forth in that notice.
10.3 RIGHT OF OFFSET. Borrower hereby grants to Agent and to each
Lender a right of offset, to secure the repayment of the Obligation, upon any
and all monies, securities, or other property of Borrower, and the proceeds
therefrom now or hereafter held or received by or in transit to Agent or such
Lender from or for the account of Borrower, whether for safekeeping, custody,
pledge, transmission, collection, or otherwise, and also upon any and all
deposits (general or special, time or demand, provisional or final) and credits
of Borrower, and any and all claims of Borrower against Agent or such Lender, at
any time existing. Upon the occurrence of any Default, Agent and each Lender are
authorized at any time and from time to time, without notice to either Company,
to offset, appropriate, and apply any and all of those items against the
Obligation, subject to SECTION 3.6. Notwithstanding anything in this section or
elsewhere in this agreement to the contrary, neither Agent nor any other Lender
shall have any right to offset, appropriate, or apply any accounts of Borrower
which consist of escrowed funds (except and to the extent of any beneficial
interest which Borrower have in such escrowed funds) which have been so
identified by any Company in writing at the time of deposit thereof.
10.4 WAIVERS. Borrower waives any right to require Agent to (a)
proceed against any Person, (b) proceed against or exhaust any of the Collateral
or pursue its Rights and remedies as against the Collateral in any particular
order, or (c) pursue any other remedy in its power. Agent shall not be required
to take any steps necessary to preserve any Rights of any Company against any
Person from which any Company purchased any Mortgage Loans or to preserve Rights
against prior parties. Borrower and each surety, endorser, guarantor, pledgor,
and other party ever liable or whose property is ever liable for payment of any
of the Obligation jointly and severally waive presentment and demand for
payment, protest, notice of intention to accelerate, notice of acceleration, and
notice of protest and nonpayment, and agree that their or their property's
liability with respect to the Obligation, or any part thereof, shall not be
affected by any renewal or extension in the time of payment of the Obligation,
by any indulgence, or by any release or change in any security for the payment
of the Obligation, and hereby consent to any and all renewals, extensions,
indulgences, releases, or changes, regardless of the number thereof.
49 AMENDED AND RESTATED LOAN AGREEMENT
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10.5 PERFORMANCE BY AGENT. Should any covenant, duty, or agreement of
any Company fail to be performed in accordance with the terms of this agreement
or of any document delivered under this agreement, Agent may, at its option,
after notice to Borrower, as the case may be, perform, or attempt to perform,
such covenant, duty, or agreement on behalf of that Company and shall notify
each Lender that it has done so. In such event, Borrower shall jointly and
severally, at the request of Agent, promptly pay any amount expended by Agent in
such performance or attempted performance to Agent at its principal place of
business, together with interest thereon at the Maximum Rate from the date of
such expenditure by Agent until paid. Notwithstanding the foregoing, it is
expressly understood that Agent does not assume and shall never have, except by
express written consent of Agent, any liability or responsibility for the
performance of any duties of any Company under this agreement or under any other
document delivered under this agreement.
10.6 NO RESPONSIBILITY. Except in the case of fraud, gross
negligence, or willful misconduct, neither Agent nor any of its officers,
directors, employees, or attorneys shall assume -- or ever have any liability or
responsibility for --any diminution in the value of the Collateral or any part
of the Collateral.
10.7 NO WAIVER. The acceptance by Agent or any Lender at any time and
from time to time of partial payment or performance by any Company of any of
their respective obligations under this agreement or under any Loan Document
shall not be deemed to be a waiver of any Default then existing. No waiver by
Agent or any Lender shall be deemed to be a waiver of any other then existing or
subsequent Default. No delay or omission by Agent or any Lender in exercising
any right under this agreement or under any other document required to be
executed under or in connection with this agreement shall impair such right or
be construed as a waiver thereof or any acquiescence therein, nor shall any
single or partial exercise of any such right preclude other or further exercise
thereof, or the exercise of any other right under this agreement or otherwise.
10.8 CUMULATIVE RIGHTS. All Rights available to Agent and the Lenders
under this agreement or under any other document delivered under this agreement
shall be cumulative of and in addition to all other Rights granted to Agent and
the Lenders at Law or in equity, whether or not the Notes be due and payable and
whether or not Agent shall have instituted any suit for collection, foreclosure,
or other action in connection with this agreement or any other document
delivered under this agreement.
10.9 RIGHTS OF INDIVIDUAL LENDERS. No Lender shall have any right by
virtue of, or by availing itself of, any provision of this agreement to
institute any actions or proceedings at Law, in equity, or otherwise (excluding
any actions in bankruptcy), upon or under or with respect to this agreement, or
for the appointment of a receiver, or for any other remedy under this agreement,
unless (a) the Determining Lenders previously shall have given to Agent written
notice of a Default and the continuance thereof, including a written request
upon Agent to institute such action or proceedings in its own name and offering
to indemnify Agent against the costs, expenses and liabilities to be incurred
therein or thereby, (b) Agent, for ten Business Days after its receipt of such
notice, shall have failed to institute any such action or proceeding, and (c) no
direction inconsistent with such written request shall have been given to Agent
by Determining Lenders. It is understood and intended, and expressly covenanted
by the taker and holder of every Note with every other taker and holder and
Agent, that no one or more holders of Notes shall have any right in any manner
whatever by virtue, or by availing itself, of any provision of this agreement to
affect, disturb or prejudice the Rights of any other Lenders, or to obtain or
seek to obtain priority over or preference to any other such Lender, or to
enforce any right under this agreement, except in the manner herein provided and
for the equal, ratable and common benefit of all Lenders. For the protection
and enforcement of the provisions of this SECTION 10.9, each and every Lender
and Agent shall be entitled to such relief as can be given either at law or in
equity.
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10.10 NOTICE TO AGENT. Should any Default or Potential Default occur
and be continuing, any Lender having actual knowledge thereof shall notify Agent
and Borrower of the existence thereof, but the failure of any Lender to provide
that notice shall not prejudice that Lender's Rights under this agreement.
10.11 COSTS. All court costs, reasonable attorneys' fees, other costs
of collection, and other sums spent by Agent or any Lender in the exercise of
any Right provided in any Loan Document is payable to Agent or that Lender, as
the case may be, on demand, is part of the Obligation, and bears interest at the
Default Rate from the date paid by Agent or any Lender to the date repaid by
Borrower.
SECTION 11 AGENT.
11.1 AUTHORIZATION AND ACTION. Each Lender hereby appoints Agent as
Agent under the Loan Documents and authorizes Agent to take such action on its
behalf and to exercise such powers and perform such duties as are expressly
delegated to Agent by the terms of the Loan Documents, together with such powers
as are reasonably incidental thereto. As to any matter not expressly provided
for by this agreement (including, without limitation, enforcement or collection
of the Notes), Agent shall not be required to exercise any discretion or take
any action, but shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the instructions of
Lenders, and those instructions shall be binding upon all Lenders and all
holders of the Notes. However, that Agent shall not be required to take any
action that exposes Agent to personal liability or that is contrary to this
agreement or applicable Laws. Agent agrees to give to each Lender prompt notice
of each notice given to it by Borrower pursuant to the terms of the Loan
Documents.
11.2 AGENT'S RELIANCE, ETC. Notwithstanding anything to the contrary
in any Loan Document, neither Agent nor any of its Representatives shall be
liable for any action taken or omitted to be taken by it or them under or in
connection with the Loan Documents, except for its or their own gross negligence
or willful misconduct. Without limitation of the generality of the foregoing,
Agent: (a) May treat the payee of any Note as the holder thereof; (b) may
consult with legal counsel (including counsel for Borrower), independent public
accountants and other experts selected by it or Borrower and shall not be liable
for any action taken or omitted to be taken in good faith by it in accordance
with the advice of such counsel, accountants or experts; (c) makes no warranty
or representation to any Lender and shall not be responsible to any Lender for
any statements, warranties, or representations made in or in connection with the
Loan Documents; (d) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of this
agreement on the part of Borrower or to inspect the property (including the
books and records) of Borrower, except receipt of delivery of the items required
under SECTIONS 3.2, 4.1, 4.3, and 7.1; (e) shall not be responsible to any
Lender for the due execution, legality, validity, enforceability, genuineness,
sufficiency or value of this agreement or any other instrument or document
furnished pursuant hereto; and (f) shall incur no liability under or in respect
of this agreement by acting upon any notice, consent, certificate or other
instrument or writing (which may be by telecopy) believed by it to be genuine
and signed or sent by the proper party or parties.
11.3 AGENT AND AFFILIATES. With respect to Borrowings made by it, and
the one or more Notes issued to it, Agent shall have the same rights and powers
under this agreement and the other Loan Documents as any other Lender and may
exercise the same as though it were not the Agent; and the term "Lender" or
"Lenders" shall, unless otherwise expressly indicated, include Agent in its
individual capacity. Agent and the Affiliates of Agent may accept deposits from,
lend money to, act as trustee under indentures of, and generally engage in any
kind of business with, Borrower, any of its Affiliates and any Person who may do
business with or own securities of Borrower or any of its Affiliates, all as if
Agent was not Agent and without any duty to account therefor to Lenders.
51 AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------
<PAGE>
11.4 CREDIT DECISION. Each Lender acknowledges that it has,
independently and without reliance upon Agent or any other Lender, and based on
the financial statements referred to in SECTIONS 6.6 and 7.1 of this agreement
and such other documents and information as it has deemed appropriate, made its
own credit analysis and decision to enter this agreement. Each Lender also
acknowledges that it will, independently and without reliance upon Agent or any
Lender, and based on such documents and information as it shall deem appropriate
at the time, make its own credit decisions in taking or not taking action under
this agreement.
11.5 INDEMNIFICATION. LENDERS SHALL INDEMNIFY AGENT (TO THE EXTENT
NOT REIMBURSED BY BORROWER), RATABLY ACCORDING TO THEIR RESPECTIVE COMMITMENT
PERCENTAGES, FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES,
DAMAGES, PENALTIES, JUDGMENTS, SUITS, COSTS, EXPENSES, OR DISBURSEMENTS OF ANY
KIND OR NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED
AGAINST AGENT IN ANY WAY RELATING TO OR ARISING OUT OF THIS AGREEMENT OR ANY
ACTION TAKEN OR OMITTED BY AGENT UNDER THIS AGREEMENT (INCLUDING ANY OF SAME
WHICH MAY RESULT FROM THE NEGLIGENCE, BUT NOT GROSS NEGLIGENCE, OF AGENT).
HOWEVER, NO LENDER SHALL BE LIABLE FOR ANY PORTION OF THOSE LIABILITIES,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS,
EXPENSES, OR DISBURSEMENTS RESULTING FROM AGENT'S GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT. WITHOUT LIMITATION OF THE FOREGOING, EACH LENDER SHALL REIMBURSE
AGENT PROMPTLY UPON DEMAND FOR ITS RATABLE SHARE OF ANY OUT-OF-POCKET EXPENSES
(INCLUDING COUNSEL FEES) INCURRED BY AGENT IN CONNECTION WITH THE PREPARATION,
EXECUTION, DELIVERY, ADMINISTRATION, MODIFICATION, AMENDMENT, OR ENFORCEMENT
(WHETHER THROUGH NEGOTIATIONS, LEGAL PROCEEDINGS, OR OTHERWISE) OF, OR LEGAL
ADVICE IN RESPECT OF RIGHTS OR RESPONSIBILITIES UNDER, THIS AGREEMENT, TO THE
EXTENT THAT AGENT IS NOT REIMBURSED FOR SUCH EXPENSES BY BORROWER.
11.6 SUCCESSOR AGENT. Agent may resign at any time by giving written
notice thereof to Lenders and Borrower and may be removed at any time with or
without cause by 100% of Lenders. Upon any such resignation or removal, 100% of
Lenders shall have the right to appoint a successor Agent in the capacity of
Agent. If no successor Agent shall have been so appointed by 100% of Lenders,
and shall have accepted such appointment, within 30 days after the retiring
Agent's giving of notice of resignation or the Lenders' removal of the retiring
Agent, then the retiring Agent may, on behalf of Lenders, appoint a successor
Agent, which shall be a commercial bank or savings bank organized under the laws
of the United States of America or of any state thereof which has a combined
capital and surplus of at least $200,000,000. Upon the acceptance of any
appointment as Agent hereunder by a successor Agent, such successor Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges,
and duties of the retiring Agent, and the retiring Agent shall be discharged
from any further duties, and obligations under this agreement. After any
retiring Agent's resignation or removal hereunder as Agent, the provisions of
this article shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Agent under this agreement. The appointment of a
successor Agent shall not release the retiring Agent from any liability it may
have for any actions taken or omitted to be taken by it while it was Agent under
this agreement.
11.7 INSPECTION. Agent shall permit any officer, employee, agent of
Borrower or any Lender which may so request to visit and inspect the premises on
which the custodial duties of Agent hereunder are performed, examine the books
and records of Agent which pertain to such custodial duties, take copies and
extracts therefrom, and discuss the performance of such custodial duties with
the officers, accountants and auditors of Agent that are responsible therefor,
all at such reasonable times and as often as Borrower or any Lender may desire.
52 AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------
<PAGE>
SECTION 12. MISCELLANEOUS.
12.1 NONBUSINESS DAYS. Any action that is due under any Loan Document
on a non-Business Day may be delayed until the next Business Day. However,
interest accrues on any payment until it is made.
12.2 COMMUNICATIONS. Unless otherwise stated, a communication under
any Loan Document to a party to this agreement must be written to be effective
and is deemed given:
. For Borrowing Requests, Collateral Delivery-Notices, Shipping
Requests, and Release Requests, only when actually received by Agent.
. Otherwise, if by fax, when transmitted to the appropriate fax number
-- but, without affecting the date deemed given, the fax must be
promptly confirmed by telephone.
. Otherwise, if by mail, on the third Business Day after enclosed in a
properly addressed, stamped, and sealed envelope deposited in the
appropriate official postal service.
. Otherwise, when actually delivered.
Until changed by written notice to each other party to this agreement, the
address and fax number are stated for (a) Borrower and Agent, beside their names
on the signature pages below, and (b) each Lender, beside its name on SCHEDULE
2.
12.3 FORM AND NUMBER OF DOCUMENTS. The form, substance, and number of
counterparts of each writing to be furnished under the Loan Documents must be
satisfactory to Agent and its counsel.
12.4 EXCEPTIONS TO COVENANTS. An exception to any Loan Document
covenant does not permit violation of any other Loan Document covenant.
12.5 SURVIVAL. All Loan Document provisions survive all closings and
are not affected by any investigation made by any party.
12.6 GOVERNING LAW. Unless otherwise stated, each Loan Document must
be construed -- and its performance enforced -- under the Laws of the State of
Texas and the United States of America.
12.7 INVALID PROVISIONS. If any provision of a Loan Document is
judicially determined to be unenforceable, all other provisions of it remain
enforceable. If the provision determined to be unenforceable is a material part
of that Loan Document, then, to the extent lawful, it shall be replaced by a
judicially-construed provision that is enforceable but otherwise as similar in
substance and content to the original provision as the context of it reasonably
allows.
12.8 CONFLICTS BETWEEN LOAN DOCUMENTS. The provisions of this
agreement control if in conflict (i.e., the provisions contradict each other as
opposed to a Loan Document containing additional provisions not in conflict)
with the provisions of any other Loan Document.
12.9 DISCHARGE AND CERTAIN REINSTATEMENT. Borrower's obligations
under the Loan Documents remain in full force and effect until no Lender has any
commitment to extend credit under the Loan Documents and the Obligation is fully
paid (except for provisions under the Loan Documents which by their terms
expressly survive payment of the Obligation and termination of the Loan
Documents). If any payment under
53 AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------
<PAGE>
any Loan Document is ever rescinded or must be restored or returned for any
reason, then all Rights and obligations under the Loan Documents in respect of
that payment are automatically reinstated as though the payment had not been
made when due.
12.10 AMENDMENTS, CONSENTS, CONFLICTS, AND WAIVERS. An amendment of --
or an approval, consent, or waiver by Agent or by one or more Lenders under --
any Loan Document must be in writing and must be:
(A) BORROWER AND AGENT. Executed by Borrower and Agent if it
purports to reduce or increase any fees payable to Agent by Borrower.
(B) BORROWER, AGENT, AND ALL LENDERS. Executed by Borrower and
Agent and executed or approved in writing by all Lenders if action of all
Lenders is specifically provided in any Loan Document or if it purports to
(i) except as otherwise stated in this SECTION 12.10, extend the due date
or decrease the scheduled amount of any payment under -- or reduce the rate
or amount of interest, fees, or other amounts payable to Agent or any
Lender under -- any Loan Document, (ii) change the definition of Borrowing
Base (or any component of it), Commitment Percentage, Determining Lenders,
Market Value, Termination Percentage, Tranche A-Stated-Termination Date,
Tranche B-Stated-Termination Date or Warehouse-Stated-Termination Date, or
(iii) partially or fully release any Guaranty or any Collateral except
releases of Collateral contemplated in this agreement.
(C) BORROWER, AGENT, AND DETERMINING LENDERS. Otherwise (i) for
this agreement, executed by Borrower, Agent, and Determining Lenders, or
(ii) for other Loan Documents, approved in writing by Determining Lenders
and executed by Borrower, Agent, and any other party to that Loan Document.
No course of dealing or any failure or delay by Agent, any Lender, or any of
their respective Representatives with respect to exercising any Right of Agent
or any Lender under the Loan Documents operates as a waiver of that Right. An
approval, consent, or waiver is only effective for the specific instance and
purpose for which it is given. The Loan Documents may only be supplemented by
agreements, documents, and instruments delivered according to their respective
express terms.
12.11 MULTIPLE COUNTERPARTS. Any Loan Document may be executed in any
number of counterparts with the same effect as if all signatories had signed the
same document, and all of those counterparts must be construed together to
constitute the same document. This agreement is effective when counterparts of
it have been executed and delivered to Agent by each Lender, Agent, and
Borrower, or, in the case only of those Lenders, when Agent has received faxed
or other evidence satisfactory to it that each Lender has executed and is
delivering to Agent a counterpart of it.
12.12 PARTIES. This agreement binds and inures to Borrower, each
Lender, Agent, and their respective successors and permitted assigns. Only those
Persons may rely upon or raise any defense about this agreement.
(A) ASSIGNMENT BY COMPANIES. No Company may assign any Rights
or obligations under any Loan Document without first obtaining the written
consent of Agent and all Lenders.
(B) ASSIGNMENT BY LENDER. Any Lender may assign, pledge, and
otherwise transfer all or any of its Rights and obligations under the Loan
Documents either (i) to a Federal Reserve Bank without the consent of any
party to this agreement so long as that Lender is not released from its
obligations under the Loan Documents, or (ii) otherwise in the ordinary
course of its lending business
54 AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------
<PAGE>
and in accordance with all Laws, and with SECTION 12.13 or 12.14 so long as
(A) except for assignments, pledges, and other transfers by a Lender to its
Affiliates, the written consent of Borrower and Agent, which may not be
unreasonably withheld, must be first obtained, (B) the assignment or
transfer (other than a pledge) does not involve a purchase price that
directly or indirectly reflects a discount from face value unless that
Lender first offered that assignment or transfer to the other Lenders on
ratable basis according to their Commitment Percentages, (C) neither
Borrower nor Agent are required to incur any cost or expense incident to
any assignment, pledge, or other transfer by any Lender, all of which are
for the account of the assigning, pledging, or transferring Lender and its
assignee, pledgee, or transferee as they may agree, and (D) if the
Participant or Purchaser is organized under the Laws of any jurisdiction
other than the United States of America or any of its states, it complies
with SECTION 3.13.
(C) OTHERWISE VOID. Any purported assignment, pledge, or other
transfer in violation of this section is void from beginning and not
effective.
12.13 PARTICIPATIONS. Subject to SECTION 12.12(B) and this section and
only if no Default exists, a Lender may at any time sell to one or more Persons
(each a "PARTICIPANT") participating interests in its Commitment and its share
of the Obligation.
(A) ADDITIONAL CONDITIONS. For each participation (i) the
selling Lender must remain -- and the Participant may not become -- a
"Lender" under this agreement, (ii) the selling Lender's obligations under
the Loan Documents must remain unchanged, (iii) the selling Lender must
remain solely responsible for the performance of those obligations, (iv)
the selling Lender must remain the holder of its one or more Notes and its
share of the Obligation for all purposes under the Loan Documents, and (v)
Borrower and Agent may continue to deal solely and directly with the
selling Lender in connection with those Rights and obligations.
(B) PARTICIPANT RIGHTS. The selling Lender may obtain for each
of its Participants the benefits of the Loan Documents related to
participations in its share of the Obligation, but Borrower is never
obligated to pay any greater amount that would be due to the selling Lender
under the Loan Documents calculated as though no participation had been
made. Otherwise, Participants have no Rights under the Loan Documents
except certain permitted voting Rights described below.
(C) PARTICIPATION AGREEMENTS. An agreement for a participating
interest (i) may only provide to a Participant voting Rights in respect of
any amendment of or approval, consent, or waiver under any Loan Document
related to the matters in SECTION 12.10(B) if it also provides for a voting
mechanism that a majority of that selling Lender's Commitment Percentage or
Termination Percentage, as the case may be (whether directly held by that
selling Lender or participated) controls the vote for that selling Lender,
and (ii) may not permit a Participant to assign, pledge, or otherwise
transfer its participating interest in the Obligation to any Person except
any Lender or its Affiliates.
12.14 TRANSFERS. Subject to SECTION 12.12(B) and this section and only
if no Default exists, a Lender may at any time sell to one or more financial
institutions (each a "PURCHASER") all or part of its Rights and obligations
under the Loan Documents.
(A) ADDITIONAL CONDITIONS. The sale (i) must be accomplished by
the selling Lender and Purchaser executing and delivering to Agent and
Borrower an Assignment and (ii) may not occur until the selling Lender pays
to Agent an administrative-transfer fee of $2,500.
55 AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------
<PAGE>
(B) PROCEDURES. Upon satisfaction of the foregoing conditions
and as of the Effective Date in the assignment and assumption agreement,
which may not be before delivery of that document to Agent and Borrower,
then (i) a Purchaser is for all purposes a Lender party to -- with all the
Rights and obligations of a Lender under -- this agreement, with a
Commitment as stated in the assumption agreement, (ii) the selling Lender
is released from its obligations under the Loan Documents to a
corresponding extent, (iii) SCHEDULE 2 is automatically deemed to reflect
the name, address, and Commitment of the Purchaser and the reduced
Commitment of the selling Lender, and Agent shall deliver to Borrower and
Lenders an amended SCHEDULE 2 reflecting those changes, (iv) Borrower shall
execute and deliver to each of the selling Lender and the Purchaser a Note,
each based upon their respective Commitments following the transfer, (v)
upon delivery of the one or more Notes under CLAUSE (IV) above, the selling
Lender shall return to the appropriate Company all Notes previously
delivered to it under this agreement, and (vi) the Purchaser is subject to
all the provisions in the Loan Documents, the same as if it were a Lender
that executed this agreement on its original date.
12.15 JURISDICTION; VENUE; SERVICE OF PROCESS; AND JURY TRIAL. EACH
PARTY, IN EACH CASE FOR ITSELF, ITS SUCCESSORS AND ASSIGNS (AND IN THE CASE OF
BORROWER, FOR EACH OF ITS SUBSIDIARIES), (A) IRREVOCABLY SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN TEXAS, AND
AGREES AND CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON IT IN ANY LEGAL
PROCEEDING ARISING OUT OF OR IN CONNECTION WITH THE LOAN DOCUMENTS AND THE
OBLIGATION BY SERVICE OF PROCESS AS PROVIDED BY TEXAS LAW, (B) IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW
OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY LITIGATION ARISING OUT OF OR IN
CONNECTION WITH THE LOAN DOCUMENTS AND THE OBLIGATION BROUGHT IN ANY SUCH COURT,
(C) IRREVOCABLY WAIVES ANY CLAIMS THAT ANY LITIGATION BROUGHT IN ANY SUCH COURT
HAS BEEN BROUGHT IN AN INCONVENIENT FORUM, (D) AGREES TO DESIGNATE AND MAINTAIN
AN AGENT FOR SERVICE OF PROCESS IN DALLAS, TEXAS, IN CONNECTION WITH ANY SUCH
LITIGATION AND TO DELIVER TO AGENT EVIDENCE THEREOF, IF REQUESTED, (E)
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH LITIGATION BY THE MAILING OF COPIES THEREOF BY CERTIFIED
MAIL, RETURN RECEIPT REQUESTED, POSTAGE PREPAID, AT ITS ADDRESS SET FORTH
HEREIN, (F) IRREVOCABLY AGREES THAT ANY LEGAL PROCEEDING AGAINST ANY PARTY
ARISING OUT OF OR IN CONNECTION WITH THE LOAN DOCUMENTS OR THE OBLIGATION SHALL
BE BROUGHT IN ONE OF THE AFOREMENTIONED COURTS, AND (G) IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY LAW, ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY LOAN DOCUMENT OR
THE TRANSACTIONS CONTEMPLATED THEREBY. The scope of each of the foregoing
waivers is intended to be all-encompassing of any and all disputes that may be
filed in any court and that relate to the subject matter of this transaction,
including, without limitation, contract claims, tort claims, breach of duty
claims, and all other common law and statutory claims. Borrower (for itself and
on behalf of each of its Subsidiaries) and each other party to this agreement
acknowledge that this waiver is a material inducement to the agreement of each
party hereto to enter into a business relationship, that each has already relied
on this waiver in entering into this agreement, and each will continue to rely
on each of such waivers in related future dealings. Borrower (for itself and on
behalf of each of its Subsidiaries) and each other party to this agreement
warrant and represent that they have reviewed these waivers with their legal
counsel, and that they knowingly and voluntarily agree to each such waiver
following consultation with legal Counsel. THE WAIVERS IN THIS SECTION 12.15 ARE
IRREVOCABLE, MEANING THAT THEY MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING,
AND THESE WAIVERS SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, SUPPLEMENTS, AND
REPLACEMENTS TO OR OF THIS OR ANY OTHER LOAN DOCUMENT. In the event of
Litigation, this agreement may be filed as a written consent to a trial by the
court.
57 AMENDED AND RESTATED LOAN AGREEMENT
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<PAGE>
12.16 LIMITATION OF LIABILITY. Neither Agent nor any Lender shall be
liable to any Company for any amounts representing indirect, special, or
consequential damages suffered by any Company, except where such amounts are
based substantially on willful misconduct by Agent or any Lender, but then only
to the extent any damages resulting from such wilful misconduct are covered by
Agent's and the other Lenders' fidelity bond or other insurance.
12.17 ENTIRE AGREEMENT. THE LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
12.18 RESTATEMENT OF EXISTING LOAN AGREEMENT, REPAYMENT OF NON-
PARTICIPATING EXISTING LENDERS, AND SETTLEMENT OF FUNDS. The parties hereto
agree that, on the Closing Date, after all conditions precedent set forth in
SECTION 5 have been satisfied or waived: (a) the Obligation (as defined in this
agreement) represents, among other things, the amendment, extension,
consolidation, and modification of the "Obligation" (as defined in the Existing
Loan Agreement); (b) this agreement is intended to, and does hereby, restate,
renew, extend, amend, modify, supersede, and replace the Existing Loan
Agreement; (c) the Amended and Restated Guaranty executed pursuant to this
agreement as of the Closing Date is intended to, and does hereby, restate,
renew, extend, amend, modify, supersede, and replace the Guaranty executed and
delivered pursuant to the Existing Loan Agreement; (d) the Notes executed
pursuant to this agreement amend, renew, extend, modify, replace, substitute for
and supersede in their entirety (but do not extinguish, the Debt arising under)
the promissory notes issued pursuant to the Existing Loan Agreement (other than
Debt owed to Existing Lenders who are not continuing as a Lender under this
agreement, which Debt is being repaid); and (e) the entering into and
performance of their respective obligations under this agreement and the
transactions evidenced hereby do not constitute a novation. Additionally, the
following allocations and payments by the parties indicated will be made in
order to reflect the amended and restated commitments and the Lenders'
Commitment Percentages thereof:
(a) On the Closing Date, after all conditions precedent set
forth in SECTION 5 have been satisfied or waived, all outstanding
indebtedness under the Existing Loan Agreement owed to any Existing Lender
that has not continued to be a Lender under this Agreement shall be repaid
in full by Borrower and such Existing Lender's commitments under the
Existing Loan Agreement shall be terminated.
(b) Each Lender which was an Existing Lender will fund, if
positive, an amount equal to the difference between (i) its Commitment
Percentage of the Principal Debt outstanding under this agreement,
including, without limitation, its Commitment Percentage of any Borrowings
made, and (ii) its ratable portion of the aggregate unpaid principal
balance of all borrowings under the Existing Loan Agreement.
REMAINDER OF PAGE INTENTIONALLY BLANK
SIGNATURE PAGE FOLLOWS
57 AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------
<PAGE>
EXECUTED as of the date first stated in this agreement.
(address) MATRIX FINANCIAL SERVICES
CORPORATION, as Borrower
Matrix Financial Services Corporation
201 West Coolidge Street
Phoenix, AZ 85013-2710 By_________________________________
Attn: Thomas J. Osselaer, Executive Vice Thomas J. Osselaer, Executive
President Vice President
Tel (602) 631-4357
Fax (602) 631-4370
(address) BANK ONE, TEXAS, N.A., as Agent and
a Lender
Bank One, Texas, N.A., Agent
1717 Main Street, 4th Floor
Dallas, TX 75201 By_________________________________
Attn: Mark L. Freeman, Vice President Mark L. Freeman, Vice President
Tel (214) 290-2780
Fax (214) 290-2054
(wire transfer)
Account # (see account #'s in Loan
Agreement)
Bank: Bank One, Dallas
ABA # 111000614
Attn: Gloria Sadler, (214) 290-6069
Ref: (see account names in Loan Agreement)
SIGNATURE AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------
<PAGE>
SCHEDULE 2
----------
LENDERS AND COMMITMENTS
-----------------------
<TABLE>
<CAPTION>
====================================================================================
WAREHOUSE WORKING TERM-LINE COMBINED
NAME OF LENDER COMMIT- CAPITAL COMMITMENT COMMITMENT
MENT COMMIT- (BY LENDER)
MENT
====================================================================================
<S> <C> <C> <C> <C>
BANK ONE, TEXAS, N.A. $60,000,000 $10,000,000 $30,000,000 $100,000,000
1717 Main Street, 4th Floor
Dallas, TX 75201
Attention: Mark L. Freeman,
Vice President
Fed Tax ID No. 75-2270994
Tel (214) 290-2780
Fax (214) 290-2275
Account # (see account #'s in
Loan Agreement)
Bank: Bank One, Dallas
ABA # 111000614
Attn: Gloria Sadler,
(214) 290-6069
Ref: (see account names in
Loan Agreement)
====================================================================================
TOTAL $60,000,000 $10,000,000 $30,000,000 $100,000,000
====================================================================================
</TABLE>
SCHEDULE 2
----------
<PAGE>
SCHEDULE 4.1
------------
ELIGIBILITY CONDITIONS
----------------------
A. ELIGIBLE-MORTGAGE LOAN. A Mortgage Loan:
1. For which, if it supports a Wet Borrowing, the applicable Wet Period
has not expired.
2. Which is a Conventional Loan, FHA Loan, VA Loan, or Jumbo Loan.
3. The promissory note evidencing which (a) is the standard form approved
by VA, FHA, FNMA, or FHLMC or a form otherwise acceptable to Agent,
(b) has a maturity within 30 years of its origination (or 40 years for
loans being sold to Astoria Federal Savings Bank), (c) is payable or
endorsed (without restriction or limitation) to Borrower's order, (d)
is endorsed in blank by Borrower, (e) is fully funded, and (f) is
valid and enforceable without offset, counterclaim, defense, or right
of recision or avoidance of any kind other than for valid payments
made on it and any exceptions to enforceability under Debtor Laws.
4. For which no default in the payment of principal or interest or any
other default has continued uncured for 90 calendar days, no
foreclosure or other similar proceedings have commenced, and no claim
for any credit, allowance, or adjustment exists.
5. Which is secured by a mortgage, deed of trust, or trust deed that (a)
is the standard form approved by VA, FHA, FNMA, or FHLMC or a form
otherwise acceptable to Agent and (b) grants a first-priority Lien on
residential-real property described below that will be perfected upon
recording.
6. For which the underlying residential-real property (a) consists of
land and (i) a one- to four-family dwelling, or (ii) a condominium
unit that is ready for occupancy, (iii) a manufactured home unit, but
not (iv) a mobile home, a co-op, or a multi-family dwelling for more
than four families, (b) is, if required by Appraisal Laws, covered by
an Appraisal, and (c) is insured against loss or damage by fire and
all other hazards normally included in standard-extended-coverage
insurance (including, without limitation, flood insurance if the
property is in a federally-designated-flood plain) in accordance with
the Collateral Documents for it and Borrower is named as a loss-payee
for that insurance.
7. Which conforms in all material respects with all of the requirements
of a valid and enforceable Take-Out Commitment held by Borrower.
8. The Collateral Documents for which (a) are delivered to Agent within
90 calendar days after the date of the related promissory note, (b)
are in compliance with all Laws, (c) are otherwise in compliance with
the requirements of the Loan Documents and otherwise in form and
substance acceptable to Agent, and (d) are subject to no Liens other
than Lender Liens and other Permitted Liens.
9. Which has been held by Agent for Lenders as an Eligible-Mortgage Loan
for 120 calendar days or less.
SCHEDULE 4.1
------------
<PAGE>
10. Which has not -- and no Collateral Document for which has -- been (a)
sold to an investor and repurchased by Borrower, (b) rejected by an
investor, (c) delivered to an investor or any Person for it for more
than the Shipping Period, or (d) delivered to Borrower for correction
for more than the Correction Period.
11. Which does not otherwise have the characteristics of any other
sublimit under this agreement, other than the Wet Sublimit, Jumbo
Sublimit, or Swing Sublimit, as applicable.
B. ELIGIBLE-GESTATION COLLATERAL. An Eligible-Mortgage Loan:
1. For which Agent has issued its initial certification for inclusion of
that Mortgage Loan in a Mortgage Pool or Borrower has obtained a
specific Take-Out Commitment for an individual Mortgage Loan
evidencing a Dry Borrowing.
2. For which Borrower has delivered to Agent a valid and enforceable
Take-Out Commitment for that Mortgage Loan that is issued by a Person
-- and is in form and substance -- acceptable to Agent.
3. Which has been held by Agent as Eligible-Gestation Collateral for less
than 45 calendar days.
C. ELIGIBLE-COMMITTED-B/C-PAPER LOAN. An otherwise Eligible-Mortgage Loan,
except that:
1. It does not comply with all applicable requirements for purchase under
either the FHLMC Guide, the FNMA Guide, or the GNMA Guide and is
therefore saleable only to investors other than FHLMC, FNMA, or GNMA;
but it otherwise meets the requirements of the traditional secondary
market for B/C-rated Mortgage Loans, rating agencies, and pool
insurers.
2. No default in the payment of principal or interest or any other
default has continued uncured for more than 59 calendar days.
3. The Collateral Documents for which are delivered to Agent within 45
calendar days after the date of the related promissory note.
4. The outstanding principal balance of the Mortgage Loan does not exceed
$300,000.
5. Neither this nor any other any other Mortgage Loan funded under this
agreement is a revolving credit loan.
6. No real property taxes or insurance payments due and payable with
respect to the underlying real property (or escrow installments
therefor) covered by the Mortgage Loan are past due the payment due
date thereof.
D. ELIGIBLE-UNCOMMITTED-B/C-PAPER LOAN. An otherwise Eligible-Committed-B/C-
Paper Loan, except that:
1. It does not conform in all respects with all of the requirements of a
valid and enforceable Take-Out Commitment held by Borrower, but it
otherwise meets the requirements of the traditional secondary market
for B/C-rated Mortgage Loans, rating agencies, and pool insurers.
2 SCHEDULE 4.1
------------
<PAGE>
2. That has been held by Agent for Lenders as an Eligible-Uncommitted-
B/C-Paper Loan for 365 calendar days or less.
E. ELIGIBLE-SECOND-LIEN LOAN. An otherwise Eligible-Mortgage Loan, other than
the fact that it is secured by a mortgage, deed of trust, or trust deed
that grants a second-priority Lien on residential-real property that will
be perfected upon recording.
F. ELIGIBLE-REPURCHASED LOAN. An otherwise Eligible-Mortgage Loan, except
that:
1. It has been purchased by Borrower from a certified GNMA Mortgage Pool
for which Borrower is the issuer/servicer.
2. It is a FHA Loan or VA Loan, but is not a Conventional Loan or Jumbo
Loan.
3. A default in the payment of principal or interest or some other
default may have continued uncured for 90 days or more, but no
foreclosure or similar proceedings have commenced.
4. It is in the process of being modified (or has been modified) in
accordance with GNMA loss mitigation and mortgage modification
procedures and guidelines and Borrower reasonably expects to be
capable of re-conveying such Eligible-Repurchased Loan into a GNMA II
Mortgage Pool. Any such modification must be approved by HUD, if
required.
5. It may or may not be subject to (and conform to) a valid and
enforceable Take-Out Commitment held by Borrower.
6. The Collateral Documents for the Eligible-Repurchased Loan may be
delivered to Agent in excess of 90 days after the date of the related
promissory note.
7. It is eligible in all respects for re-conveyance into a GNMA II
Mortgage Pool, including, without limitation, that (a) not more than
24 months have elapsed since the first installment was due under any
modified mortgage arrangement (see item 4 above), and (b) the term of
the modified mortgage arrangement (see item 4 above) may not exceed
360 months from the due date of the first installment required under
the modified mortgage arrangement (see item 4 above).
G. ELIGIBLE-MORTGAGE SECURITY. A Mortgage Security:
1. Which is valid and enforceable without offset, counterclaim, defense,
or right of recision or avoidance of any kind.
2. Which is guaranteed or issued by either (a) FNMA, FHLMC, or GNMA or
(b) any other Person if (i) Borrower first obtains Determining
Lenders' written approval in their sole discretion and (ii) that other
Person has not been rejected as an issuer or guarantor by notice to
Borrower from Agent or Determining Lenders in their sole discretion.
3. Under which no default exists.
4. Which conforms in all respects with all of the requirements of a valid
and enforceable Take-Out Commitment held by Borrower.
3 SCHEDULE 4.1
------------
<PAGE>
5. The mortgage pool for which consists of Mortgage Loans that were --
before the issuance of that Mortgage Security -- Eligible-Mortgage
Loans constituting part of the Collateral.
6. The Collateral Documents for which (a) have been delivered to or for
Agent, (b) are in compliance with all Laws, (c) are otherwise in form
and substance acceptable to Agent, and (d) are subject to no Liens
other than Lender Liens and other Permitted Liens.
7. Which has been held by Agent for Lenders as an Eligible-Mortgage
Security for a time period that -- when added to the longest-time
period any Mortgage Loan to which it relates was included in the
Collateral as an Eligible-Mortgage Loan -- is 120 calendar days or
less.
H. ELIGIBLE-P&I RECEIVABLES. Every claim by Borrower in respect of a P&I
Payment:
1. Which P&I Payment has been -- or, with the proceeds of a related P&I
Borrowing is to be -- made under a Servicing Contract with FHLMC,
FNMA, GNMA, or an investor approved (and not subsequently disapproved)
from time to time by Agent in writing for such purposes (an "APPROVED-
RECEIVABLES INVESTOR") (a) under which FHLMC, FNMA, GNMA, or that
Approved-Receivables Investor has agreed to reimburse Borrower for all
or part of that P&I Payment (to the extent not reimbursed by the
mortgagor under the related Mortgage Loan) and (b) for which -- at any
time more than 45 days after the Closing Date -- there is in effect,
if applicable, an Acknowledgment Agreement with FHLMC, FNMA, or GNMA
consenting to the Lender Lien in that Servicing Contract and all
Servicing Rights under it.
2. Which claim does not exceed the amount so agreed to be reimbursed.
3. Which claim has not been included in the Borrowing Base for
Receivables for more than 30 calendar days if the claim is not pending
under the Servicing Contract.
4. Which claim (a) is -- or promptly upon payment will be -- valid,
enforceable, liquidated, currently due, and properly filed with FHLMC,
FNMA, GNMA, or an Approved Investor, as the case may be, (b) is not
subject to any reduction or deduction for any setoff, counterclaim,
recoupment, or otherwise, and (c) Borrower expects in good faith full
cash reimbursement from the sources identified in the related
Collateral Documents.
5. For which all of the Collateral Documents have been timely delivered
to Agent under this agreement.
6. Which claim and all related Eligible-P&I Receivables and other
Servicing Rights are subject to a Lender Lien but no other Liens.
I. ELIGIBLE-T&I RECEIVABLES. Every claim by Borrower in respect of a T&I
Payment:
1. Which T&I Payment has been -- or, with the proceeds of a related T&I
Borrowing is to be -- made under a Servicing Contract with FHLMC,
FNMA, GNMA, or an Approved-Receivables Investor (a) under which FHLMC,
FNMA, GNMA, or that Approved-Receivables Investor has agreed to
reimburse Borrower for all or part of that T&I Payment (to the extent
not reimbursed by the mortgagor under the related Mortgage Loan) and
(b) for which -- at any time more than 45 days after the Closing Date
-- there is in effect, if applicable, an Acknowledgment Agreement with
FHLMC, FNMA, or GNMA consenting to the Lender Lien in that Servicing
Contract and all Servicing Rights under it.
4 SCHEDULE 4.1
------------
<PAGE>
2. Which claim does not exceed the amount so agreed to be reimbursed.
3. Which T&I Payment was made -- or is to be -- for a Mortgage Loan that
is current except for the payment of taxes and insurance due in the
year during and for which the T&I Payment was made or payment of
principal and interest and is not otherwise in default or in
foreclosure.
4. Which claim has (a) never been included in the Borrowing Base for
Receivables supporting any previous T&I Borrowing and (b) been
included in the Borrowing Base for Receivables for no more than 270
calendar days.
5. Which claim (a) is -- or promptly upon payment will be -- valid,
enforceable, liquidated, currently due, and properly filed with FHLMC,
FNMA, GNMA, or that Approved-Receivables Investor, as the case may be,
(b) is not subject to any reduction or deduction for any setoff,
counterclaim, recoupment, or otherwise, and (c) Borrower expects in
good faith full cash reimbursement from the sources identified in the
related Collateral Documents.
6. For which all of the Collateral Documents have been timely delivered
to Agent under this agreement.
7. Which claim and all related Eligible-T&I Receivables and other
Servicing Rights are subject to a Lender Lien but no other Liens.
J. ELIGIBLE-FORECLOSURE RECEIVABLES. Every claim by Borrower in respect of a
Foreclosure Payment:
1. Which claim is against VA under a VA Guaranty or FHA or an Approved
PMI under a FHA or Approved PMI insurance policy (or is a claim for
reimbursement from FNMA, FHLMC, or any other Approved Investor) that
(a) guarantees or insures payment of all or part of a Mortgage Loan
repurchased with the Foreclosure Payment, (b) is in full force and
effect, and (c) in the case of an Approved PMI insurance policy, has
been approved by Agent.
2. Which claim does not exceed the amount so guaranteed or insured.
3. Which claim is related to a Mortgage Loan that (a) has been
foreclosed, (b) is not held by Borrower as "other real estate owned,"
and (c) if the claim is against VA, is in a "bid" status.
4. Which claim has (a) never been included in the Borrowing Base for
Receivables supporting any previous Foreclosure Borrowing and (b) been
included in the Borrowing Base for Receivables only for no more than
180 calendar days.
5. Which claim (a) is valid, enforceable, liquidated, currently due, and
properly filed with FHA, VA, or an Approved PMI, as the case may be,
(b) is not subject to any reduction or deduction for any setoff,
counterclaim, recoupment, or otherwise, and (c) Borrower expects in
good faith full cash payment from the sources identified in the
related Collateral Documents.
6. For which all of the Collateral Documents have been timely delivered
to Agent under this agreement.
7. Which claim and all related Eligible-Foreclosure Receivables are
subject to a Lender Lien but no other Liens.
5 SCHEDULE 4.1
------------
<PAGE>
K. ELIGIBLE-SERVICING PORTFOLIO. All of the Servicing Portfolio for which
Borrower owns the Servicing Rights, which are not under any sub-servicing
or master-servicing arrangements and which arise only under Servicing
Contracts with FHLMC, FNMA, or GNMA (advances against non-agency Servicing
Rights will be approved by Determining Lenders on a case-by-case basis),
and which are not currently pledged to another Person.
6 SCHEDULE 4.1
------------
<PAGE>
SCHEDULE 4.2
------------
BORROWING-BASE CALCULATIONS
---------------------------
A. BORROWING BASE FOR MORTGAGE COLLATERAL. The amount equal to:
1. The total collateral value of each item of Eligible-Mortgage
Collateral, which is equal to 98% (except (i) 95% for Eligible-
Committed-B/C-Paper Loans which have been held by Agent for Lenders as
Eligible-Committed-B/C-Paper Loans for more than 60 calendar days,
(ii) 97% for Eligible-Uncommitted-B/C-Paper Loans, (iii) 95% for
Eligible-Second-Lien Loans which have been held by Agent for Lenders
as Eligible-Second-Lien Loans for more than 60 calendar days, and (iv)
97% for Eligible-Repurchased Loans) of the least of its:
(a) unpaid principal balance;
(b) Only in respect of Eligible-Mortgage Loans, face amount less
discounts;
(c) Take-Out Price (or in the case of Eligible-Repurchased Loans, the
amount due from FHA or VA upon re-conveyance of the Eligible-
Repurchased Loan into a GNMA II Mortgage Pool); or
(d) At the election of Agent or Determining Lenders' at any time,
Market Value;
as reduced by the following matters:
2. No more than the Wet Sublimit may be included for Mortgage Loans
supporting Wet Borrowings, and nothing may be included for any
Mortgage Loan supporting a Wet Borrowing upon the expiration of its
applicable Wet Period; and
3. No more than the applicable Jumbo Sublimit may be included for any
Jumbo Loan or for all Jumbo Loans.
B. BORROWING BASE FOR GESTATION COLLATERAL means, at any time, 99% of the
Take-Out Price for Eligible-Gestation Collateral matched to a security
settlement, and 98% of the Take-Out Price for Eligible-Gestation Collateral
matched to a whole loan settlement.
C. BORROWING BASE FOR RECEIVABLES means, at any time, the sum of 95% of all
Eligible-P&I Receivables plus 85% of all Eligible-T&I Receivables plus 80%
of all Eligible-Foreclosure Receivables.
D. BORROWING BASE FOR TERM-LINE means, at any time, 70% of the lesser of (a)
the cost of that portion of the Servicing Portfolio pledged to support each
advance of Term-Line Borrowings, (b) the Appraised Value of that portion of
the Servicing Portfolio pledged to support each advance of Term-Line
Borrowings, and (c) 350% of the average servicing fee for that portion of
the Servicing Portfolio pledged to support each advance of Term-Line
Borrowings.
SCHEDULE 4.2
------------
<PAGE>
E. TAKE-OUT PRICE. For the Mortgage Collateral for which Borrower elects:
1. Designated. To deliver to Agent a Take-Out Commitment designating a
----------
specific Eligible-Mortgage Loan or Eligible-Mortgage Security for
purchase, the amount which the Approved Investor has committed to pay
for that Eligible-Mortgage Loan or Eligible-Mortgage Security.
2. Not Designated. Not to deliver to Agent a Take-Out Commitment
--------------
designating a specific Eligible-Mortgage Loan or Eligible-Mortgage
Security for purchase, an amount determined by Mortgage-Collateral
Group as follows:
(a) As used in this SCHEDULE 4.2, the term "MORTGAGE-COLLATERAL
GROUP" means all Mortgage Collateral bearing the same interest
rate without regard to whether that Mortgage Collateral consists
of Mortgage Loans or Mortgage Securities. In determining any such
grouping, Mortgage Securities are grouped with other Mortgage
Collateral in accordance with the interest rates of the
underlying and related pools of eligible Mortgage Loans and not
by the interest rates appearing on the face of any of the
Mortgage Securities.
(b) The Take-Out Price for each Mortgage-Collateral Group is the
corresponding weighted average Take-Out Commitment price,
expressed as a percentage, determined from all of the respective
Take-Out Commitments for the sale of the items comprising that
Mortgage-Collateral Group held by Borrower at that time --and not
designated for specific Mortgage Collateral under PART E.1.
above -- calculated as follows:
. All Take-Out Commitments are first grouped to correspond to
each related Mortgage-Collateral Group, with the result that
for each Mortgage-Collateral Group there will be a
corresponding group of Take-Out Commitments;
. The aggregate principal balance of Take-Out Commitments in
each group is then determined; and
. The principal balance of each Take-Out Commitment in each
group is then multiplied by the related commitment price and
the sum of the products thereof is divided by the aggregate
principal balance of Take-Out Commitments in each group to
determine the weighted average Take-Out Commitment price.
(c) For all Mortgage Collateral, the corresponding weighted average
Take-Out Commitment price, expressed as a percentage, determined
by DIVIDING (i) the total Take-Out Price for all Mortgage-
Collateral Groups determined above BY (ii) the total principal
amount of all Take-Out Commitments determined above.
If the price in a Take-Out Commitment is stated as a yield and not as
a percentage of par, a yield so stated is converted to a percentage
price by the use of the "Net Yield Tables for GNMA Mortgage
Securities" published by Financial Publishing Company or the "Mortgage
Yield Conversion Tables" published by FNMA, as applicable and
acceptable to Agent.
2 SCHEDULE 4.2
------------
<PAGE>
3 SCHEDULE 4.2
------------
<PAGE>
SCHEDULE 4.3
------------
COLLATERAL PROCEDURES
---------------------
A. MORTGAGE LOAN FOR DRY BORROWING. Delivery of a Mortgage Loan to support a
Dry Borrowing requires delivery to Agent of the following Collateral
Documents -- each of which must be in form and substance satisfactory to
Agent -- in the following manner:
1. A Collateral-Delivery Notice that, among other things, identifies the
documents being delivered to Lender for that Dry Borrowing.
2. The original promissory note evidencing the Mortgage Loan, properly
payable or endorsed to Borrower, and endorsed in blank by Borrower.
3. Assignment from Borrower of the mortgage, deed of trust, or trust deed
securing the Mortgage Loan, executed in blank by Borrower, and in
recordable form.
4. Certified copy of each intervening assignment to Borrower of that
mortgage, deed of trust, or trust deed sent for recording and copies
of all previous-intervening assignments.
5. Certified copy of that original mortgage, deed of trust, or trust deed
sent for recording in the jurisdiction where the property is located.
6. Unless a Take-Out Commitment is specifically not required for the
Borrowing-Purpose Category in question, either (a) a Take-Out
Commitment specifically designating that Mortgage Loan for purchase or
(b) Take-Out Commitments with the take-out prices indicated (unless a
master Take-Out Commitment has already been delivered to, and is on
file with, Agent).
7. Unless Agent has initiated the wire transfer for originating the
Mortgage Loan, a copy of the check evidencing that origination.
8. A data-processing print-out reflecting that Mortgage Loan's loan
number, mortgagor, origination date, original amount, outstanding-
principal balance, interest rate, type of loan, requested advance
amount, and indicating what sublimit, if any, under this agreement the
Mortgage Loan falls under.
9. Any and all other files, documents, instruments, certificates,
correspondence, or other records that are (a) requested by Agent and
(b) deemed by Agent in its sole judgment to be necessary, appropriate,
or desirable.
B. MORTGAGE LOAN FOR WET BORROWING. Delivery of a Mortgage Loan to support a
Wet Borrowing requires delivery to Agent of the following Collateral
Documents -- each of which must be in form and substance satisfactory to
Agent -- in the following manner:
1. A Collateral-Delivery Notice that, among other things, identifies the
documents that must be delivered to Agent before the expiration of the
Wet Period for that Wet Borrowing.
SCHEDULE 4.3
------------
<PAGE>
2. Unless Agent has approved a wire transfer initiated by Borrower for
originating the Mortgage Loan, either (a) a copy of the check
evidencing that origination or (b) evidence that the check for that
origination is held by a title company pending disbursement.
3. A data-processing print-out reflecting that Mortgage Loan's loan
number, mortgagor, origination date, original amount, outstanding-
principal balance, interest rate, type of loan, requested advance
amount, and indicating what sublimit, if any, under this agreement the
Mortgage Loan falls under.
C. MORTGAGE SECURITY. Delivery of a Mortgage Security to support a Dry
Borrowing requires delivery to Agent of the following Collateral Documents
-- each of which must be in form and substance satisfactory to Agent -- in
the following manner:
1. A Collateral-Delivery Notice that, among other things, identifies the
documents being delivered to Lender for that Dry Borrowing.
2. For a Mortgage Security that is not in book-entry form:
(a) The original Mortgage Security.
(b) A bond power endorsed -- or another appropriate instrument of
assignment executed -- by Borrower in blank.
