<PAGE>
As filed with the Securities and Exchange Commission on June 29, 1999
Registration Nos. 333-79731 and
333-79731-01
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
Amendment No. 1 to FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
--------------
Matrix Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Colorado
(State or other jurisdiction of incorporation or organization)
6035
(Primary Standard Industrial Classification Code Number)
84-1233716
(I.R.S. Employer Identification No.)
Matrix Bancorp Capital Trust I
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
6712
(Primary Standard Industrial Classification Code Number)
84-1505177
(I.R.S. Employer Identification No.)
1380 Lawrence Street, Suite 1400, Denver, Colorado 80204; (303) 595-9898
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Guy A. Gibson, Chief Executive Officer
Matrix Bancorp, Inc.
1380 Lawrence Street, Suite 1400
Denver, Colorado 80204
(303) 595-9898
with copies to:
Steven F. Carman Regina M. Pisa, P.C.
Blackwell Sanders Peper Martin Goodwin Procter & Hoar LLP
LLP Exchange Place
Two Pershing Square Boston, MA 02109-2881
2300 Main Street, Suite 1000 (617) 570-1000
Kansas City, MO 64108
(816) 983-8000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Approximate date of commencement of proposed sale to the public As soon as
practicable after the effective date of this registration statement
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box.
The Registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrants
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 29, 1999
1,100,000 Preferred Securities
[LOGO OF MATRIX Matrix Bancorp Capital Trust I
BANCORP APPEARS
HERE] % Trust Preferred Securities guaranteed by
Matrix Bancorp, Inc.
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The Trust: Matrix Bancorp Capital Trust I is a subsidiary of Matrix Bancorp,
Inc. and is a statutory business trust created under Delaware law.
The Offering: In connection with this offering, Capital Trust will:
. sell preferred securities to the public and common securities to Matrix
Bancorp;
. use the proceeds from these sales to buy an equivalent principal amount of
% junior subordinated debentures due , 2029 issued by Matrix
Bancorp; and
. distribute the cash payments it receives on the junior subordinated
debentures to the holders of the preferred and common securities.
The preferred securities represent undivided preferred beneficial interests
in the assets of Capital Trust.
If you purchase preferred securities, you will be entitled to receive
cumulative cash distributions at an annual rate of % of the $25 liquidation
amount of each preferred security. Distributions will begin to accumulate on
, 1999 and will be payable quarterly, in arrears, on March 31, June 30,
September 30, and December 31 of each year, beginning , 1999.
Matrix Bancorp can, on one or more occasions, defer interest payments on the
junior subordinated debentures for up to 20 consecutive quarterly periods. If
Matrix Bancorp defers interest payments, Capital Trust will also defer payment
of distributions on the preferred and common securities. During a deferral
period, distributions will continue to accumulate on the preferred and common
securities. Also, additional cash distributions will accumulate on any deferred
distributions at an annual rate of %, to the extent permitted by law.
Matrix Bancorp will fully and unconditionally guarantee Capital Trust's
payment obligations with respect to the preferred securities only to the extent
described in this prospectus. Capital Trust has applied to have the preferred
securities listed on the Nasdaq National Market under the symbol "MTXCP".
The preferred securities will be ready for delivery in book-entry form only
through The Depository Trust Company on or about , 1999.
Matrix Bancorp has granted the underwriters a 45-day option to purchase up to
165,000 additional preferred securities to cover over-allotments, if any.
Investing in the preferred securities involves certain risks which are
described in the "Risk Factors" section beginning on page 11 of this
prospectus. You should read this prospectus carefully before you invest in the
preferred securities.
Neither the SEC nor any state securities commission has approved or
disapproved of these securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
<TABLE>
<CAPTION>
Per trust preferred security Total
---------------------------- -----------
<S> <C> <C>
Public Offering Price................. $25.00 $27,500,000
Proceeds to Capital Trust............. $25.00 $27,500,000
</TABLE>
Capital Trust will use all proceeds to purchase the junior subordinated
debentures. Matrix Bancorp will pay all underwriting commissions, equal to
$1.00 per preferred security, or $1,100,000 in total. Matrix Bancorp has also
agreed to pay certain expenses of the underwriters in connection with the
offering.
Tucker Anthony Cleary Gull U. S. Bancorp Piper Jaffray
The date of this prospectus is , 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 11
Use of Proceeds........................................................... 16
Capitalization............................................................ 17
The Company............................................................... 18
Management................................................................ 44
Matrix Bancorp Capital Trust I............................................ 50
Selected Consolidated Financial and Operating Information................. 52
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 54
Market for the Preferred Securities....................................... 84
Accounting Treatment...................................................... 84
Description of the Preferred Securities................................... 85
Description of the Junior Subordinated Debentures......................... 97
Description of the Guarantee.............................................. 105
Expense Agreement......................................................... 107
Relationship Among the Preferred Securities, the Junior Subordinated
Debentures and the Guarantee............................................. 107
Certain Federal Income Tax Consequences................................... 109
ERISA Considerations...................................................... 113
Underwriting.............................................................. 114
Legal Matters............................................................. 115
Experts................................................................... 115
Available Information..................................................... 116
Financial Statements...................................................... F-1
</TABLE>
----------------
FORWARD-LOOKING STATEMENTS
The discussion contained in this prospectus contains forward-looking
statements that involve risks and uncertainties. You can identify these
forward-looking statements because they may include terms such as "believes,"
"anticipates," "intends," "expects," or similar expressions, and may include
discussions of future strategy. We caution you not to rely unduly on any
forward-looking statements in this prospectus. Our actual results could differ
materially from the forward-looking statements. The risk factors described
above and in our other filings could cause or contribute to these differences
and apply to all forward-looking statements wherever they appear in this
prospectus. However, there could be other factors not listed above or in our
other filings which may affect us and Capital Trust. We Capital Trust may not
publicly announce revisions to forward-looking statements contained in this
prospectus.
----------------
Certain persons participating in this offering may engage in transactions that
stabilize, maintain, or otherwise affect the price of the preferred securities
being offered, including over-alloting shares of the preferred securities and
bidding for and purchasing such securities at a level above that which
otherwise might prevail in the open market. For a description of these
activities, see "Underwriting." Such stabilizing transactions, if commenced,
may be discontinued at any time. In connection with this offering, certain
underwriters (and selling group members) may engage in passive market making
transactions in the preferred securities on the Nasdaq National Market in
accordance with Rule 103 of Regulation M. See "Underwriting."
----------------
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations not contained in this prospectus in
connection with the offering of the preferred securities. If given or made,
such information or representations must not be relied upon as having been
authorized by us or the underwriters. This prospectus does not constitute an
offer to sell, or a solicitation of an offer to buy, the preferred securities
in any jurisdiction where, or to any person to whom, it is unlawful to make
such offer or solicitation. Neither the delivery of this prospectus nor any
sale made hereunder shall, under any circumstances, imply that there has not
been any change in the facts in this prospectus or our affairs since the date
of this prospectus.
<PAGE>
SUMMARY
This summary highlights information contained in other places in this
prospectus. Because this is a summary, it does not contain all of the
information that may be important to you. You should read this entire
prospectus before you decide whether to invest in the preferred securities.
Matrix Bancorp, Inc.
Financial Services
We are a unitary thrift holding company that, through our subsidiaries,
focuses on traditional banking, mortgage banking and the administration of
self-directed trust accounts. We do so by:
. providing a broad range of personal and business depository, loan and
lending services in the communities served by our subsidiary, Matrix
Capital Bank;
. purchasing and selling single-family residential mortgage loans and
mortgage servicing rights;
. providing brokerage, consulting and analytical services to financial
services companies and financial institutions and providing interest rate
risk management services for clients in the mortgage banking industry;
. servicing residential mortgage loan portfolios for investors;
. originating single-family residential mortgage loans;
. providing trust administration services for self-directed qualified
retirement plans, individual retirement accounts, custodial and directed
trust accounts;
. providing real estate management and disposition services for investors
on foreclosed properties; and
. providing broker-dealer services to community banks, individuals and
deferred contribution plans.
We believe that the combination of our business lines is unique in the
banking industry and enhances our revenues and profitability.
Our principal executive offices are located at 1380 Lawrence Street, Suite
1400, Denver, Colorado 80204, and our telephone number is (303) 595-9898.
Subsidiaries
We conduct our operations through the following six principal subsidiaries:
. Matrix Capital Bank. Matrix Bank provides a full range of banking
services at its main office in Las Cruces, New Mexico, and at its
branches in Las Cruces and Sun City, Arizona. It also has loan offices in
Denver and Evergreen, Colorado. In addition, Matrix Bank holds the non-
interest-bearing custodial escrow deposits related to the operations of
our subsidiary, Matrix Financial, and the interest-bearing money market
accounts related to the operations of our subsidiary, Sterling Trust.
These deposits and accounts provide a significant amount of low-cost
deposits for Matrix Bank. Matrix Bank predominantly invests in single-
family residential mortgages.
. United Financial, Inc. United Financial provides brokerage and consulting
services to financial institutions and financial services companies in
the mortgage banking industry. United Financial also provides us with
valuable market information, including emerging trends in the market,
prevailing market prices and changes in the level of supply and demand
for our two most significant assets, single family residential mortgage
loans and mortgage servicing rights.
3
<PAGE>
. Matrix Financial Services Corporation. Matrix Financial purchases
mortgage loan servicing rights nationally in the secondary market,
services the underlying mortgage loans, and originates mortgage loans
through its wholesale loan origination network. Matrix Financial also
acts as sub-servicer on a majority of the mortgage loan portfolio owned
by Matrix Bank. Because Matrix Financial services loans secured by
property in all fifty states, Matrix Bank does not face the geographic
restrictions on mortgage purchase transactions that do most community
banks.
. Sterling Trust Company. Sterling Trust is a Texas non-bank trust company.
It specializes in administering self-directed individual retirement
accounts, qualified retirement plans, and custodial and directed trust
accounts.
. United Capital Markets, Inc. United Capital Markets is a registered
investment advisor that focuses on interest rate risk management services
for institutional clients. It provides those clients with a professional
outsourcing alternative to in-house interest rate risk management and to
Wall Street derivative products.
. United Special Services, Inc. United Special Services provides real
estate management and disposition services on foreclosed properties owned
by financial services companies and financial institutions.
Business Strategy
Our business strategy is to:
. expand our residential mortgage loan servicing portfolio within
identified niches to increase non-interest income, improve operational
efficiencies, and increase custodial escrow deposits;
. increase the size of Matrix Bank by expanding our residential loan
portfolio;
. cultivate revenue-enhancing relationships by sharing knowledge,
information and business opportunities among our subsidiaries; and
. diversify our revenue sources by developing new business lines and by
acquiring financial services businesses that are within, or that we
believe compliment, our existing lines of business.
Pursuant to this strategy, we:
. established an operational infrastructure that we believe can originate,
purchase and service significantly more residential mortgage loans than
it currently services;
. opened additional branches and loan production offices of Matrix Bank;
. formed United Capital Markets, United Special Services and Matrix
Advisory Services;
. acquired Sterling Trust; and
. expanded our management depth and experience.
Matrix Bancorp Capital Trust I
Capital Trust is a Delaware business trust. We created Capital Trust solely
to:
. issue and sell its common securities to us;
. issue and sell its preferred securities to the public;
. use the proceeds it receives from the sale of its preferred securities
and common securities to purchase the junior subordinated debentures from
us; and
. engage in activities incidental to the activities described above.
The principal executive office and telephone number of Capital Trust are the
same as ours.
4
<PAGE>
The Offering
Preferred Securities.... The preferred securities represent preferred
undivided beneficial interests in the assets of
Capital Trust. Capital Trust is offering 1,100,000
preferred securities in this offering for $25 per
preferred security. In addition, the underwriters may
exercise an option within 45 days after the date of
the offering to purchase up to an additional 165,000
preferred securities at the initial offering price,
solely to cover over-allotments, if any.
If you purchase preferred securities, you will be
entitled to receive cumulative cash distributions on
each preferred security at an annual rate of % of
the liquidation amount of $25 per preferred security.
You will also be entitled to receive the liquidation
amount if Capital Trust is dissolved and its assets
are distributed to the holders of its securities, but
only if Capital Trust has enough assets available for
distribution after it has paid liabilities owed to
its creditors. Accordingly, you may not receive the
full amount if Capital Trust does not have enough
funds.
Distributions will accumulate from , 1999.
Capital Trust will pay the distributions at the end
of each calendar quarter, commencing , 1999.
These distributions may be deferred for up to 20
consecutive quarters as described below under "--
Deferral of Distributions." Capital Trust will only
pay distributions when it has funds available for
payment. Payments of distributions are described more
fully under "Description of the Preferred
Securities--Distributions--Payment of Distributions."
If you purchase preferred securities, you will have
no voting rights except in limited circumstances. The
extent of your limited voting rights are described
under "Description of the Preferred Securities--
Voting Rights; Amendment of the Trust Agreement."
Common Securities....... We will acquire all of the common securities of
Capital Trust. The common securities will represent
an aggregate liquidation amount equal to at least 3%
of the total capital of Capital Trust. Normally, the
common securities will have sole voting power on
matters to be voted on by Capital Trust's security
holders.
Junior Subordinated
Debentures.............. Capital Trust will purchase the junior subordinated
debentures from us with the proceeds from the sale of
its preferred securities and its common securities.
We will issue the junior subordinated debentures
under an indenture between us and State Street Bank
and Trust Company, as trustee. Our junior
subordinated debentures will be the only assets of
Capital Trust, and payments under our junior
subordinated debentures will be the only revenue of
Capital Trust.
The junior subordinated debentures will:
. be junior in right of payment to all of our senior
debt and subordinated debt, including debt we incur
after the date you purchase the preferred
securities;
5
<PAGE>
. have an aggregate principal amount equal to the
aggregate liquidation amount of the preferred
securities plus the capital contributed by us for
the common securities;
. bear interest at an annual rate of %; and
. mature on , 2029, although they may be redeemed
earlier.
Guarantee of the
Preferred Securities... We have executed a guarantee that requires us to pay
accrued and unpaid distributions and payments on
liquidation or redemption of the preferred
securities, but only in each case to the extent of
funds held by Capital Trust. The guarantee will not
apply to any distributions until Capital Trust has
sufficient funds to pay the distributions to you. If
we do not pay principal or interest due under the
junior subordinated debentures, Capital Trust will
not have sufficient funds to make distributions on
the preferred securities.
Although the guarantee alone is not a complete
guarantee of the preferred securities, we and Capital
Trust believe that we have fully, irrevocably and
unconditionally guaranteed all of the obligations of
Capital Trust under the preferred securities through
the combination of the guarantee and our additional
obligations under the trust agreement, the indenture
and the expense agreement.
The guarantee is more fully described in this
prospectus under "Description of the Guarantee."
Ranking................. The preferred securities will rank equally with the
common securities, and Capital Trust will pay
distributions on the preferred securities and the
common securities based on a proportionate
allocation, except in either case after an event of
default. For a more detailed explanation, see
"Description of the Preferred Securities--
Subordination of the Common Securities."
The junior subordinated debentures will rank equally
with any other junior subordinated debentures issued
by us to any other trusts similar to Capital Trust.
The junior subordinated debentures will be unsecured
and will rank subordinate in right of payment to all
of our current and future senior debt, subordinated
debt and additional senior obligations. For a more
detailed explanation, see "Description of the Junior
Subordinated Debentures."
The guarantee will rank equally with any other
guarantee issued by us to any other trusts similar to
Capital Trust. The guarantee will be unsecured and
will rank subordinate in right of payment to all of
our current and future senior debt, subordinated debt
and additional senior obligations. For a more
detailed explanation, see "Description of the
Guarantee."
Because we are a holding company, the junior
subordinated debentures and the guarantee will be
effectively subordinated to all existing and future
liabilities of our subsidiaries, including Matrix
Bank's deposit
6
<PAGE>
liabilities. For a more detailed explanation, see
"Description of the Junior Subordinated Debentures--
Subordination."
Deferral of
Distributions........... We can defer payments of interest on the junior
subordinated debentures for up to 20 consecutive
quarters, but not beyond their maturity date, unless
we are in default under the junior subordinated
debentures. After we make all interest payments that
may be deferred, including accrued interest on the
deferred payments, we can again defer interest
payments during new periods of up to 20 consecutive
quarters as long as we adhere to the same
requirements.
If we defer interest payments on the junior
subordinated debentures, Capital Trust will defer
quarterly distributions on the preferred securities.
During any deferral period, distributions will
continue to accumulate on the preferred securities
and will accrue interest at an annual rate of %
compounded quarterly.
During any period in which we are deferring interest
payments on the junior subordinated debentures, we
cannot pay any cash distributions with respect to our
capital stock or debt securities that are of equal or
lower rank than the junior subordinated debentures.
If we defer payments of interest on the junior
subordinated debentures, you will be required to
include deferred interest income in your gross income
for United States federal income tax purposes before
you have received deferred interest payments. See
"Certain Federal Income Tax Consequences--Potential
Extension of Interest Payment Period and Original
Issue Discount" for a more complete discussion.
Redemption of Preferred
Securities............. Capital Trust will redeem preferred securities to the
extent we redeem the junior subordinated debentures.
We may redeem all or some of the junior subordinated
debentures before their maturity on or after ,
2004. In addition, we may redeem all (and not less
than all) of the junior subordinated debentures at
any time within 180 days following the occurrence of
the events described in "Description of the Preferred
Securities--Redemption or Exchange." In each case,
the redemption price will be $25 for each junior
subordinated debenture being redeemed, plus any
accrued but unpaid interest to the date of
redemption.
Distribution of the
Junior Subordinated
Debentures............. We have the right to dissolve Capital Trust at any
time. If we dissolve Capital Trust, it will first pay
any liabilities to its creditors and then will
distribute your pro rata share of the junior
subordinated debentures to you. If the junior
subordinated debentures are distributed, we will use
our reasonable best efforts to obtain quotation of
the junior subordinated debentures on the Nasdaq
National Market or any other automated quotations
system or securities exchange on which the preferred
securities are then listed.
7
<PAGE>
Use of Proceeds.........
Capital Trust will invest all of the proceeds from
the sale of the preferred securities in the junior
subordinated debentures. We intend to use the net
proceeds from the sale of the junior subordinated
debentures estimated to be $26.1 million to redeem
our outstanding senior subordinated notes due July
15, 2002, to make a contribution to Matrix Bank to
fund its operations, to make a contribution to Matrix
Financial to fund its operations, to redeem other
higher-interest rate indebtedness when appropriate
and for other general corporate purposes. Such uses
may change if we are presented with an opportunity
for a strategic acquisition in an existing or
complementary line of business. We from time to time
have had preliminary discussions relating to the
purchase by us of financial services companies,
although we have no agreements or understandings at
this time for any such purchase, and there can be no
assurance that any such purchase will occur. Until
the proceeds are invested as described above, we may
use a part of the proceeds to pay down a portion of
the outstanding balance under our bank stock loan.
Form of Preferred
Securities.............. The preferred securities will be represented by one
or more global securities that will be deposited with
and registered in the name of the Depository Trust
Company or its nominee. This means that you will not
receive a certificate for your securities. Rather,
your broker will maintain your position in the
preferred securities.
Listing of the
Preferred Securities... The Company has applied to have the preferred
securities approved for quotation on the Nasdaq
National Market under the symbol "MTXCP".
8
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
The following summary 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," each
of which is included elsewhere in this prospectus. In February 1997, we
completed the acquisition of The Vintage Group, of which Sterling Trust is a
subsidiary, in a transaction accounted for as a pooling of interests. As a
result of the pooling, our historical financial and other information has been
restated to include the financial and other information of The Vintage Group.
<TABLE>
<CAPTION>
As of and for the
As of and for the Quarter Ended
Year Ended December 31, March 31,
------------------------------------ ----------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Income Data
Net interest income
before provision for
loan and valuation
losses................. $ 6,059 $ 13,888 $ 24,190 $ 4,433 $ 7,228
Provision for loan and
valuation losses....... 143 874 4,607 450 675
---------- ---------- ---------- ---------- ----------
Net interest income..... 5,916 13,014 19,583 3,983 6,553
---------- ---------- ---------- ---------- ----------
Non-interest income..... 26,587 38,029 46,745 10,919 14,206
Non-interest expense.... 26,655 37,746 52,939 11,378 16,859
---------- ---------- ---------- ---------- ----------
Income before income
taxes.................. 5,848 13,297 13,389 3,524 3,900
Income taxes............ 2,278 5,159 4,876 1,339 1,395
---------- ---------- ---------- ---------- ----------
Net income.............. $ 3,570(1) $ 8,138 $ 8,513 $ 2,185 $ 2,505
========== ========== ========== ========== ==========
Net income per share
assuming dilution(2)... $ 0.68 $ 1.20 $ 1.24 $ 0.33 $ 0.37
Weighted average common
shares assuming
dilution............... 5,077,321 6,781,808 6,881,890 6,841,679 6,848,571
Cash dividends(3)....... $ 201 $ -- $ -- $ -- $ --
Balance Sheet Data
Total assets............ $ 274,559 $ 606,745 $1,012,640 $ 698,517 $ 996,519
Total loans, net........ 212,361 511,372 848,448 573,586 803,002
Mortgage servicing
rights, net............ 23,680 36,440 58,147 48,845 67,437
Deposits and custodial
escrow balances(4)(5).. 128,060 278,742 587,340 391,990 642,220
Total shareholders'
equity................. 32,270 40,610 49,354 42,797 51,869
Operating Ratios and
Other Selected Data
Return on average
assets(6).............. 1.69% 1.78% 1.02% 1.35% 0.98%
Return on average
equity(6).............. 24.30 22.71 18.92 21.22 19.83
Average equity to
average assets(6)...... 6.97 7.86 5.41 6.35 4.97
Net interest
margin(6)(7)........... 3.45 3.70 3.37 3.14 3.34
Operating efficiency
ratio(8)............... 74.20 60.14 59.74 63.73 56.61
Total amount of loans
purchased.............. $ 159,015 $ 493,693 $ 678,150 $ 110,674 $ 25,016
Balance of owned
servicing portfolio
(end of period)........ 2,505,036 3,348,062 5,357,729 4,325,559 6,196,744
Trust assets under
administration (end of
period)................ 1,162,231 1,437,478 2,089,562 1,555,486 2,228,682
Wholesale loan
origination volume..... 583,279 402,984 574,963 151,330 134,766
Ratio of Earnings to
Fixed Charges(9)
Including interest on
deposits.............. 1.54x 1.71x 1.36x 1.47x 1.37x
Excluding interest on
deposits.............. 1.84x 2.30x 1.64x 1.77x 1.73x
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
As of and for the
As of and for the Quarter Ended
Year Ended December 31, March 31,
------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Loan Performance Ratios
Non-performing loans and
leases/total loans(10)........ 1.83% 0.97% 1.55% 1.13% 1.92%
Non-performing assets/total
assets(10).................... 1.89 1.03 1.39 1.09 1.72
Net loan charge-offs/average
loans(6)...................... 0.03 0.04 0.38 0.03 0.02
Allowance for loan and
valuation losses/total loans.. 0.49 0.34 0.44 0.35 0.52
Allowance for loan and
valuation losses/non-
performing loans.............. 26.62 35.19 28.09 31.13 27.02
</TABLE>
- --------
(1) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Comparison of Results of Operations for Fiscal
Years 1997 and 1996--Loan Origination Income" for a discussion of the
impact on net income of a secondary marketing loss incurred in March 1996.
(2) Net income per common share assuming dilution 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.
(3) Represents dividends paid by The Vintage Group prior to our acquisition of
The Vintage Group.
(4) Following our acquisition of The Vintage Group in February 1997, Sterling
Trust moved approximately $80.0 million of fiduciary deposits from a third
party institution to Matrix Bank.
(5) Beginning in February 1998, Matrix Bank began accepting brokered deposits.
The total balance of brokered deposits was $129.0 million at March 31,
1999, $148.7 million at December 31, 1998, and $80.1 million at March 31,
1998.
(6) Calculations are based on average daily balances where available and
monthly averages otherwise.
(7) Net interest margin has been calculated by dividing net interest income
before loan and valuation loss provision by average interest-earning
assets.
(8) The operating efficiency ratio has been calculated by dividing non
interest expense excluding amortization of mortgage servicing rights by
operating income. Operating income is equal to net interest income before
provision for loan and valuation losses plus non interest income.
(9) For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of income before taxes plus interest and rent expense.
Fixed charges consist of interest and rent expense.
(10) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Asset and Liability Management--Non-performing
Assets" for a discussion of the impact of certain bulk purchases of
mortgage loan portfolios on the level of non-performing loans and
foreclosed real estate, and the effect of repurchasing sub-prime
automobile loans.
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RISK FACTORS
An investment in the preferred securities involves a number of risks. You
should carefully consider the following information about risks concerning the
preferred securities and us, together with the other information in this
prospectus, before buying any preferred securities.
Because Capital Trust will rely on the payments it receives on the junior
subordinated debentures to fund all payments on the preferred securities, and
because Capital Trust may distribute the junior subordinated debentures in
exchange for the preferred securities, you are making an investment decision
with regard to the junior subordinated debentures as well as the preferred
securities. You should carefully review the information in this prospectus
about both of these securities, us and the guarantee.
Risk Factors Relating to the Preferred Securities
If we do not make payments on the junior subordinated debentures, Capital Trust
will not be able to make payments on the preferred securities and the guarantee
will not apply.
The ability of Capital Trust to timely pay amounts due on the preferred
securities depends solely upon our making the related payments on the junior
subordinated debentures when due. If we default on our obligation to pay
principal of or interest on the junior subordinated debentures, Capital Trust
will not have sufficient funds to pay distributions on, or the $25 liquidation
amount of, the preferred securities.
In that event, you will not be able to rely on the guarantee for payment
because the guarantee applies only when Capital Trust has funds available for
payment. Instead, you or the property trustee will have to sue us to enforce
the property trustee's rights under the indenture relating to the junior
subordinated debentures. See "Description of the Guarantee."
Payments on the junior subordinated debentures by us to Capital Trust, and
payments on the preferred securities by Capital Trust to you, will depend
primarily on any dividends we may receive from our subsidiaries, which may be
limited by regulations and debt covenants.
Capital Trust will depend solely on our payments on the junior subordinated
debentures in paying amounts due on the preferred securities. We are a separate
legal entity from our subsidiaries and do not have significant operations of
our own. Therefore, we will depend primarily on any dividends we receive from
our subsidiaries to pay interest on the junior subordinated debentures to
Capital Trust. The payment of dividends by our subsidiaries may be limited by
regulations and debt covenants. For a more complete discussion, see the
immediately following risk information and information under "Description of
the Preferred Securities" and "Management's Discussion and Analysis of
Financial Conditions and Results of Operations--Liquidity and Capital
Resources."
Most current and future creditors of us and our subsidiaries will get paid
before Capital Trust will get paid under the junior subordinated debentures and
before you will get paid under the guarantee.
Our obligations under the junior subordinated debentures and the guarantee
are unsecured and are subordinate in right of payment to all of our existing
and future senior debt, subordinated debt and additional senior obligations.
Neither the indenture nor the trust agreement enhances our ability to comply
with our payment obligations under the junior subordinated debentures or the
guarantee.
The junior subordinated debentures and the guarantee also are effectively
subordinated to all existing and future liabilities of our subsidiaries. Our
subsidiaries will pay their creditors before they pay dividends to us, and our
subsidiaries' creditors will generally have priority over us and you in any
distribution of our subsidiaries' assets in a liquidation, reorganization or
other transaction. In the event that distributions from our subsidiaries are
not sufficient to cover our payment obligations under the junior subordinated
debentures or the
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guarantee, we may be unable to make those payments. See "Description of the
Junior Subordinated Debentures--Subordination" and "Management's Discussion and
Analysis of Financial Conditions and Results of Operations--Liquidity and
Capital Resources."
We may defer interest payments under the junior subordinated debentures, which
could have adverse tax consequences for you.
We may defer the payment of interest on the junior subordinated debentures
at any time for up to 20 consecutive quarters, subject to certain limitations.
During any period in which we are deferring interest payments, Capital Trust
will defer quarterly distributions on the preferred securities. Deferred
distributions will accumulate with interest at the rate of % per annum
compounded quarterly from the normal distribution payment date.
During each period in which we are deferring interest payments, the United
States federal income tax laws will require you to accrue and recognize income
in the form of original issue discount on your pro rata share of the interest
accruing on the junior subordinated debentures held by Capital Trust. As a
result, you will be subject to United States federal income tax on this income
before you have received cash distributions on the preferred securities. In
addition, you will not receive the deferred cash distributions if you sell the
preferred securities before the record date for payment of the deferred
distributions, even if you held the preferred securities on the last day of a
quarter. See "Description of the Preferred Securities--Extension Period" and
"Certain Federal Income Tax Consequences--Potential Extension of Interest
Payment Period and Original Issue Discount."
The preferred securities may be redeemed prior to maturity; you may be taxed on
the proceeds at the time of redemption and you may not be able to reinvest the
proceeds at the same or a higher rate of return.
We may redeem the junior subordinated debentures prior to maturity within
180 days after the occurrence of the events described in "Description of the
Preferred Securities--Redemption or Exchange," at any time during the life of
Capital Trust. In addition, we may redeem the junior subordinated debentures
prior to maturity at any time after , 2004, so long as we have obtained
any approvals from regulatory agencies that are required at that time. If we
redeem the junior subordinated debentures, Capital Trust will redeem the
preferred securities. Under current United States federal income tax law, the
redemption of the preferred securities would be a taxable event to you. In
addition, you may not be able to reinvest the money you receive in an
investment with a similar or higher expected rate of return. See "Description
of the Junior Subordinated Debentures--Redemption or Exchange" and "Description
of the Preferred Securities--Redemption or Exchange."
We may require you to exchange your preferred securities for junior
subordinated debentures; this may have adverse tax consequences for you and the
junior subordinated debentures may trade at a lower price than the price you
paid for the preferred securities.
We may dissolve Capital Trust at any time before its expiration. In such an
event, the trustees will, after paying the creditors of Capital Trust,
distribute your share of the junior subordinated debentures to you.
We cannot predict the market prices for the junior subordinated debentures
that would be distributed upon the dissolution of Capital Trust. Accordingly,
the junior subordinated debentures that you receive in a distribution, or the
preferred securities that you hold pending the distribution, may trade at a
lower price than the price you paid to purchase the preferred securities.
Although we have agreed to use our reasonable best efforts in the event that
we dissolve Capital Trust to list the junior subordinated debentures for
quotation on the Nasdaq National Market or any other automated quotation system
or exchange on which the preferred securities are then listed, we cannot assure
you that the junior subordinated debentures would be approved for listing or
that a trading market would exist for the junior subordinated debentures.
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<PAGE>
Under current United States federal income tax laws, a distribution of
junior subordinated debentures to you upon the dissolution of Capital Trust
would not be a taxable event for you. If, however, Capital Trust were taxable
as a corporation at the time of its dissolution, then a distribution of junior
subordinated debentures to you may be a taxable event for you.
See "Description of Preferred Securities--Distribution of Junior
Subordinated Debentures" and "Certain Federal Income Tax Consequences--Receipt
of Junior Subordinated Debentures or Cash Upon Liquidation of the Trust."
You generally will not have voting rights, and we can amend the trust agreement
without your consent.
You will not have voting rights except in limited circumstances, and you
will not be able to appoint, remove or replace the property trustee or the
Delaware trustee. These rights generally reside with us as the holder of the
common securities. Even if it would adversely affect your rights, we may, with
the property trustee and the administrative trustees, amend the trust agreement
without your consent to ensure that Capital Trust will be classified as a
grantor trust for United States federal income tax purposes. See "Description
of the Preferred Securities--Voting Rights; Amendment of the Trust Agreement"
and "Description of the Preferred Securities--Removal of the Trust Trustees."
The market price for the preferred securities may decline after you invest.
There is no current public market for the preferred securities. There is no
guarantee that an active public market will develop for the preferred
securities. Even if an active public market does develop, there is no guarantee
that the market price for the preferred securities will equal or exceed the
price you paid in this offering.
The preferred securities may not trade at a price that accurately reflects
the value of accrued but unpaid interest on the underlying junior subordinated
debentures. In addition to other circumstances, our deferral of interest
payments on the junior subordinated debentures may cause the market price for
the preferred securities to decline.
The preferred securities are not insured.
Neither the Bank Insurance Fund of the Federal Deposit Insurance
Corporation, the Savings Association Insurance Fund of the Federal Deposit
Insurance Corporation, nor any other governmental agency has insured the
preferred securities.
Risk Factors Relating to the Company
We have a limited operating history upon which you can evaluate our
performance.
We have a limited operating history under our existing corporate structure.
We may encounter significant difficulties in integrating operations acquired or
commenced in the future. The shareholders of Matrix Financial and United
Financial formed Matrix Bancorp in 1993 to combine the operations of the two
predecessor companies. We purchased Matrix Bank in 1993, formed United Special
Services as a start-up operation in 1995, formed United Capital Markets in
1996, formed Matrix Advisory Services in 1997 and completed the acquisition of
Sterling Trust in 1997. This series of combinations, purchases and formations
has involved the integration of the operations of companies that previously
operated independently, or in the case of United Special Services, Matrix
Advisory Services and United Capital Markets, not at all.
We may not be able to effectively manage our growth.
Our business strategy, in part, is to expand our existing lines of business,
particularly in the area of servicing mortgage loans. Rapid expansion may
significantly burden our infrastructure, and our senior management may be
unable to oversee such expansion successfully. Our business strategy also is to
diversify
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into lines of business that are not now part of our core business. Our senior
management may not be able to effectively manage the development of new
business lines in which we have not previously participated. To the extent we
expand our existing lines of business or diversify into new lines of business
by acquisition, we may not be able to profitably manage and integrate such
acquisitions.
Fluctuating interest rates and other national or regional economic trends may
adversely affect our operating results and therefore our ability to perform our
obligations under the junior subordinated debentures.
Our mortgage loan servicing rights portfolio may be adversely affected
during periods of declining interest rates. The difference between interest
rates on existing mortgage loans and prevailing mortgage rates, as well as
other national and regional economic trends, such as recessions or depressed
real estate markets, influence the rate of prepayment of mortgage loans. The
rate of loan prepayments affects the total amount of servicing fees earned, as
well as the amortization of the investment of the servicing rights. Therefore,
both the market value of, and our income derived from, our portfolio of
mortgage loan servicing rights may decline during periods of declining interest
rates. Fluctuating interest rates can also cause the value of our loan
portfolio to decline. See "The Company--Mortgage Bank Activities--Hedging of
Servicing Rights" and "The Company--Mortgage Bank Activities--Residential
Mortgage Loan Origination."
A decline in markets where our mortgage loans and servicing rights are
geographically concentrated may adversely affect our ability to pay amounts due
under the junior subordinated debentures.
Our portfolio of residential mortgage loans and mortgage servicing rights is
concentrated in certain geographic areas. Consequently, the general trends in
the markets where concentration exists, particularly trends in residential real
estate markets, can significantly affect our ability to pay amounts due under
the junior subordinated debentures. An economic decline in a market in which
our portfolio is concentrated may adversely affect the values of properties
securing our loans, making our ability to recover losses if a borrower defaults
extremely unlikely. In addition, uninsured disasters such as earthquakes and
mudslides may adversely affect borrowers' ability to repay their loans and the
value of collateral supporting those loans, which could materially and
adversely affect our operations and financial condition.
Our ability to make payments on the junior subordinated debentures may vary
from quarter to quarter.
The number and magnitude of our purchases and sales of mortgage loans and
mortgage servicing rights can vary significantly from quarter to quarter. The
timing and receipt of our revenues from brokerage fees are also unpredictable.
These quarterly fluctuations can affect our ability to make payments on the
junior subordinated debentures. See "The Company--Mortgage Bank Activities" and
"--Brokerage and Consulting Services."
We may incur secondary marketing losses when we sell mortgage loans originated
by us.
Changes in interest rates from the time the interest rate on the customer's
loan is established to the time that we sell the loan can result in losses when
we sell loans we originated. See "The Company--Mortgage Bank Activities--
Hedging of Servicing Rights" and "--Residential Mortgage Loan Origination."
Our ability to pay amounts due under the junior subordinated debentures may be
adversely affected if our borrowers are delinquent or default.
Numerous lenders throughout the United States originated the loans in our
loan portfolio under various loan programs and underwriting standards. In order
to earn a higher return, our strategy includes purchasing loans that have had
or are having delinquencies. We assume substantially all of the risk associated
with our loan portfolio in the case of default. This risk includes the cost of
the foreclosure, the loss of interest and the potential loss of principal to
the extent that the value of the underlying collateral is not sufficient to
cover our investment in the loans. See "The Company--Purchase and Sale of Bulk
Loan Portfolios."
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Our revenues from mortgage loan servicing can also be adversely affected by
delinquencies and defaults.
We are also affected by mortgage loan delinquencies and defaults on mortgage
loans that we service. Under many types of mortgage servicing contracts, the
servicer must forward to the owner of the loan all or part of the scheduled
payments and mortgage and hazard insurance and tax payments even though
sufficient escrow funds may not have been paid by borrowers. Until we are able
to recover these advances, we must incur the cost of funds on the advance.
Further, we must bear the increased costs of attempting to collect delinquent
or defaulted mortgage loans and may experience losses if we are unable to
recover the advanced funds. See "The Company--Residential Loan Servicing
Activities."
If we sell mortgage loans or mortgage servicing rights and the underlying loan
defaults, we may be liable to the purchaser for unpaid principal and interest
on the loan.
In the ordinary course of selling mortgage loans or mortgage servicing
rights and in accordance with industry standards, we make certain
representations and warranties to purchasers. If a loan defaults and there has
been a breach of representations or warranties and we have no recourse against
a third party, we may become liable for the unpaid principal and interest on
the defaulted loan. In such a case, we may be required to repurchase the
mortgage loan and bear any subsequent loss on the loan. When we purchase
mortgage servicing rights or mortgage loans, we also are exposed to liability
to the extent that an originator or other seller of the servicing rights is
unable to honor its representations and warranties to us.
We are subject to extensive regulation that may adversely affect our ability to
operate and our ability to make the required payments on the junior
subordinated debentures.
We and our subsidiaries are subject to extensive regulation, examination and
supervision by the Office of Thrift Supervision and other federal and state
regulatory agencies. A change in existing regulations of the Office of Thrift
Supervision or other regulatory agencies could adversely affect our operations
and financial condition. Our ability to sell mortgage loans depends on the
continuation of programs administered by Fannie Mae, the Federal Home Loan
Mortgage Corporation and the Government National Mortgage Association, which
facilitate the sale of mortgage loans and the pooling of such loans into
mortgage-backed securities, as well as our continued eligibility to participate
in these programs. The discontinuation of, or a significant reduction in, the
operation of these programs would adversely affect our operations and financial
condition. If our eligibility were significantly impaired, our operations and
financial condition would be adversely affected because seller/servicer status
is vital to our servicing business. See "The Company--Residential Mortgage Loan
Origination--Sale of Loan Originations" and "Supervision and Regulation."