3. For a Mortgage Security that is in book-entry form, confirmation of
either:
(a) The appropriate entry (i) in records of a Federal Reserve Bank of
the nominal ownership by Agent (on behalf of Lenders) of any FNMA
Mortgage Security that constitutes a "FNMA BOOKENTRY SECURITY,"
as defined in the Book-Entry Procedures for FNMA Securities, 24
C.F.R (S)(S) 81.41-81.49 (the "FNMA BOOK-ENTRY PROCEDURES"), or a
FHLMC Mortgage Security that constitutes a "FHLMC BOOKENTRY
SECURITY," as defined in the Federal Home Loan Mortgage
Corporation Book-Entry Regulations, 1 C.F.R. (S)(S) 462.1-462.8
(the "FHLMC BOOK-ENTRY REGULATIONS"), and (ii) by Agent in its
records of Borrower's ownership of that book-entry Mortgage
Security subject to a Lender Lien; or
(b) The (i) appropriate entry by Chemical Bank -- in its capacity as
custodian for Participants Trust Company ("PTC"), GNMA's central
depository -- in its records of the nominal ownership by Agent
(on behalf of Lenders) of any GNMA-guaranteed Mortgage Security,
(ii) the appropriate entry by Agent in its records of Borrower's
ownership of that book-entry Mortgage Security subject to a
Lender Lien, and (iii) receipt by Agent of a confirmation of
transaction in the form of a written advice specifying the amount
and description of that book-entry Mortgage Security subject to
that Lien.
4. Either (a) a Take-Out Commitment specifically designating that
Mortgage Security for purchase or (b) Take-Out Commitments with the
take-out prices indicated (unless a master Take-Out Commitment has
already been delivered to, and is on file with, Agent).
2 SCHEDULE 4.3
------------
<PAGE>
SCHEDULE 5
----------
CLOSING CONDITIONS
------------------
Unless otherwise specified, all dated as of
the Closing Date or a date (a "CURRENT DATE")
within 30 days before the Closing Date.
H&B [1.] AMENDED AND RESTATED LOAN AGREEMENT (the "LOAN AGREEMENT") between
MATRIX FINANCIAL SERVICES CORPORATION, an Arizona corporation
("BORROWER"), certain lenders ("LENDERS"), and BANK ONE, TEXAS, N.A.,
as Agent for Lenders ("AGENT") -- all the terms in which have the same
meanings when used in this schedule --accompanied by:
Schedule 2 - Lenders and Commitments
Schedule 4.1 - Eligibility Conditions
Schedule 4.2 - Borrowing-Base Calculations
Schedule 4.3 - Collateral Procedures
Schedule 5 - Closing Conditions
Schedule 6.2 - Companies
Schedule 6.9 - Litigation and Judgments
Schedule 6.10 - Affiliate Transactions
Exhibit A-1 - Amended and Restated Warehouse Note
Exhibit A-2 - Amended and Restated Swing Note
Exhibit A-3 - Amended and Restated Working-Capital Note
Exhibit A-4 - Amended and Restated Term-Line Note
Exhibit B - Amended and Restated Guaranty
Exhibit C-1 - Amended and Restated Security Agreement
Exhibit C-2 - Financing Statement
Exhibit C-3 - Shipping Request
Exhibit C-4 - Bailee Letter for Investors
Exhibit C-5 - Bailee Letter for Pool Custodian
Exhibit C-6 - Trust Receipt and Agreement
Exhibit C-7 - Release Request
Exhibit D-1 - Borrowing Request
Exhibit D-2 - Collateral-Delivery Notice
Exhibit D-3 - Borrowing-Base Report
Exhibit D-4 - Take-Out Report
Exhibit D-5 - Management Report
Exhibit D-6 - Compliance Certificate
Exhibit D-7 - Collateral-Conversion Notice
Exhibit E - Opinion of Counsel
Exhibit F-1 - Amendment
Exhibit F-2 - Assignment and Assumption Agreement
_______________________
[ ] indicates items not complete at time of this draft of this schedule,
together with names of parties or counsel with responsibility for each.
SCHEDULE 5
----------
<PAGE>
H&B [2.] AMENDED AND RESTATED WAREHOUSE NOTE in the stated principal amount of
$60,000,000, executed by Borrower, payable to the order of Bank One,
Texas, N.A., as the sole initial Lender, and in substantially the form
of EXHIBIT A-1 to the Loan Agreement.
H&B [3.] AMENDED AND RESTATED SWING NOTE in the stated principal amount of
$15,000,000, executed by Borrower, payable to the order of Bank One,
Texas, N.A., in substantially the form of EXHIBIT A-2 to the Loan
Agreement.
H&B [4.] AMENDED AND RESTATED WORKING-CAPITAL NOTE in the stated principal
amount of $10,000,000, executed by Borrower, payable to the order of
Bank One, Texas, N.A., as the sole initial Lender, and in
substantially the form of EXHIBIT A-3 to the Loan Agreement.
H&B [5.] AMENDED AND RESTATED TERM-LINE NOTE in the stated principal amount of
$30,000,000, executed by Borrower, payable to the order of Bank One,
Texas, N.A., as the sole initial Lender, and in substantially the form
of EXHIBIT A-4 to the Loan Agreement.
H&B [6.] AMENDED AND RESTATED GUARANTY executed by MATRIX CAPITAL CORPORATION
as Guarantor, accepted by Agent, and in substantially the form of
EXHIBIT B to the Loan Agreement.
H&B [7.] AMENDED AND RESTATED SECURITY AGREEMENT executed by Borrower as Debtor
and Agent as Secured Party, and in substantially the form of EXHIBIT
C-1 to the Loan Agreement.
H&B [8.] FINANCING STATEMENTS executed Borrower as Debtor and Agent as Secured
Party, for filing with the following UCC filing offices, and in
substantially the form of EXHIBIT C-2 to the Loan Agreement:
<TABLE>
<CAPTION>
=============================================================
NAME JURISDICTION NUMBER DATE
=============================================================
<S> <C> <C> <C>
Borrower Sec. of State, AZ
-------------------------------------------------------------
Sec. of State, TX
-------------------------------------------------------------
Sec. of State, CO
=============================================================
</TABLE>
2 SCHEDULE 5
----------
<PAGE>
9. UCC SEARCH REPORTS for financing statements filed against Borrower as
Debtor with the following UCC filing offices:
<TABLE>
<CAPTION>
==========================================================================================================
Debtor Jurisdiction Search File Number File Description
Date Date
==========================================================================================================
<S> <C> <C> <C> <C> <C>
Matrix Financial Sec. of 12/31/96 840955 08/01/95 Mortgage loans and notes and
Services State AZ (Bank One, related collateral, servicing
Corporation Texas, N.A.) rights, servicing receivables
- ----------------------------------------------------------------------------------------------------------
846583 09/15/95 Leased computer equipment
(Sun Financial
Group, Inc.)
- ----------------------------------------------------------------------------------------------------------
860986 01/03/96 Leased computer equipment
(Sun Financial
Group, Inc.)
- ----------------------------------------------------------------------------------------------------------
941027 10/25/96 Inventory, chattel paper,
(Argo Federal accounts, equipment and general
Savings Bank) intangibles, together with all
accessions, records and proceeds
relating to the foregoing.
- -----------------------------------------------------------------------------------------------------------
926695 07/19/96 Specified servicing rights
(Colorado
National Bank)
- ----------------------------------------------------------------------------------------------------------
Sec. of 01/14/97 962080939 10/28/96 Accounts receivables, proceeds
State, CO (Argo Federal of collateral; equipment, contract
Savings Bank) rights, inventory, and products
of collateral.
- ----------------------------------------------------------------------------------------------------------
19962054695 07/18/96 Specified servicing rights
(Colorado
National Bank)
- ----------------------------------------------------------------------------------------------------------
952052586 07/14/95 Mortgage loans and notes and
(Bank One, related collateral, servicing
Texas, N.A.) rights, servicing receivables
- ----------------------------------------------------------------------------------------------------------
952057164 08/01/95 Mortgage loans and notes and
(Bank One, related collateral, servicing
Texas, N.A.) rights, servicing receivables
- -----------------------------------------------------------------------------------------------------------
Sec. of 01/14/97 95-138581 07/14/95 Mortgage loans and notes and
State, TX (Bank One, related collateral, servicing
Texas, N.A. rights, servicing receivables
- ----------------------------------------------------------------------------------------------------------
</TABLE>
3 SCHEDULE 5
----------
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================================
Debtor Jurisdiction Search File Number File Description
Date Date
==========================================================================================================
<S> <C> <C> <C> <C> <C>
95-146605 08/01/95 Mortgage loans and notes and
(Bank One, related collateral, servicing
Texas, N.A. rights, servicing receivables
- ----------------------------------------------------------------------------------------------------------
</TABLE>
MFSC [10.] TERMINATIONS OR AMENDMENTS OF FINANCING STATEMENTS reflected in the
UCC Search Reports described above that, in the judgment of Agent
and its special counsel, conflict with the priority of the Lender
Liens contemplated by the Loan Documents, each executed by the
appropriate secured party and (if necessary) debtor, and in form
acceptable to Agent for filing with the applicable UCC filing
offices:
<TABLE>
<CAPTION>
====================================================================================================================================
DEBTOR JURISDICTION FILE NO. FILE DATE COMMENTS
====================================================================================================================================
<S> <C> <C> <C> <C>
Borrower Sec. of 941027 Amend within 45 days
State AZ (Argo Federal Savings Bank of the Closing Date
- ------------------------------------------------------------------------------------------------------------------------------------
Sec. of 962080939 Amend within 45 days
State CO (Argo Federal Savings Bank) of the Closing Date
====================================================================================================================================
</TABLE>
H&B [11.] CORPORATE CHARTER for Borrower, certified as of January 24, 1997, by
the Arizona Corporation Commission
H&B [12.] CORPORATE CHARTER for Guarantor, certified as of January 17, 1997,
by the Colorado Secretary of State.
H&B [13.] OFFICERS' CERTIFICATE for Borrower, executed by the President and
Secretary of Borrower as to (a) the due incumbency of its officers
authorized to execute or attest to the Loan Documents, (b)
resolutions duly adopted by its directors approving and authorizing
the execution of the Loan Documents, (c) its corporate charter, (d)
bylaws, to which must be attached
Exhibit A - Resolutions
Exhibit B - Bylaws
Exhibit C - Charter
H&B [14.] OFFICERS' CERTIFICATE for Guarantor, executed by the President and
Secretary of Guarantor as to (a) the due incumbency of its officers
authorized to execute or attest to the Loan Documents, (b)
resolutions duly adopted by its directors approving and authorizing
the execution of the Loan Documents, (c) its corporate charter, (d)
bylaws, to which must be attached
Exhibit A - Resolutions
Exhibit B - Bylaws
Exhibit C - Charter
4 SCHEDULE 5
----------
<PAGE>
H&B [15.] CERTIFICATES OF QUALIFICATION, GOOD STANDING, AND AUTHORITY for
Borrower, issued as of Current Dates by the appropriate Tribunals
for the following jurisdictions:
<TABLE>
<CAPTION>
====================================================================================================================================
COMPANY JURISDICTION CERTIFICATE DATE
====================================================================================================================================
<S> <C> <C>
Matrix Financial Services Arizona Good Standing 01/24/97
Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
California Certificate of Foreign Status 01/24/97
- ------------------------------------------------------------------------------------------------------------------------------------
Colorado Authorization/Good Standing 01/17/97
- ------------------------------------------------------------------------------------------------------------------------------------
Florida Existence/Good Standing 01/24/97
- ------------------------------------------------------------------------------------------------------------------------------------
Georgia Existence 01/24/97
- ------------------------------------------------------------------------------------------------------------------------------------
Iowa Authorization 01/27/97
- ------------------------------------------------------------------------------------------------------------------------------------
Michigan Existence/Good Standing 01/24/97
- ------------------------------------------------------------------------------------------------------------------------------------
Missouri Existence/Good Standing 01/24/97
- ------------------------------------------------------------------------------------------------------------------------------------
North Carolina Authorization 01/24/97
- ------------------------------------------------------------------------------------------------------------------------------------
Ohio Qualification 01/24/97
(Surrendered 07/18/96)
- ------------------------------------------------------------------------------------------------------------------------------------
Texas Existence Forfeited 08/27/96
- ------------------------------------------------------------------------------------------------------------------------------------
Utah Qualification 01/30/97
(Not Registered in State)
- ------------------------------------------------------------------------------------------------------------------------------------
Matrix Capital Corporation Colorado Authorization/Good Standing 01/17/97
====================================================================================================================================
</TABLE>
MFSC [16.] FNMA ACKNOWLEDGMENT AGREEMENT to be executed by Borrower, Agent, and
FNMA, and returned to Agent within 45 days after the Closing Date.
MFSC [17.] FHLMC ACKNOWLEDGMENT AGREEMENT to be executed by Borrower, Agent,
and FHLMC, and returned to Agent, within 45 days after the Closing
Date.
MFSC [18.] GNMA ACKNOWLEDGMENT AGREEMENT to be executed by Borrower, Agent, and
GNMA,, and returned to Agent, within 45 days after the Closing Date.
MFSC [19.] OPINION of counsel to Borrower, addressed to Lender, and addressing
the matters described on EXHIBIT E.
20. Any other documents and items as Agent or any Lender may reasonably
request.
5 SCHEDULE 5
----------
<PAGE>
SCHEDULE 6.2
------------
<TABLE>
<CAPTION>
====================================================================================================================================
COMPANIES
====================================================================================================================================
TRADE NAMES STILL
STATE OF STATES QUALIFIED USED IN LAST USING CHIEF EXECUTIVE OTHER PRINCIPAL
NAME INCORPORATION AS FOREIGN CORP. FOUR MONTHS NAME? Y/N OFFICE OFFICES
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Matrix Financial Services Arizona California Matrix Capital Y 201 West
Corporation Mortgage Corp. Coolidge Street
Phoenix, AZ
85013
- ------------------------------------------------------------------------------------------------------------------------------------
Colorado 5500 E. Yale
Ave., Suite 100
Denver, CO 80222
- ------------------------------------------------------------------------------------------------------------------------------------
Florida
- ------------------------------------------------------------------------------------------------------------------------------------
Georgia 5775 Peachtree
Dunwoody
Suite C120
Atlanta, GA
30342
- ------------------------------------------------------------------------------------------------------------------------------------
Iowa
- ------------------------------------------------------------------------------------------------------------------------------------
Michigan
- ------------------------------------------------------------------------------------------------------------------------------------
Missouri
- ------------------------------------------------------------------------------------------------------------------------------------
North Carolina
- ------------------------------------------------------------------------------------------------------------------------------------
Matrix Funding Corporation Colorado None None NA 201 West
Coolidge Street
Phoenix, AZ
85013
====================================================================================================================================
</TABLE>
<PAGE>
SCHEDULE 6.9
------------
LITIGATION AND JUDGMENTS
------------------------
NONE
SCHEDULE 6.9
------------
<PAGE>
SCHEDULE 6.10
-------------
AFFILIATE TRANSACTIONS
----------------------
1. Borrower subservices loans and servicing portfolios for Matrix Capital Bank
("MCB") and Matrix Capital Corporation ("MCC"), for which Borrower may
receive a fee.
2. Borrower maintains escrow and custodial balances at MCB, for which Borrower
may receive a fee.
3. Borrower retains United Financial, Inc. ("UFI") to act as broker for
purchasing and selling servicing portfolios, for which Borrower may pay a
fee.
4. Borrower creates operating payables and receivables with all Affiliates,
which are extinguished under normal terms and conditions.
SCHEDULE 6.10
-------------
<PAGE>
EXHIBIT C-1
-----------
AMENDED AND RESTATED SECURITY AGREEMENT
---------------------------------------
THIS AGREEMENT is entered into as of January 31, 1997, between MATRIX
FINANCIAL SERVICES CORPORATION, an Arizona corporation ("DEBTOR"), certain
Lenders, and BANK ONE, TEXAS, N.A., as Agent (in that capacity, "SECURED PARTY")
for Lenders.
Debtor, Lenders, and Agent have entered into the Amended and Restated Loan
Agreement (as renewed, extended, amended, or restated, the "LOAN AGREEMENT")
dated as of January 31, 1997. As a continuing inducement to the Lenders to
extend credit to Debtor under the Loan Agreement -- and as a condition precedent
to that credit -- Debtor is executing and delivering this agreement for the
benefit of Lenders and Secured Party.
ACCORDINGLY, for adequate and sufficient consideration, Debtor and Secured
Party agree as follows:
SECTION 1. DEFINITIONS AND REFERENCES. Unless stated otherwise, (a) terms
defined in the Loan Agreement or the UCC have the same meanings when used in
this agreement, and (b) to the extent permitted by Law, if in conflict (i) the
definition of a term in the Loan Agreement controls over the definition of that
term in the UCC, and (ii) the definition of a term in Article 9 of the UCC
controls over the definition of that term elsewhere in the UCC.
"COLLATERAL" is defined in SECTION 2.2 of this agreement.
"DEBTOR" is defined in the preamble to this agreement and includes, without
limitation, Debtor, Debtor as a debtor-in-possession, and any receiver, trustee,
liquidator, conservator, custodian, or similar party appointed for Debtor or for
substantially all of Debtor's assets under any Debtor Law.
"OBLIGOR" means any Person obligated with respect to any Collateral
(whether as an account debtor, obligor on an instrument, issuer of securities,
or otherwise).
"SECURED PARTY" is defined in the preamble to this agreement and includes
its successor appointed and acting as Agent for Lenders under the Loan
Documents.
"SECURITY INTEREST" means the security interest granted and the pledge and
assignment made under SECTION 2.1 of this agreement, which is a Lender Lien
under the Loan Agreement.
SECTION 2. SECURITY INTEREST AND COLLATERAL.
2.1 SECURITY INTEREST. To secure the full payment and performance of the
Obligation, Debtor grants to Secured Party for Lenders a security interest in
the Collateral and pledges and assigns the Collateral to the Secured Party, all
upon and subject to the terms and conditions of this agreement. The grant of
the Security Interest does not subject the Secured Party or any Lender to the
terms of any Collateral Document or in any way transfer, modify, or otherwise
affect (a) any of Debtor's obligations with respect to any Collateral or (b) the
Lender Liens under the Loan Agreement.
2.2 COLLATERAL. As used in this agreement, the term "COLLATERAL" means
the present and future items and types of property described below, whether now
owned or acquired in the future by Debtor. This description of Collateral does
not permit any action prohibited by any Loan Document.
EXHIBIT C-1
-----------
<PAGE>
(a) In respect of the Mortgage Collateral all present and future:
. Mortgage Loans from time to time identified to Secured Party
as Collateral.
. All Collateral Documents in any way related to any Mortgage
Loans identified as Collateral -- including, without
limitation, all promissory notes evidencing and all
mortgages, deeds of trust, or trust deeds securing those
Mortgage Loans -- whether deposited with or held by or for
Secured Party under this agreement, identified by Debtor as
Collateral for a Wet Borrowing, or otherwise.
. Private-mortgage insurance (including, without limitation,
all commitments to issue any such insurance) covering -- and
all commitments issued by FHA to insure or issued by VA to
guarantee --any Mortgage Loans identified as Collateral.
. Security of any kind pledged by a mortgagor for any Mortgage
Loan identified as Collateral.
. Casualty insurance assigned to Debtor in connection with any
Mortgage Loan identified as Collateral.
. Mortgage Securities deposited with or held by or for Secured
Party under the Loan Documents or registered by book-entry
in Secured Party's name under the Loan Documents.
. Guaranties related to Mortgage Securities identified as
Collateral.
. Take-Out Commitments held by Debtor for any Mortgage Loans
or Mortgage Securities identified as Collateral, Rights to
deliver those Mortgage Loans or Mortgage Securities, as the
case may be, to the investors or other purchasers under
those Take-Out Commitments, and all proceeds resulting from
the sale of any of those Mortgage Loans or Mortgage
Securities under those Take-Out Commitments.
. Any Collateral otherwise described in this agreement that
may from time to time be delivered (a) to an investor under
SECTION 4.5 of the Loan Agreement until purchased and paid
for by that investor or (b) for correction under SECTION 4.6
of the Loan Agreement.
(b) In respect of the Servicing Portfolio, all present and future:
. Servicing Rights pertaining in any way to Debtor's Servicing
Contracts with FHLMC, FNMA, or GNMA, or other private
investor together with all present and future sums paid or
payable to Debtor on account of, or as a result of the
performance of, those Servicing Rights, whether as
compensation for the performance by Debtor, damages related
to any of the foregoing, amounts payable upon cancellation
or termination hereof, or otherwise.
2 EXHIBIT C-1
-----------
<PAGE>
. Servicing Receivables.
(c) The Warehouse Account, Settlement Account, and Servicing Account
and all amounts deposited in them or represented by them.
(d) In respect of all of the Collateral otherwise described in
SECTIONS 2(A), 2(B), and 2(C), all present and future.
. Personal property, contract rights, accounts, and general
intangibles of any kind whatsoever relating to any
Collateral.
. All receivables arising due to a P&I Payment, T&I Payment,
or a Foreclosure Payment.
. All files, surveys, certificates, correspondence,
appraisals, tapes, discs, cards, accounting records, and
other information and data of Debtor relating to any other
Collateral -- including, without limitation, all
information, data, tapes, discs, and cards necessary to
administer and service any Mortgage Loan identified as
Collateral.
. Cash and noncash proceeds of any Collateral.
SECTION 3. REPRESENTATIONS AND WARRANTIES. By entering into this agreement,
and by each subsequent delivery of additional Collateral under this agreement,
Debtor reaffirms the representations and warranties contained in the Loan
Agreement. Debtor further represents and warrants to Secured Party for Lenders
as follows:
3.1 CONCERNING THE COLLATERAL. All Collateral (a) is genuine and in all
respects what it purports to be, (b) is the legal, valid, and binding obligation
of each Obligor (except as enforceability may be limited by Debtor Laws), (c) is
free from any claim for credit, deduction, or allowance of any Obligor and free
from any defense, dispute, setoff, or counterclaim (other than for payments made
in respect of it), (d) if a Mortgage Loan, was originated and is in compliance
with all Laws (including, without limitation, all usury Laws, the Real Estate
Settlement Procedures Act of 1974, the Equal Credit Opportunity Act, the Federal
Truth in Lending Act, Regulation Z promulgated by the Board of Governors of the
Federal Reserve System, and all applicable federal and state consumer protection
Laws, (e) if a Mortgage Security, is duly authorized and validly issued, the
transfer of which is not subject to any restrictions other than under the Loan
Documents, (f) if a Take-Out Commitment or other contract, is in full force and
effect without any material default having occurred by any party to it, and (g)
conforms to the applicable requirements of eligibility under SCHEDULE 4.1 to the
Loan Agreement.
3.2 OWNERSHIP AND PRIORITY. Debtor has full legal and beneficial
ownership of all Collateral, free and clear of all Liens except Permitted Liens.
3.3 CREATION AND PERFECTION. The Security Interest is created and
perfected on (a) each promissory note that evidences a Mortgage Loan identified
as Collateral and that is delivered to Secured Party, (b) each promissory note
that evidences a Mortgage Loan identified by Debtor to Secured Party as
supporting a Wet Borrowing for 21 days after the Borrowing Date for that
Borrowing, (c) each Mortgage Security in certificated form that is delivered to
Secured Party, (d) each Mortgage Security in book-entry form when notice of the
Security Interest is given to the financial institution in whose favor that
security has been issued and that institution confirms that notice, (e) all
Mortgage Collateral shipped to any Approved Investor under
3 EXHIBIT C-1
-----------
<PAGE>
SECTION 4.5 of the Loan Agreement (and the Security Interest continues to be
perfected until Secured Party receives either payment or Mortgage Securities
under that section), (f) all Mortgage Collateral shipped to Debtor for
correction under SECTION 4.6 of the Loan Agreement (and the Security Interest
continues to be perfected for 21 days after that shipment), and (g) all other
Collateral upon possession or the filing of the Financing Statements.
SECTION 4. COVENANTS. Until all commitments by Secured Party and Lenders to
extend credit under the Loan Agreement have been canceled or terminated and the
Obligation is fully paid and performed, Debtor covenants and agrees with Secured
Party for Lenders as follows:
4.1 CONCERNING THE COLLATERAL. Debtor (a) shall fully perform all of its
duties under and in connection with each transaction to which any Collateral
relates, (b) shall promptly notify Secured Party about any change in any fact or
circumstances represented or warranted by Debtor about any Collateral, (c) shall
promptly notify Secured Party of any claim, action, or proceeding affecting
title to any Collateral or the Security Interest and, at Secured Party's request
and Debtor's expense, appear in and defend that action or proceeding, (d) shall
hold in trust for Secured Party all Collateral not delivered to Secured Party
(without excusing any failure to deliver Collateral Documents to Secured Party
as required by this agreement) and mark that Collateral on Debtor's records that
it is subject to the Security Interest (but the failure to do so does not impair
the Security Interest or its priority), (e) other than collections under SECTION
4.3 below, Debtor shall pay and deliver to Secured Party all items and types of
property into which any Collateral may be converted (all of which is subject to
the Security Interest) and properly endorse, assign, or take such other action
as Secured Party may request in order to maintain and continue the Security
Interest in that property, (f) may not compromise, extend, release, or adjust
payments on any Mortgage Collateral, accept a conveyance of mortgaged property
in full or partial satisfaction of any Mortgage Loan, or release any mortgage,
deed of trust, or trust deed securing or underlying any Mortgage Collateral, and
(g) may not agree to the amendment, termination, or substitution of any Take-Out
Commitment covered by the Security Interest if that amendment, termination, or
substitution would be a Material-Adverse Event.
4.2 INSURANCE. Debtor shall keep the Collateral fully insured in the
amounts, against the risks, and with insurers as may be approved by Secured
Party, with loss payable to Secured Party as its interest (on behalf of Lenders)
may appear.
4.3 COLLECTIONS. Debtor shall, at its sole cost and expense, whether
requested to by Secured Party or in the absence of such a request, take all
actions reasonably necessary, to obtain payment, when due and payable, of all
amounts due or to become due from Obligors with respect to any Collateral.
Debtor may not agree to any rebate, refund, compromise, or extension with
respect to any Collateral or accept any prepayment on account of any Collateral
other than in a manner and to the extent consistent with or as may otherwise be
provided in various servicing agreements to which it is a party or subject.
(A) NO DEFAULT. While no Default exists, Debtor shall make all of
those collections, shall maintain such escrow accounts and otherwise comply
with the servicing agreements to which it is a party or subject, and may
otherwise retain and use the proceeds of those collections in the ordinary
course of its business.
(B) DEFAULT. While a Default exists, and upon the request of Secured
Party, Debtor shall (i) notify and direct each Obligor to make payments on
the Collateral to Secured Party for deposit into such accounts as it may
designate so as to be held as Collateral under this agreement and (ii)
otherwise turn over to Secured Party, in the form received and with any
necessary endorsements, all payments it receives in respect of any
Collateral for deposit into such accounts as Secured Party may designate to
be held as Collateral under this agreement. Secured Party may at any time
apply any amounts in
4 EXHIBIT C-1
-----------
<PAGE>
those accounts as a payment of the Obligation, other than mortgage escrow
payments that are deposited into escrow accounts in accordance with the
applicable Guide or servicing contract.
4.4 CONCERNING DEBTOR. Without first giving Secured Party 30 days notice
(or fewer if agreed to in writing by Secured Party) of the intention to do any
of the following and performing such acts and executing and delivering to
Secured Party such additional documents as Secured Party requests in order to
continue or maintain the existence and priority of the Security Interest, Debtor
may not (a) use or transact business under any corporate, assumed, or trade
name, except as represented in the Loan Agreement, (b) relocate its chief
executive offices or principal place of business, or (c) move or surrender
possession of its books and records regarding the Collateral.
SECTION 5. DEFAULT AND REMEDIES. If a Default exists, then Secured Party may,
at its election (but subject to the terms and conditions of the Loan Agreement),
exercise any and all Rights available to a secured party under the UCC, in
addition to any and all other Rights afforded by the Loan Documents, at law, in
equity, or otherwise, including, without limitation (a) requiring Debtor to
assemble all or part of the Collateral and make it available to Secured Party at
a place to be designated by Secured Party which is reasonably convenient to
Debtor and Secured Party, (b) surrendering any policies of insurance on all or
part of the Collateral and receiving and applying the unearned premiums as a
credit on the Obligation, (c) applying by appropriate judicial proceedings for
appointment of a receiver for all or part of the Collateral (and Debtor hereby
consents to any such appointment), and (d) applying to the Obligation any cash
held by Secured Party or any Lender under the Loan Documents.
5.1 NOTICE. Reasonable notification of the time and place of any public
sale of the Collateral, or reasonable notification of the time after which any
private sale or other intended disposition of the Collateral is to be made,
shall be sent to Debtor and to any other Person entitled to notice under the
UCC. If any Collateral threatens to decline speedily in value or is of the type
customarily sold on a recognized market, Secured Party may sell or otherwise
dispose of the Collateral without notification, advertisement, or other notice
of any kind. Notice sent or given not less than five calendar days before the
taking of the action to which the notice relates is reasonable notification and
notice for the purposes of this section.
5.2 APPLICATION OF PROCEEDS. Secured Party shall apply the proceeds of
any sale or other disposition of the Collateral under this SECTION 5 in the
order and manner specified in SECTION 3.5 of the Loan Agreement. Any surplus
remaining shall be delivered to Debtor or as a court of competent jurisdiction
may direct. If the proceeds are insufficient to pay the Obligation in full,
Debtor remains liable for any deficiency.
SECTION 6. OTHER RIGHTS.
6.1 PERFORMANCE. If Debtor fails to pay when due all Taxes on any of the
Collateral, or to preserve the priority of the Security Interest in any of the
Collateral, or to keep the Collateral insured as required by this agreement, or
otherwise fail to perform any of its obligations under any Loan Documents or
Collateral Documents with respect to the Collateral, then Secured Party may, at
its option, but without being required to do so, pay such Taxes, prosecute or
defend any suits in relation to the Collateral, or insure and keep insured the
Collateral in any amount deemed appropriate by Secured Party, or take all other
action which Debtor is required, but has failed or refused, to take under the
Loan Documents or Collateral Documents. Any sum which may be expended or paid
by Secured Party under this section (including, without limitation, court costs
and attorneys' fees) shall bear interest from the dates of expenditure or
payment at the Default Rate until paid and, together with such interest, shall
be payable by Debtor to Secured Party upon demand and is part of the Obligation.
5 EXHIBIT C-1
-----------
<PAGE>
6.2 COLLECTION.
(A) ACTIONS. When Secured Party is entitled under SECTION 4.3 above
to make collection on any Collateral, it may in its own name or in the name
of Debtor (i) compromise or extend the time of payment with respect to any
Collateral for such amounts and upon such terms as Secured Party may
determine, (ii) demand, collect, receive, receipt for, sue for, compound,
and give acquittance for any and all amounts due or to become due with
respect to Collateral, (iii) take control of cash and other proceeds of any
Collateral, (iv) endorse Debtor's name on any notes, acceptances, checks,
drafts, money orders, or other evidences of payment on Collateral that may
come into Secured Party's possession, (v) sign Debtor's name on any invoice
or bill of lading relating to any Collateral, on any drafts against
Obligors or other Persons making payment with respect to Collateral, on
assignments and verifications of accounts or other Collateral and on
notices to Obligors making payment with respect to Collateral, (vi) send
requests for verification of obligations to any Obligor, (vii) do all other
acts and things necessary to carry out the intent of this agreement, and
(viii) authorize any servicer in respect of any Collateral to any one or
more of the foregoing on Secured Party's behalf.
(B) OTHER MATTERS. If any Obligor fails or refuses to make payment on
any Collateral when due, Secured Party is authorized, in its sole
discretion, either in its name or in Debtor's name, to take such action as
Secured Party deems appropriate for the collection of any amounts owed with
respect to Collateral or upon which a delinquency exists. Regardless of
any other provision, however, Secured Party is never liable for its failure
to collect, or for its failure to exercise diligence in the collection of,
any amounts owed with respect to Collateral and is not under any duty
whatever to anyone except Debtor to account for funds that it actually
receives. Without limiting the generality of the foregoing, Secured Party
has no responsibility for ascertaining any maturities, calls, conversions,
exchanges, offers, tenders, or similar matters relating to any Collateral,
or for informing Debtor with respect to any of such matters (irrespective
of whether Secured Party actually has, or may be deemed to have, knowledge
thereof). Secured Party's receipt to any Obligor is a full and complete
release, discharge, and acquittance to that Obligor, to the extent of any
amount so paid to Secured Party.
6.3 POWER OF ATTORNEY. Debtor irrevocably appoints Secured Party --
acting on behalf of Lenders -- as its attorney-in-fact (with full power of
substitution) for, on behalf, and in the name of Debtor to (a) endorse and
deliver to any Person any check, instrument, or other document received by
Secured Party or any Lender that represents payment in respect of any
Collateral, (b) prepare, complete, execute, deliver, and record any assignment
of any mortgage, deed of trust, or trust deed securing any Mortgage Loan or
Mortgage Security, (c) endorse and deliver or otherwise transfer any promissory
note evidencing any Mortgage Loan or Mortgage Security and do every other thing
necessary or desirable to effect transfer of all or any Collateral, (d) take all
necessary and appropriate action with respect to any Obligation or any
Collateral, (e) commence, prosecute, settle, discontinue, defend, or otherwise
dispose of any claim relating to any Collateral, and (f) sign that Debtor's name
wherever appropriate to effect the performance of this agreement and the Loan
Agreement. This section shall be liberally, not restrictively, construed to
give the greatest latitude to Secured Party's power as the Debtor's attorney-in-
fact to collect, sell, and deliver any Collateral and all other documents
relating to it. The powers and authorities conferred on Secured Party in this
section (w) are discretionary and not obligatory on the part of Secured Party,
(x) may be exercised by Secured Party through any Person who, at the time of the
execution of a particular document, is an officer of Secured Party, (y) may not
be exercised by Secured Party unless a Default exists, and (z) is granted for a
valuable consideration, coupled with an interest, and irrevocable until -- and
all Persons dealing with Secured Party, any of its officers acting under this
section, or any substitute are fully protected in treating the powers and
authorities conferred by this section as existing and continuing in full force
and effect until advised by Secured Party that -- all commitments under the Loan
Agreement to extend credit under this agreement have been terminated or canceled
and the Obligation is fully paid and performed.
6 EXHIBIT C-1
-----------
<PAGE>
SECTION 7. MISCELLANEOUS.
7.1 MISCELLANEOUS. Because this agreement is a "Loan Document" referred
to in the Loan Agreement, the provisions relating to Loan Documents in SECTIONS
1 AND 11 of the Loan Agreement are incorporated into this agreement by reference
the same as if included in this agreement verbatim.
7.2 TERM. This agreement terminates upon full payment and performance of
the Obligation. No Obligor is ever obligated to make inquiry of the termination
of this agreement but is fully protected in making any payments on the
Collateral directly to Secured Party.
7.3 MATTERS NOT RELEVANT. The Security Interest, Debtor's obligations,
and Secured Party's and Lenders' Rights under this agreement are not released,
diminished, impaired, or adversely affected by any one or more of the following:
(a) Secured Party's or any Lender taking or accepting any additional -- or any
release, surrender, exchange, subordination, or loss of any other -- guaranty,
assurance, or security for any of the Obligation; (b) any full or partial
release of any other Person obligated on any of the Obligation; (c) the
modification or assignment of -- or waiver of compliance with -- any other Loan
Document; (d) any present or future insolvency, bankruptcy, or lack of
corporate, partnership, or trust power of any other Person obligated on any of
the Obligation; (e) any renewal, extension, or rearrangement of any of the
Obligation, or any adjustment, indulgence, forbearance, or compromise granted to
any Person obligated on any of the Obligation; (f) any Person's neglect, delay,
omission, failure, or refusal to take or prosecute any action in connection with
any of the Obligation; (g) any existing or future affect, claim, or defense
(other than the defense of full and final payment of the Obligation) of Debtor
or any other Person against Secured Party or any Lender; (h) the
unenforceability of any of the Obligation against any Person obligated or any of
the Obligation because it exceeds the amount permitted by Law, the act of
creating it is ultra vires, or the officers, partners, or trustees creating it
exceeded their authority or violated their fiduciary duties, or otherwise; (i)
any payment of the Obligation is held to constitute a preference under any
Debtor Law or for any other reason Secured Party or any Lender is required to
refund any payment or make payment to another Person; or (j) any Person's
failure to notify Debtor, Secured Party, or any Lender of their acceptance of
this agreement or any Person's failure to notify Debtor about the foregoing
events or occurrences, and Debtor waives any notice of any kind under any
circumstances whatsoever with respect to this agreement or any of the Obligation
other than as specifically provided in this agreement.
7.4 WAIVERS. Except to the extent expressly otherwise provided in the
Loan Documents, Debtor waives (a) any Right to require Secured Party or any
Lender to proceed against any other Person, to exhaust its Rights in the
Collateral, or to pursue any other Right which Secured Party or any Lender may
have, and (b) all Rights of marshaling in respect of the Collateral.
7.5 FINANCING STATEMENT. Secured Party may, at any time, file this
agreement or a carbon, photographic, or other reproduction of this agreement as
a financing statement, but Secured Party's failure to do so does not impair the
validity or enforceability of this agreement.
7.6 PARTIES. This agreement binds and inures to Debtor, Secured Party,
and each Lender, and their respective successors and permitted assigns. Only
those Persons may rely or raise any defense about this agreement.
(A) ASSIGNMENTS. Debtor may not assign any Rights or obligations
under this agreement without first obtaining the written consent of Secured
Party and all Lenders. Secured Party's Rights under this agreement may be
assigned to any successor agent appointed under the Loan Agreement. Any
Lender may assign, pledge, and otherwise transfer all or any of its Rights
under this agreement to any participant or transferee permitted by the Loan
Agreement.
7 EXHIBIT C-1
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<PAGE>
(B) SECURED PARTY. Secured Party is the agent for each Lender.
Secured Party may, without the joinder of any Lender, exercise any Rights
in favor of any of them under this agreement. The Rights of Secured Party
and Lenders vis-a-vis each other may be subject to other agreements between
them. Neither Debtor nor its successors or permitted assigns need to
inquire about any such agreement or be subject to the terms of it unless
they join in it and, therefore, are not entitled to the benefits of any
such agreement or entitled to rely upon or raise as a defense the failure
of any party to comply with it.
7.7 ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
7.8 AMENDMENT AND RESTATEMENT. This Amended and Restated Security
Agreement amends, restates, and supersedes in its entirety, the Security
Agreement executed by the undersigned and delivered in accordance with the
Existing Loan Agreement.
REMAINDER OF PAGE INTENTIONALLY BLANK
SIGNATURE PAGE FOLLOWS
8 EXHIBIT C-1
-----------
<PAGE>
EXECUTED as of the date first stated above.
MATRIX FINANCIAL SERVICES BANK ONE, TEXAS, N.A., AGENT, as
CORPORATION, as Debtor Secured Party
By ---------------------------------- By -------------------------------
Thomas J. Osselaer, Executive Vice Mark L. Freeman, Vice President
President
SIGNATURE PAGE AMENDED AND RESTATED SECURITY AGREEMENT
---------------------------------------
<PAGE>
THIS DOCUMENT Haynes and Boone, L.L.P.
PREPARED BY AND WHEN 901 Main Street, 32nd Floor
FILED RETURN TO: Dallas, Texas 75202-3789
Attention: Brett H. Todd
EXHIBIT C-2
-----------
FINANCING STATEMENT
-------------------
THIS FINANCING STATEMENT IS PRESENTED TO A FILING OFFICER
FOR FILING UNDER THE UNIFORM COMMERCIAL CODE.
===============================================================================
DEBTOR'S NAME AND MAILING ADDRESS:
- -------------------------------------------------------------------------------
SECURED PARTY'S NAME AND MAILING Bank One, Texas, N.A., Agent/*/
ADDRESS: 1717 Main Street - Fourth Floor
Dallas, Texas 75201
FED. TAX ID NO. 75-2270994
- --------------------------------------------------------------------------------
FOR FILING OFFICER:
================================================================================
THIS FINANCING STATEMENT COVERS THE FOLLOWING PRESENT AND FUTURE TYPES AND
ITEMS OF PROPERTY AND INTERESTS, WHETHER NOW OWNED OR ACQUIRED IN THE FUTURE BY
DEBTOR
(THE "COLLATERAL"):
Terms defined on SCHEDULE 1 attached to this financing statement have the same
meanings when used below:
(a) In respect of the Mortgage Collateral all present and future:
. Mortgage Loans from time to time identified to Secured Party as
Collateral.
. All Collateral Documents in any way related to any Mortgage Loans
identified as Collateral --including, without limitation, all
promissory notes evidencing and all mortgages, deeds of trust, or
trust deeds securing those Mortgage Loans -- whether deposited
with or held by or for Secured Party under this agreement,
identified by Debtor as Collateral for a Wet Borrowing, or
otherwise.
. Private-mortgage insurance (including, without limitation, all
commitments to issue any such insurance) covering -- and all
commitments issued by FHA to insure or issued by VA to
guarantee -- any Mortgage Loans identified as Collateral.
. Security of any kind pledged by a mortgagor for any Mortgage Loan
identified as Collateral.
. Casualty insurance assigned to Debtor in connection with any
Mortgage Loan identified as Collateral.
_______________________
* Secured Party is serving as Agent under the Loan Agreement, and the
security interest evidenced by this financing statement, as amended from
time to time, is granted to Secured Party in that capacity on behalf of
Lenders.
EXHIBIT C-2
-----------
<PAGE>
. Mortgage Securities deposited with or held by or for Secured
Party under the Loan Documents or registered by book-entry in
Secured Party's name under the Loan Documents.
. Guaranties related to Mortgage Securities identified as
Collateral.
. Take-Out Commitments held by Debtor for any Mortgage Loans or
Mortgage Securities identified as Collateral, Rights to deliver
those Mortgage Loans or Mortgage Securities, as the case may be,
to the investors or other purchasers under those Take-Out
Commitments, and all proceeds resulting from the sale of any of
those Mortgage Loans or Mortgage Securities under those Take-Out
Commitments.
. Any Collateral otherwise described in this agreement that may
from time to time be delivered (a) to an investor under SECTION
4.5 of the Loan Agreement until purchased and paid for by that
investor or (b) for correction under SECTION 4.6 of the Loan
Agreement.
(b) In respect of the Servicing Portfolio, all present and future:
. Servicing Rights pertaining in any way to Debtor's Servicing
Contracts with FHLMC, FNMA, or GNMA, or any private investor
together with all present and future sums paid or payable to
Debtor and on account of, or as a result of the performance of,
those Servicing Rights, whether as compensation for the
performance by Debtor, damages related to any of the foregoing,
amounts payable upon cancellation or termination hereof, or
otherwise.
. Servicing Receivables.
(c) The Warehouse Account, Settlement Account, and Servicing Account
and all amounts deposited in them or represented by them.
(d) In respect of all of the Collateral otherwise described in
SECTIONS 2(A), 2(B), and 2(C), all present and future.
. Personal property, contract rights, accounts, and general
intangibles of any kind whatsoever relating to any Collateral.
. All receivables arising due to a P&I Payment, T&I Payment, or a
Foreclosure Payment.
. All files, surveys, certificates, correspondence, appraisals,
tapes, discs, cards, accounting records, and other information
and data of Debtor relating to any other Collateral -- including,
without limitation, all information, data, tapes, discs, and
cards necessary to administer and service any Mortgage Loan
identified as Collateral.
. Cash and noncash proceeds of any Collateral.
The security interest referred to in this financing statement is subject
and subordinate in each and every respect (a) to all rights, powers and
prerogatives of one or more of the following: the Federal Home Loan Mortgage
Corporation ("FREDDIE MAC"), the Federal National Mortgage Association ("FANNIE
MAE"), the Government National Mortgage Corporation ("GINNIE MAE"), or such
other investors that own mortgage loans, or which guaranty payments on
securities based on and backed by pools of mortgage loans, identified on the
exhibit(s) or schedule(s) attached to this financial statement (the
"INVESTORS"); and (b) to all claims of an Investor arising out of any and all
defaults and outstanding obligations of the debtor to the Investor. Such rights,
powers and prerogatives of the Investors may include, without limitation, one or
more of the following: the right of an Investor to disqualify the debtor from
participating in a mortgage selling or servicing program or a securities
guaranty program with the Investor; the right to terminate contract rights of
the debtor relating to such a mortgage selling or servicing program or
securities guaranty program; and the right to transfer and sell all or any
portion of such contract rights following the termination of those rights.
The Security Interest created by this financial statement is subject and
subordinate to all rights, powers, and prerogatives of Fannie Mae under and in
connection with (i) the terms and conditions of that certain Acknowledgment
Agreement, with respect to the Security Interest, by and between Fannie Mae,
Mortgage Financial Service Corporation (the "DEBTOR") and Bank One, Texas, N.A.,
(ii) the Mortgage Selling and Servicing Contract and all applicable Pool
Purchase Contracts between Fannie Mae and the Debtor, and (iii) the Selling
Guide, Servicing Guide, and other Guides, as each of such Guides is amended from
time to time ((ii) and (iii) collectively, the "FANNIE MAE CONTRACT"), which
rights, powers, and prerogatives include, without limitation, the right of
Fannie Mae to terminate the Fannie Mae Contract with or without cause and the
right to sell, or have transferred, the Servicing Rights as therein provided.
d-0 2 EXHIBIT C-2
-----------
<PAGE>
DEBTOR: SECURED PARTY:
MATRIX FINANCIAL SERVICES CORPORATION BANK ONE, TEXAS, N.A., as Agent
for Lenders*
By __________________________ By ________________________
Thomas J. Osselaer, Mark L. Freeman,
Executive Vice President Vice President
d-0 3 EXHIBIT C-2
----------
<PAGE>
SCHEDULE I
----------
DEFINITIONS ATTACHED TO FINANCING STATEMENT
FROM MATRIX FINANCIAL SERVICES CORPORATION, AS DEBTOR, TO
BANK ONE, TEXAS, N.A., AGENT, AS SECURED PARTY
COLLATERAL DOCUMENTS means the documents and other items described on
SCHEDULE 4.3 to the Loan Agreement and required to be delivered to Secured Party
under SECTION 4.3 of the Loan Agreement.
FHA means the Federal Housing Administration within the United States
Department of Housing and Urban Development or its successor.
FHLMC means the Federal Home Loan Mortgage Corporation or its successor.
FNMA means the Federal National Mortgage Association or its successor.
FORECLOSURE PAYMENT means the unreimbursed purchase price paid by Debtor to
repurchase a defaulted Mortgage Loan out of a Mortgage Pool in accordance with
Debtor's obligations under the applicable Servicing Contract.
GNMA means the Government National Mortgage Association or its successor.
LENDERS means, at any time, the lenders that are party to the Loan
Agreement.
LOAN AGREEMENT means the Loan Agreement dated as of January 31, 1996,
between Debtor, Lenders, and Secured Party as Agent for Lenders, as renewed,
extended, amended, or restated.
MORTGAGE SECURITY means a security -- in respect of an underlying pool of
related Mortgage Loans -- that provides for payment by the issuer to the holder
of specified principal installments and a fixed-interest rate on the unpaid
balance, with all prepayments being passed through to the holder, whether issued
in certificate or book-entry form.
MORTGAGE LOAN means a loan that is not a construction or non-residential
commercial loan, is evidenced by a valid promissory note, and is secured by a
mortgage, deed of trust, or trust deed that grants a perfected first-priority
lien on the residential-real property.
P&I PAYMENT means an unreimbursed advance or payment by Debtor to effect
the timely payment of scheduled principal and interest on Mortgage Securities
that are backed by a Mortgage Pool serviced by Debtor in accordance with
Debtor's obligations under the applicable Servicing Contract to cover a short-
fall between the principal and interest collected from mortgagors in respect of
that Mortgage Pool and the principal and interest due on those Mortgage
Securities.
SERVICING PORTFOLIO means, at any time, the total unpaid principal amount
of Mortgage Loans serviced by Debtor for a fee other than any Mortgage Loans
serviced by Debtor under a subservicing agreement or a master servicing
agreement.
SERVICING ACCOUNT means a non-interest bearing deposit account established
by Debtor with Agent -- styled and numbered "Matrix Servicing Account," Account
No. 1886479342 -- for deposit of P&I Borrowings, T&I Borrowings, Foreclosure
Borrowings, FHLMC Borrowings, and payments on the Obligation related to P&I
Borrowings, T&I Borrowings, Foreclosure Borrowings and FHLMC Borrowings.
SETTLEMENT ACCOUNT means a non-interest bearing deposit account established
by Debtor with Agent -- styled and numbered "Matrix Settlement Account," Account
No. 1886479318 -- for deposit of payments from investors, the settlement of
collections from Mortgage Securities in connection with Mortgage Collateral, and
deposit of payments on the Obligation.
T&I PAYMENT means an unreimbursed advance or payment by Debtor to cover
tax-and insurance-escrow payments not paid when required by a mortgagor under a
Mortgage Loan in accordance with Debtor's obligations under the applicable
Servicing Contract.
TAKE-OUT COMMITMENT means a written and binding commitment or purchase
agreement from an investor or other purchaser to purchase Mortgage Securities or
Mortgage Loans.
VA means the Veteran's Administration or its successor.
WAREHOUSE ACCOUNT means a non-interest bearing deposit account established
by Debtor with Secured Party -- styled and numbered "Matrix Funding Account,"
Account No. 1886479326 -- for deposit of borrowings under the Loan Agreement,
payments from investors in or the settlement of Collateral, and payments of
under the Loan Agreement.
d-0 4 EXHIBIT C-2
-----------
<PAGE>
WET BORROWING means a borrowing under the Loan Agreement for which all of
the Collateral Documents have not been delivered to Lender in accordance with
SECTION 4.3 of the Loan Agreement.
d-0 5 EXHIBIT C-2
-----------
<PAGE>
EXHIBIT C-3
-----------
SHIPPING REQUEST
----------------
AGENT: Bank One, Texas, N.A. DATE:___________, 199__
BORROWER: Matrix Financial Services Corporation
SHIPMENT # _____________ SHIPMENT $_____________________
POOL #_________________________ # OF LOANS ____________________
================================================================================
This request is delivered under the Amended and Restated Loan Agreement (as
renewed, extended, or amended the "LOAN AGREEMENT") dated as of January 31,
1997, between Borrower, Agent, and certain Lenders. Terms defined in the Loan
Agreement have the same meanings when used -- unless otherwise defined -- in
this request.
1. Borrower requests Agent to (a) forward the shiplist and collateral
files for the Mortgage Loans identified on it to the following Approved Investor
or its custodian or servicer; (b) complete the endorsement of the promissory
notes for those Mortgage Loans from Borrower to that Approved Investor or its
servicer or custodian as follows: _________________________________; and (c)
place them along with the blank assignments furnished to Agent in the
appropriate collateral files:
_______________________________
_______________________________
_______________________________
_______________________________
Agent should ship the whole files of Collateral Documents in Agent's possession
for those Mortgage Loans by either Federal Express or such other courier service
as Borrower has designated to Agent as "approved" for that purpose. The courier
used must be acting as an independent-contractor bailee solely on behalf of
Agent for the benefit of Agent and Lenders, but Agent is not responsible for any
delays in shipment caused by any actions or inactions by that courier.
Borrower's completed air bill for shipment accompanies this request.
2. On and as of the date of this request, Borrower certifies, represents
and warrants to Agent for Lenders that (a) Borrower's representations and
warranties in the Loan Documents are true and correct in all material respects
except to the extent that (i) a representation or warranty speaks to a specific
date or (ii) the facts on which a representation or warranty is based have
changed by transactions or conditions contemplated or permitted by the Loan
Documents, and (b) no Default, Potential Default, or Borrowing Excess exists.
MATRIX FINANCIAL SERVICES CORPORATION,
as Borrower
By ___________________________
(Name) ___________________________
/1/(Title) ___________________________
_______________________
/1/ Must be a Responsible Officer of -- or a Person designated in writing by a
Responsible Officer of -- Borrower.
d-0 EXHIBIT C-3
-----------
<PAGE>
[LETTERHEAD OF BANK ONE, TEXAS, N.A. APPEARS HERE]
EXHIBIT C-4
-----------
BAILEE LETTER FOR INVESTORS
---------------------------
_________________________
_________________________
_________________________
The enclosed mortgage notes and other documents ("COLLATERAL"), as more
particularly described on the attached schedule, have been assigned and pledged
to Bank One, Texas, N.A., as Agent ("AGENT") for itself and certain other
Lenders ("LENDERS"), as collateral under the Amended and Restated Loan Agreement
(as renewed, extended, amended, or restated, the "LOAN AGREEMENT") dated as of
January 31, 1997, between Matrix Financial Services Corporation ("BORROWER"),
Agent, and Lenders.
The Collateral is being delivered to you for purchase under an existing Take-Out
Commitment (as defined in the Loan Agreement). Either payment in full for the
Collateral or the Collateral itself must be received by Agent within 45 days
after the date of this letter. Until that time, you are deemed to be holding
the Collateral in trust, subject to the security interest granted to Agent for
Lenders and as Agent's bailee in accordance with the applicable provisions of
the Uniform Commercial Code. No property interest in the Collateral is
transferred to you until Agent receives the greater of either (a) the agreed
purchase price of the Collateral or (b) $___________, which is the full amount
of the advances under the Loan Agreement in respect of the Collateral. If you
receive conflicting instructions regarding the Collateral from Borrower or
Agent, you agree to act in accordance with Agent's instructions. AGENT RESERVES
THE RIGHT, AT ANY TIME BEFORE IT RECEIVES FULL PAYMENT, TO NOTIFY YOU AND
REQUIRE THAT YOU RETURN THE COLLATERAL TO AGENT.
Payment for the Collateral must be made by wire transfer of immediately
available funds to:
Bank One, Texas, N.A., Agent Account Number 1886479318
ABA Number 111000614 Attn: Gloria Sadler
Further Credit - Matrix Settlement Account TEL (214) 290-6082
FAX (214) 290-6069
BY ACCEPTING THE COLLATERAL DELIVERED TO YOU WITH THIS LETTER, YOU CONSENT TO BE
AGENT'S BAILEE ON THE TERMS DESCRIBED IN THIS LETTER. If you fail to make full
payment to Agent for it within 45 days after the date of this letter, you are
instructed to return all of the Collateral to Agent. The preceding provision in
no way affects or impairs any claim or cause of action against you in respect of
your Take-Out Commitment.
This letter binds you and your successors, assigns, trustees, conservators, and
receivers and inures to Agent, Lenders, and their respective successors and
assigns.
Very truly yours,
BANK ONE, TEXAS, N.A., as Agent
By ___________________________
(Name) ___________________________
(Title) ___________________________
d-0 EXHIBIT C-4
-----------
<PAGE>
[LETTERHEAD OF BANK ONE, TEXAS, N.A. APPEARS HERE]
EXHIBIT C-5
-----------
BAILEE LETTER FOR POOL CUSTODIAN
--------------------------------
_________________________
_________________________
_________________________
The enclosed mortgage notes and other documents (the "COLLATERAL"), as more
particularly described on the attached schedule, have been assigned and pledged
to Bank One, Texas, N.A., as Agent ("AGENT") for itself and certain other
lenders ("LENDERS"), as Collateral under the Amended and Restated Loan Agreement
(as renewed, extended, amended, or restated, the "LOAN AGREEMENT") dated as of
January 31, 1997, between Matrix Financial Services Corporation ("BORROWER"),
Agent, and Lenders.
The Collateral is being delivered to you for pooling in connection with the
issuance of Mortgage Securities (as defined in the Loan Agreement). Within 45
days after the date of this letter (a) payment in full for the Collateral must
be paid to Agent, (b) the Mortgage Securities must be received by Agent if in
certificated form or on its behalf in respect of Mortgage Securities in book-
entry form, or (c) the Collateral must be returned to and received by Agent.
Until that time, you are deemed to be holding the Collateral in trust, subject
to the security interest granted to Agent for Lenders as Agent's bailee in
accordance with the applicable provisions of the applicable Uniform Commercial
Code. No property interest in the Collateral is deemed to be transferred to you
until Agent receives either (a) the greater of either (i) the agreed purchase
price of the Collateral or (ii) $___________, which is the full amount of the
advances under the Loan Agreement in respect of the Collateral or (b) Mortgage
Securities have been received by Agent or on its behalf in respect of Mortgage
Securities in book-entry form. If you receive conflicting instructions
regarding the Collateral from Borrower or Agent, you agree to act in accordance
with Agent's instructions. If you deliver any of the enclosures to another
party, this letter must accompany those items. AGENT RESERVES THE RIGHT, AT ANY
TIME BEFORE THE MORTGAGE SECURITIES HAVE BEEN ISSUED, TO NOTIFY YOU AND REQUIRE
THAT YOU RETURN THE COLLATERAL TO AGENT.
If applicable above, payment for the Collateral must be made by the purchaser's
wire transfer of immediately available funds to:
Bank One, Texas, N.A., Agent Account Number 1886479318
ABA Number 111000614 Attn: Gloria Sadler
Further Credit - Matrix Settlement Account TEL (214) 290-6082
FAX (214) 290-6069
If applicable above, Mortgage Securities in certificated form must be sent to:
Bank One, Texas, N.A., Agent
1900 Pacific Street, 6th Floor
Dallas, Texas 75201
Attn: Gloria Sadler, Vice President
d-0 EXHIBIT C-5
-----------
<PAGE>
BY ACCEPTING THE COLLATERAL DELIVERED TO YOU WITH THIS LETTER, YOU CONSENT TO BE
AGENT'S BAILEE ON THE TERMS DESCRIBED IN THIS LETTER. AGENT REQUESTS THAT YOU
ACKNOWLEDGE RECEIPT OF THE ENCLOSED COLLATERAL AND THIS LETTER BY SIGNING AND
RETURNING TO AGENT THE ENCLOSED COPY OF THIS LETTER, BUT YOUR FAILURE TO DO SO
DOES NOT NULLIFY YOUR CONSENT.
This letter binds you and your successors, assigns, trustees, conservators, and
receivers and inures to Agent, Lenders, and their respective successors and
assigns.
Very truly yours,
BANK ONE, TEXAS, N.A., as Agent
By_________________________________
(Name)_____________________________
(Title)____________________________
ACKNOWLEDGED AND AGREED as of _________________________, 199____.
[NAME OF POOL CUSTODIAN]
By___________________________
(Name)_______________________
(Title)______________________
Member FDIC
d-0 2 EXHIBIT C-5
-----------
<PAGE>
EXHIBIT C-6
-----------
TRUST RECEIPT AND AGREEMENT
---------------------------
AGENT: Bank One, Texas, N.A. DATE:________, 199____
BORROWER: Matrix Financial Services Corporation
- --------------------------------------------------------------------------------
This trust receipt and agreement is delivered under the Amended and
Restated Loan Agreement (as renewed, extended, or amended the "LOAN AGREEMENT")
dated as of January 31, 1997, between Borrower, Agent, and certain Lenders.
Terms defined in the Loan Agreement have the same meanings when used -- unless
otherwise defined -- in this trust receipt and agreement.
In accordance with SECTION 4.6 of the Loan Agreement, Borrower requests
delivery by Agent to Borrower of the entire mortgage file of Collateral
Documents for the Mortgage Loan and for the corrections described as follows:
Mortgage Loan Number: ___________________________________
Original Amount: $___________________________________
Corrections: ___________________________________
___________________________________
___________________________________
Borrower agrees that (a) these Collateral Documents are delivered to
Borrower solely for the purpose of making these corrections, (b) these
Collateral Documents are and continue to be subject to Lender Liens under the
Loan Documents, (c) Borrower shall hold these Collateral Documents as bailee and
trustee for Agent, and Lenders, and (d) Borrower may not deliver any of these
Collateral Documents to a third party unless (i) it is necessary in order to
complete the corrections, and (ii) Borrower notifies that third party that the
Collateral Documents are and continue to be subject to Lender Liens under the
Loan Documents, and obtains from that third party its agreement to hold those
Collateral Documents as bailee and trustee for Agent and Lenders until they have
been returned to Agent or the amount of the Borrowing Base attributable to the
related Mortgage Loan has been fully paid to Agent for Lenders to be applied to
the Obligation.
On and as of the date of this receipt and agreement, Borrower certifies,
represents, and warrants to Agent for Lenders that (a) Borrower's
representations and warranties in the Loan Documents are true and correct in all
material respects except to the extent that (i) a representation or warranty
speaks to a specific date or (ii) the facts on which a representation or
warranty is based have changed by transactions or conditions contemplated or
permitted by the Loan Documents, (b) no Default, Potential Default, or Borrowing
Excess exists, and (c) this shipment will not result in Collateral Documents for
Mortgage Loans with more than a total face amount of $1,000,000 being
outstanding for correction.
d-0 EXHIBIT C-6
-----------
<PAGE>
Borrower acknowledges receipt of the Collateral Documents referred to
above.
MATRIX FINANCIAL SERVICES CORPORATION,
as Borrower
By______________________________________
(Name)__________________________________
/1/(Title)______________________________
_______________________
/1/ Must be a Responsible Officer -- or a Person designated in writing by a
Responsible Officer -- of Borrower.
d-0 EXHIBIT C-7
-----------
<PAGE>
EXHIBIT C-7
-----------
RELEASE REQUEST
---------------
AGENT: Bank One, Texas, N.A. Date: ________________, 199___
BORROWER: Matrix Financial Services Corporation
- --------------------------------------------------------------------------------
This request is delivered under the Amended and Restated Loan Agreement (as
renewed, extended, or amended the "LOAN AGREEMENT") dated as of January 31,
1997, between Borrower, Agent, and certain Lenders. Terms defined in the Loan
Agreement have the same meanings when used -- unless otherwise defined -- in
this request.
Borrower requests Agent to release the Lender Liens under the Loan
Documents in the Collateral described on the attached SCHEDULE 1.
On and as of the date of this request, Borrower certifies, represents, and
warrants to Agent for Lenders that (a) Borrower's representations and warranties
in the Loan Documents are true and correct in all material respects except to
the extent that (i) a representation or warranty speaks to a specific date or
(ii) the facts on which a representation or warranty is based have changed by
transactions or conditions contemplated or permitted by the Loan Documents, and
(b) no Default, Potential Default, or Borrowing Excess exists or occurs as a
result of the requested release other than any Borrowing Excess that has been
eliminated by payment which has been made to Agent.
MATRIX FINANCIAL SERVICES CORPORATION,
as Borrower
By _____________________________
(Name) _____________________________
/1/(Title) _____________________________
______________________
/1/ Must be a Responsible Officer of -- or a Person designated in writing by a
Responsible officer of -- Debtor.
d-0 EXHIBIT C-7
-----------
<PAGE>
EXHIBIT D-1
-----------
BORROWING REQUEST
-----------------
AGENT: Bank One, Texas, N.A. DATE: _________, 199___
BORROWER: Matrix Financial Services Corporation
================================================================================
This request is delivered under the Amended and Restated Loan Agreement (as
renewed, extended, and amended, the "LOAN AGREEMENT") dated as of January 31,
1997, between Borrower, Agent, and certain Lenders. Terms defined in the Loan
Agreement have the same meanings when used -- unless otherwise defined -- in
this request.
Borrower requests $____________________ in Borrowings (collectively, the
"REQUESTED BORROWING") to be funded on _______________, 199___/1/ (the REQUESTED
BORROWING DATE") in the one or more Borrowing-Purpose Categories indicated on
the attached schedule, which has been completed as to all other relevant
information.
Borrower certifies that as of the Requested Borrowing Date -- after giving
effect to the Requested Borrowing -- (a) the representations and warranties of
Borrower in the Loan Documents are true and correct in all material respects
except to the extent that (i) a representation or warranty speaks to a specific
date or (ii) the facts on which a representation or warranty is based have
changed by transactions or conditions contemplated or permitted by the Loan
Documents, (b) no Default or Potential Default exists, (c) the extension of the
Requested Borrowing does not cause any Borrowing Excess to exist, (d) Borrower
has timely delivered a Collateral-Delivery Notice, if applicable, (e) all
Collateral Documents required by the Loan Agreement to be delivered to Agent in
connection with the Requested Borrowing have been delivered to Agent, and (f)
Borrower has otherwise complied with all conditions of the Loan Documents to
permit the Requested Borrowing to be extended.
MATRIX FINANCIAL SERVICES
CORPORATION, as Borrower
By______________________________________
(Name)__________________________________
/2/(Title)______________________________
/1/ Must be no later than (a) the third business Day after request if the
Requested Borrowings involves any LIBOR Borrowing or (b) the business Day
of request otherwise.
/2/ Must be a Responsible Officer of -- or an individual designated to Agent in
writing by a Responsible Officer of --Borrower.
d-0 EXHIBIT D-1
-----------
<PAGE>
SCHEDULE TO BORROWING REQUEST
-----------------------------
DATED _______________, 199___; FOR $_____________________
[Complete EACH applicable box or mark N.A.]
<TABLE>
<CAPTION>
==========================================================================================
BORROWING- AMOUNT/1/ EXTENDED BORROWING-PRICE CATEGORY INTEREST
PURPOSE CATEGORY BY PERIOD
ENDING/2/
==========================================================================================
<S> <C> <C> <C> <C>
Warehouse $ [_] Ratable [_] Base Rate _________, 19__
Borrowing (Dry) [_] Swing [_] Fed-Funds Rate
[_] LIBOR (not for Swing)
[_] (check and indicate
amount if Committed-
B/C-Paper Borrowing -
$_______________)
[_] (check and indicate
amount if Uncommitted
- -B/C-Paper Borrowing -
$_______________)
[_] (check and indicate
amount if Second-Lien
Borrowing -
$_______________)
[_] (check and indicate
amount if Repurchase
Borrowing -
$_______________)
- ------------------------------------------------------------------------------------------
</TABLE>
/1/ At least $100,000 for Term-Line Borrowing or $25,000 for each other
Borrowing-purpose Category.
/2/ Must be a 1, 2, or 3, months or other period acceptable to Agent (and to
Determining Lenders if longer than 6 months).
d-0 2 EXHIBIT D-1
-----------
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------
Warehouse $ [_] Ratable [_] Base Rate _________, 19__
Borrowing (Wet) [_] Swing [_] Fed-Funds Rate
[_] LIBOR (not for Swing)
[_] (check and indicate
amount if Committed-
B/C-Paper Borrowing -
$_______________)
[_] (check and indicate
amount if Uncommitted
- -B/C-Paper Borrowing -
$_______________)
[_] (check and indicate
amount if Second-Lien
Borrowing -
$_______________)
[_] (check and indicate
amount if Repurchase
Borrowing -
$_______________)
- ------------------------------------------------------------------------------------------
Warehouse $ Ratable [_] Base Rate _________, 19__
Borrowing [_] Fed-Funds Rate
(Gestation) [_] LIBOR
- ------------------------------------------------------------------------------------------
Working-Capital $ Ratable [_] Base Rate _________, 19__
Borrowing (P&I) [_] Fed-Funds Rate
[_] LIBOR
- ------------------------------------------------------------------------------------------
Working-Capital $ Ratable [_] Base Rate _________, 19__
Borrowing (T&I) [_] Fed-Funds Rate
[_] LIBOR
- ------------------------------------------------------------------------------------------
Working-Capital $ Ratable [_] Base Rate _________, 19__
Borrowing [_] Fed-Funds Rate
(Foreclosure) [_] LIBOR
- ------------------------------------------------------------------------------------------
Term-Line $ Ratable [_] Base Rate _________, 19__
Borrowing [_] Fed-Funds Rate
[_] LIBOR
==========================================================================================
</TABLE>
d-0 3 EXHIBIT D-1
-----------
<PAGE>
EXHIBIT D-2
-----------
COLLATERAL-DELIVERY NOTICE
--------------------------
AGENT: Bank One, Texas, N.A. DATE:______, 199____
BORROWER: Matrix Financial Services Corporation
================================================================================
This notice is delivered under the Amended and Restated Loan Agreement (as
renewed, extended, and amended the "LOAN AGREEMENT") dated as of January 31,
1997, between Borrower, Agent, and certain Lenders. Terms defined in the Loan
Agreement have the same meanings when used -- unless otherwise defined -- in
this notice.
Under SECTION 4.3 and other applicable provisions of the Loan Agreement,
Borrower submits the following Collateral under -- and subject to the Lender
Liens created by -- the Loan Documents [check applicable box(es)]:
[_] MORTGAGE LOANS FOR DRY BORROWING. Borrower (a) is delivering to Agent
the Collateral Documents required by PART A of SCHEDULE 4.3 to the
Loan Agreement for the Mortgage Loans described on the attached ANNEX
1 -- which is a data-processing print-out meeting the requirements of
PART A.8. on that SCHEDULE 4.3 -- and (b) confirms that those Mortgage
Loans and all related Collateral Documents are subject to the Lender
Liens created by the Loan Agreement.
[_] MORTGAGE LOANS FOR WET BORROWING. Borrower (a) is delivering to Agent
the Collateral Documents required by PART B of SCHEDULE 4.3 to the
Loan Agreement for the Mortgage Loans described on the attached ANNEX
2 -- which is a data-processing print-out meeting the requirements of
PART B.3. on that SCHEDULE 4.3, (b) shall deliver to Agent the
Collateral Documents required by PART A of that SCHEDULE 4.3 for --
before the expiration of the Wet Period for the Borrowings made on the
basis of -- those Mortgage Loans, and (c) confirms that those Mortgage
Loans and all related Collateral Documents are subject to the Lender
Liens created by the Loan Agreement.
[_] MORTGAGE SECURITIES FOR DRY BORROWING. Borrower (a) is delivering to
Agent the Collateral Documents required by PART C of SCHEDULE 4.3 to
the Loan Agreement for the Mortgage Securities described on the
attached ANNEX 3 (the Mortgage Pools for which consist of Mortgage
Loans that were --before issuance of those Mortgage Securities --
Eligible-Mortgage Loans constituting part of the Collateral) and (b)
confirms that those Mortgage Securities and all related Collateral
Documents are subject to the Lender Liens created by the Loan
Agreement.
On and as of the date of this notice, Borrower certifies, represents,
warrants, and covenants to or with Agent for Lenders that:
(a) For each Mortgage Loan described on either ANNEX 1 or 2 to this
notice, Borrower (i) holds each of the items required by SECTION 4.3
of the Loan Agreement, (ii) holds those items in trust for Agent on
behalf of Lenders, (iii) upon request or instructions from Agent from
time
d-0 EXHIBIT D-2
-----------
<PAGE>
to time and at any time, shall deliver those items to Agent any
other Person designated by Agent, and (iv) may not deliver those
items --or grant, transfer, or assign any interest in any of them --
to any Person except Agent without first obtaining Agent's written
consent.
(b) All of the items that Borrower is required to furnish to Agent under
the Loan Agreement in connection with this notice accompany it, all of
those items are accurate and what they purport to be, and all of the
Collateral described in this notice or its schedules conform in all
respects to the requirements of the Loan Agreement, including, without
limitation, the requirements of eligibility applicable to that
Collateral on SCHEDULE 4.1 to the Loan Agreement.
(c) The representations and warranties of Borrower in the Loan Documents
are true and correct in all material respects except to the extent
that (i) a representation or warranty speaks to a specific date or
(ii) the facts on which a representation or warranty is based have
changed by transactions or conditions contemplated or permitted by the
Loan Documents.
(d) No Default or Potential Default exists.
MATRIX FINANCIAL SERVICES CORPORATION
as Borrower
By _____________________________
(Name) _____________________________
/1/(Title) _____________________________
______________________
/1/ Must be a Responsible Officer of -- or an individual designated in writing
to Agent by a Responsible Officer of --Borrower.
d-0 2 EXHIBIT D-2
-----------
<PAGE>
EXHIBIT D-3
-----------
BORROWING-BASE REPORT
---------------------
AGENT: Bank One, Texas, N.A. DATE:_______, 199___
BORROWER: Matrix Financial Services Corporation
================================================================================
This report is delivered under the Amended and Restated Loan Agreement (as
renewed, extended, and amended, the "LOAN AGREEMENT") dated as of January 31,
1997, between Borrower, Agent, and certain Lenders. Terms defined in the Loan
Agreement have the same meanings when used -- unless otherwise defined -- in
this report. Agent has calculated the Borrowing Base and its various components
as of the date of this report.
TABLE 1--WAREHOUSE BORROWINGS
-----------------------------
<TABLE>
<CAPTION>
===================================================================================================================================
FACE WAREHOUSE
===================================================================================================================================
<S> <C> <C>
1. RECONCILIATION FOR DRY BORROWINGS (EXCLUDING GESTATION BORROWINGS)
- -----------------------------------------------------------------------------------------------------------------------------------
(a) Ending Collateral balance (last report) $ $
- -----------------------------------------------------------------------------------------------------------------------------------
(b) Collateral removed (since last report) $ $
- -----------------------------------------------------------------------------------------------------------------------------------
(c) Beginning Collateral balance -- Line 1(a) MINUS Line 1(b) $ $
- -----------------------------------------------------------------------------------------------------------------------------------
(d) Collateral received (since last report) $ $
- -----------------------------------------------------------------------------------------------------------------------------------
(e) New Collateral balance (today) -- Line 1(c) PLUS Line 1(d) $ $
- -----------------------------------------------------------------------------------------------------------------------------------
(f) Ineligibles -- expired 120-day limit (or after applicable limit) $ $
- -----------------------------------------------------------------------------------------------------------------------------------
(g) Ineligibles -- expired Shipping Period $ $
- -----------------------------------------------------------------------------------------------------------------------------------
(h) Ineligibles -- expired Correction Period $ $
- -----------------------------------------------------------------------------------------------------------------------------------
(i) Jumbo Sublimit exclusions $ $
- -----------------------------------------------------------------------------------------------------------------------------------
(j) Other ineligibles $ $
- -----------------------------------------------------------------------------------------------------------------------------------
(k) Total Ineligibles -- TOTAL of Lines 1(f) THROUGH 1(j) $ $
- -----------------------------------------------------------------------------------------------------------------------------------
(l) Total Collateral amount-- Line 1(e) MINUS Line 1(k) $ $
- -----------------------------------------------------------------------------------------------------------------------------------
(m) If Agent or Determining Lenders elect -- Market Value of items in Line 1(l) $ $
- -----------------------------------------------------------------------------------------------------------------------------------
(n) Lesser of EITHER Lines 1(l) OR -- if applicable -- 1(m) $ $
- -----------------------------------------------------------------------------------------------------------------------------------
(o) Portion of Collateral amount attributable to Eligible-Committed-B/C-
Paper Loans which have been held for more than 60 calendar days $ $
- -----------------------------------------------------------------------------------------------------------------------------------
(p) Portion of Collateral amount attributable to Eligible-Uncommitted-B/C-
Paper Loans $ $
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
d-0 EXHIBIT D-3
-----------
<PAGE>
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
(q) Portion of Collateral amount attributable to Eligible-Second-Lien-
Loans which have been held for more than 60 calendar days $ $
- -----------------------------------------------------------------------------------------------------------------------------------
(r) Portion of Collateral amount attributable to Eligible-Repurchased $ $
Loans
- -----------------------------------------------------------------------------------------------------------------------------------
(s) Portion of Collateral amount attributable to Eligible-Mortgage $ $
Collateral (other than as listed in Lines (o) through (r) above)
- -----------------------------------------------------------------------------------------------------------------------------------
2. RECONCILIATION FOR WET BORROWINGS
- -----------------------------------------------------------------------------------------------------------------------------------
(a) Ending Collateral balance (last report) $ $
- -----------------------------------------------------------------------------------------------------------------------------------
(b) Collateral removed (since last report) $ $
- -----------------------------------------------------------------------------------------------------------------------------------
(c) Beginning Collateral balance -- Line 2(a) MINUS Line 2(b) $ $
- -----------------------------------------------------------------------------------------------------------------------------------
(d) Collateral received (since last report) $ $
- -----------------------------------------------------------------------------------------------------------------------------------
(e) New Collateral Balance $ $
- -----------------------------------------------------------------------------------------------------------------------------------
(f) Ineligibles -- expired Wet Period $ $
- -----------------------------------------------------------------------------------------------------------------------------------
(g) Jumbo Sublimit exclusions $ $
- -----------------------------------------------------------------------------------------------------------------------------------
(h) Other ineligibles $ $
- -----------------------------------------------------------------------------------------------------------------------------------
(i) Total Ineligibles -- TOTAL of Lines 2(f), 2(g), and 2(h) $ $
- -----------------------------------------------------------------------------------------------------------------------------------
(j) Total Wet Collateral $ $
- -----------------------------------------------------------------------------------------------------------------------------------
(k) If Agent or Determining Lender's elect -- Market Value of items in Line 2(j) $ $
- -----------------------------------------------------------------------------------------------------------------------------------
(l) Lesser of EITHER Lines 2(j) OR -- if applicable -- 2(k) $ $
- -----------------------------------------------------------------------------------------------------------------------------------
(m) Portion of Collateral amount attributable to Eligible-Uncommitted-B/C-Paper Loans $ $
- -----------------------------------------------------------------------------------------------------------------------------------
(n) Portion of Collateral amount attributable to Eligible-Repurchased Loans $ $
- -----------------------------------------------------------------------------------------------------------------------------------
(o) Portion of Collateral amount attributable to Eligible-Mortgage
Collateral (other than as listed in Lines 2(m) and 2(n) above) $ $
- -----------------------------------------------------------------------------------------------------------------------------------
3. RECONCILIATION FOR GESTATION BORROWINGS
- -----------------------------------------------------------------------------------------------------------------------------------
(a) Ending Collateral balance (last report) $ $
- -----------------------------------------------------------------------------------------------------------------------------------
(b) Collateral removed (since last report) $ $
- -----------------------------------------------------------------------------------------------------------------------------------
(c) Beginning Collateral balance -- Line 3(a) MINUS Line 3(b) $ $
- -----------------------------------------------------------------------------------------------------------------------------------
(d) Collateral received (since last report) $ $
- -----------------------------------------------------------------------------------------------------------------------------------
(e) New Collateral balance (today) -- Line 3(c) PLUS Line 3(d) $ $
- -----------------------------------------------------------------------------------------------------------------------------------
(f) Ineligibles $ $
- -----------------------------------------------------------------------------------------------------------------------------------
(g) Total Collateral amount -- Line 3(e) MINUS Line 3(f) $ $
- -----------------------------------------------------------------------------------------------------------------------------------
(h) Portion of Line 3(g) identified to a security settlement $ $
- -----------------------------------------------------------------------------------------------------------------------------------
(i) Portion of Line 3(g) not identified to a whole-loan settlement $ $
- -----------------------------------------------------------------------------------------------------------------------------------
4. BORROWING BASE FOR MORTGAGE COLLATERAL
- -----------------------------------------------------------------------------------------------------------------------------------
(a) Dry Collateral Value
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
d-0 2 EXHIBIT D-3
-----------
<PAGE>
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
(b) 95% of Line 1(o) $
- -----------------------------------------------------------------------------------------------------------------------------------
(c) 97% of Line 1(p) $
- -----------------------------------------------------------------------------------------------------------------------------------
(d) 95% of Line 1(q) $
- -----------------------------------------------------------------------------------------------------------------------------------
(e) 97% of Line 1(r) $
- -----------------------------------------------------------------------------------------------------------------------------------
(f) 98% of Line 1(s) $
- -----------------------------------------------------------------------------------------------------------------------------------
(g) Total Dry Collateral Value - Line 4(b) PLUS Line 4(c) PLUS Line 4(d) $
PLUS Line 4(e) PLUS Line 4(f)
- -----------------------------------------------------------------------------------------------------------------------------------
(h) Wet Collateral Value
- -----------------------------------------------------------------------------------------------------------------------------------
(i) 97% of Line 2(m) $
- -----------------------------------------------------------------------------------------------------------------------------------
(j) 97% of Line 2(n) $
- -----------------------------------------------------------------------------------------------------------------------------------
(k) 98% of Line 2(o) $
- -----------------------------------------------------------------------------------------------------------------------------------
(l) Total Wet Collateral Value - Line 4(i) PLUS Line 4(j) PLUS Line 4(k) $
- -----------------------------------------------------------------------------------------------------------------------------------
(m) Gestation Collateral Value
- -----------------------------------------------------------------------------------------------------------------------------------
(n) 99% of Line 3(h) $
- -----------------------------------------------------------------------------------------------------------------------------------
(o) 98% of Line 3(i) $
- -----------------------------------------------------------------------------------------------------------------------------------
(p) Total Gestation Collateral Value - Line 4(n) PLUS Line 4(o) $
- -----------------------------------------------------------------------------------------------------------------------------------
(q) Borrowing Base - Total of Lines 4(g), 4(l), and 4(p) $
- -----------------------------------------------------------------------------------------------------------------------------------
5. PRINCIPAL DEBT FOR WAREHOUSE BORROWINGS
- -----------------------------------------------------------------------------------------------------------------------------------
(a) Dry Borrowings $
- -----------------------------------------------------------------------------------------------------------------------------------
(b) Wet Borrowings $
- -----------------------------------------------------------------------------------------------------------------------------------
(c) Gestation Borrowings $
- -----------------------------------------------------------------------------------------------------------------------------------
(d) TOTAL of Lines 5(a) THROUGH 5(c) $
- -----------------------------------------------------------------------------------------------------------------------------------
6. WAREHOUSE COMMITMENTS
- -----------------------------------------------------------------------------------------------------------------------------------
(a) Warehouse Commitments $60,000,000
- -----------------------------------------------------------------------------------------------------------------------------------
(b) Wet Sublimit (either $21,000,000 during the first 5 and last 5 Business $
Days of each Calendar Month or $12,000,000 at all other times)
- -----------------------------------------------------------------------------------------------------------------------------------
(c) Gestation Sublimit $30,000,000
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
d-0 3 EXHIBIT D-3
-----------
<PAGE>
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
7. AVAILABILITY
- -----------------------------------------------------------------------------------------------------------------------------------
(a) Lesser of EITHER Line 4(l) OR Line 6(b) $
- -----------------------------------------------------------------------------------------------------------------------------------
(b) Maximum Wet Borrowing if positive OR BORROWING EXCESS if negative
-- Line 7(a) MINUS Line 5(b) $
- -----------------------------------------------------------------------------------------------------------------------------------
(c) Lesser of either Line 4(p) OR Line 6(c) $
- -----------------------------------------------------------------------------------------------------------------------------------
(d) MAXIMUM GESTATION BORROWING if positive or Borrowing Excess if
negative -- Line 7(c) MINUS Line 5(c) $
- -----------------------------------------------------------------------------------------------------------------------------------
(e) Lesser of EITHER Line 4(q) OR Line 6 $
- -----------------------------------------------------------------------------------------------------------------------------------
(f) Maximum Total Warehouse Borrowings if positive OR Borrowing
Excess if negative -- Line 7(e) MINUS Line $
5(d)
====================================================================================================================================
</TABLE>
TABLE 2 -- WORKING-CAPITAL BORROWINGS
-------------------------------------
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
1. BORROWING BASE FOR ELIGIBLE-FORECLOSURE RECEIVABLES
- -----------------------------------------------------------------------------------------------------------------------------------
(a) Ending Collateral balance (last report) $
- -----------------------------------------------------------------------------------------------------------------------------------
(b) Repayments (since last report) $
- -----------------------------------------------------------------------------------------------------------------------------------
(c) New Eligible-Foreclosure Receivables (since last report) $
- -----------------------------------------------------------------------------------------------------------------------------------
(d) TOTAL of Line 1(a) MINUS Line 1(b) PLUS Line 1(c) $
- -----------------------------------------------------------------------------------------------------------------------------------
(e) 80% of Line 1(d) $
- -----------------------------------------------------------------------------------------------------------------------------------
2. BORROWING BASE FOR ELIGIBLE-P&I RECEIVABLES
- -----------------------------------------------------------------------------------------------------------------------------------
(a) Ending Collateral balance (last report) $
- -----------------------------------------------------------------------------------------------------------------------------------
(b) Repayments (since last report) $
- -----------------------------------------------------------------------------------------------------------------------------------
(c) New Eligible-P&I Receivables (since last report) $
- -----------------------------------------------------------------------------------------------------------------------------------
(d) TOTAL of Line 2(a) MINUS Line 2(b) PLUS Line 2(c) $
- -----------------------------------------------------------------------------------------------------------------------------------
(e) 95% of Line 2(d) $
- -----------------------------------------------------------------------------------------------------------------------------------
3. BORROWING BASE FOR ELIGIBLE-T&I RECEIVABLES
- -----------------------------------------------------------------------------------------------------------------------------------
(a) Ending Collateral balance (last report) $
- -----------------------------------------------------------------------------------------------------------------------------------
(b) Repayments (since last report) $
- -----------------------------------------------------------------------------------------------------------------------------------
(c) New Eligible-T&I Receivables (since last report) $
- -----------------------------------------------------------------------------------------------------------------------------------
(d) TOTAL of Line 3(a) MINUS Line 3(b) PLUS Line 3(c) $
- -----------------------------------------------------------------------------------------------------------------------------------
(e) 80% of Line 3(d) $
- -----------------------------------------------------------------------------------------------------------------------------------
4. BORROWING BASE FOR RECEIVABLES -- TOTAL of Lines 1(e), 2(e) and 3(e) $
- -----------------------------------------------------------------------------------------------------------------------------------
5.PRINCIPAL DEBT OF WORKING-CAPITAL BORROWINGS $
- -----------------------------------------------------------------------------------------------------------------------------------
6.WORKING-CAPITAL COMMITMENT $10,000,000
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
d-0 4 EXHIBIT D-3
-----------
<PAGE>
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
7.AVAILABILITY
- -----------------------------------------------------------------------------------------------------------------------------------
(a) Lesser of EITHER Line 4 OR Line 6 $
- -----------------------------------------------------------------------------------------------------------------------------------
(b) Maximum Total Working-Capital Borrowings if positive OR $
Borrowing Excess if negative -- Line 7(a) MINUS Line 5
===================================================================================================================================
</TABLE>
TABLE 3 -- TERM-LINE BORROWINGS
-------------------------------
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
1. BORROWING BASE FOR TERM-LINE
- -----------------------------------------------------------------------------------------------------------------------------------
(a) Cost of pledged portfolio $
- -----------------------------------------------------------------------------------------------------------------------------------
(b) Appraised Value of pledged portfolio $
- -----------------------------------------------------------------------------------------------------------------------------------
(c) 350% of average serving fee for pledged portfolio $
- -----------------------------------------------------------------------------------------------------------------------------------
(d) Lesser of EITHER Line 1(a), Line 1(b), OR Line 1(c) $
- -----------------------------------------------------------------------------------------------------------------------------------
(e) Borrowing Base for Term-Line - 70% of Line 1(d) $
- -----------------------------------------------------------------------------------------------------------------------------------
2. PRINCIPAL DEBT OF TERM-LINE BORROWINGS $
- -----------------------------------------------------------------------------------------------------------------------------------
3. TERM-LINE COMMITMENT $30,000,000
- -----------------------------------------------------------------------------------------------------------------------------------
4. AVAILABILITY
- -----------------------------------------------------------------------------------------------------------------------------------
(a) Lesser of EITHER Line 1(e) OR Line 3 $
- -----------------------------------------------------------------------------------------------------------------------------------
(b) Maximum Total Term-Line Borrowings if positive or $
Borrowing Excess if negative -- Line 4(a) MINUS Line 2
===================================================================================================================================
</TABLE>
BANK ONE, TEXAS, N.A., Agent
By ________________________________
(Name) ________________________________
(Title) ________________________________
d-0 5 EXHIBIT D-3
-----------
<PAGE>
EXHIBIT D-4
-----------
TAKE-OUT REPORT
---------------
AGENT: Bank One, Texas, N.A. DATE: ___________________, 199_
BORROWER: Matrix Financial Services Corporation
================================================================================
This report is delivered under the Amended and Restated Loan Agreement (as
renewed, extended, or amended the "LOAN AGREEMENT") dated as of January 31,
1997, between Borrower, Agent, and certain Lenders. Terms defined in the Loan
Agreement have the same meanings when used -- unless otherwise defined -- in
this report.
The following is accurate and complete as of the date of this report in
respect of Take-Out Prices -- determined in accordance with the attached
SCHEDULE 1 -- and the total weighted-average-Take-Out Price is _____% of par:
FOR MORTGAGE LOANS
------------------
<TABLE>
<CAPTION>
===========================================================
MORTGAGE-COLLATERAL GROUP INTEREST RATE TAKE-OUT PRICE
===========================================================
<S> <C> <C>
-----------------------------------------------------------
(a) % %
-----------------------------------------------------------
(b) % %
-----------------------------------------------------------
(c) % %
-----------------------------------------------------------
(d) % %
-----------------------------------------------------------
(e) % %
===========================================================
</TABLE>
FOR MORTGAGE SECURITIES
-----------------------
<TABLE>
<CAPTION>
===========================================================
MORTGAGE-COLLATERAL GROUP INTEREST RATE TAKE-OUT PRICE
===========================================================
<S> <C> <C>
(a) % %
-----------------------------------------------------------
(b) % %
-----------------------------------------------------------
(c) % %
-----------------------------------------------------------
(d) % %
-----------------------------------------------------------
(e) % %
===========================================================
</TABLE>
By _____________________________
(Name)__________________________
/1/(Title)______________________
__________________________
/1/ Must be a Responsible Officer of Borrower.
EXHIBIT D-4
-----------
<PAGE>
SCHEDULE 1
----------
TAKE-OUT PRICE DETERMINATION
----------------------------
Complete the following table for each Mortgage-Collateral Group for Mortgage
Loans and each Mortgage-Collateral Group for Mortgage Securities, in each case
indicating the group letter designation from the report to which this schedule
is attached:
<TABLE>
<CAPTION>
=============================================================================
(B) PRINCIPAL-
(A) INVESTOR BALANCE OF (C) PERCENTAGE OF (D) COMMITMENT
TAKE- PAR PRICE/1/ -- COLUMN (B)
OUT COMMITMENTS TIMES COLUMN (C)
=============================================================================
<S> <C> <C> <C>
$ % $
- -----------------------------------------------------------------------------
$ % $
- -----------------------------------------------------------------------------
$ % $
- -----------------------------------------------------------------------------
$ % $
- -----------------------------------------------------------------------------
TOTALS $ $
=============================================================================
</TABLE>
The total weighted-average-Take-Out-Price (determined by dividing the total in
column (d) above by the total in column (b) above) is _____% of par.
________________
/1/ For each commitment price stated as a yield rather than as a percentage of
par, convert the yield to a percentage price by the use of the "Net Yield
Tables for GNMA Mortgage-Backed Securities" published by Financial
Publishing Company or the "Mortgage Yield Conversion Tables" published by
FNMA, as applicable.
2 EXHIBIT D-4
-----------
<PAGE>
EXHIBIT D-5
-----------
MANAGEMENT REPORT
-----------------
AGENT: Bank One, Texas, N.A. DATE:___________________, 199____
BORROWER: Matrix Financial Services Corporation
================================================================================
This report is delivered under the Amended and Restated Loan Agreement (as
renewed, extended, or amended the "LOAN AGREEMENT") dated as of January 31,
1997, between Borrower, Agent, and certain Lenders. Terms defined in the Loan
Agreement have the same meaning when used -- unless otherwise defined -- in this
report.
I certify to Agent for Lenders that on the date of this report:
1. I am the undersigned officer of Borrower and deliver this certificate
on its behalf.
2. The attached SCHEDULE 1 is an accurate list of Borrower's Mortgage
Loan production for the Calendar Month before the date of this certificate --
describing in reasonable detail the geographic mix of all retail and
correspondent production for both the Calendar Month before the date of this
certificate and for the year to date, and such other matters as Agent may have
reasonably requested.
3. The attached SCHEDULE 2 is an accurate and complete schedule of
Borrower's "open commitment and pipeline positions" (as commonly understood in
the industry) for Mortgage Loans --describing in reasonable detail (i) with
regard to "open commitment" positions, the names of investors, type, original
principal amount, rate, price/yield, and expiration date, and (ii) with regard
to "open pipeline" positions, the amount of the pipeline, the total locked
amount, the percentage of the locked amount that is covered, the types of
coverage (mandatory or optional), future contracts, hedged positions, repurchase
agreements, the profit or loss, and such other matters as Agent may have
reasonably requested.
4. The attached SCHEDULE 3 is an accurate and complete schedule of
Borrower's Servicing Portfolio -- describing in reasonable detail the unpaid
balance of Mortgage Loans by Investor, the weighted-average interest rate,
weighted-average servicing fee, and weighted-average maturity of those Mortgage
Loans, the delinquency rates for those Mortgage Loans, investor type, geographic
concentration, weighted average coupon, and such other matters as Agent may have
reasonably requested.
By____________________________________
(Name)________________________________
/1/(Title)____________________________
___________________________
/1/ Must be a Responsible Officer of Borrower.
EXHIBIT D-5
-----------
<PAGE>
EXHIBIT D-6
-----------
COMPLIANCE CERTIFICATE
----------------------
AGENT: Bank One, Texas, N.A. DATE:____________________, 19___
BORROWER: Matrix Financial Services Corporation
SUBJECT PERIOD: ____________________ ended _______________, 199___
================================================================================
This certificate is delivered under the Amended and Restated Loan Agreement
(as renewed, extended, and amended, the "LOAN AGREEMENT") dated as of January
31, 1997, between Borrower, Agent, and certain Lenders. Terms defined in the
Loan Agreement have the same meanings when used -- unless otherwise defined --
in this certificate.
The undersigned officer certifies to Agent and Lenders, that on the date of
this certificate:
1. The undersigned officer is the officer of Borrower designated below.
2. Borrower's Financial Statements that are attached to this certificate
were prepared in accordance with GAAP and present fairly the Companies'
consolidated (if applicable) financial condition and results of operations as of
- -- and for the fiscal year or portion of the fiscal year ending on -- the last
day of the Subject Period.
3. The undersigned officer supervised a review of the Companies'
activities during the Subject Period in respect of the following matters and has
determined the following: (a) The representations and warranties in the Loan
Agreement are true and correct in all material respects, except (i) to the
extent that a representation or warranty speaks to a specific date or the facts
on which it is based have changed by transactions or conditions contemplated or
permitted by the Loan Documents and (ii) for the changes, if any, described on
the attached SCHEDULE 1; (b) each Company has complied with all of its
obligations under the Loan Documents, other than for the deviations, if any,
described on the attached SCHEDULE 1; (c) no Default or Potential Default exists
or is imminent, other than those, if any, described on the attached SCHEDULE 1;
and (d) the Companies' compliance with the financial covenants in SECTIONS 8 and
9 of the Loan Agreement is accurately calculated on the attached SCHEDULE 1.
By
(Name)_____________________________
/1/(Title)_________________________
_________________________
/1/ Must be a Responsible Officer of Borrower.
EXHIBIT D-6
-----------
<PAGE>
SCHEDULE 1
----------
A. Describe deviations from compliance with obligations, if any -- CLAUSE
3(A) and 3(B) of attached Compliance Certificate -- if none, so state:
B. Describe Potential Defaults or Defaults, if any -- CLAUSE 3(C) of the
attached Compliance Certificate -- if none, so state:
C. Calculate compliance with covenants in SECTIONS 8 and 9 at end of
Subject Period (on a consolidated basis, if applicable) -- CLAUSE 3(D) of the
attached Compliance Certificate:
<TABLE>
<CAPTION>
=============================================================================================================================
COVENANT AT END OF SUBJECT PERIOD
============================================================================================================================
<S> <C>
1. DISTRIBUTIONS--(S)8.4
- ----------------------------------------------------------------------------------------------------------------------------
(a) year-to-date consolidated net income $
- ----------------------------------------------------------------------------------------------------------------------------
(b) 50% of Line 1(a) $
- ----------------------------------------------------------------------------------------------------------------------------
(c) year-to-date non-cash income $
- ----------------------------------------------------------------------------------------------------------------------------
(d) year-to-date cash taxes $
- ----------------------------------------------------------------------------------------------------------------------------
(e) The sum of Line 1(b) MINUS Line 1(c) MINUS Line 1(d) $
- ----------------------------------------------------------------------------------------------------------------------------
(f) Distributions paid during this fiscal year -- MAY NOT EXCEED Line 1(e) $
- ----------------------------------------------------------------------------------------------------------------------------
2. NET WORTH -- (S)9.1(A)
- ----------------------------------------------------------------------------------------------------------------------------
(a) Net Worth $
- ----------------------------------------------------------------------------------------------------------------------------
(b) Initial Minimum $ 10,000,000
- ----------------------------------------------------------------------------------------------------------------------------
(c) 100% of all contributions to any Company's stockholder's equity on or $
after December 31, 1996
- ----------------------------------------------------------------------------------------------------------------------------
(d) 50% of the Companies' cumulative Net Income (without deduction for $
losses) after December 31, 1996
- ---------------------------------------------------------------------------------------------------------------------------
(e) Actual Minimum - Line 2(b) PLUS Line 2(c) PLUS Line 2(d) $
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
2 EXHIBIT D-6
-----------
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3. ADJUSTED-NET WORTH -- (S)9.1(B)
- ---------------------------------------------------------------------------------------------------------------------------
(a) Net Worth $
- ---------------------------------------------------------------------------------------------------------------------------
(b) Debt outstanding under Revolving Subordinated Loan Agreement with $
Guarantor
- ---------------------------------------------------------------------------------------------------------------------------
(c) Adjusted-Net Worth - Line 3(a) PLUS Line 3(b) $
- ---------------------------------------------------------------------------------------------------------------------------
(d) Initial Minimum $ 12,000,000
- ---------------------------------------------------------------------------------------------------------------------------
(e) 100% of all contributions to any Company's stockholder's equity on or $
after December 31, 1996
- ---------------------------------------------------------------------------------------------------------------------------
(f) 50% of the Companies' cumulative Net Income (without deduction for $
losses) after December 31, 1996
- ---------------------------------------------------------------------------------------------------------------------------
(g) Actual Minimum - Line 3(d) PLUS Line 3(e) PLUS Line 3(f) $
- ---------------------------------------------------------------------------------------------------------------------------
4. ADJUSTED-TANGIBLE-NET WORTH -- (S)9.1(C)
- ---------------------------------------------------------------------------------------------------------------------------
(a) 1.25% of Servicing Portfolio $
- ---------------------------------------------------------------------------------------------------------------------------
(b) Appraised Value of Servicing Portfolio $
- ---------------------------------------------------------------------------------------------------------------------------
(c) Lesser of EITHER Line 4(a) OR Line 4(b) $
- ---------------------------------------------------------------------------------------------------------------------------
(d) Purchased servicing, etc. $
- ---------------------------------------------------------------------------------------------------------------------------
(e) Treasury stock $
- ---------------------------------------------------------------------------------------------------------------------------
(f) Surplus value, etc. $
- ---------------------------------------------------------------------------------------------------------------------------
(g) Goodwill, etc. $
- ---------------------------------------------------------------------------------------------------------------------------
(h) Patents, etc. $
- ---------------------------------------------------------------------------------------------------------------------------
(i) Guaranties $
- ---------------------------------------------------------------------------------------------------------------------------
(j) Letters of credit, acceptances, etc. $
- ---------------------------------------------------------------------------------------------------------------------------
(k) Other intangible assets $
- ---------------------------------------------------------------------------------------------------------------------------
(l) Permitted Debt expressly subordinated to the Obligation $
- ---------------------------------------------------------------------------------------------------------------------------
(m) Adjusted-Tangible-Net Worth - Line 3(a) PLUS Line 4(c) MINUS Line 4(d) $
THROUGH Line 4(k) PLUS Line 4(l)
- ---------------------------------------------------------------------------------------------------------------------------
(n) Initial Minimum $ 10,000,000
- ---------------------------------------------------------------------------------------------------------------------------
(o) 100% of all contributions to any Company's stockholder's equity on or $
after December 31, 1996
- ---------------------------------------------------------------------------------------------------------------------------
(p) 50% of the Companies' cumulative Net Income (without deduction for $
losses) after December 31, 1996
- ---------------------------------------------------------------------------------------------------------------------------
(q) Actual Minimum - Line 4(n) PLUS Line 4(o) PLUS Line 4(p) $
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
3 EXHIBIT D-6
-----------
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
5. LEVERAGE RATIO -- (S)9.2
- ---------------------------------------------------------------------------------------------------------------------------
(a) Total Debt $
- ---------------------------------------------------------------------------------------------------------------------------
(b) Repurchase obligations, obligations under escrow-arbitrage-type facilities, $
and subordinated obligations permitted to be excluded
- ---------------------------------------------------------------------------------------------------------------------------
(c) Total-Adjusted Debt - Line 5(a) MINUS Line 5(b) $
- ---------------------------------------------------------------------------------------------------------------------------
(d) RATIO of Line 5(c) to Line 4(m) to
- ---------------------------------------------------------------------------------------------------------------------------
(e) MAXIMUM 8.0 to 1.0
- ---------------------------------------------------------------------------------------------------------------------------
6. CASH FLOW -- (S)9.3
- ---------------------------------------------------------------------------------------------------------------------------
(a) Net Income for past 4-quarter period $
- ---------------------------------------------------------------------------------------------------------------------------
(b) Depreciation $
- ---------------------------------------------------------------------------------------------------------------------------
(c) Amortization $
- ---------------------------------------------------------------------------------------------------------------------------
(d) Total of Lines 6(a) through 6(c) $
- ---------------------------------------------------------------------------------------------------------------------------
(e) Amount of Non-cash revenue $
- ---------------------------------------------------------------------------------------------------------------------------
(f) Amount of Distributions paid to Guarantor $
- ---------------------------------------------------------------------------------------------------------------------------
(g) Cash Flow - Line 6(d) MINUS Line 6(e) MINUS Line 6(f) $
- ---------------------------------------------------------------------------------------------------------------------------
(h) CMLTD $
- ---------------------------------------------------------------------------------------------------------------------------
(i) Ratio of Line 6(g) to 6(h) to
- ---------------------------------------------------------------------------------------------------------------------------
(j) MINIMUM 1.30 to 1.00
- ---------------------------------------------------------------------------------------------------------------------------
7. SERVICING PORTFOLIO -- (S)9.4
- ---------------------------------------------------------------------------------------------------------------------------
(a) Servicing Portfolio $
- ---------------------------------------------------------------------------------------------------------------------------
(b) MINIMUM (the minimum amount increases to $2,000,000,000 after $1,500,000,000
June 30, 1997 so long as the Vanderford acquisition has occurred)
- ---------------------------------------------------------------------------------------------------------------------------
8. SERVICING-PORTFOLIO-COVERAGE RATIO--(S)9.5
- ---------------------------------------------------------------------------------------------------------------------------
(a) Principal Debt of Term-Line Borrowings $
- ---------------------------------------------------------------------------------------------------------------------------
(b) 1.25% of Servicing Portfolio $
- ---------------------------------------------------------------------------------------------------------------------------
(c) 70% of the Appraised Value of the Servicing Portfolio $
- ---------------------------------------------------------------------------------------------------------------------------
(d) Lesser of EITHER Line 8(b) or Line 8(c) - must be greater than Line 8(a) $
- ---------------------------------------------------------------------------------------------------------------------------
(e) Principal Debt of Working-Capital Borrowings $
- ---------------------------------------------------------------------------------------------------------------------------
(f) Total of Lines 8(a) and 8(e) $
- ---------------------------------------------------------------------------------------------------------------------------
(g) 1.25% of Servicing Portfolio $
- ---------------------------------------------------------------------------------------------------------------------------
(h) 95% of the Appraised Value of Servicing Portfolio $
- ---------------------------------------------------------------------------------------------------------------------------
(i) Lesser of EITHER Line 8(g) or Line 8(h) - must be greater than Line 8(f) $
===========================================================================================================================
</TABLE>
4 EXHIBIT D-6
-----------
<PAGE>
EXHIBIT D-7
-----------
COLLATERAL-CONVERSION NOTICE
----------------------------
AGENT: Bank One, Texas, N.A. DATE:_______________, 199____
BORROWER: Matrix Financial Services Corporation
- --------------------------------------------------------------------------------
This notice is delivered to Agent under the Amended and Restated Loan
Agreement (as renewed, extended, or amended the "LOAN AGREEMENT") dated as of
January 31, 1997, between Borrower Agent, and certain Lenders. Terms defined in
the Loan Agreement have the same meanings when used -- unless otherwise defined
- -- in this notice.
Borrower notifies Agent that (a) Agent has issued its initial certification
for inclusion of the Eligible-Mortgage Loans described on the attached ANNEX 1
in one or more Mortgage Pools and (b) Borrower is delivering to Agent one or
more valid and enforceable Take-Out Commitments that comply with PART B.2. on
SCHEDULE 4.1 to the Loan Agreement for those Eligible-Mortgage Loans.
On and as of the date of this notice, Borrower certifies, represents, and
warrants, to Agent for Lenders that (a) all of the items that Borrower is
required to furnish to Agent under the Loan Agreement in connection with this
notice accompany it, all of those items are accurate and what they purport to
be, and all of the Eligible-Mortgage Loans described on the attached ANNEX 1
comply with all requirements necessary to constitute Eligible-Gestation
Collateral, (b) the representations and warranties of Borrower in the Loan
Documents are true and correct in all material respects except to the extent
that (i) a representation or warranty speaks to a specific date or (ii) the
facts on which a representation or warranty is based have changed by
transactions or conditions contemplated or permitted by the Loan Documents, and
(c) no Default or Potential Default exists.
MATRIX FINANCIAL SERVICES CORPORATION
as Borrower
By____________________________________
(Name)________________________________
/1/(Title)____________________________
____________________
/1/ Must be a Responsible Officer of -- or an individual designated in writing
to Agent by a Responsible Officer of --Borrower.
EXHIBIT D-7
-----------
<PAGE>
EXHIBIT E
---------
OPINION OF COUNSEL
------------------
[LETTERHEAD]
January 31, 1997
Bank One, Texas, N.A., as Agent
1717 Main Street, 4th Floor
Dallas, TX 75201
Attention: Mark L. Freeman
Vice President
The Lenders Referred to Below
Re: $100,000,000 Loan Extended by Bank One, Texas, N.A. and certain other
Lenders to Matrix Financial Services Corporation
Ladies and Gentlemen:
In connection with that certain Amended and Restated Loan Agreement (the
"LOAN AGREEMENT"), dated as of January 31, 1997, between Matrix Financial
Services Corporation, an Arizona corporation ("BORROWER"), the lenders named on
SCHEDULE 2 thereto (the "LENDERS"), Bank One, Texas, N.A., as Agent for itself
and the other Lenders ("AGENT"), we have acted as counsel to Borrower and, in
connection with its execution of the Guaranty (as defined and described in the
Loan Agreement), Matrix Capital Corporation, a Colorado corporation
("GUARANTOR").
This opinion is furnished to you in satisfaction of a closing condition set
forth in SCHEDULE 5 attached to the Loan Agreement. Terms used herein which are
defined in the Loan Agreement shall have the meaning set forth in the Loan
Agreement unless otherwise defined herein or in the Schedules attached hereto.
In connection with the opinions set forth below, we have examined such
documents as we have deemed necessary or appropriate for the purposes of this
opinion letter, including without limitation, the documents listed on the
Schedule of Review Documents attached hereto (the "SCHEDULE") . The documents
described in Section 1 of the Schedule are collectively the "LOAN DOCUMENTS,"
and those described in Section 2 of the Schedule are collectively the "DUE
DILIGENCE DOCUMENTS."