Charter schools to which we provide lease financing are subject to governmental
charter and appropriation laws that could adversely affect our operations.
We recently began offering lease financing to charter schools in several
states. If the sponsoring state government does not renew the charter of a
school to which we provide lease financing or fails to appropriate sufficient
funds for the school during the term of the financing, the school may not be
able to satisfy its obligations to us. The failure of one or more charter
schools to satisfy their obligations under lease financing arrangements with us
could have an adverse effect on our operations and financial condition. See
"The Company--Savings Bank Activities--Commercial and Other Lending."
Our operations may be adversely affected if we are unable to maintain and
increase our deposit base and secure adequate financing.
We fund our banking and mortgage banking activities, including the
acquisition of mortgage servicing rights and the acquisition and origination of
mortgage loans, through lines of credit, deposits and sale/repurchase
facilities from various financial institutions and from Federal Home Loan Bank
borrowings. Our business plan, including the profitable use of the proceeds of
this offering, depends in part on our ability to
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maintain and increase deposits and our ability to maintain our existing credit
facilities and to negotiate additional credit facilities for the acquisition of
mortgage servicing rights and other purposes. Our inability to obtain funding
on favorable terms, or at all, would adversely affect our operations and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
If we or certain persons with whom we do business fail to adequately address
the Year 2000 issue, our operations may be adversely affected.
Similar to many companies, we face the risk of computer software failures
because the software may not be able to process calendar dates beginning in the
year 2000. We also face Year 2000 risks from third party sources providing data
and/or services to us and from certain significant customers. If we, our
subsidiaries or third parties fail to adequately address and resolve the Year
2000 problems, our operations and financial condition could be adversely
affected. See "Management's Discussion and Analysis of Financial Conditions and
Results of Operations--Year 2000."
The loss of certain key personnel could adversely affect our operations.
We are dependent upon the continued services of our executive officers. The
loss of the services of any such officer could adversely affect our operations
and financial condition. We do not maintain key-man life insurance on any of
our executive officers. See "Management."
USE OF PROCEEDS
Capital Trust will use the gross proceeds from the sale of the preferred
securities and common securities to purchase junior subordinated debentures
from us. We intend to use the net proceeds from the sale of the junior
subordinated debentures estimated to be $26.1 million to redeem our outstanding
senior subordinated notes due July 15, 2002, to make a contribution to Matrix
Bank to fund its operations, to make a contribution to Matrix Financial to fund
its operations, to redeem other higher-interest rate indebtedness when
appropriate and for other general corporate purposes. Such uses may change if
we are presented with an opportunity for a strategic acquisition in an existing
or complementary line of business. We from time to time have had preliminary
discussions relating to the purchase by us of financial services companies,
although we have no agreements or understandings at this time for any such
purchase, and there can be no assurance that any such purchase will occur.
Until the proceeds are invested as described above, we may use a part of the
proceeds to pay down a portion of the outstanding balance under our bank stock
loan.
As a unitary thrift holding company, we are not currently subject to the
Federal Reserve capital requirements for bank holding companies, but it is
possible that in the future we could become subject to such or similar
requirements as a result of the acquisition of a bank or a change in
regulations. On October 21, 1996, the Federal Reserve announced that cumulative
preferred securities having the characteristics of the preferred securities
could be included as "Tier 1" Capital for bank holding companies. Such Tier 1
Capital treatment, together with our ability to deduct, for income tax
purposes, interest payable on the junior subordinated debentures, would provide
us with a more cost-effective means of obtaining capital for regulatory
purposes than if we were to issue preferred stock.
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CAPITALIZATION
The following table sets forth (a) our consolidated borrowings and
capitalization at March 31, 1999; and (b) our consolidated borrowings and
capitalization after giving effect to the issuance of the preferred securities
and common securities offered by Capital Trust and our receipt of the net
proceeds from the corresponding sale of the junior subordinated debentures to
Capital Trust, as if the sale of the preferred securities, common securities,
and junior subordinated debentures had been consummated on March 31, 1999, and
assuming the underwriters' over-allotment option was not exercised.
<TABLE>
<CAPTION>
As of
March 31, 1999
--------------------
Actual As Adjusted
-------- -----------
(In thousands)
<S> <C> <C>
Borrowings:
Borrowed money (1)...................................... $169,849 $169,849
Guaranteed preferred beneficial interests in the
Company's junior subordinated debentures (2)........... -- 27,500
Shareholders' Equity:
Common stock, par value $0.0001 per share; 50,000,000
shares authorized; 6,724,911 shares issued and
outstanding, actual and as adjusted.................... 1 1
Additional paid-in capital.............................. 22,426 22,426
Retained earnings....................................... 29,442 29,442
-------- --------
Total stockholders' equity............................ 51,869 51,869
-------- --------
Total capitalization (1).............................. $221,718 $249,218
======== ========
</TABLE>
- --------
(1) Does not include deposits, custodial escrow deposits or Federal Home Loan
Bank advances.
(2) In connection with the issuance of the guaranteed preferred beneficial
interest in the Company's junior subordinated debentures, we estimate we
will incur expenses of $1.5 million (including underwriters' compensation
of $1.1 million). The junior subordinated debentures will mature on ,
2029, which date may be shortened to a date no earlier than , 2004, if
certain conditions are met.
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THE COMPANY
Matrix Bancorp, Inc.
General
Matrix Bancorp, Inc. (occasionally referred to in this prospectus as "Matrix
Bancorp" or the "Company") is a unitary thrift holding company that, through
our subsidiaries, focuses on traditional banking, mortgage banking and the
administration of self-directed trust accounts. Our traditional banking
activities include originating and servicing residential, commercial and
consumer loans and providing a broad range of depository services. Our mortgage
banking activities consist of purchasing and selling residential mortgage loans
and residential mortgage servicing rights; offering brokerage, consulting and
analytical services to financial services companies and financial institutions;
servicing residential mortgage portfolios for investors; originating
residential mortgages; and providing real estate management and disposition
services. Our trust activities focus primarily on the administration of self-
directed individual retirement accounts, qualified retirement plans and
custodial and directed trust accounts, as well as offering specialized custody
and clearing services to investment professionals.
The Company was incorporated in Colorado in June 1993 and was formerly
called "Matrix Capital Corporation." In December 1998, we changed our name to
"Matrix Bancorp, Inc." The name change was approved by the shareholders at the
1998 Annual Meeting of Shareholders held on May 1, 1998. We believe that the
name change more accurately reflects the true nature of our banking and
investment activities. The trading symbol for our common stock on the NASDAQ
National Market is "MTXC."
The Subsidiaries
Our core business operations are conducted through the six operating
subsidiaries described below. See Note 19 to the Consolidated Financial
Statements included elsewhere in this prospectus for a presentation of
financial information by industry segment.
Matrix Capital Bank
With its main office in Las Cruces, New Mexico, full service branches in Sun
City, Arizona, and Las Cruces, New Mexico, and loan offices in Denver and
Evergreen, Colorado, Matrix Bank serves its local communities by providing a
broad range of personal and business depository services, offering residential
loans, and providing consumer and commercial real estate loans.
Matrix Bank also holds the non-interest-bearing custodial escrow deposits
related to the residential mortgage loan portfolio serviced by our subsidiary,
Matrix Financial, and the interest-bearing money market accounts administered
by our subsidiary, Sterling Trust. See "--Matrix Financial Services
Corporation" and "--The Vintage Group, Inc." These custodial escrow deposits
and money market accounts under administration, as well as other traditional
deposits, are used to fund bulk purchases of residential mortgage loan
portfolios throughout the United States, a substantial portion of which are
serviced for Matrix Bank by Matrix Financial following their purchase. As of
March 31, 1999, Matrix Bank had total assets of $826.0 million.
Matrix Bank and the other subsidiaries have significant experience in
purchasing and originating mortgage loans, have familiarity with real estate
markets throughout the United States, and have traditionally had access to
relatively low cost deposits. The resulting knowledge and activities permit
Matrix Bank to manage its funding and capital position in a way that enhances
its performance.
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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
and residential mortgage loans;
. corporate and mortgage loan servicing portfolio valuations, which
includes the "mark-to-market" valuation and analysis required under
Statement of Financial Accounting Standards No. 125; 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 the mortgage banking
entities of several of the nation's largest financial institutions. During
1997, United Financial brokered the sale of 91 mortgage loan servicing
portfolios totaling $33.4 billion in outstanding mortgage loan principal
balances, and during 1998 brokered the sale of 68 mortgage loan servicing
portfolios totaling $66.4 billion in outstanding mortgage loan principal
balances. During the three months ended March 31, 1999, United Financial
brokered the sale of 10 mortgage loan servicing portfolios totaling $13.8
billion in outstanding mortgage loan principal balances.
United Financial's volume of brokerage activity and the expertise of its
analytics department give us 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, we are often able to identify certain types of mortgage
loan servicing portfolios that are well suited to our particular servicing
platform and unique corporate structure.
Matrix Financial Services Corporation
Matrix Financial acquires mortgage servicing rights on a nationwide basis
through purchases in the secondary market, services the loans underlying the
mortgage servicing rights and originates mortgage loans through its wholesale
loan origination network.
As of March 31, 1999, Matrix Financial serviced 93,285 borrower accounts
representing $6.2 billion in principal balances, excluding $23.1 million in
sub-servicing for companies that are unaffiliated with us. The majority of
these accounts 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. These custodial escrow accounts are
maintained at Matrix Bank. At March 31, 1999, the custodial escrow accounts
related to our servicing portfolio maintained at Matrix Bank were $98.1
million.
During 1998, Matrix Financial originated $575.0 million in residential
mortgage loans primarily through its regional wholesale production offices
located in Atlanta, Denver, Las Vegas and Phoenix. During the three months
ended March 31, 1999, Matrix Financial originated $134.8 million in residential
mortgage loans. The mortgage loans originated by Matrix Financial are typically
sold in the secondary market.
The Vintage Group, Inc.
In early 1997, we acquired The Vintage Group. The Vintage Group has two
primary subsidiaries, Sterling Trust Company, headquartered in Waco, Texas, and
First Matrix Investment Services Corporation, headquartered in Arlington,
Texas.
Sterling Trust was incorporated in 1984 as a Texas non-bank trust company
specializing in the administration of self-directed individual retirement
accounts, qualified retirement plans, and custodial and directed trust
accounts. As of March 31, 1999, Sterling Trust administered 37,360 accounts
with assets under
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administration of over $2.2 billion, of which approximately $136.2 million
represented interest-bearing deposits under administration held at Matrix Bank.
First Matrix is a NASD broker/dealer that provides brokerage services to
financial institutions, individuals and deferred contribution plans.
United Capital Markets, Inc.
United Capital Markets is a registered investment advisor that focuses on
interest rate risk management services for institutional clients. It provides a
professional outsourcing alternative to in-house interest rate risk management
departments and to Wall Street derivative products.
United Capital Markets typically focuses on interest rate and prepayment
risk as they relate to specific objectives articulated to it by the client.
United Capital Markets' interest rate risk management strategy includes
modeling of asset risk, setting up and trading individual hedge accounts and
matching accounting practice and management goals. Although we believe that
United Capital Markets will ultimately be able to implement interest rate risk
management strategies for clients with respect to several asset classes, its
initial focus has been on the implementation of interest rate risk management
strategies for clients' portfolios of mortgage servicing rights.
United Capital Markets is managed by former senior executives from
nationally recognized investment banks and the mortgage banking industry with
many years of experience in interest rate risk management and hedging
strategies.
United Special Services, Inc.
United Special Services provides real estate management and disposition
services on foreclosed properties owned by financial services companies and
financial institutions. In addition to the unaffiliated clients currently
served by United Special Services, Matrix Financial uses United Special
Services exclusively in handling the disposition of its foreclosed real estate.
As of March 31, 1999, United Special Services had approximately 1,700
foreclosed properties under its management.
United Special Services also provides limited collateral valuation opinions
to clients 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.
Savings Bank Activities
General
Matrix Bank's main office is in Las Cruces, New Mexico. It also has branches
in Las Cruces and in Sun City, Arizona, and loan production offices in Denver
and Evergreen, Colorado. Through these locations, Matrix Bank serves its local
communities by providing a broad range of personal and business depository
services, offering residential and consumer loans and providing commercial real
estate loans, including Small Business Administration loans. 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."
Purchase and Sale of Bulk Loan Portfolios
In addition to its mortgage loan origination and servicing-related
activities, which are discussed under "--Mortgage Bank Activities," Matrix Bank
traditionally makes bulk purchases of residential mortgage loans
20
<PAGE>
in the secondary market. We believe that our structure provides advantages over
our competitors in the purchase of bulk mortgage loan packages. In particular:
. United Financial, through its networking within the mortgage banking
industry, is able to refer mortgage banking companies that are interested
in selling mortgage loan portfolios directly to Matrix Bank. This direct
contact reduces the number of portfolios that must be purchased through
competitive bid situations, thereby reducing the cost associated with the
acquisition of bulk residential mortgage loan portfolios.
. Matrix Bank's affiliation with Matrix Financial also provides servicing
advantages that a typical community bank does not possess. Matrix
Financial acts as a sub-servicer for a majority of Matrix Bank's mortgage
loan portfolio. Because Matrix Financial services loans throughout the
entire United States, Matrix Bank can acquire loans secured by property
located in any of the fifty states.
Substantially all of the residential mortgage loans that Matrix Bank
acquires are classified as held for sale. This accounting classification
requires Matrix Bank to carry the loans at the lower of aggregate cost or
market. The purchased loan portfolios typically include both fixed and
adjustable rate mortgage loans. Although Matrix Bank reviews many loan
portfolios for prospective acquisition, it focuses on acquiring seasoned first
lien priority loans secured primarily by one-to-four single family residential
properties with unpaid principal balances of less than $350,000. To the extent
that adjustable rate loans are available, Matrix Bank generally targets
adjustable over fixed rate portfolios. Due to the accounting treatment
required, we believe that the focus on seasoned and adjustable rate products
reduces the effect of increasing interest rates on the portfolio's market
value.
Matrix Bank purchases mortgage loan portfolios from various sellers who have
either originated the loans or, more typically, acquired the loan portfolios in
bulk purchases. Matrix Bank considers several factors prior to a purchase.
Among other factors, Matrix Bank 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 Matrix Bank and the product mix in its existing
mortgage loan portfolio.
In some cases, the mortgage loan portfolios that Matrix Bank 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 Matrix Bank with an
opportunity to resell the loans at a higher price if the purchase discount on
these 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 Matrix
Bank prior to reselling the loans. Matrix Bank 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, Matrix Bank prices each loan package based on the specific
underlying loan characteristics.
Matrix Bank also buys non-performing Federal Housing Administration and
Veteran's Administration loans from third party sellers. The Department of
Housing and Urban Development generally guarantees the principal and interest
on these non-performing loans, and in many cases, the terms of the purchase
require the seller to pass scheduled interest through to Matrix Bank and to
ultimately guarantee the collection of principal and interest. These loans are
at fixed rates and are anticipated to mature within a short period of time. As
of March 31, 1999, Matrix Bank owned $178.6 million of these loans.
Matrix Bank performs due diligence on each mortgage loan portfolio that it
desires to purchase on a bulk basis. These procedures which consist of
analyzing a representative sample of the mortgage loans in the portfolio, and
are typically performed by Matrix Bank employees, but occasionally are
outsourced to third party contractors. The underwriter takes into account many
factors and statistics in analyzing the sample of mortgage loans in the subject
portfolio, including:
21
<PAGE>
. 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; and
. the payment histories of the borrowers.
In addition, the underwriter attempts to verify that each sample loan conforms
to the standards for loan documentation set by Fannie Mae and the Federal Home
Loan Mortgage Corporation. In cases where a significant portion of the sample
loans contains non-conforming documentation, Matrix Bank assesses the
additional risk involved in purchasing these loans. This process helps Matrix
Bank determine whether the mortgage loan portfolio meets its investment
criteria and, if it does, the range of pricing that Matrix Bank feels is
appropriate.
Matrix Bank continually monitors the secondary market for purchases and
sales of mortgage loan portfolios and typically undertakes a sale of a
particular loan portfolio 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 Matrix Bank is unsuccessful in matching its
purchases and sales of mortgage loans, Matrix Bank may have excess capital,
resulting in less leverage and higher capital ratios.
During the year ended December 31, 1997, Matrix Bank made bulk purchases of
mortgage loans of approximately $493.7 million, and made bulk sales of
approximately $198.0 million, for a gain on sale of bulk mortgage loans of $2.4
million. During the year ended December 31, 1998, Matrix Bank made bulk
purchases of mortgage loans of approximately $678.2 million, and made bulk
sales of approximately $319.4 million, for a gain on sale of bulk mortgage
loans of $3.1 million. During the three months ended March 31, 1999, Matrix
Bank made bulk purchases of mortgage loans of approximately $25.0 million, and
made bulk sales of approximately $40.0 million, for a net gain on sale of bulk
mortgage loans of $532,400.
Commercial and Other Lending
Matrix Bank, through its commercial real estate division, has sought to
diversify and enhance the yield of its loan portfolio by originating commercial
and consumer loans and by offering a full range of lending products to its
customers. The Company offers a variety of commercial loan products, including:
. single family construction loans;
. commercial real estate loans;
. business loans;
. SBA loans; and
. financing to charter schools for the purchase of real estate and
equipment.
Matrix Bank's loan production office in Evergreen, Colorado, a suburb of
Denver, principally originates single family construction and commercial real
estate loans. Matrix Bank's main office in Las Cruces, New Mexico also
originates a portion of these loans.
Matrix Bank originates loans to builders for the construction of single
family properties and, to a lesser extent, for the acquisition and development
of improved residential lots. Matrix Bank generally makes these loans on
commitments that last from nine to eighteen months and typically adjust with
the prime rate of interest. In many cases, the residential properties have been
pre-sold to the homeowner.
Matrix Bank generally limits its commercial lending to income-producing real
estate properties. The repayment of loans collateralized by income-producing
properties depends upon the successful operation of the related real estate
property and also on the credit and net worth of the borrower. Thus, repayment
is subject to
22
<PAGE>
the profitable operation of the business of the borrower, conditions in the
real estate market, interest rate levels and overall economic conditions. Loans
on income-producing properties meet internal underwriting guidelines that
include:
. a limit on the loan-to-value ratio of 75%;
. a review of the borrower with regard to management talent, integrity,
experience and available financial resources; and
. generally, a personal guarantee of the borrower.
Matrix Bank's SBA division, recently opened during 1998, offers the
following loan products:
. SBA 7a loans;
. first trust deed loans under the SBA 504 program;
. first trust deed companion loans, also known as "piggyback" loans; and
. business and industry guaranteed loans offered through the United States
Department of Agriculture.
Matrix Bank has received preferred lender status under the SBA program in the
Denver, Colorado market area. Preferred lender status allows Matrix Bank to
approve SBA-guaranteed loan applications without prior review from the SBA,
thereby accelerating the approval process for small business loan applications.
Preferred lenders also receive priority funding and service from the SBA.
During 1998, we began to offer direct financing leases to charter schools
located primarily in Colorado, Arizona and Texas for the purchase of real
estate, modular space and equipment. Charter schools are public schools that
serve as an alternative to traditional public schools, thereby providing
additional academic choices for parents and students. The direct financing
leases are generally fully amortizing and completed on a tax-exempt basis.
During 1998, we originated $27.4 million of these leases. During the three
months ended March 31, 1999, we originated $1.3 million of these leases. We
originate the leases for resale, and as a result, classify the leases as held
for sale.
In addition, Matrix Bank offers a variety of lending products to meet the
specific needs of its customers. These products include secured installment
loans with fixed repayments, manufactured housing financing, credit card
programs, home equity loans, business loans and share loans. In addition to the
secured consumer loans, Matrix Bank extends unsecured loans on a very limited
basis to qualified borrowers based on their financial statements and
creditworthiness. Matrix Bank originates the majority of its consumer lending
within the Las Cruces, New Mexico market area.
Brokerage and Consulting Services
Brokerage Services
United Financial operates as one of the nation's leading full-service
mortgage servicing and mortgage loan brokers. It is capable of analyzing,
packaging, marketing and closing transactions involving servicing portfolios
and merger and acquisition transactions for mortgage banking entities. United
Financial markets its services to all types and sizes of market participants,
thereby developing diverse relationships. During 1998, United Financial
provided servicing brokerage services to each of the following clients:
AccuBanc Mortgage NationsBanc Mortgage
Chase Manhattan Mortgage Old Kent Mortgage
Crossland Mortgage Corp. PNC Mortgage Corporation of America
Harbor Financial Mortgage Corp. U.S. Bank
Mellon Mortgage
23
<PAGE>
Mortgage servicing rights are sold either on a bulk basis or a flow basis.
In a bulk sale, the seller identifies, packages and sells a portfolio of
mortgage servicing rights to a buyer in a single transaction. In a flow sale,
the seller agrees to sell to a specified buyer from time to time at a
predetermined price the mortgage servicing rights originated by the seller that
meet certain criteria. United Financial is capable of helping both buyers and
sellers with respect to bulk sales and flow sales of mortgage servicing rights.
We believe 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 our other subsidiaries and make referrals when
appropriate. See "--Consulting and Analytic Services."
The secondary market for purchasing and selling mortgage servicing rights
has become increasingly more active since its inception during the early 1980s.
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. Since companies must
capitalize originated mortgage servicing rights, management of mortgage
servicing assets has become even more critical. These management efforts,
combined with interest rate sensitivity of the assets and the growth strategies
of market participants, create constantly changing supply and demand, and
therefore constantly changing price levels, in the secondary market for
mortgage servicing rights.
The sale and transfer of mortgage servicing rights occurs in a market that
is inefficient and often requires an intermediary to match 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, reputation and market penetration, United Financial has access to
information on the availability of mortgage servicing portfolios, which helps
it bring together interested buyers and sellers.
In addition, United Financial provides brokerage services to buyers and
sellers of single family residential mortgage loans. United Financial provides
loan brokerage services to both servicing brokerage clients and non-servicing
brokerage clients.
Consulting and Analytic Services
United Financial has made a significant commitment to its analytics
department, which has developed expertise in helping companies implement and
track their "mark-to-market" valuations and analyses. United Financial has
enhanced its existing valuation models and has created a software program that
can be customized to fit its customers' many different needs and unique
situations in performing valuations and analyses. In addition, United Financial
has the infrastructure and management information system capabilities necessary
to undertake the complex analyses required by FAS 125. Many of the companies
affected by the implementation of FAS 125 have outsourced this function to a
third party rather than dedicate the resources necessary to develop systems for
and perform their own FAS 125 valuations.
Because FAS 125 requires that mortgage servicing portfolios be valued at the
lower of cost or market value on a quarterly basis, active management of
servicing assets has become a critical component to holders of mortgage
servicing rights. Due to the risk of impairment of mortgage servicing rights as
a result of constantly changing interest rates and prepayment speeds on the
underlying mortgage portfolio, risk management of mortgage servicing rights
portfolios by the holder of the portfolio, which typically takes the form of
hedging the portfolio, has become more prevalent. The FAS 125 "mark-to-market"
analyses done by United Financial help clients assess which of their portfolios
of mortgage servicing rights are most susceptible to impairment due to interest
rate and prepayment risk. Once identified, the analytics department of United
Financial is able to introduce the client to United Capital Markets, which in
turn is able to offer its interest rate risk management
24
<PAGE>
services relating to the identified or other mortgage servicing portfolios
owned by the client in order to meet the client's stated objectives.
United Capital Markets' primary strategy employs interest rate risk
management techniques that are different and more cost-efficient than products
offered by Wall Street firms. The United Capital Markets approach includes
modeling of asset risk, establishing and trading individual hedge accounts and
matching accounting practice and management goals. United Capital Markets
employs this strategy by calculating the appropriate mix of exchange-traded
treasury futures and options to offset the change in value of the clients'
portfolios. These calculations are completed with real time market pricing.
Monthly portfolio evaluations are calculated to insure correlation and
appropriate accounting treatment. The hedging instruments used have lower
transaction costs allowing both ease in rebalancing, if necessary, and daily
reporting. United Capital Markets uses a combination of futures and options to
match both the duration and convexity of the hedged asset. As of March 31,
1999, United Capital Markets was providing interest rate risk management
services to eight clients with approximately $15.1 billion of mortgage
servicing rights hedged.
We believe that combining the services offered by the analytics department
of United Financial with those of United Capital Markets provides us with a
competitive advantage in attracting and retaining clients because we are able
to offer financial services companies and financial institutions a more
complete package of services than our competitors. In addition, United
Financial is able to refer clients to Matrix Bank for financing opportunities
and to United Special Services for asset disposition services. The full range
of services offered by United Financial and its affiliates further strengthens
United Financial's client relationships.
Mortgage Bank Activities
Residential Mortgage Loan Servicing
Matrix Financial and Matrix Bank each has its own mortgage servicing
portfolio, but we conduct our residential servicing activities primarily
through Matrix Financial. Matrix Bank's mortgage servicing rights are typically
sub-serviced by Matrix Financial. At March 31, 1999, Matrix Financial serviced
approximately $6.2 billion of mortgage loans, including $2.0 billion sub-
serviced for Matrix Bank.
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. Matrix Bank invests this money in interest-
earning assets with returns that historically have been greater than could be
realized by Matrix Financial using the custodial escrow deposits as
compensating balances to reduce the effective borrowing cost on its warehouse
credit facilities.
As compensation for its mortgage servicing activities, Matrix Financial
receives servicing fees, plus any late charges collected from delinquent
borrowers and other fees incidental to the services provided. In the event of
default by the borrower, Matrix Financial receives no servicing fees until the
default is cured. For the three months ended March 31, 1999, Matrix Financial's
weighted-average servicing fee was 0.43%.
Servicing is provided on mortgage loans on a recourse or nonrecourse basis.
Matrix Financial's policy is to accept only a limited number of servicing
assets on a recourse basis. As of December 31, 1997 and 1998, and March 31,
1999, on the basis of outstanding principal balances, less than 1% of the
mortgage servicing contracts owned by Matrix Financial involved recourse
servicing. To the extent that servicing is done on a recourse basis, Matrix
Financial 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 Matrix Financial require Matrix Financial 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.
25
<PAGE>
Matrix Financial, 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 generally not fully reimbursable by Fannie Mae, the Federal Home
Loan Mortgage Corporation or the Government National Mortgage Association, for
which Matrix Financial provides significant amounts of mortgage loan servicing.
As of December 31, 1997 and 1998, and March 31, 1999, the Company had advanced
approximately $5.7 million, $7.9 million and $7.8 million, respectively, in
funds on behalf of third party investors.
Mortgage servicing rights represent a contractual right to service, and not
a beneficial ownership interest in, underlying mortgage loans. Failure to
service the loans in accordance with contract or other applicable requirements
may lead to the termination of the mortgage 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 Matrix Financial's
failure to service the loans in accordance with its obligations.
In order to track information on its servicing portfolio, Matrix Financial
utilizes a data processing system provided by Alltel Information Services, Inc.
Because Alltel is one of the largest mortgage banking service bureaus in the
United States, we believe that this system gives Matrix Financial capacity to
support anticipated expansion of its residential mortgage loan servicing
portfolio.
The following table sets forth certain information regarding the composition
of our mortgage servicing portfolio, excluding loans subserviced for others, as
of the dates indicated:
<TABLE>
<CAPTION>
As of December 31, As of March 31,
-------------------------------- ---------------
1996 1997 1998 1999
---------- ---------- ---------- ---------------
(In thousands)
<S> <C> <C> <C> <C>
FHA insured/VA guaranteed
residential................. $ 318,145 $ 699,056 $ 960,053 $ 944,251
Conventional loans........... 2,171,016 2,633,563 4,338,308 5,208,415
Other loans.................. 15,875 15,443 59,368 44,078
---------- ---------- ---------- ----------
Total mortgage servicing
portfolio................. $2,505,036 $3,348,062 $5,357,729 $6,196,744
========== ========== ========== ==========
Fixed rate loans............. $1,986,599 $2,691,409 $4,234,349 $5,223,741
Adjustable rate loans........ 518,437 656,653 1,123,380 973,003
---------- ---------- ---------- ----------
Total mortgage servicing
portfolio................. $2,505,036 $3,348,062 $5,357,729 $6,196,744
========== ========== ========== ==========
</TABLE>
The following table shows the delinquency statistics for the mortgage loans
serviced by us, excluding loans subserviced for others, compared with national
average delinquency rates as of the dates presented. Delinquencies and
foreclosures for the mortgage loans serviced by us generally exceed the
national average due to high rates of delinquencies and foreclosures on certain
bulk loan and bulk servicing portfolios that we acquired at a discount.
<TABLE>
<CAPTION>
As of December 31,
--------------------------------------------------------------------------------------------
1996 1997 1998
------------------------------ ------------------------------ ------------------------------
National National National
Company Average(1) Company Average(1) Company Average(1)
------------------- ---------- ------------------- ---------- ------------------- ----------
Number Percentage Percentage Number Percentage Percentage Number Percentage Percentage
of of Servicing of of of Servicing of of of Servicing of
Loans Portfolio Loans Loans Portfolio Loans Loans Portfolio Loans
------ ------------ ---------- ------ ------------ ---------- ------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans delinquent
for:
30-59 days...... 2,607 5.45% 3.04% 3,558 5.78% 3.03% 3,120 3.98% 2.96%
60-89 days...... 667 1.40 0.71 835 1.36 0.71 612 0.78 0.68
90 days and
over........... 684 1.43 0.62 912 1.48 0.62 712 0.91 0.60
----- ---- ---- ----- ---- ---- ----- ---- ----
Total
delinquencies.. 3,958 8.28% 4.37% 5,305 8.62% 4.36% 4,444 5.67% 4.24%
===== ==== ==== ===== ==== ==== ===== ==== ====
Foreclosures.... 264 0.55% 1.03% 447 0.73% 1.11% 727 0.93% 1.11%
===== ==== ==== ===== ==== ==== ===== ==== ====
<CAPTION>
As of March 31,
------------------------------
1999
------------------------------
National
Company Average(2)
------------------- ----------
Number Percentage Percentage
of of Servicing of
Loans Portfolio Loans
------ ------------ ----------
<S> <C> <C> <C>
Loans delinquent
for:
30-59 days...... 3,545 3.80% N/A%
60-89 days...... 749 0.80 N/A
90 days and
over........... 908 0.97 N/A
------ ------------ ----------
Total
delinquencies.. 5,202 5.57% N/A%
====== ============ ==========
Foreclosures.... 575 0.62% N/A%
====== ============ ==========
</TABLE>
- --------
(1) Source: Mortgage Bankers Association, "Delinquency Rates of 1- to 4-Unit
Residential Mortgage Loans" (Seasonally Adjusted) (Data as of December 31,
1996, 1997 and 1998, respectively).
(2) Data as of March 31, 1999 not yet available.
26
<PAGE>
The following table sets forth certain information regarding the number and
aggregate principal balance of the mortgage loans serviced by us, including
both fixed and adjustable rate loans, excluding loans subserviced for others,
at various interest rates:
<TABLE>
<CAPTION>
As of December 31,
---------------------------------------------------------------------------------------------
1996 1997 1998
---------------------------- ---------------------------- -----------------------------------
Percentage Percentage Percentage
of of of
Number Aggregate Aggregate Number Aggregate Aggregate Number Aggregate Aggregate Number
of Principal Principal of Principal Principal of Principal Principal of
Rate Loans Balance Balance Loans Balance Balance Loans Balance Balance Loans
---- ------ ---------- ---------- ------ ---------- ---------- ------ ---------- ---------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Less than 7.00%.. 3,545 $ 145,720 5.82% 2,968 $ 220,582 6.59% 7,123 $ 662,491 12.36% 6,972
7.00%-7.99%..... 12,269 726,800 29.01 13,836 915,789 27.35 22,341 1,799,472 33.59 26,062
8.00%-8.99%..... 14,011 838,215 33.46 19,800 1,121,807 33.51 26,702 1,859,471 34.71 34,042
9.00%-9.99%..... 9,567 413,598 16.51 15,780 696,575 20.80 15,557 731,586 13.65 17,820
10.00%-10.99%.... 6,322 301,837 12.05 9,086 390,956 11.68 6,067 284,637 5.31 7,414
11.00%-11.99%.... 1,144 45,111 1.80 37 2,110 0.06 251 9,441 0.18 740
12.00% and over.. 924 33,755 1.35 10 243 0.01 305 10,631 0.20 235
------ ---------- ------ ------ ---------- ------ ------ ---------- ------ ------
Total........... 47,782 $2,505,036 100.00% 61,517 $3,348,062 100.00% 78,346 $5,357,729 100.00% 93,285
====== ========== ====== ====== ========== ====== ====== ========== ====== ======
<CAPTION>
As of March 31,
---------------------
1999
---------------------
Percentage
of
Aggregate Aggregate
Principal Principal
Rate Balance Balance
---- ---------- ----------
<S> <C> <C>
Less than 7.00%.. $ 616,524 9.95%
7.00%-7.99%..... 2,162,641 34.90
8.00%-8.99%..... 2,310,017 37.28
9.00%-9.99%..... 755,209 12.18
10.00%-10.99%.... 324,544 5.24
11.00%-11.99%.... 21,158 0.34
12.00% and over.. 6,651 0.11
---------- ----------
Total........... $6,196,744 100.00%
========== ==========
</TABLE>
27
<PAGE>
Loan administration fees decrease as the principal balance on the
outstanding loan decreases and as the remaining time to maturity of the loans
shortens. The following table sets forth certain information regarding the
remaining maturity of the mortgage loans serviced by us, excluding loans
subserviced for others, as of the dates shown. The changes in the remaining
maturities as a percentage of unpaid principal between 1996, 1997 and 1998, as
reflected below, are the result of acquisitions of mortgage servicing rights
completed during 1997 and 1998.
<TABLE>
<CAPTION>
As of December 31,
------------------------------------------------------------------------------------------------------------
1996 1997 1998
--------------------------------------- --------------------------------------- ----------------------------
Percentage Percentage
Number Percentage Unpaid Unpaid Number Percentage Unpaid Unpaid Number Percentage Unpaid
of of Number Principal Principal of of Number Principal Principal of of Number Principal
Maturity Loans of Loans Amount Amount Loans of Loans Amount Amount Loans of Loans Amount
-------- ------ ---------- ---------- ---------- ------ ---------- ---------- ---------- ------ ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1-5 years........ 5,020 10.51% $ 77,136 3.08% 7,485 12.17% $ 103,761 3.10% 9,478 12.10% $ 216,441
6-10 years....... 8,784 18.39 184,629 7.37 11,405 18.54 257,208 7.68 21,320 27.21 943,428
11-15 years....... 6,418 13.43 340,282 13.58 14,325 23.29 589,747 17.62 10,231 13.06 534,187
16-20 years....... 14,066 29.44 566,862 22.63 9,600 15.61 558,605 16.68 7,870 10.04 545,628
21-25 years....... 7,006 14.66 545,336 21.77 7,427 12.07 687,563 20.54 12,524 15.99 1,184,562
More than 25
years............. 6,488 13.57 790,791 31.57 11,275 18.32 1,151,178 34.38 16,923 21.60 1,933,483
------ ------ ---------- ------ ------ ------ ---------- ------ ------ ------ ----------
Total........... 47,782 100.00% $2,505,036 100.00% 61,517 100.00% $3,348,062 100.00% 78,346 100.00% $5,357,729
====== ====== ========== ====== ====== ====== ========== ====== ====== ====== ==========
<CAPTION>
As of March 31,
---------- ---------------------------------------
1999
---------- ---------------------------------------
Percentage Percentage
Unpaid Number Percentage Unpaid Unpaid
Principal of of Number Principal Principal
Maturity Amount Loans of Loans Amount Amount
-------- ---------- ------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1-5 years........ 4.04% 11,145 11.95% $ 218,259 3.52%
6-10 years....... 17.61 26,040 27.91 1,064,606 17.18
11-15 years....... 9.97 10,166 10.90 549,335 8.86
16-20 years....... 10.18 8,203 8.79 568,617 9.18
21-25 years....... 22.11 20,053 21.50 1,831,205 29.55
More than 25
years............. 36.09 17,678 18.95 1,964,722 31.71
---------- ------ ---------- ---------- ----------
Total........... 100.00% 93,285 100.00% $6,196,744 100.00%
========== ====== ========== ========== ==========
</TABLE>
28
<PAGE>
Our servicing activity is diversified throughout all 50 states with
concentrations at March 31, 1999 of approximately 21.2% in California, 10.7% in
Texas and 9.6% in Florida, based on aggregate outstanding unpaid principal
balances of the mortgage loans serviced.
Acquisition of Servicing Rights
Our strategy with respect to mortgage servicing focuses on acquiring
servicing rights for which the underlying mortgage loans tend to be more
seasoned and to have higher interest rates, lower principal balances and higher
custodial escrow balances than newly originated mortgage loans. We believe this
strategy allows us to reduce our prepayment risk, while allowing us to capture
relatively high custodial escrow balances in relation to the outstanding
principal balance. 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 and/or higher principal balances are
more likely to result in prepayments since the cost savings to the borrower
from refinancing can be significant. However, we remain opportunistic in our
acquisition philosophy. If higher balance, less seasoned portfolios are
available at our desired internal rate of return, we may, from time to time,
pursue such acquisitions.
The following table shows quarterly and annual average prepayment rate
experience on the mortgage loans serviced by us, excluding loans subserviced by
and for others:
<TABLE>
<CAPTION>
For the year ended December 31,
-------------------------------
1996 1997(1) 1998(2)(3)
---------- ---------- -------------
<S> <C> <C> <C>
Quarter ended:
December 31........................... 12.19% 12.52% 28.36%
September 30.......................... 11.53 12.75 23.60
June 30............................... 12.00 10.94 21.53
March 31(4)........................... 11.83 8.97 17.00
---------- ---------- ----------
Annual average.......................... 11.89% 11.30% 22.62%
========== ========== ==========
</TABLE>
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(1) These prepayment rates exclude prepayment experience for mortgage servicing
rights subserviced for us by others of $1.3 billion for the quarter ended
March 31, 1997, $610 million for the quarter ended June 30, 1997, $1.1
billion for the quarter ended September 30, 1997, and $700 million for the
quarter ended December 31, 1997.
(2) These prepayment rates exclude prepayment experience for mortgage servicing
rights subserviced for us by others of $1.3 billion for the quarter ended
March 31, 1998, $0 for the quarter ended June 30, 1998, $703 million for
the quarter ended September 30, 1998, and $930 million for the quarter
ended December 31, 1998.
(3) These prepayment rates do not include prepayments that resulted from us
targeting our own servicing portfolio for refinance opportunities.
(4) For the quarter ended March 31, 1999, our average prepayment rate
experience on the mortgage loans serviced by us was 27.60%, excluding
prepayment experience for mortgage servicing rights subserviced for us by
others of $380 million.
We acquire substantially all of our mortgage servicing rights in the
secondary market. The industry expertise of United Financial and Matrix
Financial allows us to capitalize upon inefficiencies in this market when
acquiring mortgage servicing rights. Prior to acquiring mortgaging servicing
rights, we analyze 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 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 we consider to be appropriate to reflect the risk associated
with the investment.