We have also made such other examinations and inquiries (subject to the
description of the specific level of examination and inquiry described below) as
we have deemed necessary and/or appropriate, as the basis for the opinions
expressed herein. In making such examinations, we have assumed, with your
consent, (i) the genuineness of all signatures (other than signatures on behalf
of the Borrower or Guarantor) not witnessed and the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as copies or faxes and the authenticity of the
originals of such latter documents; (ii) the Loan Documents accurately describe
and contain the mutual understanding of the parties and there are no oral or
written statements or agreements that modify, amend or vary or purport to
modify, amend or vary any of the provisions of the Loan Documents; (iii) the
execution and delivery of the Loan Documents by each party other than Borrower
and Guarantor, that such execution and delivery is duly authorized, that any
person executing the Loan Documents on behalf of each such party is duly
authorized and
EXHIBIT E
---------
<PAGE>
that each Loan Document so executed and delivered by each party other than
Borrower and Guarantor is such party's valid and binding obligation and is
enforceable in accordance with its terms; (iv) the legality of performance by
each party other than Borrower and Guarantor of each obligation of each Loan
Document so executed and delivered; (v) any court of law (other than an Arizona
state court or a Federal court sitting in Arizona) in which any Loan Document is
sought to be enforced will apply Texas law unless otherwise expressly provided
in such Loan Document, and (vi) the result of the application of the law of
Texas will not be contrary to a fundamental policy of the law of Arizona. We
have made no examination or investigation to verify the accuracy or completeness
of any projection, financial, accounting or statistical information furnished to
you or with respect to any other accounting or financial matters and express no
opinion with respect thereto.
With respect to the opinions rendered in paragraph 9 of this opinion
letter, we have assumed with your consent that the following facts are true:
(i) The representations contained in SCHEDULE 6.2 of the Loan
Agreement regarding the location of the Borrower's chief executive office and
other principal offices and the location of the offices where the Borrower keeps
its records are accurate and complete.
(ii) The Borrower (A) owns the assets to be subject to the Lender
Liens, (B) has good and sufficient title to these assets and (C) has "rights in
the Collateral" as that phrase is used in Section 9.203 of the Texas Uniform
Commercial Code ("TEXAS UCC") and, to the extent applicable, Section 47-9203 of
the Arizona Uniform Commercial Code ("ARIZONA UCC").
(iii) Collateral of a type that may be perfected by filing or
possession is and continuously remains in possession of the Agent.
(iv) Agent has no notice of any security interest in the Collateral
in favor of any third person other than as disclosed in the UCC Search Reports
obtained by Agent in connection with the closing of the Loan Agreement and as
described on SCHEDULE 5 thereto.
(v) Agent shall have received each of the Acknowledgment Agreements
referred to as Items 16, 17, and 18 listed on SCHEDULE 5 entitled Closing
Conditions executed by Borrower and FNMA, FHLMC, and GNMA, respectively.
We have assumed, with your consent, that the following facts are true in
rendering this opinion: (i) the matters of fact set forth in the representations
contained in any Loan Document, and (ii) the matters of fact set forth in the
Officer's Certificate.
Based on the foregoing, we are of the following opinions:
1. Borrower is duly incorporated, validly existing, and in good standing
under the Laws of the State of Arizona. Guarantor is duly incorporated, validly
existing, and in good standing under the Laws of the State of Colorado.
2. Borrower is duly qualified to transact business and is in good
standing as a foreign corporation in each jurisdiction where the failure to be
so qualified and in good standing is a Material-Adverse Event.
2 EXHIBIT E
---------
<PAGE>
3. Borrower has no Subsidiaries and Borrower has not used or transacted
business under any corporate or trade name in the six-month period preceding the
date of the Loan Agreement other than as set forth in SCHEDULE 6.2 of the Loan
Agreement.
4. Borrower possesses all requisite corporate power and authority to
conduct its business as is now being, or is contemplated by the Loan Agreement
to be, conducted. Guarantor possesses all requisite corporate power and
authority to conduct its business as is now being, or is contemplated by the
Loan Agreement to be, conducted.
5. The execution and delivery by Borrower and Guarantor of each Loan
Document to which it is a party and the performance by it of its related
obligations (a) are within its corporate power, (b) have been duly authorized by
all necessary corporate action on its behalf, (c) except for any action or
filing that has been taken or made on or before the date of this opinion,
require no action by or filing with any Tribunal, (d) do not violate any
provision of its articles of incorporation or bylaws, (e) do not violate any
provision of Law applicable to it or any material agreements to which it is a
party, and (f) except for Lender Liens, do not result in the creation or
imposition of any Lien on any asset of Borrower.
6. Upon execution and delivery by all parties to it, each of the Loan
Agreement, the Notes, the Security Agreement and the UCC Financing Statements
constitutes a legal and binding obligation of Borrower, enforceable against it
in accordance with its terms. Upon execution and delivery by all parties to it,
the Guaranty constitutes a legal and binding obligation of Guarantor,
enforceable against it in accordance with its terms.
7. Except as disclosed on SCHEDULE 6.9 to the Loan Agreement (a) Borrower
is not subject to, or aware of the threat of, any Litigation that is reasonably
likely to be determined adversely to it or, if so adversely determined, would be
a Material-Adverse Event, and (b) no final nonappealable outstanding or unpaid
judgments against Borrower exist. Guarantor is not subject to, or aware of the
threat of, any Litigation that is reasonably likely to be determined adversely
to it or, if so adversely determined, would be a Material-Adverse Event, and (b)
no outstanding or unpaid judgments against Guarantor exist.
8. Neither Borrower nor Guarantor is not subject to regulation under the
Investment Company Act of 1940, as amended, or the Public Utility Holding
Company Act of 1935, as amended.
9. A first priority security interest is created and perfected pursuant
to the Security Agreement upon (a) each mortgage note that is delivered to
Agent, (b) each Mortgage Security in certificated form that is delivered to
Agent or its bailee, (c) each Mortgage Security in book-entry form when the
Lender obtains "control" as provided in Section 9.115 of the Texas UCC, (d)
each mortgage note and related Take-Out Commitment for 21-days after the
Borrowing Date of each related Wet Borrowing, and (e) all Mortgage Collateral
transmitted to any third party acting solely as a bailee for Lenders under a
Bailee Letter pursuant to which such bailee received notice of Lender's interest
(until Agent receives payment or Mortgage Securities under that Bailee Letter).
A security interest is created and perfected pursuant to the Security Agreement
in all Servicing Rights and Servicing Receivables identified as Collateral under
the Loan Documents when the Financing Statements described in Item 8 of Schedule
5 are filed in the States of Arizona, Texas and Colorado.
10. You have requested that we advise you whether an Arizona court would
give effect to the choice of law provision in certain of the Loan Documents in
favor of the law of the State of Texas. The Supreme Court of Arizona has
consistently ruled that where it is not bound by a previous decision or by
legislative enactment, it will follow the rules in the Restatements of the Law,
-----------------------
including, without limitation, the Restatements of Conflict of Laws. Smith v.
-------------------------------- --------
Normart, 51 Ariz. 134, 75 P.2d 38 (1938); Western Coal & Min.
- ------- -------------------
3 EXHIBIT E
---------
<PAGE>
Co. v. Hilvert, 63 Ariz. 171, 160 P. 2d 331 (1945); Burr v. Renewal Guaranty
- -------------- ------------------------
Corp., 105 Ariz. 549, 468 P.2d 576 (1970); and Taylor v. Security National Bank,
- ---- --------------------------------
20 Ariz. App. 504, 514 P.2d 257 (1973); In re Levine, 145 Ariz. 185, 700 P. 2d
883 (Ariz. App. 1985). Section 187 of the Restatement (Second) Conflict of Laws
-----------------------------
provides that the parties to a contract may stipulate their choice of law to
govern the contract and that the laws of the state chosen will be applied unless
(i) the particular issue is one that the parties could not have resolved by an
explicit provision in their agreement directed to that issue and (ii) either:
(a) The chosen state has no substantial relationship to the parties or the
transaction and there is no other reasonable basis for the parties' choice;
or
(b) Application of the law of the chosen state would be contrary to a
fundamental policy of a state that has a materially greater interest than
the chosen state in the determination of the particular issue and that,
under the rule of Section 188 of the Restatement (Second) Conflict of Laws,
-------------------------------------
would be the state of applicable law in the absence of an effective choice
of law by the parties.
Based on the facts concerning the negotiation of the Loan Documents and the
terms thereof and considering such other matters as we have deemed relevant, we
believe that an Arizona court would give effect to the choice of law provisions
in the Loan Agreement in favor of the law of the State of Texas.
Exceptions and Qualifications of Opinions.
- -----------------------------------------
All opinions contained herein with respect to the enforceability of
documents and instruments are qualified to the extent that:
(a) the availability of equitable remedies, including, without
limitation, specific performance and injunctive relief is subject to the
discretion of the court before which any proceedings therefor may be brought;
(b) the enforceability of certain terms provided in the Loan
Documents may be limited by applicable bankruptcy, reorganization, arrangement,
insolvency, moratorium or similar laws affecting the enforcement of creditors
rights generally as at the time in effect; and
(c) certain rights of the Lenders and Agent to indemnity may violate
public policy.
The foregoing opinions are subject to the following additional exceptions
and qualifications:
(a) Certain of the waivers, remedies, procedures and other provisions
in the Loan Documents may be further limited or rendered unenforceable by
applicable law, but such law does not, in our opinion, make the remedies
afforded by the Loan Documents inadequate for the practical realization of the
benefits intended to be provided thereby.
(b) Continuation statements with respect to the security interests
perfected by the filing of Financing Statements will be filed within the period
specified by applicable law prior to the expiration of the period of duration of
the initial filing of the Financing Statements in order to prevent the filing
from lapsing under the UCC. The perfection of the security interests by filing
will be terminated as to any Collateral acquired by the Borrower more than the
period provided by applicable law after the Borrower changes its name, identity
or corporate structure so as to make the Financing Statements seriously
misleading unless a new
4 EXHIBIT E
---------
<PAGE>
appropriate financing statement incorporating the necessary changes is properly
filed before the expiration of such period.
(c) Except as expressly stated in this opinion letter, we neither
express nor imply any other opinion including, but not limited to, matters of
title, perfection or priority of security interests or federal, state or local
tax issues.
(d) We have assumed that nothing has occurred and no factual
condition exists as of this date which has not been disclosed to us which, if it
had been disclosed to us, would cause us to withhold, modify, qualify or
otherwise limit any opinion contained herein. The foregoing sentence does not
relieve the undersigned of its duty to make the inquiry described herein.
(e) This opinion is delivered on the express condition that you do
not have actual knowledge that the opinion expressed herein is not accurate in
any material respect.
(f) The opinions expressed in this letter are based solely upon the
law of the States of Arizona and Texas (upon Texas law solely with respect to
the opinion stated in paragraph 9 of this opinion letter) and applicable federal
law in effect on the date hereof.
(g) We assume no obligation to revise or supplement this opinion
should such law be changed by legislative action, judicial decision or
otherwise.
This opinion is addressed solely for your use in connection with the
transactions contemplated by the Loan Agreement, and no Person other than the
Agent, each Lender, each assignee which hereafter becomes a Lender in accordance
with the terms of the Loan Agreement, and the law firm of Haynes and Boone,
L.L.P., is entitled to rely on this opinion without our prior written consent.
Respectfully submitted,
5 EXHIBIT E
---------
<PAGE>
Schedule of Review Documents
----------------------------
1. Loan Documents
--------------
(a) Amended and Restated Loan Agreement dated as of January 31, 1997,
among Bank One, Texas, N.A., certain other Lenders, and Matrix
Financial Services Corporation;
(b) Amended and Restated Warehouse Note dated January 31, 1997, executed
by Borrower and payable to the order of Bank One, Texas, N.A.;
(c) Amended and restated Swing Note dated January 31, 1997, executed by
Borrower and payable to the order of Bank One, Texas, N.A.;
(d) Amended and Restated Working-Capital Note dated January 31, 1997,
executed by Borrower and payable to the order of Bank One, Texas,
N.A.;
(e) Amended and Restated Term-Line Note dated January 31, 1997, executed
by Borrower and payable to the order of Bank One, Texas, N.A.;
(f) Amended and Restated Guaranty dated January 31, 1997 executed by
Guarantor in favor of Agent and the Lenders;
(g) Amended and Restated Security Agreement dated January 31, 1997,
executed by Borrower in favor of Bank One, Texas, N.A. as Agent for
Lenders; and
(h) Financing Statements executed by Borrower in favor of Bank One, Texas,
N.A. as Agent for Lenders.
2. Due Diligence Documents
-----------------------
(a) Articles of Incorporation and Bylaws of Borrower and Guarantor;
(b) Good Standing Certificates for Borrower from the Arizona Corporation
Commission and for Guarantor from the Colorado Secretary of State;
(c) Officers' Certificate for Borrower;
(d) Officers' Certificate for Guarantor; and
(e) Opinion Certificate.
6 EXHIBIT E
---------
<PAGE>
EXHIBIT F-1
-----------
AMENDMENT
---------
THIS DOCUMENT is entered into as of _____________, 19__, between MATRIX
FINANCIAL SERVICES CORPORATION, an Arizona corporation ("BORROWER"), the Lenders
listed on the signature page below, and BANK ONE, TEXAS, N.A., as Agent (in that
capacity "AGENT").
Borrower, Lenders, and Agent have entered into the Amended and Restated
Loan Agreement (as renewed, extended, amended, or restated, the "LOAN
AGREEMENT") dated as of January 31, 1997, providing for loans to Borrower both
on a revolving and a term basis. Borrower, Lenders, and Agent have agreed, upon
the following terms and conditions, to provide for, among other things,
_______________________. Accordingly, for adequate and sufficient consideration,
the parties agree as follows:
1. TERMS AND REFERENCES. Unless otherwise stated in this document (a)
terms defined in the Loan Agreement have the same meanings when used in this
document and (b) all references to "Sections," "Schedules," and "Exhibits" are
to the Loan Agreement's sections, schedules, and exhibits.
2. AMENDMENTS. The Loan Agreement is amended as follows:
(a) SECTION ____ is amended by deleting the terms "[DEFINED TERM 1],"
--------------
"[DEFINED TERM 2]," and "[DEFINED TERM 3]" and by adding or entirely
-------------- --------------
amending the following terms:
"[DEFINED TERM 4]" means ...
--------------
"[DEFINED TERM 5]" means ...
--------------
(b) SECTION ____ is entirely amended as follows:
[RESTATE AMENDED PROVISION IN ITALICS]
------------------------------------
(c) SECTION ____ is entirely amended as follows:
[RESTATE AMENDED PROVISION IN ITALICS]
------------------------------------
(d) EXHIBIT __ is entirely amended in the form of -- and all
references in the Credit Agreement to EXHIBIT __ are changed to -- the
attached AMENDED EXHIBIT __.
3. CONDITIONS PRECEDENT. Notwithstanding any contrary provision, the
foregoing paragraphs in this document are not effective unless and until (a) the
representations and warranties in this document are true and correct and (b)
each document and other item listed on the attached ANNEX A.
4. RATIFICATIONS. To induce Agent and Lenders to enter into this
document, Borrower (a) ratifies and confirms all provisions of the Loan
Documents as amended by this document, (b) ratifies and confirms that all
guaranties, assurances, and Liens granted, conveyed, or assigned to Agent and
Lenders under the Loan Documents (as they may have been renewed, extended, and
amended) are not released, reduced, or otherwise adversely affected by this
document and continue to guarantee, assure, and secure full payment and
performance of the present and future Obligation, and (c) agrees to perform
those acts and duly authorize,
EXHIBIT F-1
-----------
<PAGE>
execute, acknowledge, deliver, file, and record those additional documents, and
certificates as Agent or any Lender may request in order to create, perfect,
preserve, and protect those guaranties, assurances, and Liens.
5. REPRESENTATIONS. To induce Agent and Lenders to enter into this
document, Borrower represents and warrants to Agent and Lenders that as of the
date of this document (a) Borrower has all requisite authority and power to
execute, deliver, perform its obligations under this document and all other
notes and documents delivered under it, which execution, delivery, and
performance have been duly authorized by all necessary corporate action, require
no action by or filing with any Tribunal, do not violate its corporate charter
or bylaws or (except where not a Material-Adverse Event) violate any Law
applicable to it or any material agreement to which it or its assets are bound,
(b) upon execution and delivery by all parties to it, this document and all
other notes and documents delivered under it will constitute Borrower's legal
and binding obligations, enforceable against it in accordance with their
respective terms except as that enforceability may be limited by Debtor Laws and
general principles of equity, (c) all other representations and warranties in
the Loan Documents are true and correct in all material respects except to the
extent that (i) any of them speak to a different specific date or (ii) the facts
on which any of them were based have been changed by transactions contemplated
or permitted by the Loan Agreement, and (e) no Material-Adverse Event, Default,
or Potential Default exists.
6. EXPENSES. Borrower shall pay all costs, fees, and expenses paid or
incurred by Agent incident to this document, including, without limitation, the
reasonable fees and expenses of Agent's counsel in connection with the
negotiation, preparation, delivery, and execution of this document and any
related documents.
7. MISCELLANEOUS. All references in the Loan Documents to the "Loan
Agreement" refer to the Loan Agreement as amended by this document. This
document is a "Loan Document" referred to in the Loan Agreement; therefore, the
provisions relating to Loan Documents in the Loan Agreement are incorporated in
this document by reference. Except as specifically amended and modified in this
document, the Loan Agreement is unchanged and continues in full force and
effect. This document may be executed in any number of counterparts with the
same effect as if all signatories had signed the same document. All
counterparts must be construed together to constitute one and the same
instrument. This document binds and inures to each of the undersigned and their
respective successors and permitted assigns, subject to SECTION 12.12. THIS
DOCUMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS BY THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGE FOLLOWS.
2 EXHIBIT F-1
-----------
<PAGE>
EXECUTED on ____________, 19__, but effective as of the date first stated
above.
MATRIX FINANCIAL SERVICES BANK ONE, TEXAS, N.A., as Agent and a
CORPORATION, as Borrower Lender
By ___________________________________ By _________________________________
Thomas J. Osselaer, Executive Vice Mark L. Freeman, Vice President
President
CONSENT AND AGREEMENT
---------------------
To induce Agent and Lenders to enter into this document, the undersigned
(a) consents and agrees to this document's execution and delivery, (b) ratifies
and confirms that all guaranties, assurances, Liens, and subordinations granted,
conveyed, or assigned to Agent and Lenders under the Loan Documents (as they may
have been renewed, extended, and amended) are not released, diminished,
impaired, reduced, or otherwise adversely affected by this document and continue
to guarantee, assure, secure, and subordinate other debt to the full payment and
performance of all present and future Obligation, (c) agrees to perform those
acts and duly authorize, execute, acknowledge, deliver, file, and record those
additional guaranties, assignments, security agreements, deeds of trust,
mortgages, and other agreements, documents, instruments, and certificates as
Agent or any Lender may reasonably deem necessary or appropriate in order to
create, perfect, preserve, and protect those guaranties, assurances, Liens, and
subordinations, (d) represents and warrants to Agent and Lenders that (i) the
value of the consideration received and to be received by the undersigned in
respect of those guaranties, assurances, Liens, and subordinations are
reasonably worth at least as much as the related liability and obligation, (ii)
that liability and obligation may reasonably be expected to directly or
indirectly benefit the undersigned, and (iii) the undersigned is --and after
giving effect to those guaranties, assurances, Liens, subordinations, and the
Loan Documents, in light of all existing facts and circumstances (including,
without limitation, collateral for and other obligors in respect of the
Obligation and various components of it and various rights of subrogation and
contribution), the undersigned will be -- Solvent, and (e) waives notice of
acceptance of this consent and agreement, which consent and agreement binds the
undersigned and its successors and permitted assigns and inures to Agent, each
Lender, and their successors and permitted assigns.
MATRIX CAPITAL CORPORATION, as
Guarantor
By ______________________________
Guy A. Gibson, President
3 EXHIBIT F-1
-----------
<PAGE>
EXHIBIT F-2
-----------
ASSIGNMENT AND ASSUMPTION AGREEMENT
-----------------------------------
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT is entered into effective as of
___________, 199__, between BANK ONE, TEXAS, N.A. ("ASSIGNOR"), and
_______________________ ("ASSIGNEE").
MATRIX FINANCIAL SERVICES CORPORATION, an Arizona corporation ("BORROWER"),
certain lenders ("LENDERS"), and BANK ONE, TEXAS, N.A. (in its capacity as Agent
for Lenders, "AGENT"), are party to the Amended and Restated Loan Agreement (as
renewed, extended, amended, or restated, the "LOAN AGREEMENT") dated as of
January 31, 1997, all of the defined terms in which have the same meanings when
used -- unless otherwise defined -- in this agreement. This agreement is
entered into as required by SECTION 12.14 of the Loan Agreement and is not
effective until consented to by Borrower and Agent, which consents may not under
the Loan Agreement be unreasonably withheld.
ACCORDINGLY, for adequate and sufficient consideration, Assignor and
Assignee agree as follows:
1. ASSIGNMENT AND ASSUMPTION. By this agreement, and effective as of
-------------------------
__________, 199__, (the "EFFECTIVE DATE"), Assignor sells and assigns to
Assignee (without recourse to Assignor) and Assignee purchases and assumes from
Assignor an interest in and to all of Assignor's Rights and obligations under
the Loan Agreement (except any Rights and obligations pertaining to Assignor's
role as Agent, Lender of Swing Borrowings, and custodian) as of the Effective
Date, including, without limitation, (a) a ______% interest in Assignor's
Combined Commitment, (b) a ____% interest in Assignor's Warehouse Commitment;
(c) a ____% interest in Assignor's Working-Capital Commitment, (d) a ____%
interest in Assignor's Term-Line Commitment, (e) a corresponding amount of the
Principal Debt outstanding under Assignor's existing Warehouse Note, Working-
Capital Note, and Term-Line Note, (f) all interest accruing in respect of the
interests assigned above (collectively, the "ASSIGNED INTERESTS") after the
Effective Date, and (g) all commitment fees accruing in respect of the Assigned
Interest after the Effective Date.
2. ASSIGNOR PROVISIONS. Assignor (a) represents and warrants to Assignee
-------------------
that as of the Effective Date (i) $_______________ is outstanding (without
reduction for any assignments that have not yet become effective) under the
Assignor's Warehouse Note, Working-Capital Note, and Term-Line Note,
respectively, (ii) Assignor is the legal and beneficial owner of the Assigned
Interest, which is free and clear of any adverse claim, and (iii) Assignor has
not been notified of an existing Default or Potential Default, and (b) makes no
representation or warranty to Assignee and assumes no responsibility to Assignee
with respect to (i) any statements, warranties, or representations made in or in
connection with any Loan Document, (ii) the execution, legality, validity,
enforceability, genuineness, sufficiency, or value of any Loan Document, or
(iii) the financial condition of any Company or the performance or observance by
any Company of any of its obligations under any Loan Document.
3. ASSIGNEE PROVISIONS. Assignee (a) represents and warrants to
-------------------
Assignor, Borrower, and Agent that Assignee is legally authorized to enter into
this agreement and each other Loan Document to which it will become a party, (b)
confirms that it has received a copy of the Loan Agreement, copies of the
Current Financials, and such other documents and information as it deems
appropriate to make its own credit analysis and decision to enter into this
agreement, (c) agrees with Assignor, Borrower, and Agent that Assignee shall --
independently and without reliance upon Agent, Assignor, or any other Lender and
based on such documents and information as Assignee deems appropriate at the
time -- continue to make its own credit decisions in taking or not taking action
under the Loan Documents, (d) appoints and authorizes Agent to take such action
EXHIBIT F-2
-----------
<PAGE>
as agent on its behalf and to exercise such powers under the Loan Documents as
are delegated to Agent by the terms of the Loan Documents and all other
reasonably-incidental powers, (e) agrees with Assignor, Borrower, and Agent that
Assignee shall perform and comply with all provisions of the Loan Documents
applicable to Lenders in accordance with their respective terms, and (f) if
Assignee is not organized under the Laws of the United States of America or one
of its states, it (i) represents and warrants to Assignor, Agent, and Borrower
that no Taxes are required to be withheld by Assignor, Agent, or Borrower with
respect to any payments to be made to it in respect of the Obligation, and it
has furnished to Agent and Borrower two duly completed copies of either U.S.
Internal Revenue Service Form 4224, Form 1001, Form W-8, or any other form
acceptable to Agent that entitles Assignee to exemption from U.S. federal
withholding Tax on all interest payments under the Loan Documents, (ii)
covenants to provide Agent and Borrower a new Form 4224, Form 1001, Form W-8, or
other form acceptable to Agent upon the expiration or obsolescence of any
previously delivered form according to Law, duly executed and completed by it,
and to comply from time to time with all Laws with regard to the withholding Tax
exemption, and (iii) agrees with Agent and Borrower that, if any of the
foregoing is not true or the applicable forms are not provided, then Agent and
Borrower (without duplication) may deduct and withhold from interest payments
under the Loan Documents any United States federal-income Tax at the full rate
applicable under the IRC.
4. LOAN AGREEMENT AND COMMITMENTS. From and after the Effective Date (a)
------------------------------
Assignee shall be a party to the Loan Agreement and (to the extent provided in
this agreement) have the Rights and obligations of a Lender under the Loan
Documents and (b) Assignor shall (to the extent provided in this agreement)
relinquish its Rights and be released from its obligations under the Loan
Documents. On the Effective Date, after giving effect to this and certain other
assignment and assumption agreements that become effective on the Effective
Date, but without giving effect to any other assignments that have not yet
become effective, Assignor's and Assignee's Warehouse Commitments, Working-
Capital Commitments, Term-Line Commitments, and Combined Commitments will be as
follows:
<TABLE>
<CAPTION>
===========================================================================
WAREHOUSE WORKING-CAPITAL TERM-LINE COMBINED
LENDER COMMITMENTS COMMITMENTS COMMITMENTS COMMITMENTS
===========================================================================
<S> <C> <C> <C> <C>
Assignor $ $ $ $
---------------------------------------------------------------------------
Assignee
---------------------------------------------------------------------------
</TABLE>
5. NOTES. Assignor and Assignee request Borrower to issue new Notes to
-----
Assignor and Assignee in the amounts of their respective commitments under
PARAGRAPH 4 above and otherwise issue these Notes in accordance with the Loan
Agreement. Upon delivery of those Notes, Assignor shall return to Borrower all
Notes previously delivered to Assignor under the Loan Agreement.
6. PAYMENTS AND ADJUSTMENTS. From and after the Effective Date, Agent
------------------------
shall make all payments in respect of the Assigned Interest (including payments
of principal, interest, fees, and other amounts) to Assignee. Assignor and
Assignee shall make all appropriate adjustments in payments for periods before
the Effective Date by Agent or with respect to the making of this assignment
directly between themselves. Assignor agrees to apply any payments and proceeds
with respect to the Obligation ratably with Assignee.
7. CONDITIONS PRECEDENT. PARAGRAPHS 1 through 6 above are not effective
--------------------
until (a) counterparts of this agreement are executed by Assignor, Assignee,
Agent, and Borrower, and are delivered to Agent and Borrower and (b) pursuant to
SECTION 12.14(A)(II), Assignor pays to Agent an administrative transfer fee of
2 EXHIBIT F-2
-----------
<PAGE>
$2,500. If Agent is the Assignor, the requirement of SECTION 12.14(A)(II) is
waived with regard to this agreement.
8. INCORPORATED PROVISIONS. Although this agreement is not a Loan
-----------------------
Document, the provisions of the Loan Agreement applicable to Loan Documents are
incorporated into this instrument by reference the same as if this agreement
were a Loan Document and those provisions were set forth in this agreement
verbatim.
9. COMMUNICATIONS. For purposes of SECTION 12.2 of the Loan Agreement,
--------------
Assignee's address and telecopy number -- until changed under that section --
are beside its signature below.
10. AMENDMENTS, ETC. No amendment, waiver, or discharge to or under this
---------------
agreement is valid unless in writing that is signed by the party against whom it
is sought to be enforced and is otherwise in conformity with the requirements of
the Loan Agreement.
11. ENTIRETY. THIS AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN
--------
ASSIGNOR AND ASSIGNEE ABOUT ITS SUBJECT MATTER AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF ASSIGNOR
AND ASSIGNEE. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN ASSIGNOR AND
ASSIGNEE.
12. PARTIES. This agreement binds and benefits Assignor, Assignee, and
-------
their respective successors and assigns as permitted under the documents.
EXECUTED as of the date first stated above.
BANK ONE, TEXAS, N.A., as Assignor _______________________, as Assignee
and Agent
By ____________________________________ By __________________________________
Mark L. Freeman, Vice President Name ________________________________
Title _______________________________
(Address) __________________________
__________________________
__________________________
Attn:_____________________
(Tel. No.)(___) ___-_____
(Fax No.)(___) ___-_____
3 EXHIBIT F-2
-----------
<PAGE>
As of the Effective Date, Agent (per the above signature) and Borrower
consent to this agreement and the transactions contemplated in it.
MATRIX FINANCIAL SERVICES
CORPORATION, as Borrower
By ____________________________________________
Thomas J. Osselaer, Executive Vice President
4 EXHIBIT F-2
-----------
<PAGE>
Exhibit 10.33
EXHIBIT A-1
-----------
AMENDED AND RESTATED WAREHOUSE NOTE
-----------------------------------
$60,000,000 January 31, 1997
FOR VALUE RECEIVED, MATRIX FINANCIAL SERVICES CORPORATION, an Arizona
corporation ("BORROWER"), promises to pay to the order of BANK ONE, TEXAS, N.A.
("LENDER") that portion of the principal amount of $60,000,000 that may from
time to time be disbursed and outstanding under this note together with
interest.
This note is a "Warehouse Note" under the Amended and Restated Loan
Agreement (as renewed, extended, amended, or restated, the "LOAN AGREEMENT")
dated as of January 31, 1997, between Borrower, Lender, certain other Lenders,
and Bank One, Texas, N.A., as Agent for Lenders. All of the defined terms in
the Loan Agreement have the same meanings when used -- unless otherwise defined
- -- in this note.
This note incorporates by reference the principal and interest payment
terms in the Loan Agreement for this note, including, without limitation, the
final maturity, which is the Warehouse-Actual-Termination Date. Principal and
interest are payable to the holder of this note through Agent at either (a) its
offices at 1717 Main Street, Dallas, Texas 75201, or (b) at any other address so
designated by Agent in written notice to Borrower.
This note incorporates by reference all other provisions in the Loan
Agreement applicable to this note -- such as provisions for disbursements of
principal, applicable-interest rates before and after Default, voluntary and
mandatory prepayments, acceleration of maturity, exercise of Rights, payment of
attorneys' fees, court costs, and other costs of collection, certain waivers by
Borrower and other obligors, assurances and security, choice of Texas and United
States federal Law, usury savings, and other matters applicable to Loan
Documents under the Loan Agreement.
This note is an amendment, restatement, renewal, extension, modification
of, consolidation of, and substitution for, the existing Warehouse Notes (as the
same may have been amended and replaced to the date hereof, the "FORMER NOTES")
which Former Notes were executed and delivered pursuant to the Existing Loan
Agreement.
MATRIX FINANCIAL SERVICES CORPORATION,
as Borrower
By ____________________________________________
Thomas J. Osselaer, Executive Vice President
EXHIBIT A-1
-----------
<PAGE>
Exhibit 10.34
EXHIBIT A-2
-----------
AMENDED AND RESTATED SWING NOTE
-------------------------------
$15,000,000 January 31, 1997
FOR VALUE RECEIVED, MATRIX FINANCIAL SERVICES CORPORATION, an Arizona
corporation ("BORROWER"), promises to pay to the order of BANK ONE, TEXAS, N.A.
("LENDER") that portion of the principal amount of $15,000,000 that may from
time to time be disbursed and outstanding under this note together with
interest.
This note is the "Swing Note" under the Amended and Restated Loan Agreement
(as renewed, extended, amended, or restated, the "LOAN AGREEMENT") dated as of
January 31, 1997, between Borrower, Lender, certain other Lenders, and Bank One,
Texas, N.A., as Agent for Lenders. All of the defined terms in the Loan
Agreement have the same meanings when used -- unless otherwise defined -- in
this note.
This note incorporates by reference the principal and interest payment
terms in the Loan Agreement for this note, including, without limitation, the
final maturity, which is the Warehouse-Actual-Termination Date. Principal and
interest are payable to the holder of this note through Agent at either (a) its
offices at 1717 Main Street, Dallas, Texas 75201, or (b) at any other address so
designated by Agent in written notice to Borrower.
This note incorporates by reference all other provisions in the Loan
Agreement applicable to this note -- such as provisions for disbursements of
principal, applicable-interest rates before and after Default, voluntary and
mandatory prepayments, acceleration of maturity, exercise of Rights, payment of
attorneys' fees, court costs, and other costs of collection, certain waivers by
Borrower and other obligors, assurances and security, choice of Texas and United
States federal Law, usury savings, and other matters applicable to Loan
Documents under the Loan Agreement.
This note is an amendment, restatement, renewal, extension, modification
of, and substitution for the existing Swing Note (as the same may have been
amended and replaced to the date hereof, the "FORMER NOTE"), which Former Note
was executed and delivered pursuant to the Existing Loan Agreement.
MATRIX FINANCIAL SERVICES CORPORATION,
as Borrower
By ____________________________________________
Thomas J. Osselaer, Executive Vice President
EXHIBIT A-2
-----------
<PAGE>
Exhibit 10.35
EXHIBIT A-3
-----------
AMENDED AND RESTATED WORKING-CAPITAL NOTE
-----------------------------------------
$10,000,000 January 31, 1997
FOR VALUE RECEIVED, MATRIX FINANCIAL SERVICES CORPORATION, an Arizona
corporation ("BORROWER"), promises to pay to the order of BANK ONE, TEXAS, N.A.
("LENDER") that portion of the principal amount of $10,000,000 that may from
time to time be disbursed and outstanding under this note together with
interest.
This note is a "Working-Capital Note" under the Amended and Restated Loan
Agreement (as renewed, extended, amended, or restated, the "LOAN AGREEMENT")
dated as of January 31, 1997, between Borrower, Lender, certain other Lenders,
and Bank One, Texas, N.A., as Agent for Lenders. All of the defined terms in
the Loan Agreement have the same meanings when used -- unless otherwise defined
- --in this note.
This note incorporates by reference the principal and interest payment
terms in the Loan Agreement for this note, including, without limitation, the
final maturity, which is the Warehouse-Actual-Termination Date. Principal and
interest are payable to the holder of this note through Agent at either (a) its
offices at 1717 Main Street, Dallas, Texas 75201, or (b) at any other address so
designated by Agent in written notice to Borrower.
This note incorporates by reference all other provisions in the Loan
Agreement applicable to this note -- such as provisions for disbursements of
principal, applicable-interest rates before and after Default, voluntary and
mandatory prepayments, acceleration of maturity, exercise of Rights, payment of
attorneys' fees, court costs, and other costs of collection, certain waivers by
Borrower and other obligors, assurances and security, choice of Texas and United
States federal Law, usury savings, and other matters applicable to Loan
Documents under the Loan Agreement.
This note is an amendment, restatement, renewal, extension, modification
of, consolidation of, and substitution for, the existing Receivables Notes (as
the same may have been amended and replaced to the date hereof, the "FORMER
NOTES"), which Former Notes were executed and delivered pursuant to the Existing
Loan Agreement.
MATRIX FINANCIAL SERVICES CORPORATION,
as Borrower
By ____________________________________________
Thomas J. Osselaer, Executive Vice President
EXHIBIT A-3
-----------
<PAGE>
Exhibit 10.36
EXHIBIT A-4
-----------
AMENDED AND RESTATED TERM-LINE NOTE
-----------------------------------
$30,000,000 January 31, 1997
FOR VALUE RECEIVED, MATRIX FINANCIAL SERVICES CORPORATION, an Arizona
corporation ("BORROWER"), promises to pay to the order of BANK ONE, TEXAS, N.A.
("LENDER"), that portion of the principal amount of $30,000,000 that may from
time to time be disbursed and outstanding under this note together with
interest.
This note is a "Term-Line Note" under the Amended and Restated Loan
Agreement (as renewed, extended, amended, or restated, the "LOAN AGREEMENT")
dated as of January 31, 1997, between Borrower, Lender, certain other Lenders,
and Bank One, Texas, N.A., as Agent for Lenders. All of the defined terms in
the Loan Agreement have the same meanings when used -- unless otherwise defined
- -- in this note.
This note incorporates by reference the principal and interest payment
terms in the Loan Agreement for this note, including, without limitation, the
final maturity. Principal and interest are payable to the holder of this note
through Agent at either (a) its offices at 1717 Main Street, Dallas, Texas
75201, or (b) at any other address so designated by Agent in written notice to
Borrower.
This note incorporates by reference all other provisions in the Loan
Agreement applicable to this note -- such as provisions for disbursements of
principal, applicable-interest rates before and after Default, voluntary and
mandatory prepayments, acceleration of maturity, exercise of Rights, payment of
attorneys' fees, court costs, and other costs of collection, certain waivers by
Borrower and other obligors, assurances and security, choice of Texas and United
States federal Law, usury savings, and other matters applicable to Loan
Documents under the Loan Agreement.
This note is an amendment, restatement, renewal, extension, modification
of, consolidation of, and substitution for, the existing Term-Line Notes (as the
same may have been amended and replaced to the date hereof, the "FORMER NOTES"),
which Former Notes were executed and delivered pursuant to the Existing Loan
Agreement.
MATRIX FINANCIAL SERVICES CORPORATION,
as Borrower
By ____________________________________________
Thomas J. Osselaer, Executive Vice President
EXHIBIT A-4
-----------
<PAGE>
Exhibit 10.37
EXHIBIT B
---------
AMENDED AND RESTATED GUARANTY
-----------------------------
THIS AMENDED AND RESTATED GUARANTY is executed as of January 31, 1997, by
MATRIX CAPITAL CORPORATION ("GUARANTOR") for the benefit of BANK ONE, TEXAS,
N.A., a national banking association (in its capacity as Agent for the Lenders
now or in the future party to the Loan Agreement described below, "AGENT").
MATRIX FINANCIAL SERVICES CORPORATION, an Arizona corporation ("BORROWER"),
Agent, and Lenders have executed the Amended and Restated Loan Agreement (as
renewed, extended, amended, or restated, the "LOAN AGREEMENT") dated as of
January 31, 1997. The execution and delivery of this guaranty are requirements
to Agent's and Lenders' execution of the Loan Agreement, are integral to the
transactions contemplated by the Loan Documents, and are conditions precedent to
Lenders' obligations to extend credit under the Loan Agreement.
ACCORDINGLY, for adequate and sufficient consideration, Guarantor agrees
with Agent and Lenders as follows:
1. DEFINITIONS. Terms defined in the Loan Agreement have the same
meanings when used --unless otherwise defined -- in this guaranty. As used in
this guaranty:
"AGENT" is defined in the preamble to this guaranty and includes its
successor appointed under the Loan Documents and acting as Agent for Lenders
under the Loan Documents.
"BORROWER" is defined in the recitals to this guaranty and includes,
without limitation, Borrower, Borrower as a debtor-in-possession, and any
receiver, trustee, liquidator, conservator, custodian, or similar party
appointed for Borrower or for all or substantially all of Borrower's assets
under any Debtor Law.
"LOAN AGREEMENT" is defined in the recitals to this guaranty.
"GUARANTEED DEBT" means the Obligation, as defined in the Loan Agreement,
and all present and future costs, attorneys' fees, and expenses incurred by
Agent or any Lender to enforce Borrower's, Guarantor's, or any other obligor's
payment of any of the Obligation, including, without limitation, all present and
future amounts that would become due but for the operation of (S)(S) 502 or 506
or any other provision of Title 11 of the United States Code and all present and
future accrued and unpaid interest (including, without limitation, all post-
petition interest if Borrower voluntarily or involuntarily becomes subject to
any Debtor Law).
"GUARANTOR" is defined in the preamble to this guaranty.
"SUBORDINATED DEBT" means all present and future obligations of Borrower to
Guarantor, whether those obligations are (a) direct, indirect, fixed,
contingent, liquidated, unliquidated, joint, several, or joint and several, (b)
due or to become due to Guarantor, (c) held by or are to be held by Guarantor,
(d) created directly or acquired by assignment or otherwise, or (e) evidenced in
writing.
2. GUARANTY. Guarantor guarantees to Agent and Lenders the prompt
payment of the Guaranteed Debt at -- and at all times after -- maturity (by
acceleration or otherwise). This is an absolute, irrevocable, and continuing
guaranty, and the circumstance that at any time or from time to time the
EXHIBIT B
---------
<PAGE>
Guaranteed Debt may be paid in full does not affect the obligation of Guarantor
with respect to the Guaranteed Debt incurred after that time. This guaranty
remains in effect until the Guaranteed Debt is fully paid and performed and all
commitments to extend any credit under the Loan Agreement have terminated.
Guarantor may not rescind or revoke its obligations with respect to the
Guaranteed Debt.
3. REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to
Agent that (a) Guarantor has the power and authority to execute, deliver, and
perform this guaranty, which execution, delivery, and performance does not
violate any Law or agreement by which Guarantor or any of Guarantor's assets is
bound, (b) the value of the consideration received and to be received by
Guarantor is reasonably worth at least as much as Guarantor's liability under
this guaranty, and that liability may reasonably be expected to directly or
indirectly benefit Guarantor, (c) this guaranty constitutes a legal and binding
obligation of Guarantor, enforceable against Guarantor in accordance with its
terms, except as enforceability may be limited by applicable Debtor Laws and
general principles of equity, (d) all financial statements and other information
about Guarantor's financial condition and cash flow are true and correct in all
material respects and fairly present Guarantor's financial condition, cash
flows, material liabilities, and (e) Guarantor is Solvent.
4. CUMULATIVE RIGHTS. If Guarantor becomes liable for any indebtedness
owing by Borrower to Agent or any Lender, other than under this guaranty, that
liability may not be in any manner impaired or affected by this guaranty. The
Rights of Agent or Lenders under this guaranty are cumulative of any and all
other Rights that Agent or Lenders may ever have against Guarantor. The
exercise by Agent or Lenders of any Right under this guaranty or otherwise does
not preclude the concurrent or subsequent exercise of any other Right.
5. PAYMENT UPON DEMAND. If a Default exists, Guarantor shall -- on
demand and without further notice of dishonor and without any notice having been
given to Guarantor previous to that demand of either the acceptance by Agent or
Lenders of this guaranty or the creation or incurrence of any Guaranteed Debt --
pay the amount of the Guaranteed Debt then due and payable to Agent and Lenders.
It is not necessary for Agent or Lenders, in order to enforce that payment by
Guarantor, first or contempo raneously to institute suit or exhaust remedies
against Borrower or others liable on that indebtedness or to enforce Rights
against any collateral securing that indebtedness.
6. SUBORDINATION. The Subordinated Debt is expressly subordinated to the
full and final payment of the Guaranteed Debt. Guarantor agrees not to accept
any payment of any Subordinated Debt from Borrower if a Default exists. If
Guarantor receives any payment of any Subordinated Debt in violation of the
foregoing, Guarantor shall hold that payment in trust for Agent and Lenders and
promptly turn it over to Agent, in the form received (with any necessary
endorsements), to be applied to the Guaranteed Debt.
7. SUBROGATION AND CONTRIBUTION. Guarantor may not assert, enforce, or
otherwise exercise any Right of subrogation to any of the Rights or Liens of
Agent or Lenders or any other beneficiary against Borrower or any other obligor
on the Guaranteed Debt or any collateral or other security or any Right of
recourse, reimbursement, subrogation, contribution, indemnification, or similar
Right against Borrower or any other obligor on any Guaranteed Debt or any
guarantor of it. Guarantor irrevocably waives all of the foregoing Rights
(whether they arise in equity, under contract, by statute, under common Law, or
otherwise). Guarantor irrevocably waives the benefit of, and any Right to
participate in, any collateral or other security given to Agent or Lenders or
any other beneficiary to secure payment of any Guaranteed Debt.
8. NO RELEASE. Guarantor's obligations under this guaranty may not be
released, diminished, or affected by the occurrence of any one or more of the
following events: (a) any taking or accepting of any other security or
assurance for any Guaranteed Debt; (b) any release, surrender, exchange,
subordination, impairment, or loss of any collateral securing any Guaranteed
Debt; (c) any full or partial release of the
2 EXHIBIT B
---------
<PAGE>
liability of any other obligor on the Obligation; (d) the modification of, or
waiver of compliance with, any terms of any other Loan Document; (e) the
insolvency, bankruptcy, or lack of corporate or partnership power of any party
at any time liable for any Guaranteed Debt, whether now existing or occurring in
the future; (f) any renewal, extension, or rearrangement of any Guaranteed Debt
or any adjustment, indulgence, forbearance, or compromise that may be granted or
given by Agent or any Lender to any other obligor on the Obligation; (g) any
neglect, delay, omission, failure, or refusal of Agent or any Lender to take or
prosecute any action in connection with the Guaranteed Debt; (h) any failure of
Agent or any Lender to notify Guarantor of any renewal, extension, or assignment
of any Guaranteed Debt, or the release of any security or of any other action
taken or refrained from being taken by Agent or any Lender against Borrower or
any new agreement between Agent, any Lender, and Borrower, it being understood
that neither Agent nor any Lender is required to give Guarantor any notice of
any kind under any circumstances whatsoever with respect to or in connection
with any Guaranteed Debt, other than any notice required to be given to
Guarantor elsewhere in this guaranty; (i) the unenforceability of any Guaranteed
Debt against any party because it exceeds the amount permitted by Law, the act
of creating it is ultra vires, the officers creating it exceeded their authority
or violated their fiduciary duties in connection with it, or otherwise; or (j)
any payment of the Obligation to Agent or Lenders is held to constitute a
preference under any Debtor Law or for any other reason Agent or any Lender is
required to refund that payment or make payment to someone else (and in each
such instance this guaranty will be reinstated in an amount equal to that
payment).
9. WAIVERS. Guarantor waives all Rights by which it might be entitled to
require suit on an accrued Right of action in respect of any Guaranteed Debt or
require suit against Borrower or others, whether arising under (S) 34.02 of the
Texas Business and Commerce Code, as amended (regarding its Right to require
Agent or Lenders to sue Borrower on accrued Right of action following its
written notice to Agent or Lenders), (S) 17.001 of the Texas Civil Practice and
Remedies Code, as amended (allowing suit against it without suit against
Borrower, but precluding entry of judgment against it before entry of judgment
against Borrower), Rule 31 of the Texas Rules of Civil Procedure, as amended
(requiring Agent or Lenders to join Borrower in any suit against it unless
judgment has been previously entered against Borrower), or otherwise.
10. LOAN AGREEMENT PROVISIONS. Guarantor acknowledges that certain (a)
representations and warranties in the Loan Agreement are applicable to Guarantor
and confirms that each such representation and warranty is true and correct, and
(b) covenants and other provisions in the Loan Agreement are applicable to
Guarantor or are imposed upon Guarantor and agrees to promptly and properly
comply with or be bound by each of them.
11. RELIANCE AND DUTY TO REMAIN INFORMED. Guarantor confirms that it has
executed and delivered this guaranty after reviewing the terms and conditions of
the Loan Documents and such other information as it has deemed appropriate in
order to make its own credit analysis and decision to execute and deliver this
guaranty. Guarantor confirms that it has made its own independent investigation
with respect to Borrower's creditworthiness and is not executing and delivering
this guaranty in reliance on any representation or warranty by Agent or any
Lender as to that creditworthiness. Guarantor expressly assumes all
responsibilities to remain informed of the financial condition of Borrower and
any circumstances affecting Borrower's ability to perform under the Loan
Documents to which it is a party or any collateral securing any Guaranteed Debt.
12. NO REDUCTION. The Guaranteed Debt may not be reduced, discharged, or
released because or by reason of any existing or future offset, claim, or
defense (except for the defense of complete and final payment of the Guaranteed
Debt) of Borrower or any other party against Agent or Lenders or against payment
of the Guaranteed Debt, whether that offset, claim, or defense arises in
connection with the Guaranteed Debt or otherwise. Those claims and defenses
include, without limitation, failure of consideration, breach of
3 EXHIBIT B
---------
<PAGE>
warranty, fraud, bankruptcy, incapacity/infancy, statute of limitations, lender
liability, accord and satisfaction, usury, forged signatures, mistake,
impossibility, frustration of purpose, and unconscionability.
13. BANKRUPTCY OR DEATH. If Guarantor becomes insolvent, fails to pay
Guarantor's debts generally as they become due, voluntarily seeks (or consents
to or acquiesces in) any benefits of any Debtor Law, or becomes a party to (or
is made the subject of) any proceeding under any Debtor Law (other than as a
creditor or claimant) that could suspend or otherwise adversely affect the
Rights of Agent or any Lender under this guaranty, then, in any such event, the
Guaranteed Debt is automatically (as between that Guarantor, Agent, and
Lenders), a fully matured, due, and payable obligation of Guarantor to Agent and
Lenders (without regard to whether Borrower is then in default under the Loan
Agreement or whether any of the Obligation is then due and owing by Borrower),
payable in full -- i.e., the estimated amount owing in respect of the contingent
claim created under this guaranty -- by Guarantor to Agent and Lenders upon
demand.
14. LOAN DOCUMENT. This guaranty is a Loan Document and is subject to the
applicable provisions of SECTIONS 1 and 12 of the Loan Agreement, all of which
are incorporated into this guaranty by reference the same as if set forth in
this guaranty verbatim.
15. COMMUNICATIONS. For purposes of SECTION 12.2 of the Loan Agreement,
Guarantor's address and telecopy number are set forth on the signature page to
this guaranty.
16. AMENDMENTS, ETC. No amendment, waiver, or discharge to or under this
guaranty is valid unless it is in writing and is signed by the party against
whom it is sought to be enforced and is otherwise in conformity with the
requirements of SECTION 12.10 of the Loan Agreement.
17. ENTIRETY. THIS GUARANTY REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
18. AGENT AND LENDERS. Agent is the agent for each Lender under the Loan
Agreement. All Rights granted to Agent under or in connection with this
guaranty are for each Lender's ratable benefit. Agent may, without the joinder
of any Lender, exercise any Rights in Agent's or Lenders' favor under or in
connection with this guaranty. Agent's and each Lender's Rights and obligations
vis-a-vis each other may be subject to one or more separate agreements between
those parties. However, Guarantor is not required to inquire about any such
agreement and is not subject to any terms of it unless Guarantor specifically
joins it. Therefore, neither Guarantor nor its successors or assigns is
entitled to any benefits or provisions of any such separate agreement or is
entitled to rely upon or raise as a defense any party's failure or refusal to
comply with the provisions of it.
19. PARTIES. This guaranty benefits Agent, Lenders, and their respective
successors and assigns and binds Guarantor and Guarantor's successors and
assigns. Upon appointment of any successor Agent under the Loan Agreement, all
of the Rights of Agent under this guaranty automatically vest in that new Agent
as successor Agent on behalf of Lenders without any further act, deed,
conveyance, or other formality other than that appointment. The Rights of Agent
and Lenders under this guaranty may be transferred with any assignment of the
Guaranteed Debt. The Loan Agreement contains provisions governing assignments
of the Guaranteed Debt and of Rights and obligations under this guaranty.
20. AMENDMENT AND RESTATEMENT. This Amended and Restated Guaranty amends,
-------------------------
restates, and supersedes in its entirety, the Guaranty executed by the
undersigned and delivered in accordance with the Existing Loan Agreement.
4 EXHIBIT B
---------
<PAGE>
REMAINDER OF PAGE INTENTIONALLY BLANK
SIGNATURE PAGE FOLLOWS
5 EXHIBIT B
---------
<PAGE>
EXECUTED as of the date first stated in this guaranty.
MATRIX CAPITAL CORPORATION,
as Guarantor
Matrix Capital Corporation
1380 Lawrence Street, Suite 1410
Denver, CO 80204 By: ________________________
Attn: Guy A. Gibson Guy A. Gibson, President
Tel (303) 595-9898
Fax (303) 595-9906
Agent executes this guaranty in acknowledgment of PARAGRAPH 17 above.
BANK ONE, TEXAS, N.A., as Agent
By _______________________________
Mark L. Freeman, Vice President
SIGNATURE PAGE AMENDED AND RESTATED GUARANTY
-----------------------------
<PAGE>
Exhibit 10.38
EXHIBIT D
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (this "Agreement") is entered into effective as
---------
of the 4/th/ day of February, 1997, between Paul Skretny ("Employee"), a
--------
resident of Waco, Texas, and The Vintage Group, Inc., a Texas corporation (the
"Company"), whose principal executive offices are located in Waco, Texas.
-------
WHEREAS, the Company desires to employ Employee, and Employee desires to
be employed by the Company, on the terms hereinafter set forth;
NOW, THEREFORE, in consideration for the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
DUTIES
------
1.1 Employment. During the term of this Agreement, the Company agrees to
----------
employ Employee, and Employee accepts such employment, on the terms and
conditions set forth in this Agreement.
1.2 Extent of Service. During the term of this Agreement, Employee shall
-----------------
devote his full-time business time, energy and skill to the affairs of the
Company and its affiliated companies, and Employee shall not be engaged in any
other business or consulting activities pursued for gain, profit or other
pecuniary advantage, without the prior written consent of the Company. The
foregoing shall not prevent Employee from making monetary investments in
businesses that do not involve any services on the part of Employee in the
operation or affairs of such businesses.
1.3 Duties. Employee's duties hereunder shall include acting as the
------
President and Chief Executive Officer of the Company and its current
subsidiaries, including without limitation, Sterling Trust Company and Vintage
Financial Services Corporation, or such other duties as may be prescribed from
time to time by the Board of Directors of the Company (the "Board"). Although,
as the Chief Executive Officer of the Company, Employee will be responsible for
the day-to-day operations of the Company, Employee will report directly to the
Board and be subject to the control of the Board. Employee shall also perform,
for the compensation herein expressed, related services for the Company's other
subsidiaries and joint ventures.
1.4 Access to and Use of Proprietary Information. Employee recognizes
--------------------------------------------
and the Company agrees that, to assist Employee in the performance of his duties
hereunder, Employee
<PAGE>
will be provided access to and limited use of proprietary and confidential
information of the Company.
ARTICLE 2
TERM OF EMPLOYMENT
------------------
The term of this Agreement shall commence on the date hereof and continue
for three years, unless earlier terminated pursuant to Article 4 hereof.
---------
ARTICLE 3
COMPENSATION
------------
3.1 Annual Base Salary. As compensation for services rendered under
------------------
this Agreement, Employee shall be entitled to receive from the Company an annual
base salary (before standard deductions) of $135,500, subject to periodic review
and adjustment by the Board. Employee's annual base salary shall be payable at
regular intervals (at least semi-monthly) in accordance with the prevailing
practice and policy of the Company.
3.2 Performance Bonus. As additional compensation for services rendered
-----------------
under this Agreement, Employee shall also be eligible to receive a performance
bonus consistent with the bonuses paid to the senior management of Matrix
Capital Corporation's subsidiaries, provided that the Board in good faith
determines that Employee has met the performance standards consistent with his
position.
3.3 Benefits. Employee shall, in addition to the compensation provided
--------
for herein, be entitled to the following additional benefits:
(a) Medical, Health and Disability Benefits. Employee shall be
--------------------------------------
entitled to receive all medical, health and disability benefits that may,
from time to time, be provided by the Company to all employees of the
Company as a group.
(b) Other Benefits. Employee shall also be entitled to receive any
--------------
other benefits that may, from time to time, be provided by the Company
to all employees of the Company as a group.
(c) Vacation. Employee shall be entitled to an annual vacation
--------
determined in accordance with the prevailing practice and policy of the
Company (initially three weeks per year).
(d) Holidays. Employee shall be entitled to holidays in accordance
--------
with, the prevailing practice and policy of the Company.
2
<PAGE>
rendering of services at the Company's request, provided that such
expenses are incurred in accordance with the prevailing practice and
policy of the Company and are properly deductible (in whole or in part) by
the Company for federal income tax purposes. As a condition to such
reimbursement, Employee shall submit an itemized accounting of such
expenses in reasonable detail, including receipts where required under
federal income tax laws.
(f) Options. Matrix Capital Corporation ("Matrix") shall grant on
-------
the date hereof Employee options (the "Options") to purchase 25,000
shares of Matrix common stock (the "Common Stock") pursuant to the 1996
Amended and Restated Stock Option Plan (the "Plan") at an exercise price
equal to the Fair Market Value (as defined in the Plan) of the Common
Stock on the effective date of this Agreement. The Options shall become
exercisable in 20% increments on the first, second, third, fourth and
fifth anniversary dates of the date of grant of the Options, respectively;
provided that if Employee is terminated by the Company during the five
years period of vesting, other than for "Cause," such Options shall become
immediately exercisable for a period of 30 days.
3.4 Commencement of Compensation. Compensation under this Agreement
----------------------------
shall be payable to Employee commencing upon Employee's commencement of full-
time service to the Company.
ARTICLE 4
TERMINATION
-----------
4.1 Termination With Notice. This Agreement may be terminated by the
-----------------------
Company or Employee, without cause, upon 30 days' prior written notice thereof
given by one party to the other party. In the event of termination by the
Company pursuant to this Section 4.1, the Company shall pay Employee a lump-sum
-----------
equal to 100% of Employee's then-effective base salary (subject to
standard deductions) over the remaining term of this Agreement. In the event of
termination by Employee pursuant to this Section 4.1, the Company shall pay
-----------
Employee pursuant to this Section 4.1, the Company shall pay Employee his
-----------
monthly base salary (subject to standard deductions) earned pro rata to the date
of such termination. In either event, upon payment of the foregoing, the Company
shall have no further obligations to Employee hereunder.
4.2 Termination For Cause. This Agreement may be terminated by the
---------------------
Company for "Cause" (hereinafter defined) upon written notice thereof given by
the Company to Employee. In the event of termination pursuant to this Section
-------
4.2, the Company shall pay Employee his monthly base salary (subject to standard
- ---
deductions) earned pro rata to the date of such termination and the Company
shall have no further obligations to Employee hereunder. The term "Cause" used
in this Section 4.2 means (i) the continued failure by Employee to substantially
-----------
perform his reasonably assigned duties, which failure is not remedied by
Employee within a reasonable period of time after Employee is given notice of
such failure, (ii) a material breach by Employee of any of the terms or
conditions of this Agreement or (iii) any intentional dishonest, unethical,
3
<PAGE>
fraudulent or felonious act committed or engaged in by Employee in respect of
his duties to the Company.
4.3 Termination Upon Death or Disability. In the event that Employee
------------------------------------
dies, this Agreement shall terminate upon Employee's death. Likewise, if
Employee becomes "disabled" as determined in accordance with the Company's
disability insurance policies and plans, the Company may, upon notice to
Employee, terminate this Agreement. In the event of termination pursuant to
this Section 4.3, Employee (or his legal representatives) shall be entitled only
-----------
to his monthly base salary earned pro rata for services actually rendered prior
to the date of such termination; provided, however, Employee shall not be
entitled to his monthly base salary for any period with respect to which
Employee has received short-term or long-term disability benefits under employee
benefit plans maintained from time to time by the Company.
4.4 Survival of Provisions. The covenants and provisions of Articles 5
---------------------- ----------
and 6 hereof shall survive any termination of this Agreement and continue for
---
the periods indicated, regardless of how such termination may be brought about.
ARTICLE 5
CONFIDENTIAL INFORMATION
------------------------
5.1 Confidential Information. Employee agrees to keep confidential all
------------------------
information protected by the Company as trade secrets ("Confidential
Information") during the term of this Agreement (including any leaves of
absence) and will neither use nor disclose the Confidential Information without
written authorization by the Company. The Company and Employee mutually agree
that the following types of information shall not be protected by this
Agreement:
(a) Information already available to the public at the time
Employee received it;
(b) Information which although disclosed in confidence to Employee
is later disseminated by the Company to the public;
(c) Information which although received in confidence by Employee
is subsequently disseminated to the public by a third party who has not breached
any duty to any other party in disseminating such information;
(d) Information given by the Company in confidence to Employee
which Employee is expressly authorized in writing by the Company to use or
disclose thereafter; and
(e) Information required by law to be disclosed, provided that
Employee will promptly advise the Company of any such required disclosure and
cooperate fully with the
4
<PAGE>
Company to avoid such disclosure, if legally possible, or to obtain
confidential treatment of such Information disclosed.
Employee also understands and agrees that he will maintain in confidence all
information known to him by reason of his employment. For purposes of this
Agreement, a trade secret "...may consist of any formula, pattern, device or
compilation of information which is used in one's business, and which gives him
or her an opportunity to obtain an advantage over competitors who do not know or
use it. It may be a formula for a chemical compound, a process of manufacturing,
trading or preserving materials, a pattern for machine or other device, or a
list of customers..." as commonly interpreted by the courts of the State of
Texas. Upon the termination of this Agreement, regardless of how such
termination may be brought about, Employee shall deliver to the Company any and
all documents, instruments, notes, papers or other expressions or embodiments of
Confidential Information that are in Employee's possession or control.
5.2 Publicity. During the term of this Agreement and thereafter,
---------
Employee shall not, directly or indirectly, originate or participate in the
origination of any publicity, news release or other public announcements,
written or oral, whether to the public, press or otherwise, relating to
Employee's employment hereunder or to the Company, without the prior written
approval of the Company.
5.3 Fiduciary Relationship. Employee, by virtue of his high position of
----------------------
trust and reliance on him by the Company, understands that Employee enjoys a
fiduciary relationship with the Company in carrying out his obligations under
this Article 5. Accordingly, Employee agrees to honor his obligations under this
---------
Agreement.
ARTICLE 6
RESTRICTIVE COVENANTS
---------------------
6.1 Non-Competition. In consideration of the benefits of this
---------------
Agreement, including Employee's access to and limited use of proprietary and
confidential information of the Company, Employee hereby covenants and agrees
that during the term of this Agreement and for a period of one year following
termination of this Agreement, regardless of how such termination may be brought
about, Employee shall not, directly or indirectly, as proprietor, partner,
shareholder, director, officer, employee, consultant, joint venturer, investor
or in any other capacity, engage in, or own, manage, operate or control, or
participate in the ownership, management, operation or control, of any entity
that engages, as its primary business (i) in the self-directed trust business
anywhere is the United States or (ii) in any other business activity in Waco,
Texas in which the Company participates during Employee's employment with the
Company; provided, however, the foregoing shall not prohibit Employee from
purchasing and holding as an investment not more than 5% of any class of
publicly traded securities of any entity that conducts a business in competition
with the business of the Company, so long as Employee does not participate in
any way, directly or indirectly, in the management, operation or control of such
entity.
5
<PAGE>
6.2 Judicial Reformation. Employee acknowledges that, given the nature
--------------------
of the Company's business, the covenants contained in Section 6.1 establish
-----------
reasonable limitations as to time, geographic area and scope of activity to be
restrained and do not impose a greater restraint than is reasonably necessary to
protect and preserve the goodwill of the Company's business and to protect its
legitimate business interests. If, however, Section 6.1 is determined by any
-----------
court competent jurisdiction to be unenforceable by reason of its extending for
too long a period of time or over too large a geographic area or by reason of it
being too extensive in any other respect or for any other reason, it will be
interpreted to extend only over the longest period of time for which it may be
enforceable and/or over the largest geographic area as to which it may be
enforceable and/or to the maximum extent in all other aspects as to which it may
be enforceable, all as determined by such court.
6.3 Customer Lists. Non-Solicitation. In consideration of the benefits
--------------------------------
of this Agreement, including Employee's access to and limited use of proprietary
and confidential information of the Company, Employees hereby further covenants
and agrees that for a period of two years following the termination of this
Agreement, regardless of how such termination may be brought about, Employees
shall not, directly or indirectly, (a) use or make known to any person or entity
the names or addresses of any clients or customers of the Company or any other
information pertaining to them, (b) call on, solicit, take away or attempt to
call on, solicit or take away any clients or customers of the Company on whom he
became acquainted during his employment with the company, nor (c) recruit, hire
or attempt to recruit or hire any employees of the Company.
ARTICLE 7
MISCELLANEOUS
-------------
7.1 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed to have been duly given if delivered personally,
mailed by certified mail (return receipt requested) or sent by an overnight
delivery service with tracking procedures or by facsimile to the parties at the
following addresses or at such other addresses as shall be specified by the
parties by like notice: If to Employee, at the address set forth below his name
on the signature page hereof; and if to the Company, at 1380 Lawrence Street,
Suite 1410, Denver, Colorado 80204, Attention: Board of Directors.
7.2 Equitable Relief. In the event of a breach or a threatened breach
----------------
by Employee of any of the provisions contained in Article 5 or 6 of this
--------- -
Agreement, Employee acknowledges that the Company will suffer irreparable injury
not fully compensable by money damages and, therefore, will not have an adequate
remedy available at law. Accordingly, the Company shall be entitled to obtain
such injunctive relief or other equitable remedy from any court of competent
jurisdiction as may be necessary or appropriate to prevent or curtail any such
breach, threatened or actual. The foregoing shall be in addition to and without
prejudice to any other rights that the Company may have under this Agreement, at
law or in equity, including, without limitation, the right to sue for damages.
6
<PAGE>
7.3 Assignment. The rights and obligations of the Company under this
----------
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of the Company. Employee's rights under this Agreement are not
assignable and any attempted assignment the reof shall be null and void.
7.4 Governing Law: Venue. This Agreement shall be subject to and
--------------------
governed by the laws of the State of Texas. Non-exclusive venue for any action
permitted hereunder shall be proper in Dallas, Dallas County, Texas, and
Employee hereby consents to such venue.
7.5 Entire Agreement: Amendments. This Agreement constitutes the
----------------------------
entire agreement between the parties and supersedes all other agreements between
the parties that may relate to the subject matter contained in this Agreement.
This Agreement may not be amended or modified except by an agreement in writing
that refers to this Agreement and is signed by both parties.
7.6 Headings. The headings of sections and subsections of this
--------
Agreement are for convenience only and shall not in any way affect the
interpretation of any provision of this Agreement or of the Agreement itself.
7.7 Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid under
applicable law. If any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
7.8 Waiver. The waiver by any party of a breach of any provision
------
hereof shall not be deemed to constitute the waiver of any prior or subsequent
breach of the same provision or any other provisions hereof. Further, the
failure of any party to insist upon strict adherence to any term of this
Agreement on one or more occasions shall not be considered a waiver or deprive
that party of the right thereafter to insist upon strict adherence to that term
or any other term of this Agreement unless such party expressly waives such
provision pursuant to a written instrument which refers to this Agreement and is
signed by such party.
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Employment Agreement as
of the day and year first above written.
THE VINTAGE GROUP, INC.
By:
--------------------------
Print Name:
------------------
Title:
-----------------------
EMPLOYEE:
/s/
------------------------------
Paul Skretny
Address: 7901 Fish Pond Road
Waco, Texas 76710
Matrix Capital Corporation acknowledges and agrees to the provisions of
Section 3.3(f).
MATRIX CAPITAL CORPORATION
By: /s/
--------------------------
Name:
------------------------
Title:
-----------------------
8
<PAGE>
EXHIBIT 10.39
CREDIT AGREEMENT
between
MATRIX CAPITAL CORPORATION,
as Borrower
BANK ONE, TEXAS, N.A.,
as Agent,
and
CERTAIN LENDERS,
as Lenders
$8,000,000
MARCH 12, 1997
Matrix
Capital BANK[LOGO]ONE
Corporation
PREPARED BY HAYNES AND BOONE, L.L.P.
------------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
<S> <C> <C>
SECTION 1 DEFINITIONS AND REFERENCES............................... 1
1.1 Definitions.............................................. 1
1.2 Time References.......................................... 9
1.3 Other References......................................... 9
1.4 Accounting Principles.................................... 10
SECTION 2 BORROWINGS............................................... 10
2.1 Term Loan................................................ 10
2.2 Revolving Facility....................................... 10
2.3 Borrowing Procedure...................................... 10
2.4 Termination.............................................. 11
SECTION 3 PAYMENT TERMS............................................ 11
3.1 Notes and Payments....................................... 11
3.2 Principal and Interest Payments.......................... 12
3.3 Voluntary Prepayments.................................... 13
3.4 Mandatory Prepayments.................................... 13
3.5 Interest Rates........................................... 13
3.6 Interest Recapture....................................... 13
3.7 Interest Calculations.................................... 14
3.8 Maximum Rate............................................. 14
3.9 Order of Application..................................... 14
3.10 Distributions to Lenders................................. 14
3.11 Sharing of Payments, Etc................................. 15
3.12 Offset................................................... 15
3.13 Capital Adequacy......................................... 15
3.14 Foreign Lenders, Participants, and Purchasers............ 15
SECTION 4 SECURITY................................................. 16
4.1 Guaranty................................................. 16
4.2 Collateral............................................... 16
4.3 Further Assurances....................................... 16
4.4 Release of Collateral.................................... 16
SECTION 5 CONDITIONS PRECEDENT..................................... 16
SECTION 6 REPRESENTATIONS AND WARRANTIES........................... 17
6.1 Purpose and Regulation U................................. 17
6.2 Companies................................................ 17
6.3 Authorization and Contravention.......................... 17
6.4 Binding Effect........................................... 17
6.5 Fiscal Year.............................................. 17
6.6 Current Financials....................................... 18
6.7 Debt..................................................... 18
6.8 Solvency and Capital Requirements........................ 18
6.9 Litigation............................................... 18
6.10 Transactions with Affiliates............................. 18
6.11 Taxes.................................................... 18
6.12 Employee Plans........................................... 18
</TABLE>
Credit Agreement
----------------
<PAGE>
CREDIT AGREEMENT
----------------
THIS AGREEMENT is entered into as of March 12, 1997, between MATRIX CAPITAL
CORPORATION, a Colorado corporation ("BORROWER"), the Lenders described below,
and BANK ONE, TEXAS, N.A., as Agent for Lenders.
(See SECTION 1.1 for defined terms.)
Borrower has requested that Lenders extend credit to Borrower not to exceed
a total outstanding principal amount of $8,000,000 (as that amount may be
reduced or canceled pursuant to this agreement) to be used by Borrower as
provided in SECTION 6.1 and allocated as (A) a term loan of $2,000,000 (the
"TERM LOAN") to be funded by Lenders on the Closing Date, and (B) a revolving-
credit facility of $6,000,000 (the "REVOLVING FACILITY") to be funded by Lenders
from time to time on and after the Closing Date but before the Actual-
Termination Date. Lenders are willing to extend the requested credit on the
terms and conditions of this agreement.
ACCORDINGLY, for adequate and sufficient consideration, Borrower, Lenders,
and Agent agree as follows:
SECTION 1 DEFINITIONS AND REFERENCES. Unless stated otherwise, the following
- --------- --------------------------
provisions apply to each Loan Document, and annexes, exhibits, and schedules to
- -- and certificates, reports, and other writings delivered under -- the Loan
Documents.
1.1 DEFINITIONS.
-----------
"ACTUAL-TERMINATION DATE" means the earlier of either (a) the Stated-
Termination Date or (b) the effective date that Lenders' commitments to lend
under this agreement are fully canceled or terminated in accordance with the
terms of this agreement.
"ADJUSTED ASSETS" means, for Matrix Bank and at any time, the sum of (a)
its cash, (b) its Cash Equivalents, (c) its loans that are not non-residential
commercial loans, are evidenced by valid promissory notes, and are secured by
mortgages, deeds of trust, or trust deeds that grant perfected first-priority
Liens on residential-real property, plus (d) its securities that, in respect of
an underlying pool of related mortgage loans, provide for payment by the issuer
to the holder of specified principal installments and a fixed-interest rate on
the unpaid balance, with all prepayments being passed through to the holder,
whether issued in certificate or book-entry form.
"ADJUSTED DEBT" means, for the Companies and at any time, the sum of (a)
their consolidated Debt, minus (b) obligations under bank repurchase agreements,
obligations under escrow-arbitrage-type facilities, deposits at Matrix Bank, and
obligations of Matrix Bank for advances to it by the Federal Home Loan Bank.
"AFFILIATE" of a Person means any other individual or entity who directly
or indirectly controls, is controlled by, or is under common control with that
Person. For purposes of this definition (a) "control," "controlled by," and
"under common control with" mean possession, directly or indirectly, of power to
direct or cause the direction of management or policies (whether through
ownership of voting
Credit Agreement
----------------
<PAGE>
securities or other interests, by contract, or otherwise), and (b) the Companies
are "Affiliates" of each other.
"AGENT" means, at any time, Bank One, Texas, N.A. (or its successor
appointed under SECTION 11.6), acting as administrative, collateral, managing,
and syndication agent for Lenders under the Loan Documents.
"ASSIGNMENT" means an Assignment and Assumption Agreement executed by a
selling Lender and a Purchaser under SECTIONS 12.12 and 12.14 and delivered to
Agent in substantially the form of EXHIBIT F.
"BANKERS BLANKET BOND" means the bond or bonds, and any renewals,
extensions, or modifications of them, issued with respect to losses incurred by
Matrix Bank, including, without limitation, all bonds represented by Bankers
Blanket Bond, Standard Form No. 24, with attached riders, as revised, and Bank
Employee Dishonesty Blanket Bond, Standard Form No. 28, Surety Association of
America.
"BASE RATE" means an annual interest rate equal from day to day to the
floating annual interest rate established by Agent from time to time as its
base-rate of interest, which may not be the lowest interest rate charged by
Agent on loans similar to Borrowings.
"BORROWER" is defined in the preamble to this agreement.
"BORROWING" means any amount disbursed (a) by any Lender to Borrower under
the Loan Documents as an original disbursement of funds, a renewal, extension,
or continuation of an amount outstanding, or (b) by Agent or any Lender in
accordance with, and to satisfy a Company's obligations under, any Loan
Document.
"BORROWING BASE" means, at any time, the greater of either (a)
contributions by Borrower to Matrix Bank's capital from and after October 31,
1996, or (b) 40% of the book value of Matrix Bank's issued and outstanding
common stock subject to Lender Liens.
"BORROWING DATE" means, for any Borrowing, the date it is disbursed.
"BORROWING EXCESS" means, at any time, the amount by which any of the
limitations of SECTION 2.2 are exceeded.
"BORROWING REQUEST" means a request executed by a Responsible Officer of
Borrower requesting a Borrowing and delivered to Agent in substantially the form
of EXHIBIT D-1.
"BUSINESS DAY" means any day other than Saturday, Sunday, and any other day
that commercial banks are authorized by applicable Laws to be closed in Texas.
"CAPITAL LEASE" means any capital lease or sublease that is required by
GAAP to be capitalized on a balance sheet.
"CASH EQUIVALENTS" means Investments described in SECTIONS 8.3(a) through
(e).
Credit Agreement
----------------
2
<PAGE>
"CASH FLOW" for the Companies and any period:
(a) Means the sum (without duplication) of the following for that
period taken as a single accounting period: (i) Cash Distributions to
Borrower by Matrix Bank and Matrix Financial; plus (ii) provisions by
Matrix Bank for loan losses; plus (iii) for all of the Companies other than
Matrix Bank and Matrix Financial, the sum of (A) Net Income, minus (B)
extraordinary gains; plus (C) extraordinary losses; plus (D) to the extent
included in determining Net Income, income Taxes, Interest Expense,
depreciation, and amortization; and
(b) Unless otherwise specified, is determined exclusive of the Net
Income of any entity (i) before it became a Subsidiary of that Person or
transferred substantially all of its assets to that Person or (ii) after it
is directly or indirectly disposed of by that Person.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. (S)(S)9601 et seq.
"CLASSIFIED ASSETS" means, for Matrix Bank and at any time, all (a) assets
of Matrix Bank that are classified as "substandard," "doubtful," or "loss" by
FDIC, OTS, or any other Tribunal with regulatory authority over Matrix Bank, (b)
assets that are otherwise subject to special credit quality supervision by
Matrix Bank or the financial institution through which Matrix Bank claims an
interest in the particular asset, (c) Other Real Estate Owned, and (d) Other
Impaired Assets.
"CLOSING DATE" means the date agreed to by Borrower and Agent for the
initial Borrowings under this agreement, which date may not be (a) before the
conditions precedent for those initial Borrowings have been satisfied or (b), if
at all, later than March 31, 1997.
"CMLTD" means, for the Companies and at any time, the current maturities of
long-term Debt (exclusive of any Debt of Matrix Financial and guaranties of that
Debt by any other Company).
"COLLATERAL" is defined in SECTION 4.2.
"COMMITMENT" means, at any time and for any Lender, the amounts stated
beside that Lender's name on the most-recently amended SCHEDULE 2 for the
Revolving Facility (which amount is subject to reduction and cancellation
pursuant to this agreement) and for the Term Loan.
"COMMITMENT PERCENTAGE" means, for any Lender, the proportion (stated as a
percentage) that its Commitment bears to the total Commitments of all Lenders.
"COMPANIES" means, at any time, Borrower and each of its Subsidiaries.
"COMPLIANCE CERTIFICATE" means a certificate executed by a Responsible
Officer of Borrower and delivered to Agent in substantially the form of EXHIBIT
D-2.
"CURRENT FINANCIALS" means either (a) the Companies' Financials for the
year ended December 31, 1995, and for the 11 months ended November 30, 1996, or
(b) at any time after the Companies' annual Financials are first delivered under
SECTION 7.1, the Companies' annual Financials then most recently delivered to
Agent and subsequent quarterly Financials then most recently delivered to Agent.
Credit Agreement
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"DEBT" means, for any Person and without duplication (a) all obligations
required by GAAP to be classified upon that Person's balance sheet as
liabilities, (b) liabilities secured (or for which the holder of the liabilities
has an existing Right, contingent or otherwise, to be so secured) by any Lien
existing on property owned or acquired by that Person, (c) obligations under
Capital Leases, and (d) all guaranties, endorsements, and other contingent
obligations with respect to Debt of others or in respect of any Employee Plan.
"DEBTOR LAWS" means the Bankruptcy Code of the United States of America and
all other applicable liquidation, conservatorship, bankruptcy, moratorium,
rearrangement, receivership, insolvency, reorganization, suspension of payments,
or similar Laws affecting creditors' Rights.
"DEFAULT" is defined in SECTION 10.1.
"DEFAULT RATE" means, for any day, an annual interest rate equal to the
lesser of either (a) the Fed-Funds Rate plus 5% or (b) the Maximum Rate.
"DETERMINING LENDERS" means, at any time, any combination of Lenders whose
(a) Termination Percentages total at least 66 2/3% at any time on or after the
Actual-Termination Date, or (b) Commitment Percentages total at least 66 2/3% at
all other times.
"DISTRIBUTION" means, at any time and with respect to any shares of any
capital stock or other equity securities issued by a Person, (a) the retirement,
redemption, purchase, or other acquisition for value of those securities, (b)
the declaration or payment of any dividend with respect to those securities, (c)
any loan or advance by that Person to, or other investment by that Person in,
the holder of any of those securities, and (d) any other payment by that Person
with respect to those securities.
"EMPLOYEE PLAN" means any employee-pension-benefit plan (a) covered by
Title IV of ERISA and established or maintained by Borrower or any ERISA
Affiliate (other than a Multiemployer Plan) or (b) established or maintained by
Borrower or any ERISA Affiliate, or to which Borrower or any ERISA Affiliate
contributes, under the Laws of any foreign country.
"ENVIRONMENTAL LAW" means any applicable Law that relates to protection of
the environment or to the regulation of any Hazardous Substances, including,
without limitation, CERCLA, the Hazardous Materials Transportation Act (49
U.S.C. (S) 1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C.
(S) 6901 et seq.), the Clean Water Act (33 U.S.C. (S) 1251 et seq.), the Clean
Air Act (42 U.S.C. (S) 7401 et seq.), the Toxic Substances Control Act (15
U.S.C. (S) 2601 et seq.), the Federal Insecticide, Fungicide, and Rodenticide
Act (7 U.S.C. (S) 136 et seq.), the Emergency Planning and Community Right-to-
Know Act (42 U.S.C. (S) 11001 et seq.), the Safe Drinking Water Act (42 U.S.C.
(S) 201 and (S) 300f et seq.), the Rivers and Harbors Act (33 U.S.C. (S) 401 et
seq.), the Oil Pollution Act (33 U.S.C. (S) 2701 et seq.), analogous state and
local Laws, and any analogous future enacted or adopted Laws.
"ERISA" means the Employee Retirement Income Security Act of 1974.
"ERISA AFFILIATE" means any Person that, for purposes of Title IV of ERISA,
is a member of Borrower's controlled group or is under common control with
Borrower within the meaning of Section 414 of the IRC.
Credit Agreement
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"EXCESS DISTRIBUTIONS" means, for Matrix Bank and for any period, the sum
of (a) 75% of the cash Distributions paid to Borrower by Matrix Bank during that
period, minus (b) Interest Expense and Principal Debt paid on the Term Loan
during that period, minus (c) Interest Expense and (if during the term portion
of the Revolving Facility) Principal Debt paid on the Revolving Facility during
that period, minus (d) the lesser of either (i) Borrower's cash operating
expenses during that period or (ii) $1,000,000, and minus (e) the portion of
Borrower's consolidated, federal income tax liability for that period allocable
to the income contributed by Matrix Bank.
"FDIC" means the Federal Deposit Insurance Corporation.
"FED-FUNDS RATE" means, for any day, the annual interest rate (rounded
upwards, if necessary, to the nearest 0.01%) determined by Agent to be either
(a) the weighted average of the rates on overnight-federal-funds transactions
with member banks of the Federal Reserve System arranged by federal-funds
brokers for that day (or, if not a Business Day on the preceding Business Day)
as published by the Federal Reserve Bank of New York (as published by Knight-
Ridder, page 73, utilizing the Fed-Effective Rate), or (b) if not so published
for any day, the average of the quotations for that day on those transactions
received by Agent from three federal-funds brokers of recognized standing it may
select.
"FINANCIALS" of a Person means balance sheets, profit and loss statements,
reconciliations of capital and surplus, and statements of cash flow prepared (a)
according to GAAP (subject to year end audit adjustments with respect to interim
Financials) and (b) except as stated in SECTION 1.4, in comparative form to
prior year-end figures or corresponding periods of the preceding fiscal year or
other relevant period, as applicable.
"GAAP" means generally accepted accounting principles of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
the Financial Accounting Standards Board that are applicable from time to time,
as from time to time superseded by regulatory accounting principles applicable
to Matrix Bank and Sterling Trust Company, consistently applied.
"GOVERNMENT SECURITIES" means (to the extent they mature within one year
from the date in question) readily marketable (a) direct full faith and credit
obligations of the United States of America or obligations guaranteed by the
full faith and credit of the United States of America, and (b) obligations of an
agency or instrumentality of, or corporation owned, controlled, or sponsored by,
the United States of America that are generally considered in the securities
industry to be implicit obligations of the United States of America.
"GUARANTY" means a Guaranty in substantially the form of EXHIBIT B.
"HAZARDOUS SUBSTANCE" means any substance that is designated, defined,
classified, or regulated as a hazardous waste, hazardous material, pollutant,
contaminant, explosive, corrosive, flammable, infectious, carcinogenic,
mutagenic, radioactive, or toxic or hazardous substance under any Environmental
Law, including, without limitation, any hazardous substance within the meaning
of (S) 101(14) of CERCLA.
"HEDGE CONTRACT" means, for any Person, any present or future, whether
master or single, agreement, document or instrument providing for (or
constituting an agreement to enter into) (a) commodity hedges in the normal
course of business in accordance with prior practices of that Person
Credit Agreement
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<PAGE>
before the date of this agreement for purposes of hedging material purchases,
(b) foreign-currency purchases and swaps, (c) interest-rate swaps, and (d)
interest-rate-hedging products.
"INTEREST EXPENSE" means -- for any Person, for any period, and without
duplication -- all interest on Debt, whether paid in cash or accrued as a
liability and payable in cash during any subsequent period (including the
interest component of Capital Leases), as determined by GAAP, and premium or
penalty for repayment, redemption, or repurchase of Debt.
"INVESTMENT" means, in respect of any Person, any loan, advance, extension
of credit, or capital contribution to that Person, any investment in that
Person, or any purchase or commitment to purchase any equity securities or Debt
issued by that Person or substantially all of the assets or a division or other
business unit of that Person.
"IRC" means the Internal Revenue Code of 1986.
"LAWS" means all applicable statutes, laws, treaties, ordinances, rules,
regulations, orders, writs, injunctions, decrees, judgments, opinions, and
interpretations of any Tribunal.
"LENDER LIEN" means any present or future first-priority Lien securing the
Obligation and assigned, conveyed, and granted to or created in favor of Agent
for the benefit of Lenders under the Loan Documents.
"LENDERS" means the financial institutions (including, without limitation,
Agent in respect of its share of Borrowings) named on SCHEDULE 2 or on the most-
recently-amended SCHEDULE 2, if any, delivered by Agent under this agreement,
and, subject to this agreement, their respective successors and permitted
assigns (but not any Participant who is not otherwise a party to this
agreement).
"LIEN" means any lien, mortgage, security interest, pledge, assignment,
charge, title retention agreement, or encumbrance of any kind and any other
arrangement for a creditor's claim to be satisfied from assets or proceeds prior
to the claims of other creditors or the owners.
"LITIGATION" means any action by or before any Tribunal.
"LOAN DOCUMENTS" means (a) this agreement, certificates and reports
delivered under this agreement, and exhibits and schedules to this agreement,
(b) all agreements, documents, and instruments in favor of Agent or Lenders (or
Agent on behalf of Lenders) ever delivered under this agreement or otherwise
delivered in connection with any of the Obligation, and (c) all renewals,
extensions, and restatements of, and amendments and supplements to, any of the
foregoing.
"MATERIAL-ADVERSE EVENT" means any circumstance or event that, individually
or collectively, is reasonably expected to result (at any time before the
Commitments under this agreement are fully canceled or terminated and the
Obligation is fully paid and performed) in any (a) impairment of any Company's
ability to perform any of its payment or other material obligations under any
Loan Document or (ii) the ability of Agent or any Lender to enforce any of those
obligations or any of their respective Rights under the Loan Documents, (b)
material and adverse effect on Borrower's individual financial condition or the
Companies' consolidated financial condition as represented to Lenders in the
Current Financials most recently delivered before the date of this agreement,
(c) material and adverse effect on any Collateral, or (d) Default or Potential
Default.
Credit Agreement
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"MATERIAL AGREEMENT" means, for any Person, any agreement to which that
Person is a party, by which that Person is bound, or to which any assets of that
Person may be subject, and that is not cancelable by that Person upon less than
30-days notice without liability for further payment other than nominal penalty,
and the default under which or cancellation or forfeiture of which would be a
Material-Adverse Event.
"MATRIX BANK" means Matrix Capital Bank, a federal savings bank formerly
named Dona Ana Savings Bank and a wholly owned Subsidiary of Borrower.
"MATRIX FINANCIAL" means Matrix Financial Services Corporation, an Arizona
corporation and wholly owned Subsidiary of Borrower.
"MATRIX FINANCIAL LOAN AGREEMENT" means the Amended and Restated Loan
Agreement dated as of January 31, 1997, between Matrix Financial, certain
lenders, and Bank One, Texas, N.A., as Agent for Lenders.
"MATURITY DATE" means March 12, 2000.
"MAXIMUM AMOUNT" and "MAXIMUM RATE" respectively mean, for any day and for
any Lender, the maximum non-usurious amount and the maximum non-usurious rate of
interest that, under applicable Law, the Lender is permitted to contract for,
charge, take, reserve, or receive on its portion of the Obligation.
"MULTIEMPLOYER PLAN" means a multiemployer plan as defined in Sections
3(37) or 4001(a)(3) of ERISA or Section 414(f) of the IRC (or any similar type
of plan established or regulated under the Laws of any foreign country) to which
Borrower or any ERISA Affiliate is making, or has made, or is accruing, or has
accrued, an obligation to make contributions.
"NET CHARGE OFFS" means, for Matrix Bank and at any time, the sum of its
"Gross Charge Offs" minus its "Recoveries," as those items are reflected in its
quarterly call reports.
"NET INCOME" means, for any period and any Person, the amount that should
in accordance with GAAP be reflected on that Person's income statement as net
income for that period after deduction of any minority interests.
"NET WORTH" means, for any period and any Person, that Person's
stockholder's equity as determined under GAAP.
"NOTES" means the Revolving Notes and the Term Notes.
"OBLIGATION" means all (a) present and future indebtedness, obligations,
and liabilities of Borrower to Agent or any Lender and related to any Loan
Document, whether principal, interest, fees, costs, attorneys' fees, or
otherwise, (b) all present and future indebtedness, obligations, and liabilities
of Borrower to Agent or any Lender in respect of any Hedge Contract, (c) amounts
that would become due but for operation of 11 U.S.C. (S)(S) 502 and 503 or any
other provision of Title 11 of the United States Code, and all renewals,
extensions, and modifications of any of the foregoing, and (d) pre- and post-
maturity interest on any of the foregoing, including, without limitation, all
post-petition interest if any Company voluntarily or involuntarily files for
protection under any Debtor Law.
Credit Agreement
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"OTHER IMPAIRED ASSETS" means, for Matrix Bank and at any time, assets
(excluding Other Real Estate Owned) acquired by Matrix Bank through foreclosure
or other realization upon collateral or rearrangement, settlement, or
satisfaction of debt.
"OTHER REAL ESTATE OWNED" means, for Matrix Bank and at any time, each of
its ownership interests (including any option in its favor and any put or
similar agreement requiring it to purchase but excluding any Lien constituting a
bona fide encumbrance to secure obligations owed to it) in any real property not
currently used solely as either a principal banking house, an office, branch,
parking facility, remote manned or unmanned teller facility, or real estate
acquired for development in the ordinary course of business and that was not
acquired through foreclosure or other realization upon collateral or
rearrangement, settlement, or satisfaction of debt.
"OTS" means the Office of Thrift Supervision.
"PARTICIPANT" is defined in SECTION 12.13.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PERMITTED DEBT" is defined in SECTION 8.1.
"PERMITTED LIENS" is defined in SECTION 8.2.
"PERMITTED INVESTMENTS" is defined in SECTION 8.3.
"PERSON" means any individual, entity, or Tribunal.
"POTENTIAL DEFAULT" means any event's occurrence or any circumstance's
existence that would (upon any required notice, time lapse, or both) become a
Default.
"PRINCIPAL DEBT" means, at any time, the outstanding principal balance of
all Borrowings.
"PURCHASER" is defined in SECTION 12.14.
"REFINANCED DEBT" means the Debt described on SCHEDULE 6.7 owed to Banker's
Bank of the West, which Debt must be paid in full (and all commitments to extend
further Debt canceled) as a condition precedent to, or concurrent with, the
initial Borrowing under this agreement.
"REPRESENTATIVES" means representatives, officers, directors, employees,
attorneys, and agents.
"RESPONSIBLE OFFICER" means (a) the chairman, president, chief executive
officer, any vice president, or chief financial officer of Borrower to the
extent that such officer's name, title, and signature have been certified to
Agent by the secretary or an assistant secretary of Borrower or (b) any other
officer designated as a "Responsible Officer" in writing to Administrative Agent
by any officer in CLAUSE (A) preceding.
"REVOLVING FACILITY" is defined in the recitals to this agreement.
Credit Agreement
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<PAGE>
"REVOLVING NOTE" means one of the promissory notes substantially in the
form of EXHIBIT A-2.
"RIGHTS" means rights, remedies, powers, privileges, and benefits.
"SOLVENT" means, for any Person, that (a) the aggregate fair market value
of its assets exceeds its liabilities, (b) it has sufficient cash flow to enable
it to pay its Debts as they mature, and (c) it does not have unreasonably small
capital to conduct its businesses.
"STATED-TERMINATION DATE" means the earlier of either (a) March 12, 1998,
or (b) 30 days after the date on which at least 90% of the total Commitments for
the Revolving Facility have been funded under SECTION 2.2.
"SUBSIDIARY" of any Person means any entity of which at least 50% (in
number of votes) of the stock (or equivalent interests) is owned of record or
beneficially, directly or indirectly, by that Person.
"TAXES" means, for any Person, taxes, assessments, or other governmental
charges or levies imposed upon it, its income, or any of its properties,
franchises, or assets.
"TERM LOAN" is defined in the recitals to this agreement.
"TERM NOTE" means one of the promissory notes substantially in the form of
EXHIBIT A-1.
"TERMINATION PERCENTAGE" means, at any time for any Lender, the proportion
(stated as a percentage) that its Principal Debt bears to the total Principal
Debt.
"TOTAL CAPITAL" means, for Matrix Bank and at any time, the sum of (a)
stated par value of its common stock, (b) stated par value of its perpetual
preferred stock, if any, (c) its undivided profits, surplus, and retained
earnings, (d) its account denominated "loan loss reserve" or "reserve for loan
and lease losses," plus (e) its reserve for contingencies.
"TOTAL LOANS" means, for Matrix Bank and at any time, the sum of all of its
outstanding loans, leases, and advances, net of unearned income.
"TRIBUNAL" means any (a) local, state, or federal judicial, executive, or
legislative instrumentality, (b) private arbitration board or panel, or (c)
central bank.
"UCC" means the Uniform Commercial Code as enacted in Texas or other
applicable jurisdictions.
1.2 TIME REFERENCES. Unless otherwise specified, in the Loan Documents
---------------
(a) time references (e.g., 10:00 a.m.) are to time in Dallas, Texas, and (b) in
calculating a period from one date to another, the word "from" means "from and
including" and the word "to" or "until" means "to but excluding."
1.3 OTHER REFERENCES. Unless otherwise specified, in the Loan Documents
----------------
(a) where appropriate, the singular includes the plural and vice versa, and
words of any gender include each other gender, (b) heading and caption
references may not be construed in interpreting provisions, (c) monetary
references are to currency of the United States of America, (d) section,
paragraph, annex, schedule, exhibit, and similar references are to the
particular Loan Document in which they are used, (e) references to
Credit Agreement
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"telefax," "telecopy," "facsimile," "fax," or similar terms are to facsimile or
telecopy transmissions, (f) references to "including" mean including without
limiting the generality of any description preceding that word, (g) the rule of
construction that references to general items that follow references to specific
items as being limited to the same type or character of those specific items is
not applicable in the Loan Documents, (h) references to any Person include that
Person's heirs, personal representatives, successors, trustees, receivers, and
permitted assigns, (i) references to any Law include every amendment or
supplement to it, rule and regulation adopted under it, and successor or
replacement for it, and (j) references to any Loan Document or other document
include every renewal and extension of it, amendment and supplement to it, and
replacement or substitution for it.
1.4 ACCOUNTING PRINCIPLES. Unless otherwise specified, in the Loan
---------------------
Documents (a) GAAP in effect on the date of this agreement determines all
accounting and financial terms and compliance with all financial covenants, (b)
otherwise, all accounting principles applied in a current period must be
comparable in all material respects to those applied during the preceding
comparable period, and (c) while Borrower has any consolidated Subsidiaries (i)
all accounting and financial terms and compliance with reporting covenants must
be on a consolidating and consolidated basis, as applicable, and (ii) compliance
with financial covenants must be on a consolidated basis.
SECTION 2 BORROWINGS. Subject to the provisions in the Loan Documents, each
- --------- ----------
Lender severally and not jointly agrees to extend credit to Borrower under the
Term Loan and the Revolving Facility in accordance with the following
provisions.
2.1 TERM LOAN. Each Lender severally but not jointly agrees to lend to
---------
Borrower that Lender's Commitment Percentage of the Term Loan in a single
Borrowing on the Closing Date.
2.2 REVOLVING FACILITY. Each Lender severally but not jointly agrees to
------------------
lend to Borrower that Lender's Commitment Percentage of requested Borrowings
under the Revolving Facility, which Borrower may borrow, repay, and reborrow
under this agreement subject to the following conditions:
. Each Borrowing may only occur on a Business Day on or after the
Closing Date and before the Actual-Termination Date.
. Each Borrowing may only be $500,000 or a greater integral multiple of
$100,000.
. The Principal Debt of the Revolving Facility may never exceed the
lesser of either the total Commitments for the Revolving Facility or
the Borrowing Base.
. The total Principal Debt owed to any Lender may never exceed that
Lender's total Commitments.
2.3 BORROWING PROCEDURE. The following procedures apply to Borrowings:
-------------------
(A) BORROWING REQUEST. Borrower may request a Borrowing by making or
-----------------
delivering a Borrowing Request to Agent, which is irrevocable and binding
on Borrower and must be received by Agent no later than 11:00 a.m. on the
Business Day before the requested Borrowing Date. Agent shall promptly on
the day received notify each Lender of any Borrowing Request.
Credit Agreement
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(B) FUNDING. Each Lender shall remit its Commitment Percentage of
-------
each requested Borrowing to Agent's principal office in Dallas, Texas, in
funds that are available for immediate use by Agent by 2:00 p.m. on the
applicable Borrowing Date. Subject to receipt of those funds, Agent shall
(unless to its actual knowledge any of the applicable conditions precedent
have not been satisfied by Borrower or waived by the requisite Lenders
under SECTION 12.10) make those funds available to Borrower by depositing
the funds in Borrower's account with Agent.
(C) FUNDING ASSUMED. Absent contrary written notice from a Lender,
---------------
Agent may assume that each Lender has made its Commitment Percentage of the
requested Borrowing available to Agent on the applicable Borrowing Date,
and Agent may, in reliance upon such assumption (but shall not be required
to), make available to Borrower a corresponding amount. If a Lender fails
to make its Commitment Percentage of any requested Borrowing available to
Agent on the applicable Borrowing Date, Agent may recover the applicable
amount on demand (i) from that Lender together with interest, commencing on
the Borrowing Date and ending on (but excluding) the date Agent recovers
the amount from that Lender, at an annual interest rate equal to the Fed-
Funds Rate, or (ii) if that Lender fails to pay its amount upon demand,
then from Borrower, together with interest, commencing on the Borrowing
Date and ending on (but excluding) the date Agent recovers the amount from
Borrower, at an annual interest rate equal to the Base Rate No Lender is
responsible for the failure of any other Lender to make its Commitment
Percentage of any Borrowing available as required by SECTION 2.3(B).
However, failure of any Lender to make its Commitment Percentage of any
Borrowing so available does not excuse any other Lender from making its
Commitment Percentage of any Borrowing so available.
2.4 TERMINATION. Borrower may (upon giving at least ten Business Days
-----------
prior written and irrevocable notice to Agent) terminate all or part of the
Revolving Facility. Each partial termination must be in an amount of not less
than $500,000 or a greater integral multiple of $100,000 and must be ratable in
accordance with each Lender's Commitment Percentage. At the time of any
termination, Borrower shall pay to Agent, for the account of each Lender, as
applicable, any amounts that may then be due under SECTION 3.4, all accrued and
unpaid fees under this agreement, and the interest attributable to the amount of
that reduction. Any part of the Commitments for the Revolving Facility that are
terminated may not be reinstated.
SECTION 3 PAYMENT TERMS.
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3.1 NOTES AND PAYMENTS.
------------------
(A) NOTES. The Principal Debt under the Term Loan is evidenced by the
-----
Term Notes, one payable to each Lender in the stated amount of its
Commitment for the Term Loan. Principal Debt under the Revolving Facility
is evidenced by the Revolving Notes, one payable to each Lender in the
stated amount of its Commitment for the Revolving Facility.
(B) PAYMENT. Borrower must make each payment and prepayment on the
-------
Obligation to Agent's principal office in Dallas, Texas in funds that are
(i) immediately available by 1:00 p.m. on the day due (otherwise, but
subject to SECTION 3.8, those funds continue to accrue interest as if they
were received on the next Business Day and (ii) not (in Agent's or any
Lender's good faith judgment) subject to any reasonable grounds for the
payment or prepayment lawfully to be required to be rescinded, restored, or
returned for any reason (unless Agent or Required Lenders agree to
otherwise accept such payment or prepayment).
Credit Agreement
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(C) PAYMENT ASSUMED. Unless Agent has received notice from Borrower
---------------
prior to the date on which any payment is due under this agreement that
Borrower will not make that payment in full, Agent may assume that Borrower
has made the full payment due and Agent may, in reliance upon that
assumption, cause to be distributed to each Lender on that date the amount
then due to each Lender. If and to the extent Borrower does not make the
full payment due to Agent, each Lender shall repay to Agent on demand the
amount distributed to that Lender by Agent together with interest for each
day from the date that Lender received payment from Agent until the date
that Lender repays Agent (unless such repayment is made on the same day as
such distribution), at an annual interest rate equal to the Fed-Funds Rate.
3.2 PRINCIPAL AND INTEREST PAYMENTS.
-------------------------------
(A) TERM LOAN.
---------
. The Principal Debt of the Term Loan is payable in 11 consecutive
quarterly installments of $71,430 each on the last day of each August,
November, February, and May (commencing May 31, 1997), with a final
installment in the amount of the unpaid Principal Debt of the Term
Loan due on the Maturity Date.
. Interest on the Principal Debt of the Term Loan is due and
payable as it accrues on each principal payment date described in the
preceding sentence.
(B) REVOLVING FACILITY.
------------------
. Until the Actual-Termination Date, interest on the Principal Debt
of the Revolving Facility is due and payable as it accrues on the 15th
day of each calendar month (commencing on the first such date that
follows the Closing Date).
. Before the Actual-Termination Date, Borrower may prepay and,
subject to the terms of the Loan Documents, reborrow the Principal
Debt of the Revolving Facility.
. If the effective date that Lenders' commitments to lend under
this agreement are fully canceled or terminated occurs before the
Stated-Termination Date, then the Principal Debt of the Revolving
Facility, together with all accrued and unpaid interest on it, is due
and payable on the Actual-Termination Date.
. If the Stated-Termination Date occurs before the effective date
that Lenders' commitments to lend under this agreement are fully
canceled or terminated, then (i) the Principal Debt of the Revolving
Facility is payable in consecutive quarterly installments, each equal
to 1/28th of the Principal Debt of the Revolving Facility on the
Stated-Termination Date, on the last day of each February, May,
August, and November (commencing on the first of those dates that
follows the Stated-Termination Date), with a final installment in the
amount of the unpaid Principal Debt of the Revolving Facility due on
the Maturity Date, and (ii) interest on the Principal Debt of the
Revolving Facility is due and payable as it accrues on each principal
payment date described in CLAUSE (I) preceding.
12
<PAGE>
3.3 VOLUNTARY PREPAYMENTS. In addition to voluntary prepayments that
---------------------
Borrower may make under the Revolving Facility before the Actual-Termination
Date, Borrower may prepay, without penalty and in whole or part, the Principal
Debt of the Term Loan or the Principal Debt of the Revolving Facility during its
term period so long as (a) Borrower gives notice of the prepayment to Agent ten
Business Days before the date on which the prepayment is to be made (and Agent
will promptly notify Lenders of any such notice), (b) the notice by Borrower
specifies the amount to be prepaid, and (c) each voluntary partial prepayment
must be equal to the lesser of either the applicable Principal Debt or a
principal amount of not less than $500,000 or a greater integral multiple of
$100,000, plus accrued interest on the amount prepaid to the date of the
prepayment. Those voluntary prepayments shall be applied to installments of
Principal Debt of the Term Loan or the term portion of the Revolving Facility,
as the case may be, in inverse order of maturity.
3.4 MANDATORY PREPAYMENTS.
---------------------
(A) BORROWING EXCESSES. Within five days after any Borrowing Excess
------------------
occurs, Borrower shall make a mandatory prepayment of Principal Debt
necessary to eliminate that Borrowing Excess, which shall, if applicable,
be applied to installments of Principal Debt of the Term Loan or the term
portion of the Revolving Facility, as the case may be, in inverse order of
maturity.
(B) EXCESS DISTRIBUTIONS. Within 45 days after the last day of each
--------------------
fiscal quarter of the Companies, Borrower shall make a mandatory prepayment
of Principal Debt equal to the lesser of either (i) Excess Distributions
for the preceding fiscal quarter or (ii) the total of the next four
installments of Principal Debt due on the Term Loan and, if any, the
Revolving Facility. Although such prepayments shall be applied to Principal
Debt installments in inverse order of maturity, they shall be applied first
to the Term Loan (up to the amount of the next four Principal Debt
installments due on the Term Loan) and second to the Revolving Facility.
3.5 INTEREST RATES. The Principal Debt, except as provided in the next
--------------
sentence, bears interest at the Base Rate. If lawful, all past-due Principal
Debt and past-due interest accruing on any of the foregoing bears interest from
the date due (stated or by acceleration) at the Default Rate until paid,
regardless whether payment is made before or after entry of a judgment.
3.6 INTEREST RECAPTURE. If the designated interest rate applicable to any
------------------
Borrowing exceeds the Maximum Rate, the interest rate on that Borrowing is
limited to the Maximum Rate, but any subsequent reductions in the designated
rate shall not reduce the interest rate thereon below the Maximum Rate until the
total amount of accrued interest the amount of interest that would have accrued
if that designated rate had always been in effect. If at maturity (stated or by
acceleration), or at final payment of the Notes, the total interest paid or
accrued is less than the interest that would have accrued if the designated
rates had always been in effect, then, at that time and to the extent permitted
by Law, Borrower shall pay an amount equal to the difference between (a) the
lesser of the amount of interest that would have accrued if the designated rates
had always been in effect and the amount of interest that would have accrued if
the Maximum Rate had always been in effect, and (b) the amount of interest
actually paid or accrued on the Notes.
Credit Agreement
----------------
13
<PAGE>
3.7 INTEREST CALCULATIONS. Interest will be calculated on the basis of
---------------------
actual number of days (including the first day but excluding the last day)
elapsed but computed as if each calendar year consisted of 360 days (unless the
calculation would result in an interest rate greater than the Maximum Rate, in
which event interest shall be calculated on the basis of a year of 365 or 366
days, as the case may be). All interest rate determinations and calculations by
Agent are conclusive and binding absent manifest error.
3.8 MAXIMUM RATE. Regardless of any provision contained in any Loan
------------
Document, no Lender is entitled to contract for, charge, take, reserve, receive,
or apply, as interest on all or any part of the Obligation, any amount in excess
of the Maximum Rate, and, if Lenders ever do so, then any excess shall be
treated as a partial prepayment of principal and any remaining excess shall be
refunded to Borrower. In determining if the interest paid or payable exceeds the
Maximum Rate, Borrower and Lenders shall, to the maximum extent permitted under
applicable Law, (a) treat all Borrowings as but a single extension of credit
(and Lenders and Borrower agree that is the case and that provision in this
agreement for multiple Borrowings is for convenience only), (b) characterize any
nonprincipal payment as an expense, fee, or premium rather than as interest, (c)
exclude voluntary prepayments and their effects, and (d) amortize, prorate,
allocate, and spread the total amount of interest throughout the entire
contemplated term of the Obligation. However, if the Obligation is paid in full
before the end of its full contemplated term, and if the interest received for
its actual period of existence exceeds the Maximum Amount, Lenders shall refund
any excess (and Lenders may not, to the extent lawful, be subject to any
penalties provided by any Laws for contracting for, charging, taking, reserving,
or receiving interest in excess of the Maximum Amount). If the Laws of the
State of Texas are applicable for purposes of determining the "Maximum Rate" or
the "Maximum Amount," then those terms mean the "indicated rate ceiling" from
time to time in effect under Article 5069-1.04, Title 79, Revised Civil Statutes
of Texas, as amended. Borrower agrees that Chapter 15, Subtitle 79, Revised
Civil Statutes of Texas, 1925, as amended (which regulates certain revolving
credit loan accounts and revolving triparty accounts), does not apply to the
Obligation.