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Sales of Servicing Rights
We periodically sell our purchased mortgage servicing portfolios and
generally sell all mortgage servicing rights on new loans that we originate.
These sales increase current revenue, which is reflected in loan origination
income for originated servicing and gain on sale of servicing for purchased
servicing, and generate cash at the time of sale, but reduce future servicing
fee income. We did not sell any mortgage servicing rights during the three
months ended March 31, 1999. We sold mortgage servicing rights on loans that we
originated having an aggregate principal amount of $186.1 million during the
year ended December 31, 1997 and $277.4 million during the year ended December
31, 1998. Periodically, we may also sell purchased mortgage servicing rights to
restructure our portfolio or generate revenues.
We anticipate that we will continue to sell substantially all mortgage
servicing rights on new loans that we originate. We also may sell purchased
mortgage servicing rights. We intend to base decisions regarding future
mortgage servicing sales upon our cash requirements, purchasing opportunities,
capital needs, earnings and the market price for mortgage servicing rights.
During a quarter in which we sell purchased mortgage servicing rights, reported
income will tend to be greater than if we had not made the sale 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.
Hedging of Servicing Rights
Our investment in mortgage servicing rights is exposed to impairment in
certain interest rate environments. As previously discussed, the prepayment of
mortgage loans increases during periods of declining interest rates as
homeowners seek to refinance their loan to lower interest rates. If the level
of prepayment on segments of our mortgage servicing portfolio reaches a level
higher than we projected for an extended period of time, the associated basis
in the mortgage servicing rights may be impaired. To mitigate this risk of
impairment due to declining interest rates, we initiated a hedging strategy
during 1997 that is managed by United Capital Markets. We analyze our servicing
portfolio for potential segments more susceptible to interest-rate risk,
focusing on higher fixed rate, higher balance, less seasoned loans. Based on
our analysis, we have hedged a segment of our portfolio using a program of
exchange-traded futures and options. We had identified and hedged $306 million
of our servicing portfolio as of December 31, 1997, $674 million of our
servicing portfolio as of December 31, 1998, and $548 million of our servicing
portfolio as of March 31, 1999. The hedging program qualifies for hedge
accounting treatment based on a high degree of statistical correlation and
current accounting regulation. We only hedge fixed rate loans in our servicing
portfolio, as correlation cannot be established for adjustable rate loans.
Residential Mortgage Loan Origination
We originate residential mortgage loans on both a wholesale and retail basis
through Matrix Financial and Matrix Bank. Matrix Financial originated a total
of $403.0 million in residential mortgage loans for the year ended December 31,
1997, $575.0 million in residential mortgage loans for the year ended December
31, 1998, and $134.8 million in residential mortgage loans for the three months
ended March 31, 1999.
Wholesale Originations. Matrix Financial's primary source of mortgage loan
originations is its wholesale division, which originates mortgage loans through
approved independent mortgage loan brokers. These brokers 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 March 31, 1999, Matrix Financial had approved relationships
with approximately 450 mortgage loan brokers. From Matrix Financial's offices
in Atlanta, Denver, Las Vegas and Phoenix, the sales staff solicits mortgage
loan brokers throughout the Southeastern and Rocky Mountain areas of the United
States for mortgage loans that meet Matrix Financial's criteria.
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Mortgage loan brokers act as intermediaries between borrowers and Matrix
Financial in arranging mortgage loans. Matrix Financial, as an approved
seller/servicer for Fannie Mae, Federal Home Loan Mortgage Corporation and the
Government National Mortgage Association, provides these 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.
To supplement our product offerings made through our wholesale loan
origination network, we offer a program 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 for this loan product type, as compared to the interest
rates charged by conventional lending sources. We have established
classifications with respect to the credit profiles of these borrowers. The
classifications range from A- through D depending upon a number of factors,
including the borrower's credit history and employment status. During 1997,
1998, and the three months ended March 31, 1999, Matrix Financial originated
$48.3 million, $45.7 million, and $5.4 million respectively, of A- through D
credit residential mortgage loans, all of which were sold to unaffiliated third
party investors on a nonrecourse basis under standard industry representations
and warranties.
Matrix Financial's management has decided, for strategic purposes, to
increase its emphasis on wholesale originations through hiring additional sales
staff at existing offices. In today's interest rate environment, increased loan
origination volumes can act as a hedge against the decreasing value of mortgage
servicing portfolios caused by increased prepayments.
Retail Originations. Matrix Bank originates residential loans on a retail
basis through its branches in Las Cruces, New Mexico, and Sun City, Arizona. In
early 1997, Matrix Bank opened a lending office in Evergreen, Colorado. This
location originates primarily residential construction loans and commercial
loans in the local market place. We anticipate that the construction loans
funded through the Evergreen office will be converted to permanent mortgage
loans funded through Matrix Bank. The retail loans originated by Matrix Bank
consist of a broad range of residential loans at both fixed and adjustable
rates, consumer loans and commercial real estate loans.
Matrix Financial has also developed a retention center that focuses on the
solicitation of our servicing portfolio for refinancing opportunities. The goal
in soliciting the portfolio is to identify those mortgagees who are likely to
refinance and have them refinance with Matrix Financial, thereby preserving a
portion of our servicing portfolio that would have been likely to prepay
anyway.
Quality Control
We have a loan quality control process designed to ensure sound lending
practices and compliance with Fannie Mae, the Federal Home Loan Mortgage
Corporation and applicable private investor guidelines. Prior to funding any
wholesale or retail loan, we perform a pre-funding quality control audit that
consists of the verification of employment and utilizes a detailed checklist.
In addition, on a monthly basis we select 10% of all closed loans for a
detailed audit conducted by our own personnel or a third party service
provider. The quality control process entails performing a complete
underwriting review and independent re-verification 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 to our senior management to determine trends and
additional training needs. We then address and cure all resolvable issues. We
also perform a quality control audit on all early payment defaults, first
payment defaults and 60-day delinquent loans, the findings of which are
reported to the appropriate investor and/or senior management.
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<PAGE>
Sale of Originated Loans
We generally sell the residential mortgage loans that we originate. Under
ongoing programs established with Fannie Mae and the Federal Home Loan Mortgage
Corporation, conforming conventional loans may be sold on a cash basis or
pooled by us and exchanged for securities guaranteed by Fannie Mae or the
Federal Home Loan Mortgage Corporation. We then sell these securities to
national or regional broker/dealers. Mortgage loans sold to Fannie Mae or the
Federal Home Loan Mortgage Corporation are sold on a nonrecourse basis so that
foreclosure losses are generally borne by Fannie Mae or the Federal Home Loan
Mortgage Corporation and not by us.
We also sell nonconforming residential 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 we have
previously negotiated purchase commitments and for which we occasionally pay a
fee.
We sell residential 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. Generally, we sell conforming loans on a
servicing-retained basis and nonconforming loans on a servicing-released basis.
See "--Residential Mortgage Loan Servicing."
The sale of mortgage loans may generate a gain or loss for us. Gains or
losses result primarily from two factors. First, we may make a loan to a
borrower at a rate resulting in 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
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, we historically have 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"). We adjust our net commitment position daily either by entering into
new commitments to sell or by buying back commitments to sell depending upon
our projection of the portion of the pipeline loans that we expect 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 our use of forward commitments and
subsequent profitability. The inherent value of the forward commitments is
considered in the determination of the lower of cost or market in valuing our
pipeline and funded loans at any given time.
Self-Directed Trust Activities
Sterling Trust provides administrative 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 to broker/dealers, registered representatives,
insurance agents, tax professionals, financial planners and advisors and
investment product sponsors. Sterling Trust believes that these individuals
have significant control over the placement of their customers' assets and can
encourage their customers to open accounts at Sterling Trust. The advantage
Sterling Trust offers to these financial service professionals and their
customers is the ability to hold a wide-array of assets, including non-standard
assets such as real estate, individually-negotiated debt instruments and public
and private offerings of securities.
Sterling Trust's self-directed IRAs offer the client the freedom of choice
and the convenience of consolidation. Sterling Trust handles all of the
maintenance and administrative duties needed to maintain the tax-deferred
status of IRA accounts. All accounts are 100% self-directed and Sterling Trust
offers no investment advice or investment products.
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<PAGE>
In the qualified business retirement plan arena, Sterling Trust offers a
combination of investment flexibility along with record keeping services on
401(k) plans, profit sharing plans, money purchase pension plans and other
types of defined contribution plans, as well as defined benefit plans. In
addition, for employers who desire the handling of investment transactions for
the qualified plan but do not require Sterling Trust's full services, Sterling
Trust may provide only record keeping services.
Non-qualified custodial services are also available and offer the same
flexibility and reporting services as are available for retirement plans.
Sterling Trust offers the service of monitoring and tracking all investments
within clients' portfolios.
Sterling Trust also provides a full range of corporate trust and escrow
services to investment product sponsors. In general, Sterling Trust will
consider serving as administrative trustee on various types of documents, as
long as Sterling Trust has no discretion with regard to the investment of
assets. Typical administrative services include holding of trust assets,
periodic reporting on investment activity, paying agent services, and issuing
and maintaining investor records.
In 1998, we began offering specialized clearing services to investment
professionals. These services are provided via a direct connection with
National Securities Clearing Corporation using FundSERV to streamline and
secure the trading process. We also offer a mutual fund no transaction fee
supermarket that includes over 72 fund families and over 1,300 funds.
At March 31, 1999, Sterling Trust had assets under administration of over
$2.2 billion.
Real Estate Management and Disposition Services
United Special Services provides real estate management and disposition
services on foreclosed properties owned by financial services companies and
financial institutions across the United States. In addition to the
unaffiliated clients currently served by United Special Services, many of which
are also clients of United Financial, Matrix Financial uses United Special
Services exclusively in handling the disposition of its foreclosed real estate.
Having United Special Services, rather than Matrix Financial, provide this
service transforms the disposition process into a revenue generator for us,
since United Special Services typically collects a referral fee based on the
value of the foreclosed real estate from the real estate broker involved in the
sale transaction. Because United Special Services typically collects its fee
from the real estate broker, United Special Services is able to provide this
disposition service on an outsourced basis and at no additional cost to the
mortgage loan servicer. United Special Services is able to pass the cost of the
disposition on to the real estate broker because of the volume it generates. In
addition, United Special Services provides limited collateral valuation
opinions to clients 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 purchases of mortgage loans.
Competition
We compete for the acquisition of mortgage servicing rights and bulk loan
portfolios mainly with mortgage companies, savings associations, commercial
banks and other institutional investors. We believe that we have competed
successfully for the acquisition of mortgage servicing rights and bulk loan
portfolios by relying on the advantages provided by our unique corporate
structure and the secondary market expertise of the employees of each of our
subsidiaries.
We believe that Matrix Bank's most direct competition for deposits comes
from local financial institutions. Customers distinguish between market
participants 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,
we expect additional significant competition for deposits from corporate and
governmental debt securities, as well as from money market mutual funds. Matrix
Bank competes for conventional deposits by emphasizing quality of service,
extensive product lines and competitive pricing.
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<PAGE>
For mortgage loan and mortgage servicing rights brokerage and consulting, we
compete mainly with other mortgage banking consulting firms, national and
regional investment banking companies and accounting firms. We believe that the
customers distinguish between market participants based primarily on customer
service. United Financial competes for its brokerage and consulting activities
by:
. recruiting qualified and experienced sales people;
. developing innovative sales techniques;
. offering superior analytical services, including hedging strategies;
. providing financing opportunities to its customers through its
affiliation with Matrix Bank; and
. seeking to provide a higher level of service than is furnished by its
competitors.
In originating mortgage loans, we compete mainly with other mortgage
companies, finance companies, savings associations and commercial banks.
Customers distinguish among market participants based primarily on price and,
to a lesser extent, the quality of customer service and name recognition.
Aggressive pricing policies of our competitors, especially during a declining
period of mortgage loan originations, could in the future result in a decrease
in our mortgage loan origination volume and/or a decrease in the profitability
of our loan originations, thereby reducing our revenues and net income. We
compete 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 our competitors. However, we do not have a
significant market share of the lending markets in which we conduct operations.
Sterling Trust faces considerable competition in all of the services and
products that it offers, mainly from other self-directed trust companies and
broker/dealers. Sterling Trust also faces competition from other trust
companies and trust divisions of financial institutions. Sterling Trust'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.
United Capital Markets competes with in-house interest rate risk management
departments and Wall Street derivative products. United Capital Markets
believes that customers distinguish among market participants based on name
recognition, price and customer service and satisfaction. United Capital
Markets competes by offering a unique hedging product that tends to be of lower
cost than the products offered by competitors.
United Special Services competes against other companies that specialize in
providing real estate management and disposition services on foreclosed
property. Additionally, clients or potential clients that opt to perform these
services in-house diminish United Special Services' market.
Employees
At March 31, 1999, we and our subsidiaries had 518 employees. We believe
that our relations with our employees are good. Neither we nor any of our
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 our operations. The description of laws and regulations contained in
this prospectus is not intended 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 our business, operations and prospects.
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Matrix Bancorp
We are a unitary savings and loan holding company within the meaning of the
Home Owners' Loan Act of 1933. As such, we have registered with the Office of
Thrift Supervision and are subject to Office of Thrift Supervision regulation,
examination, supervision and reporting requirements. In addition, the Office
Thrift Supervision has enforcement authority over us and our savings
association and non-savings association subsidiaries. Among other things, this
authority permits the Office of Thrift Supervision to restrict or prohibit
activities that are determined to be a serious risk to us. In addition, Matrix
Bank must notify the Office of Thrift Supervision at least 30 days before
making any capital distribution to us.
As a unitary savings and loan holding company, we generally are not
restricted under existing laws as to the types of business activities in which
we may engage, provided that Matrix Bank continues to be a "qualified thrift
lender" under the Home Owners' Loan Act. To maintain its status as a qualified
thrift lender, Matrix Bank must invest a minimum percentage of its assets in
qualified thrift investments in nine out of every 12 months, unless the Office
of Thrift Supervision grants an exception to this requirement. In general,
qualified thrift investments include certain types of residential mortgage
loans and mortgage backed securities. Upon any nonsupervisory acquisition by us
of another savings association or of a savings bank or a cooperative bank that
is an insured bank that meets the qualified thrift lender test and is deemed to
be a savings association by the Office of Thrift Supervision, we would become a
multiple savings and loan holding company if the acquired institution is held
as a separate subsidiary. Multiple savings and loan holding companies are
subject to extensive limitations on the types of business activities in which
they may engage. The Home Owners' Loan Act limits the activities of a multiple
savings and loan 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, subject to the prior approval
of the Office of Thrift Supervision, and activities authorized by Office of
Thrift Supervision regulation. In addition, if Matrix Bank fails to maintain
its status as a qualified thrift lender, the Home Owners' Loan Act would limit
the types of business activities in which we may engage to those permissible
for a multiple savings and loan holding company, and, except in limited
circumstances, it would impose significant limitations on the types of
activities in which Matrix Bank would be permitted to engage, on the ability of
Matrix Bank to establish additional branch offices, on the availability of
Federal Home Loan Bank advances to Matrix Bank, on the ability of Matrix Bank
to pay dividends, and on the types of investments that Matrix Bank would be
permitted to make and retain.
Federal law imposes limitations on who may control us. Specifically, the
Change in Bank Control Act prohibits a person or group of persons from
acquiring control of a savings association directly, or indirectly by acquiring
control of a savings and loan holding company, unless the Office of Thrift
Supervision has been given 60 days prior written notice of the proposed
acquisition and within that time the Office of Thrift Supervision has not
issued a notice disapproving the proposed acquisition or extending for up to
another 30 days the period during which the Office of Thrift Supervision may
issue such a disapproval. The Office of Thrift Supervision may further extend
the disapproval period under certain circumstances. A proposed acquisition may
be made prior to the expiration of the disapproval period if the Office of
Thrift Supervision issues written notice of its intent not to disapprove the
action.
Notwithstanding the above, except in certain limited circumstances, the Home
Owner's Loan Act also requires that any "company" obtain the prior approval of
the Office of Thrift Supervision prior to acquiring control of a savings
association directly or indirectly by acquiring control of a savings and loan
holding company. In considering whether to approve such an acquisition, the
Office of Thrift Supervision must consider a number of factors, including, the
financial and managerial resources and future prospects of the acquirer and the
savings association involved, the effect of the acquisition on the savings
association, the insurance risk to the Deposit Insurance Funds of the Federal
Deposit Insurance Corporation, and the convenience and needs of the community
to be served. The Office of Thrift Supervision may not approve a proposed
acquisition which would result in a monopoly, or which would be in furtherance
of any combination or conspiracy to monopolize or attempt to monopolize the
savings and loan business in any part of the United States. The Office of
Thrift Supervision also may not approve any proposed acquisition the effect of
which in any part of the United States
35
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may be substantially to lessen competition, or tend to create a monopoly, or
which in any other manner would be in restraint of trade, unless the Office of
Thrift Supervision finds that the anticompetitive effects of the proposed
acquisition are clearly outweighed in the public interest by the probable
effect of the acquisition in meeting the convenience and needs of the community
to be served.
Among other circumstances, under a conclusive presumption established by the
Office of Thrift Supervision regulations, an acquirer will be deemed to have
acquired control of a savings and loan holding company if the acquirer,
directly or indirectly, through one or more subsidiaries or transaction, or
acting in concert with one or more persons or companies, acquires control of
more than 25 percent of any class of voting stock of the savings and loan
holding company or controls in any manner the election of a majority of the
board of directors of the savings and loan holding company. The Office of
Thrift Supervision regulations also establish other presumptions of control
with respect to acquisitions of interest in savings and loan holding companies.
Legislation has been proposed that would:
. permit affiliations between banking, insurance and securities firms in a
manner not presently permissible;
. subject unitary savings and loan holding companies such as us to
regulation by the Board of Governors of the Federal Reserve rather than
the Office of Thrift Supervision; and
. eliminate the federal savings association charter and the Office of
Thrift Supervision.
A bill that was passed by the House of Representatives in 1998 would subject
unitary savings and loan holding companies to the activity restrictions
generally applicable to multiple savings and loan holding companies. A
grandfathering provision would allow existing unitary savings and loan holding
companies to continue to engage in activities permitted to unitary savings and
loan holding companies under existing law, and the grandfathering could be
transferred to acquirers under certain circumstances. It is too early to tell
whether legislation would result in the imposition on us of the capital
requirements applicable to bank holding companies. We are also unable to
predict whether legislation will be enacted or, given such uncertainty,
determine the extent to which the legislation, if enacted, would affect our
business. We are also unable to predict whether the Savings Association
Insurance Fund and the Bank Insurance Fund will eventually be merged.
Federal Savings Bank Operations
General. Matrix Bank is subject to extensive regulation, examination and
supervision by the Office of Thrift Supervision, as its chartering authority
and primary regulator, and potentially by the Federal Deposit Insurance
Corporation, which insures its deposits up to applicable limits. Such
regulation and supervision:
. establishes a comprehensive framework of activities in which Matrix Bank
can engage;
. limits the types and amounts of investments permissible for Matrix Bank;
. limits the ability of Matrix Bank to extend credit to any given borrower;
. imposes specified liquidity requirements;
. significantly limits the transactions in which Matrix Bank may engage
with its affiliates;
. requires Matrix Bank to meet a qualified thrift lender test that imposes
a level of portfolio assets in which Matrix Bank must invest in qualified
thrift investments, which include primarily residential mortgage loans
and related investments;
. places limitations on capital distributions by savings associations such
as Matrix Bank, including cash dividends;
. imposes assessments to the Office of Thrift Supervision to fund its
operations;
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. establishes a continuing and affirmative obligation, consistent with
Matrix Bank's safe and sound operation, to help meet the credit needs of
its community, including low and moderate income neighborhoods;
. requires Matrix Bank to maintain certain noninterest-bearing reserves
against its transaction accounts;
. establishes various capital categories resulting in various levels of
regulatory scrutiny applied to the institutions in a particular category;
and
. establishes standards for safety and soundness.
In addition, insured institutions with total assets of $500 million or more,
such as Matrix Bank, beginning with 1999 fiscal year financial results, must
submit annual audit reports prepared by independent auditors to federal and
state regulators. Auditors must receive examination reports, supervisory
agreements and reports of enforcement actions. In addition, an attestation by
the auditor regarding the statements of management relating to the internal
controls must be submitted to the Office of Thrift Supervision. The committees
of such institutions must include members with experience in banking or
financial management, must have access to outside counsel and must not include
representatives of large customers. During 1998, Matrix Bank adopted revisions
to its audit policy to comply with these requirements. 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 these regulations, whether by the Office of Thrift Supervision, the
Federal Deposit Insurance Corporation or Congress, could have a material impact
on Matrix Bank and its operations.
Transactions with Affiliates. Under current federal law, Sections 23A and
23B of the Federal Reserve Act govern transactions between depository
institutions and their affiliates. These provisions are made applicable to
savings associations such as Matrix Bank by the Home Owners' Loan Act. In a
holding company context, in general, the parent holding company of a savings
association and any companies that are controlled by the parent holding company
are affiliates of the savings association. In addition, any companies that are
sponsored and advised on a controlled basis by a savings association or its
affiliates and any investment companies to which a savings association or its
affiliates act as investment advisors are deemed to be affiliates. Section 23A
limits the extent to which the savings association or its subsidiaries may
engage in certain transactions with its affiliates. These transactions include,
among other things, the making of loans or other extensions of credit to an
affiliate and the purchase of assets from an affiliate. Generally, these
transactions between the savings association and any one affiliate cannot
exceed 10% of the savings association's capital stock and surplus, and these
transactions between the savings institution and all of its affiliates cannot,
in the aggregate, exceed 20% of the savings institution's capital stock and
surplus. Section 23A also establishes specific collateral requirements for
loans or extensions of credit to an affiliate, and for guarantees or
acceptances on letters of credit issued on behalf of an affiliate. Section 23B
requires that transactions covered by Section 23A and a broad list of other
specified transactions be on terms substantially the same, or no less favorable
to the savings association or its subsidiary, as similar transactions with non-
affiliates. In addition to the restrictions on transactions with affiliates
that Sections 23A and 23B of the Federal Reserve Act impose on depository
institutions, the regulations of the Office of Thrift Supervision also
generally prohibit a savings association from purchasing or investing in
securities issued by an affiliate. Matrix Bank engages in transactions with its
affiliates, which are structured with the intent of complying with these
regulations.
Insurance of Accounts and Regulation by the Federal Deposit Insurance
Corporation. Matrix Bank is a member of the Savings Association Insurance Fund,
which is administered by the Federal Deposit Insurance Corporation. The
deposits of Matrix Bank are insured up to $100,000 per depositor by the Federal
Deposit Insurance Corporation. This insurance is backed by the full faith and
credit of the United States. As insurer, the Federal Deposit Insurance
Corporation imposes deposit insurance assessments and is authorized to conduct
examinations of and to require reporting by institutions insured by the Federal
Deposit Insurance Corporation. It also may prohibit any Federal Deposit
Insurance Corporation-insured institution from engaging in any activity the
Federal Deposit Insurance Corporation determines by regulation or order to pose
a serious risk to
37
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the Federal Deposit Insurance Corporation. The Federal Deposit Insurance
Corporation 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.
The Federal Deposit Insurance Corporation Improvement Act of 1991 required
the Federal Deposit Insurance Corporation to implement a risk-based deposit
insurance assessment system. Pursuant to this requirement, the Federal Deposit
Insurance Corporation has adopted a risk-based assessment system under which
all depository associations insured by the Savings Association Insurance Fund
are placed into one of nine categories and assessed 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
the Federal Deposit Insurance Corporation Improvement Act, the Federal Deposit
Insurance Corporation may impose special assessments on Savings Association
Insurance Fund members to repay amounts borrowed from the United States
Treasury or for any other reason deemed necessary by the Federal Deposit
Insurance Corporation. The Federal Deposit Insurance Corporation may increase
assessment rates, on a semiannual basis, if it determines that the reserve
ratio of the Savings Association Insurance Fund will be less than the
designated reserve ratio of 1.25% of deposits insured by the Savings
Association Insurance Fund. In setting these increased assessments, the Federal
Deposit Insurance Corporation must seek to restore the reserve ratio to that
designated reserve level, or such higher reserve ratio as established by the
Federal Deposit Insurance Corporation. 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, which has higher reserves, experienced lower deposit insurance
assessments. The disparity in deposit insurance assessments between the Savings
Association Insurance Fund and the Bank Insurance Fund members was exacerbated
by the statutory requirement that both the Savings Association Insurance Fund
and the Bank Insurance Fund funds be re-capitalized 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. The
Bank Insurance Fund reached the required reserve ratio in 1995. As a result,
financial institutions that have deposits insured by the Savings Association
Insurance Fund were subject to a potential competitive disadvantage as compared
to Bank Insurance Fund members.
On September 30, 1996, the President signed legislation that provides for
Bank Insurance Fund members to service a growing portion of the Financial
Corporation bond payments. Until January 1, 2000, annual assessments of .013%
of Bank Insurance Fund deposits and .064% of Savings Association Insurance Fund
deposits will service the annual payments due on the Financial Corporation
bonds. Accordingly, Matrix Bank's portion of the payment on the Financial
Corporation bonds is .064% of the deposits. The legislation provided for
subsequent full pro rata sharing of Financial Corporation bond payments by the
Bank Insurance Fund and the Savings Association Insurance Fund institutions.
The financing corporations created by the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 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 Savings Association Insurance Fund assessments
and are paid in lieu thereof.
Brokered Deposits. Under the Federal Deposit Insurance Corporation
regulations governing brokered deposits, well capitalized associations are not
subject to brokered deposit limitations, while adequately capitalized
associations are subject to certain brokered deposit limitations and
undercapitalized associations may not accept brokered deposits. Matrix Bank is
considered to be a well capitalized association. Although Matrix Bank
historically had not accepted brokered deposits, it began to do so in February
1998 to fund the desired growth of Matrix Bank. At March 31, 1999, Matrix Bank
had $129.0 million of brokered deposits. In
38
<PAGE>
the event Matrix Bank is not permitted to accept brokered deposits in the
future, it would have to find replacement sources of funding. It is possible
that such alternatives, if available, would result in a higher cost of funds.
Matrix Bank's Capital Ratios
Federal law requires, among other things, that federal bank regulatory
authorities take "prompt corrective action" with respect to savings
institutions that do not meet minimum capital requirements. For these purposes,
the law establishes five categories:
. well capitalized;
. adequately capitalized;
. undercapitalized;
. significantly undercapitalized; and
. critically undercapitalized.
The Office of Thrift Supervision has adopted regulations to implement the
prompt corrective action legislation. An institution is deemed to be:
. "well capitalized" if it has a total risk-based capital ratio of 10% or
greater and a leverage ratio of 5% or greater;
. "adequately capitalized" if it has a total risk-based capital ratio of
8% or greater, a Tier I risk-based capital ratio of 4% or greater and
generally a leverage ratio of 4% or greater;
. "undercapitalized'' if it has a total risk-based capital ratio of less
than 8%, a Tier I risk-based capital ratio of less than 4%, or generally
a leverage ratio of less than 4%;
. "significantly undercapitalized" if it has a total risk-based capital
ratio of less than 6%, a Tier I risk-based capital ratio of less than 3%,
or a leverage ratio of less than 3%; and
. "critically undercapitalized" if it has a ratio of tangible equity (as
defined in the regulations) to total assets that is equal to or less than
2%.
As of March 31, 1999, Matrix Bank was a "well capitalized" institution.
"Undercapitalized" institutions must adhere to growth, capital distribution
and dividend and other limitations and are required to submit a capital
restoration plan. A savings institution's compliance with its capital
restoration plan is required to be guaranteed by any company that controls the
"undercapitalized" institution in an amount equal to the lesser of 5% of total
assets when deemed "undercapitalized" or the amount necessary to achieve the
status of "adequately capitalized." If an "undercapitalized" savings
institution fails to submit an acceptable plan, it is treated as if it is
"significantly undercapitalized." "Significantly undercapitalized" banks must
comply with one or more of a number of additional restrictions, including an
order by the Office of Thrift Supervision to sell sufficient voting stock to
become "adequately capitalized," requirements to reduce total assets and cease
receipt of deposits from correspondent banks or dismiss directors or officers,
and restriction on interest rates paid on deposits, compensation of executive
officers and capital distributions by the parent holding company. "Critically
undercapitalized" institutions must comply with additional sanctions,
including, subject to a narrow exception, the appointment of a receiver or
conservator within 270 days after it obtains this status.
39
<PAGE>
The following table indicates Matrix Bank's regulatory capital ratios at
March 31, 1999:
<TABLE>
<CAPTION>
As of March 31, 1999
-------------------------
Core Risk-Based
Capital Capital
----------- ------------
(Dollars in thousands)
<S> <C> <C>
Shareholder's equity/GAAP capital.................. $ 52,020 $ 52,020
Additional capital items:
General valuation allowances..................... -- 3,232
----------- -----------
Regulatory capital as reported to the Office of
Thrift Supervision................................ 52,020 55,252
Minimum capital requirement as reported to the
Office of Thrift Supervision...................... 33,090 38,706
----------- -----------
Regulatory capital--excess......................... $ 18,930 $ 16,546
=========== ===========
Capital ratios..................................... 6.29% 11.42%
Well capitalized requirement....................... 5.00% 10.00%
</TABLE>
Federal Home Loan Bank System and Federal Reserve Board
Matrix Bank is a member of the Federal Home Loan Bank system, which consists
of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank provides a
central credit facility primarily for member associations and administers the
home financing credit function of savings associations. The Federal Home Loan
Bank 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 Federal Home Loan Bank funds its operations primarily from proceeds derived
from the sale of consolidated obligations of the Federal Home Loan Bank system.
Matrix Bank, as a member of the Federal Home Loan Bank system, must acquire and
hold shares of capital stock in its regional Federal Home Loan Bank 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 Federal Home Loan Bank,
whichever is greater. Matrix Bank was in compliance with this requirement with
an investment in Federal Home Loan Bank stock at March 31, 1999 of $15.9
million.
The Federal Reserve Board regulations require depository institutions to
maintain non-interest-earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The Federal Reserve Board
regulations generally require that reserves be maintained against aggregate
transaction accounts as follows:
. for that portion of transaction accounts aggregating $46.5 million or
less, which may be adjusted by the Federal Reserve Board, the reserve
requirement is 3%; and
. for accounts greater than $46.5 million, the reserve requirement is
$1.395 million plus 10% of amounts over $46.5 million, which may be
adjusted by the Federal Reserve Board between 8% and 14%, against that
portion of total transaction accounts in excess of $46.5 million.
At March 31, 1999, Matrix Bank had $7.6 million of reserves with the Federal
Reserve System.
Mortgage Banking Operations
The rules and regulations applicable to our 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,
we are required annually to submit to the Department of Housing and Urban
Development, Fannie Mae and Federal Home Loan Mortgage Corporation audited
financial statements, and each regulatory entity maintains its own financial
guidelines for determining net worth and eligibility requirements. Our
operations are also subject to examination by the Department of Housing and
Urban Development, Fannie Mae and Federal Home Loan
40
<PAGE>
Mortgage Corporation at any time to assure compliance with the applicable
regulations, policies and procedures. Mortgage loan origination activities are
subject to, among other laws, the Equal Credit Opportunity Act, the Federal
Truth-in-Lending Act and the Real Estate Settlement Procedures Act of 1974, and
the regulations promulgated under these laws 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 our operations. We are licensed in those states in which we do
business requiring such a license where the failure to be licensed would have a
material adverse effect on us, our business, or our assets. Mortgage
origination operations also may be subject to state usury statutes.
Regulation of Sterling Trust Company
Sterling Trust provides custodial services and directed, non-discretionary
trustee services. Sterling Trust was chartered under the laws of the State of
Texas, and as a Texas trust company is subject to supervision, regulation and
examination by the Texas Department of Banking. Under applicable law, a Texas
trust company, such as Sterling Trust, is subject to virtually all provisions
of the Texas Finance Code as if the trust company were a state chartered bank.
The activities of a Texas trust company are limited by applicable law generally
to acting as a trustee, executor, administrator, guardian or agent for the
performance of any lawful act, and to lend and accumulate money when authorized
under applicable law. In addition, a Texas trust company with capital of $1
million or more, such as Sterling Trust, has the power to:
. purchase, sell, discount and negotiate notes, drafts, checks and other
evidences of indebtedness;
. purchase and sell securities;
. issue subordinated debentures and capital notes with the written consent
of the Texas Banking Commissioner; and
. exercise powers incidental to the enumerated powers described in the
Texas Finance Code.
A Texas trust company, such as Sterling Trust, is generally prohibited from
accepting demand or time deposits if not insured by the Federal Deposit
Insurance Corporation.
Limitation on Capital Distributions. The Texas Finance Code prohibits a
Texas trust company from reducing its outstanding capital and restricted
surplus through redemption or other capital distribution without the prior
written approval of the Texas Banking Commissioner. The Texas Finance Code does
not prohibit the declaration and payment of pro rata share dividends consistent
with the Texas Business Corporation Act.
Investments. A Texas trust company is generally obligated to maintain an
amount equal to 40% of its capital and surplus in investments that are readily
marketable and that can be converted into cash within four business days. So
long as it complies with those requirements, a Texas trust company generally is
permitted to invest its corporate assets in any investment permitted by law.
However, unless otherwise permitted by the Texas Finance Code, a Texas trust
company cannot invest an amount in excess of 15% of its capital and certified
surplus in the securities of a single issuer without the prior written consent
of the Texas Banking Commissioner.
Branching. The Texas Finance Code permits a Texas trust company to establish
and maintain branch offices at any location within the state if it first
obtains written approval of the Texas Banking Commissioner.
Transactions with Related Parties. The Texas Finance Code prohibits the sale
or lease of an asset of a Texas trust company, or the purchase or lease of an
asset by a Texas trust company, where the transaction involves an officer,
director, principal shareholder or affiliate, unless the transaction is
approved by a disinterested majority of the board of directors or the written
approval of the Texas Banking Commissioner is first obtained.
41
<PAGE>
Enforcement. Under applicable provisions of the Texas Finance Code, the
Texas Banking Commissioner has the power to issue enforcement actions against a
Texas trust company or any officer, employee or director of a Texas trust
company. In addition, in certain circumstances, the Texas Banking Commissioner
may remove a present or former officer, director or employee of a Texas trust
company from office or employment, and may prohibit a shareholder or other
persons participating in the affairs of a Texas trust company from such
participation. The Texas Banking Commissioner has the authority to assess civil
penalties of up to $500 per day for violations of a cease and desist, removal
or prohibition order.
Capital Requirements. Applicable law requires a Texas trust company to have
and maintain capital of at least $1 million. The Texas Banking Commissioner may
require additional capital of a Texas trust company if the Texas Banking
Commissioner determines it necessary to protect the safety and soundness of
such company. Sterling Trust is in compliance with all capital requirements
under Texas law.
Properties
We believe that all of our present facilities are adequate for our current
needs and that additional space is available for future expansion on acceptable
terms. The following table sets forth certain information concerning the real
estate that we own or lease:
<TABLE>
<CAPTION>
Monthly Rent
or Mortgage
Location Square Feet Owned/Leased Occupant Payment
-------- ----------- --------------------------------- ----------------- ------------
<S> <C> <C> <C> <C>
Denver, CO.............. 14,000 Leased through December 31, 2002 Company, United $15,417
Financial, United
Capital Markets
Denver, CO.............. 8,100 Leased through June 30, 2001 United Special $ 8,400
Services
Phoenix, AZ (1)......... 30,000 Owned Matrix Financial $ 7,814
Atlanta, GA............. 4,129 Leased through April 30, 2001 Matrix Financial $ 6,366
Denver, CO.............. 9,549 Leased through June 30, 2002 Matrix Financial $11,402
Las Vegas, NV........... 225 Leased through September 30, 1999 Matrix Financial $ 565
Scottsdale, AZ.......... 1,883 Leased through April 30, 2001 Matrix Financial $ 4,125
Las Cruces, NM.......... 30,000(2) Owned Matrix Bank N/A
Las Cruces, NM.......... 1,800 Owned Matrix Bank N/A
Sun City, AZ............ 3,000 Owned Matrix Bank N/A
Evergreen, CO........... 1,650 Leased through December 31, 1999 Matrix Bank $ 3,000
Waco, TX................ 11,300 Leased through June 30, 2001(3) Sterling Trust $13,553
Waco, TX................ 928 Leased through June 30, 1999(4) Sterling Trust $ 1,021
Arlington, TX........... 1,446 Leased through April 30, 2000 First Matrix $ 1,752
St. Louis, MO........... 1,550 Leased through October 31, 2000 United Capital $ 2,325
Markets
</TABLE>
- --------
(1) The Phoenix, Arizona, building is subject to third-party mortgage
indebtedness. See Note 8 to the consolidated financial statements.
(2) Of this 30,000 square feet, approximately 17,800 square feet serve as the
headquarters for Matrix Bank. Substantially all of the remaining space is
rented to unaffiliated third parties at market prices.
(3) 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. Three officers of Sterling Trust and an officer of First
Matrix own, in the aggregate, approximately 33% of the equity interest in
the lessor.
(4) Management of Sterling trust anticipates renewal of this lease at its
expiration.
42
<PAGE>
Legal Proceedings
United Financial is a defendant in a lawsuit entitled Douglas County Bank &
Trust Co. v. United Financial, Inc. that was commenced on or about May 23, 1997
in the United States District Court for the District of Nebraska. In this
lawsuit, the plaintiff-buyer alleged that United Financial, as broker for the
seller, made false representations regarding the GNMA certification of certain
mortgage pools, the servicing rights of which were offered for sale in a
written offering. The plaintiff further alleged that it relied on United
Financial's representations in purchasing the servicing rights from the seller.
Trial was conducted in Omaha, Nebraska during the week of July 12, 1998. The
jury returned a verdict in favor of United Financial on four counts and in
favor of the plaintiff on one count, and awarded the plaintiff $75,000. On July
31, 1998, the plaintiff filed a motion requesting that the court render a
verdict in place of the jury's verdict, or alternatively, that the court order
a new trial. On November 6, 1998, the court denied the plaintiff's motion. The
plaintiff has appealed the court's ruling, and no assurances can be given that
an adverse judgment of a material amount will not ultimately be rendered or
that any such judgment would not have a material adverse effect on our
consolidated financial condition, results of operations or cash flows.
Matrix Bank has been named defendant in a lawsuit entitled Transamerica
Mortgage Company v. Matrix Capital Bank that was commenced on or about February
7, 1999, in the District Court of the J-191st Judicial District, Dallas County,
Texas. The plaintiff has alleged that Matrix Bank breached a representation and
warranty given to the plaintiff by Matrix Bank under a purchase agreement by
which Matrix Bank sold certain mortgage loans to the plaintiff. The action
relates to approximately $700,000 in principal amount of mortgage loans, and
the plaintiff has requested that Matrix Bank be required to repurchase the
loans and/or pay an unspecified amount of money damages. Matrix Bank believes
that it has defenses to this lawsuit. However, no assurances can be given that
an adverse judgment will not ultimately be rendered or that any adverse
judgment would not have a material adverse effect on our consolidated financial
conditions, results of operations or cash flows.