3.9 ORDER OF APPLICATION.
--------------------
(A) NO DEFAULT. If no Default or Potential Default exists, then any
----------
payment shall be applied to the Obligation (except as otherwise
specifically provided in the Loan Documents) in the order and manner as
Borrower directs.
(B) DEFAULT. If a Default or Potential Default exists or if Borrower
-------
fails to give direction, any payment (including proceeds from the exercise
of any Rights) shall be applied in the following order: (i) To all fees
and expenses for which Agent or Lenders have not been paid or reimbursed in
accordance with the Loan Documents (and if such payment is less than all
unpaid or unreimbursed fees and expenses, then the payment shall be paid
against unpaid and unreimbursed fees and expenses in the order of
incurrence or due date); (ii) to accrued interest on the Principal Debt;
(iii) to the remaining Principal Debt in the order as Determining Lenders
may elect; and (iv) to the remaining Obligation in the order and manner
Determining Lenders deem appropriate.
3.10 DISTRIBUTIONS TO LENDERS. Unless otherwise specified above, each
------------------------
payment and prepayment shall be distributed to Lenders ratably in accordance
with their respective Commitment Percentages or Termination Percentages, as
applicable.
Credit Agreement
----------------
14
<PAGE>
3.11 SHARING OF PAYMENTS, ETC. If any Lender obtains any payment or
------------------------
prepayment with respect to the Obligation (whether voluntary, involuntary, or
otherwise, including, without limitation, as a result of exercising its Rights
under SECTION 3.12) that exceeds the part of that payment or prepayment that it
is then entitled to receive under the Loan Documents, then that Lender shall
purchase from the other Lenders participations that will cause the purchasing
Lender to share the excess payment or prepayment ratably with each other Lender.
If all or any portion of any excess payment or prepayment is subsequently
recovered from the purchasing Lender, then the purchase shall be rescinded and
the purchase price restored to the extent of the recovery. Borrower agrees that
any Lender purchasing a participation from another Lender under this section
may, to the fullest extent permitted by Law, exercise all of its Rights of
payment (including the Right of offset) with respect to that participation as
fully as if that Lender were the direct creditor of Borrower in the amount of
that participation.
3.12 OFFSET. If a Default exists, each Lender is entitled to exercise
------
(for the benefit of all Lenders in accordance with SECTION 3.11) the Rights of
offset and banker's Lien against each and every account and other property, or
any interest therein, that any Company may now or hereafter have with, or which
is now or hereafter in the possession of, that Lender to the extent of the full
amount of the Obligation owed (directly or participated) to it.
3.13 CAPITAL ADEQUACY. If any change in any present Laws, any change in
----------------
the interpretation or application of any present Law, or any future Law
regarding capital adequacy, or if compliance by any Lender with any request,
directive, or requirement imposed in the future by any Tribunal regarding
capital adequacy, or if any change in its written policies or in the risk
category of this transaction, in any of the foregoing events or circumstances,
reduces the rate of return on its capital as a consequence of its obligations
under this agreement to a level below that which it otherwise could have
achieved (taking into consideration its policies with respect to capital
adequacy) by an amount deemed by it to be material (and it may, in determining
the amount, utilize reasonable assumptions and allocations of costs and expenses
and use any reasonable averaging or attribution method), then (unless the effect
is already reflected in the rate of interest then applicable under this
agreement) Agent or that Lender (through Agent) shall notify Borrower and
deliver to Borrower a certificate setting forth in reasonable detail the
calculation of the amount necessary to compensate it (which certificate is
conclusive and binding absent manifest error), and Borrower shall pay that
amount to Agent or that Lender within five Business Days after demand. The
provisions of and undertakings and indemnification in this SECTION 3.13 shall
survive the satisfaction and payment of the Obligation and termination of this
agreement.
3.14 FOREIGN LENDERS, PARTICIPANTS, AND PURCHASERS. Each Lender,
---------------------------------------------
Participant (by accepting a participation interest under this agreement), and
Purchaser (by executing an Assignment) that is not organized under the Laws of
the United States of America or one of its states (a) represents to Agent and
Borrower that (i) no Taxes are required to be withheld by Agent or Borrower with
respect to any payments to be made to it in respect of the Obligation and (ii)
it has furnished to Agent and Borrower two duly completed copies of either U.S.
Internal Revenue Service Form 4224, Form 1001, Form W-8, or any other form
acceptable to Agent that entitles it to exemption from U.S. federal withholding
Tax on all interest payments under the Loan Documents, and (b) covenants to (i)
provide Agent and Borrower a new Form 4224, Form 1001, Form W-8, or other form
acceptable to Agent upon the expiration or obsolescence of any previously
delivered form according to Law, duly executed and completed by it, and (ii)
comply from time to time with all Laws with regard to the withholding Tax
exemption. If any of the foregoing is not true or the applicable forms are not
provided, then Borrower and Agent (without duplication) may deduct and withhold
from interest payments under the Loan Documents United States federal income Tax
at the full rate applicable under the IRC.
Credit Agreement
----------------
15
<PAGE>
SECTION 4 SECURITY.
- --------- --------
4.1 GUARANTY. Solely as an inducement to Lenders to extend credit under
--------
this agreement to Borrower and not in any way as a condition to or inducement to
any other extensions of credit by any Lender to any other Company, Borrower
shall cause each of its present and future Subsidiaries (other than Matrix Bank
and Sterling Trust Company) to unconditionally guarantee the full payment of the
Obligation by execution and delivery of a Guaranty.
4.2 COLLATERAL. Borrower shall cause full payment and performance of the
----------
Obligation to be secured by Lender Liens on 100% of the present and future,
issued and outstanding common stock of Matrix Bank now or in the future owned by
Borrower. The foregoing collateral, together with the additional collateral
ever assigned, conveyed, granted, or delivered for any of the Obligation under
any Loan Document, if any, and the cash and non-cash proceeds of all of the
foregoing, is referred to as the "COLLATERAL."
4.3 FURTHER ASSURANCES. Borrower shall (and shall cause each other
------------------
appropriate Company to) perform the acts, duly authorize, execute, acknowledge,
deliver, file, and record any additional writings, and pay all filings fees and
costs as Agent or Determining Lenders may reasonably deem appropriate or
necessary to perfect and maintain the Lender Liens and preserve and protect the
Rights of Agent and Lenders under any Loan Document so long as those additional
acts and writings do not increase Borrower's obligations or diminish its Rights
provided for in the Loan Documents.
4.4 RELEASE OF COLLATERAL. Upon Borrower's written request and at
---------------------
Borrower's cost and expense, Agent shall cause the Lender Liens to be released
if (a) no Lender has any commitment to extend credit under any Loan Document,
(b) the Obligation has been fully paid and performed, and (c) neither Agent nor
any Lender in good faith believes that there are reasonable grounds for any
payment or prepayment under any Loan Document lawfully to be required to be
rescinded, restored, or returned for any reason.
SECTION 5 CONDITIONS PRECEDENT. No Lender is obligated to fund its part of any
- --------- --------------------
Borrowing unless Agent has received all of the documents and items described on
SCHEDULE 5. In addition, no Lender is obligated to fund its part of any
Borrowing unless on the applicable Borrowing Date (and after giving effect to
the requested Borrowing): (a) Agent has timely received a Borrowing Request; (b)
all of the representations and warranties of Borrower in the Loan Documents are
true and correct in all material respects (unless they speak to a specific date
or are based on facts which have changed by transactions contemplated or
permitted by this agreement); (c) no Default or Potential Default exists; (d)
the funding of the Borrowing is permitted by Law and does not cause a Borrowing
Excess; and (e) if reasonably requested by Agent, it has received evidence
substantiating any of the matters in the Loan Documents that are necessary to
enable Borrower to qualify for the Borrowing. Each condition precedent in this
agreement (including, without limitation, those on SCHEDULE 5) is material to
the transactions contemplated by this agreement, and time is of the essence with
respect to each. Subject to first obtaining the approval of all Lenders, Agent
or any Lender may fund any Borrowing without all conditions being satisfied.
However, to the extent lawful, that funding is not a waiver of the requirement
that each condition precedent be satisfied as a prerequisite for any subsequent
funding or issuance, unless all Lenders specifically waive an item in writing.
Credit Agreement
----------------
16
<PAGE>
SECTION 6 REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to
- --------- ------------------------------
Agent and Lenders as follows:
6.1 PURPOSE AND REGULATION U.
------------------------
(A) PURPOSE. Borrower will use the proceeds of the (i) Term Loan to
-------
refinance the Refinanced Debt and (ii) Revolving Facility to either make or
refinance contributions to capital of Matrix Bank for Matrix Bank's use as
working capital for its general corporate purposes.
(B) REGULATION U. No Company is engaged principally, or as one of
------------
its important activities, in the business of extending credit for the
purpose of purchasing or carrying any "margin stock" within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System, as
amended. No part of the proceeds of any Borrowing will be used, directly
or indirectly, for a purpose that violates Regulation U or any other Law.
6.2 COMPANIES. Except as described on SCHEDULE 6.2, Borrower has no
---------
Subsidiaries and no Company has used or transacted business under any other
corporate or trade name in the six-month period preceding the date of this
agreement. Each Company is duly organized, validly existing, and in good
standing under the Laws of the jurisdiction in which it is incorporated as
stated on SCHEDULE 6.2. Except where failure is not a Material-Adverse Event,
each Company (i) is duly qualified to transact business and is in good standing
as a foreign corporation or other entity in each jurisdiction where the nature
and extent of its business and properties require due qualification and good
standing (as described on SCHEDULE 6.2), (ii) possesses all requisite authority,
permits, and power to conduct its business as is now being (or is contemplated
by this agreement to be) conducted, and (iii) is in compliance with all
applicable Laws. Matrix Bank's authorized capital consists of 60,000 shares of
common stock, par value $2.50 per share. Borrower owns 100% (45,000 shares) of
Matrix Bank's issued and outstanding shares of common stock, all of which are
duly authorized, validly issued, fully paid, and nonassessable and not subject
to any warrant, option, or other acquisition Right of any Person, subject to any
transfer restriction (except restrictions imposed by securities and general
corporate Laws), or subject to any Liens (except Lender Liens).
6.3 AUTHORIZATION AND CONTRAVENTION. The execution and delivery by each
-------------------------------
Company of each Loan Document to which it is a party and the performance by it
of its related obligations (a) are within its corporate power, (b) have been
duly authorized by all necessary corporate action, (c) except for any action or
filing that has been taken or made on or before the date of this agreement,
require no action by or filing with any Tribunal, (d) do not violate any
provision of its charter or bylaws, (e) except where not a Material-Adverse
Event, do not violate any provision of Law applicable to it or any material
agreements to which it is a party, and (f) except for Lender Liens, do not
result in the creation or imposition of any Lien on any asset of any Company.
6.4 BINDING EFFECT. Upon execution and delivery by all parties to it,
--------------
each Loan Document will constitute a legal and binding obligation of each
Company party to it, enforceable against it in accordance with its terms, except
as enforceability may be limited by applicable Debtor Laws and general
principles of equity.
6.5 FISCAL YEAR. The Companies' fiscal year ends each December 31.
-----------
17
<PAGE>
6.6 CURRENT FINANCIALS. The Current Financials were prepared in
------------------
accordance with GAAP and present fairly, in all material respects, the financial
condition, results of operations, and cash flows of the Companies as of, and for
the portion of the fiscal year ending on their date or dates (subject only to
normal year-end adjustments). All material liabilities of the Companies as of
the date or dates of the Current Financials are reflected in them or notes to
them. Except for transactions directly related to, or specifically contemplated
by, the Loan Documents, no subsequent material adverse changes have occurred in
the financial condition of the Companies from that shown in the Current
Financials, nor has any Company incurred any subsequent material liability.
6.7 DEBT. No Company has any Debt except as described on SCHEDULE 6.7.
----
6.8 SOLVENCY AND CAPITAL REQUIREMENTS. On the date of each Borrowing,
---------------------------------
each Company is, and after giving effect to the requested Borrowing will be,
Solvent. Matrix Bank has (and has not received any notice or directive from OTS
that it does not have) an amount of capital to satisfy its minimum capital
requirements.
6.9 LITIGATION. Except as disclosed on SCHEDULE 6.9 (a) no Company is
----------
subject to, or aware of the threat of, any Litigation that is reasonably likely
to be determined adversely to it or, if so adversely determined, would be a
Material-Adverse Event, and (b) no outstanding or unpaid judgments against any
Company exists.
6.10 TRANSACTIONS WITH AFFILIATES. No Company is a party to a material
----------------------------
transaction with any of its Affiliates except (a) transactions in the ordinary
course of business and upon fair and reasonable terms not materially less
favorable than it could obtain or could become entitled to in an arm's-length
transaction with a Person that was not its Affiliate, and (b) transactions
described on SCHEDULE 6.10.
6.11 TAXES. All Tax returns of each Company required to be filed have
-----
been filed (or extensions have been granted) before delinquency, except for
returns for which the failure to file is not a Material-Adverse Event, and all
Taxes imposed upon each Company that are due and payable have been paid before
delinquency.
6.12 EMPLOYEE PLANS. Except where occurrence or existence is not a
--------------
Material-Adverse Event, (a) no Employee Plan has incurred an "accumulated
funding deficiency" (as defined in (S) 302 of ERISA or (S) 412 of the IRC), (b)
no Company has incurred liability under ERISA to the PBGC in connection with any
Employee Plan, (c) no Company has withdrawn in whole or in part from
participation in a Multiemployer Plan, (d) no Company has engaged in any
"prohibited transaction" (as defined in (S) 406 of ERISA or (S) 4975 of the
IRC), and (e) no "reportable event" (as defined in (S) 4043 of ERISA) has
occurred in respect of any Employee Plan, excluding events for which the notice
requirement is waived under applicable PBGC regulations.
6.13 PROPERTY AND LIENS. Each Company has good and indefeasible title to
------------------
its real property and marketable title to all its other property reflected on
the Current Financials except for property that is obsolete or that has been
disposed of in the ordinary course of business or, after the date of this
agreement, as otherwise permitted by this agreement. All Collateral is free and
clear of any Liens and adverse claims of any nature except as described on
SCHEDULE 6.13.
Credit Agreement
----------------
18
<PAGE>
6.14 INTELLECTUAL PROPERTY. Subject to the qualification below (a) each
---------------------
Company owns all material licenses, patents, patent applications, copyrights,
service marks, trademarks, trademark applications, and trade names necessary to
continue to conduct its businesses as presently conducted by it and proposed to
be conducted by it immediately after the date of this agreement, (b) each
Company is conducting its business without infringement or claim of infringement
of any license, patent, copyright, service mark, trademark, trade name, trade
secret, or other intellectual property right of others, other than any
infringements or claims that, if successfully asserted against or determined
adversely to that Company, are not a Material-Adverse Event, and (c) no
infringement or claim of infringement by others of any material license, patent,
copyright, service mark, trademark, trade name, trade secret, or other
intellectual property of any Company exists. The Companies have advised Agent
and Lenders that the representations and warranties in this SECTION 6.14 are
based on information available to them at the time the representations and
warranties are made or are reaffirmed in each Borrowing Request based upon the
due diligence that is reasonably prudent under the circumstances. Therefore,
there may be facts about which no Company is at that time aware that may cause
one or more of the representations and warranties in this SECTION 6.14 to be
untrue. If so, then (i) that untruth shall constitute a Default under SECTION
10.1(C) to the same extent that it would have otherwise constituted a Default,
but (ii) solely for purposes of determining whether any Company has made a false
representation to Agent or any Lender for purposes of any alleged criminal
violation, then the untrue representation and warranty in this SECTION 6.14
shall be deemed qualified by the existence of those facts so long as the
Companies (A) notify Agent and Lenders about those facts promptly after any
Company becomes aware of them, and (B) diligently attempt to cause the
circumstances to be corrected or remedied so that each affected representation
and warranty in this SECTION 6.14 shall thereafter be true and correct in all
material respects.
6.15 ENVIRONMENTAL MATTERS. Except where not a Material-Adverse Event, no
---------------------
Company (a) knows of any environmental condition or circumstance adversely
affecting any Company's properties or operations, (b) has received any report of
any Company's violation of any Environmental Law, or (c) knows that any Company
is under any obligation to remedy any violation of any Environmental Law. Each
Company has taken prudent steps to determine that its properties and operations
do not violate any Environmental Law except violations that are not a Material-
Adverse Event.
6.16 REGULATIONS. Borrower is duly registered under the Savings and Loan
-----------
Holding Company Act. No Company is subject to regulation under the Investment
Company Act of 1940, or the Public Utility Holding Company Act of 1935.
6.17 INSURANCE. Each Company maintains with financially sound,
---------
responsible, and reputable insurance companies or associations (or, as to
workers' compensation or similar insurance, with an insurance fund or by self-
insurance authorized by the jurisdictions in which it operates) insurance
concerning its properties and businesses against casualties and contingencies
and of types and in amounts (and with co-insurance and deductibles) as is
customary in the case of similar businesses.
6.18 FULL DISCLOSURE. Each material fact or condition relating to the
---------------
Loan Documents or the financial condition, business, or property of the
Companies that is a Material-Adverse Event has been disclosed in writing to
Agent and Lenders. All information previously furnished by any Company to Agent
or any Lender in connection with the Loan Documents was (and all information
furnished in the future by any Company to Agent or any Lender will be) true and
accurate in all material respects or based on reasonable estimates on the date
the information is stated or certified.
Credit Agreement
----------------
19
<PAGE>
SECTION 7 AFFIRMATIVE COVENANTS. For so long as any Lender is committed to lend
- --------- ---------------------
under this agreement and until the Obligation has been fully paid and performed,
Borrower covenants and agrees with Agent and Lenders that, without first
obtaining Determining Lenders' consent to the contrary:
7.1 REPORTING REQUIREMENTS. Borrower shall cause to be furnished to Agent
----------------------
the following, all in form and detail reasonably satisfactory to Agent:
(A) ANNUALLY. Promptly after preparation but no later than 90 days
--------
after the last day of each fiscal year of Borrower (i) Financials showing
Borrower's consolidated and consolidating financial condition and results
of operations as of, and for the year ended on, that last day, (ii)
Financials showing Matrix Bank's consolidated and consolidating financial
condition and results of operations as of, and for the year ended on, that
last day, (iii) solely with respect to the consolidated portion of those
Financials, the opinions, without material qualification, of Ernst & Young
or of another firm of nationally-recognized independent certified public
accountants reasonably acceptable to Determining Lenders, based on audits
using generally accepted auditing standards, that the consolidated portion
of those Financials were prepared in accordance with GAAP and present
fairly, in all material respects, Holdings' and Borrower's respective
consolidated financial conditions and results of operations, and (iv) a
Compliance Certificate.
(B) QUARTERLY. Promptly after preparation but no later than 45 days
---------
after the last day of the first three fiscal quarters of Borrower each year
(i) Financials showing Borrower's consolidating financial condition and
results of operations for that fiscal quarter and for the period from the
beginning of the current fiscal year to the last day of that fiscal
quarter, (ii) a Compliance Certificate, and (iii) Matrix Bank's most recent
call reports or other quarterly and annual reports of condition or income
furnished to the FDIC or the OTS.
(C) EXAMINATIONS. Promptly but not later than 45 days after receipt
------------
by Matrix Bank and to the extent lawful, copies of all federal regulatory
examinations of Matrix Bank, including all calculations of its Risk Based
Capital (as described in SECTION 9.5).
(D) NOTICES. Notice, promptly after any Company knows or has reason
-------
to know, of (i) any notice of intention to cancel or of cancellation of
Matrix Bank's Bankers Blanket Bond, (ii) any notice or capital directive
from OTS to Matrix Bank indicating that it does not have an amount of
capital satisfying its minimum capital requirements or imposing any
restrictions on Matrix Bank's ability to declare and pay cash Distributions
to Borrower, (iii) the existence and status of any Litigation that, if
determined adversely to any Company, would be a Material-Adverse Event,
(iv) any change in any material fact or circumstance represented or
warranted by any Company in any Loan Document that constitutes a Material-
Adverse Event, (v) the receipt by any Company of notice of any violation or
alleged violation of ERISA or any Environmental Law or other Law if that
violation is a Material-Adverse Event, or (vi) a Default or Potential
Default specifying the nature thereof and what action Borrower has taken,
is taking, or proposes to take with respect to it.
(E) OTHER INFORMATION. Promptly upon reasonable request by Agent or
-----------------
Determining Lenders (through Agent), information (not otherwise required to
be furnished under the Loan Documents) respecting the business affairs,
assets, and liabilities of any Company and opinions, certifications, and
documents in addition to those mentioned in this agreement.
Credit Agreement
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20
<PAGE>
7.2 USE OF PROCEEDS. Each Company shall use the proceeds of Borrowings
---------------
only for the purposes represented in this agreement.
7.3 BOOKS AND RECORDS. Each Company shall maintain books, records, and
-----------------
accounts necessary to prepare Financials in accordance with GAAP.
7.4 INSPECTIONS. Upon reasonable request and to the extent lawful, each
-----------
Company shall allow Agent, any Lender, or their respective Representatives to
inspect any of its properties, to review reports, files, and other records and
to make and take away copies, to conduct tests or investigations, and to discuss
any of its affairs, conditions, and finances with its directors, officers,
employees, or representatives from time to time during reasonable business
hours.
7.5 TAXES. Each Company shall promptly pay before delinquency any and all
-----
Taxes other than Taxes of which the failure to pay is not a Material-Adverse
Event or which are being contested in good faith by lawful proceedings
diligently conducted, against which reserve or other provision required by GAAP
has been made, and in respect of which levy and execution of any Lien have been
and continue to be stayed.
7.6 EXPENSES. Borrower shall pay (a) all reasonable legal fees and
--------
expenses incurred by Agent in connection with the preparation, negotiation, and
execution of the Loan Documents, (b) all reasonable legal fees and expenses
incurred by Agent in connection with each separate future amendment, consent,
waiver, or approval requested or agreed to by Borrower and executed in
connection with any Loan Document, (c) all fees, charges, or Taxes for the
recording or filing of any Loan Document to create or perfect Lender Liens, (d)
all other reasonable out-of-pocket expenses of Agent or any Lender in connection
with the preparation, negotiation, execution, or administration of the Loan
Documents, including courier expenses, (e) all amounts expended, advanced, or
incurred by Agent or any Lender to satisfy any obligation of any Company under
any Loan Document, to collect the Obligation, or to enforce the Rights of Agent
or any Lender under any Loan Document, including all court costs, attorneys'
fees (whether for trial, appeal, other proceedings, or otherwise), fees of
auditors and accountants, and investigation expenses reasonably incurred by
Agent or any Lender in connection with any such matters, and (f) interest at an
annual interest rate equal to the Default Rate on each item specified in CLAUSES
(A) through (E) above from 30 days after the date of written demand or request
for reimbursement.
7.7 MAINTENANCE OF EXISTENCE, ASSETS, AND BUSINESS. Each Company shall
----------------------------------------------
(a) except as permitted by SECTION 8.5, maintain its corporate existence and
good standing in its jurisdiction of incorporation and its authority to transact
business in all other states where failure to maintain its authority to transact
business is a Material-Adverse Event, and (b) maintain all licenses, permits,
and franchises necessary for its business where failure to do so is a Material-
Adverse Event.
7.8 INSURANCE. Each Company shall (a) maintain with financially sound and
---------
reputable insurers, insurance with respect to its assets and business against
such liabilities, casualties, risks, and contingencies and in such types and
amounts (including a fidelity bond or bonds in form and with coverage, with a
company, and with respect to such individuals or groups of individuals) as is
customary in the case of Persons engaged in the same or similar businesses and
similarly situated and, if applicable, as satisfy prevailing FDIC and OTS
applicable requirements, and (b) upon Agent's request, furnish to Agent from
time to time a summary of their insurance coverage, in form and substance
satisfactory to Agent, and originals or copies of the applicable policies.
Credit Agreement
----------------
21
<PAGE>
7.9 SUBSIDIARIES. Borrower shall give Agent 20 days written notice in
------------
advance of the formation or acquisition of any new direct or indirect Subsidiary
of Borrower. Within 20 days after any such new Subsidiary's acquisition or
formation, Borrower shall, and shall cause the Companies to, fully comply with
the applicable provisions of SECTION 4.1.
7.10 INDEMNIFICATION. IN CONSIDERATION OF THE COMMITMENTS BY AGENT AND
---------------
LENDERS UNDER THE LOAN DOCUMENTS, BORROWER SHALL INDEMNIFY AND DEFEND AGENT,
EACH LENDER, AND THEIR RESPECTIVE AFFILIATES AND REPRESENTATIVES (COLLECTIVELY,
THE "INDEMNIFIED PARTIES") -- AND DEFEND THEM AND HOLD EACH OF THEM HARMLESS --
AGAINST ANY AND ALL OUT-OF-POCKET LOSSES, LIABILITIES, CLAIMS, DAMAGES,
DEFICIENCIES, INTEREST, JUDGMENTS, COSTS, OR EXPENSES (INCLUDING REASONABLE
ATTORNEYS' FEES) INCURRED BY ANY OF THEM ARISING FROM OR BECAUSE OF (A) ANY
INVESTIGATION, LITIGATION, OR OTHER PROCEEDING BROUGHT OR THREATENED IN
CONNECTION WITH ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED BY THE LOAN
DOCUMENTS, INCLUDING, WITHOUT LIMITATION, ANY USE BY ANY COMPANY OF THE PROCEEDS
OF BORROWINGS, AND (B) ANY REPRESENTATION MADE BY ANY COMPANY UNDER ANY LOAN
DOCUMENT. ALTHOUGH EACH INDEMNIFIED PARTY IS ENTITLED TO INDEMNIFICATION FOR ANY
INDEMNIFIED PARTY'S ORDINARY NEGLIGENCE, NO INDEMNIFIED PARTY IS ENTITLED TO
INDEMNIFICATION FOR ITS OWN GROSS NEGLIGENCE, WILLFUL MISCONDUCT, OR FRAUD.
THIS INDEMNITY SURVIVES THE PAYMENT AND PERFORMANCE OF THE OBLIGATION AND
TERMINATION OF THE LOAN DOCUMENTS.
SECTION 8 NEGATIVE COVENANTS. For so long as any Lender is committed to lend
- --------- ------------------
under this agreement and until the Obligation has been fully paid and performed,
Borrower covenants and agrees with Agent and Lenders that, without first
obtaining Determining Lenders' consent to the contrary, the Companies designated
in the following sections of this SECTION 8 may not directly or indirectly do
any of the following or commit (other than a commitment that is not binding on
any Company until any prior written consent of Determining Lenders is first
obtained) to do any of the following:
8.1 DEBT. Neither Borrower nor Matrix Bank may create, incur, or permit
----
to exist any Debt except the following (collectively, the "PERMITTED DEBT"):
(A) EXISTING DEBT. The existing Debt that is described on SCHEDULE
-------------
6.7 (other than Refinanced Debt) and all renewals, extensions, amendments,
modifications, and refinancings of (but not any principal increases after
the date of this agreement to) any of that Debt.
(B) THIS TRANSACTION. The Obligation and Guaranties delivered under
----------------
this agreement.
(C) TO BORROWER. Debt of Matrix Bank to Borrower to the extent that
-----------
the creation of it constitutes a Permitted Investment.
(D) OTHER DEBT. Other Debt incurred by either Borrower or Matrix Bank
----------
that never exceeds $1,000,000 in total-principal amount outstanding for
both Borrower and Matrix Bank, together with renewals, extensions,
amendments, modifications, and refinancings of that Debt and those
obligations subject to the foregoing limitations of this CLAUSE (D).
(E) MISCELLANEOUS. Hedging Contracts; trade payables, accrued Taxes,
-------------
and other liabilities that do not constitute Debt for borrowed money or
Capital Leases; and endorsements of negotiable instruments in the ordinary
course of business.
Credit Agreement
----------------
22
<PAGE>
8.2 LIENS. Neither Borrower nor Matrix Bank may create, incur, permit to
-----
exist, or enter into any arrangement or agreement (except the Loan Documents)
that directly or indirectly prohibits any Company from creating or incurring any
Lien on any of its assets, or create, incur, permit to exist, or commit to
create or incur any Lien on any of its assets except the following
(collectively, the "PERMITTED LIENS"):
(A) EXISTING LIENS. The existing Liens that are described on SCHEDULE
--------------
6.13 (to the extent that such schedule does not indicate they are to be
extinguished as a condition precedent to, or concurrent with, the initial
Borrowing under this agreement) and all renewals, extensions, amendments,
and modifications of any of them to the extent that the total-principal
amount each individually secures never exceeds the total-principal amount
secured by it on the date of this agreement.
(B) THIS TRANSACTION. Lender Liens.
----------------
(C) OPERATING LEASES. Any interest or title of a lessor in assets
----------------
being leased under an operating lease that does not constitute Debt.
(D) HEDGING CONTRACTS. Liens arising under Hedging Contracts that do
-----------------
not cover any Collateral.
(E) PURCHASE MONEY. Liens that secure any of the Permitted Debt
--------------
described in SECTION 8.1(D) (together with any renewal, extension,
amendment, or modification of any such Lien) so long as each such Lien
never cover any assets except the assets acquired, constructed, or improved
with the directly related Permitted Debt.
(F) SETOFFS. Subject to any limitations imposed upon them in the Loan
-------
Documents, rights of set off or recoupment and banker's Liens.
(G) INSURANCE. Pledges or deposits (to the extent that they do that
---------
may not cover any Collateral except cash proceeds of Collateral arising in
the ordinary course of business) made to secure payment of workers'
compensation, unemployment insurance, or other forms of governmental
insurance or benefits or to participate in any fund in connection with
workers' compensation, unemployment insurance, pensions, or other social
security programs.
(H) BIDS AND BONDS. Good-faith pledges or deposits (to the extent
--------------
that they do not cover any Collateral except cash proceeds of Collateral
arising in the ordinary course of business) (i) for 10% or less of the
amounts due under (and made to secure) any Company's performance of bids,
tenders, contracts (except for the repayment of borrowed money), (ii) in
respect of any operating lease, that are for up to but not more than the
greater of either 10% of the total rental obligations for the term of the
lease or 50% of the total rental obligations payable during the first year
of the lease, or (iii) made to secure statutory obligations, surety or
appeal bonds, or indemnity, performance, or other similar bonds benefitting
any Company in the ordinary course of its business.
(I) PROPERTY RESTRICTIONS. Zoning and similar restrictions on the use
---------------------
of, and easements, restrictions, covenants, title defects, and similar
encumbrances on, real property that
Credit Agreement
----------------
23
<PAGE>
do not materially impair the use of the real property and that are not
violated by existing or proposed structures or land use.
(J) INCHOATE LIENS. If no Lien has been filed in any jurisdiction or
--------------
agreed to (i) claims and Liens for Taxes not yet due and payable, (ii)
mechanic's Liens and materialman's Liens for services or materials and
similar Liens incident to construction and maintenance of real property, in
each case for which payment is not yet due and payable, (iii) landlord's
Liens for rental not yet due and payable, and (iv) Liens of warehousemen
and carriers and similar Liens securing obligations that are not yet due
and payable.
(K) MISCELLANEOUS. Any of the following to the extent that the
-------------
validity or amount is being contested in good faith and by appropriate and
lawful proceedings diligently conducted, reserve or other appropriate
provision (if any) required by GAAP has been made, levy and execution has
not issued or continues to be stayed, they do not individually or
collectively detract materially from the value of the property of the
Person in question or materially impair the use of that property in the
operation of its business, and (other than any such Liens given statutory
priority) they are subordinate to the Lender Liens to the extent that they
cover any Collateral: (i) Claims and Liens for Taxes; (ii) claims and
Liens upon, and defects of title to, real or personal property, including
any attachment of personal or real property or other legal process before
adjudication of a dispute on the merits; (iii) claims and Liens of
mechanics, materialmen, warehousemen, carriers, landlords, or other like
Liens; (iv) Liens incident to construction and maintenance of real
property; and (v) adverse judgments, attachments, or orders on appeal for
the payment of money.
8.3 INVESTMENTS. Borrower may not make any Investments except the
-----------
following (collectively, "PERMITTED INVESTMENTS"):
(A) GOVERNMENT SECURITIES. Government Securities.
---------------------
(B) STATE OBLIGATIONS. Readily marketable direct obligations of any
-----------------
state of the United States of America given on the date of such investment
a credit rating of at least Aa by Moody's Investors Service, Inc., or AA by
Standard & Poor's Corporation, in each case due within one year from the
making of the investment.
(C) CERTIFICATES OF DEPOSIT, ETC. Certificates of deposit issued by,
-----------------------------
bank deposits in, eurocurrency deposits through, bankers' acceptances of,
and repurchase agreements covering Government Securities executed by (i)
any Lender or (ii) any domestic bank or any domestic branch or office of a
foreign bank, in either case having on the date of the investment a short-
term certificate of deposit credit rating of at least P-2 by Moody's
Investors Service, Inc., or A-2 by Standard & Poor's Corporation, in each
case due within one year after the date of the making of the investment.
(D) GOVERNMENT REPOS. Repurchase agreements covering Government
----------------
Securities executed by a broker or dealer registered under Section 15(b) of
the Securities Exchange Act of 1934 having on the date of the investment
capital of at least $100,000,000, due within 30 days after the date of the
making of the investment, so long as the maker of the investment receives
written confirmation of the transfer to it of record ownership of the
Government Securities on the
Credit Agreement
----------------
24
<PAGE>
books of a "primary dealer" in the Government Securities as soon as
practicable after the making of the investment.
(E) COMMERCIAL PAPER. Readily marketable commercial paper of domestic
----------------
corporations doing business in the United States of America or any of its
states or of any corporation that is the holding company for a bank
described in CLAUSE (C) above and having on the date of the investment a
credit rating of at least P-1 by Moody's Investors Service, Inc., or A-1 by
Standard & Poor's Corporation, in each case due within 90 days after the
date of the making of the investment.
(F) PREFERRED STOCK. "Money market preferred stock" issued by a
---------------
domestic corporation given on the date of the investment a credit rating of
at least Aa by Moody's Investors Services, Inc., and AA by Standard &
Poor's Corporation, in each case having an investment period not exceeding
50 days, so long as (i) the amount of all of those investments issued by
the same issuer does not exceed $5,000,000 and (ii) the total amount of all
of those investments does not exceed $10,000,000.
(G) MUTUAL FUNDS. A readily redeemable "money market mutual fund"
------------
sponsored by a bank described in CLAUSE (C) above, or a registered broker
or dealer described in CLAUSE (D) above, that has and maintains an
investment policy limiting its investments primarily to instruments of the
types described in CLAUSES (A) through (F) above and has on the date of
those investment total assets of at least $1,000,000,000.
(H) OTHER COMPANIES. Investments by Borrower in any other Company in
---------------
compliance with SECTION 4.1.
(I) DIRECTORS, ETC.. Loans or advances to directors, officers, and
---------------
employees of the Borrower that never exceed a total of $1,000,000 in
principal-amount outstanding.
(J) CUSTOMERS. Indebtedness of its customers created in its ordinary
---------
course of business in a manner consistent with its present practices.
(K) HEDGE CONTRACTS. Hedge Contracts.
---------------
For purposes of this SECTION 8.3, the total amount outstanding of any Investment
by any Person in any other Person is to be determined net of repayments and
dividends to, and sales of securities of the second Person by, the first Person.
8.4 DISTRIBUTIONS. Borrower may not pay or declare any Distribution
-------------
during any fiscal year except (a) dividends payable solely in the form of
capital stock, and (b) cash distributions to Borrower's shareholders (i) in an
amount not to exceed the sum of (A) 50% of Borrower's net cash income, minus (B)
non-cash income and cash Taxes), and (ii) if Default or Potential Default exists
or would be created by the Distribution.
8.5 MERGER OR CONSOLIDATION. No Company may merge or consolidate with or
-----------------------
into any other Person except that any Company may merge into or be consolidated
with any other Company so long as Borrower is the surviving corporation if it is
involved.
Credit Agreement
----------------
25
<PAGE>
8.6 DISPOSITIONS OF ASSETS. Neither Borrower nor Matrix Bank may sell,
----------------------
assign, lease, transfer, or otherwise dispose of any of its assets (including,
without limitation, equity interests in any other Company) except (a) sales and
dispositions in the ordinary course of business for a fair and adequate
consideration and (b) sales of assets which are obsolete or are no longer in use
and which are not significant to the continuation of that Company's business.
8.7 USE OF PROCEEDS. Borrower may not use the proceeds of Borrowings (a)
---------------
for any purpose other than as represented in this agreement, (b) for wages of
employees, unless a timely payment to or deposit with the United States of
America of all amounts of Tax required to be deducted and withheld with respect
to such wages is also made, or (c) in violation of the representation in SECTION
6.1.
8.8 TRANSACTIONS WITH AFFILIATES. No Company may directly or indirectly
----------------------------
enter into any transaction with any of its Affiliates other than (a)
transactions between Companies that are in compliance with SECTION 4.1 and (b)
other transactions in the ordinary course of business or upon fair and
reasonable terms not materially less favorable than it could obtain or could
become entitled to in an arm's-length transaction with a Person that was not its
Affiliate.
8.9 EMPLOYEE PLANS. Except where a Material-Adverse Event would not
--------------
result, no Company may directly or indirectly permit any of the events or
circumstances described in SECTION 6.12 to exist or occur.
8.10 COMPLIANCE WITH LAWS AND DOCUMENTS. No Company may directly or
----------------------------------
indirectly (a) violate the provisions of any Laws applicable to it or of any
Material Agreement to which it is a party if that violation alone or with all
other violations is a Material-Adverse Event or (b) violate the provisions of
its charter or bylaws or repeal, replace or amend any provision of its charter
or bylaws if any such action is a Material-Adverse Event.
8.11 GOVERNMENT REGULATIONS. No Company (other than United Capital
----------------------
Markets, Inc.) may directly or indirectly conduct its business in a way that it
becomes regulated under the Investment Company Act of 1940.
8.12 FISCAL YEAR ACCOUNTING. No Company may directly or indirectly change
----------------------
its fiscal year nor use any accounting method other than GAAP.
8.13 NEW BUSINESSES. No Company may directly or indirectly engage in any
--------------
business except the businesses in which it or any of its Affiliates is presently
engaged and any other reasonably-related business.
8.14 ASSIGNMENT. No Company may directly or indirectly assign or transfer
----------
any of its Rights, duties, or obligations under any of the Loan Documents.
SECTION 9 FINANCIAL COVENANTS. For so long as any Lender is committed to lend
- --------- -------------------
under this agreement and until the Obligation has been fully paid and performed,
Borrower covenants and agrees with Agent and Lenders that, without first
obtaining Determining Lenders' consent to the contrary, it may not directly or
indirectly permit any of the following to occur or exist, as measured (unless
otherwise stated) at the end of each of the Companies' fiscal quarters included
below:
Credit Agreement
----------------
26
<PAGE>
9.1 NET WORTH. The Companies' Net Worth from and after December 31, 1996,
---------
to be less than the sum of (a) $27,500,000 plus (b) 50% of the Companies'
cumulative Net Income (without deduction for losses) after December 31, 1996,
plus (iii) 100% of the net (i.e., gross proceeds less usual and customary
underwriting, placement, and other related costs and expenses) proceeds of the
issuance (upon sale, conversion, or otherwise) of any equity securities by
Borrower after the date of this agreement.
9.2 ADJUSTED DEBT/NET WORTH. The ratio of the Companies' Adjusted Debt to
-----------------------
Net Worth to exceed 4.0 to 1.0.
9.3 CASH FLOW/CMLTD. The ratio of the Companies' Cash Flow to CMLTD to be
---------------
less than 1.5 to 1.0 for any four-fiscal-quarter period ending on or after March
31, 1997.
9.4 NET INCOME. Matrix Bank's Net Income to be less than $2,500,000 for
----------
any fiscal year ending on or after December 31, 1997.
9.5 CAPITAL RATIO. Matrix Bank fails to maintain either (a) a "well
-------------
capitalized" designation from OTS with respect to its minimum "Risk Based
Capital," as defined in 12 C.F.R. (S) 565.4(b)(1), or (b) a "Risk Based Capital
Ratio," in 12 C.F.R. (S) 567.2(a)(1) of not less than 10%.
9.6 LEVERAGE RATIO. Matrix Bank fails to maintain either (a) a "well
--------------
capitalized" designation from OTS with respect to its "Leverage," as defined in
12 C.F.R. (S) 565.4(b)(1), or (b) a "Leverage Ratio," in 12 C.F.R. (S)
567.2(a)(2)(ii) of not less than 5.0%.
9.7 CLASSIFIED ASSETS/TOTAL CAPITAL. The ratio of Matrix Bank's
-------------------------------
Classified Assets to Total Capital (stated as a percentage) to exceed 75%.
9.8 NET CHARGE OFFS/TOTAL LOANS. The ratio of Matrix Bank's Net Charge
---------------------------
Offs to Total Loans (stated as a percentage) to exceed 0.50%.
9.9 ADJUSTED ASSETS/TOTAL ASSETS. The ratio of Matrix Bank's Adjusted
----------------------------
Assets to total assets (stated as a percentage) to be less than the greater of
either (a) the minimum percentage required by (S) 10(m) of the Home Owners' Loan
Act for "QTL" or (b) 60%.
SECTION 10 DEFAULTS AND REMEDIES.
- ---------- ---------------------
101. DEFAULT. The term "DEFAULT" means the existence or occurrence of any
-------
one or more of the following:
(A) OBLIGATION. Borrower fails to pay (i) any interest on the
----------
Obligation when due under the Loan Documents and that failure continues for
five days or (ii) any other part of the Obligation when due under the Loan
Documents.
(B) COVENANTS. Any Company fails to punctually and properly perform,
---------
observe, and comply with any (i) any covenant, agreement, or condition
under SECTIONS 8 or 9 or (ii) any covenant, agreement, or condition
contained in any of the Loan Documents -- other than covenants to pay the
Obligation and the covenants listed in CLAUSE (I) above -- and that failure
Credit Agreement
----------------
27
<PAGE>
continues for a period of 30 calendar days after any Company has, or, with
the exercise of reasonable investigation, should have, notice of it.
(C) MISREPRESENTATION. Any material statement, warranty, or
-----------------
representation by or on behalf of any Company or Guarantor in any Loan
Document or other writing authored by any Company or Guarantor and
furnished in connection with the Loan Documents, proves to have been
incorrect or misleading in any material respect as of the date made or
deemed made.
(D) DEBTOR LAW. Any Company or Guarantor (i) is not Solvent, (ii)
----------
fails to pay its Debts generally as they become due, (iii) voluntarily
seeks, consents to, or acquiesces in the benefit of any Debtor Law, or (iv)
becomes a party to or is made the subject of any proceeding provided for by
any Debtor Law (other than as a creditor or claimant) that could suspend or
otherwise adversely affect the Rights of Agent or any Lender granted in the
Loan Documents unless, if the proceeding is involuntary, the applicable
petition is dismissed within 60 days after its filing.
(E) MATRIX FINANCIAL LOAN AGREEMENT. Either (i) the occurrence of a
-------------------------------
Default, as defined in the Matrix Financial Loan Agreement or (ii) 90-days
elapse after the commitments to lend under the Matrix Financial Loan
Agreement are canceled or terminated in accordance with the terms of that
agreement or are not extended beyond their current expiration.
(F) OTHER DEBT. Any Company or Guarantor fails to make any payment
----------
due on any Debt or security (with respect to which any Company or Guarantor
has redemption, sinking fund, or other purchase obligations) or any event
occurs or any condition exists in respect of any Debt or security of any
Company or Guarantor, the effect of which is (i) to cause or to permit any
holder of that Debt or security or a trustee to cause (whether or not it
elects to cause) any of that Debt or security to become due before its
stated maturity or its regularly scheduled payment dates, or (ii) to permit
a trustee or the holder of any security (other than common stock of any
Company or Guarantor) to elect (whether or not it does elect) a majority of
the directors on the board of directors of that Company or Guarantor.
(G) JUDGMENTS. Any Company or Guarantor fails to pay any money
---------
judgment of $50,000 or more against it at least ten days prior to the date
on which any of the assets of that Company or Guarantor may be lawfully
sold to satisfy that judgment.
(H) ATTACHMENTS. The failure to have discharged within a period of 30
-----------
days after the commencement of any attachment, sequestration, or similar
proceeding against any of the assets of any Company or Guarantor.
(I) UNENFORCEABILITY. Any material provision of any Loan Document for
----------------
any reason ceases to be in full force and effect or is fully or partially
declared null and void or unenforceable or the validity or enforceability
of any Loan Document is challenged or denied by any Company.
(J) CHANGE OF CONTROL. Any (i) material change in the ownership or
-----------------
management of Borrower or any Guarantor from that ownership and senior
management as it exists on the date of this agreement or (ii) failure to
provide advance notice of any change in ownership or management.
Credit Agreement
----------------
28
<PAGE>
(K) CAPITAL REQUIREMENTS OR RESTRICTIONS/BANKERS BOND. Matrix Bank
-------------------------------------------------
(i) has (or receives notice or a directive from OTS that it has) inadequate
capital to satisfy its minimum capital requirements, (ii) receives any
notice or capital directive from OTS restricting its ability to pay cash
Distributions to Borrower, or (iii) receives notice of intention to cancel
or of cancellation of its Bankers Blanket Bond.
10.2 REMEDIES.
--------
(A) DEBTOR LAW. Upon the occurrence of a Default under SECTION
----------
10.1(D), the commitments of Lenders to extend credit under this agreement
automatically terminate and the full Obligation is automatically due and
payable, without presentment, demand, notice of default, notice of the
intent to accelerate, notice of acceleration, or other requirements of any
kind, all of which are expressly waived by Borrower.
(B) OTHER DEFAULTS. While a Default exists -- other than those
--------------
described in CLAUSE (A) above -- Agent may and, upon the direction of
Determining Lenders, shall declare the Obligation to be immediately due and
payable, whereupon it shall be due and payable, whereupon the commitments
of Lenders to extend credit under this agreement are then automatically
terminated.
(C) OTHER REMEDIES. Following the termination of the commitments of
--------------
Lenders to extend credit under this agreement and the acceleration of the
Obligation, Agent may (and, at the direction of Determining Lenders, shall)
do any one or more of the following: (i) Reduce any claim to judgment;
(ii) foreclose upon or otherwise enforce any Lender Liens; and (iii)
exercise any other Rights in the Loan Documents, at Law, in equity, or
otherwise that Determining Lenders may direct. Should any Default continue
that, in Agent's opinion, materially and adversely affects the Collateral
or the interests of the Lenders under this agreement, Agent may, in a
notice to the Lenders of that Default set forth one or more actions that
Agent, in its opinion, believes should be taken. Unless otherwise directed
by Determining Lenders (excluding the Lender serving as Agent) within ten
days following the date of the notice setting forth the proposed action or
actions, Agent may, but shall not be obligated to, take the action or
actions set forth in that notice.
10.3 RIGHT OF OFFSET. Borrower hereby grants to Agent and to each Lender
---------------
a right of offset, to secure the repayment of the Obligation, upon any and all
monies, securities, or other property of Borrower, and the proceeds therefrom
now or hereafter held or received by or in transit to Agent or such Lender from
or for the account of Borrower, whether for safekeeping, custody, pledge,
transmission, collection, or otherwise, and also upon any and all deposits
(general or special, time or demand, provisional or final) and credits of
Borrower, and any and all claims of Borrower against Agent or such Lender, at
any time existing. While a Default exists, Agent and each Lender are authorized
at any time and from time to time, without notice to either Company, to offset,
appropriate, and apply any and all of those items against the Obligation,
subject to SECTION 3.9.
10.4 WAIVERS. Borrower waives any right to require Agent to (a) proceed
-------
against any Person, (b) proceed against or exhaust any of the Collateral or
pursue its Rights and remedies as against the Collateral in any particular
order, or (c) pursue any other remedy in its power. Borrower and each surety,
endorser, guarantor, pledgor, and other party ever liable or whose property is
ever liable for payment of any of the Obligation jointly and severally waive
presentment and demand for payment, protest, notice of intention to accelerate,
notice of acceleration, and notice of protest and nonpayment, and agree that
their or their property's liability with respect to the Obligation, or any part
thereof, shall not be affected by any
29
<PAGE>
renewal or extension in the time of payment of the Obligation, by any
indulgence, or by any release or change in any security for the payment of the
Obligation, and hereby consent to any and all renewals, extensions, indulgences,
releases, or changes, regardless of the number thereof.
10.5 PERFORMANCE BY AGENT. Should any covenant, duty, or agreement of any
--------------------
Company fail to be performed in accordance with the terms of this agreement or
of any document delivered under this agreement, Agent may, at its option, after
notice to Borrower, as the case may be, perform, or attempt to perform, such
covenant, duty, or agreement on behalf of that Company and shall notify each
Lender that it has done so. In such event, Borrower shall jointly and
severally, at the request of Agent, promptly pay any amount expended by Agent in
such performance or attempted performance to Agent at its principal place of
business, together with interest thereon at the Maximum Rate from the date of
such expenditure by Agent until paid. Notwithstanding the foregoing, it is
expressly understood that Agent does not assume and shall never have, except by
express written consent of Agent, any liability or responsibility for the
performance of any duties of any Company under this agreement or under any other
document delivered under this agreement.
10.6 NO RESPONSIBILITY. Except in the case of fraud, gross negligence, or
-----------------
willful misconduct, neither Agent nor any of its officers, directors, employees,
or attorneys shall assume -- or ever have any liability or responsibility for --
any diminution in the value of the Collateral or any part of the Collateral.
10.7 NO WAIVER. The acceptance by Agent or any Lender at any time and
---------
from time to time of partial payment or performance by any Company of any of
their respective obligations under this agreement or under any Loan Document
shall not be deemed to be a waiver of any Default then existing. No waiver by
Agent or any Lender shall be deemed to be a waiver of any other then existing or
subsequent Default. No delay or omission by Agent or any Lender in exercising
any right under this agreement or under any other document required to be
executed under or in connection with this agreement shall impair such right or
be construed as a waiver thereof or any acquiescence therein, nor shall any
single or partial exercise of any such right preclude other or further exercise
thereof, or the exercise of any other right under this agreement or otherwise.
10.8 CUMULATIVE RIGHTS. All Rights available to Agent and the Lenders
-----------------
under this agreement or under any other document delivered under this agreement
shall be cumulative of and in addition to all other Rights granted to Agent and
the Lenders at Law or in equity, whether or not the Notes be due and payable and
whether or not Agent shall have instituted any suit for collection, foreclosure,
or other action in connection with this agreement or any other document
delivered under this agreement.
10.9 RIGHTS OF INDIVIDUAL LENDERS. No Lender shall have any right by
----------------------------
virtue of, or by availing itself of, any provision of this agreement to
institute any actions or proceedings at Law, in equity, or otherwise (excluding
any actions in bankruptcy), upon or under or with respect to this agreement, or
for the appointment of a receiver, or for any other remedy under this agreement,
unless (a) the Determining Lenders previously shall have given to Agent written
notice of a Default and the continuance thereof, including a written request
upon Agent to institute such action or proceedings in its own name and offering
to indemnify Agent against the costs, expenses and liabilities to be incurred
therein or thereby, (b) Agent, for ten Business Days after its receipt of such
notice, shall have failed to institute any such action or proceeding, and (c) no
direction inconsistent with such written request shall have been given to Agent
by Determining Lenders. It is understood and intended, and expressly covenanted
by the taker and holder of every Note with every other taker and holder and
Agent, that no one or more holders of Notes shall have any right in any manner
whatever by virtue, or by availing itself, of any provision of
Credit Agreement
----------------
30
<PAGE>
this agreement to affect, disturb or prejudice the Rights of any other Lenders,
or to obtain or seek to obtain priority over or preference to any other such
Lender, or to enforce any right under this agreement, except in the manner
herein provided and for the equal, ratable and common benefit of all Lenders.
For the protection and enforcement of the provisions of this SECTION 10.9, each
and every Lender and Agent shall be entitled to such relief as can be given
either at law or in equity.
10.10 NOTICE TO AGENT. Should any Default or Potential Default occur and
---------------
be continuing, any Lender having actual knowledge thereof shall notify Agent and
Borrower of the existence thereof, but the failure of any Lender to provide that
notice shall not prejudice that Lender's Rights under this agreement.
10.11 COSTS. All court costs, reasonable attorneys' fees, other costs of
-----
collection, and other sums spent by Agent or any Lender in the exercise of any
Right provided in any Loan Document is payable to Agent or that Lender, as the
case may be, on demand, is part of the Obligation, and bears interest at the
Default Rate from the date paid by Agent or any Lender to the date repaid by
Borrower.
SECTION 11 AGENT.
- ---------- -----
11.1 AUTHORIZATION AND ACTION. Each Lender hereby appoints Agent as Agent
------------------------
under the Loan Documents and authorizes Agent to take such action on its behalf
and to exercise such powers and perform such duties as are expressly delegated
to Agent by the terms of the Loan Documents, together with such powers as are
reasonably incidental thereto. As to any matter not expressly provided for by
this agreement (including, without limitation, enforcement or collection of the
Notes), Agent shall not be required to exercise any discretion or take any
action, but shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the instructions of
Lenders, and those instructions shall be binding upon all Lenders and all
holders of the Notes. However, that Agent shall not be required to take any
action that exposes Agent to personal liability or that is contrary to this
agreement or applicable Laws. Agent agrees to give to each Lender prompt notice
of each notice given to it by Borrower pursuant to the terms of the Loan
Documents.