We and our subsidiaries are involved from time to time in routine litigation
incidental to our business. However, other than described above, we believe
that neither we nor any of our subsidiaries are parties to any material pending
litigation that in our opinion is likely to have a material adverse effect on
our consolidated financial condition, results of operations or cash flows.
43
<PAGE>
MANAGEMENT
Directors and Advisory Director
The following sets forth the name, age and certain biographical information
of our directors and advisory director:
Guy A. Gibson, age 34, has served as the Chief Executive Officer and a
director of Matrix Bancorp since its formation in June 1993. Mr. Gibson has
served as Chairman of the Board of Matrix Financial since August 1990. Mr.
Gibson was one of the original founders of Matrix Financial and acted as its
Chief Executive Officer during 1990. Prior to his tenure with the Company, Mr.
Gibson held the position of Account Executive with the investment banking firms
of PaineWebber from 1987 to 1989 and Lincoln Financial Group, a Denver-based
servicing brokerage firm, from 1989 to 1990.
Richard V. Schmitz, age 36, has served as a director of Matrix Bancorp since
its formation in June 1993 and was elected Chairman of the Board of Matrix
Bancorp in February 1996. Mr. Schmitz was one of the original founders of
United Financial, held the position of Chief Executive Officer of United
Financial from 1990 until early 1997, and has been Chairman of the Board of
United Financial since that time.
D. Mark Spencer, age 39, served as Chairman of the Board of Matrix Bancorp
from June 1993 until February 1996. Mr. Spencer has also served as an executive
officer of the Company since June 1993. Mr. Spencer has served as Chairman of
the Board of Matrix Bank since October 1993, and has served as director of
Matrix Financial since August 1990. From 1985 through July 1990, Mr. Spencer
served as Vice President of Secondary Marketing for Austin Federal Savings and
Loan, an Austin, Texas savings and loan association.
Thomas M. Piercy, age 34, has served in various managerial capacities at
United Financial since October 1990, and currently serves as Managing Director
of United Financial. Mr. Piercy has served as a director of Matrix Bancorp
since June 1993. From 1986 to 1990, Mr. Piercy served as Managing Director of
Lincoln Financial Group.
David W. Kloos, age 37, has served as a Vice President and Chief Financial
Officer of Matrix Bancorp since June 1993, and he has served as a director of
Matrix Bancorp also since June 1993. Mr. Kloos was appointed as Senior Vice
President of Matrix Bancorp in September 1996. Mr. Kloos has served as
Executive Vice President and Chief Financial Officer of Matrix Bank since
October 1993. From 1989 through 1993, Mr. Kloos served as Senior Vice President
and Chief Financial Officer of Argo Federal Savings Bank, a Summit, Illinois,
federal savings bank. From 1985 to 1989, Mr. Kloos, a certified public
accountant, was employed by KPMG Peat Marwick LLP.
Stephen G. Skiba, age 44, a director of Matrix Bancorp since March 1996, is
Director of Equity Research, focusing on banks and thrifts, for ABN AMRO Inc.,
an investment banking firm in Chicago, Illinois. From November 1990 to June
1996, Mr. Skiba was Senior Vice President, Chief Financial Officer and
Treasurer of N.S. Bancorp, Inc. in Chicago, Illinois. Prior to joining N.S.
Bancorp, Inc., Mr. Skiba was an audit partner with KPMG Peat Marwick LLP.
David A. Frank, age 51, was elected director of Matrix Bancorp in September
1996. Mr. Frank is a private investor and a consultant for financial services
companies. He was President, Chief Executive Officer and founder of America's
Mortgage Source, a mortgage company involved in the origination of residential
mortgage loans and which operated from 1995 into 1998. From 1994 to 1995, Mr.
Frank served as President and Chief Executive Officer of Chemical Residential
Mortgage Corporation in Edison, New Jersey, and as a director of Chemical Bank,
N.A. Chemical Residential Mortgage Corporation was the primary mortgage banking
operation of Chemical Banking Corporation, now known as Chase Manhattan. Prior
to joining Chemical Residential Mortgage Corporation, Mr. Frank served from
1989 to 1994 as President and Chief Operating Officer of Margaretten Financial
Corporation, a publicly traded national mortgage banking company based in Perth
Amboy, New Jersey. From 1977 to 1989, Mr. Frank held various positions with
Primerica Corporation/American Can Company, now known as Citigroup, where he
was primarily involved in mergers, acquisitions, capital market activities and
in restructuring a manufacturing-based concern into a diversified financial
services company.
44
<PAGE>
Peter G. Weinstock, age 37, has served as an advisory director to Matrix
Bancorp since September 1996. In his capacity as advisory director, Mr.
Weinstock is invited to attend meetings of the Board of Directors and to
participate in its discussions. However, Mr. Weinstock is not entitled to vote
in matters submitted for approval and is not involved in the administration or
management of the Company. Mr. Weinstock is a member of the law firm of Jenkens
& Gilchrist, a Professional Corporation, where he has been employed for more
than five years. Jenkens & Gilchrist, a Professional Corporation, from time to
time serves as outside counsel to the Company.
Executive Officers
The following sets forth the name, age, current position with the Company,
and the principal occupation during the last five years of each executive
officer of the Company. Information with respect to Messrs. Gibson, Schmitz,
Spencer, Piercy and Kloos is set forth above under the caption "--Directors."
George R. Bender, age 59, has been President and Chief Executive Officer of
Matrix Financial since October 1998. Prior to joining Matrix Financial, from
1990 to 1997, Mr. Bender served as Executive Vice President in charge of
mortgage banking operations for Bank United in Houston, Texas. From 1985 to
1990, Mr. Bender served as President and Chief Executive Officer of Centrust
Mortgage Corporation. Mr. Bender has been in the mortgage banking business for
more than 35 years, primarily serving during such time in various executive
capacities for subsidiaries of financial institutions and Wall Street
investment banking concerns.
Thomas P. Cronin, age 53, joined the Company in March 1997 as Vice Chairman
of Matrix Bancorp and Chief Executive Officer of United Financial. Prior to
joining the Company, Mr. Cronin held various positions with MCA Financial
Corporation, a Michigan-based financial services company, and its wholly owned
subsidiary, MCA Mortgage Corporation. Mr. Cronin's most recent management
position with MCA Financial Corporation was Vice Chairman. Mr. Cronin served as
an outside director of MCA Financial Corporation after joining Matrix Bancorp
and United Financial and until his resignation in January 1999. In February,
1999, MCA Financial Corporation and several of its affiliates, including MCA
Mortgage Corporation, filed for reorganization under Chapter 11 of the
bankruptcy code. The petition for reorganization was filed by a receiver for
such entities, who was appointed in January, 1999. Mr. Cronin has over 30 years
of experience in the mortgage banking industry and currently is the Legislative
Vice Chairman and board member for the Mortgage Bankers Association of America.
Gary Lenzo, age 48, has served as President and Chief Executive Officer and
a director of Matrix Bank since October 1993. From 1987 to 1992, Mr. Lenzo
served as Vice President of Austin Savings Association and Great Western
Savings Bank, both Austin, Texas based savings associations. From 1984 to 1986,
Mr. Lenzo served as Vice President of Unifirst American Mortgage Corporation,
an Austin, Texas, mortgage company.
T. Allen McConnell, age 32, joined the Company in October 1997 as Senior
Vice President, Secretary and General Counsel. From September 1992 to October
1997, Mr. McConnell was an attorney with Jenkens & Gilchrist, a Professional
Corporation, in Dallas, Texas, where his practice focused on corporate finance
and mergers and acquisitions. Jenkens & Gilchrist, a Professional Corporation,
from time to time serves as outside counsel for the Company.
Paul E. Skretny, age 54, has served as Chief Executive Officer of Sterling
Trust since May 1993 and as Chairman of the Board of First Matrix since March
1994. Prior to his association with Sterling Trust, Mr. Skretny was Senior Vice
President of APS Securities Corporation and Masterson, Moreland, Sauer, Whisman
Inc. from June 1988 to February 1993, providing investment services and
assistance to individual and institutional investors. From May 1975 to April
1988, Mr. Skretny was employed by Jefferson Bancshares, Inc. and its
subsidiaries serving as President and Chief Executive Officer from 1984 to
1988. From June 1964 to 1975, he was employed by the Manufacturers & Traders
Trust Company and the Bank of Buffalo in various positions as Assistant
Manager, Operations Officer, Assistant Vice President and Vice President of
Branch Office Administration. Mr. Skretny holds professional certifications and
licenses as a fully registered general securities representative, general
securities principal and uniform securities agent.
45
<PAGE>
Compensation of Executive Officers
The Summary Compensation Table below provides certain summary information
concerning compensation paid or accrued during 1996, 1997, and 1998 by the
Company to or on behalf of the Chief Executive Officer and the four other
highest paid executive officers of the Company whose salary and bonus for 1998
was in excess of $100,000:
<TABLE>
<CAPTION>
Annual Long-Term
Compensation(1) Compensation
----------------------------------- ------------
Other Annual Options/ All Other
Name and Principal Positions Year Salary Bonus Compensation SARs Compensation
- ---------------------------- ---- -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Guy A. Gibson........... 1998 $250,000 $ 50,000 $ -- -- $33,500(3)(4)(7)
President, Chief 1997 250,000 -- -- -- 8,375(3)(4)
Executive Officer and 1996 250,000 -- 47,514(2) -- 8,375(3)(4)
Director of Matrix
Bancorp; Chairman of
the Board of Matrix
Financial
Richard V. Schmitz...... 1998 $250,000 $ 50,000 $ -- -- $31,820(3)(4)(7)
Chairman of the Board 1997 257,211 -- -- -- 8,525(3)(4)
of Matrix Bancorp; 1996 250,000 -- -- -- 8,375(3)(4)
Chairman of the Board
of United Financial
D. Mark Spencer......... 1998 $250,000 $ 50,000 $ -- -- $34,920(3)(4)(7)
Vice Chairman of Matrix 1997 257,211 -- -- -- 9,025(3)(4)
Bancorp; Chairman of 1996 250,000 -- -- -- 8,375(3)(4)
the Board of Matrix
Bank
Thomas M. Piercy........ 1998 $250,000 $ -- $ -- -- $ --
Director of Matrix 1997 280,631 -- -- -- 373(6)
Bancorp; Managing 1996 293,626 -- -- -- 2,375(4)
Director of United
Financial
Thomas P. Cronin........ 1998 $250,000 $100,000 $ -- -- $ 2,500(4)
Vice Chairman of Matrix 1997 208,333 20,000 -- 25,000(5) --
Bancorp; Chief 1996 -- -- -- -- --
Executive Officer of
United Financial
</TABLE>
- --------
(1) Annual compensation does not include the cost to us of benefits certain
executive officers receive in addition to salary and cash bonuses. The
aggregate amounts of such personal benefits, however, did not exceed the
lesser of either $50,000 or 10% of the total annual compensation of such
executive officer. The bonus amount reflected for each such person for 1998
was actually paid in 1999.
(2) Amount specified represents payments made to Mr. Gibson during the year
shown in respect of Mr. Gibson's accrued tax liability during prior periods
in which we operated as an "s" corporation.
(3) Of this amount, $6,000 represents directors fees paid by Matrix Bank for
such person's service on that entity's board of directors for each of 1995,
1996 and 1997, except that such amount for 1997 is only $5,500 for Mr.
Schmitz.
(4) Of this amount, $2,375, $2,375, and $2,500, respectively, represents our
contribution to such person's account maintained under the 401(k) savings
plan during 1996, 1997 and 1998, respectively.
(5) The exercise price for these options is $13.75. These options become
exercisable ratably over five years, with the first 20% exercisable as of
March 3, 1998.
(6) Represents our contribution to Mr. Piercy's account maintained under the
401(k) savings plan during 1997.
(7) Represents premiums we paid for life insurance policies owned by and
payable to the family of each executive officer. Annual premiums paid in
1998 were $25,000 for Mr. Gibson, $23,320 for Mr. Schmitz, and $26,420 for
Mr. Spencer.
46
<PAGE>
Stock Option Plan
In September 1996, our board of directors and shareholders adopted the 1996
Stock Option Plan, which amended and restated our stock option plan adopted in
1995. Our 1996 Stock Option Plan has authorized the grant of options to
substantially all of our full-time employees and directors for up to 525,000
shares of our common stock. All options granted have ten year terms and vest
based on the determination by our compensation committee.
The 1996 Stock Option Plan authorized the granting of incentive stock
options and nonqualified stock options to purchase common stock to eligible
persons. The 1996 Stock Option Plan is currently administered by the
compensation committee 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 a 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
compensation committee. 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
optionee's employment with the Company if and to the extent such option was
exercisable on the date of such termination.
Employee Stock Purchase Plan
In September 1996, our board of directors and shareholders adopted the
Matrix Bancorp, Inc. Employee Stock Purchase Plan and reserved 125,000 shares
of common stock for issuance under the Employee Stock Purchase Plan. The
Employee Stock Purchase Plan became effective upon consummation of our initial
public offering. The price at which the Employee Stock Purchase Plan shares are
sold is 85 percent of the lower of the fair market value per share of common
stock on the enrollment or the purchase date.
Exercises of Options
The following table sets forth information with respect to the executive
officers identified in the prior table concerning the exercise of options
during fiscal 1998, and unexercised options held as of December 31, 1998. No
options were exercised by these executive officers during 1998.
Aggregated Option Exercises in Last Fiscal Year and
Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Number of Unexercised in-the-money
Shares options options
Acquired at FY-end: at FY-end:
on Exercisable/ Exercisable/
Name Exercise Value Realized Unexercisable Unexercisable(1)
- ---- --------- -------------- ------------- ----------------
<S> <C> <C> <C> <C>
Guy A. Gibson........... -- -- --/-- $--/--
Richard V. Schmitz...... -- -- --/-- --/--
D. Mark Spencer......... -- -- --/-- --/--
Thomas M. Piercy........ -- -- --/-- --/--
Thomas P. Cronin........ -- -- 5,000/20,000 --/--
</TABLE>
- --------
(1) Values are stated based upon the closing price of $13.50 per share of the
common stock on the Nasdaq National Market on December 31, 1998, the last
trading day of our fiscal year.
47
<PAGE>
Director Compensation
We pay each of our nonemployee directors a $3,750 quarterly retainer and a
fee of $1,000 for each meeting of our board of directors that he attends, or
$250 if such director's attendance is via teleconference. We also reimburse
each director for ordinary and necessary travel expenses related to such
director's attendance at board of directors and committee meetings. Nonemployee
directors are also eligible for stock option grants under the 1996 Stock Option
Plan.
Each of our advisory directors is paid a $2,500 quarterly retainer and a fee
of $1,000 for each meeting of our board of directors that he attends, or $250
if such advisory director's attendance is via teleconference. We also reimburse
each advisory director for ordinary and necessary travel expenses related to
such advisory director's attendance at board of directors meetings. Advisory
directors are also eligible for stock option grants under the 1996 Stock Option
Plan.
Compensation Committee Interlocks and Insider Participation
There are no reportable compensation committee interlocks or insider
participation matters.
Certain Relationships and Related Transactions
On December 31, 1998, we renewed a loan originally made to Mr. Spencer, a
Vice Chairman and director of Matrix Bancorp, in December 1994 in the amount of
approximately $80,000. The loan to Mr. Spencer accrues interest at the prime
rate, is unsecured, and the entire principal and all accrued interest is due
and payable in one lump sum on December 30, 1999. We have the option of
extending the maturity of such loan to Mr. Spencer in annual increments.
On September 9, 1998, we made a loan to Mr. Piercy, Managing Director of
United Financial and one of our directors, in original principal amount of
$85,000. Subsequent to year end, this loan to Mr. Piercy was cancelled. Prior
to cancellation, the loan to Mr. Piercy accrued interest at the prime rate, was
unsecured, and the entire principal and all accrued interest was due and
payable in one lump sum on September 8, 1999. On January 15, 1999, we made an
additional loan to Mr. Piercy in the original principal amount of $195,000.
This loan accrues interest at 10% per annum, is secured by shares of the
Company held by Mr. Piercy and is due and payable upon demand or December 31,
1999, whichever occurs first.
In 1997, Matrix Financial loaned Mr. McConnell $320,000 to finance the
purchase of his principal residence in Denver, Colorado. During 1998, Matrix
Financial refinanced Mr. McConnell's mortgage loan in the amount of
approximately $320,000. Mr. McConnell is our Senior Vice President, Secretary
and General Counsel. Both mortgage loans were made in the ordinary course of
business of Matrix Financial, were made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons, and did not involve more than the
normal risk of collectibility or present other unfavorable features. We
subsequently sold both mortgage loans to an unaffiliated third-party investor
at a fair market value. In addition, in connection with his relocation to
Denver, we made Mr. McConnell a $40,000 unsecured loan for an approximate one-
week period during December, 1997, which was repaid in full, with interest at
the prime rate, as published in the Wall Street Journal, upon the sale by Mr.
McConnell of his residence in Dallas.
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
rental 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. Mr. Skretny, President of Sterling Trust
and one of our executive officers, owns approximately 12.5% of the equity
interests of the lessor of such office space.
In October, 1995, we loaned $750,000 to Matrix Diversified, Inc., a company
in which Messrs., Gibson, Schmitz, Piercy, Spencer and Kloos, each of whom is
one of our executive officers, and Mr. Robert Fowles, an officer of United
Financial, own all of the outstanding capital stock, in order to enable Matrix
Diversified to purchase the assets of an unaffiliated business. That business
was sold to an unaffiliated third party after the
48
<PAGE>
end of 1997. The loan was paid in full upon the sale. The loan accrued interest
at 13% per annum and was secured by a secondary lien on the assets of Matrix
Diversified. In addition, until such sale, we leased approximately 7,400 square
feet in our Phoenix office building to such business at a base rental of
approximately $8,500 per month. The office space is now utilized by Matrix
Financial.
Principal Shareholders and Stock Ownership of Management of Matrix Bancorp,
Inc.
The following table shows information regarding the beneficial ownership of
our common stock as of April 9, 1999, by (i) each person whom we know to own
beneficially five percent or more of our common stock; (ii) each of our
directors and advisory directors; (iii) each of our executive officers named in
the summary compensation table; and (iv) all of our directors, advisory
directors and executive officers as a group. Unless otherwise indicated, the
address of each person listed below is 1380 Lawrence Street, Suite 1400,
Denver, Colorado 80204.
<TABLE>
<CAPTION>
Shares Beneficially
Owned(1)
-------------------
Name Number Percent of Class
- ---- ------------------- ----------------
<S> <C> <C>
Guy A. Gibson............................. 1,149,875 17.1%
Richard V. Schmitz........................ 1,151,375 17.1
D. Mark Spencer........................... 1,147,876 17.1
Thomas M. Piercy.......................... 236,375 3.5
David W. Kloos............................ 156,498(2) 2.3
Thomas P. Cronin.......................... 13,089(2) *
Stephen G. Skiba.......................... 16,000(2) *
David A. Frank............................ 11,000(2) *
Peter G. Weinstock........................ 8,500(2) *
U.S. Bancorp
601 2nd Ave. South
Minneapolis, MN 55402-4302............... 658,413(3) 9.8
Fleet Financial Group, Inc.
One Federal Street
Boston, MA 02211......................... 366,900(4) 5.5
Financial Stocks, Inc.
507 Carew Tower
441 Vine Street
Cincinnati, Ohio 45202................... 424,300(5) 6.3
All directors, advisory directors and
executive officers as a group
(13 persons)............................. 3,958,628(2) 58.3
</TABLE>
- --------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the SEC
and generally includes voting or investment power with respect to
securities. Except as indicated in the footnotes to this table and subject
to applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common Stock
beneficially owned.
(2) Includes options that are currently exercisable, or become exercisable
within 60 days of April 9, 1999, to purchase from us the number of shares
of common stock indicated for the following persons: David W. Kloos,
14,000; Thomas P. Cronin, 10,000; Stephen G. Skiba, 6,000; David A. Frank,
6,000; Peter G. Weinstock, 6,000; and all directors, advisory directors and
executive officers as a group, 68,000. Under the terms of the Employee
Stock Purchase Plan, participants are issued fractional shares to the
extent the money in their account is not evenly divisible into a whole
number of shares on the purchase date. For ease of presentation, the number
of shares of common stock outstanding and the number of shares of common
stock beneficially owned by the persons described in this prospectus have
been rounded to the nearest whole share.
49
<PAGE>
(3) Based on a Schedule 13G filed by U.S. Bancorp on February 11, 1999. The
Schedule 13G discloses that U.S. Bancorp has sole power to vote or direct
the vote of no shares and the sole power to dispose or direct the
disposition of 658,413 shares. These shares are pledged securities.
(4) Based on a Schedule 13G filed by Fleet Financial Group, Inc. on February
12, 1999. The Schedule 13G discloses that Fleet Financial Group, Inc. has
sole power to vote or direct the vote of 279,200 shares and sole power to
dispose or direct the disposition of 366,900 shares.
(5) Based on a Schedule 13D filed by Financial Stocks, Inc. on March 31, 1998.
The Schedule 13D disclosed that Financial Stocks, Inc. has sole voting
power over 401,346 shares of common stock, shared voting power over 22,954
shares of common stock, sole dispositive power over 401,346 shares of
common stock and shared dispositive power over 22,954 shares of common
stock.
MATRIX BANCORP CAPITAL TRUST I
Capital Trust is a statutory business trust formed under Delaware law
pursuant to:
. a trust agreement, dated as of May 26, 1999, executed by us, as
depositor, and the trustees of Capital Trust; and
. a certificate of trust filed with the Secretary of State of the State of
Delaware on May 26, 1999.
The initial trust agreement will be amended and restated in its entirety
substantially in the form filed as an exhibit to the registration statement of
which this prospectus forms a part. The trust agreement will be qualified as an
indenture under the Trust Indenture Act. Capital Trust will issue all of the
preferred securities to purchasers in the offering described in this
Prospectus. We will acquire all of the common securities, which will represent
an aggregate liquidation amount equal to at least 3% of the total capital of
Capital Trust. The common securities will be equal in right to payments with
the preferred securities, except that upon the occurrence and during the
continuance of an event of default under the trust agreement resulting from a
debenture event of default, our rights as holder of the common securities to
payment in respect of distributions and payments upon liquidation, redemption
or otherwise will be subordinated to your right to payments as a holder of the
preferred securities. See "Description of the Preferred Securities--
Subordination of Common Securities."
Capital Trust exists for the exclusive purposes of:
. issuing the preferred securities and common securities representing
undivided beneficial interests in its assets,
. investing the gross proceeds of the preferred securities and the common
securities in the junior subordinated debentures issued by us, and
. engaging activities incidental to the activities described above.
The junior subordinated debentures and payments on the junior subordinated
debentures will be the only assets of Capital Trust and payments under the
junior subordinated debentures will be the only revenue of the Capital Trust.
Capital Trust has a term of 55 years, but may dissolve earlier as provided in
the trust agreement. The principal executive office of Capital Trust is c/o
Matrix Bancorp, Inc., 1380 Lawrence Street, Suite 1400, Denver, Colorado 80204,
and its telephone number is (303) 595-9898.
The number of trustees will, pursuant to the trust agreement, initially be
five. Three of the trustees will be our employees, officers or affiliates. The
fourth trustee, the property trustee, will be a financial institution that is
not our affiliate. This fourth trustee will serve as institutional trustee
under the trust agreement and as indenture trustee for purposes of compliance
with the Trust Indenture Act. State Street Bank and Trust Company, a state
chartered trust company organized under the laws of the Commonwealth of
Massachusetts, will be the property trustee until we decide to remove or
replace it. For purposes of compliance with the provisions of the Trust
Indenture Act, State Street Bank and Trust Company will also act as trustee
under the Guarantee and as debenture trustee under the indenture. The fifth
trustee, the Delaware trustee, will be an entity that maintains its principal
place of business in the State of Delaware. Wilmington Trust Company, a
Delaware banking corporation, will act as Delaware trustee.
50
<PAGE>
The property trustee will hold title to the junior subordinated debentures
for the benefit of the holders of the preferred securities and the common
securities and in such capacity will have the power to exercise all rights,
powers and privileges under the indenture. The property trustee will also
maintain exclusive control of a segregated non interest-bearing bank account,
the property account, to hold all payments made under the junior subordinated
debentures for the benefit of the holders of the preferred securities and the
common securities. The property trustee will make payments of distributions and
payments on liquidation, redemption and otherwise to the holders of the
preferred securities and the common securities out of funds from the property
account. The guarantee trustee will hold the guarantee for the benefit of the
holders of the preferred securities. We, as the holder of all the common
securities, will have the right to appoint, remove or replace any trustee and
to increase or decrease the number of trustees. We will pay all fees and
expenses related to Capital Trust and the offering of the preferred securities
and the common securities.
Your rights as a holder of the preferred securities, including economic
rights, rights to information and voting rights, are set forth in the trust
agreement, the Delaware Business Trust Act and the Trust Indenture Act. See
"Description of the Preferred Securities."
51
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
OF MATRIX BANCORP, INC.
The following selected consolidated financial data and operating information
of Matrix Bancorp, Inc. 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," each of which is
included elsewhere in this prospectus. In February 1997, we completed our
acquisition of The Vintage Group in a transaction accounted for as a pooling of
interests. As a result of the pooling, our historical financial and other
information has been restated to include the financial and other information of
The Vintage Group.
<TABLE>
<CAPTION>
As of and for the
As of and for the Three Months Ended
Year Ended December 31, March 31,
------------------------------------------------------------ ----------------------
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ---------- ---------- ----------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income Data
Net interest income
before provision for
loan and valuation
losses................. $ 4,004 $ 3,592 $ 6,059 $ 13,888 $ 24,190 $ 4,433 $ 7,228
Provision for loan and
valuation losses....... 216 401 143 874 4,607 450 675
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income
after provision for
loan and valuation
losses................. 3,788 3,191 5,916 13,014 19,583 3,983 6,553
---------- ---------- ---------- ---------- ---------- ---------- ----------
Non interest income:
Loan administration.... 6,926 7,749 8,827 16,007 17,411 3,743 5,293
Brokerage.............. 4,017 4,787 4,364 3,921 7,054 1,672 1,672
Trust services......... 2,488 2,869 3,061 3,561 4,169 1,001 1,279
Gain on sale of loans
and mortgage-backed
securities............ 1,590 3,039 3,121 2,441 3,108 1,062 532
Gain on sale of
mortgage servicing
rights................ 684 1,164 3,232 3,365 803 837 --
Loan origination (1)... 1,294 2,302 1,809 4,694 5,677 1,482 1,954
Other.................. 940 1,744 2,173 4,040 8,523 1,122 3,476
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total non interest
income................ 17,939 23,654 26,587 38,029 46,745 10,919 14,206
Non interest expense.... 16,593 20,453 26,655 37,746 52,939 11,378 16,859
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income
taxes.................. 5,134 6,392 5,848 13,297 13,389 3,524 3,900
Income taxes............ 2,014 2,469 2,278 5,159 4,876 1,339 1,395
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income.............. $ 3,120 $ 3,923 $ 3,570(2) $ 8,138 $ 8,513 $ 2,185 $ 2,505
========== ========== ========== ========== ========== ========== ==========
Net income per share
assuming dilution (3).. $ 0.69 $ 0.83 $ 0.68 $ 1.20 1.24 $ 0.33 $ 0.37
Weighted average common
shares assuming
dilution............... 4,529,593 4,707,221 5,077,321 6,781,808 6,881,890 6,841,679 6,848,571
Cash dividends (4)...... $ -- $ -- $ 201 $ -- $ -- $ -- $ --
Balance Sheet Data
Total assets............ $ 113,597 $ 186,313 $ 274,559 $ 606,745 $1,012,640 $ 698,517 $ 996,519
Total loans, net........ 89,340 146,665 212,361 511,372 848,448 573,586 803,002
Mortgage servicing
rights, net............ 6,183 13,817 23,680 36,440 58,147 48,845 67,437
Deposits (5)(6)......... 41,910 48,877 90,179 224,982 490,516 316,303 543,954
Custodial escrow
balances............... 24,687 27,011 37,881 53,760 96,824 75,687 98,266
FHLB borrowings......... 14,600 19,000 51,250 171,943 168,000 104,000 113,000
Borrowed money.......... 18,438 65,093 42,431 89,909 178,789 125,607 169,849
Total shareholders'
equity................. 6,662 10,686 32,270 40,610 49,354 42,797 51,869
Operating Ratios and
Other Selected Data
Return on average assets
(7).................... 3.13% 2.59% 1.69% 1.78% 1.02% 1.35% 0.98%
Return on average equity
(7).................... 57.06 47.62 24.30 22.71 18.92 21.22 19.83
Average equity to
average assets (7)..... 5.49 5.44 6.97 7.86 5.41 6.35 4.97
Net interest margin
(7)(8)................. 4.64 2.84 3.45 3.70 3.37 3.14 3.34
Operating efficiency
ratio (9).............. 70.22 68.40 74.20 60.14 59.74 63.73 56.61
Total amount of loans
purchased.............. $ 80,048 $ 91,774 $ 159,015 $ 493,693 $ 678,150 $ 110,674 $ 25,016
Balance of owned
servicing portfolio
(end of period)........ $1,041,785 $1,596,385 $2,505,036 $3,348,062 $5,357,729 $4,325,559 $6,196,744
Trust assets under
administration (end of
period)................ $ 750,186 $ 952,528 $1,162,231 $1,437,478 $2,089,562 $1,555,486 $2,228,682
Wholesale loan
origination volume..... $ 183,130 $ 388,937 $ 583,279 $ 402,984 $ 574,963 $ 151,330 $ 134,766
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
As of and for the
As of and for the Three Months Ended
Year Ended December 31, March 31,
---------------------------------------------------------- ----------------------
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ---------- ---------- ----------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to
Fixed Charges (10)
Including interest on
deposits............... 2.58x 1.86x 1.54x 1.71x 1.36x 1.47x 1.37x
Excluding interest on
deposits............... 3.91x 2.22x 1.84x 2.30x 1.64x 1.77x 1.73x
Loan Performance Ratios
and Data
Allowance for loan and
valuation losses....... $ 728 $ 943 $ 1,039 $ 1,756 $ 3,710 $ 2,021 $ 4,182
Non-performing loans and
leases (11)............ 3,314 5,538 3,903 4,990 13,209 6,492 15,475
Non performing loans and
leases/
total loans (11)....... 3.68% 3.75% 1.83% 0.97% 1.55% 1.13% 1.92%
Non performing
assets/total assets
(11)................... 3.40 3.42 1.89 1.03 1.39 1.09 1.72
Net loan charge-
offs/average loans
(7).................... 0.03 0.15 0.03 0.04 0.38 0.03 0.02
Allowance for loan and
valuation losses/
total loans............ 0.81 0.64 0.49 0.34 0.44 0.35 0.52
Allowance for loan and
valuation losses/
non performing loans... 21.97 17.03 26.62 35.19 28.09 31.13 27.02
</TABLE>
- --------
(1) On January 1, 1995, we adopted FAS 122, which was superceded by FAS 125.
Since FAS 122 prohibited retroactive application, the historical
accounting results for 1995, 1996, 1997, 1998 and 1999 are not directly
comparable to the results for prior periods.
(2) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Comparison of Results of Operations for Fiscal
Years 1997 and 1996--Loan Origination Income" for a discussion of the
impact on net income of a secondary marketing loss incurred in March 1996.
(3) Net income per common share assuming dilution 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.
(4) Represents dividends paid by The Vintage Group prior to its acquisition by
us.
(5) Following our acquisition of The Vintage Group in February 1997, Sterling
Trust moved approximately $80.0 million of fiduciary deposits from a third
party institution to Matrix Bank.
(6) Beginning in February 1998, Matrix Bank began accepting brokered deposits.
At March 31, 1998, the total balance of brokered deposits was $80.1
million. At December 31, 1998, the total balance of brokered deposits was
$148.7 million. At March 31, 1999, the total balance of brokered deposits
was $129.0 million.
(7) Calculations are based on average daily balances where available and
monthly averages otherwise.
(8) Net interest margin has been calculated by dividing net interest income
before loan and valuation loss provision by average interest-earning
assets.
(9) The operating efficiency ratio has been calculated by dividing non-
interest expense excluding amortization of mortgage servicing rights by
operating income. Operating income is equal to net interest income before
provision for loan and valuation losses plus non-interest income.
(10) For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of income before taxes plus interest and rent expense.
Fixed charges consist of interest and rent expense.
(11) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Asset and Liability Management--Non-performing
Assets" for a discussion of the impact of certain bulk purchases of
mortgage loan portfolios on the level of non-performing loans and the
effect of repurchasing sub-prime automobile loans.
53
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following management's discussion and analysis of
financial condition and results of operations in conjunction with the preceding
"Selected Consolidated Financial and Operating Information of Matrix Bancorp,
Inc." Additionally, our consolidated financial statements and the notes
thereto, as well as other data included in this prospectus, should be read and
analyzed in combination with the analysis below.
General
Matrix Bancorp was formed in June 1993 when the founding shareholders of
Matrix Financial and United Financial, two of our subsidiaries, exchanged all
of their outstanding capital stock for shares of our stock in a series of
transactions that were each accounted for as a pooling of interests. In
September 1993, we acquired Dona Ana Savings and Loan Association, FSB, which
was subsequently renamed Matrix Capital Bank. The acquisition was accounted for
using the purchase method of accounting. We formed United Special Services in
June 1995 and United Capital Markets in December 1996. In February 1997, we
acquired The Vintage Group in a pooling of interests and, accordingly, no
goodwill was recorded and our consolidated financial statements for the prior
periods have been restated.
The principal components of our revenues consist primarily of:
. net interest income recorded by Matrix Bank and Matrix Financial;
. loan administration fees generated by Matrix Financial;
. brokerage, consulting and disposition services fees realized by United
Financial, United Capital Markets and United Special Services,
respectively;
. loan origination fees and gains on sales of mortgage loans and mortgage
servicing rights generated by Matrix Bank and Matrix Financial; and,
. trust service fees generated by Sterling Trust.
Our results of operations are influenced by changes in interest rates and
the effect of these changes on our interest spreads, the volume of loan
originations, mortgage loan prepayments and the value of mortgage servicing
portfolios.
Comparison of Results of Operations for the Quarters Ended March 31, 1999 and
1998
Net Income; Return on Average Equity
Net income increased $320,000, or 14.6%, to $2.5 million, or $.37 per share,
for the quarter ended March 31, 1999 as compared to $2.2 million, or $.32 per
share, for the quarter ended March 31, 1998. Return on average equity decreased
to 19.8% for the quarter ended March 31, 1999 as compared to 21.2% for the
quarter ended March 31, 1998.
Net Interest Income
Net interest income before provision for loan and valuation losses increased
$2.8 million, or 63.1%, to $7.2 million for the quarter ended March 31, 1999 as
compared to $4.4 million for the quarter ended March 31, 1998. Our net interest
margin increased 20 basis points to 3.34% for the quarter ended March 31, 1999
from 3.14% for the quarter ended March 31, 1998 and our interest rate spread
increased to 3.13% for the quarter ended March 31, 1999 from 2.71% for the
quarter ended March 31, 1998. The increases in net interest income before
provision for loan and valuation losses, net interest margin and interest rate
spread for the first quarter of 1999 were attributable to the following:
. a 54.5% increase in our average loan balance to $833.5 million for the
quarter ended March 31, 1999 from $539.4 million for the quarter ended
March 31, 1998, and
54
<PAGE>
. a decrease in the cost of interest-bearing liabilities to 5.00% for the
quarter ended March 31, 1999 as compared to 5.49% for the quarter ended
March 31, 1998.
The above were offset by:
. a 59.3% increase in average interest-bearing liabilities to $830.2
million for the quarter ended March 31, 1999 as compared to $521.2
million for the quarter ended March 31, 1998, and
. a decrease in our yield on interest-earning assets to 8.13% from 8.20%
for the quarters ended March 31, 1999 and 1998, respectively.
The decrease in the cost of interest-bearing liabilities was primarily driven
by decreases in the rates paid for Federal Home Loan Bank borrowings and
certificates of deposit, including brokered certificates of deposit. For a
tabular presentation of the changes in net interest income due to changes in
the volume of interest-earning assets and interest-bearing liabilities, as well
as 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 $225,000 to $675,000
for the quarter ended March 31, 1999 as compared to $450,000 for the quarter
ended March 31, 1998. This increase was primarily attributable to the increase
in the balance of loans receivable, which increased to $803.0 million at March
31, 1999 as compared to $573.6 million at March 31, 1998. For a discussion of
our allowance for loan losses as it relates to nonperforming assets, see "--
Asset Quality--Nonperforming Assets."
Loan Administration
Loan administration income represents service fees earned from servicing
loans for various investors, which are based on a contractual percentage of the
outstanding principal balance plus late fees and other ancillary charges. Loan
administration fees increased $1.6 million, or 41.4%, to $5.3 million for the
quarter ended March 31, 1999 as compared to $3.7 million for the quarter ended
March 31, 1998. Loan administration fees are affected by factors that include
the size of our residential mortgage loan servicing portfolio, the servicing
spread, the timing of payment collections and the amount of ancillary fees
received. The mortgage loan servicing portfolio increased to an average balance
of $4.9 billion for the quarter ended March 31, 1999 as compared to $3.5
billion for the quarter ended March 31, 1998. This increase was offset by a
reduction in the average service fee rate (including all ancillary income) to
0.43% for the first quarter of 1999 as compared to 0.45% for the first quarter
of 1998.
Brokerage Fees
Brokerage fees represent income earned from brokerage and consulting
services performed pertaining to mortgage servicing rights. Brokerage fees were
identical for the quarters ended March 31, 1999 and 1998, which was the result
of comparable balances of residential mortgage servicing portfolios brokered by
United Financial. Mortgage servicing rights brokered, in terms of aggregate
unpaid principal balances on the underlying loans, were $13.8 billion and $14.5
billion for the quarters ended March 31, 1999 and 1998, respectively. Due to
current market conditions for mortgage servicing rights, we are unable to
predict whether United Financial will continue to broker the volume of mortgage
servicing rights that it did in the first quarter of 1999 and other recent
quarters.
Trust Services
Trust service fees increased $278,000, or 27.8%, to $1.3 million for the
quarter ended March 31, 1999 as compared to $1.0 million for the quarter ended
March 31, 1998. This increase is associated with the growth in
55
<PAGE>
the number of trust accounts under administration at Sterling Trust, which
increased to 37,360 at March 31, 1999 from 30,193 at March 31, 1998 and the
increase in the total assets under administration, which increased to over $2.2
billion at March 31, 1999 from approximately $1.5 billion at March 31, 1998.
Gain on Sale of Loans
Gain on the sale of loans decreased $530,000 to $532,000 for the quarter
ended March 31, 1999 as compared to $1.1 million for the quarter ended March
31, 1998. This decrease resulted from the sale of only $39.5 million loans
during the quarter ended March 31, 1999 as compared to the sale of $63.5
million loans during the quarter ended March 31, 1998. Gain on the sale of
loans can fluctuate significantly from quarter to quarter and 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, the type of loan portfolios we purchase and the particular loan
portfolios we elect to sell.
Gain on Sale of Mortgage Servicing Rights
Gain on the sale of mortgage servicing rights decreased $837,000 because we
did not sell any mortgage servicing rights during the quarter ended March 31,
1999. Gains from the sale of mortgage servicing rights can fluctuate
significantly from quarter to quarter and year to year based on the market
value of our servicing portfolio, the particular servicing portfolios we elect
to sell and the availability of similar portfolios in the market. Due to our
position in and knowledge of the market, we will at times pursue opportunistic
sales of mortgage servicing rights.
Loan Origination
Loan origination income includes all mortgage loans fees, secondary
marketing activity on new loan originations and servicing release premiums on
new originations sold, net of origination costs. Loan origination income
increased $472,000, or 31.8%, to $2.0 million for the quarter ended March 31,
1999 as compared to $1.5 million for the quarter ended March 31, 1998. The
increase in loan origination income resulted from differences in the pricing
and mix of loans originated, which offset the $16.6 million decrease in
wholesale residential mortgage loan production.
Other Income
Other income increased $2.4 million, or 209.8%, to $3.5 million for the
quarter ended March 31, 1999 as compared to $1.1 million for the quarter ended
March 31, 1998. The increase in other income was primarily due to increased
consulting income earned by United Capital Markets ($960,000 for the quarter
ended March 31, 1999 as compared to $307,000 for the quarter ended March 31,
1998), increased service fee income earned by United Special Services ($784,000
for the quarter ended March 31, 1999 as compared to $321,000 for the quarter
ended March 31, 1998) and a $335,000 increase in whole loan brokerage income
from the first quarter of 1998 to the first quarter of 1999. Increases in
income for United Capital Markets and United Special Services relate to an
increase in customers between the first quarters of 1999 and 1998. The
remainder of the increase in other income pertains to various financing
transactions and service fees earned by Matrix Financial and Matrix Bank.
Non interest Expense
Non interest expense increased $5.5 million, or 48.2%, to $16.9 million for
the quarter ended March 31, 1999 as compared to $11.4 million for the quarter
ended March 31, 1998. This increase was predominantly due to increases in the
amortization of mortgage servicing rights and our growth and expansion
throughout 1998 and into 1999. This growth and expansion includes increased
emphasis on wholesale loan production at Matrix
56
<PAGE>
Financial, expansion occurring at Sterling Trust due to increased assets under
administration, growth at Matrix Bank and additional personnel at several of
our other subsidiaries.
<TABLE>
<CAPTION>
Quarter Ended
March 31,
---------------
1998 1999
------- -------
(In thousands)
<S> <C> <C>
Compensation and employee benefits............................. $ 5,127 $ 6,869
Amortization of mortgage servicing rights...................... 1,594 4,726
Occupancy and equipment........................................ 666 838
Postage and communication...................................... 542 669
Professional fees.............................................. 249 300
Data processing................................................ 346 326
Other.......................................................... 2,854 3,131
------- -------
Total........................................................ $11,378 $16,859
======= =======
</TABLE>
Compensation and employee benefits expense increased $1.8 million, or 34.0%,
to $6.9 million for the quarter ended March 31, 1999 as compared to $5.1
million for the quarter ended March 31, 1998. This increase was primarily the
result of our growth and expansion, as discussed above, and an increase in
commission- based compensation. We experienced an increase of 133 employees to
518 full-time employees at March 31, 1999 as compared to 385 employees at March
31, 1998.
Amortization of mortgage servicing rights increased $3.1 million, or 196.5%,
to $4.7 million for the quarter ended March 31, 1999 as compared to $1.6
million for the quarter ended March 31, 1998. Amortization of mortgage
servicing rights fluctuates based on the size of our mortgage servicing
portfolio and the prepayment rates experienced with respect to the underlying
mortgage loan portfolio. In response to the lower interest rates prevalent in
the market, prepayment speeds have increased due to borrowers refinancing into
lower interest rate mortgages. Our prepayment rates on our servicing portfolio
averaged 27.6% for the quarter ended March 31, 1999 as compared to 17.0% for
the quarter ended March 31, 1998.
The remainder of non interest expense, which includes occupancy and
equipment expense, postage and communication expense, professional fees, data
processing costs and other expenses, increased $607,000, or 13.0%, to $5.3
million for the quarter ended March 31, 1999 as compared to $4.7 million for
the quarter ended March 31, 1998. This increase was primarily attributable to
our growth and expansion, as discussed above.
Provision for Income Taxes
The provisions for income taxes for the quarters ended March 31, 1999 and
1998 were comparable, as the increase in pretax income was offset by a
reduction in the effective tax rate to 35.8% for the quarter ended March 31,
1999 as compared to 38.0% for the quarter ended March 31, 1998. The decrease in
the effective tax rate is the result of our origination of tax-exempt leases.
Comparison of Results of Operations for Fiscal Years 1998 and 1997
Net Income; Return on Average Equity
Net income increased $375,000, or 4.6%, to $8.5 million for fiscal year 1998
as compared to $8.1 million for fiscal year 1997. On a per share basis, net
income was $1.24 per share for fiscal 1998, and $1.20 for fiscal 1997. Return
on average equity decreased to 18.9% for fiscal year 1998 as compared to 22.7%
for fiscal year 1997. Excluding non-recurring charges in both years, net income
increased $1.1 million, or 12.1%, to $10.1 million for fiscal year 1998 as
compared to $9.0 million for fiscal year 1997. The non-recurring charges
recorded during 1998, on a pre-tax basis, include a $2.3 million loss recorded
related to MCA Mortgage Corporation, as discussed below, $255,000 related to
United Financial's litigation expenses pertaining to the
57
<PAGE>
Douglas County case and $62,000 of costs that were written off due to the
termination of the merger agreement with Fidelity National Financial, Inc. Non-
recurring charges in 1997 consisted of a $1.4 million pre-tax loss relating to
the recourse obligation, subsequent operation and ultimate disposition of our
entire portfolio of sub- prime auto loans. Excluding non-recurring charges,
earnings per share increased from $1.33 in 1997 to $1.47 in 1998, or 10.4%, and
returns on average equity were 22.5% for fiscal year 1998 and 25.2% for fiscal
year 1997.
During recent years, Matrix Financial entered into several purchase
transactions with MCA Mortgage Corporation, a Michigan-based mortgage banking
entity. At December 31, 1998, Matrix Financial was carrying approximately $5.0
million of residential mortgage loans on its balance sheet that were purchased
from MCA Mortgage on a servicing retained basis. We also had a outstanding
receivable relating to brokerage and consulting services provided to MCA
Mortgage. In January 1999, we learned that MCA Mortgage was closing its
operations. Additionally, in February 1999, we learned that MCA Mortgage had
declared bankruptcy and that some of the loans purchased by Matrix Financial
had been sold multiple times or pledged multiple times as security for
repayment of various credit facilities. We also discovered that there appeared
to be servicing issues relating to some of the purchased loans. The servicing
issues consisted of instances in which loans owned by Matrix Financial and
serviced by MCA Mortgage had apparently previously paid off, but for which MCA
Mortgage had continued to remit monthly principal and interest, rather than the
payoff proceeds. As a result of the above MCA Mortgage issues, the Company
recorded a pre-tax loss as of December 31, 1998 of approximately $2.3 million.
Net Interest Income
Net interest income before provision for loan and valuation losses increased
$10.3 million, or 74.2%, to $24.2 million for fiscal year 1998 as compared to
$13.9 million for fiscal year 1997. The increase in net interest income before
provision for loan and valuation losses was due to a 94.6% increase our average
loan balance, which was offset by a decrease in our net interest margin to
3.37% for fiscal year 1998 as compared to 3.70% for fiscal year 1997. The
average yield on loans decreased to 8.59% in 1998 from 8.74% in 1997, primarily
due to the overall decrease and continuance of lower interest rates in the
market, as well as our acquisition of fewer discounted loans. Average interest-
bearing liabilities increased to $663.6 million for fiscal year 1998 from
$322.8 million for the prior fiscal year. The increase in the average interest-
bearing liabilities was offset by a reduction in the cost of the interest-
bearing liabilities to 5.50% in 1998 from 5.66% in 1997. 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 $3.7 million to $4.6
million for fiscal year 1998 as compared to $874,000 for fiscal year 1997. This
increase was primarily attributable to the MCA Mortgage loss, as well as the
increase in the balance of loans receivable, which increased to $852.2 million
at December 31, 1998 as compared to $513.1 million at December 31, 1997. For a
discussion of the components of the allowance for loan losses, see "--Asset and
Liability Management--Analysis of Allowance for Loan and Valuation Losses." For
a discussion on the allowance as it relates to nonperforming assets, see "--
Asset and Liability Management--Nonperforming Assets."
Loan Administration
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. Loan
administration fees increased $1.4 million, or 8.8%, to $17.4 million for
fiscal year 1998 as compared to $16.0 million for fiscal year 1997. Loan
administration fees are affected by factors that include the size of our
residential mortgage loan servicing portfolio, the servicing spread, the timing
of payment collections and the amount of ancillary
58
<PAGE>
fees collected. We attribute the 1998 increase primarily to the increase in the
outstanding principal balance underlying our mortgage loan servicing portfolio.
The mortgage loan servicing portfolio increased $556.8 million, or 16.3%, to an
average balance of $4.0 billion for fiscal year 1998 as compared to an average
balance of $3.4 billion for fiscal year 1997. This increase was offset by a
reduction in the average service fee rate (including all ancillary income) to
0.44% for fiscal year 1998 as compared to 0.47% for fiscal year 1997.
Brokerage Fees
Brokerage fees increased $3.2 million, or 79.9%, to $7.1 million for fiscal
year 1998 as compared to $3.9 million for fiscal year 1997. This increase is
the result of an increase in the balance of residential mortgage servicing
portfolios brokered by United Financial, which in terms of aggregate unpaid
principal balances on the underlying loans, increased $33.0 billion to $66.4
billion for fiscal year 1998 as compared to $33.4 billion for fiscal year 1997.
Due to current market conditions for mortgage servicing rights, we are unable
to predict whether United Financial will continue to broker the volume of
mortgage servicing rights that it did during fiscal year 1998. In addition,
brokerage fees vary from quarter to quarter as the timing of servicing sales is
dependent upon the seller's need to recognize a sale or to receive cash flows.
Trust Services
Trust service fees increased $608,000, or 17.1%, to $4.2 million for fiscal
year 1998 as compared to $3.6 million for fiscal year 1997. This increase is
associated with the growth in the number of trust accounts under administration
at Sterling Trust, which increased to 36,374 accounts at December 31, 1998 from
29,382 accounts at December 31, 1997 and the increase in total assets under
administration to $2.1 billion at December 31, 1998 from $1.4 billion at
December 31, 1997. Over half of the increase in accounts is the result of a
service agreement with a large registered investment advisor, which was signed
in early 1998 and provides custody and clearing services for this advisor's
clients. While this represents a significant portion of Sterling Trust's growth
during 1998, the advisor's clients have all signed individual agreements for
Sterling Trust's services.
Gain on Sale of Loans
During fiscal years 1998 and 1997, the Company made bulk loan sales of
approximately $319.4 million and $198.0 million, for gains on sale of bulk
mortgage loans of $3.1 million and $2.4 million, respectively. These loan sales
were completed under standard purchase and sale agreements, with standard
representations and warranties and without recourse. The gains from these sales
represent cash gains. Gain on sale of loans can fluctuate significantly from
year to year based on a variety of factors, such as the current interest rate
environment, the supply and 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.
Gain on Sale of Mortgage Servicing Rights
Gain on the sale of mortgage servicing rights decreased $2.6 million, or
76.1%, to $803,000 for fiscal year 1998 as compared to $3.4 million for fiscal
year 1997. In terms of aggregate outstanding principal balances of mortgage
loans underlying such mortgage servicing rights, we sold $175.3 million in
purchased mortgage servicing rights during fiscal year 1998 as compared to $1.3
billion during fiscal year 1997. Gains from the sale of mortgage servicing
rights can fluctuate significantly from year to year based on the market value
of our servicing portfolio, the particular servicing portfolios we elect to
sell and the availability of similar portfolios in the market. Due to our
position in and knowledge of the market, we will at times pursue opportunistic
sales of mortgage servicing rights.
Loan Origination
Loan origination income increased $983,000, or 20.9%, to $5.7 million for
fiscal year 1998 as compared to $4.7 million for fiscal year 1997. This
increase is attributable to the increase in wholesale residential
59
<PAGE>
mortgage loan production of $172.0 million, or 42.7%, to $575.0 million during
fiscal year 1998 as compared to $403.0 million during fiscal year 1997.
Other Income
Other income increased $4.5 million, or 111.0%, to $8.5 million for fiscal
year 1998 as compared to $4.0 million for fiscal year 1997. The increase in
other income was primarily due to:
. increased consulting income from United Capital Markets which rose to
$2.6 million for fiscal year 1998 as compared to $184,000 for fiscal
year 1997;
. an increase in United Special Services service fee income which totaled
$2.0 million for fiscal year 1998 as compared to $1.1 million for fiscal
year 1997; and
. certain of our financing transactions which increased miscellaneous fee
income over the prior fiscal year.
Non interest Expense
Non interest expense increased $15.2 million, or 40.3%, to $52.9 million for
fiscal year 1998 as compared to $37.7 million for fiscal year 1997. This
increase was primarily due to the overall growth and expansion of the Company
that began in the fourth quarter of 1997 and that has continued throughout 1998
and the increase in the amortization of mortgage servicing rights. This growth
and expansion included the continued growth in the origination of loans at
Matrix Financial, the opening of a new lending subsidiary of Matrix Financial
and moderate growth at most of the other Subsidiaries. The following table
details the major components of non interest expense for the periods indicated:
<TABLE>
<CAPTION>
Year Ended
December 31,
---------------
1997 1998
------- -------
(In thousands)
<S> <C> <C>
Compensation and employee benefits............................. $14,724 $22,194
Amortization of mortgage servicing rights...................... 6,521 10,563
Occupancy and equipment........................................ 2,132 3,059
Postage and communication...................................... 1,522 2,393
Professional fees.............................................. 976 1,439
Data processing................................................ 843 1,344
Losses related to recourse sales............................... 1,237 --
Other general and administrative............................... 9,791 11,947
------- -------
Total........................................................ $37,746 $52,939
======= =======
</TABLE>
Compensation and employee benefits increased $7.5 million, or 50.7%, to
$22.2 million for fiscal year 1998 as compared to $14.7 million for fiscal year
1997. This increase was primarily the result of the expansion discussed above,
as well as expansion in the operations of Matrix Bank. Additionally,
commission-based compensation at Matrix Financial and United Financial
increased due to the overall increases in loan origination and brokerage
income, respectively. Most of the Company's other Subsidiaries also added new
employees during 1998. The Company had an overall increase of 68 employees, or
17.9%, to 447 full-time employees at December 31, 1998 as compared to 379 full-
time employees at December 31, 1997.
Amortization of mortgage servicing rights increased $4.1 million, or 62.0%,
to $10.6 million for fiscal year 1998 as compared to $6.5 million for fiscal
year 1997. Amortization of mortgage servicing rights fluctuates based on the
size of our mortgage servicing portfolio and the prepayment rates experienced.
Our prepayment rates on our servicing portfolio averaged 22.6% during fiscal
year 1998 as compared to 11.3% during fiscal year 1997. In response to the
lower interest rates prevalent in the market, prepayment speeds have
60
<PAGE>
increased due to borrowers refinancing into lower interest rate mortgages. We
anticipate the increased amortization levels to continue for the foreseeable
future in response to the historically low interest rate levels.
The remainder of non interest expense, after removing the effect of the non-
recurring charges in both years, which includes occupancy and equipment
expense, postage and communication expense, professional fees, data processing
costs and other expenses increased $4.7 million, or 31.8% to $19.8 million for
fiscal year 1998 as compared to $15.1 million for fiscal year 1997. The
increase was generally attributable to the growth and expansion of our business
lines, especially with regard to Matrix Financial and Matrix Bank.
Additionally, we experienced higher interest curtailment expenses related to
the increased prepayments at Matrix Financial.
Provision for Income Taxes
Our provision for income taxes decreased $283,000 to $4.9 million for fiscal
year 1998 as compared to $5.2 million for fiscal year 1997. The increase in
pre-tax income was offset by a reduction in the effective tax rate to 36.4% for
fiscal year 1998 from 38.8% for fiscal year 1997. The decrease in the effective
tax rate was the result of our origination of tax-exempt leases.
Comparison of Results of Operations for Fiscal Years 1997 and 1996
Net Income; Return on Average Equity
Net income increased $4.5 million, or 128.0%, to $8.1 million for fiscal
year 1997 as compared to $3.6 million for fiscal year 1996. On a per share
basis, net income was $1.20 per share for fiscal 1997 and $0.68 for fiscal
1996. Return on average equity decreased to 22.7% for fiscal year 1997 as
compared to 24.3% for fiscal year 1996. The decrease in return on average
equity was due to the increase in average equity to $35.8 million for fiscal
year 1997 as compared to $14.7 million for fiscal year 1996. The increase in
average equity is primarily attributable to our initial public offering during
the fourth quarter of 1996, which increased equity by $18.2 million.
Net Interest Income
Net interest income before provision for loan and valuation losses increased
$7.8 million, or 129.2%, to $13.9 million for fiscal year 1997 as compared to
$6.1 million for fiscal year 1996. Our net interest margin increased to 3.70%
for fiscal year 1997 as compared to 3.45% for fiscal year 1996. These increases
were attributable to the following:
. a 118.8% increase in our average loan portfolio balance to $355.8
million for fiscal year 1997 from $162.6 million for fiscal year 1996;
and
. a decrease in the cost of interest-bearing liabilities to 5.66% for
fiscal year 1997 as compared to 6.59% for fiscal year 1996. The decrease
in the cost of interest-bearing liabilities was the result of fiduciary
deposits of approximately $80.0 million administered by Sterling Trust
being transferred from a third party financial institution to Matrix
Bank upon completion of our acquisition of the Vintage Group.
The above were offset by:
. a 102.8% increase in average interest-bearing liabilities to $322.8
million for fiscal year 1997 as compared to $159.2 million for fiscal
year 1996; and
. a decrease in our yield on interest-earning assets to 8.55% from 9.43%
for fiscal years 1997 and 1996, respectively.
The decrease in our yield on interest-earning assets was attributable to the
lower yield earned on the loan portfolio, which decreased to 8.74% as compared
to 9.67% for fiscal years 1997 and 1996, respectively. The loan portfolio yield
decrease is attributable to the overall market decrease in interest rates and
our acquisition of loans with less discounts. For a tabular presentation of the
changes in net interest income due to changes in the 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."
61
<PAGE>
Provision for Loan and Valuation Losses
Provision for loan losses increased $731,000 to $874,000 for fiscal year
1997 as compared to $143,000 for fiscal year 1996. This increase was primarily
attributable to the increase in the balance of loans receivable, which
increased to $513.1 million at December 31, 1997 as compared to $213.4 million
at December 31, 1996. For a discussion of our allowance for loan losses as it
relates to non performing assets, see "--Asset Quality--Non-performing Assets."
Loan Administration
Loan administration fees increased $7.2 million, or 81.3%, to $16.0 million
for fiscal year 1997 as compared to $8.8 million for fiscal year 1996. This
increase was primarily attributable to the increase in the outstanding
principal balance underlying our mortgage loan servicing portfolio. The
mortgage loan servicing portfolio increased $843.0 million, or 33.7%, to $3.3
billion at December 31, 1997 from $2.5 billion at December 31, 1996.
Brokerage Fees
Brokerage fees decreased $443,000, or 10.2%, to $3.9 million for fiscal year
1997 as compared to $4.4 million for fiscal year 1996. This decrease occurred
despite the increase in bulk servicing portfolios brokered by United Financial.
Servicing portfolios brokered by United Financial increased $7.0 billion to
$33.4 billion for fiscal year 1997 as compared to $26.4 billion for fiscal year
1996. The decrease in brokerage fees is attributable to an overall decrease in
the margins earned on servicing brokered.
Trust Services
Trust service fees increased $500,000, or 16.3%, to $3.6 million for fiscal
year 1997 as compared to $3.1 million for fiscal year 1996. This increase is
associated with the growth in the number of trust accounts under administration
at Sterling Trust, which increased to 29,382 accounts at December 31, 1997 from
25,772 accounts at December 31, 1996, and the increase in the total assets
under administration which increased to over $1.4 billion at December 31, 1997
from under $1.2 billion at December 31, 1996.
Gain on Sale of Loans and Mortgage-Backed Securities
Gain on sale of loans and mortgage-backed securities decreased $680,000, or
21.8%, to $2.4 million for fiscal year 1997 as compared to $3.1 million for
fiscal year 1996. Gain on sale of loans can fluctuate significantly 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, the type of loan portfolios we purchase and the
particular loan portfolios we elect to sell.
Gain on Sale of Mortgage Servicing Rights
Gain on sale of mortgage servicing rights increased $133,000 to $3.4 million
for fiscal year 1997 as compared to $3.2 million for fiscal year 1996. In terms
of aggregate outstanding principal balances of mortgage loans underlying such
servicing rights, we sold $1.3 billion in purchased mortgage servicing rights
during fiscal year 1997 as compared to $646.0 million during fiscal year 1996.
A majority of the gain in 1997 pertains to mortgage servicing rights we bought
in 1997.
Loan Origination
Loan origination income increased $2.9 million, or 159.5%, to $4.7 million
for fiscal year 1997 as compared to $1.8 million for fiscal year 1996 despite
the $180.3 million, or 30.9%, decrease in wholesale residential mortgage loan
production to $403.0 million for fiscal year 1997 as compared to $583.3 million
for fiscal year 1996. The increase in loan origination income was related to a
$1.9 million secondary marketing
62
<PAGE>
loss that occurred in the first quarter of 1996 and the origination in 1997 of
a greater amount of non-agency eligible loans, which generally result in higher
origination fees. The secondary loss was attributable to the failure of a
former officer of Matrix Financial to adhere to our established hedging
policies, and as a result, certain closed loans were not adequately hedged. The
$1.9 million loss resulted when interest rates increased dramatically in March
1996, thereby causing the funded loans and pipeline commitments to decline in
market value. Had our policies been followed, a loss still would have been
recognized, albeit significantly smaller, since it is difficult for us to be
completely hedged when interest rates rapidly and significantly change. We have
implemented several management and reporting changes to help ensure that the
hedging policies established by Matrix Financial's board of directors are
followed to mitigate secondary losses in volatile interest rate markets.
Other Income
Other income increased $1.8 million, or 85.9%, to $4.0 million for fiscal
year 1997 as compared to $2.2 million for fiscal year 1996. The increase in
other income between 1997 and 1996 is predominantly related to the growth in
credit card fee income, United Special Services service fees and consulting
income generated by United Capital Markets, which was formed in December 1996.
Credit card fee income increased $889,000 to $908,000 for fiscal year 1997 as
compared to $19,000 for fiscal year 1996. Additionally, United Special Services
service fees and United Capital Markets consulting income increased $557,000
and $184,000, respectively, to $1.1 million and $184,000 for fiscal year 1997
as compared to $564,000 and $0 for fiscal year 1996.
Non interest Expense
Non interest expense increased $11.1 million, or 41.6%, to $37.7 million for
fiscal year 1997 as compared to $26.7 million for fiscal year 1996. This
increase was primarily due to:
. expenses related to the interim sub-servicing on mortgage servicing
portfolios acquired in 1997;
. the expenses related to United Capital Markets which was formed in
December 1996;
. the opening of a telemarketing call center for the origination of loans
at Matrix Financial;
. increased amortization due to our increased investment in mortgage
servicing rights; and
. our overall growth and expansion.
During 1997, we recognized a pre-tax loss of approximately $1.4 million
relating to the recourse obligation, subsequent operation and ultimate
disposition of our entire portfolio of sub-prime auto loans. This loss was less
than the following non-recurring items, which were recorded during fiscal year
1996:
. a $600,000 accrual for the previously disclosed settlement of a class-
action lawsuit;
. a one-time fee of $450,000 to re-capitalize the Savings Association
Insurance Fund; and
. a $787,000 loss relating to the repurchase of sub-prime auto loans.
The following table details the major components of non interest expense for
the periods indicated:
<TABLE>
<CAPTION>
Year Ended
December 31,
---------------
1996 1997
------- -------
(In thousands)
<S> <C> <C>
Compensation and employee benefits............................. $12,722 $14,724
Amortization of mortgage servicing rights...................... 2,432 6,521
Occupancy and equipment........................................ 1,776 2,132
Postage and communication...................................... 1,214 1,522
Professional fees.............................................. 666 976
Data processing................................................ 642 843
Losses related to recourse sales............................... 787 1,237
Other.......................................................... 6,416 9,791
------- -------
Total...................................................... $26,655 $37,746
======= =======
</TABLE>
63
<PAGE>
Compensation and employee benefits increased $2.0 million, or 15.7%, to
$14.7 million for fiscal year 1997 as compared to $12.7 million for fiscal year
1996. This increase was the result of continued expansion of the Company's
business lines in 1997, including the opening of a retail branch of Matrix
Bank, a new lending office of Matrix Bank, the formation of United Capital
Markets at the end of 1996 and the opening of Matrix Financial's telemarketing
call center. The Company had an increase of 119 employees, or 45.8%, to 379
full-time employees at December 31, 1997 as compared to 260 full-time employees
at December 31, 1996.
Amortization of mortgage servicing rights increased $4.1 million, or 168.1%,
to $6.5 million for fiscal year 1997 as compared to $2.4 million for fiscal
year 1996. The prepayment speed we experienced on the loans we serviced
averaged 11.3% during fiscal year 1997 as compared to 11.9% during fiscal year
1996.
The remainder of non interest expense increased $5.0 million, or 43.5%, to
$16.5 million for fiscal year 1997 as compared to $11.5 million for fiscal year
1996. The increase was primarily attributable to $1.2 million of interim sub-
servicing costs on mortgage servicing portfolios acquired during 1997 and the
expansion of both existing and new business lines.
Provision for Income Taxes
The provision for income taxes increased by $2.9 million to $5.2 million for
fiscal year 1997 as compared to $2.3 million for fiscal year 1996. The two
periods had comparable effective tax rates of 38.8% and 39.0%, respectively.
64
<PAGE>
Average Balance Sheet
The following table sets forth for the periods and as of the dates indicated,
information regarding our 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. Average
interest rate information for the quarters ended March 31, 1999 and 1998 has
been annualized. Non accrual loans are included in the calculation of average
balances for loans for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------
1996 1997 1998
-------------------------- -------------------------- --------------------------
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............. $162,648 $15,733 9.67% $355,848 $31,096 8.74% $692,443 $59,452 8.59%
Mortgage-backed
securities...... 4,653 351 7.54 -- -- -- -- -- --
Interest-earning
deposits........ 5,556 312 5.62 15,371 778 5.06 15,042 627 4.17
FHLB stock...... 2,585 153 5.92 4,606 275 5.97 10,719 615 5.74
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total interest-
earning assets.. 175,442 16,549 9.43 375,825 32,149 8.55 718,204 60,694 8.45
Non interest-
earning assets:
Cash............ 3,085 10,268 13,241
Allowance for
loan and
valuation
losses.......... (964) (1,343) (2,223)
Premises and
equipment....... 6,976 8,302 9,913
Other assets.... 26,199 62,922 93,208
-------- -------- --------
Total non
interest-earning
assets.......... 35,296 80,149 114,139
-------- -------- --------
Total assets.... $210,738 $455,974 $832,343
======== ======== ========
Liabilities and
Shareholders'
Equity
Interest-bearing
liabilities:
Passbook
accounts........ $ 2,389 82 3.43 $ 2,859 113 3.95 $ 2,859 102 3.58
Money market and
NOW accounts.... 11,964 468 3.91 96,982 3,278 3.38 142,382 4,432 3.11
Certificates of
deposit......... 54,824 3,210 5.85 83,993 4,985 5.94 211,592 11,687 5.52
FHLB
borrowings...... 35,838 2,039 5.69 59,984 3,435 5.73 159,381 8,554 5.37
Borrowed money.. 54,171 4,691 8.66 79,011 6,450 8.16 147,368 11,729 7.96
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total interest-
bearing
liabilities..... 159,186 10,490 6.59 322,829 18,261 5.66 663,582 36,504 5.50
-------- ------- ------ -------- ------- ------ -------- ------- ------
Non interest-
bearing
liabilities:
Demand deposits
(including
custodial escrow
balances)....... 27,934 80,816 106,247
Other
liabilities..... 8,927 16,501 17,518
-------- -------- --------
Total non
interest-bearing
liabilities..... 36,861 97,317 123,765
Shareholders'
equity.......... 14,691 35,828 44,996
-------- -------- --------
Total
liabilities and
shareholders'
equity.......... $210,738 $455,974 $832,343
======== ======== ========
Net interest
income before
provision for
loan and
valuation
losses........... $ 6,059 $13,888 $24,190
======= ======= =======
Interest rate
spread........... 2.84% 2.89% 2.95%
====== ====== ======
Net interest
margin........... 3.45% 3.70% 3.37%
====== ====== ======
Ratio of average
interest-earning
assets to average
interest-bearing
liabilities...... 110.21% 116.42% 108.23%
====== ====== ======
<CAPTION>
Quarter Ended March 31,
--------------------------------------------------------
1998 1999
----------------- --------------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
-------- -------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning
assets:
Loans
receivable,
net............. $539,449 $11,301 8.38% $ 833,534 $17,238 8.27%
Mortgage-backed
securities...... -- -- -- -- -- --
Interest-earning
deposits........ 16,400 150 3.66 17,282 155 3.59
FHLB stock...... 9,134 135 5.91 15,645 212 5.42
-------- -------- -------- ----------- -------- --------
Total interest-
earning assets.. 564,983 11,586 8.20 866,461 17,605 8.13
Non interest-
earning assets:
Cash............ 7,384 17,799
Allowance for
loan and
valuation
losses.......... (1,845) (3,479)
Premises and
equipment....... 9,060 10,555
Other assets.... 68,843 126,503
-------- -----------
Total non
interest-earning
assets.......... 83,442 151,378
-------- -----------
Total assets.... $648,425 $1,017,839
======== ===========
Liabilities and
Shareholders'
Equity
Interest-bearing
liabilities:
Passbook
accounts........ $ 2,881 28 3.89 $ 2,764 24 3.42
Money market and
NOW accounts.... 116,407 837 2.88 268,848 2,162 3.22
Certificates of
deposit......... 140,824 1,999 5.68 230,612 3,009 5.22
FHLB
borrowings...... 139,634 1,964 5.63 155,461 1,898 4.88
Borrowed money.. 121,456 2,325 7.66 172,485 3,284 7.61
-------- -------- -------- ----------- -------- --------
Total interest-
bearing
liabilities..... 521,202 7,153 5.49 830,170 10,377 5.00
-------- -------- -------- ----------- -------- --------
Non interest-
bearing
liabilities:
Demand deposits
(including
custodial escrow
balances)....... 71,596 113,050
Other
liabilities..... 14,431 24,077
-------- -----------
Total non
interest-bearing
liabilities..... 86,027 137,127
Shareholders'
equity.......... 41,196 50,542
-------- -----------
Total
liabilities and
shareholders'
equity.......... $648,425 $1,017,839
======== ===========
Net interest
income before
provision for
loan and
valuation
losses........... $ 4,433 $ 7,228
======== ========
Interest rate
spread........... 2.71% 3.13%
======== ========
Net interest
margin........... 3.14% 3.34%
======== ========
Ratio of average
interest-earning
assets to average
interest-bearing
liabilities...... 108.40% 104.37%
======== ========
</TABLE>
65
<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:
. changes in volume, in other words, changes in volume multiplied by old
rate; and
. changes in rate, in other words, 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 Quarter Ended
December 31, 1997 vs 1996 December 31, 1998 vs 1997 March 31, 1999 vs 1998
---------------------------- ----------------------------- ------------------------------
Increase (Decrease) Due to Increase (Decrease) Due to Increase (Decrease) Due to
Change in Change in Change in
---------------------------- ----------------------------- ------------------------------
Volume Rate Total Volume Rate Total Volume Rate Total
--------- -------- -------- --------- ------- --------- --------- -------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net $ 18,688 $ (3,325) $ 15,363 $ 28,914 $ (558) $ 28,356 $ 6,082 $ (145) $ 5,937
Mortgage-backed
securities........... (351) -- (351) -- -- -- -- -- --
Interest-earning
deposits............. 551 (85) 466 (14) (137) (151) 8 (3) 5
FHLB stock............ 120 2 122 351 (11) 340 88 (11) 77
-------- -------- -------- --------- ------- --------- --------- -------- ---------
Total interest-earning
assets............... 19,008 (3,408) 15,600 29,251 (706) 28,545 6,178 (159) 6,019
Interest-bearing
liabilities:
Passbook accounts..... 16 15 31 -- (11) (11) (1) (3) (4)
Money market and NOW
accounts............. 3,322 (512) 2,810 1,412 (258) 1,154 1,226 99 1,325
Certificates of
deposit.............. 1,708 67 1,775 7,043 (341) 6,702 1,172 (162) 1,010
FHLB advances......... 1,374 22 1,396 5,338 (219) 5,119 193 (259) (66)
Borrowed money........ 2,151 (392) 1,759 5,441 (162) 5,279 971 (12) 959
-------- -------- -------- --------- ------- --------- --------- -------- ---------
Total interest-bearing
liabilities.......... 8,571 (800) 7,771 19,234 (991) 18,243 3,561 (337) 3,224
-------- -------- -------- --------- ------- --------- --------- -------- ---------
Change in net interest
income before
provision for loan
and valuation
losses............... $ 10,437 $ (2,608) $ 7,829 $ 10,017 $ 285 $ 10,302 $ 2,617 $ 178 $ 2,795
======== ======== ======== ========= ======= ========= ========= ======== =========
</TABLE>
Asset and Liability Management
General
A significant portion of our revenues and net income is derived from net
interest income and, accordingly, we strive to manage our interest-earning
assets and interest-bearing liabilities to generate what we believe to be an
appropriate contribution from net interest income. Asset and liability
management seeks to control the volatility of our performance due to changes in
interest rates. We constantly attempt to achieve an appropriate relationship
between rate sensitive assets and rate sensitive liabilities. We have responded
to interest rate volatility by developing and implementing asset and liability
management strategies designed to increase non interest income and improve the
match between interest-earning assets and interest-bearing liabilities. These
strategies include:
. Utilizing mortgage servicing rights as a source of non-interest 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 non interest-bearing custodial escrow balances related to
our 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;
66
<PAGE>
. 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;
. 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 and generally
are at adjustable rates;
. Increasing retail deposits, which are less susceptible to changes in
interest rates than other funding sources;
. Pursuing strategic acquisitions or alliances 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 our investing activities; and
. Hedging segments of our servicing portfolio and selling forward
commitments on our loan pipeline.
Lending Activities
Our major interest-earning asset is our loan portfolio. Consequently, a
significant part of our asset and liability management involves monitoring the
composition of our loan portfolio, including the corresponding maturities. The
following table sets forth the composition of our loan portfolio by loan type
as of the dates indicated. No information is given for these items as of March
31, 1999, because there had been no material change in these items since
December 31, 1998. The amounts in the following table are shown net of
discounts and other deductions.
<TABLE>
<CAPTION>
As of December 31,
---------------------------------------------------------------------------------------
1994 1995 1996 1997 1998
--------------- ---------------- ---------------- ---------------- ----------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------- ------- -------- ------- -------- ------- -------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential............. $80,010 89.56% $136,741 93.23% $192,118 90.47% $462,604 90.46% $732,512 86.34%
Multi-family, commercial
real estate and
commercial............. 7,518 8.41 7,544 5.15 15,352 7.23 29,492 5.77 52,689 6.21
Direct financing
leases................. -- -- -- -- -- -- 2,708 0.53 24,429 2.88
Construction............ 106 0.12 78 0.05 1,061 0.50 7,591 1.48 27,648 3.26
Consumer................ 2,434 2.72 3,245 2.21 4,869 2.29 10,733 2.10 14,880 1.75
------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans and
leases................ 90,068 100.81 147,608 100.64 213,400 100.49 513,128 100.34 852,158 100.44
Less allowance for loan
and valuation losses... 728 0.81 943 0.64 1,039 0.49 1,756 0.34 3,710 0.44
------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Loans receivable, net... $89,340 100.00% $146,665 100.00% $212,361 100.00% $511,372 100.00% $848,448 100.00%
======= ====== ======== ====== ======== ====== ======== ====== ======== ======
</TABLE>
The following table presents the aggregate maturities of loans in each major
category of our loan portfolio as of December 31, 1998, excluding the allowance
for loan and valuation losses. 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, 1998
--------------------------------------
Less
than One to Over five
one year five years years Total
-------- ---------- --------- --------
(In thousands)
<S> <C> <C> <C> <C>
Residential............................ $724,827 $ 530 $ 7,155 $732,512
Multi-family, commercial real estate
and commercial........................ 14,930 12,478 25,281 52,689
Direct financing leases................ 24,429 -- -- 24,429
Construction........................... 21,481 2,533 3,634 27,648
Consumer............................... 10,714 2,743 1,423 14,880
-------- ------- ------- --------
Total loans and leases............... $796,381 $18,284 $37,493 $852,158
======== ======= ======= ========
</TABLE>
67
<PAGE>
Included in loans held for sale is approximately $49.5 million, at December
31, 1998, of loans which we have acquired under purchase/repurchase facilities
and purchase agreements with several parties. The terms of these agreements
vary with each seller but include provisions which require the seller to
repurchase the loans within a defined period of time, or provide at our option,
the ability, on short notice, to require the seller to repurchase the loans, or
in some cases, allow the seller to repurchase the loans. In all cases, the
seller provides us contractual recourse in the event of delinquency and/or
loss.