11.2 AGENT'S RELIANCE, ETC. Notwithstanding anything to the contrary in
----------------------
any Loan Document, neither Agent nor any of its Representatives shall be liable
for any action taken or omitted to be taken by it or them under or in connection
with the Loan Documents, except for its or their own gross negligence or willful
misconduct. Without limitation of the generality of the foregoing, Agent: (a)
May treat the payee of any Note as the holder thereof; (b) may consult with
legal counsel (including counsel for Borrower), independent public accountants
and other experts selected by it or Borrower and shall not be liable for any
action taken or omitted to be taken in good faith by it in accordance with the
advice of such counsel, accountants or experts; (c) makes no warranty or
representation to any Lender and shall not be responsible to any Lender for any
statements, warranties, or representations made in or in connection with the
Loan Documents; (d) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of this
agreement on the part of Borrower or to inspect the property (including the
books and records) of Borrower; (e) shall not be responsible to any Lender for
the due execution, legality, validity, enforceability, genuineness, sufficiency
or value of this agreement or any other instrument or document furnished
pursuant hereto; and (f) shall incur no liability under or in respect of this
agreement by acting upon any notice, consent, certificate or other instrument or
writing (which may be by telecopy) believed by it to be genuine and signed or
sent by the proper party or parties.
Credit Agreement
----------------
31
<PAGE>
11.3 AGENT AND AFFILIATES. With respect to Borrowings made by it, and the
--------------------
one or more Notes issued to it, Agent shall have the same rights and powers
under this agreement and the other Loan Documents as any other Lender and may
exercise the same as though it were not the Agent; and the term "Lender" or
"Lenders" shall, unless otherwise expressly indicated, include Agent in its
individual capacity. Agent and the Affiliates of Agent may accept deposits from,
lend money to, act as trustee under indentures of, and generally engage in any
kind of business with, Borrower, any of its Affiliates and any Person who may do
business with or own securities of Borrower or any of its Affiliates, all as if
Agent was not Agent and without any duty to account therefor to Lenders.
11.4 CREDIT DECISION. Each Lender acknowledges that it has, independently
---------------
and without reliance upon Agent or any other Lender, and based on the financial
statements referred to in SECTIONS 6.6 and 7.1 of this agreement and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter this agreement. Each Lender also acknowledges
that it will, independently and without reliance upon Agent or any Lender, and
based on such documents and information as it shall deem appropriate at the
time, make its own credit decisions in taking or not taking action under this
agreement.
11.5 INDEMNIFICATION. LENDERS SHALL INDEMNIFY AGENT (TO THE EXTENT NOT
---------------
REIMBURSED BY BORROWER), RATABLY ACCORDING TO THEIR RESPECTIVE COMMITMENT
PERCENTAGES, FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES,
DAMAGES, PENALTIES, JUDGMENTS, SUITS, COSTS, EXPENSES, OR DISBURSEMENTS OF ANY
KIND OR NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED
AGAINST AGENT IN ANY WAY RELATING TO OR ARISING OUT OF THIS AGREEMENT OR ANY
ACTION TAKEN OR OMITTED BY AGENT UNDER THIS AGREEMENT (INCLUDING ANY OF SAME
WHICH MAY RESULT FROM THE NEGLIGENCE, BUT NOT GROSS NEGLIGENCE, OF AGENT).
HOWEVER, NO LENDER SHALL BE LIABLE FOR ANY PORTION OF THOSE LIABILITIES,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS,
EXPENSES, OR DISBURSEMENTS RESULTING FROM AGENT'S GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT. WITHOUT LIMITATION OF THE FOREGOING, EACH LENDER SHALL REIMBURSE
AGENT PROMPTLY UPON DEMAND FOR ITS RATABLE SHARE OF ANY OUT-OF-POCKET EXPENSES
(INCLUDING COUNSEL FEES) INCURRED BY AGENT IN CONNECTION WITH THE PREPARATION,
EXECUTION, DELIVERY, ADMINISTRATION, MODIFICATION, AMENDMENT, OR ENFORCEMENT
(WHETHER THROUGH NEGOTIATIONS, LEGAL PROCEEDINGS, OR OTHERWISE) OF, OR LEGAL
ADVICE IN RESPECT OF RIGHTS OR RESPONSIBILITIES UNDER, THIS AGREEMENT, TO THE
EXTENT THAT AGENT IS NOT REIMBURSED FOR SUCH EXPENSES BY BORROWER.
11.6 SUCCESSOR AGENT. Agent may resign at any time by giving written
---------------
notice thereof to Lenders and Borrower and may be removed at any time with or
without cause by 100% of Lenders. Upon any such resignation or removal, 100% of
Lenders shall have the right to appoint a successor Agent in the capacity of
Agent. If no successor Agent shall have been so appointed by 100% of Lenders,
and shall have accepted such appointment, within 30 days after the retiring
Agent's giving of notice of resignation or the Lenders' removal of the retiring
Agent, then the retiring Agent may, on behalf of Lenders, appoint a successor
Agent, which shall be a commercial bank or savings bank organized under the laws
of the United States of America or of any state thereof which has a combined
capital and surplus of at least $200,000,000. Upon the acceptance of any
appointment as Agent hereunder by a successor Agent, such successor Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges,
and duties of the retiring Agent, and the retiring Agent shall be discharged
from any further duties, and obligations under this agreement. After any
retiring Agent's resignation or removal hereunder as Agent, the provisions of
this article shall inure to its benefit as to any actions taken or omitted to be
taken by it
Credit Agreement
----------------
32
<PAGE>
while it was Agent under this agreement. The appointment of a successor Agent
shall not release the retiring Agent from any liability it may have for any
actions taken or omitted to be taken by it while it was Agent under this
agreement.
SECTION 12 MISCELLANEOUS.
- ---------- -------------
12.1 NONBUSINESS DAYS. Any action that is due under any Loan Document on
----------------
a non-Business Day may be delayed until the next Business Day. However, interest
accrues on any payment until it is made.
12.2 COMMUNICATIONS. Unless otherwise stated, a communication under any
--------------
Loan Document to a party to this agreement must be written to be effective and
is deemed given:
. For Borrowing Requests, only when actually received by Agent.
. Otherwise, if by fax, when transmitted to the appropriate fax number
(but, without affecting the date deemed given, the fax must be promptly
confirmed by telephone).
. Otherwise, if by mail, on the third Business Day after enclosed in a
properly addressed, stamped, and sealed envelope deposited in the
appropriate official postal service.
. Otherwise, when actually delivered.
Until changed by written notice to each other party to this agreement, the
address and fax number are stated for (a) Borrower and Agent, beside their names
on the signature pages below, and (b) each Lender, beside its name on SCHEDULE
2.
12.3 FORM AND NUMBER OF DOCUMENTS. The form, substance, and number of
----------------------------
counterparts of each writing to be furnished under the Loan Documents must be
satisfactory to Agent and its counsel.
12.4 EXCEPTIONS TO COVENANTS. An exception to any Loan Document covenant
-----------------------
does not permit violation of any other Loan Document covenant.
12.5 SURVIVAL. All Loan Document provisions survive all closings and are
--------
not affected by any investigation made by any party.
12.6 GOVERNING LAW. Unless otherwise stated, each Loan Document must be
-------------
construed and its performance enforced under the Laws of the State of Texas and
the United States of America.
12.7 INVALID PROVISIONS. If any provision of a Loan Document is
------------------
judicially determined to be unenforceable, all other provisions of it remain
enforceable. If the provision determined to be unenforceable is a material part
of that Loan Document, then, to the extent lawful, it shall be replaced by a
judicially-construed provision that is enforceable but otherwise as similar in
substance and content to the original provision as the context of it reasonably
allows.
12.8 CONFLICTS BETWEEN LOAN DOCUMENTS. The provisions of this agreement
--------------------------------
control if in conflict (i.e., the provisions contradict each other as opposed to
a Loan Document containing additional provisions not in conflict) with the
provisions of any other Loan Document.
33
<PAGE>
12.9 DISCHARGE AND CERTAIN REINSTATEMENT. Borrower's obligations under
-----------------------------------
the Loan Documents remain in full force and effect until no Lender has any
commitment to extend credit under the Loan Documents and the Obligation is fully
paid (except for provisions under the Loan Documents which by their terms
expressly survive payment of the Obligation and termination of the Loan
Documents). If any payment under any Loan Document is ever rescinded or must be
restored or returned for any reason, then all Rights and obligations under the
Loan Documents in respect of that payment are automatically reinstated as though
the payment had not been made when due.
12.10 AMENDMENTS, CONSENTS, CONFLICTS, AND WAIVERS. An amendment of -- or
--------------------------------------------
an approval, consent, or waiver by Agent or by one or more Lenders under -- any
Loan Document must be in writing and must be:
(A) BORROWER, AGENT, AND ALL LENDERS. Executed by Borrower and Agent
--------------------------------
and executed or approved in writing by all Lenders if action of all Lenders
is specifically provided in any Loan Document or if it purports to (i)
except as otherwise stated in this SECTION 12.10, extend the due date or
decrease the scheduled amount of any payment under -- or reduce the rate or
amount of interest, fees, or other amounts payable to Agent or any Lender
under -- any Loan Document, (ii) change the definition of Borrowing Base
(or any component of it), Commitment Percentage, Determining Lenders,
Maturity Date, Termination Percentage, or Stated-Termination Date, or (iii)
partially or fully release any Guaranty or any Collateral except releases
of Collateral contemplated in this agreement.
(B) BORROWER, AGENT, AND DETERMINING LENDERS. Otherwise (i) for this
----------------------------------------
agreement, executed by Borrower, Agent, and Determining Lenders, or (ii)
for other Loan Documents, approved in writing by Determining Lenders and
executed by Borrower, Agent, and any other party to that Loan Document.
No course of dealing or any failure or delay by Agent, any Lender, or any of
their respective Representatives with respect to exercising any Right of Agent
or any Lender under the Loan Documents operates as a waiver of that Right. An
approval, consent, or waiver is only effective for the specific instance and
purpose for which it is given. The Loan Documents may only be supplemented by
agreements, documents, and instruments delivered according to their respective
express terms.
12.11 MULTIPLE COUNTERPARTS. Any Loan Document may be executed in any
---------------------
number of counterparts with the same effect as if all signatories had signed the
same document, and all of those counterparts must be construed together to
constitute the same document. This agreement is effective when counterparts of
it have been executed and delivered to Agent by each Lender, Agent, and
Borrower, or, in the case only of those Lenders, when Agent has received faxed
or other evidence satisfactory to it that each Lender has executed and is
delivering to Agent a counterpart of it.
12.12 PARTIES. This agreement binds and inures to Borrower, each Lender,
-------
Agent, and their respective successors and permitted assigns. Only those
Persons may rely upon or raise any defense about this agreement.
(A) ASSIGNMENT BY COMPANIES. No Company may assign any Rights or
-----------------------
obligations under any Loan Document without first obtaining the written
consent of Agent and all Lenders.
Credit Agreement
----------------
34
<PAGE>
(B) ASSIGNMENT BY LENDER. Any Lender may assign, pledge, and
--------------------
otherwise transfer all or any of its Rights and obligations under the Loan
Documents either (i) to a Federal Reserve Bank without the consent of any
party to this agreement so long as that Lender is not released from its
obligations under the Loan Documents, or (ii) otherwise in the ordinary
course of its lending business and in accordance with all Laws, and with
SECTION 12.13 or 12.14 so long as (A) except for assignments, pledges, and
other transfers by a Lender to its Affiliates, the written consent of
Borrower and Agent, which may not be unreasonably withheld, must be first
obtained, (B) the assignment or transfer (other than a pledge) does not
involve a purchase price that directly or indirectly reflects a discount
from face value unless that Lender first offered that assignment or
transfer to the other Lenders on ratable basis according to their
Commitment Percentages, (C) neither Borrower nor Agent are required to
incur any cost or expense incident to any assignment, pledge, or other
transfer by any Lender, all of which are for the account of the assigning,
pledging, or transferring Lender and its assignee, pledgee, or transferee
as they may agree, and (D) if the Participant or Purchaser is organized
under the Laws of any jurisdiction other than the United States of America
or any of its states, it complies with SECTION 3.14.
(C) OTHERWISE VOID. Any purported assignment, pledge, or other
--------------
transfer in violation of this section is void from beginning and not
effective.
12.13 PARTICIPATIONS. Subject to SECTION 12.12(B) and this section and
--------------
only if no Default exists, a Lender may at any time sell to one or more Persons
(each a "PARTICIPANT") participating interests in its Commitment and its share
of the Obligation.
(A) ADDITIONAL CONDITIONS. For each participation (i) the selling
---------------------
Lender must remain -- and the Participant may not become -- a "Lender"
under this agreement, (ii) the selling Lender's obligations under the Loan
Documents must remain unchanged, (iii) the selling Lender must remain
solely responsible for the performance of those obligations, (iv) the
selling Lender must remain the holder of its one or more Notes and its
share of the Obligation for all purposes under the Loan Documents, and (v)
Borrower and Agent may continue to deal solely and directly with the
selling Lender in connection with those Rights and obligations.
(B) PARTICIPANT RIGHTS. The selling Lender may obtain for each of its
------------------
Participants the benefits of the Loan Documents related to participations
in its share of the Obligation, but Borrower is never obligated to pay any
greater amount that would be due to the selling Lender under the Loan
Documents calculated as though no participation had been made. Otherwise,
Participants have no Rights under the Loan Documents except certain
permitted voting Rights described below.
(C) PARTICIPATION AGREEMENTS. An agreement for a participating
------------------------
interest (i) may only provide to a Participant voting Rights in respect of
any amendment of or approval, consent, or waiver under any Loan Document
related to the matters in SECTION 12.10(B) if it also provides for a voting
mechanism that a majority of that selling Lender's Commitment Percentage or
Termination Percentage, as the case may be (whether directly held by that
selling Lender or participated) controls the vote for that selling Lender,
and (ii) may not permit a Participant to assign, pledge, or otherwise
transfer its participating interest in the Obligation to any Person except
any Lender or its Affiliates.
Credit Agreement
----------------
35
<PAGE>
12. 14 TRANSFERS. Subject to SECTION 12.12(B) and this section and only
---------
if no Default exists, a Lender may at any time sell to one or more financial
institutions (each a "PURCHASER") all or part of its Rights and obligations
under the Loan Documents.
(A) ADDITIONAL CONDITIONS. The sale (i) must be accomplished by the
---------------------
selling Lender and Purchaser executing and delivering to Agent and Borrower
an Assignment and (ii) may not occur until the selling Lender pays to Agent
an administrative-transfer fee of $2,500 (unless waived by Agent).
(B) PROCEDURES. Upon satisfaction of the foregoing conditions and as
----------
of the Effective Date in the assignment and assumption agreement, which may
not be before delivery of that document to Agent and Borrower, then (i) a
Purchaser is for all purposes a Lender party to -- with all the Rights and
obligations of a Lender under -- this agreement, with a Commitment as
stated in the assumption agreement, (ii) the selling Lender is released
from its obligations under the Loan Documents to a corresponding extent,
(iii) SCHEDULE 2 is automatically deemed to reflect the name, address, and
Commitment of the Purchaser and the reduced Commitment of the selling
Lender, and Agent shall deliver to Borrower and Lenders an amended SCHEDULE
2 reflecting those changes, (iv) Borrower shall execute and deliver to each
of the selling Lender and the Purchaser a Note, each based upon their
respective Commitments following the transfer, (v) upon delivery of the one
or more Notes under CLAUSE (IV) above, the selling Lender shall return to
the appropriate Company all Notes previously delivered to it under this
agreement, and (vi) the Purchaser is subject to all the provisions in the
Loan Documents, the same as if it were a Lender that executed this
agreement on its original date.
12.15 JURISDICTION; VENUE; SERVICE OF PROCESS; AND JURY TRIAL. EACH
-------------------------------------------------------
PARTY, IN EACH CASE FOR ITSELF, ITS SUCCESSORS AND ASSIGNS (AND IN THE CASE OF
BORROWER, FOR EACH OF ITS SUBSIDIARIES), (A) IRREVOCABLY SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN TEXAS, AND
AGREES AND CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON IT IN ANY LEGAL
PROCEEDING ARISING OUT OF OR IN CONNECTION WITH THE LOAN DOCUMENTS AND THE
OBLIGATION BY SERVICE OF PROCESS AS PROVIDED BY TEXAS LAW, (B) IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW
OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY LITIGATION ARISING OUT OF OR IN
CONNECTION WITH THE LOAN DOCUMENTS AND THE OBLIGATION BROUGHT IN ANY SUCH COURT,
(C) IRREVOCABLY WAIVES ANY CLAIMS THAT ANY LITIGATION BROUGHT IN ANY SUCH COURT
HAS BEEN BROUGHT IN AN INCONVENIENT FORUM, (D) AGREES TO DESIGNATE AND MAINTAIN
AN AGENT FOR SERVICE OF PROCESS IN DALLAS, TEXAS, IN CONNECTION WITH ANY SUCH
LITIGATION AND TO DELIVER TO AGENT EVIDENCE THEREOF, IF REQUESTED, (E)
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH LITIGATION BY THE MAILING OF COPIES THEREOF BY CERTIFIED
MAIL, RETURN RECEIPT REQUESTED, POSTAGE PREPAID, AT ITS ADDRESS SET FORTH
HEREIN, (F) IRREVOCABLY AGREES THAT ANY LEGAL PROCEEDING AGAINST ANY PARTY
ARISING OUT OF OR IN CONNECTION WITH THE LOAN DOCUMENTS OR THE OBLIGATION SHALL
BE BROUGHT IN ONE OF THE AFOREMENTIONED COURTS, AND (G) IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY LAW, ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY LOAN DOCUMENT OR
THE TRANSACTIONS CONTEMPLATED THEREBY. The scope of each of the foregoing
waivers is intended to be all-encompassing of any and all disputes that may be
filed in any court and that relate to the subject matter of this transaction,
including, without limitation, contract claims, tort claims, breach of duty
claims, and all other common law and statutory claims.
Credit Agreement
----------------
36
<PAGE>
Borrower (for itself and on behalf of each of its Subsidiaries) and each other
party to this agreement acknowledge that this waiver is a material inducement to
the agreement of each party hereto to enter into a business relationship, that
each has already relied on this waiver in entering into this agreement, and each
will continue to rely on each of such waivers in related future dealings.
Borrower (for itself and on behalf of each of its Subsidiaries) and each other
party to this agreement warrant and represent that they have reviewed these
waivers with their legal counsel, and that they knowingly and voluntarily agree
to each such waiver following consultation with legal Counsel. THE WAIVERS IN
THIS SECTION 12.15 ARE IRREVOCABLE, MEANING THAT THEY MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THESE WAIVERS SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, SUPPLEMENTS, AND REPLACEMENTS TO OR OF THIS OR ANY OTHER LOAN
DOCUMENT. In the event of Litigation, this agreement may be filed as a written
consent to a trial by the court.
12.16 LIMITATION OF LIABILITY. Neither Agent nor any Lender shall be
-----------------------
liable to any Company for any amounts representing indirect, special, or
consequential damages suffered by any Company, except where such amounts are
based substantially on willful misconduct by Agent or any Lender, but then only
to the extent any damages resulting from such wilful misconduct are covered by
Agent's and the other Lenders' fidelity bond or other insurance.
12.17 ENTIRE AGREEMENT. THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
----------------
BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER THEREOF AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGE FOLLOWS.
Credit Agreement
----------------
37
<PAGE>
EXECUTED as of the date first stated in this agreement.
<TABLE>
<S> <C>
(address) MATRIX CAPITAL CORPORATION, as Borrower
Borrower
Matrix Capital Corporation
1380 Lawrence Street, Suite 1410 By /s/ Guy A. Gibson
Denver, CO 80204 --------------------------------------
Attn: Guy A. Gibson, Chief Executive Officer and President Guy A. Gibson, Chief Executive Officer and President
Tel (303) 595-9898
Fax (303) 595-9906
(address) BANK ONE, TEXAS, N.A., as Agent and a
sole Lender
Bank One, Texas, N.A., Agent
1717 Main Street, 4th Floor
Dallas, TX 75201 By /s/ Mark L. Freeman
Attn: Mark L. Freeman, Vice President -------------------------------
Tel (214) 290-2780 Mark L. Freeman, Vice President
Fax (214) 290-2054
</TABLE>
38
<PAGE>
SCHEDULE 2
----------
LENDERS AND COMMITMENTS
-----------------------
<TABLE>
<CAPTION>
NAME OF LENDER TERM LOAN REVOLVING COMBINED
COMMITMENT FACILITY COMMITMENT
COMMITMENT
================================================================================
<S> <C> <C> <C>
Bank One, Texas, N.A. $2,000,000 $6,000,000 $8,000,000
1717 Main Street, 4th Floor
Dallas, TX 75201
Attention: Mark L. Freeman, Vice
President
Fed Tax ID No. 75-2270994
Tel (214) 290-2780
Fax (214) 290-2275
TOTAL COMMITMENTS $2,000,000 $6,000,000 $8,000,000
================================================================================
</TABLE>
Schedule 2
----------
<PAGE>
SCHEDULE 5
----------
CLOSING CONDITIONS
------------------
Unless otherwise specified, all dated as of March 12, 1997 (the "CLOSING DATE")
or a date (a "CURRENT DATE") within 30 days before the Closing Date.
1. CREDIT AGREEMENT (the "CREDIT AGREEMENT") between MATRIX CAPITAL
CORPORATION, a Colorado corporation ("BORROWER"), certain lenders
("LENDERS"), and BANK ONE, TEXAS, N.A., as Agent for Lenders ("AGENT") --
all the terms in which have the same meanings when used in this schedule --
accompanied by:
<TABLE>
<S> <C> <C>
Schedule 2 - Lenders and Commitments
Schedule 5 - Closing Conditions
Schedule 6.2 - Companies
Schedule 6.7 - Existing Debt
Schedule 6.9 - Litigation and Judgments
Schedule 6.10 - Affiliate Transactions
Schedule 6.13 - Existing Liens
Exhibit A-1 - Term Note
Exhibit A-2 - Revolving Note
Exhibit B - Guaranty
Exhibit C - Pledge Agreement
Exhibit D-1 - Borrowing Request
Exhibit D-2 - Compliance Certificate
Exhibit E - Opinion of Counsel
Exhibit F - Assignment and Assumption Agreement
</TABLE>
2. TERM NOTE in the stated principal amount of $2,000,000, executed by
Borrower, payable to the order of Bank One, Texas, N.A., as the sole
initial Lender, and in substantially the form of EXHIBIT A-1 to the Credit
Agreement.
3. REVOLVING NOTE in the stated principal amount of $6,000,000, executed by
Borrower, payable to the order of Bank One, Texas, N.A., as the sole
initial Lender, and in substantially the form of EXHIBIT A-2 to the Credit
Agreement.
4. GUARANTY executed by all of Borrower's Subsidiaries named below as
Guarantors ("GUARANTORS"), accepted by Agent, and in substantially the form
of EXHIBIT B to the Credit Agreement.
Matrix Financial Services Corporation
Matrix Funding Corporation
United Capital Markets, Inc.
United Financial, Inc.
United Special Services, Inc.
Vintage Delaware Holdings, Inc.
Vintage Financial Services Corporation
(now named First Matrix Investment Services Corp.)
The Vintage Group, Inc.
H&B [5.] GUARANTY re-executed by First Matrix Investment Services Corp., as
Guarantor, accepted by Agent, and in substantially the form of EXHIBIT B to
the Credit Agreement.
Schedule 5
----------
<PAGE>
6. PLEDGE AGREEMENT executed by Borrower as Debtor and Agent as Secured
Party, and in substantially the form of EXHIBIT C to the Credit Agreement.
J&G [7.] STOCK CERTIFICATE(S) evidencing all of the issued and outstanding
common stock of Matrix Capital Bank accompanied by an ASSIGNMENT SEPARATE
FROM STOCK CERTIFICATE for each such stock certificate, duly executed in
blank by Borrower, and in substantially the form of ANNEX A to the Pledge
Agreement referred to above.
8. UCC SEARCH REPORTS for financing statements filed against Borrower as
Debtor with the following UCC filing offices:
<TABLE>
<CAPTION>
JURISDICTION SEARCH FILE NUMBER FILE DATE DESCRIPTION
DATE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sec. of State CO 02/11/97 952051252 07/10/95 Accounts, fixtures, equipment,
(Bank One, contract rights, inventory, proceeds,
Arizona, N.A.) products, etc.
- ------------------------------------------------------------------------------------------------
Sec. of State TX 02/26/97 None None None
- ------------------------------------------------------------------------------------------------
</TABLE>
9. TERMINATIONS OR AMENDMENTS OF FINANCING STATEMENTS reflected in the UCC
Search Reports described above that, in the judgment of Agent and its
special counsel, conflict with the priority of the Lender Liens
contemplated by the Loan Documents, each executed by the appropriate
secured party and (if necessary) debtor, and in form acceptable to Agent
for filing with the applicable UCC filing offices:
NONE
10. CORPORATE CHARTER for BORROWER, certified as of January 17, 1997 by the
Colorado Secretary of State.
Kloos [11.] OFFICERS' CERTIFICATE for BORROWER, executed by its
President and Secretary as to (a) the due incumbency of its officers
authorized to execute or attest to the Loan Documents, (b) resolutions
duly adopted by its directors approving and authorizing the execution
of the Loan Documents, (c) its corporate charter, (d) bylaws, to which
must be attached
Exhibit A - Resolutions
Exhibit B - Bylaws
Exhibit C - Charter
12. CORPORATE CHARTER for MATRIX CAPITAL BANK, certified as of March 7,
1997, by the Office of Thrift Supervision.
13. CORPORATE CHARTER for MATRIX FINANCIAL SERVICES CORPORATION, certified
as of January 24, 1997, by the Arizona Secretary of State.
Kloos [14.] OFFICERS' CERTIFICATE for MATRIX FINANCIAL SERVICES
CORPORATION, executed by its President and Secretary as to (a) the due
incumbency of its officers authorized to execute or attest to the Loan
Documents, (b) resolutions duly adopted by its directors approving and
authorizing the execution of the Loan Documents, (c) its corporate
charter, (d) bylaws, to which must be attached
Schedule 5
----------
2
<PAGE>
Exhibit A - Resolutions
Exhibit B - Bylaws
Exhibit C - Charter
H&B [15.] CORPORATE CHARTER for MATRIX FUNDING CORPORATION, certified as
of a Current Date by the Colorado Secretary of State.
Kloos [16.] OFFICERS' CERTIFICATE for MATRIX FUNDING CORPORATION,
executed by its President and Secretary as to (a) the due incumbency
of its officers authorized to execute or attest to the Loan Documents,
(b) resolutions duly adopted by its directors approving and
authorizing the execution of the Loan Documents, (c) its corporate
charter, (d) bylaws, to which must be attached
Exhibit A - Resolutions
Exhibit B - Bylaws
Exhibit C - Charter
17. CORPORATE CHARTER for STERLING TRUST COMPANY, certified as of February
26, 1997, by the Texas Secretary of State.
18. CORPORATE CHARTER for UNITED CAPITAL MARKETS, INC., certified as of
February 21, 1997, by the Colorado Secretary of State.
Kloos [19.] OFFICERS' CERTIFICATE for UNITED CAPITAL MARKETS, INC.,
executed by its President and Secretary as to (a) the due incumbency
of its officers authorized to execute or attest to the Loan Documents,
(b) resolutions duly adopted by its directors approving and
authorizing the execution of the Loan Documents, (c) its corporate
charter, (d) bylaws, to which must be attached
Exhibit A - Resolutions
Exhibit B - Bylaws
Exhibit C - Charter
20. CORPORATE CHARTER for UNITED FINANCIAL, INC., certified as of February
21, 1997, by the Colorado Secretary of State.
Kloos [21.] OFFICERS' CERTIFICATE for UNITED FINANCIAL, INC., executed
by its President and Secretary of Borrower as to (a) the due
incumbency of its officers authorized to execute or attest to the Loan
Documents, (b) resolutions duly adopted by its directors approving and
authorizing the execution of the Loan Documents, (c) its corporate
charter, (d) bylaws, to which must be attached
Exhibit A - Resolutions
Exhibit B - Bylaws
Exhibit C - Charter
22. CORPORATE CHARTER for UNITED SPECIAL SERVICES, INC., certified as of
February 21, 1997, by the Colorado Secretary of State.
Kloos [23.] OFFICERS' CERTIFICATE for UNITED SPECIAL SERVICES, INC.,
executed by its President and Secretary of Borrower as to (a) the due
incumbency of its officers authorized to execute or attest to the Loan
Documents, (b) resolutions duly adopted by its directors approving and
authorizing the execution of the Loan Documents, (c) its corporate
charter, (d) bylaws, to which must be attached
Exhibit A - Resolutions
Exhibit B - Bylaws
Exhibit C - Charter
<PAGE>
24. CORPORATE CHARTER for VINTAGE DELAWARE HOLDINGS, INC., certified as of
February 28, 1997, by the Delaware Secretary of State.
Kloos [25.] OFFICERS' CERTIFICATE for VINTAGE DELAWARE HOLDINGS, INC.,
executed by its President and Secretary of Borrower as to (a) the due
incumbency of its officers authorized to execute or attest to the Loan
Documents, (b) resolutions duly adopted by its directors approving and
authorizing the execution of the Loan Documents, (c) its corporate
charter, (d) bylaws, to which must be attached
Exhibit A - Resolutions
Exhibit B - Bylaws
Exhibit C - Charter
26. CORPORATE CHARTER for FIRST MATRIX INVESTMENT SERVICES CORP., certified
as of February 28, 1997, by the Texas Secretary of State.
Kloos [27.] OFFICERS' CERTIFICATE for FIRST MATRIX INVESTMENT SERVICES
CORP., executed by its President and Secretary of Borrower as to (a)
the due incumbency of its officers authorized to execute or attest to
the Loan Documents, (b) resolutions duly adopted by its directors
approving and authorizing the execution of the Loan Documents, (c) its
corporate charter, (d) bylaws, to which must be attached
Exhibit A - Resolutions
Exhibit B - Bylaws
Exhibit C - Charter
28. CORPORATE CHARTER for THE VINTAGE GROUP, INC., certified as of February
28, 1997, by the Texas Secretary of State.
Kloos [29.] OFFICERS' CERTIFICATE for THE VINTAGE GROUP, INC., executed
by its President and Secretary of Borrower as to (a) the due
incumbency of its officers authorized to execute or attest to the Loan
Documents, (b) resolutions duly adopted by its directors approving and
authorizing the execution of the Loan Documents, (c) its corporate
charter, (d) bylaws, to which must be attached
Exhibit A - Resolutions
Exhibit B - Bylaws
Exhibit C - Charter
H&B [30.] CERTIFICATES OF QUALIFICATION, GOOD STANDING, AND AUTHORITY for
the following Companies, issued as of Current Dates by the appropriate
Tribunals for the following jurisdictions:
<TABLE>
<CAPTION>
COMPANY JURISDICTION CERTIFICATE DATE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Matrix Capital Colorado Existence/ Good Standing 01/17/97
Corporation
- ---------------------------------------------------------------------------------------------------
Matrix Capital Bank OTS Existence/Good Standing 03/03/97
- ---------------------------------------------------------------------------------------------------
Matrix Financial Arizona Good Standing 01/24/97
Services Corporation
- ---------------------------------------------------------------------------------------------------
California Certificate of Foreign Status 01/24/97
--------------------------------------------------------------------------
Colorado Authorization/Good Standing 01/17/97
--------------------------------------------------------------------------
</TABLE>
Schedule 5
----------
<PAGE>
<TABLE>
<CAPTION>
COMPANY JURISDICTION CERTIFICATE DATE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Florida Existence/Good Standing 01/24/97
--------------------------------------------------------------------------
Georgia Existence 01/24/97
--------------------------------------------------------------------------
Iowa Authorization 01/27/97
--------------------------------------------------------------------------
Michigan Existence/Good Standing 01/24/97
--------------------------------------------------------------------------
Missouri Existence/Good Standing 01/24/97
--------------------------------------------------------------------------
North Carolina Authorization 01/24/97
--------------------------------------------------------------------------
Ohio Qualification 01/24/97
(Surrendered 07/18/96)
--------------------------------------------------------------------------
Texas Existence Forfeited 08/27/96
--------------------------------------------------------------------------
Utah Qualification 01/30/97
(Not Registered in State)
--------------------------------------------------------------------------
Matrix Funding Colorado Existence/Good Standing ordered
Corporation
- ---------------------------------------------------------------------------------------------------
Sterling Trust Texas Existence/Good Standing 02/25/97 and 02/28/97
Company
- ---------------------------------------------------------------------------------------------------
United Capital Markets, Colorado Existence/Good Standing 02/21/97
Inc.
- ---------------------------------------------------------------------------------------------------
United Financial, Inc. Colorado Existence/Good Standing 02/21/97
- ---------------------------------------------------------------------------------------------------
United Special Colorado Existence/Good Standing 02/21/97
Services, Inc.
- ---------------------------------------------------------------------------------------------------
Vintage Delaware Delaware Existence/Good Standing 02/28/97
Holdings, Inc.
- ---------------------------------------------------------------------------------------------------
First Matrix Investment Texas Existence/Good Standing 02/28/97
Services Corp.
- ---------------------------------------------------------------------------------------------------
The Vintage Group, Texas Existence/Good Standing 02/28/97
Inc.
- ---------------------------------------------------------------------------------------------------
</TABLE>
31. OPINION of Jenkens & Gilchrist, P.C., Dallas, Texas, as counsel to
Borrower and Guarantors, addressed to Lender, and addressing the
matters described on EXHIBIT E to the Credit Agreement.
32. Any other documents and items as Agent or any Lender may reasonably
request.
<PAGE>
SCHEDULE 6.2
------------
<TABLE>
<CAPTION>
COMPANIES
- ------------------------------------------------------------------------------------------------------------------------------------
NAME JURISDICTION JURISDICTIONS TRADE NAMES USED STILL USING CHIEF OWNERSHIP
ORGANIZED QUALIFIED TO IN LAST FOUR TRADE EXECUTIVE
BUSINESS MONTHS NAME(S)? Y/N OFFICE
- -------------------------- ------------ ------------- ----------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Matrix Capital Corporation Colorado None None NA 1380 Lawrence Publicly
("BORROWER") Street Traded
Suite 1410
Denver, CO
80204
- -------------------------- ------------ ------------- ----------------- ------------- ------------- -------------
Matrix Capital Bank Federal None None N 277 E. Amador 100% -
Savings Bank Las Cruces, NM Borrower
88004
- -------------------------- ------------ ------------- ----------------- ------------- ------------- -------------
Matrix Financial Services Arizona California, Matrix Capital Y 201 West 100% -
Corporation ("MATRIX Colorado, Florida, Mortgage Corp Coolidge St. Borrower
FINANCIAL") Georgia, Maryland, Phoenix, AZ
Michigan, 85013
Missouri, North
Carolina, Ohio,
Pennsylvania,
Texas, and Utah
- -------------------------- ------------ ------------- ----------------- ------------- ------------- -------------
Matrix Funding Corp. Colorado None None NA 201 West 100% - Matrix
Coolidge St. Financial
Phoenix, AZ
85013
- -------------------------- ------------ ------------- ----------------- ------------- ------------- -------------
Sterling Trust Company Texas None None NA 7901 Fish Pond 100% -
Rd. Vintage
Waco, TX 76702 Delaware
- -------------------------- ------------ ------------- ----------------- ------------- ------------- -------------
United Capital Markets, Colorado Missouri None 1380 Lawrence 100% -
Inc. Street Borrower
Suite 1420
Denver, CO
80204
- -------------------------- ------------ ------------- ----------------- ------------- ------------- -------------
United Financial, Inc. Colorado None None NA 1380 Lawrence 100% -
Street Borrower
Suite 1420
Denver, CO
80204
- -------------------------- ------------ ------------- ----------------- ------------- ------------- -------------
United Special Services, Colorado None None NA 1380 Lawrence 100% -
Inc. Street Borrower
Suite 1450
Denver, CO
80204
- -------------------------- ------------ ------------- ----------------- ------------- ------------- -------------
Vintage Delaware Holdings, Delaware None None NA 7901 Fish Pond 100% -
Inc. Rd. Vintage Group
Waco, TX 76702
- -------------------------- ------------ ------------- ----------------- ------------- ------------- -------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMPANIES
- ------------------------------------------------------------------------------------------------------------------------------------
NAME JURISDICTION JURISDICTIONS TRADE NAMES USED STILL USING CHIEF OWNERSHIP
ORGANIZED QUALIFIED TO IN LAST FOUR TRADE EXECUTIVE
BUSINESS MONTHS NAME(S)? Y/N OFFICE
- -------------------------- ------------ ------------- ----------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
First Matrix Investment Texas None Vintage NA 6001 W. I20 100% -
Services Corp. Financial Suite 208 Vintage Group
Services Arlington, TX
Corporation 76017
- -------------------------- ------------ ------------- ----------------- ------------- ------------- -------------
The Vintage Group, Inc. Texas None None NA 7901 Fish Pond 100% -
Rd. Borrower
Waco, TX 76702
</TABLE>
Scheduel 6.2
<PAGE>
SCHEDULE 6.7
------------
EXISTING DEBT
-------------
1. Balance @ 2/28/97 - $2,002,778 - Debt owed to Banker's Bank of the West due
in annual principal installments of $286,101, plus interest through 2003,
collateralized by common stock of Matrix Capital Bank, interest at prime
plus 1.0%. (the "REFINANCED DEBT").
2. Balance @ 2/28/97 - $2,910,000 - Senior subordinated notes, interest at
14.0% payable semiannually, unsecured and maturing July 2002, with
mandatory redemptions of $727,500 on each of July, 1999, 2000, and 2001.
3. Balance @ 2/28/97 - $930,538 - Debt owed to Bank One, Arizona, secured by a
first lien deed of trust on real estate, unpaid principal balance plus
interest due June 1998, interest at prime plus 1.0%.
4. Balance @ 2/28/97 - $520,866 - Debt owed to Cortrust Bank due in 28
consecutive installments, secured by mortgage servicing rights, interest
ranging from prime plus 2.5% to fixed at 10.0%.
5. Guaranty by Borrower of Debt arising under the Amended and Restated Loan
Agreement dated as of January 31, 1997, between Matrix Financial Services
Corporation, certain lenders, and Bank One, Texas, N.A., as Agent for those
lenders, providing for a secured revolving credit facility of up to
$100,000,000.
Schedule 6.7
------------
<PAGE>
SCHEDULE 6.9
------------
LITIGATION AND JUDGMENTS
------------------------
1. Matrix Financial is a defendant in two lawsuits, Limper v. Matrix Financial
Services Corporation (Court of Common Pleas, Ottawa County, Ohio, January
29, 1996), and Mogavero v. Matrix Financial Services Corporation (United
States District Court for the District of Massachusetts, June 17, 1996),
which purport to cover a nationwide class of plaintiffs and involve similar
facts and legal claims. In both cases, the plaintiffs allege that Matrix
Financial breached the terms of plaintiffs' promissory notes and mortgages
by imposing certain fax and payoff statement fees at the time the
plaintiffs prepaid their loans. The plaintiffs claim that such fees
constitute unauthorized charges in violation of the terms of the notes, and
demand restitution and attorneys' fees. In addition, the plaintiffs in the
Mogavero action seek treble damages for Matrix Financial's alleged
violation of 18 U.S.C. (S) 1964.
Matrix Financial has entered into an agreement, which is subject to court
approval, to settle the Limper action and the Mogavero action. The
settlement agreement provides for the administration of the settlement of
both actions in the Limper action and the dismissal of the Mogavero action.
Accordingly, a settlement order of dismissal was entered in the Mogavero
action on November 13, 1996.
The Court in the Limper action granted preliminary approval of the
settlement in January 1997. Accordingly, as provided by the settlement
agreement, Matrix established a settlement fund of $640,000. The costs of
notice and class administration, attorneys' fees, and recovery to class
members are all to come from the settlement fund. Notice to class members
was mailed in January 1997, and published in February 1997. The final
approval hearing for the settlement is scheduled for April 10, 1997.
2. The Companies are involved from time to time in routine Litigation
incidental to their businesses. However, other than described above, the
Companies believe that they are not party to any pending Litigation that,
if decided adversely to any of them, would be a Material-Adverse Event.
Schedule 6.9
------------
<PAGE>
SCHEDULE 6.10
-------------
AFFILIATE TRANSACTIONS
----------------------
1. In October, 1995, Borrower loaned Matrix Diversified, an affiliate of
Borrower, $750,000. The loan accrues at an interest rate of 13% and is
secured by a second lien on the assets of Matrix Diversified. Principal
and interest is due and payable in one lump sum on October 31, 2000.
2. Borrower leases approximately 7,400 square feet of office space to a
subsidiary of Matrix Diversified at a base rental rate of approximately
$8,500 per month. The lease expires September 1997, but Borrower
anticipates that the lease will be renewed for successive one-year terms at
a market rate.
3. Borrower has a loan to Mr. Spencer, Vice Chairman of its Board, in the
amount of approximately $80,000. The loan accrues at an interest rate of
prime and is unsecured. The entire principal and interest is due in one
lump sum and is payable December 31, 1997. Borrower, at its option, may
extend the note in annual increments.
Schedule 6.10
------------
<PAGE>
SCHEDULE 6.13
-------------
EXISTING LIENS
--------------
1. Pledge of the Capital Stock of Matrix Capital Bank to secure the Refinanced
Debt, which pledge will be released upon payment of the Refinanced Debt
pursuant to the Credit Agreement.
2. Mortgage Lien upon the commercial office building at 201 W. Coolidge, Suite
100, Phoenix, Arizona 85013, and related Financing Statement No. 952051252
filed on July 10, 1995, with the Colorado Secretary of State in respect of
the Debt described as ITEM 3 on SCHEDULE 6.7.
3. Lien on servicing rights of Matrix Financial Services Corporation securing
the Debt described as Item 4 on SCHEDULE 6.7.
Schedule 6.13
-------------
<PAGE>
EXHIBIT C
---------
PLEDGE AGREEMENT
----------------
THIS AGREEMENT is entered into as of March 12, 1997, between MATRIX CAPITAL
CORPORATION, a Colorado corporation ("DEBTOR"), certain Lenders, and BANK ONE,
TEXAS, N.A., as Agent (in that capacity, "SECURED PARTY") for Lenders.
Debtor, Lenders, and Agent have entered into the Credit Agreement (as
renewed, extended, amended, or restated, the "CREDIT AGREEMENT") dated as of
March 12, 1997. As a continuing inducement to the Lenders to extend credit to
Debtor under the Credit Agreement, and as a condition precedent to that credit,
Debtor is executing and delivering this agreement for the benefit of Lenders and
Secured Party.
ACCORDINGLY, for adequate and sufficient consideration, Debtor and Secured
Party agree as follows:
SECTION 1. DEFINITIONS AND REFERENCES. Unless stated otherwise, (a) terms
- --------- --------------------------
defined in the Credit Agreement or the UCC have the same meanings when used in
this agreement, and (b) to the extent permitted by Law, if in conflict (i) the
definition of a term in the Credit Agreement controls over the definition of
that term in the UCC, and (ii) the definition of a term in Article 9 of the UCC
controls over the definition of that term elsewhere in the UCC.
"COLLATERAL" is defined in SECTION 2.2 of this agreement.
"DEBTOR" is defined in the preamble to this agreement and includes, without
limitation, Debtor, Debtor as a debtor-in-possession, and any receiver, trustee,
liquidator, conservator, custodian, or similar party appointed for Debtor or for
substantially all of Debtor's assets under any Debtor Law.
"OBLIGOR" means any Person obligated with respect to any Collateral
(whether as an account debtor, obligor on an instrument, issuer of securities,
or otherwise).
"PLEDGED SECURITIES" is defined in SECTION 2.2 of this agreement.
"SECURED PARTY" is defined in the preamble to this agreement and includes
its successor appointed and acting as Agent for Lenders under the Loan
Documents.
"SECURITY INTEREST" means the security interest granted and the pledge and
assignment made under SECTION 2.1 of this agreement, which is a Lender Lien
under the Credit Agreement.
SECTION 2. SECURITY INTEREST AND COLLATERAL.
- --------- --------------------------------
2.1 SECURITY INTEREST. To secure the full payment and performance of the
-----------------
Obligation, Debtor grants to Secured Party for Lenders a security interest in
the Collateral and pledges and assigns the Collateral to the Secured Party, all
upon and subject to the terms and conditions of this agreement. The grant of
the Security Interest does not subject the Secured Party or any Lender to the
terms of any Collateral or in any way transfer, modify, or otherwise affect any
of Debtor's obligations with respect to any Collateral or the Lender Liens under
the Credit Agreement.
Exhibit C
---------
59
<PAGE>
2.2 COLLATERAL. As used in this agreement, the term "COLLATERAL" means
----------
the present and future items and types of property described below, whether now
owned or acquired in the future by Debtor. This description of Collateral does
not permit any action prohibited by any Loan Document.
All present and future shares of capital stock or other ownership
interest issued by Matrix Capital Bank, a federal savings bank (the
"PLEDGED SECURITIES"), together with all present and future increases,
profits, combinations, reclassifications, dividends, and substitutes
and replacements for any of the foregoing and all present and future
cash and noncash proceeds of any of the foregoing, including, without
limitation, all cash, accounts, general intangibles, documents,
instruments, chattel paper, goods, and any other property received
upon the sale or disposition of any of the foregoing.
SECTION 3. REPRESENTATIONS AND WARRANTIES. By entering into this agreement,
- --------- ------------------------------
and by each subsequent delivery of additional Collateral under this agreement,
Debtor reaffirms the representations and warranties contained in the Credit
Agreement. Debtor further represents and warrants to Secured Party for Lenders
as follows:
3.1 BINDING OBLIGATION. This agreement creates a legal, valid, and
------------------
binding Lender Lien in and to the Collateral in favor of Secured Party and is
enforceable against Debtor, except as enforcement may be limited by applicable
Debtor Laws and general principles of equity. The taking by Secured Party of
physical possession in Texas of the stock certificates or other instruments
representing the Pledged Securities will perfect the Security Interest in that
Collateral. Once perfected, the Security Interest will constitute a first-
priority Lender Lien on the Collateral, subject only to Permitted Liens. The
creation of the Security Interest does not require the consent of any Person
that has not been obtained.
3.2 SECURITIES. All Pledged Securities are duly authorized, validly
----------
issued, fully paid, and non-assessable, and the transfer of them is not subject
to any restrictions other than restrictions imposed by applicable corporate and
securities Laws.
3.3 ADDITIONAL COLLATERAL. The foregoing representations and warranties
---------------------
will be true and correct in all respects with respect to any additional
Collateral or additional specific descriptions of certain Collateral delivered
to Secured Party in the future by Debtor.
The failure of any of these representations or warranties to be accurate and
complete does not impair the Security Interest in any Collateral.
SECTION 4. COVENANTS. Until all commitments by Secured Party and Lenders to
- --------- ---------
extend credit under the Credit Agreement have been canceled or terminated and
the Obligation is fully paid and performed, Debtor covenants and agrees with
Secured Party for Lenders as follows:
4.1 OTHER NOTICES AND ACTIONS. Debtor shall promptly notify Secured Party
-------------------------
of (a) any change in any material fact or circumstance represented or warranted
by Debtor with respect to any of the Collateral, and (b) any claim, action, or
proceeding challenging the Security Interest or affecting title to all or any
material portion of the Collateral or the Security Interest (and, at Secured
Party's request, Debtor shall appear in and defend any such action or proceeding
at Debtor's expense).
Exhibit C
---------
2
<PAGE>
4.2 COLLATERAL IN TRUST. While a Default or Potential Default exists,
-------------------
Debtor shall upon request of Secured Party (unless prevented by operation of
applicable Law from making that request, in which event Debtor shall) (a) hold
in trust (and not commingle with its other assets) for Secured Party all of its
Collateral that is chattel paper, instruments, or documents of title at any time
received by it, (b) promptly deliver that Collateral to Secured Party unless
Secured Party at its option gives Debtor written permission to retain any of it,
and (c) cause each chattel paper, instrument, or document of title so retained
to be marked to state that it is assigned to Secured Party and each instrument
to be endorsed to the order of Secured Party (but failure to be so marked or
endorsed may not impair the Security Interest in any such Collateral).
4.3 IMPAIRMENT OF COLLATERAL. Debtor may not do or permit any act that is
------------------------
reasonably likely to adversely impair the value of any Collateral.
SECTION 5. DEFAULT AND REMEDIES. If a Default exists, then Secured Party may,
- --------- --------------------
at its election (but subject to the terms and conditions of the Credit
Agreement), exercise any and all Rights available to a secured party under the
UCC, in addition to any and all other Rights afforded by the Loan Documents, at
Law, in equity, or otherwise, including, without limitation (a) requiring Debtor
to assemble all or part of the Collateral and make it available to Secured Party
at a place to be designated by Secured Party which is reasonably convenient to
Debtor and Secured Party, (b) surrendering any policies of insurance on all or
part of the Collateral and receiving and applying the unearned premiums as a
credit on the Obligation, (c) applying by appropriate judicial proceedings for
appointment of a receiver for all or part of the Collateral (and Debtor hereby
consents to any such appointment), and (d) applying to the Obligation any cash
held by Secured Party or any Lender under the Loan Documents.
5.1 NOTICE. Reasonable notification of the time and place of any public
------
sale of the Collateral, or reasonable notification of the time after which any
private sale or other intended disposition of the Collateral is to be made,
shall be sent to Debtor and to any other Person entitled to notice under the
UCC. If any Collateral threatens to decline speedily in value or is of the type
customarily sold on a recognized market, Secured Party may sell or otherwise
dispose of the Collateral without notification, advertisement, or other notice
of any kind. Notice sent or given not less than five calendar days before the
taking of the action to which the notice relates is reasonable notification and
notice for the purposes of this section.
5.2 SALES OF SECURITIES. In connection with the sale of any Collateral
-------------------
that is securities, Secured Party is authorized, but not obligated, to limit
prospective purchasers to the extent deemed necessary or desirable by Secured
Party to render that sale exempt from the registration and similar requirements
under applicable corporate and securities Laws, and no sale so made in good
faith by Secured Party may be deemed not to be "commercially reasonable" because
so made.
5.3 OTHER SALES. Secured Party's sale of less than all Collateral does
-----------
not exhaust Secured Party's Rights under this agreement and Secured Party is
specifically empowered to make successive sales until all Collateral is sold.
If the proceeds of a sale of less than all Collateral is less than the Secured
Obligation, then this agreement and the Security Interest remain in full force
and effect as to the unsold portion of the Collateral just as though no sale had
been made. In the event any sale under this agreement is not completed or is,
in Secured Party's opinion, defective, that sale does not exhaust Secured
Party's Rights under this agreement, and Secured Party is entitled to cause a
subsequent sale or sales to be made. All statements of fact or other recitals
made in any bill of sale or assignment or other instrument evidencing any
foreclosure sale under this agreement -- whether about nonpayment of the Secured
Exhibit C
---------
3
<PAGE>
Obligation, the occurrence of any Default, Secured Party's having declared all
of the Obligation to be due and payable, notice of time, place, and terms of
sale and the properties to be sold having been duly given, or any other act or
thing having been duly done by Secured Party -- shall be taken as prima facie
evidence of the truth of the facts so stated and recited. Secured Party may
appoint or delegate any one or more Persons as agent to perform any act or acts
necessary or incident to any sale held by Secured Party, including the sending
of notices and the conduct of sale, but such acts must be done in the name and
on behalf of Secured Party.
5.4 OBLIGORS. While a Default exists, Secured Party may notify or require
--------
each Obligor to make payment directly to Secured Party, and Secured Party may
take control of the proceeds paid to Secured Party. Until Secured Party elects
to exercise these Rights, Debtor is authorized to collect and enforce the
Collateral and to retain and expend all payments made on Collateral. While
Secured Party is entitled to and elects to exercise these Rights, Secured Party
has the Right in its own name or in the name of Debtor to (a) compromise or
extend time of payment with respect to Collateral for such amounts and upon such
terms as Secured Party may reasonably determine, (b) demand, collect, receive,
receipt for, sue for, compound, and give acquittance for any and all amounts due
or to become due with respect to Collateral, (c) take control of cash and other
proceeds of any Collateral, (d) endorse the applicable Pledgor's name on any
notes, acceptances, checks, drafts, money orders, or other evidences of payment
on Collateral that may come into Secured Party's possession, (e) sign Debtor's
name on any invoice or bill of lading relating to any Collateral, on any drafts
against Obligors or other Persons making payment with respect to Collateral, on
assignments and verifications of accounts or other Collateral, and on notices to
Obligors making payment with respect to Collateral, (f) send requests for
verification of obligations to any Obligor, and (gi) do all other acts and
things reasonably necessary to carry out the intent of this agreement. If any
Obligor fails to make payment on any Collateral when due while a Default exists,
Secured Party is authorized, in its sole discretion, either in its own name or
in Debtor's name, to take such action as Secured Party reasonably shall deem
appropriate for the collection of any amounts owed with respect to Collateral or
upon which a delinquency exists. However, Secured Party is neither (A) liable
for its failure to collect, or for its failure to exercise diligence in the
collection of, any amounts owed with respect to Collateral (except for its own
fraud, gross negligence, willful misconduct, or violation of any applicable
law), nor (B) under any duty whatsoever to anyone except Debtor and Lenders to
account for funds that it shall actually receive under this agreement. A
receipt given by Secured Party to any Obligor is a full and complete release,
discharge, and acquittance to that Obligor, to the extent of any amount so paid
to Secured Party. While a Default exists, Secured Party may apply or set off
amounts paid and the deposits against any liability of Debtor to Secured Party.