Loans held for investment, which are contractually due in one or more years,
are split between fixed and adjustable rates as follows:
<TABLE>
<CAPTION>
As of December 31, 1998
----------------------------
One to Over five
five years years Total
---------- --------- -------
(In thousands)
<S> <C> <C> <C>
Fixed.............................................. $10,226 $14,231 $24,457
Adjustable......................................... 8,058 23,262 31,320
------- ------- -------
Total loans........................................ $18,284 $37,493 $55,777
======= ======= =======
</TABLE>
Non performing Assets
As part of asset and liability management, the Company monitors non
performing assets ("NPAs") on a monthly basis. NPAs consist primarily of non
accrual loans and foreclosed real estate. Loans are placed on non accrual 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 our NPAs as of the dates indicated:
<TABLE>
<CAPTION>
As of December 31, As of March 31,
--------------------------------------- -----------------
1994 1995 1996 1997 1998 1998 1999
------ ------ ------ ------ ------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Non accrual mortgage
loans.................. $3,275 $5,523 $3,031 $4,796 $ 8,208 $ 6,248 $ 7,970
Non accrual commercial
loans and direct
financing leases....... -- -- -- -- 4,349 -- 7,312
Non accrual consumer
loans.................. 39 15 872 194 652 244 193
------ ------ ------ ------ ------- ------- --------
Total non performing
loans and leases..... 3,314 5,538 3,903 4,990 13,209 6,492 15,475
Foreclosed real estate.. 543 835 788 1,242 916 1,095 1,627
Repossessed
automobiles............ -- -- 506 -- -- -- --
------ ------ ------ ------ ------- ------- --------
Total non performing
assets............... $3,857 $6,373 $5,197 $6,232 $14,125 $ 7,587 $ 17,102
====== ====== ====== ====== ======= ======= ========
Total non performing
loans and leases to
total loans and
leases................. 3.68% 3.75% 1.83% 0.97% 1.55% 1.13% 1.92%
====== ====== ====== ====== ======= ======= ========
Total non performing
assets to total
assets................. 3.40% 3.42% 1.89% 1.03% 1.39% 1.09% 1.72%
====== ====== ====== ====== ======= ======= ========
Ratio of allowance for
loan and valuation
losses to total non
performing loans and
leases................. 21.97% 17.03% 26.62% 35.19% 28.09% 31.13% 27.02%
====== ====== ====== ====== ======= ======= ========
Interest income on non
performing loans not
included in interest
income................. $ 140 $ 156 $ 120 $ 89 $ 524 $ 29 $ 198
====== ====== ====== ====== ======= ======= ========
</TABLE>
As of March 31, 1999, we had approximately $101,000 of non-government
accruing loans that were contractually past due 90 days or more. Beginning in
1996, we began to accrue interest for government-sponsored loans such as
Federal Housing Administration insured and Veterans Administration guaranteed
loans which are past due 90 or more days, as the interest on these loans is
insured by the federal government. The
68
<PAGE>
aggregate unpaid principal balance of government-sponsored accruing loans that
were past due 90 or more days was $178.6 million as of March 31, 1999, $165.7
million as of December 31, 1998, and $18.7 million as of December 31, 1997. A
significant portion of these loans are serviced by a third party who is
required to remit monthly interest regardless of whether it is collected. Non
accrual mortgage loans as a percentage of total loans were 3.7% at December 31,
1995 and 3.6% at December 31, 1994, and the higher levels were primarily
attributable to purchases by Matrix Bank of bulk residential loan portfolios in
those years. Non accrual mortgage loans as a percentage of total loans
decreased to 1.0% at March 31, 1999, 1.0% at December 31, 1998, 0.9% at
December 31, 1997, and 1.4% at December 31, 1996. These decreases are
attributable to the improvement of the loans that had past delinquency problems
and the credit quality of the loan portfolios we acquired in 1998, 1997 and
1996. In the past three years, Matrix Bank acquired loans with fewer
delinquency problems and/or document deficiencies, which also resulted in a
decrease in the non accrual mortgage loans as a percentage of total loans.
The increase in non accrual commercial loans and direct financing leases in
1998 and the first quarter of 1999 is the result of our origination of tax-
exempt lease financing for charter schools for the purchase of real estate and
equipment. Several of the charter schools for which we have provided financing
have encountered enrollment problems, which has caused them to become
delinquent on their lease obligations to us.
The increase in the non accrual consumer loans in 1996 is a result of sub-
prime auto loans that we repurchased pursuant to limited representations and
warranties included in loan sale agreements. We had 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 we were required to repurchase
pursuant to the same limited representations and warranties. The balance of the
loans and automobiles repurchased in 1996 and 1997 were either disposed of or
sold to a third party investor in December 1997. We do not anticipate that we
will originate any additional sub-prime automobile contracts.
The prior delinquency and anticipated future delinquencies are taken into
consideration in the pricing of the loans acquired. We generally purchase such
loans at discounts and, in some instances, receive recourse or credit
enhancement from the seller to further reduce our risk of loss associated with
the loans' non accrual status. At March 31, 1999, $7.7 million, or 50.0%, of
the non accrual 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 March 31, 1999, were $702.9 million, of which $15.1 million, or 2.1%,
were non accrual loans. However, against the $702.9 million of total loans held
for sale, we had $2.5 million of purchase discounts.
The percentage of the allowance for loan and valuation losses to non accrual
loans varies widely due to the nature of our portfolio of mortgage loans, which
are collateralized primarily by residential real estate. We analyze the
collateral for each non performing 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 Quarter Ended March
31, 1999 and 1998."
69
<PAGE>
Analysis of Allowance for Loan and Valuation Losses
The following table sets forth information regarding changes in our
allowance for loan and valuation losses for the periods indicated. No
information is given for these items as of and for the three months ended March
31, 1999, because there had been no material change in these items since
December 31, 1998. The table includes the allowance for both loans held for
investment and loans held for sale.
<TABLE>
<CAPTION>
As of and for the
Year Ended December 31,
-----------------------------------------------
1994 1995 1996 1997 1998
------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of
period................... $ 538 $ 728 $ 943 $ 1,039 $ 1,756
Charge-offs:
Real estate--mortgage... 26 198 64 22 1,922
Real estate--
construction........... -- 35 -- -- --
Consumer................ -- 7 6 166 789
------- -------- -------- -------- --------
Total charge-offs..... 26 240 70 188 2,711
Recoveries:
Real estate--mortgage... -- 5 8 -- 2
Consumer................ -- 49 15 31 56
------- -------- -------- -------- --------
Total recoveries...... -- 54 23 31 58
------- -------- -------- -------- --------
Net charge-offs........... 26 186 47 157 2,653
Provision for loan losses
charged to operations.... 216 401 143 874 4,607
------- -------- -------- -------- --------
Balance at end of period.. $ 728 $ 943 $ 1,039 $ 1,756 $ 3,710
======= ======== ======== ======== ========
Ratio of net charge-offs
to average loans......... 0.03% 0.15% 0.03% 0.04% 0.38%(1)
======= ======== ======== ======== ========
Average loans outstanding
during the period........ $79,393 $121,206 $162,648 $355,848 $692,443
======= ======== ======== ======== ========
</TABLE>
- --------
(1) Excluding charge-offs related to the MCA Mortgage losses described above
and charge-offs relating to our credit card operations, the ratio of net
charge-offs to average loans for 1998 was 0.03%.
A majority of the increase in real estate--mortgage charge-offs for 1998 as
compared to 1997 is due to the loss recognized related to MCA Mortgage. See "--
Comparison of Results of Operations for Fiscal Years 1998 and 1997--Net Income;
Return on Average Equity" for additional information. Additionally, the
increase in consumer charge-offs in 1998 pertains to losses experienced on our
credit card portfolio, which accounts for less than 1% of our total loan
portfolio as of December 31, 1998.
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. We
evaluate all other loans as part of their respective categories, and not on an
individual basis. Each category of loans in the loan portfolio is assigned a
loss factor based on:
. the assessed risk inherent in each loan category;
. 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
70
<PAGE>
These loss factors range from 0.10% for Federal Housing Administration/Veterans
Administration loans guaranteed by the Department of Housing and Urban
Development to 8.00% for credit card loans. Additionally substandard and
doubtful loans of homogeneous loan portfolios are assigned loss factors of
5.00% and 50.00%, respectively. We had no impaired loans as December 31, 1994,
1995, 1996, 1997 and 1998, or as of March 31, 1998 and 1999. The loss factors
are applied to the outstanding principal balance of loans in their respective
categories, and the total for all categories determines our allowance for loan
and valuation losses, except for direct financing leases, for which the
allowance is determined based on specific loans. The following table shows
information regarding the components of our allowance for loan and valuation
losses as of the dates indicated. No information is given for these items as of
March 31, 1999, because there had been no material change in these items since
December 31, 1998.
<TABLE>
<CAPTION>
As of December 31,
----------------------------------------------------------------------------------------------
1994 1995 1996 1997 1998
------------------ ------------------ ------------------ ------------------ ------------------
Percentage Percentage Percentage Percentage Percentage
of Loans in of Loans in of Loans in of Loans in of Loans in
each each each each each
Category to Category to Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
------ ----------- ------ ----------- ------ ----------- ------ ----------- ------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential............ $635 88.83% $830 92.64% $ 911 90.03% $1,234 90.15% $2,372 85.96%
Multi-family,
commercial real estate
and commercial........ 69 8.35 78 5.11 51 7.19 91 5.75 137 6.18
Direct financing
leases................ -- -- -- -- -- -- -- 0.53 275 2.87
Construction........... 1 0.12 1 0.05 6 0.50 23 1.48 72 3.24
Consumer............... 23 2.70 34 2.20 71 2.28 408 2.09 854 1.75
---- ------ ---- ------ ------ ------ ------ ------ ------ ------
$728 100.00% $943 100.00% $1,039 100.00% $1,756 100.00% $3,710 100.00%
==== ====== ==== ====== ====== ====== ====== ====== ====== ======
</TABLE>
The ratio of the allowance for loan and valuation losses to total loans was
0.81% at December 31, 1994; 0.64% at December 31, 1995; 0.49% at December 31,
1996; 0.34% at December 31, 1997; and 0.44% at December 31, 1998. The allowance
for loan and valuation losses is reduced by loans charged off, net of
recoveries. The allowance for loan and valuation losses allocated to
residential, multi-family, commercial real estate and commercial loans and
construction loans has increased mainly due to the increased outstanding loan
principal balances in these loan categories and not due to any increase in the
perceived risk or losses experienced in these categories. We did not assign any
of the allowance for loan and valuation losses to direct financing leases in
1997, as we originated the $2.7 million of outstanding direct financing leases
in the last month of the year and we felt that it was not necessary due to the
immaterial amount of leases relative to the total loan portfolio. The increase
in the allowance for loan and valuation losses in 1998 and the first three
months of 1999 reflects the growth of the direct financing leases during 1998
and the non accrual status of a small portion of this portfolio at December 31,
1998 and March 31, 1999. Additionally, the increase in the allowance for loan
and valuation losses for consumer loans in 1998 and the first three months of
1999 primarily reflects our increase in its loss factor for credit card loans
from 4.00% to 8.00% during 1998 and the first three months of 1999, due to the
increased losses experienced in the portfolio.
Risk Sensitive Assets and Liabilities
As discussed in "Asset and Liability Management--General", a significant
portion of our earnings and ultimate success is partially dependent upon our
ability to manage our interest rate risk. Interest rate risk can be defined as
the exposure of our net interest income to adverse movements in interest rates.
Although we manage other risks, such as credit, operational and liquidity risk,
in the normal course of business, we consider interest rate risk to be a
significant market risk which could potentially have the largest material
effect on our financial condition and results of operations. The majority of
our market risk related to interest rates exists within the operations of
Matrix Bank. However, Matrix Financial also has interest rate risk related to
its primary asset, mortgage servicing rights, and also related to the net
interest income earned on its originated loans that are
71
<PAGE>
funded through warehouse lines of credit. The susceptibility to movements in
interest rates affects the cash flows generated from the mortgage servicing
rights which are recorded in other income versus interest income. In a
decreasing interest rate environment, the underlying servicing portfolio tends
to prepay faster which reduces future servicing income; while in an increasing
interest rate environment, prepayments tend to decrease, which increases
expected future servicing income. As it relates to Matrix Financial's lending
activities, Matrix Financial originates residential mortgage loans, which are
generally pre-sold. However, between the time that the loan is originated and
sold to the ultimate investor, Matrix Financial earns interest income. The
loans are funded through the use of warehouse credit facilities that are
generally priced based on short-term interest rates. Therefore, the net
interest income that is earned by Matrix Financial is generally dependent on
the spread between long-term mortgage rates and short-term interest rates.
We currently do not maintain a trading portfolio. As a result, we are not
exposed to market risk as it relates to trading activities. The majority of our
residential loan portfolio is held for sale which requires us to perform
quarterly market valuations of the portfolio in order to properly record the
portfolio at the lower of cost or market. Therefore, we continually monitor the
interest rates of its loan portfolio as compared to prevalent interest rates in
the market.
Interest rate risk management at Matrix Bank is the responsibility of the
asset and liability committee, which reports to the board of directors of
Matrix Bank. The Asset and Liability Committee establishes policies that
monitor and coordinate the our sources, uses and pricing of its funds. The
Asset and Liability Committee is also involved in formulating our budget and
strategic plan as it relates to investment objectives. Due to the historical
size of Matrix Bank's loan portfolio and the high degree of purchase and sale
activity, the Asset and Liability Committee has relied on the Office of Thrift
Supervision interest rate risk exposure report to assist in the overall
monitoring of Matrix Bank's interest rate sensitivity. Based on the information
and assumptions used in the Office of Thrift Supervision exposure report as of
March 31, 1999, we believe that a 200 basis point shock over a twelve month
period, up or down, would not significantly affect Matrix Bank's annualized net
interest income. As Matrix Bank continues to grow, management anticipates
having to use an asset/liability software package to monitor and manage Matrix
Bank's interest rate risk on a more timely basis.
We continue to attempt to reduce the volatility in net interest income by
managing the relationship of interest rate sensitive assets to interest rate
sensitive liabilities. To accomplish this, we focus on acquiring adjustable
rate residential mortgages and have increased our efforts regarding the
origination of residential construction loans, commercial real estate loans and
limited consumer lending which re-price or mature more quickly than fixed rate
residential real estate loans. (See "Asset and Liability Management--General"
for additional discussion on strategies). In 1998, we increased our investment
in non performing Federal Housing Administration and Veterans Administration
loans, which are fixed rate loans that have a significantly shorter life than
newly originated loans. The other significant asset that we invest in is
residential mortgage servicing rights. The value and cash flows from mortgage
servicing rights respond counter-cyclically to the value of fixed rate
mortgages. When interest rates increase and the value of fixed rate mortgages
decrease, in turn decreasing net interest income, the value of the mortgage
servicing rights increase. In a decreasing interest rate environment, the
inverse occurs. Another significant strategy that we focus on in managing
interest rate risk is identifying lines of business that generate non-interest
rate sensitive liabilities. Examples of this strategy are the investment in
mortgage servicing rights, which generate no cost escrow deposits, and Sterling
Trust's operations, which administer deposits with relatively low costs.
In the ordinary course of business, we make commitments to originate
residential mortgage loans and hold 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 non-
mandatory forward commitments to sell loans. As of March 31, 1999, we had $98.0
million in pipeline and funded loans offset with mandatory forward commitments
of $79.9 million and non-mandatory forward commitments of $5.8 million. The
inherent value of the forward commitments is considered in the determination of
the lower of cost or market for such loans.
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<PAGE>
Ownership of mortgage servicing rights exposes us to impairment of their
value in certain interest rate environments. The incidence of prepayment of a
mortgage loan increases during periods of declining interest rates as the
homeowner seeks to refinance the loan to a lower interest rate. If the level of
prepayment on segments of our mortgage servicing portfolio achieves a level
higher than we projected for an extended period of time, then an impairment in
the associated basis in the mortgage servicing rights may occur. To mitigate
this risk of impairment due to declining interest rates, we hedged a segment of
our portfolio beginning in September 1997. We had identified and hedged $306
million at of December 31, 1997, $674 million as of December 31, 1998, and $548
million as of March 31, 1999, of our mortgage servicing portfolio using a
program of exchange-traded futures and options. See Note 13 to the Consolidated
Financial Statements included elsewhere in this prospectus.
The following tables represent, in tabular form, contractual balances of our
balance sheet financial instruments in dollars at the expected maturity dates,
as well as the fair value of those on balance sheet financial instruments for
the periods ended December 31, 1998 and 1997. The expected maturity categories
take into consideration historical and anticipated prepayment speeds, as well
as actual amortization of principal and do not take into consideration the
reinvestment of cash. Our assets and liabilities that do not have a stated
maturity date, such as interest-earning deposits, Federal Home Loan Bank stock
and certain other deposits. We consider these items to be long term in nature
and are reported in the thereafter column. We have made the assumption that the
portfolio of loans held for sale will mature in the first year. We are very
active in the secondary market as it relates to the purchase and sale of
mortgage loans. The total amount of loans sold in 1997 and 1998 approximated
108% and 70%, respectively, of the total held for sale portfolio at December
31, 1996 and 1997. This proves our intent to sell the loans classified as held
for sale and supports the one-year maturity assumption. We also treat the
Federal Home Loan Bank and revolving borrowings as long term in nature, as the
continued availability of these amounts is anticipated indefinitely. Third
party servicers service a portion of our loan portfolio; as a result, a portion
of the information presented is based on the best available information.
For the most part, the carrying amounts of interest-earning deposits,
Federal Home Loan Bank stock, Federal Home Loan Bank borrowings and borrowed
money approximate those assets' and liabilities' fair values. The fair values
of the loan portfolios for held for sale and held for investment are based on
quoted market prices 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 values of forward sale commitments are
included in the determination of the fair value of loans held for sale. The
fair values of demand deposits are, by definition, equal to the amount payable
upon demand at the reporting date. The fair value of time deposits are based
upon the discounted value of contractual cash flows, which is estimated using
interest rates currently being offered on certificates of deposit to a schedule
of aggregated expected periodic maturities on time deposits.
Mortgage servicing rights are not included in the tabular presentation, as
the investment does not directly affect interest income. As noted, however,
earnings from mortgage servicing rights directly correlate with market risk as
it relates to interest rate fluctuations. We mitigate this risk through both
the type of mortgage servicing rights acquired and hedging of mortgage
servicing rights. The loans underlying the servicing rights acquired tend to be
more seasoned and have lower principal balances. Management believes that the
more seasoned, lower balance servicing portfolios carry less prepayment risk
than less seasoned, higher balance mortgage servicing, because the cost savings
of refinancing a lower balance loan tend to be less than for a higher balance
loan with a comparable interest rate. We also believe that if a loan has been
outstanding for a period of time and has been through several declining
interest rate cycles without refinancing, the risk of prepayment in the future
is less than a newly originated loan. Although significantly increased in 1998,
the prepayment percentages which we have experienced over the past three years
have been lower than experienced in the industry, as a whole. The prepayment
speeds for the years ended December 31, 1996, 1997 and 1998 were 11.9%, 11.3%
and 22.6%, respectively, during a primarily decreasing interest rate
environment. In the 1998 table below, prepayment speeds of 24% and 12% were
used for residential and non-residential loans,
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<PAGE>
respectively, to project expected cash flows relating to loans held for
investment, and in the 1997 table below, prepayment speeds of 12% were used
for all loan types. These assumptions are based on our historical prepayment
speeds, as well as our knowledge and experience in the market.
Our financial instruments reflected on our balance sheet for the period
ended December 31, 1998 were:
<TABLE>
<CAPTION>
Expected Maturity Date--
Fiscal Year Ended December 31,
------------------------------------------------------
There- Fair
1999 2000 2001 2002 2003 after Total Value
-------- ------- ------- ------- ------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Held for sale (1) (2):
Fixed-rate residential
loans................. $376,168 $ -- $ -- $ -- $ -- $ -- $376,168 $378,274
Average interest
rate................. 8.29% -- % -- % -- % -- % -- % 8.29%
Adjustable-rate
residential loans..... $347,790 $ -- $ -- $ -- $ -- $ -- $347,790 $349,737
Average interest
rate................. 7.90% -- % -- % -- % -- % -- % 7.90%
Fixed-rate commercial
loans and leases...... $ 30,268 $ -- $ -- $ -- $ -- $ -- $ 30,268 $ 30,268
Average interest
rate................. 12.06% -- % -- % -- % -- % -- % 12.06%
Held for investment
(2):
Fixed-rate residential
loans................. $ 541 $ 399 $ 293 $ 215 $ 156 $ 351 $ 1,955 $ 1,769
Average interest rate
(3).................. 9.45% 9.45% 9.45% 9.45% 9.45% 9.45% 9.45%
Adjustable-rate
residential loans
(4)................... $ 995 $ 747 $ 559 $ 419 $ 314 $ 887 $ 3,921 $ 3,548
Average interest rate
(3).................. 7.94% 7.94% 7.94% 7.94% 7.94% 7.94% 7.94%
Fixed-rate consumer
loans................. $ 3,272 $ 2,830 $ 2,441 $ -- $ -- $ -- $ 8,543 $ 9,149
Average interest rate
(3).................. 11.11% 11.11% 11.11% -- % -- % -- % 11.11%
Adjustable-rate
consumer loans (4).... $ 111 $ 95 $ 82 $ 71 $ 61 $ 164 $ 584 $ 626
Average interest rate
(3).................. 8.38% 8.38% 8.38% 8.38% 8.38% 8.38% 8.38%
Fixed-rate other loans
(5)................... $ 8,929 $ 7,674 $ 6,576 $ 5,617 $ 4,778 $ -- $ 33,574 $ 33,644
Average interest rate
(3).................. 9.37% 9.37% 9.37% 9.37% 9.37% -- % 9.37%
Adjustable-rate other
loans (4) (5)......... $ 12,197 $10,456 $ 8,935 $ 7,607 $ 6,450 $ -- $ 45,645 $ 45,740
Average interest rate
(3).................. 8.94% 8.94% 8.94% 8.94% 8.94% -- % 8.94%
Interest-earning
deposits.............. $ -- $ -- $ -- $ -- $ -- $ 8,120 $ 8,120 $ 8,120
Average interest
rate.................. -- % -- % -- % -- % -- % 4.40% 4.40%
Federal Home Loan Bank
stock................. $ -- $ -- $ -- $ -- $ -- $ 15,643 $ 15,643 $ 15,643
Average interest
rate.................. -- % -- % -- % -- % -- % 5.75% 5.75%
Total interest-
earning assets...... $780,271 $22,201 $18,886 $13,929 $11,759 $ 25,165 $872,211 $876,518
======== ======= ======= ======= ======= ======== ======== ========
Interest-bearing
liabilities:
Passbook accounts
accounts.............. $ -- $ -- $ -- $ -- $ -- $ 2,830 $ 2,830 $ 2,830
Average interest
rate.................. -- % -- % -- % -- % -- % 3.44% 3.44%
NOW accounts (6)....... $ -- $ -- $ -- $ -- $ -- $ 19,506 $ 19,506 $ 19,506
Average interest
rate.................. -- % -- % -- % -- % -- % 2.72% 2.72%
Money market accounts.. $ -- $ -- $ -- $ -- $ -- $170,957 $170,957 $170,957
Average interest
rate.................. -- % -- % -- % -- % -- % 3.42% 3.42%
Certificates of deposit
over $100,000......... $ 7,999 $ 636 $ 322 $ 646 $ 661 $ -- $ 10,264 $ 10,383
Average interest
rate.................. 5.57% 6.33% 6.22% 6.44% 5.89% -- % 5.71%
Brokered certificates
of deposit............ $148,676 $ -- $ -- $ -- $ -- $ -- $148,676 $148,907
Average interest
rate.................. 4.92% -- % -- % -- % -- % -- % 4.92%
Other certificates of
deposit............... $ 84,776 $14,037 $ 5,652 $ 6,126 $ 5,020 $ -- $115,611 $116,748
Average interest
rate.................. 5.54% 5.73% 5.87% 6.35% 5.76% -- % 5.63%
Federal Home Loan Bank
borrowings (7)........ $ -- $ -- $ -- $ -- $ -- $168,000 $168,000 $171,544
Average interest
rate.................. -- % -- % -- % -- % -- % 4.90% 4.90%
Revolving borrowings... $ -- $ -- $ -- $ -- $ -- $116,845 $116,845 $116,845
Average interest
rate.................. -- % -- % -- % -- % -- % 6.60% 6.60%
Term borrowings........ $ 9,737 $ 8,625 $12,223 $ 4,997 $ 4,959 $ 21,403 $ 61,944 $ 61,944
Average interest
rate.................. 7.73% 7.48% 7.62% 7.77% 6.71% 11.17% 8.78%
Total interest-
bearing
liabilities......... $251,188 $23,298 $18,197 $11,769 $10,640 $499,541 $814,633 $819,664
======== ======= ======= ======= ======= ======== ======== ========
</TABLE>
- --------
(1) Loans held for sale are assumed to mature within one year, as the intent
is to sell the loans.
(2) Balances are stated net of discounts and other deductions.
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<PAGE>
(3) For the fixed rate loans held for investment, we computed a weighted
average interest rate and a weighted average maturity for the loan
portfolio and then applied a prepayment assumption of 24% to residential
loans and 12% to non-residential loans in determining the cash flows. The
same approach was used for the adjustable-rate loans, which are generally
fully indexed loans.
(4) The adjustable-rate loans generally are indexed to the 1-year treasury.
However, included in the balance are loans indexed to 11th district cost
of funds, prime and 3, 5 and 7-year treasury.
(5) Other consists of multi-family, commercial real estate, commercial, land
and construction loans.
(6) Excludes non-interest-bearing demand deposits of approximately $22.7
million.
(7) See "--Short-term Borrowings" for additional discussion on the term of the
Federal Home Loan Bank borrowings.
Our financial instruments reflected on our balance sheet for the period
ended December 31, 1997 were:
<TABLE>
<CAPTION>
Expected Maturity Date--Fiscal Year Ended
December 31,
---------------------------------------------------
There- Fair
1998 1999 2000 2001 2002 after Total Value
-------- ------- ------ ------ ------ -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Held for sale (1) (2):
Fixed-rate residential
loans................. $201,081 $ -- $ -- $ -- $ -- $ -- $201,081 $202,073
Average interest
rate................. 9.09% --% --% --% --% --% 9.09%
Adjustable-rate
residential loans..... $255,897 $ -- $ -- $ -- $ -- $ -- $255,897 $257,159
Average interest
rate................. 8.03% --% --% --% --% --% 8.03%
Held for investment
(2):
Fixed-rate residential
loans................. $ 562 $ 490 $ 427 $ 371 $ 323 $ 1,416 $ 3,589 $ 3,685
Average interest rate
(3).................. 9.66% 9.66% 9.66% 9.66% 9.66% 9.66% 9.66%
Adjustable-rate
residential loans
(4)................... $ 505 $ 441 $ 385 $ 336 $ 293 $ 1,679 $ 3,639 $ 3,736
Average interest rate
(3).................. 8.18% 8.18% 8.18% 8.18% 8.18% 8.18% 8.18%
Fixed-rate consumer
loans................. $ 3,815 $ 3,376 $2,989 $ -- $ -- $ -- $ 10,180 $ 10,388
Average interest rate
(3).................. 14.44% 14.44% 14.44% --% --% --% 14.44%
Adjustable-rate
consumer loans (4).... $ 69 $ 60 $ 52 $ 45 $ 39 $ 169 $ 434 $ 443
Average interest rate
(3).................. 8.38% 8.38% 8.38% 8.38% 8.38% 8.38% 8.38%
Fixed-rate other loans
(5)................... $ 9,994 $ 8,532 $ -- $ -- $ -- $ -- $ 18,526 $ 18,613
Average interest rate
(3).................. 9.79% 9.79% --% --% --% --% 9.79%
Adjustable-rate other
loans (4) (5)......... $ 2,843 $ 2,476 $2,153 $1,871 $1,623 $ 7,060 $ 18,026 $ 18,110
Average interest rate
(3).................. 9.25% 9.25% 9.25% 9.25% 9.25% 9.25% 9.25%
Interest-earning
deposits.............. $ -- $ -- $ -- $ -- $ -- $ 6,337 $ 6,337 $ 6,337
Average interest
rate.................. --% --% --% --% --% 5.91% 5.91%
Federal Home Loan Bank
stock................. $ -- $ -- $ -- $ -- $ -- $ 8,700 $ 8,700 $ 8,700
Average interest
rate.................. --% --% --% --% --% 6.00% 6.00%
Total interest-
earning assets...... $474,766 $15,375 $6,006 $2,623 $2,278 $ 25,361 $526,409 $529,244
======== ======= ====== ====== ====== ======== ======== ========
Interest-bearing
liabilities:
Passbook accounts...... $ -- $ -- $ -- $ -- $ -- $ 2,851 $ 2,851 $ 2,851
Average interest
rate.................. --% --% --% --% --% 3.97% 3.97%
NOW accounts (6)....... $ -- $ -- $ -- $ -- $ -- $ 14,669 $ 14,669 $ 14,669
Average interest
rate.................. --% --% --% --% --% 2.92% 2.92%
Money market accounts.. $ -- $ -- $ -- $ -- $ -- $ 99,899 $ 99,899 $ 99,899
Average interest
rate.................. --% --% --% --% --% 2.96% 2.96%
Certificates of deposit
over $100,000......... $ 4,900 $ 1,030 $ 414 $ 207 $ 634 $ -- $ 7,185 $ 7,258
Average interest
rate.................. 5.91% 6.06% 6.73% 6.15% 6.44% --% 6.03%
Other certificates of
deposit............... $ 63,692 $13,442 $2,984 $2,453 $6,094 $ -- $ 88,665 $ 89,389
Average interest
rate.................. 5.88% 6.01% 6.24% 6.30% 6.34% --% 5.96%
Federal Home Loan Bank
borrowings............ $ -- $ -- $ -- $ -- $ -- $171,943 $171,943 $171,943
Average interest
rate.................. --% --% --% --% --% 6.37% 6.37%
Revolving borrowings... $ -- $ -- $ -- $ -- $ -- $ 48,338 $ 48,338 $ 48,338
Average interest
rate.................. --% --% --% --% --% 7.07% 7.07%
Term borrowings........ $ 4,928 $ 4,438 $5,373 $3,546 $1,699 $ 21,587 $ 41,571 $ 41,571
Average interest
rate.................. 8.57% 8.97% 8.89% 9.14% 10.34% 11.15% 10.11%
Total interest-
bearing
liabilities......... $ 73,520 $18,910 $8,771 $6,206 $8,427 $359,287 $475,121 $475,918
======== ======= ====== ====== ====== ======== ======== ========
</TABLE>
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<PAGE>
- --------
(1) Loans held for sale are assumed to mature within one year, as the intent is
to sell the loans.
(2) Balances are stated net of discounts and other deductions.
(3) For the fixed rate loans held for investment, the Company computed a
weighted average interest rate and a weighted average maturity for the loan
portfolio and then applied a prepayment assumption of 12% in determining
the cash flows. The same approach was used for the adjustable-rate loans,
which are generally fully indexed loans.
(4) The adjustable-rate loans generally are indexed to the 1-year treasury.
However, included in the balance are loans indexed to 11th district cost of
funds, prime and 3, 5 and 7-year treasury.
(5) Other consists of multi-family, commercial real estate, commercial, land
and construction loans.
(6) Excludes non-interest-bearing demand deposits of approximately $9.2
million.
Short-term Borrowings
A primary function of asset and liability management is to ensure adequate
liquidity. In addition to cash and cash equivalents, we rely heavily on short-
term borrowing capabilities for liquidity and as a funding vehicle. The primary
sources for short-term borrowings are the Federal Home Loan Bank for Matrix
Bank and unaffiliated financial institutions for Matrix Financial. See
"Liquidity and Capital Resources."
The following table sets forth a summary of our short-term borrowings during
1996, 1997 and 1998 and as of the end of each such period. No information is
given for these items as of and for the three months ended March 31, 1999,
because there had been no material changes in these items since December 31,
1998.
<TABLE>
<CAPTION>
Average Weighted
Amount amount Maximum Weighted average
outstanding outstanding outstanding average interest interest
at during the at any rate during rate at
year end year(1) month end the year year end
----------- ----------- ----------- ---------------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
At or for the year ended
December 31, 1996:
Federal Home Loan Bank
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 --
At or for the year ended
December 31, 1997:
Federal Home Loan Bank
borrowings........... 171,943 59,984 171,943 5.73 6.37
Revolving lines of
credit............... 48,338 43,762 57,710 6.99 7.07
Repurchase
agreements........... -- 1,564 3,437 11.26 --
At or for the year ended
December 31, 1998:
Federal Home Loan Bank
borrowings(2)........ 168,000 159,381 271,000 5.37 4.90
Revolving lines of
credit............... 86,936 74,973 92,507 6.55 6.23
Repurchase
agreements........... 7,350 1,445 7,350 9.06 9.02
Lease financing....... 22,559 9,304 22,559 7.32 7.27
</TABLE>
- --------
(1) Calculations are based on daily averages where available and monthly
averages otherwise.
(2) A total of $47.0 million of the Federal Home Loan Bank borrowings
outstanding at December 31, 1998 were borrowed under a short option advance
agreement with the Federal Home Loan Bank. These short option advance
borrowings have a term of ten years, but are callable by the Federal Home
Loan Bank beginning after a six month or one year lock-out period depending
on the particular short option advance borrowing. After the expiration of
the lock-out period, the short option advance borrowings are callable at
three month intervals. If the Federal Home Loan Bank exercises its call
option on a short option advance borrowing, the Federal Home Loan Bank is
required to offer replacement funding to us at a market rate of interest
for the remaining term of the short option advance borrowing. The interest
rates on the short option advance borrowings ranged from 4.85% to 4.94% at
December 31, 1998 and their possible call dates varied from January 15,
1999 to April 14, 1999. Additionally, under the terms of the short option
advance, we are not permitted to prepay or otherwise retire a callable
short option advance borrowing prior to the final maturity date.
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<PAGE>
Liquidity and Capital Resources
Liquidity is our ability to generate funds to support asset growth, satisfy
disbursement needs, maintain reserve requirements and otherwise operate on an
ongoing basis. To date, our principal source of funding for our investing
activities has been:
. secured senior debt provided by unaffiliated financial institutions;
. the issuance of 11.5% senior notes in September 1997;
. the issuance of senior subordinated notes in August 1995;
. a bank stock loan; and
. our initial public offering.
As of March 31, 1999, Matrix Bancorp had $42.0 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."
On June 29, 1998, we amended our bank stock loan agreement and increased
our credit available under the loan by an additional $12.0 million. The
amended bank stock loan agreement has two components, an $8.5 million term
loan and a revolving line of credit of $11.5 million. As of March 31, 1999,
the balance of the term loan was $7.6 million and the balance of the revolving
line of credit was $10.2 million. One year from the date of the amendment, the
balance of the revolving line of credit will be converted to a term loan. The
additional proceeds from the loan will be used primarily as capital at Matrix
Bank. The amended bank stock loan requires us to maintain:
. total shareholders' equity of the greater of $40.0 million or 90% of
actual net worth at the end of the most recent fiscal year, plus 50% of
cumulative net income after the end of the most recent fiscal year, plus
90% of all contributions made to stockholders' equity after the closing
date; and
. total adjusted debt to net worth less than 4:1.
Additionally, the amended bank stock loan does not permit Matrix Bancorp to
declare or pay any cash dividends.
After discussions with our lenders, we expect that, as of June 30, 1999,
our bank stock loan agreement will be further amended to provide for a term
loan of $10.0 million, a revolving line of credit of $10.0 million and a
maturity date of June 30, 2002, but otherwise will contain substantially the
same terms as it currently exists.
On September 29, 1997, we completed a registered debt offering of $20.0
million in senior notes due 2004, raising net proceeds of approximately $19.1
million. Interest on the senior notes of 11.5% is payable semi-annually on
March 31 and September 30 of each year, commenced on March 31, 1998, with a
balloon payment for the entire principal balance due in September 2004. The
11.5% senior notes require us to:
. maintain consolidated tangible equity capital of not less than $35
million; and
. meet the requirements necessary such that Matrix Bank will not be
classified as other than "well capitalized" as defined by applicable
regulatory guidelines.
Additionally, the 11.5% senior notes contain other covenants regarding certain
restricted payments, incurrence of indebtedness and issuance of preferred
stock, liens, merger, consolidation or sale of assets and transactions with
affiliates. Under the conditions of the 11.5% senior notes, we may not incur
any additional indebtedness if the consolidated leverage ratio exceeds 2:1 and
we may not declare or pay cash dividends unless, at the time of and after
giving effect to such dividend:
. no default shall have occurred and be continuing or would occur as a
consequence thereof;
. after giving effect to the payment of such dividend, we would be
permitted to incur at least $1.00 of additional indebtedness pursuant to
the 2:1 consolidated leverage ratio described above; and
. such dividend, together with the aggregate amount of all restricted
payments made, is less than 25% of our aggregate consolidated net income
for the period beginning on October 1, 1997 and ending on the date of
our most recent quarter plus 100% of the net cash proceeds we received
from the issuance of equity interests.
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<PAGE>
As of March 31, 1999, under the foregoing test, we would be entitled to declare
and pay dividends of approximately $625,000, although we have no present intent
to do so, as distributions are not permitted under our bank stock loan.
In August 1995, we issued $2.9 million in aggregate principal amount of
senior subordinated notes. Interest on the senior subordinated notes is payable
semi-annually on January 15 and July 15, and the Senior Subordinated Notes
mature on July 15, 2002, with earlier mandatory redemptions of $727,500, or 25%
of the senior subordinated notes, scheduled on each of July 15, 1999, 2000 and
2001. We are restricted from paying cash dividends under the senior
subordinated notes. However, we may pay cash dividends in an amount equal to
50% of our consolidated net income as long as there has been no default under
the terms of the senior subordinated notes and as long as the dividend does not
exceed 10% of the consolidated net worth. We may redeem the senior subordinated
notes, in whole or in part, at any time on or after July 15, 1999 at a
redemption price equal to par, plus all accrued but unpaid interest.
Until February 1997, the senior subordinated notes bore interest at 13% per
annum. In February 1997, the annual rate increased to 14% per annum.
The quarter ended March 31, 1999 resulted in net cash provided by our
operating activities, which differs from our trend of net cash used by
operating activities experienced over previous reported periods. Our typical
net cash used by operating activities results primarily from the growth that
Matrix Bank has experienced in its residential loan purchasing activity. We
anticipate the trend of increased net use of cash from operations to continue
for the foreseeable future. This anticipation results from the expected
continued growth of Matrix Bank, which we believe will consist primarily of
increased activity in the purchasing of loan and mortgage servicing portfolios.
However, due to liquidity and capital availability we do not anticipate growth
to be as significant as in prior periods.
Matrix Bank's primary source of funds for use in lending, purchasing bulk
loan portfolios, investing and other general purposes are:
. retail deposits;
. trust deposits;
. custodial escrow balances;
. brokered deposits;
. Federal Home Loan Bank borrowings;
. sales of loan portfolios; and
. proceeds from principal and interest payments on loans.
Contractual loan payments and net deposit inflows 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 Federal Home Loan Bank as its primary source for borrowings.
At March 31, 1999, Matrix Bank had borrowings from the Federal Home Loan Bank
of $113.0 million. The custodial escrow balances held by Matrix Bank fluctuate
based upon the mix and size of the related mortgage servicing rights portfolios
and the timing of payments for taxes and insurance. For a tabular presentation
of the our short-term borrowings, see "Asset and Liability Management--Short-
term Borrowings."
Matrix Bank offers a variety of deposit accounts having a range of interest
rates and terms. Matrix Bank's retail 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
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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. Beginning in
February 1998, brokered deposits were accepted and have been utilized to
support growth at Matrix Bank. 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 February 1997, Sterling Trust moved approximately $80.0 million of
fiduciary deposits from a third party institution to Matrix Bank. Additionally,
pursuant to a merger termination agreement, Fidelity National Financial, Inc.,
through its subsidiaries, moved approximately $47.1 million of fiduciary
deposits to Matrix Bank during the fourth quarter of 1998. The balance of the
fiduciary deposits at March 31, 1999 was $107.1 million and at June 15, 1999
was $40.2 million. The following two tables 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, Quarter Ended March 31,
---------------------------------------------------- -----------------------------------
1996 1997 1998 1998 1999
---------------- ----------------- ----------------- ----------------- -----------------
Weighted Weighted Weighted Weighted Weighted
Average Average Average Average Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate Balance Rate Balance Rate
------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Passbook accounts....... $ 2,389 3.45% $ 2,859 3.95% $ 2,859 3.58% $ 2,881 3.85% $ 2,764 3.42%
NOW accounts............ 2,813 2.24 23,837 3.34 17,586 2.97 13,671 3.06 23,844 2.59
Money market accounts... 9,151 4.43 73,145 3.39 124,796 3.13 102,736 2.85 245,004 3.28
Time deposits
(except brokered)...... 54,824 5.85 83,993 5.94 108,107 5.79 97,484 5.84 127,762 5.54
Brokered deposits....... -- -- -- -- 103,485 5.25 43,340 5.32 102,850 4.82
------- ---- -------- ---- -------- ---- -------- ---- -------- ----
Total deposits......... $69,177 5.43% $183,834 4.56% $356,833 4.37% $260,112 4.40% $502,224 4.14%
======= ==== ======== ==== ======== ==== ======== ==== ======== ====
</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
March 31, 1999:
<TABLE>
<CAPTION>
As of March 31, 1999
------------------------
Weighted Average
Amount Rate Paid
------- ----------------
(Dollars in thousands)
<S> <C> <C>
Three months or less................................... $ 3,141 5.40%
Over three months through six months................... 2,701 5.57
Over six months through twelve months.................. 2,808 5.36
Over twelve months..................................... 2,420 6.06
------- ----
Total................................................ $11,070 5.57%
======= ====
</TABLE>
We actively monitor Matrix Bank's compliance with regulatory capital
requirements. Historically, Matrix Bank has increased its core capital through
the retention of a portion of its earnings. Matrix Bank's future growth is
expected to be achieved through deposit growth, brokered deposits, borrowings
from the Federal Home Loan Bank and custodial deposits from affiliates. We
anticipate that such growth will require additional capital. The capital
requirements related to the anticipated growth will in part be fulfilled
through retention of earnings, potentially increasing our bank stock loan and
future possible debt or equity offerings.
Our principal source of funding for our servicing acquisition activities
consists of a line of credit facility provided to Matrix Financial by an
unaffiliated financial institution. As of March 31, 1999, Matrix Financial's
servicing acquisition facility aggregated $45.0 million, of which $4.2 million
was available to be utilized after deducting drawn amounts. Borrowings under
the servicing acquisition lines of credit are secured by mortgage
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servicing rights owned by Matrix Financial, bear interest at the federal 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 March 31, 1999, $40.7 million was outstanding under the servicing
acquisition line and the interest rate on funds outstanding under this facility
at March 31, 1999 was 6.81%.
Our principal source of funding for our loan origination business consists
of a warehouse line of credit and a sale/repurchase facility provided to Matrix
Financial by unaffiliated financial institutions. As of March 31, 1999, Matrix
Financial's warehouse line of credit facility aggregated $120.0 million, of
which $72.6 million was available to be utilized. Additionally, the lead lender
for the warehouse line has provided us with an overline facility, which
provides an additional $10.0 million in funding capacity. The availability of
the overline facility is at the lender's sole discretion. At March 31, 1999,
$47.4 million was outstanding under the warehouse line at a weighted average
interest rate of 6.25%. Borrowings under the warehouse line 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. As of March
31, 1999, Matrix Financial's sale/repurchase facility was $25.0 million, with
$21.2 million outstanding at a weighted average interest rate of 9.10%.
Borrowings under the sale/repurchase facility are secured by all of the
mortgage loans and direct financing leases funded with sale/repurchase facility
proceeds and bear interest at the higher of the prime rate or the LIBOR rate
plus a negotiated margin on the loans and 8.00% on the direct lease financing.
Our 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 March 31, 1999, Matrix
Financial's working capital facilities aggregated $10.0 million, of which $8.2
million was available. 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 March 31, 1999, $1.8 million was outstanding
under the working capital facilities at an interest rate of 6.31%.
Matrix Bank is restricted from paying dividends to us due to certain
regulatory requirements. Matrix Financial is restricted from paying dividends
to us under its amended and restated loan agreement. Under this loan agreement,
Matrix Financial is limited to:
. dividends payable solely in the form of capital stock;
. cash dividends to us in an amount not to exceed 50% of Matrix
Financial's net cash income for the current fiscal year so long as no
default or potential default exists or would be created by the dividend;
or
. dividends otherwise approved in writing by the agent.
At March 31, 1999, we were in compliance with all debt covenants. See "The
Company--Regulation and Supervision."
In June 1996, we 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 our operating funds and a loan from a
third party financial institution of $845,000. As part of the acquisition, we
entered into a planned unit development agreement with the City of Ft. Lupton.
The planned unit development agreement is a residential and golf course
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 we are
responsible for the development of the surrounding residential lots and certain
offsite infrastructure estimated at $1.3 million. The planned unit development
agreement also provides for the rebate of certain developments fees,
infrastructure fees and storm drainage fees from the City of Ft. Lupton to us,
estimated at $1.6 million.
Under the planned unit development agreement, we are obligated to secure
future payment to the City of Ft. Lupton of pledged golf course enhancement
fees of $600,000. These pledged enhancement fees require
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successor homebuilders to pay the City of Ft. Lupton a $2,000 fee with the
issuance of each building permit. In the event that less than 30 permits are
issued per year, we are obligated to pay the balance of $60,000 in assessment
fees per year beginning in the year 1998 through the year 2007. We have to date
posted a $300,000 letter of credit to secure those referenced enhancement fees.
We 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 we are to earn a preferred rate of return on its investment and, once the
initial amount of our investment plus the preferred rate of return have been
returned, the remaining profits are split equally. Our current investment in
the project is $4.2 million.
It is anticipated that we may obtain a loan from an unaffiliated financial
institution for a portion of the future development costs, as needed.
Inflation and Changing Prices
The consolidated financial statements and related data presented in this
prospectus 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 our assets and liabilities are
monetary in nature. As a result, interest rates have a more significant impact
on our 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. We disclose the estimated fair market value of
its financial instruments in accordance with Statement of Financial Accounting
Standards No. 107. See Note 15 to the consolidated financial statements
included in this prospectus.
Recent Accounting Pronouncements
During fiscal year 1998, we adopted the provisions of two accounting
pronouncements: Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income and Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information.
Additionally, in June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities. We plan to adopt FAS 133 with our fiscal
year beginning January 1, 2001 assuming the FASB finalizes its vote on
deferring the implementation date for fiscal years beginning after June 15,
2000. It is not currently known what effect the adoption of FAS 133 will have
on our consolidated financial statements.
Year 2000
The following disclosure is a Year 2000 Readiness Disclosure and a Year 2000
Statement, as defined in the Year 2000 Information and Readiness Disclosure
Act, which was enacted by Congress and was effective October 19, 1998.
Many software applications and operational programs written in the past may
not properly recognize calendar dates beginning in the year 2000. This problem
could result in a system failure or miscalculations causing a disruption of
operations. We have established year 2000 project teams, both at the parent and
individual subsidiary levels. The year 2000 project teams and our overall year
2000 effort are being overseen by our year 2000 director to ensure that
consistent procedures and methodologies are being applied across the
subsidiaries in addressing year 2000 issues.
We are subject to year 2000 risks not only from our own internal data
processing systems and software, but also from third party sources providing
data and/or services to us and from certain significant customers.
Additionally, we have a limited amount of other non-information systems
equipment that relies on date-sensitive information. As such, we have
established and implemented a year 2000 plan that includes the careful
evaluation of internal data processing systems and software and incorporates
the evaluation of third party sources, significant customers and vendors, and
non-information systems equipment for year 2000 risks.
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<PAGE>
Our year 2000 plan consists of the following five separate phases:
. Awareness--The process of informing all of our employees, vendors, and
significant customers about the nature and extent of the year 2000
problem.
. Assessment--The process of gathering and analyzing information to
determine the size and impact of the year 2000 problem, the complexity
of issues and the level of work and resources necessary to address year
2000 issues.
. Renovation--The process of modifying, reengineering, and retiring non-
compliant information systems, applications, vendors, third party
service providers and non-information systems based on the information
learned during the assessment phase.
. Validation--The process of testing information systems, applications,
vendors, third party service providers and non-information systems for
year 2000 compliance. This testing phase includes both newly renovated
and compliant items.
. Implementation--The process of implementing all year 2000 compliant
changed, newly acquired or modified information systems, applications,
vendors, third party service providers and non-information systems. This
phase also includes the updating of backup, contingency and disaster
recovery plans.
It is anticipated that the above phases of the year 2000 plan will progress
concurrently. Additionally, we do not anticipate that our subsidiaries will
progress at the same rate through the five phases of the year 2000 plan due to
differences in their systems and the varying levels of complexity associated
with those systems.
The year 2000 progress of Sterling Trust, Matrix Bank and Matrix Financial
as of June 30, 1999 is seen in the following tables:
<TABLE>
<CAPTION>
Sterling Trust Year 2000 Progress
---------------------------------------------------------
Awareness Assessment Renovation Validation Implementation
--------- ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Information Systems..... 100% 100% 100% 50% 85%
Estimated completion
date................... -- -- -- 7/31/99 7/31/99
Non-information sys-
tems................... 100% 100% 100% 75% 100%
Estimated completion
date................... -- -- -- 7/31/99 --
Third parties........... 100% 100% 100% 25% 100%
Estimated completion
date................... -- -- -- 7/31/99 --
</TABLE>
<TABLE>
<CAPTION>
Matrix Bank Year 2000 Progress
---------------------------------------------------------
Awareness Assessment Renovation Validation Implementation
--------- ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Information Systems..... 100% 100% 100% 100% 100%
Estimated completion
date................... -- -- -- -- --
Non-information sys-
tems................... 100% 100% 100% 95% 95%
Estimated completion
date................... -- -- -- 9/30/99 9/30/99
Third parties........... 100% 100% 100% 100% 100%
Estimated completion
date................... -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
Matrix Financial Year 2000 Progress
---------------------------------------------------------
Awareness Assessment Renovation Validation Implementation
--------- ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Information Systems..... 100% 100% 100% 90% 85%
Estimated completion
date................... -- -- -- 7/15/99 7/15/99
Non-information sys-
tems................... 100% 100% 100% 100% 100%
Estimated completion
date................... -- -- -- -- --
Third parties........... 100% 90% 90% 90% 90%
Estimated completion
date................... -- 7/31/99 7/31/99 7/31/99 7/31/99
</TABLE>
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<PAGE>
The remaining subsidiaries have more limited exposure risk to the year 2000
issue. For example, they have fewer mission critical systems, vendors, and
customers than the subsidiaries discussed above. These remaining subsidiaries
have more limited renovation issues than Sterling Trust, Matrix Bank and Matrix
Financial and their validation process is substantially underway. The progress
of the remaining subsidiaries as of June 30, 1999 is seen in the following
table:
<TABLE>
<CAPTION>
Remaining Companies' Year 2000 Progress
---------------------------------------------------------
Awareness Assessment Renovation Validation Implementation
--------- ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Information Systems..... 100% 90% 75% 50% 75%
Estimated completion
date................... -- 7/31/99 7/31/99 7/31/99 7/31/99
Non-information sys-
tems................... 100% 100% 90% 90% 90%
Estimated completion
date................... -- -- 7/31/99 7/31/99 7/31/99
Third parties........... 100% 90% 90% 90% 90%
Estimated completion
date................... -- 7/31/99 7/31/99 7/31/99 7/31/99
</TABLE>
Included in the implementation phase of our year 2000 Plan is the
development of a contingency plan for the failure of our mission critical
systems. Several of our subsidiaries have completed their contingency plans and
it is anticipated that the remainder of the contingency plans will be finished
by July 31, 1999.
Assuming the proper functioning of our telecommunication and utility
providers, the failure of which would have a significant impact on our ability
to conduct our day-to-day operations, management of each subsidiary has
assessed what is believed to be the most reasonably likely worst case year 2000
scenario if we were to take no further steps to obtain year 2000 compliance.
Sterling Trust's most reasonably likely worst case scenario lies in not being
able to receive electronic information from various external sources. If for
some reason the data from the outside service providers is available, but
cannot be transmitted electronically, Sterling Trust plans to coordinate the
receipt of that information via phone and fax lines. Once received, Sterling
Trust will then manually input the data into their system in order to perform
the necessary functions described above.
Management from Matrix Bank anticipates that its most reasonably likely
worst case year 2000 scenario would be the failure of one of its credit card
service providers, such as Matrix Bank's credit card processor. In the event
that these service providers are not year 2000 compliant, Matrix Bank
anticipates discontinuing their credit card programs, which are mainly provided
as a service to Matrix Bank's customers, but do not contribute significantly to
our net income on a consolidated basis.
Alltel, Fannie Mae and Federal Home Loan Mortgage Corporation whom Matrix
Financial and Matrix Bank rely on for servicing and/or purchasing mortgage
loans, are currently running compliant systems; however, we have not yet
validated those systems. We anticipate using phone and fax lines to receive
necessary information if systems for Alltel, Fannie Mae or Federal Home Loan
Mortgage Corporation fail on January 1, 2000.
Under Matrix Financial's most reasonably likely worst case year 2000
scenario, two other areas may be affected. The first is the production
department where loan documentation is received from outside brokers and
processed by Matrix Financial. These loan documents could contain inaccurate
calculations resulting from a year 2000 problem with the software/hardware used
by the broker to generate the documents. Since there are approximately 500
brokers that send these documents to Matrix Financial, it is unlikely that
Matrix Financial will be able to certify that all of the brokers are year 2000
compliant. The loss of business from any one broker identified as non compliant
will not have a material impact on us, as no broker is individually significant
to our operations.
The second area of exposure for Matrix Financial is the secondary marketing
department. Each day, rate information is received and loans are locked in at a
set rate to be sold to investors. If an investor is unable to verify and
process the loan rate lock confirmation, which is the paper copy of the agreed
upon transaction, due to a year 2000 issue, then Matrix Financial may be forced
to relock the loans at the current day's rates, unless other evidence of the
transaction exists. Due to the daily fluctuation in these rates, this could
expose Matrix
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Financial to significant interest rate risk on the affected loans. This process
is being reviewed to provide an alternative method between Matrix Financial and
the investors for confirmation of the loan rate information.
For the remaining companies, the worst case scenarios involve the following
issues: for Matrix Bancorp, United Financial and United Capital Markets,
validation of compliant Year 2000 systems and applications is not complete.
Therefore, it is possible that systems and applications represented to us as
compliant by vendors may not work. The database used by United Special Services
for tracking its properties under management is undergoing the renovation
process, after which it will need to be tested. If this process is not
completed, it will be uncertain as to whether United Special Services would be
able to continue to accurately track its properties under management, which
could significantly affect its business.
We anticipate that the total costs associated with year 2000 compliance will
not exceed $300,000; as such, year 2000 compliance is not expected to have a
material effect on our results of operations. Most of the costs associated with
the year 2000 issue will be expensed as incurred; however, any costs
attributable to the purchase of new software will be capitalized. Through June
30, 1999, we had expensed approximately $186,000 for costs associated with year
2000 compliance. The costs of the year 2000 project and the deadlines by which
we believe we will progress through the various phases of the project are based
on management's best estimates, which were derived utilizing numerous
assumptions of future events. There can be no guarantee that these estimates
will be achieved and actual results could differ materially from those
anticipated.
MARKET FOR THE PREFERRED SECURITIES
We have applied to have the preferred securities approved for quotation on
the Nasdaq National Market under the symbol "MTXCP". Although the underwriters
have informed us that they currently intend to make a market in the preferred
securities, there can be no assurance that an active and liquid trading market
will develop, or if developed, that such a market will continue. The offering
price and distribution rate have been determined by negotiations among our
representatives and the underwriters, and the offering price of the preferred
securities may not be indicative of the market price following the offering.
See "Underwriting."
ACCOUNTING TREATMENT
Capital Trust will be treated, for financial reporting purposes, as our
subsidiary and, accordingly, the accounts of Capital Trust will be included in
our consolidated financial statements. The preferred securities will be
presented as a separate category in our consolidated financial statements under
the caption "Guaranteed Preferred Beneficial Interests in the Company's Junior
Subordinated Debentures," and appropriate disclosures about the preferred
securities, the guarantee and the junior subordinated debentures will be
included in the notes to our consolidated financial statements. We will record
distributions payable on the preferred securities as an expense in our
consolidated statements of income for financial reporting purposes.
All of our future reports filed under the Securities and Exchange Act will:
. present the preferred securities and the common securities issued by the
Capital Trust on the balance sheet as a separate category item entitled
"Guaranteed Preferred Beneficial Interests in the Company's Junior
Subordinated Debentures";
. include in a footnote to the financial statement disclosure that the
sole assets of Capital Trust are the junior subordinated debentures
including the outstanding principal amount, interest rate and maturity
date of such junior subordinated debentures; and
. be included in an audited footnote to the financial statements
disclosure that we own all of the common securities of Capital Trust,
and that the back- up obligations, in the aggregate, constitute a full
and unconditional guarantee by us of the obligations of Capital Trust
under the preferred securities.
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DESCRIPTION OF PREFERRED SECURITIES
Capital Trust will issue the preferred securities and the common securities
under the trust agreement for Capital Trust. The preferred securities will
represent preferred undivided beneficial interests in the assets of Capital
Trust and you, as a holder of the preferred securities, will be entitled a
preference in certain circumstances with respect to distributions and amounts
payable on redemption or liquidation over the common securities, as well as
other benefits as described in the trust agreement. This summary of certain
provisions of the preferred securities and the trust agreement is not complete.
You should read the form of the trust agreement, which is filed as an exhibit
to the registration statement of which this prospectus is a part. Wherever
particular defined terms of the trust agreement are referred to in this
prospectus, such defined terms are incorporated herein by reference. A copy of
the form of the trust agreement is also available upon request from the
trustees.
General
The preferred securities will be limited to $27,500,000 aggregate
liquidation amount (as defined in the trust agreement) outstanding (which
amount may be increased by up to $4,125,000 aggregate liquidation amount of
preferred securities for exercise of the underwriters' over-allotment option).
See "Underwriting." The preferred securities will rank equally, and payments
will be made pro rata, with the common securities except as described under "--
Subordination of Common Securities." The junior subordinated debentures will be
registered in the name of Capital Trust and held by the property trustee in
trust for your benefit and the benefit of the holders of the common securities.
The guarantee we will execute for your benefit as a holder of the preferred
securities, will be a guarantee on a subordinated basis with respect to the
preferred securities but will not guarantee payment of distributions or amounts
payable on redemption or liquidation of the preferred securities when Capital
Trust does not have funds on hand available to make such payments. See
"Description of Guarantee."
Distributions
You will receive distributions on each preferred security at the annual rate
of % of the stated liquidation amount of $25. Except as discussed below,
distributions will be payable quarterly in arrears on March 31, June 30,
September 30 and December 31 of each year, at the close of business on the 15th
day of March, June, September and December (whether or not a business day (as
defined below)) next preceding the relevant distribution date. Each date on
which distributions will be paid is referred to as a distribution date in this
prospectus. Distributions on the preferred securities will be cumulative.
Distributions will accumulate from , 1999. The first distribution date for
the preferred securities will be , 1999. The amount of distributions
payable for any period less than a full distribution period will be computed on
the basis of a 360-day year of twelve 30-day months and the actual days elapsed
in a partial month in such period. Distributions payable for each full
distribution period will be computed by dividing the annual rate by four. If
any date on which distributions are payable is not a business day, then payment
will be made on the next succeeding day that is a business day (without any
additional distributions or other payment because of the delay), except that,
if such business day falls in the next calendar year, the payment will be made
on the immediately preceding business day.
So long as no debenture event of default has occurred and is continuing, we
have the right to defer the payment of interest on the junior subordinate
debentures at any time or from time to time for an "extension period" not
exceeding 20 consecutive quarterly periods with respect to each extension
period, provided that no extension period may extend beyond the maturity date
of the junior subordinated debentures. As a consequence of any such deferral,
quarterly distributions on the preferred securities will be deferred during the
extension period. Distributions to which you are entitled will accumulate
additional distributions thereon at the annual rate of %, compounded quarterly
from the relevant payment date, computed on the basis of a 360-day year of
twelve 30-day months and the actual days elapsed in a partial month in such
period. Additional distributions payable for each full distribution period will
be computed by dividing the annual rate by four.
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During any extension period, we may not:
. declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of our
capital stock;
. make any payment of principal of or interest or premium, if any, on,
repay, repurchase or redeem, any of our debt securities that rank
equally in all respects with or junior in interest to the junior
subordinate debentures, including our obligations associated with the
outstanding preferred securities.
Before the end of an extension period, we may further defer the payment of
interest. No extension period may exceed 20 consecutive quarterly periods or
extend beyond the maturity date of the junior subordinated debentures. Upon the
termination of an extension period and the payment of all amounts then due, we
may elect to begin a new extension period. No interest shall be due during an
extension period, except at the end thereof. We must give the trustees notice
of our election of an extension period at least one business day prior to the
earlier of (1) the date the distributions on the preferred securities would
have been payable but for the election to begin the extension period and (2)
the date the property trustee is required to give you notice of the record date
or the date the distributions are payable, but in any event not less than one
business day prior to the record date. The property trustee will give you
notice of our election to begin a new extension period. Subject to the
foregoing, there is no limitation on the number of times that we may elect to
begin an extension period. See "Description of Junior Subordinated Debentures--
Option To Extend Interest Payment Period" and "Certain Federal Income Tax
Consequences--Interest Income and Original Issue Discount."
We currently do not intend to exercise our right to defer payments of
interest by extending the interest payment period on the junior subordinated
debentures.
Source of Distributions
The revenue of Capital Trust available for distribution to you will be
limited to payments under the junior subordinated debentures in which Capital
Trust will invest the proceeds from the issuance and sale of the preferred
securities. See "Description of Junior Subordinated Debentures." If we do not
make payments on the junior subordinated debentures, Capital Trust may not have
funds available to pay distributions or other amounts payable on the preferred
securities. The payment of distributions and other amounts payable on the
preferred securities (if and to the extent Capital Trust has funds legally
available for and cash sufficient to make such payments) is guaranteed by us on
a limited basis as set forth herein under "Description of Guarantee."
Redemption or Exchange
If we repay or redeem the junior subordinated debentures, the property
trustee will redeem a proportionate amount of the preferred and common
securities, upon not less than 30 nor more than 60 days' notice. The redemption
price for each preferred security shall equal $25 plus accumulated but unpaid
distributions on the redemption date and the related amount of the premium, if
any, paid by us upon the concurrent redemption of such junior subordinated
debentures. See "Description of Junior Subordinated Debentures--Redemption." If
less than all the junior subordinated debentures are to be repaid or redeemed
on a redemption date, then the proceeds from the repayment or redemption shall
be allocated to the redemption pro rata of the preferred securities and the
common securities.
We may redeem the junior subordinated debentures:
. on or after , 2004, in whole at any time or in part from time to time;
or
. in whole, but not in part, at any time within 180 days following the
occurrence and during the continuation of a Tax Event, Investment
Company Event or Capital Treatment Event (each as defined below), in
each case subject to possible regulatory approval.
See "--Liquidation Distribution Upon Dissolution." A redemption of the junior
subordinated debentures would cause a mandatory redemption of a proportionate
amount of the preferred securities and common securities at the redemption
price.
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"Tax Event" means the receipt by Capital Trust of an opinion of our counsel
experienced in such matters to the effect that, as a result of any amendment
to, or change (including an announced prospective change) in, the laws (or any
regulations thereunder) of the United States or an political subdivision or
taxing authority thereof or therein, or as a result of any official or
administrative pronouncement or action or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
which pronouncement or decision is announced on or after the date of issuance
of the preferred securities, there is more than an insubstantial risk that:
. Capital Trust is, or will be within 90 days of the delivery of such
opinion, subject to United States federal income tax with respect to
income received or accrued on the junior subordinated debentures;
. interest payable by us on the junior subordinated debentures is not, or
within 90 days of the delivery of such opinion will not be, deductible
by us, in whole or in part, for United States federal income tax
purposes; or
. Capital Trust is, or will be within 90 days of the delivery of such
opinion, subject to more than a de minimis amount of other taxes, duties
or other governmental charges. See "Certain Federal Income Tax
Consequences--Pending Tax Litigation Affecting the Preferred Securities"
for discussion of pending United States Tax Court litigation that, if
decided adversely to the taxpayer, could give rise to a Tax Event, that
may permit us to redeem the junior subordinated debentures prior to
, 2004.
If a Tax Event described in the first or third circumstances above has
occurred and is continuing and Capital Trust holds of all the junior
subordinated debentures, we will pay on the junior subordinated debentures any
additional amounts as may be necessary in order that the amount of
distributions then due and payable by Capital Trust on the outstanding
preferred securities and common securities of Capital Trust will not be reduced
as a result of any additional taxes, duties and other governmental charges to
which Capital Trust has become subject as a result of a Tax Event.
"Investment Company Event" means the receipt by Capital Trust of an opinion
of our counsel experienced in such matters to the effect that, as a result of
the occurrence of a change in law or regulation or a written change (including
any announced prospective change) in interpretation or application of law or
regulation by any legislative body, court, governmental agency or regulatory
authority, there is more than an insubstantial risk that Capital Trust is or
will be considered an "investment company" that is required to be registered
under the Investment Company Act, which change or prospective change becomes
effective or would become effective, as the case may be, on or after the date
of the issuance of the preferred securities.
"Capital Treatment Event" means the reasonable determination by us that, as
a result of the occurrence of any amendment to, or change (including any
announced prospective change) in, the laws (or any rules or regulations
thereunder) of the United States or any political subdivision thereof or
therein, or as a result of any official or administrative pronouncement or
action or judicial decision interpreting or applying such laws or regulations,
which amendment or change is effective or such pronouncement, action or
decision, is announced on or after the date of issuance of the preferred
securities, there is more than an insubstantial risk that we will not be
entitled to treat an amount equal to $ , the liquidation amount of the
preferred securities, as Tier 1 Capital (or the then equivalent thereof),
except as otherwise restricted by the Federal Reserve, for purposes of the
risk-based capital adequacy guidelines of the Federal Reserve, as then in
effect and applicable to us. The Federal Reserve has determined that the
proceeds of certain qualifying securities like the preferred securities will
qualify as Tier I capital for us only up to an amount not to exceed, when taken
together with all of our cumulative preferred stock, if any, 25% of our Tier 1
capital. A Capital Treatment Event will only occur if we become subject to the
risk-based capital adequacy guidelines of the Federal Reserve. We are not
currently subject to such guidelines.
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Redemption Procedures
Preferred securities redeemed on each redemption date shall be redeemed at a
price equal to $25 plus accumulated but unpaid distributions, with the
applicable proceeds from the contemporaneous redemption of the junior
subordinated debentures. Redemptions of the preferred securities will be made
and the redemption price will be payable on each redemption date only to the
extent that Capital Trust has funds on hand available for the payment of such
redemption price. See also "--Subordination of Common Securities."
If Capital Trust gives you notice of redemption of the preferred securities,
then, by 12:00 noon, Eastern time, on the redemption date, to the extent funds
are available, the property trustee will deposit irrevocably with The
Depository Trust Company ("DTC") funds sufficient to pay the applicable
redemption price and will give DTC irrevocable instructions and authority to
pay the redemption price to you. Notwithstanding the foregoing, distributions
payable on or prior to the redemption date for any preferred securities called
for redemption will be payable to you on the relevant record dates for the
related distribution dates.
If notice of redemption is given and funds are deposited as required, then
upon the date of such deposit all of your rights with respect to your preferred
securities so called for redemption will cease, except your right to receive
the redemption price, but without interest on such redemption price, and
preferred securities that are redeemed will cease to be outstanding. If any
date fixed for redemption of preferred securities is not a business day, then
payment of the redemption price payable on such date will be made on the next
succeeding day which is a business day (without any interest or other payment
in respect of any such delay), except that, if such business day falls in the
next calendar year, such payment will be made on the immediately preceding
business day. In the event that payment of the redemption price for the
preferred securities called for redemption is improperly withheld or refused
and not paid either by Capital Trust or by us pursuant to the guarantee as
described under "Description of Guarantee," distributions on such preferred
securities will continue to accumulate at the then applicable rate, from the
redemption date originally established by Capital Trust for such preferred
securities to the date such redemption price is actually paid, in which case
the actual payment date will be the date fixed for redemption for purposes of
calculating the redemption price.
If less than all the preferred securities and common securities are to be
redeemed on a redemption date, then the aggregate liquidation amount of such
preferred securities and common securities to be redeemed shall be allocated
pro rata to the preferred securities and the common securities based upon the
relative liquidation amounts of such classes. The particular preferred
securities to be redeemed shall be selected on a pro rata basis not more than
60 days prior to the redemption date by the property trustee from the
outstanding preferred securities not previously called for redemption, or in
accordance with DTC's customary procedures if the preferred securities are then
held in the form of a global preferred security in accordance with DTC's
customary practices. The property trustee shall promptly notify the securities
registrar for the preferred securities in writing of the preferred securities
selected for redemption and, in the case of any preferred securities selected
for partial redemption, the liquidation amount of the preferred securities to
be redeemed. For all purposes of the trust agreement, unless the context
otherwise requires, all provisions relating to the redemption of preferred
securities shall relate, in the case of any preferred securities redeemed or to
be redeemed only in part, to the portion of the aggregate liquidation amount of
preferred securities which has been or is to be redeemed.
Notice of any redemption will be mailed to you at your address as it appears
on the securities register for Capital Trust at least 30 days but not more than
60 days before the redemption date if your preferred securities will be
redeemed. Unless we default in payment of the redemption price on the junior
subordinated debentures, on and after the redemption date interest will cease
to accrue on the junior subordinated debentures or portions thereof called for
redemption. Unless payment of the redemption price in respect of the preferred
securities is withheld or refused and not paid either by Capital Trust or us
pursuant to the guarantee, distributions will cease to accumulate on the
preferred securities or portions thereof called for redemption.
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Subordination of Common Securities
Payment of distributions on, and the redemption price of, and the
liquidation distribution in respect of, the preferred securities and common
securities, as applicable, shall be made pro rata among the preferred
securities and the common securities based on the liquidation amount of such
preferred securities and common securities. However, if on any distribution
date or redemption date a debenture event of default has occurred and is
continuing as a result of any failure by us to pay any amounts in respect of
the junior subordinated debentures when due, no payment of any distribution on,
or redemption price of, or liquidation distribution in respect of, any of the
common securities, and no other payment on account of the redemption,
liquidation or other acquisition of such common securities, shall be made
unless payment in full in cash of all accumulated and unpaid distributions on
all the outstanding preferred securities for all distribution periods
terminating on or prior thereto, or in the case of payment of the redemption
price the full amount of such redemption price on all the outstanding preferred
securities then called for redemption, shall have been made or provided for,
and all funds available to the property trustee shall first be applied to the
payment in full in cash of all distributions on, or redemption price of, the
preferred securities then due and payable.
In the case of any event of default with respect to the preferred securities
(as described below under "--Events of Default; Notice") resulting from an
event of default with respect to junior subordinated debentures (as described
below under "Description of Junior Subordinated Debentures--Debenture Events of
Default"), the holders of the common securities will be deemed to have waived
any right to act with respect to any such event of default under the trust
agreement until the effects of all such events of default with respect to such
preferred securities have been cured, waived or otherwise eliminated. See "--
Events of Default; Notice" and "Description of Junior Subordinated Debentures--
Debenture Events of Default." Until all such events of default under the trust
agreement with respect to the preferred securities have been so cured, waived
or otherwise eliminated, the property trustee will act solely on your behalf
and not on behalf of the holders of the common securities, and only you will
have the right to direct the property trustee to act on your behalf.
Liquidation Distribution Upon Dissolution
The amount payable on the preferred securities in the event of any
liquidation of Capital Trust is $25.00 per preferred security plus accumulated
and unpaid distributions, subject to certain exceptions which may be in the
form of a distribution of such amount in junior subordinated debentures.
The holders of all the outstanding common securities have the right at any
time to dissolve Capital Trust and, after satisfaction of liabilities to
creditors of Capital Trust as provided by applicable law, cause the junior
subordinated debentures to be distributed to you and the holders of the common
securities in liquidation of Capital Trust.
The Federal Reserve's risk-based capital guidelines currently provide that
redemptions of permanent equity or other capital instruments before stated
maturity could have a significant impact on a bank holding company's overall
capital structure and that any organization considering such a redemption
should consult with the Federal Reserve before redeeming any equity or capital
instrument prior to maturity if such redemption could have a material effect on
the level or composition of the organization's capital base. This consultation
may not be necessary if the equity or capital instrument is redeemed with the
proceeds of, or replaced by, a like amount of a similar or higher quality
capital instrument and the Federal Reserve considers the organization's capital
position to be fully adequate after the redemption.
In the event we, while a holder of common securities, dissolve Capital Trust
prior to the maturity date of the preferred securities and the dissolution of
Capital Trust is deemed to constitute the redemption of capital instruments by
the Federal Reserve under its risk-based capital guidelines or policies, our
dissolution of Capital Trust may be subject to the prior approval of the
Federal Reserve. Moreover, any changes in applicable law or changes in the
Federal Reserve's risk-based capital guidelines or policies could impose a
requirement on us to obtain the prior approval of the Federal Reserve to
dissolve Capital Trust.
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Pursuant to the trust agreement, Capital Trust will automatically dissolve
upon expiration of its term or, if earlier, will dissolve on the first to occur
of:
. certain events of bankruptcy, dissolution or liquidation of us or
another holder of the common securities;
. upon the holders of common securities giving written direction to the
property trustee to dissolve Capital Trust (which direction, subject to
the foregoing restrictions, is optional and wholly within the discretion
of the holders of common securities);
. the repayment of all the preferred securities in connection with the
redemption of all the preferred securities and common securities as
described under "--Redemption;"
. the entry of an order for the dissolution of Capital Trust by a court of
competent jurisdiction.
If dissolution of Capital Trust occurs as described in any of the first
three circumstances described above, Capital Trust will be liquidated by the
property trustee as expeditiously as the property trustee determines to be
possible by distributing, after satisfaction of liabilities to creditors of
Capital Trust as provided by applicable law, to you and the holders of the
common securities a proportionate amount of the junior subordinated debentures,
unless such distribution is not practical. If distribution of the junior
subordinated debentures is not practical, you and the holders of preferred
securities and common securities will be entitled to receive out of the assets
of Capital Trust available for distribution to holders, after satisfaction of
liabilities to creditors of Capital Trust as provided by applicable law, an
amount equal to, in the case of your distribution, the aggregate of the
liquidation amount plus accumulated and unpaid distributions thereon to the
date of payment. If such liquidation distribution can be paid only in part
because Capital Trust has insufficient assets available to pay in full the
aggregate liquidation distribution, then the amounts payable directly by
Capital Trust on its preferred securities shall be paid on a pro rata basis.
The holders of the common securities will be entitled to receive distributions
upon any such liquidation pro rata with you, except that if an event of default
under the junior subordinated debentures has occurred and is continuing as a
result of our failure to pay any amounts in respect of the junior subordinated
debentures when due, the preferred securities shall have a priority over the
common securities. See "--Subordination of Common Securities."
After the liquidation date fixed for any distribution of junior subordinated
debentures:
. the preferred securities will no longer be deemed to be outstanding;
. DTC or its nominee, as the registered holder of preferred securities,
will receive a registered global certificate or certificate representing
the junior subordinated debentures to be delivered upon such
distribution with respect to preferred securities held by DTC or its
nominee; and
. any certificates representing the preferred securities not held by DTC
or its nominee will be deemed to represent the junior subordinated
debentures having a principal amount equal to the stated liquidation
amount of the preferred securities and bearing accrued and unpaid
interest in an amount equal to the accumulated and unpaid distributions
on the preferred securities until such certificates are presented to the
security registrar for the preferred securities and common securities
for transfer or reissuance.
If we do not redeem the junior subordinated debentures prior to maturity,
Capital Trust is not liquidated, and the junior subordinated debentures are not
distributed to you, then the preferred securities will remain outstanding until
the repayment of the junior subordinated debentures and the distribution of the
liquidation distribution to you.
There can be no assurance as to the market prices for the preferred
securities or the junior subordinated debentures that may be distributed in
exchange for preferred securities if a dissolution and liquidation of Capital
Trust were to occur. Accordingly, the preferred securities that you may
purchase, or the junior subordinated debentures that you may receive on
dissolution and liquidation of Capital Trust, may trade at a discount to the
price that you paid to purchase the preferred securities offered hereby.
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Events of Default; Notice
Any one of the following events constitutes an event of default under the
trust agreement with respect to the preferred securities (whatever the reason
for such event of default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to a judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body):
. the occurrence of an event of default with respect to the junior
subordinated debentures (see "Description of Junior Subordinated
Debentures--Debenture Events of Default");
. default by Capital Trust or the property trustee in the payment of any
distribution when it becomes due and payable, and continuation of such
default for a period of 30 days;
. default by Capital Trust or the property trustee in the payment of any
redemption price of any preferred security and common security when it
becomes due and payable;
. default in the performance, or breach, in any material respect, of any
covenant or warranty of the trustees in the trust agreement (other than
a covenant or warranty a default in the performance of which or the
breach of which is dealt with in either of the second or third
circumstances above), and continuation of such default or breach for a
period of 60 days after there has been given, by registered or certified
mail, to the trustees and us by the holders of at least 25% in aggregate
liquidation amount of the outstanding preferred securities, a written
notice specifying such default or breach and requiring it to be remedied
and stating that such notice is a "Notice of Default" under the trust
agreement; or
. the occurrence of certain events of bankruptcy or insolvency with
respect to the property trustee if a successor property trustee has not
been appointed within 60 days thereof.
Within five business days after the occurrence of any event of default
actually known to the property trustee, the property trustee will transmit
notice of the event of default to you and the holders of the common securities
and the administrative trustees, unless the event of default has been cured or
waived. We, as depositor, and the administrative trustees are required to file
annually with the property trustee a certificate as to whether or not we are in
compliance with all the conditions and covenants applicable to us under the
trust agreement.
If an event of default with respect to the junior subordinated debentures
has occurred and is continuing as a result of any failure by us to pay any
amounts in respect of the junior subordinated debentures when due, the
preferred securities will have a preference over the common securities with
respect to payments of any amounts in respect of the preferred securities as
described above. See "--Subordination of Common Securities," "--Liquidation
Distribution Upon Dissolution" and "Description of Junior Subordinated
Debentures--Debenture Events of Default."