Regarding the existence of Default for purposes of this agreement, Debtor agrees
that the Obligors on any Collateral may rely upon written certification from
Secured Party that a Default exists.
5.5 POWER-OF-ATTORNEY. Secured Party is deemed to be irrevocably
-----------------
appointed as Debtor's agent and attorney-in-fact with the Right to enforce all
of Debtor's Rights under or in connection with the Collateral effective and
operable at all times while a Default exists. All reasonable costs, expenses,
and liabilities incurred and all payments made by Secured Party as Debtor's
agent and attorney-in-fact (including, without limitation, reasonable attorney's
fees and expenses) are considered a loan by Secured Party to Debtor that is
repayable on demand, accrues interest at the Default Rate until paid, and is
part of the Obligation.
5.6 APPLICATION OF PROCEEDS. Secured Party shall apply the proceeds of
-----------------------
any sale or other disposition of the Collateral under this SECTION 5 in the
order and manner specified in SECTION 3.9 of the Credit Agreement. Any surplus
remaining shall be delivered to Debtor or as a court of competent
Exhibit C
---------
4
<PAGE>
jurisdiction may direct. If the proceeds are insufficient to pay the Obligation
in full, Debtor remains liable for any deficiency.
SECTION 6. OTHER RIGHTS.
- --------- -----------
6.1 PERFORMANCE. If Debtor fails to preserve the priority of the Security
-----------
Interest in any of the Collateral or otherwise fail to perform any of its
obligations under any Loan Documents with respect to the Collateral, then
Secured Party may, at its option, but without being required to do so, prosecute
or defend any suits in relation to the Collateral or take all other action which
Debtor is required, but has failed or refused, to take under the Loan Documents.
Any sum which may be expended or paid by Secured Party under this section
(including, without limitation, court costs and attorneys' fees) shall bear
interest from the dates of expenditure or payment at the Default Rate until paid
and, together with such interest, shall be payable by Debtor to Secured Party
upon demand and is part of the Obligation.
6.2 RECORD OWNERSHIP OF SECURITIES. While a Default exists, Secured Party
------------------------------
may have any Collateral that is securities and that is in the possession of
Secured Party, or its nominee or nominees, registered in its name or in the name
of its nominee or nominees as pledgee.
6.3 VOTING OF SECURITIES. As long as no Default exists, Debtor may
--------------------
exercise all voting Rights pertaining to any Collateral that is securities.
While a Default exists, the Right to vote any Collateral that is securities is
vested exclusively in Secured Party. Accordingly, Debtor irrevocably
constitutes and appoints Secured Party as Debtor's proxy and attorney-in-fact --
effective only after notice to Debtor and while a Default exists but with full
power of substitution -- to vote and to act with respect to any Collateral that
is securities standing in the name of Debtor or with respect to which Debtor is
entitled to vote and act. That proxy is coupled with an interest, is
irrevocable, and continues until the Obligation are fully paid and performed.
6.4 CERTAIN PROCEEDS. The provisions of this SECTION 6.4 are applicable
----------------
only while a Default exists. Notwithstanding any contrary provision, all
dividends or distributions of property in respect of, and all proceeds of, any
Collateral that is securities -- whether those dividends, distributions, or
proceeds result from a subdivision, combination, or reclassification of the
outstanding capital stock of any issuer or as a result of any merger,
consolidation, acquisition, or other exchange of assets to which any issuer may
be a party, or otherwise -- are part of the Collateral, shall, if received by
Debtor, be held in trust for Secured Party's benefit, and shall immediately be
delivered to Secured Party (accompanied by proper instruments of assignment or
stock or bond powers executed by Debtor in accordance with Secured Party's
instructions) to be held subject to the terms of this agreement. Any cash
proceeds of any Collateral that come into Secured Party's possession (including,
without limitation, insurance proceeds) may, at Secured Party's option, be
applied in whole or in part to the Obligation (to the extent then due), be fully
or partially released to or under the written instructions of Debtor for any
general or specific purpose, or be fully or partially retained by Secured Party
as additional Collateral. Any cash Collateral in Secured Party's possession may
be invested by Secured Party in certificates of deposit issued by Secured Party,
any Lender, or any other state or national bank having combined capital and
surplus greater than $100,000,000 or in securities issued or guaranteed by the
United States of America or any of its agencies. Secured Party is never
obligated to make any investment and never has any liability to Debtor or any
Lender for any loss that may result from any investment or non-investment. All
interest and other amounts earned from any investment may be dealt with by
Secured Party in the same manner as other cash Collateral.
Exhibit C
---------
5
<PAGE>
SECTION 7. MISCELLANEOUS.
- --------- -------------
7.1 MISCELLANEOUS. Because this agreement is a "Loan Document" referred
-------------
to in the Credit Agreement, the provisions relating to Loan Documents in
SECTIONS 1 and 12 of the Credit Agreement are incorporated into this agreement
by reference the same as if included in this agreement verbatim.
7.2 TERM. This agreement terminates upon full payment and performance of
----
the Obligation. No Obligor is ever obligated to make inquiry of the termination
of this agreement but is fully protected in making any payments on the
Collateral directly to Secured Party.
7.3 MATTERS NOT RELEVANT. The Security Interest, Debtor's obligations,
--------------------
and Secured Party's and Lenders' Rights under this agreement are not released,
diminished, impaired, or adversely affected by any one or more of the following:
(a) Secured Party's or any Lender taking or accepting any additional --or any
release, surrender, exchange, subordination, or loss of any other -- guaranty,
assurance, or security for any of the Obligation; (b) any full or partial
release of any other Person obligated on any of the Obligation; (c) the
modification or assignment of -- or waiver of compliance with -- any other Loan
Document; (d) any present or future insolvency, bankruptcy, or lack of
corporate, partnership, or trust power of any other Person obligated on any of
the Obligation; (e) any renewal, extension, or rearrangement of any of the
Obligation, or any adjustment, indulgence, forbearance, or compromise granted to
any Person obligated on any of the Obligation; (f) any Person's neglect, delay,
omission, failure, or refusal to take or prosecute any action in connection with
any of the Obligation; (g) any existing or future affect, claim, or defense
(other than credits toward outstanding amounts in respect of application of
proceeds of Collateral under this agreement and except for the defense of full
and final payment of the Obligation) of Debtor or any other Person against
Secured Party or any Lender; (h) the unenforceability of any of the Obligation
against any Person obligated or any of the Obligation because it exceeds the
amount permitted by Law, the act of creating it is ultra vires, or the officers,
partners, or trustees creating it exceeded their authority or violated their
fiduciary duties, or otherwise; (i) any payment of the Obligation is held to
constitute a preference under any Debtor Law or for any other reason Secured
Party or any Lender is required to refund any payment or make payment to another
Person; or (j) any Person's failure to notify Debtor, Secured Party, or any
Lender of their acceptance of this agreement or any Person's failure to notify
Debtor about the foregoing events or occurrences, and Debtor waives any notice
of any kind under any circumstances whatsoever with respect to this agreement or
any of the Obligation other than as specifically provided in this agreement.
7.4 WAIVERS. Except to the extent expressly otherwise provided in the
-------
Loan Documents, Debtor waives (a) any Right to require Secured Party or any
Lender to proceed against any other Person, to exhaust its Rights in the
Collateral, or to pursue any other Right which Secured Party or any Lender may
have, and (b) all Rights of marshaling in respect of the Collateral.
7.5 FINANCING STATEMENT. Secured Party may, at any time, file this
-------------------
agreement or a carbon, photographic, or other reproduction of this agreement as
a financing statement, but Secured Party's failure to do so does not impair the
validity or enforceability of this agreement.
7.6 PARTIES. This agreement binds and inures to Debtor, Secured Party,
-------
and each Lender, and their respective successors and permitted assigns. Only
those Persons may rely or raise any defense about this agreement.
Exhibit C
---------
6
<PAGE>
7.6.1 ASSIGNMENTS. Debtor may not assign any Rights or obligations
-----------
under this agreement without first obtaining the written consent of
Secured Party and all Lenders. Secured Party's Rights under this
agreement may be assigned to any successor agent appointed under the
Credit Agreement. Any Lender may assign, pledge, and otherwise
transfer all or any of its Rights under this agreement to any
participant or transferee permitted by the Credit Agreement.
7.6.2 SECURED PARTY. Secured Party is the agent for each Lender.
-------------
Secured Party may, without the joinder of any Lender, exercise any
Rights in favor of any of them under this agreement. The Rights of
Secured Party and Lenders vis-a-vis each other may be subject to other
agreements between them. Neither Debtor nor its successors or
permitted assigns need to inquire about any such agreement or be
subject to the terms of it unless they join in it and, therefore, are
not entitled to the benefits of any such agreement or entitled to rely
upon or raise as a defense the failure of any party to comply with it.
7.7 ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
----------------
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT
MATTER THEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGE FOLLOWS.
Exhibit C
7
<PAGE>
EXECUTED as of the date first stated above.
<TABLE>
<S> <C>
MATRIX CAPITAL SERVICES BANK ONE, TEXAS, N.A., AGENT, as
CORPORATION, as Debtor Secured Party
By By
------------------------------------- -------------------------------
Guy A. Gibson, Chief Executive Office Mark L. Freeman, Vice President
and President
</TABLE>
The undersigned agrees that to the extent that any of the stock certificates
evidencing any of the capital stock that is included in the Collateral bear any
restrictive legend in respect of the transfer of those certificates, then, in
each case, the undersigned waives the requirements of those restrictive legends
in respect of the pledge of those shares of capital stock to Secured Party.
MATRIX CAPITAL BANK
By
--------------------------------
Name:
---------------------------
Title:
--------------------------
Exhibit C
---------
Signature Page to Pledge Agreement
<PAGE>
ANNEX A
-------
ASSIGNMENT SEPARATE FROM STOCK CERTIFICATE
------------------------------------------
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers unto
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPE NAME AND ADDRESS OF ASSIGNEE)
- --------------------------------------------------------------------------------
---------------------------------------
INSERT SOCIAL SECURITY
- ---------------------------------------- OR OTHER IDENTIFICATION
NUMBER OF ASSIGNEE
---------------------------------------
- -------------------------------------- (_____________________) shares
of the ______________________________________________________ Capital Stock of
MATRIX CAPITAL BANK standing in _________________________ name on the books of
that bank as represented by Certificate
No.(s)
-------------------------------------------------------------------------
that accompany(ies) this assignment, and hereby irrevocably constitutes and
appoints ___________________________ attorney to transfer that stock on the
books of that bank with full power of substitution in the premises.
EXECUTED as of March 12, 1997.
MATRIX CAPITAL CORPORATION
By
------------------------------------------
Guy A. Gibson, Chief Executive Officer and
President
Exhibit C
---------
<PAGE>
EXHIBIT D-1
-----------
BORROWING REQUEST
-----------------
AGENT: Bank One, Texas, N.A. DATE: ____________________, 199___
BORROWER: Matrix Capital Corporation
================================================================================
This request is delivered under the Credit Agreement (as renewed, extended,
and amended, the "CREDIT AGREEMENT") dated as of March 12, 1997, between
Borrower, Agent, and certain Lenders. Terms defined in the Credit Agreement
have the same meanings when used, unless otherwise defined, in this request.
Borrower requests a $_____________/1/ Borrowing (the "REQUESTED BORROWING")
under the Revolving Facility to be funded on _______________, 199___ (the
"REQUESTED BORROWING DATE")./2/
Borrower certifies to Agent and Lenders that (a) the proceeds of the
Requested Borrowing shall be promptly paid to Matrix Bank as a contribution to
its capital or are to refinance contributions to the capital of Matrix Bank
already made by Borrower and for none of which Borrower has requested any other
Borrowing, and (b) after giving effect to the Requested Borrowing, the Principal
Debt of the Revolving Facility will not exceed the least of (i) the Commitments
for the Revolving Facility, (which are $6,000,000), (ii) contributions to Matrix
Bank's Capital made by Borrower since October 31, 1996 (which total
$_____________), and (iii) 40% of the book value of Matrix Bank's issued and
outstanding capital stock subject to Lender Liens (which is 40% x $_____________
= $_____________).
Borrower certifies that on the date of this request and on the Requested
Borrowing Date (after giving effect to the Requested Borrowing) (a) the
representations and warranties of Borrower in the Loan Documents are true and
correct in all material respects except to the extent that (i) a representation
or warranty speaks to a specific date or (ii) the facts on which a
representation or warranty is based have changed by transactions or conditions
contemplated or permitted by the Loan Documents, (b) no Default or Potential
Default exists, and (c) the extension of the Requested Borrowing does not cause
any Borrowing Excess to exist.
MATRIX CAPITAL CORPORATION, as Borrower
By
--------------------------------------------
Name:
---------------------------------------
/3/Title:
---------------------------------------
- --------------------
/1/ Must be $500,000 or a greater integral multiple of $100,000.
/2/ Must be at least the Business Day after date of request.
/3/ Must be a Responsible Officer of Borrower.
Exhibit D-1
-----------
<PAGE>
EXHIBIT D-2
-----------
COMPLIANCE CERTIFICATE
----------------------
AGENT: Bank One, Texas, N.A. DATE:_____________, 19___
BORROWER: Matrix Capital Corporation
SUBJECT PERIOD: ____________________ ended _______________, 199___
================================================================================
This certificate is delivered under the Credit Agreement (as renewed,
extended, and amended, the "CREDIT AGREEMENT") dated as of March 12, 1997,
between Borrower, Agent, and certain Lenders. Terms defined in the Credit
Agreement have the same meanings when used, unless otherwise defined, in this
certificate.
The undersigned officer certifies to Agent and Lenders, that on the date of
this certificate:
1. The undersigned officer is the officer of Borrower designated below.
2. _________________________ (Borrower's or Matrix Bank's) Financial
Statements that are attached to this certificate were prepared in accordance
with GAAP and present fairly _________________________ (Borrower's or Matrix
Bank's) ____________________ (consolidated, consolidating, or both) financial
condition and results of operations as of (and for the fiscal year or portion of
the fiscal year ending on) the last day of the Subject Period.
3. The proceeds of all Borrowings have been promptly paid to Matrix Bank
as a contribution to its capital or have refinanced contributions to the capital
of Matrix Bank already made by Borrower and for none of which Borrower has
requested any other Borrowing. The Principal Debt of the Revolving Facility
does not exceed the least of (a) the Commitments for the Revolving Facility
(which are $6,000,000), (b) contributions to Matrix Bank's capital made by
Borrower since October 31, 1996 (which total $_____________), and (c) 40% of the
book value of Matrix Bank's issued and outstanding capital stock subject to
Lender Liens (which is 40% x $_____________ = $_____________).
4. The undersigned officer supervised a review of the Companies'
activities during the Subject Period in respect of the following matters and has
determined the following: (a) The representations and warranties in the Credit
Agreement are true and correct in all material respects, except (i) to the
extent that a representation or warranty speaks to a specific date or the facts
on which it is based have changed by transactions or conditions contemplated or
permitted by the Loan Documents and (ii) for the changes, if any, described on
the attached SCHEDULE 1; (b) each Company has complied with all of its
obligations under the Loan Documents, other than for the deviations, if any,
described on the attached SCHEDULE 1; (c) no Default or Potential Default exists
or is imminent, other than those, if any, described on the attached SCHEDULE 1;
and (d) the Companies' compliance with certain financial covenants in SECTIONS 8
and 9 of the Credit Agreement is accurately calculated on the attached SCHEDULE
1.
By
---------------------------------
Name:
---------------------------
/1/Title:
--------------------------
- --------------------
/1/ Must be a Responsible Officer of Borrower.
Exhibit D-2
<PAGE>
SCHEDULE 1
----------
A. Describe deviations from compliance with obligations, if any -- CLAUSE
4(A) and 4(B) of attached Compliance Certificate -- if none, so state:
B. Describe Potential Defaults or Defaults, if any -- CLAUSE 4(C) of the
attached Compliance Certificate -- if none, so state:
C. Calculate compliance with certain covenants in SECTIONS 8 and 9 at end
of Subject Period (on a consolidated basis, if applicable) -- CLAUSE 4(D) of the
attached Compliance Certificate. The following table is a short-hand reflection
of that compliance and must be completed fully in accordance with the express
language of the Credit Agreement:
<TABLE>
<CAPTION>
COVENANT AT END OF SUBJECT PERIOD
---------------------------------------------------------------------------- ------------------------
<S> <C> <C>
1. DISTRIBUTIONS--(S)8.4
(a) Year-to-date consolidated net income $
--------
(b) 50% of Line 1(a) $
--------
(c) Year-to-date non-cash income $
--------
(d) Year-to-date cash taxes $
--------
(e) Sum of Line 1(b) MINUS Line 1(c) MINUS Line 1(d) $
-------
(f) Distributions paid during this fiscal year -- MAY NOT EXCEED Line 1(e) $
-------
2. NET WORTH -- (S)9.1
(a) Initial minimum $27,500,000
(b) 50% of the Companies' cumulative Net Income (without deduction for $
losses) after December 31, 1996
--------
(c) 100% of net proceeds of issuance of Borrower's securities after date of $
Credit Agreement
--------
</TABLE>
Exhibit D-2
2
<PAGE>
<TABLE>
<CAPTION>
COVENANT AT END OF SUBJECT PERIOD
---------------------------------------------------------------------------- ------------------------
<S> <C> <C>
(d) SUM of Lines 2(a) through 2(c) $
-------
(e) Actual Net Worth -- MAY NOT BE LESS THAN Line 2(d) $
-------
3. ADJUSTED DEBT/NET WORTH -- (S)9.2
(a) Debt of Companies $
--------
(b) Bank repurchase obligations $
--------
(c) Escrow-arbitrage-type-facility obligations $
--------
(d) Deposits at Matrix Bank $
--------
(e) Matrix Bank loan obligations to FHLB $
--------
(f) Adjusted Debt -- SUM of Line 3(a) MINUS Lines 3(b) THROUGH 3(e) $
-------
(g) RATIO of Line 3(f) TO Line 2(e) -- MAY NOT EXCEED 4.0 to 1.0 _____ to 1.0
4. CASH FLOW/CMLTD -- (S)9.3 (calculated for each 4-fiscal-quarter period ending
on or after 3/31/97)
(a) Cash Distributions by Matrix Bank and Matrix Financial to Borrower $
--------
(b) Provision by Matrix Bank for loan losses $
--------
(c) For all Companies except Matrix Bank and Matrix Financial:
(i) Net income $
--------
(ii) Extraordinary gains $
--------
(iii) Extraordinary losses $
--------
(iv) Income Taxes $
--------
(v) Interest Expense $
--------
(vi) Depreciation $
--------
(vii) Amortization $
--------
(viii) SUM of Lines 4(c)(i), (iii), (iv), (v), (vi), and (vii) MINUS Line 4(c)(ii) $
--------
(d) Cash Flow -- SUM of Lines 4(a), 4(b), PLUS 4(c)(viii) $
-------
(e) Current maturities of long-term Debt of all Companies except Matrix $
Financial
-------
(f) RATIO of Line 4(d) to Line 4(e) -- MAY NOT BE LESS THAN 1.5 to 1.0 _____ to 1.0
</TABLE>
Exhibit D-2
3
<PAGE>
<TABLE>
<S> <C>
5. NET INCOME -- (S)9.4 (calculated only for Matrix Bank for each fiscal year ended $
on and after 12/31/97): Actual net income (less deduction for minority
interests) -- MAY NOT BE LESS THAN $2,500,000
-------
6. CAPITAL RATIO -- (S)9.5 (only for Matrix Bank)
(a) Maintains "well capitalized" designation by OTS for its "Risk Base
Capital" -- insert Yes or No
-------
(b) "Risk Base Capital Ratio" -- MAY NOT BE LESS THAN 10% %
-------
7. SERVICING PORTFOLIO -- (S)9.4
(a) Maintains "well capitalized" designation by OTS for its "Leverage" --insert Yes or No
-------
(b) "Leverage Ratio" -- MAY NOT BE LESS THAN 5.0% %
-------
8. CLASSIFIED ASSETS/TOTAL CAPITAL -- (S)9.7 (only for Matrix Bank)
(a) Classified Assets
(i) Assets classified as "substantial," "doubtful," or "loss" by regulators $
--------
(ii) Assets subject to other credit quality supervision $
--------
(iii) Other Real Estate owned $
--------
(iv) Other Impaired Assets $
--------
(v) SUM of Lines 8(a)(i) THROUGH 8(a)(iv) $
-------
(b) Total Capital
(i) Stated par value of common stock $
--------
(ii) Stated par value of perpetual preferred stock $
--------
(iii) Undivided profits, surplus, or retained earnings $
--------
(iv) "Loan Loss reserve" account $
--------
(v) Continuous reserve $
--------
(vi) SUM of Lines 8(b)(i) THROUGH 8(b)(vi) $
-------
(c) RATIO of Line 8(a)(v) TO Line 8(b)(vii) (stated as percentage) -- MAY NOT $
EXCEED 75%
-------
9. NET CHARGE OFFS/TOTAL LOANS -- (S)9.8 (only for Matrix Bank)
(a) Net Charge Offs $
-------
(b) Total loans $
-------
(c) RATIO of Line 9(a) TO Line 9(b) -- (stated as a percentage) -- MAY NOT %
EXCEED 0.50%
-------
10. ADJUSTED ASSETS/TOTAL ASSETS -- (S)9.9
(a) Adjusted Assets
(i) Cash $
--------
(ii) Cash Equivalents $
--------
(iii) Loans that are not non-residential commercial loans $
--------
(iv) Mortgage-backed Securities $
--------
(v) SUM of Lines 9(a)(i) THROUGH 9(a)(iv) $
-------
(b) Total Assets $
-------
(c) RATIO of Line 9(a)(v) TO Line 9(b) (stated as a percentage) -- MUST NOT BE %
LESS than greater of (1) minimum required under HOLA for "OTL" or (2)
60%
-------
</TABLE>
4
<PAGE>
EXHIBIT E
---------
OPINION OF COUNSEL
------------------
Matters to which Jenkens & Gilchrist, P.C., of Dallas, Texas, counsel to the
Companies, are to opine as of the Closing Date:
1. Each Company is a corporation or bank duly organized, validly
existing, and in good standing under the laws of the jurisdiction of its
organization and is duly qualified and in good standing as a foreign corporation
in each jurisdiction where qualification or licensing is required by the nature
of its business or the character and location of its property, business, or
customers and in which the failure to have such license, authorization, consent,
approval, or qualification, as the case may be, in the aggregate, could have a
material adverse effect on the ability of any Company to perform its obligations
under the Loan Documents.
2. Each Company possesses all requisite corporate power and authority to
conduct its business as is now being conducted and as proposed under the Loan
Documents to be conducted and to own and operate its assets as now owned and
operated and as proposed to be owned and operated under the Loan Documents.
3. The execution and delivery by each Company of each Loan Document to
which it is a party and the performance by it of its obligations under those
Loan Documents (a) are within its corporate power, (b) have been duly authorized
by all necessary corporate action, (c) require no action by or filing with any
governmental authority (except any action or filing that has been taken or made
on or before the date of this opinion), (d) do not violate any provision of its
charter or bylaws, and (e) do not violate any provision of law applicable to it
or any material agreement to which it is a party.
4. Each Loan Document constitutes a legal and binding obligation of each
Company party to it, enforceable against that Company in accordance with that
Loan Document's terms.
5. To the best of our knowledge, no Company is subject to, nor under the
threat of, any Litigation that is reasonably likely to be determined adversely
to any Company. There exist no outstanding and unpaid judgments against any
Company.
6. Borrower is duly registered under the Savings and Loan Holding Company
Act, as amended. No Company is subject to regulation under the Investment
Company Act of 1940 or the Public Utility Holding Company Act of 1935, as they
may be amended.
7. The Pledge Agreement creates valid security interests (the "SECURITY
INTERESTS") in the pledged securities described in it that have been issued by
Matrix Bank (the "COLLATERAL"). The Security Interests in the Collateral will
be properly perfected by Agent's possession of the Collateral.
Exhibit E
---------
<PAGE>
EXHIBIT F
---------
ASSIGNMENT AND ASSUMPTION AGREEMENT
-----------------------------------
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT is entered into effective as of
___________, 199_, between _________________________ ("ASSIGNOR"), and
____________________ ("ASSIGNEE").
MATRIX CAPITAL CORPORATION, a Colorado corporation ("BORROWER"), certain
lenders ("LENDERS"), and BANK ONE, TEXAS, N.A. (in its capacity as Agent for
Lenders, "AGENT"), are party to the Credit Agreement (as renewed, extended,
amended, or restated, the "CREDIT AGREEMENT") dated as of March 12, 1997, all of
the defined terms in which have the same meanings when used -- unless otherwise
defined -- in this agreement. This agreement is entered into as required by
SECTION 12.14 of the Credit Agreement and is not effective until consented to by
Borrower and Agent, which consents may not under the Credit Agreement be
unreasonably withheld.
ACCORDINGLY, for adequate and sufficient consideration, Assignor and
Assignee agree as follows:
(A) ASSIGNMENT AND ASSUMPTION. By this agreement, and effective as of
-------------------------
__________, 199__, (the "EFFECTIVE DATE"), Assignor sells and assigns to
Assignee (without recourse to Assignor) and Assignee purchases and assumes from
Assignor an interest in and to all of Assignor's Rights and obligations under
the Credit Agreement (except any Rights and obligations pertaining to Assignor's
role as Agent if applicable) as of the Effective Date, including, without
limitation, a ______% interest in Assignor's total Commitment, a corresponding
amount of the Principal Debt outstanding under Assignor's existing Notes, all
interest accruing in respect of the interests assigned above (collectively, the
"ASSIGNED INTERESTS") after the Effective Date, and all commitment fees accruing
in respect of the Assigned Interest after the Effective Date.
(B) ASSIGNOR PROVISIONS. Assignor (a) represents and warrants to Assignee
-------------------
that as of the Effective Date (i) $_____________ and $_____________ are
outstanding (without reduction for any assignments that have not yet become
effective) respectively under the Assignor's Term Note and Revolving Note, (ii)
Assignor is the legal and beneficial owner of the Assigned Interest, which is
free and clear of any adverse claim, and (iii) Assignor has not been notified of
an existing Default or Potential Default, and (b) makes no representation or
warranty to Assignee and assumes no responsibility to Assignee with respect to
(i) any statements, warranties, or representations made in or in connection with
any Loan Document, (ii) the execution, legality, validity, enforceability,
genuineness, sufficiency, or value of any Loan Document, or (iii) the financial
condition of any Company or the performance or observance by any Company of any
of its obligations under any Loan Document.
(C) ASSIGNEE PROVISIONS. Assignee (a) represents and warrants to Assignor,
-------------------
Borrower, and Agent that Assignee is legally authorized to enter into this
agreement and each other Loan Document to which it will become a party, (b)
confirms that it has received a copy of the Credit Agreement, copies of the
Current Financials, and such other documents and information as it deems
appropriate to make its own credit analysis and decision to enter into this
agreement, (c) agrees with Assignor, Borrower, and Agent that Assignee shall --
independently and without reliance upon Agent, Assignor, or any other Lender and
based on such documents and information as Assignee deems appropriate at the
time -- continue to make
<PAGE>
its own credit decisions in taking or not taking action under the Loan
Documents, (d) appoints and authorizes Agent to take such action as agent on its
behalf and to exercise such powers under the Loan Documents as are delegated to
Agent by the terms of the Loan Documents and all other reasonably-incidental
powers, (e) agrees with Assignor, Borrower, and Agent that Assignee shall
perform and comply with all provisions of the Loan Documents applicable to
Lenders in accordance with their respective terms, and (f) if Assignee is not
organized under the Laws of the United States of America or one of its states,
it (i) represents and warrants to Assignor, Agent, and Borrower that no Taxes
are required to be withheld by Assignor, Agent, or Borrower with respect to any
payments to be made to it in respect of the Obligation, and it has furnished to
Agent and Borrower two duly completed copies of either U.S. Internal Revenue
Service Form 4224, Form 1001, Form W-8, or any other form acceptable to Agent
that entitles Assignee to exemption from U.S. federal withholding Tax on all
interest payments under the Loan Documents, (ii) covenants to provide Agent and
Borrower a new Form 4224, Form 1001, Form W-8, or other form acceptable to Agent
upon the expiration or obsolescence of any previously delivered form according
to Law, duly executed and completed by it, and to comply from time to time with
all Laws with regard to the withholding Tax exemption, and (iii) agrees with
Agent and Borrower that, if any of the foregoing is not true or the applicable
forms are not provided, then Agent and Borrower (without duplication) may deduct
and withhold from interest payments under the Loan Documents any United States
federal-income Tax at the full rate applicable under the IRC.
(D) CREDIT AGREEMENT AND COMMITMENTS. From and after the Effective Date
--------------------------------
(a) Assignee shall be a party to the Credit Agreement and (to the extent
provided in this agreement) have the Rights and obligations of a Lender under
the Loan Documents and (b) Assignor shall (to the extent provided in this
agreement) relinquish its Rights and be released from its obligations under the
Loan Documents. On the Effective Date, after giving effect to this and certain
other assignment and assumption agreements that become effective on the
Effective Date, but without giving effect to any other assignments that have not
yet become effective, Assignor's and Assignee's Commitments will be as follows:
<TABLE>
<CAPTION>
LENDER TERM LOAN REVOLVING FACILITY COMBINED
COMMITMENTS
======= ============ ================== ============
Assignor $ $ $
---------------------------------------------
<S> <C> <C> <C>
Assignee
=======================================================
</TABLE>
(E) NOTES. Assignor and Assignee request Borrower to issue new Notes to
-----
Assignor and Assignee in the amounts of their respective commitments under
PARAGRAPH 4 above and otherwise issue these Notes in accordance with the Credit
Agreement. Upon delivery of those Notes, Assignor shall return to Borrower all
Notes previously delivered to Assignor under the Credit Agreement.
(F) PAYMENTS AND ADJUSTMENTS. From and after the Effective Date, Agent
------------------------
shall make all payments in respect of the Assigned Interest (including payments
of principal, interest, fees, and other amounts) to Assignee. Assignor and
Assignee shall make all appropriate adjustments in payments for periods before
the Effective Date by Agent or with respect to the making of this assignment
directly between themselves. Assignor agrees to apply any payments and proceeds
with respect to the Obligation ratably with Assignee.
2
<PAGE>
(G) CONDITIONS PRECEDENT. PARAGRAPHS 1 through 6 above are not effective
--------------------
until (a) counterparts of this agreement are executed by Assignor, Assignee,
Agent, and Borrower, and are delivered to Agent and Borrower and (b) pursuant to
SECTION 12.14(A)(II), Assignor pays to Agent an administrative transfer fee of
$2,500. If Agent is the Assignor, the requirement of SECTION 12.14(A)(II) is
waived with regard to this agreement.
(H) INCORPORATED PROVISIONS. Although this agreement is not a Loan
-----------------------
Document, the provisions of the Credit Agreement applicable to Loan Documents
are incorporated into this instrument by reference the same as if this agreement
were a Loan Document and those provisions were set forth in this agreement
verbatim.
(I) COMMUNICATIONS. For purposes of SECTION 12.2 of the Credit Agreement,
--------------
Assignee's address and telecopy number -- until changed under that section --
are beside its signature below.
(J) AMENDMENTS, ETC. No amendment, waiver, or discharge to or under this
---------------
agreement is valid unless in writing that is signed by the party against whom it
is sought to be enforced and is otherwise in conformity with the requirements of
the Credit Agreement.
(K) ENTIRETY. THIS AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN
--------
ASSIGNOR AND ASSIGNEE ABOUT ITS SUBJECT MATTER AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF ASSIGNOR
AND ASSIGNEE. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN ASSIGNOR AND
ASSIGNEE.
(L) PARTIES. This agreement binds and benefits Assignor, Assignee, and
-------
their respective successors and assigns as permitted under the documents.
EXECUTED as of the date first stated above.
<TABLE>
<S> <C>
_________________________, as Assignor ____________________________, as Assignee
By By
Name: Name
Title: Title
(Address)
-------------------------------
-------------------------------
-------------------------------
Attn:
-------------------------------
-------------------------------
-------------------------------
(Tel. No.)(___) ___-_____
(Fax No.)(___) ___-_____
</TABLE>
Exhibit F
---------
3
<PAGE>
As of the Effective Date, Agent and Borrower consent to this agreement and
the transactions con templated in it.
<TABLE>
<S> <C>
BANK ONE, TEXAS, N.A., as Agent MATRIX CAPITAL CORPORATION, as
Borrower
By
-------------------------------
Mark L. Freeman, Vice President By
-----------------------------------
Name:
--------------------------------
Title:
--------------------------------
</TABLE>
Exhibit F
4
<PAGE>
Exhibit 10.40
EXHIBIT A-1
-----------
TERM NOTE
---------
$_______________ March 12, 1997
FOR VALUE RECEIVED, MATRIX CAPITAL CORPORATION, a Colorado corporation
("BORROWER"), promises to pay to the order of ________________________________
("LENDER") $____________, together with interest.
This note is a "Term Note" under the Credit Agreement (as renewed,
extended, amended, or restated, the "CREDIT AGREEMENT") dated as of March 12,
1997, between Borrower, Lender, certain other Lenders, and Bank One, Texas,
N.A., as Agent for Lenders. All of the defined terms in the Credit Agreement
have the same meanings when used, unless otherwise defined, in this note.
This note incorporates by reference the principal and interest payment
terms in the Credit Agreement for this note, including, without limitation, the
final maturity, which is the Maturity Date. Principal and interest are payable
to the holder of this note through Agent at either (a) its offices at 1717 Main
Street, Dallas, Texas 75201, or (b) at any other address so designated by Agent
in written notice to Borrower.
This note incorporates by reference all other provisions in the Credit
Agreement applicable to this note, such as provisions for disbursements of
principal, applicable-interest rates before and after Default, voluntary and
mandatory prepayments, acceleration of maturity, exercise of Rights, payment of
attorneys' fees, court costs, and other costs of collection, certain waivers by
Borrower and other obligors, assurances and security, choice of Texas and United
States federal Law, usury savings, and other matters applicable to Loan
Documents under the Credit Agreement.
MATRIX CAPITAL CORPORATION,
as Borrower
By
----------------------------------------------
Guy A. Gibson, Chief Executive Officer and
President
Exhibit A-1
-----------
51
<PAGE>
Exhibit 10.41
EXHIBIT A-2
-----------
REVOLVING NOTE
--------------
$_______________ March 12, 1997
FOR VALUE RECEIVED, MATRIX CAPITAL CORPORATION, a Colorado corporation
("BORROWER"), promises to pay to the order of _________________________________
("LENDER") that portion of the principal amount of $_______________ that may
from time to time be disbursed and outstanding under this note together with
interest.
This note is a "Revolving Note" under the Credit Agreement (as renewed,
extended, amended, or restated, the "CREDIT AGREEMENT") dated as of March 12,
1997, between Borrower, Lender, certain other Lenders, and Bank One, Texas,
N.A., as Agent for Lenders. All of the defined terms in the Credit Agreement
have the same meanings when used, unless otherwise defined, in this note.
This note incorporates by reference the principal and interest payment
terms in the Credit Agreement for this note, including, without limitation, the
final maturity, which is the Maturity Date. Principal and interest are payable
to the holder of this note through Agent at either (a) its offices at 1717 Main
Street, Dallas, Texas 75201, or (b) at any other address so designated by Agent
in written notice to Borrower.
This note incorporates by reference all other provisions in the Credit
Agreement applicable to this note, such as provisions for disbursements of
principal, applicable-interest rates before and after Default, voluntary and
mandatory prepayments, acceleration of maturity, exercise of Rights, payment of
attorneys' fees, court costs, and other costs of collection, certain waivers by
Borrower and other obligors, assurances and security, choice of Texas and United
States federal Law, usury savings, and other matters applicable to Loan
Documents under the Credit Agreement.
MATRIX CAPITAL CORPORATION,
as Borrower
By
----------------------------------------------
Guy A. Gibson, Chief Executive Officer and
President
Exhibit A-2
-----------
52
<PAGE>
Exhibit 10.42
EXHIBIT B
---------
GUARANTY
--------
THIS GUARANTY is executed as of March 12, 1997, by the undersigned (each a
"GUARANTOR") for the benefit of BANK ONE, TEXAS, N.A., a national banking
association (in its capacity as Agent for the Lenders now or in the future party
to the Credit Agreement described below, "AGENT").
MATRIX CAPITAL CORPORATION, a Colorado corporation ("BORROWER"), Agent, and
Lenders have executed the Credit Agreement (as renewed, extended, amended, or
restated, the "CREDIT AGREEMENT") dated as of March 12, 1997. The execution and
delivery of this guaranty are requirements to Agent's and Lenders' execution of
the Credit Agreement, are integral to the transactions contemplated by the Loan
Documents, and are conditions precedent to Lenders' obligations to extend credit
under the Credit Agreement. The execution and delivery of this guaranty in no
way constitute a condition to or inducement to any Lender to extend any other
credit to any Guarantor.
ACCORDINGLY, for adequate and sufficient consideration, each Guarantor
agrees with Agent and Lenders as follows:
1. DEFINITIONS. Terms defined in the Credit Agreement have the same
-----------
meanings when used, unless otherwise defined, in this guaranty. As used in this
guaranty:
"AGENT" is defined in the preamble to this guaranty and includes its
successor appointed under the Loan Documents and acting as Agent for Lenders
under the Loan Documents.
"BORROWER" is defined in the recitals to this guaranty and includes,
without limitation, Borrower, Borrower as a debtor-in-possession, and any
receiver, trustee, liquidator, conservator, custodian, or similar party
appointed for Borrower or for all or substantially all of Borrower's assets
under any Debtor Law.
"CREDIT AGREEMENT" is defined in the recitals to this guaranty.
"GUARANTEED DEBT" means the Obligation, as defined in the Credit Agreement,
and all present and future costs, attorneys' fees, and expenses incurred by
Agent or any Lender to enforce Borrower's, Guarantor's, or any other obligor's
payment of any of the Obligation, including, without limitation, all present and
future amounts that would become due but for the operation of (S)(S) 502 or 506
or any other provision of Title 11 of the United States Code and all present and
future accrued and unpaid interest (including, without limitation, all post-
petition interest if Borrower voluntarily or involuntarily becomes subject to
any Debtor Law).
"GUARANTOR" is defined in the preamble to this guaranty.
"SUBORDINATED DEBT" means all present and future obligations of Borrower to
any Guarantor, whether those obligations are (a) direct, indirect, fixed,
contingent, liquidated, unliquidated, joint, several, or joint and several, (b)
due or to become due to any Guarantor, (c) held by or are to be held by any
Guarantor, (d) created directly or acquired by assignment or otherwise, or (e)
evidenced in writing.
Exhibit B
---------
53
<PAGE>
2. GUARANTY. Any Guarantor jointly and severally guarantees to Agent and
--------
Lenders the prompt payment of the Guaranteed Debt at (and at all times after)
maturity (by acceleration or otherwise). This is an absolute, irrevocable, and
continuing guaranty, and the circumstance that at any time or from time to time
the Guaranteed Debt may be paid in full does not affect the obligation of any
Guarantor with respect to the Guaranteed Debt incurred after that time. This
guaranty remains in effect until the Guaranteed Debt is fully paid and performed
and all commitments to extend any credit under the Credit Agreement have
terminated. No Guarantor may rescind or revoke its obligations with respect to
the Guaranteed Debt.
3. REPRESENTATIONS AND WARRANTIES. Each Guarantor jointly and severally
------------------------------
represents and warrants to Agent that (a) each Guarantor has the power and
authority to execute, deliver, and perform this guaranty, which any execution,
delivery, and performance does not violate any Law or agreement by which any
Guarantor or any of any Guarantor's assets is bound, (b) the value of the
consideration received and to be received by each Guarantor is reasonably worth
at least as much as that Guarantor's liability under this guaranty, and that
liability may reasonably be expected to directly or indirectly benefit that
Guarantor, (c) this guaranty constitutes a legal and binding obligation of each
Guarantor, enforceable against that Guarantor in accordance with its terms,
except as enforceability may be limited by applicable Debtor Laws and general
principles of equity, (d) all financial statements and other information about
each Guarantor's financial condition and cash flow are true and correct in all
material respects and fairly present that Guarantor's financial condition, cash
flows, material liabilities, and (e) each Guarantor is Solvent.
4. CUMULATIVE RIGHTS. If any Guarantor becomes liable for any
-----------------
indebtedness owing by Borrower to Agent or any Lender, other than under this
guaranty, that liability may not be in any manner impaired or affected by this
guaranty. The Rights of Agent or Lenders under this guaranty are cumulative of
any and all other Rights that Agent or Lenders may ever have against each
Guarantor. The exercise by Agent or Lenders of any Right under this guaranty or
otherwise does not preclude the concurrent or subsequent exercise of any other
Right.
5. PAYMENT UPON DEMAND. If a Default exists, each Guarantor shall (on
-------------------
demand and without further notice of dishonor and without any notice having been
given to any Guarantor previous to that demand of either the acceptance by Agent
or Lenders of this guaranty or the creation or incurrence of any Guaranteed
Debt) pay the amount of the Guaranteed Debt then due and payable to Agent and
Lenders. It is not necessary for Agent or Lenders, in order to enforce that
payment by any Guarantor, first or contemporaneously to institute suit or
exhaust remedies against Borrower or others liable on that indebtedness or to
enforce Rights against any collateral securing that indebtedness.
6. SUBORDINATION. The Subordinated Debt is expressly subordinated to the
-------------
full and final payment of the Guaranteed Debt. Each Guarantor agrees not to
accept any payment of any Subordinated Debt from Borrower if a Default exists.
If any Guarantor receives any payment of any Subordinated Debt in violation of
the foregoing, that Guarantor shall hold that payment in trust for Agent and
Lenders and promptly turn it over to Agent, in the form received (with any
necessary endorsements), to be applied to the Guaranteed Debt.
7. SUBROGATION AND CONTRIBUTION. Until the Guaranteed Debt has been paid
----------------------------
and performed in full (a) no Guarantor may assert, enforce, or otherwise
exercise any Right of subrogation to any of the Rights or Liens of Agent or
Lenders or any other beneficiary against Borrower or any other obligor on the
Guaranteed Debt or any collateral or other security or any Right of recourse,
reimbursement,
Exhibit B
---------
2
<PAGE>
subrogation, contribution, indemnification, or similar Right against Borrower or
any other obligor on any Guaranteed Debt or any guarantor of it, and (b) each
Guarantor irrevocably waives the benefit of, and any Right to participate in,
any collateral or other security given to Agent or Lenders or any other
beneficiary to secure payment of any Guaranteed Debt.
8. NO RELEASE. No Guarantor's obligations under this guaranty may be
----------
released, diminished, or affected by the occurrence of any one or more of the
following events: (a) any taking or accepting of any other security or
assurance for any Guaranteed Debt; (b) any release, surrender, exchange,
subordination, impairment, or loss of any collateral securing any Guaranteed
Debt; (c) any full or partial release of the liability of any other obligor on
the Obligation; (d) the modification of, or waiver of compliance with, any terms
of any other Loan Document; (e) the insolvency, bankruptcy, or lack of corporate
or partnership power of any party at any time liable for any Guaranteed Debt,
whether now existing or occurring in the future; (f) any renewal, extension, or
rearrangement of any Guaranteed Debt or any adjustment, indulgence, forbearance,
or compromise that may be granted or given by Agent or any Lender to any other
obligor on the Obligation; (g) any neglect, delay, omission, failure, or refusal
of Agent or any Lender to take or prosecute any action in connection with the
Guaranteed Debt; (h) any failure of Agent or any Lender to notify any Guarantor
of any renewal, extension, or assignment of any Guaranteed Debt, or the release
of any security or of any other action taken or refrained from being taken by
Agent or any Lender against Borrower or any new agreement between Agent, any
Lender, and Borrower, it being understood that neither Agent nor any Lender is
required to give any Guarantor any notice of any kind under any circumstances
whatsoever with respect to or in connection with any Guaranteed Debt, other than
any notice required to be given to any Guarantor elsewhere in this guaranty; (i)
the unenforceability of any Guaranteed Debt against any party because it exceeds
the amount permitted by Law, the act of creating it is ultra vires, the officers
creating it exceeded their authority or violated their fiduciary duties in
connection with it, or otherwise; or (j) any payment of the Obligation to Agent
or Lenders is held to constitute a preference under any Debtor Law or for any
other reason Agent or any Lender is required to refund that payment or make
payment to someone else (and in each such instance this guaranty will be
reinstated in an amount equal to that payment).
9. WAIVERS. Each Guarantor waives all Rights by which it might be
-------
entitled to require suit on an accrued Right of action in respect of any
Guaranteed Debt or require suit against Borrower or others, whether arising
under (S) 34.02 of the Texas Business and Commerce Code, as amended (regarding
its Right to require Agent or Lenders to sue Borrower on accrued Right of action
following its written notice to Agent or Lenders), (S) 17.001 of the Texas Civil
Practice and Remedies Code, as amended (allowing suit against it without suit
against Borrower, but precluding entry of judgment against it before entry of
judgment against Borrower), Rule 31 of the Texas Rules of Civil Procedure, as
amended (requiring Agent or Lenders to join Borrower in any suit against it
unless judgment has been previously entered against Borrower), or otherwise.
10. CREDIT AGREEMENT PROVISIONS. Each Guarantor acknowledges that certain
---------------------------
(a) representations and warranties in the Credit Agreement are applicable to it
and confirms that each such representation and warranty is true and correct, and
(b) covenants and other provisions in the Credit Agreement are applicable to it
or are imposed upon it and agrees to promptly and properly comply with or be
bound by each of them.
11. RELIANCE AND DUTY TO REMAIN INFORMED. Each Guarantor confirms that it
------------------------------------
has executed and delivered this guaranty after reviewing the terms and
conditions of the Loan Documents and such
Exhibit B
---------
3
<PAGE>
other information as it has deemed appropriate in order to make its own credit
analysis and decision to execute and deliver this guaranty. Each Guarantor
confirms that it has made its own independent investigation with respect to
Borrower's creditworthiness and is not executing and delivering this guaranty in
reliance on any representation or warranty by Agent or any Lender as to that
creditworthiness. Each Guarantor expressly assumes all responsibilities to
remain informed of the financial condition of Borrower and any circumstances
affecting Borrower's ability to perform under the Loan Documents to which it is
a party or any collateral securing any Guaranteed Debt.
12. NO REDUCTION. The Guaranteed Debt may not be reduced, discharged, or
------------
released because or by reason of any existing or future offset, claim, or
defense (other than credits toward outstanding amounts in respect of payments
under this guaranty and except for the defense of complete and final payment of
the Guaranteed Debt) of Borrower or any other party against Agent or Lenders or
against payment of the Guaranteed Debt, whether that offset, claim, or defense
arises in connection with the Guaranteed Debt or otherwise. Those claims and
defenses include, without limitation, failure of consideration, breach of
warranty, fraud, bankruptcy, incapacity/infancy, statute of limitations, lender
liability, accord and satisfaction, usury, forged signatures, mistake,
impossibility, frustration of purpose, and unconscionability.
13. BANKRUPTCY. If any Guarantor becomes insolvent, fails to pay
----------
Guarantor's debts generally as they become due, voluntarily seeks (or consents
to or acquiesces in) any benefits of any Debtor Law, or becomes a party to (or
is made the subject of) any proceeding under any Debtor Law (other than as a
creditor or claimant) that could suspend or otherwise adversely affect the
Rights of Agent or any Lender under this guaranty, then, in any such event, the
Guaranteed Debt is automatically (as between that Guarantor, Agent, and
Lenders), a fully matured, due, and payable obligation of that Guarantor to
Agent and Lenders (without regard to whether Borrower is then in default under
the Credit Agreement or whether any of the Obligation is then due and owing by
Borrower), payable in full (i.e., the estimated amount owing in respect of the
contingent claim created under this guaranty) by Guarantor to Agent and Lenders
upon demand.
14. LOAN DOCUMENT. This guaranty is a Loan Document and is subject to the
-------------
applicable provisions of SECTIONS 1 and 12 of the Credit Agreement, all of which
are incorporated into this guaranty by reference the same as if set forth in
this guaranty verbatim.
15. COMMUNICATIONS. For purposes of SECTION 12.2 of the Credit Agreement,
--------------
each Guarantor's address and telecopy number are set forth on the signature page
to this guaranty.
16. AMENDMENTS, ETC. No amendment, waiver, or discharge to or under this
----------------
guaranty is valid unless it is in writing and is signed by the party against
whom it is sought to be enforced and is otherwise in conformity with the
requirements of SECTION 12.10 of the Credit Agreement.
17. ENTIRETY. THIS GUARANTY REPRESENTS THE FINAL AGREEMENT BETWEEN THE
--------
PARTIES ABOUT THE SUBJECT MATTER OF THIS GUARANTY AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
18. AGENT AND LENDERS. Agent is the agent for each Lender under the
-----------------
Credit Agreement. All Rights granted to Agent under or in connection with this
guaranty are for each Lender's ratable
Exhibit B
---------
4
<PAGE>
benefit. Agent may, without the joinder of any Lender, exercise any Rights in
Agent's or Lenders' favor under or in connection with this guaranty. Agent's and
each Lender's Rights and obligations vis-a-vis each other may be subject to one
or more separate agreements between those parties. However, no Guarantor is
required to inquire about any such agreement and is not subject to any terms of
it unless that Guarantor specifically joins it. Therefore, neither any Guarantor
nor its successors or assigns is entitled to any benefits or provisions of any
such separate agreement or is entitled to rely upon or raise as a defense any
party's failure or refusal to comply with the provisions of it.
19. PARTIES. This guaranty benefits Agent, Lenders, and their respective
-------
successors and assigns and binds each Guarantor and each Guarantor's successors
and assigns. Upon appointment of any successor Agent under the Credit
Agreement, all of the Rights of Agent under this guaranty automatically vest in
that new Agent as successor Agent on behalf of Lenders without any further act,
deed, conveyance, or other formality other than that appointment. The Rights of
Agent and Lenders under this guaranty may be transferred with any assignment of
the Guaranteed Debt. The Credit Agreement contains provisions governing
assignments of the Guaranteed Debt and of Rights and obligations under this
guaranty.
REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGE FOLLOWS.
Exhibit B
---------
5
<PAGE>
EXECUTED as of the date first stated in this guaranty.
---------------------------------
as Guarantor
(address)
-------------------
------------------- By
-----------------------------
-------------------
Tel Name:
--------------- ----------------------
Fax Title:
--------------- ----------------------
Agent executes this guaranty in acknowledgment of PARAGRAPH 17 above.
BANK ONE, TEXAS, N.A., as Agent
By _______________________________
Mark L. Freeman, Vice President
Signature Page to Guaranty
Exhibit B
---------
58
<PAGE>
EXHIBIT 11
MATRIX CAPITAL CORPORATION
Computation of Earnings Per Share
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1994 1995 1996
--------- ----------- ---------
<S> <C> <C> <C>
Net income................................ $ 2,646 3,561 $ 3,273
--------- ----------- ---------
Earnings available to
common shareholders..................... 2,646 3,561 3,273
--------- ----------- ---------
Weighted average common
shares outstanding before
common equivalents...................... 3,750,001 3,888,939 4,255,196
Common equivalent stock
options and warrants.................... -- 38,690 42,252
--------- ----------- ---------
Weighted average outstanding
common and equivalent shares............ 3,750,001 3,927,629 4,297,448
--------- ----------- ---------
Earnings per common
and equivalent share.................... $ 0.71 $ 0.91 $ 0.76
--------- ----------- ---------
</TABLE>
<PAGE>
EXHIBIT 21
MATRIX CAPITAL CORPORATION
Subsidiaries of the Registrant
1. Matrix Financial Services Corporation - Incorporated in Arizona
2. United Financial, Inc. - Incorporated in Colorado
3. Matrix Capital Bank - Organized pursuant to a Federal savings and loan
charter
4. United Special Services, Inc. - Incorporated in Colorado
5. United Capital Markets, Inc. - Incorporated in Colorado
6. The Vintage Group Inc. - Incorporated in Texas
7. Vintage Delaware Holdings, Inc. - Incorporated in Delaware, wholly owned
subsidiary of The Vintage Group Inc.
8. Sterling Trust Company - Incorporated in Texas, wholly owned subsidiary of
Vintage Delaware Holdings, Inc.
9. First Matrix Investment Services Corp. - Incorporated in Texas, wholly owned
subsidiary of Vintage Delaware Holdings, Inc.
10. Matrix Funding Corp. - Incorporated in Colorado, wholly owned subsidiary of
Matrix Financial Services Corporation
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,319
<INT-BEARING-DEPOSITS> 9,499
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 213,400
<ALLOWANCE> 1,039
<TOTAL-ASSETS> 272,863
<DEPOSITS> 128,060
<SHORT-TERM> 82,754
<LIABILITIES-OTHER> 20,320
<LONG-TERM> 10,927
0
0
<COMMON> 1
<OTHER-SE> 30,801
<TOTAL-LIABILITIES-AND-EQUITY> 272,863
<INTEREST-LOAN> 16,084
<INTEREST-INVEST> 408
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 16,492
<INTEREST-DEPOSIT> 3,760
<INTEREST-EXPENSE> 10,490
<INTEREST-INCOME-NET> 6,002
<LOAN-LOSSES> 143
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 22,951
<INCOME-PRETAX> 5,379
<INCOME-PRE-EXTRAORDINARY> 3,273
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,273
<EPS-PRIMARY> .76
<EPS-DILUTED> .76
<YIELD-ACTUAL> 3.43
<LOANS-NON> 3,903
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 943
<CHARGE-OFFS> 63
<RECOVERIES> 16
<ALLOWANCE-CLOSE> 1,039
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,039
</TABLE>