Resignation or Removal of Trustees; Appointment of Successors
The holders of at least a majority in aggregate liquidation amount of the
outstanding preferred securities may remove the property trustee or the
Delaware trustee if an event of default with respect to the junior subordinated
debentures has occurred and is continuing. In no event will you have the right
to appoint, remove or replace the administrative trustees, which voting rights
are vested exclusively with us as the holder of the common securities. No
resignation or removal of a trustee and no appointment of a successor trustee
shall be effective until the acceptance of appointment by the successor trustee
in accordance with the provisions of the trust agreement. If a trustee is
removed by the holders of the outstanding preferred securities, the successor
may be appointed by the holders of at least 25% in aggregate liquidation amount
of preferred securities. If a trustee resigns, such trustee will appoint its
successor. If a trustee fails to appoint a successor, the holders of at least
25% in aggregate liquidation amount of the outstanding preferred securities may
appoint a successor. If a successor has not been appointed by you or the
holders, any holder of preferred securities or common securities
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or the other trustee may petition a court in the State of Delaware to appoint a
successor. Any Delaware trustee must meet the applicable requirements of
Delaware law. Any property trustee must be a national or state-chartered bank,
and at the time of appointment have securities rated in one of the three
highest rating categories by a nationally recognized statistical rating
organization and have capital and surplus of at least $50,000,000.
Merger or Consolidation of Trustees
Any entity into which the property trustee or the Delaware trustee may be
merged or converted or with which it may be consolidated, or any entity
resulting from any merger, conversion or consolidation to which such trustee is
a party, or any entity succeeding to all or substantially all the corporate
trust business of such trustee, will be the successor of such trustee under the
trust agreement, provided such entity is otherwise qualified and eligible.
Co-Trustees and Separate Property Trustee
Unless an event of default has occurred and is continuing, at any time or
times, for the purpose of meeting the legal requirements of the Trust Indenture
Act or of any jurisdiction in which any part of the trust property (as defined
in the trust agreement) may at the time be located, we as the holder of the
common securities, will have power to appoint one or more persons approved by
the property trustee either to act as a co-trustee, jointly with the property
trustee, of all or any part of such trust property, or to act as separate
trustee of any such trust property, in either case with such powers as may be
provided in the instrument of appointment, and to vest in such person or
persons in such capacity any property, title, right or power deemed necessary
or desirable, subject to the provisions of the trust agreement. In case a
debenture event of default has occurred and is continuing, the property trustee
alone will have power to make such appointment.
Mergers, Consolidations, Amalgamations or Replacements of Capital Trust
Capital Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, convey, transfer or lease its properties and assets substantially
as an entirety to, any entity, except described below or as otherwise set forth
in the trust agreement. Capital Trust may, at the request of the holders of the
common securities and with the consent of the holders of at least a majority
aggregate liquidation amount of the outstanding preferred securities, merge
with or into, consolidate amalgamate, or be replaced by or convey, transfer or
lease its properties and assets substantially as an entirety to a trust
organized as such under the laws of any state, so long as:
. such successor entity (1) expressly assumes all the obligations of
Capital Trust with respect to the preferred securities or (2)
substitutes for the preferred securities other securities having
substantially the same terms as the preferred securities so long as the
substitute preferred securities have the same priority as the preferred
securities with respect to distributions and payments upon liquidation,
redemption and otherwise and will be listed or traded on the Nasdaq
National Market or any national securities exchange on which the
preferred securities are then listed or traded;
. a trustee of such successor entity, possessing substantially the same
powers and duties as the property trustee, is appointed to hold the
junior subordinated debentures,
. such merger, consolidation, amalgamation, replacement, conveyance
transfer or lease does not adversely affect the rights, preferences and
privileges of the holders of the preferred securities (including any
substitute preferred securities) in any material respect;
. prior to such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, Capital Trust has received an opinion
from independent counsel experienced in such matters to the effect that
(1) such merger, consolidation amalgamation, replacement, conveyance,
transfer or lease does not adversely affect your rights, preference and
privileges as a holder of preferred securities (including any substitute
preferred securities) in any material respect and (2) following such
merger, consolidation, amalgamation, replacement, conveyance transfer or
lease, neither Capital Trust nor such successor entity will be required
to register as investment company under the Investment Company Act; and
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. we or any permitted successor or assignee own all the common securities
of such successor entity and guarantee the obligations of such successor
entity under the successor securities at least to the extent provided by
the guarantee.
Notwithstanding the foregoing, Capital Trust may not, except with the
consent of holders of 100% in aggregate liquidation amount of the preferred
securities, consolidate, amalgamate, merge with or into, or be replaced by or
convey, transfer or lease its properties and assets substantially as an
entirety to, any other entity or permit any other entity to consolidate,
amalgamate, merge with or into or replace it if such consolidation,
amalgamation, merger, replacement, conveyance, transfer or lease would cause
Capital Trust or the successor entity to be classified other than as a grantor
trust for United States federal income tax purposes.
Voting Rights; Amendment of Trust Agreement
Except as provided above and under "--Removal of Trustees; Appointment of
Successors" and "Description of Guarantee--Amendments and Assignment" and as
otherwise required by law and the trust agreement, you will have no voting
rights.
The trust agreement may be amended from time to time by the holders of a
majority of the common securities and the property trustee, without your
consent to:
. accept appointment by a successor trustee;
. cure any ambiguity, correct or supplement any provisions in the trust
agreement that may be inconsistent with any other provision, or to make
any other provisions with respect to matters or questions arising under
the trust agreement, provided that any such amendment does not adversely
affect in any material respect your interests; or
. modify, eliminate or add to any provisions of the trust agreement to
such extent as may be necessary to ensure that Capital Trust will not be
taxable as a corporation for United States federal income tax purposes
at any time that any preferred or common securities are outstanding or
to ensure that Capital Trust will not be required to register as an
"investment company" under the Investment Company Act.
Any such amendments of the trust agreement will become effective when notice of
such amendment is given to the holders of preferred securities and common
securities.
The trust agreement may be amended by the holders of a majority of the
common securities and the property trustee with:
. the consent of holders representing not less than a majority in
aggregate liquidation amount of the outstanding preferred securities;
and
. receipt by the trustees of an opinion of counsel to the effect that such
amendment or the exercise of any power granted to the trustees in
accordance with such amendment will not affect Capital Trust's not being
taxable as a corporation for United States federal income tax purposes
or Capital Trust's exemption from status as an "investment company"
under the Investment Company Act.
However, without the consent of each holder of preferred securities or common
securities affected thereby, the trust agreement may not be amended to:
. change the amount or timing of any distribution on the preferred
securities and common securities or otherwise adversely affect the
amount of any distribution required to be made in respect of the
preferred securities and common securities as of a specified date; or
. restrict your right and the right of a holder of common securities to
institute suit for the enforcement of any such payment on or after such
date.
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So long as any junior subordinated debentures are held by Capital Trust, the
property trustee will not:
. direct the time, method and place of conducting any proceeding for any
remedy available to the debenture trustee, or execute any trust or power
conferred on the property trustee with respect to the junior
subordinated debentures;
. waive any past default that is waivable under the indenture;
. exercise any right to rescind or annul a declaration that the junior
subordinated debentures shall be due and payable; or
. consent to any amendment, modification or termination of the indenture
or the junior subordinated debentures, where such consent shall be
required, without, in each case, obtaining the prior approval of the
holders of at least a majority in aggregate liquidation amount of the
outstanding preferred securities, or, if a consent under the indenture
would require the consent of each holder of junior subordinated
debentures affected thereby, no such consent will be given by the
property trustee without the prior consent of each holder of the
preferred securities.
The property trustee may not revoke any action previously authorized or
approved by a vote of the holders of the preferred securities except by
subsequent vote of the holders of the preferred securities. The property
trustee will notify you of any notice of default with respect to the junior
subordinated debentures. In addition to obtaining your approval as described
above, before taking any of the actions listed above, the property trustee will
obtain an opinion of counsel experienced in such matters to the effect that
Capital Trust will not be taxable as a corporation for United States federal
income tax purposes on account of such action.
Any required approval of holders of preferred securities may be given at a
meeting of holders of preferred securities convened for such purpose or
pursuant to written consent. The property trustee will cause a notice of any
meeting at which you are entitled to vote, or of any matter upon which action
by your written consent is to be taken, to be given to you in the manner set
forth in the trust agreement.
Your vote or consent will not be required to redeem and cancel preferred
securities in accordance with the trust agreement.
Notwithstanding that you are entitled to vote or consent under any of the
circumstances described above, any of the preferred securities that are owned
by us, the trustees or any of our affiliates or any trustees, will, for
purposes of such vote or consent, be treated as if they were not outstanding.
Expenses and Taxes
In the indenture, we have agreed to pay all debts and other obligations
(other than distributions on the preferred securities) and all costs and
expenses of Capital Trust (including costs and expenses relating to the
organization of Capital Trust, the fees and expenses of the trustees and the
costs and expenses relating to the operation of Capital Trust) and to pay any
and all taxes and all costs and expenses with respect thereto (other than
United States withholding taxes) to which Capital Trust might become subject.
These obligations of ours under the indenture are for the benefit of, and shall
be enforceable by, any creditor of Capital Trust to whom any of these debts,
obligations, costs, expenses and taxes are owed whether or not such creditor
has received notice thereof. Any such creditor may enforce these obligations
directly against us, and we have irrevocably waived any right or remedy to
require that any creditor take any action against Capital Trust or any other
person before proceeding against us. We have also agreed in the indenture to
execute such additional agreements as may be necessary or desirable to give
full effect to the foregoing.
Book Entry, Delivery and Form
The preferred securities will be issued in the form of one or more fully
registered global securities, which will be deposited with, or on behalf of,
DTC and registered in the name of DTC nominee. Unless and until it is
exchangeable in whole or in part for the preferred securities in definitive
form, a global security may not be
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transferred except as a whole by DTC to a nominee of DTC or by a nominee of DTC
to DTC or to another nominee of DTC or by DTC or any such nominee to a
successor of DTC or to a nominee of such successor.
DTC has advised Capital Trust and us as follows:
. DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve, a "clearing
corporation" within the meaning of the Uniform Commercial Code and a
"clearing agency" registered pursuant to the provisions of Section 17A
of the Exchange Act;
. DTC was created to hold securities for its participants and to
facilitate the clearance and settlement of securities transactions
between participants through electronic book entry changes to accounts
of its participants, thereby eliminating the need for physical movement
of certificates;
. participants include securities brokers and dealers (such as the
underwriters), banks, trust companies and clearing corporations and may
include certain other organizations;
. certain of such participants (or their representatives), together with
other entities, own DTC; and
. indirect access to the DTC system is available to others such as banks,
brokers, dealers and trust companies that clear through, or maintain a
custodial relationship with, a participant, either directly or
indirectly.
Ownership of beneficial interests in a global security will be limited to
participants that have accounts with DTC or its nominee or persons that may
hold interests through such participants. We expect that, upon the issuance of
a global security, DTC will credit, on its book-entry registration and transfer
system, the participants' accounts with their respective principal amounts of
preferred securities represented by such global security. Ownership of
beneficial interests in such global security will be shown on, and the transfer
of such ownership interests will be effected only through records maintained by
DTC (with respect to the interests of participants) and on the records of
participants (with respect to your interests). You will not receive written
confirmation from DTC of your purchase, but are expected to receive written
confirmations from participants through which you entered into the transaction.
Transfers of ownership interests will be accomplished by entries on the books
of participants acting on your behalf.
So long as DTC, or its nominee, is the registered owner of a global
security, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the preferred securities represented by such global security
for all purposes under the trust agreement. Except as provided below, you are
the owner of beneficial interests in a global security and will not be entitled
to receive physical delivery of the preferred securities in definitive form.
You will not be considered an owner or holder under the trust agreement.
Accordingly, you must rely on the procedures of DTC and, if you are not a
participant, on the procedures of the participant through which you own your
interest, to exercise any rights as a holder of preferred securities under the
trust agreement. We understand that, under DTC's existing practices, in the
event that we request any action you, or if you desire to take any action which
a holder is entitled to take under the trust agreement, DTC would authorize the
participants holding your interests to take such action, and such participants
would authorize you to take such action or would otherwise act upon your
instructions. Redemption notices will also be sent to DTC. If less than all of
the preferred securities are being redeemed, we understand that it is DTC's
existing practice to determine by lot the amount of the interest of each
participant to be redeemed.
Distributions on the preferred securities registered in the name of DTC or
its nominee will be made to DTC or its nominee, as the case may be, as the
registered owner of the global security representing such preferred securities.
Neither the trustees, the administrative trustees, any paying agent nor any
other agent of ours or the trustees will have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests in the global security for such preferred
securities or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests. Disbursements of distributions to
participants shall be the responsibility of DTC. DTC's practice is to credit
participants' accounts on a payable date in accordance with their respective
holdings shown on DTC's records
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unless DTC has reason to believe that it will not receive payment on the
payable date. Payments by participants to you will be governed by standing
instructions and customary practices, as is the case with securities held for
the accounts of customers in bearer form or registered in "street name," and
will be the responsibility of such participant and not of DTC, us, the
trustees, the paying agent or any other agent of ours, subject to any
statutory or regulatory requirements as may be in effect from time to time.
DTC may discontinue providing its services as securities depository with
respect to the preferred securities at any time by giving reasonable notice to
us or the trustees. If DTC notifies us that it is unwilling to continue as
such, or if it is unable to continue or ceases to be a clearing agency
registered under the Securities Exchange Act and a successor depository is not
appointed by us within ninety days after receiving such notice or becoming
aware that DTC is no longer so registered, we will issue the preferred
securities in definitive form upon registration of transfer of, or in exchange
for, such global security. In addition, we may at any time and in our sole
discretion determine not to have the preferred securities represented by one
or more global securities and, in such event, will issue preferred securities
in definitive form in exchange for all of the global securities representing
such preferred securities.
Same-Day Settlement and Payment
Settlement for the preferred securities will be made by the underwriters in
immediately available funds.
Secondary trading in preferred securities of corporate issuers is generally
settled in clearinghouse or next-day funds. In contrast, the preferred
securities will trade in DTC's Same-Day Funds Settlement System, and secondary
market trading activity in the preferred securities will therefore be required
by DTC to settle in immediately available funds. No assurance can be given as
to the effect, if any, of settlement in immediately available funds on trading
activity in the preferred securities.
Payment and Paying Agency
Payments in respect of the preferred securities will be made to DTC, which
will credit the relevant accounts at DTC on the applicable distribution dates
or, if the preferred securities are not held by DTC, such payments will be
made by check mailed to the address of the holder entitled thereto as such
address appears on the securities register for the preferred securities and
common securities. The paying agent will initially be the property trustee and
any co-paying agent chosen by the property trustee and acceptable to the
administrative trustees. The paying agent will be permitted to resign as
paying agent upon 30 days' written notice to the property trustee and the
administrative trustees. If the property trustee is no longer the paying
agent, the property trustee will appoint a successor (which must be a bank or
trust company reasonably acceptable to the administrative trustee) to act as
paying agent.
Registrar and Transfer Agent
The property trustee will act as registrar and transfer agent for the
preferred securities.
Registration of transfers of preferred securities will be effected without
charge by or on behalf of Capital Trust, but only upon payment of any tax or
other governmental charges that may be imposed in connection with any transfer
or exchange. Capital Trust will not be required to register or cause to be
registered the transfer of the preferred securities after the preferred
securities have been called for redemption.
Obligations and Duties of the Property Trustee
The property trustee, other than during the occurrence and continuance of
an event of default, undertakes to perform only such duties as are
specifically set forth in the trust agreement and, after such event of
default, must exercise the same degree of care and skill as a prudent person
would exercise or use in the conduct of his or her own affairs. Subject to
this provision, the property trustee is under no obligation to exercise any of
the powers vested in it by the trust agreement at your request unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby.
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Miscellaneous
The administrative trustees and the property trustee are authorized and
directed to conduct the affairs of and to operate Capital Trust in such a way
that (1) Capital Trust will not be deemed to be an "investment company"
required to be registered under the Investment Company Act or taxable as a
corporation for United States federal income tax purposes and (2) the junior
subordinated debentures will be treated as our indebtedness for United States
federal income tax purposes. In this connection, the property trustee and we,
as the holders of common securities, are authorized to take any action not
inconsistent with applicable law, the certificate of trust of Capital Trust or
the trust agreement that the property trustee and we determine in our
discretion to be necessary or desirable for such purposes, as long as such
action does not materially adversely affect your interests.
You will not have preemptive or similar rights.
Capital Trust may not borrow money, issue debt or mortgage or pledge any of
its assets.
Governing Law
The trust agreement will be governed by and construed in accordance with the
laws of the State of Delaware.
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
The junior subordinated debentures are to be issued under the indenture
between State Street Bank and Trust Company, the debenture trustee, and us.
This summary of certain terms and provisions of the junior subordinated
debentures and the indenture is not complete. You should read the form of the
indenture that is filed as an exhibit to the registration statement of which
this prospectus is a part. Whenever particular defined terms of the indenture
(as amended or supplemented from time to time) are referred to in this
prospectus, such defined terms are incorporated herein by reference. A copy of
the form of indenture is available from the debenture trustee upon request.
General
Concurrently with the issuance of the preferred securities, Capital Trust
will invest the proceeds, together with the consideration paid by us for the
common securities, in the junior subordinated debentures issued by us. The
junior subordinated debentures will bear interest, accruing from , 1999,
at the annual rate of % of the principal amount thereof, payable quarterly in
arrears on March 31, June 30, September 30 and December 31 of each year,
commencing , 1999, to the person in whose name each junior subordinated
debenture is registered at the close of business on the 15th day of March,
June, September or December (whether or not a business day) next preceding such
interest payment date. It is anticipated that, until the liquidation, (if any),
of Capital Trust, each junior subordinated debentures will be registered in the
name of Capital Trust and held by the property trustee in trust for you, as a
holder of preferred securities, and us, as the holders of the common
securities.
The amount of interest payable for any period less than a full interest
period will be computed on the basis of a 360-day year of twelve 30-day months
and the actual days elapsed in a partial month in such period. The amount of
interest payable for any full interest period will be computed by dividing the
annual rate by four. If any date on which interest is payable to the junior
subordinated debentures is not a business day, then payment of the interest
payable on such date will be made on the next business day (without any
interest or other payment in respect of any such delay), or, if such business
day falls in the next calendar year, such payment will be made on the
immediately preceding business day in each case with the same force and effect
as if made on the date such payment was originally payable.
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Accrued interest that is not paid on the applicable interest payment date
will bear additional interest on the amount thereof (to the extent permitted by
law) at the annual rate of %, compounded quarterly and computed on the basis
of a 360-day year of twelve 30-day months and the actual days elapsed in a
partial month in such period. The amount of additional interest payable for any
full interest period will be computed by dividing the annual rate by four. The
term "interest" as used herein includes quarterly interest payments, interest
on quarterly interest payments not paid on the applicable interest payment date
and, if applicable, any additional sums we pay on the junior subordinated
debentures following a Tax Event (as defined under "Description of Preferred
Securities--Redemption") that may be required so that distributions payable by
Capital Trust will not be reduced by any additional taxes, duties or other
governmental changes resulting from such Tax Event.
The junior subordinated debentures will mature on , 2029, subject to
our right to shorten the maturity date at any time to any date not earlier than
, 2004, if we have received prior approval of the Federal Reserve if then
required under applicable capital guidelines or policies of the Federal
Reserve. In the event we elect to shorten the maturity of the junior
subordinated debentures, we will give notice to the registered holders of the
junior subordinated debentures, the debenture trustee and Capital Trust of such
shortening no less than 90 days nor more than 180 days prior to the
effectiveness thereof. The property trustee must give you and the holders of
the common securities notice of the shortening of the stated maturity at least
30 but not more than 60 days before such date.
The junior subordinated debentures will be unsecured and will rank junior
and be subordinate in right of payment to all of our senior indebtedness. The
junior subordinated debentures will not be subject to a sinking fund. The
indenture does not limit our ability to incur or issue other secured or
unsecured debt, including senior indebtedness, whether under the junior
subordinated debentures or any existing or other indenture that we may enter
into in the future or otherwise. See "--Subordination."
Option to Extend Interest Payment Period
So long as no event of default under the junior subordinated debentures has
occurred and is continuing, we have the right at any time during the term of
the junior subordinated debentures to defer the payment of interest at any time
or from time to time for a period not exceeding 20 consecutive quarterly
periods with respect to each extension period, provided that no extension
period may extend beyond the stated maturity of the junior subordinated
debentures. During any extension period, we have the right to make partial
payments of interest on any interest payment date. At the end of an extension
period, we must pay all interest then accrued and unpaid (together with
interest thereon at the annual rate of %, compounded quarterly and computed on
the basis of a 360-day year of twelve 30-day months and the actual days elapsed
in a partial month in such period, to the extent permitted by applicable law).
The amount of additional interest payable for any full interest period will be
computed by dividing the annual rate by four. During an extension period,
interest will continue to accrue and holders of junior subordinated debentures
(or holders of preferred securities while outstanding) will be required to
accrue interest income for United States federal income tax purposes. See
"Certain Federal Income Tax Consequences--Interest Income and Original Issue
Discount."
During any extension period, we may not:
. make any payment of principal of or interest or premium, if any, on, or
repay, repurchase or redeem any of, our debt securities that rank
equally in all respects with or junior in interest to the junior
subordinated debentures;
. declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of our
capital stock; or
. redeem, purchase or acquire less than all of the junior subordinated
debentures or any of the preferred securities.
Prior to the termination of any extension period, we may further defer the
payment of interest, provided that no extension period may exceed 20
consecutive quarterly periods or extend beyond the stated maturity of
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the junior subordinated debentures. Upon the termination of any extension
period and the payment of all amounts then due, we may elect to begin a new
extension period subject to the above conditions. No interest shall be due and
payable during an extension period, except at its end. We must give the
trustees notice of our election of such extension period at least two business
days prior to the earlier of (1) the date the distribution on the preferred
securities would have been payable but for the election to begin an extension
period and (2) the date the property trustee is required to give you notice of
the record date or the date such distributions are payable, but in any event
not less than one business day prior to such record date. The property trustee
will give you notice of our election to begin a new extension period. There is
no limitation on the number of times that we may elect to begin an extension
period.
Redemption
We may redeem the junior subordinated debentures prior to maturity at our
option (1) on or after , 2004, in whole at any time or in part from time
to time, or (2) in whole, but not in part, at any time within 180 days
following the occurrence and during the continuation of a Tax Event, Investment
Company Event or Capital Treatment Event (each as defined under "Description of
Preferred Securities--Redemption"), in each case at a redemption price equal to
the outstanding principal amount of the junior subordinated debentures plus
accrued interest (including any additional interest on any additional sums we
pay following a Tax Event as described below under "--Additional Sums"). The
proceeds of any such redemption will be used by Capital Trust to redeem the
preferred securities.
The Federal Reserve's risk-based capital guidelines, which are subject to
change, currently provide that redemptions of permanent equity or other capital
instruments before stated maturity could have a significant impact on a bank
holding company's overall capital structure and that any organization
considering such a redemption should consult with the Federal Reserve before
redeeming any equity or capital instrument prior to maturity if such redemption
could have a material effect on the level or composition of the organization's
capital base. Consultation may not be necessary if the equity or capital
instrument was redeemed with the proceeds of, or replaced by, a like amount of
a similar or higher quality capital instrument and the Federal Reserve
considers the organization's capital position to be fully adequate after the
redemption.
If we redeem the junior subordinated debentures prior to their stated
maturity that would constitute the redemption of capital instruments under the
Federal Reserve's current risk-based capital guidelines and may be subject to
the prior approval of the Federal Reserve. The redemption of the junior
subordinated debentures also could be subject to the additional prior approval
of the Federal Reserve under its current risk-based capital guidelines.
Additional Sums
We have covenanted in the indenture that, if and for so long as Capital
Trust is the holder of all junior subordinated debentures and Capital Trust is
required to pay any additional taxes, duties or other governmental charges as a
result of a Tax Event, we will pay as additional sums on the junior
subordinated debentures such amounts as may be required so that the
distributions payable by Capital Trust will not be reduced as a result of any
such additional taxes, duties or other governmental charges. See "Description
of Preferred Securities--Redemption."
Registration, Denomination and Transfer
The junior subordinated debentures will initially be registered in the name
of Capital Trust. If the junior subordinated debentures are distributed to you,
it is anticipated that the depositary arrangements for the junior subordinated
debentures will be substantially identical to those in effect for the preferred
securities. See "Description of Preferred Securities--Book Entry, Delivery and
Form."
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Although DTC has agreed to the procedures described above, it is under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depositary and we do not appoint a successor depositary
within 90 days of receipt of notice from DTC to such effect, we will cause the
junior subordinated debentures to be issued in definitive form.
Payments on junior subordinated debentures represented by a global security
will be made to Cede & Co., the nominee for DTC, as the registered holder of
the junior subordinated debentures, described under "Description of Preferred
Securities--Book Entry, Delivery and Form." If junior subordinated debentures
are issued in certificated form, principal and interest will be payable, the
transfer of the junior subordinated debentures will be registerable, and junior
subordinated debentures will be exchangeable for junior subordinated debentures
of other authorized denominations of a like aggregate principal amount, at the
corporate trust office of the debenture trustee in New York, New York, or at
the offices of any paying agent or transfer agent we appoint, provided that
payment of interest may be made at our option by check mailed to the address of
the persons entitled thereto. However, a holder of $1 million or more in
aggregate principal amount of junior subordinated debentures may receive
payments of interest (other than interest payable at the stated maturity) by
wire transfer of immediately available funds upon written request to the
debenture trustee not later than 15 calendar days prior to the date on which
the interest is payable.
Junior subordinated debentures are issuable only in registered form without
coupons in integral multiples of $25. Junior subordinated debentures will be
exchangeable for other junior subordinated debentures of like tenor, of any
authorized denominations, and of a like aggregate principal amount.
Junior subordinated debentures may be presented for exchange as provided
above, and may be presented for registration of transfer (with the form of
transfer endorsed thereon, or a satisfactory written instrument of transfer,
duly executed), at the office of the securities registrar appointed under the
indenture or at the office of any transfer agent we designate for such purpose
without service charge and upon payment of any taxes and other governmental
charges as described in the indenture. We will appoint the debenture trustee as
securities registrar under the indenture. We may at any time designate
additional transfer agents with respect to the junior subordinated debentures.
In the event of any redemption, we will not, nor will the debenture trustee
be required to:
. issue, register the transfer of or exchange junior subordinated
debentures during a period beginning at the opening of business 15 days
before the day of selection for redemption of the junior subordinated
debentures to be redeemed and ending at the close of business on the day
of mailing of the relevant notice of redemption; or
. transfer or exchange any junior subordinated debentures so selected for
redemption, except, in the case of any junior subordinated debentures
being redeemed in part, any portion of the debenture not to be redeemed.
Any monies deposited with the debenture trustee or any paying agent, or then
held by us in trust, for the payment of the principal of (and premium, if any)
or interest on any junior subordinated debenture and remaining unclaimed for
two years after this principal (and premium, if any) or interest has become due
and payable shall, at our request, be repaid to us and the holder of such
junior subordinated debenture shall thereafter look, as a general unsecured
creditor, only to us for payment thereof.
Restrictions on Certain Payments
We have covenanted that if at any time (1) there has occurred any event (a)
of which we have actual knowledge that with the giving of notice or the lapse
of time, or both, would constitute an event of default under the junior
subordinated debentures and (b) that we have not taken reasonable steps to
cure, (2) if the junior subordinated debentures are held by Capital Trust, we
are in default with respect to our payment of any
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obligations under the guarantee, or (3) we have given notice of our election of
an extension period as provided in the indenture and have not rescinded such
notice, or such extension period, or any extension thereof, is continuing, then
we will not:
. make any payment of principal of or interest or premium, if any, on, or
repay, repurchase or redeem any of, our debt securities that rank
equally in all respects with, or junior in interest to, the junior
subordinated debentures, including our obligations associated with the
outstanding preferred securities;
. declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of our
capital stock; or
. redeem, purchase or acquire less than all of the junior subordinated
debentures or any of the preferred securities.
Modification of Indenture
From time to time, we as well as the debenture trustee may, without the
consent of any of the holders of the outstanding junior subordinated
debentures, amend, waive or supplement the provisions of the indenture to:
. cure ambiguities or correct the junior subordinated debentures in the
case of defects or inconsistencies in the provisions thereof, so long as
any such cure or correction does not adversely affect the interest of
the holders of the junior subordinated debentures in any material
respect; and
. qualify, or maintain the qualification of, the indenture under the Trust
Indenture Act.
The indenture contains provisions permitting the debenture trustee and us,
with the consent of the holders of not less than a majority in principal amount
of the junior subordinated debentures, to modify the indenture in a manner
affecting the rights of the holders of the junior subordinated debentures.
However, none of these modifications may be made, without the consent of the
holder of each outstanding junior subordinated debenture so affected that
would:
. change the stated maturity of the junior subordinated debentures, or
reduce the principal amount thereof, the rate of interest thereon or any
premium payable upon the redemption thereof, or change the place of
payment where, or the currency in which, any such amount is payable or
impair the right to institute suit for the enforcement of any junior
subordinated debenture; or
. reduce the percentage of principal amount of junior subordinated
debentures, the holders of which are required to consent to any
modification of the indenture.
Debenture Events of Default
The indenture provides that any one or more of the following described
events with respect to the junior subordinated debentures that has occurred and
is continuing constitute an "event of default" with respect to the junior
subordinated debentures:
. failure to pay any interest on the junior subordinated debentures when
due and continuance of this default for a period of 30 days (subject to
the deferral of any due date in the case of an extension period); or
. failure to pay any principal of or premium, if any, on the junior
subordinated debentures when due whether at the stated maturity, upon
redemption, by declaration or otherwise; or
. failure to observe or perform certain other covenants contained in the
indenture for 90 days after written notice of such failure to us from
the debenture trustee or the holders of at least 25% in aggregate
outstanding principal amount of the outstanding junior subordinated
debentures; or
. the occurrence of the appointment of a receiver or other similar
official in any liquidation, insolvency or similar proceeding with
respect to us or all or substantially all of our property; or a court or
other
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governmental agency shall enter a decree or order appointing a receiver
or similar official and such decree or order shall remain unstayed and
undischarged for a period of 60 days.
As described in "Description of Preferred Securities--Events of Default;
Notice," the occurrence of an event of default in respect of the junior
subordinated debentures will also constitute an event of default in respect of
the preferred securities and common securities.
The holders of at least a majority in aggregate principal amount of
outstanding junior subordinated debentures have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
debenture trustee. The debenture trustee or the holders of not less than 25% in
aggregate principal amount of outstanding junior subordinated debentures may
declare the principal due and payable immediately upon a event of default, and,
should the debenture trustee or such holders of junior subordinated debentures
fail to make such declaration, the holders of at least 25% in aggregate
liquidation amount of the outstanding preferred securities shall have such
right. The holders of a majority in aggregate principal amount of outstanding
junior subordinated debentures may annul such declaration and waive the default
if all defaults (other than the non-payment of the principal of junior
subordinated debentures which has become due solely by such acceleration) have
been cured or waived and a sum sufficient to pay all matured installments of
interest and principal due otherwise than by acceleration has been deposited
with the debenture trustee. Should the holders of junior subordinated
debentures fail to annul such declaration and waive such default, the holders
of a majority in aggregate liquidation amount of the outstanding preferred
securities shall have such right.
The holders of at least a majority in aggregate principal amount of the
outstanding junior subordinated debentures affected thereby may, on behalf of
the holders of all the junior subordinated debentures, waive any past default,
except a default in the payment of principal (or premium, if any) or interest
(unless this default has been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration has
been deposited with the debenture trustee) or a default in respect of a
covenant or provision which under the indenture cannot be modified or amended
without the consent of the holder of each outstanding junior subordinated
debenture affected by the default. See "--Modification of Junior Subordinated
Indenture." We are required to certify annually to the debenture trustee as to
whether or not we are in compliance with all the conditions and covenants
applicable to us under the indenture.
If an event of default occurs and is continuing, the property trustee will
have the right to declare the principal of and the interest on the junior
subordinated debentures, and any other amounts payable under the indenture, to
be due and payable and to enforce its other rights as a creditor with respect
to the junior subordinated debentures.
Enforcement of Certain Rights by Holders of Preferred Securities
If an event of default has occurred and is continuing and such event is
attributable to our failure to pay any amounts due and payable in respect of
the junior subordinated debentures, you, as a holder of preferred securities,
may institute a legal action against us for enforcement of payment to you of an
amount equal to the amount payable in respect of junior subordinated debentures
having a principal amount equal to the aggregate liquidation amount of the
preferred securities you hold. We may not amend the indenture to remove the
foregoing right to bring such legal action without your prior written consent.
We will have the right under the indenture to set-off any payment we make to
you in connection with such a legal action.
You are not able to exercise directly any remedies available to the holders
of the junior subordinated debentures except under the circumstances described
in the preceding paragraph. See "Description of Preferred Securities--Events of
Default; Notice."
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Consolidation, Merger, Sale of Assets and Other Transactions
The indenture provides that we may not consolidate with or merge into any
other entity or convey, transfer or lease our properties and assets
substantially as an entirety to any entity, and no entity may consolidate with
or merge into us or convey, transfer or lease its properties and assets
substantially as an entirety to us, unless:
. in the event we consolidate with or merge into another entity or convey
or transfer our properties and assets substantially as an entirety to
any entity, the successor entity is organized under the laws of the
United States or any state or the District of Columbia, and such
successor entity expressly assumes our obligations in respect of the
junior subordinated debentures;
. immediately after giving effect thereto, no event of default with
respect to the junior subordinated debentures, and no event which, after
notice or lapse of time or both, would constitute an event of default
with respect to the junior subordinated debentures, has occurred and is
continuing; and
. certain other conditions as prescribed in the indenture are satisfied.
Satisfaction and Discharge
The indenture will cease to be of further effect (except as to our
obligations to pay all other sums due pursuant to the indenture and provide the
officers' certificates and opinions of counsel described therein), and we will
deemed to have satisfied and discharged the indenture when:
. all junior subordinated debentures not previously delivered to the
debenture trustee for cancellation (1) have become due and payable, or
(2) will become due and payable at the stated maturity within one year;
and
. we deposit or cause to be deposited with the debenture trustee funds, in
trust, for the purpose and in an amount sufficient to pay and discharge
the entire indebtedness on the junior subordinated debentures not
previously delivered to the debenture trustee for cancellation, for the
principal (and premium, if any) and interest to the date of the deposit
or to the stated maturity.
Subordination
The junior subordinated debentures will be subordinate and junior in right
of payment, to the extent set forth in the indenture, to all of our Senior
Debt, Subordinated Debt and Additional Senior Obligations (as defined below).
If we default in the payment of any principal, premium, if any, or interest, if
any, or any other amount payable on any Senior Debt, Subordinated Debt and
Additional Senior Obligations when the same becomes due and payable, whether at
maturity or at a date fixed for redemption or by declaration of acceleration or
otherwise, then unless and until such default has been cured or waived or has
ceased to exist or all Senior Debt, Subordinated Debt and Additional Senior
Obligations have been paid, no direct or indirect payment (in cash, property,
securities, by set-off or otherwise) may be made or agreed to be made on the
junior subordinated debentures, or in respect of any redemption repayment,
retirement, purchase or other acquisition of any of the junior subordinated
debentures.
"Debt" means, with respect to any person, whether recourse is to all or a
portion of the assets of such Person and whether or not contingent:
. every obligation of such person for money borrowed;
. every obligation of such person evidenced by bonds, debentures, notes or
other similar instruments, including obligations incurred in connection
with the acquisition of property, assets or businesses;
. every reimbursement obligation of such person with respect to letters of
credit, bankers' acceptances or similar facilities issued for the
account of such person;
. every obligation of such person issued or assumed as the deferred
purchase price of property or services (but excluding trade accounts
payable or accrued liabilities arising in the ordinary course of
business);
. every capital lease obligation of such person; and
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. every obligation of the type referred to the preceding bullet points of
another person and all dividends of another person the payment of which,
in either case, such person has guaranteed or is responsible or liable,
directly or indirectly, as obligor or otherwise.
"Senior Debt" means, with respect to us, the principal of (and premium, if
any) and interest, if any (including interest accruing on or after the filing
of any petition in bankruptcy or for reorganization relating to us whether or
not such claim for post-petition interest is allowed in such proceeding), on
Debt, whether incurred on or prior to the date of the Indenture or thereafter
incurred, unless, in the instrument creating or evidencing the same or pursuant
to which the same is outstanding, it is provided that such obligations are not
superior in right of payment to the junior subordinated debentures or to other
Debt which is pari passu with, or subordinated to, the junior subordinated
debentures; provided, however, that Senior Debt will not be deemed to include:
. any Debt of us which when incurred and without respect to any election
under section 1111(b) of the United States Bankruptcy Code of 1978 was
without recourse to the Company;
. any of our Debt to any of our subsidiaries;
. any Debt to any of our employees;
. any Debt which by its terms is subordinated to trade accounts payable or
accrued liabilities arising in the ordinary course of business to the
extent that payments made to the holders of such Debt by the holders of
the junior subordinated debentures as a result of the subordination
provisions of the indenture would be greater than they otherwise would
have been as a result of any obligation of such holders to pay amounts
over to the obligees on such trade accounts payable or accrued
liabilities arising in the ordinary course of business as a result of
subordination provisions to which such Debt is subject; and
. Debt which constitutes subordinated debt.
"Subordinated Debt" means, with respect to us, the principal of (and
premium, if any) and interest, if any (including interest accruing on or after
the filing of any petition in bankruptcy or for reorganization relating to us
whether or not such claim for post-petition interest is allowed in such
proceeding), on Debt, whether incurred on or prior to the date of the indenture
or thereafter incurred, which is by its terms expressly provided to be junior
and subordinate to our other Debt (other than the junior subordinated
debentures).
"Additional Senior Obligations" means, with respect to us, all indebtedness,
whether incurred on or prior to the date of the indenture or thereafter
incurred, for claims in respect of derivative products such as interest and
foreign exchange rate contracts, commodity contracts and similar arrangements;
provided, however, that Additional Senior Obligations do not include claims in
respect of Senior Debt or Subordinated Debt or obligations which, by their
terms, are expressly stated to be not superior in right of payment to the
junior subordinated debentures or to rank pari passu in right of payment with
the junior subordinated debentures. "Claim," as used herein, has the meaning
assigned thereto in Section 101(4) of the United States Bankruptcy Code of
1978.
Information Concerning the Debenture Trustee
The debenture trustee, other than during the occurrence and continuance of a
default in the performance of our obligations under the junior subordinated
debentures, is under no obligation to exercise any of the powers vested in it
by the indenture at the request of any holder of junior subordinated
debentures, unless offered reasonable indemnity by such holder against the
costs, expenses and liabilities that might be incurred by the exercise of these
powers. The debenture trustee is not required to expend or risk its own funds
or otherwise incur personal financial liability in the performance of its
duties if the debenture trustee reasonably believes that repayment or adequate
indemnity is not reasonably assured to it.
Governing Law
The indenture and the junior subordinated debentures will be governed by and
construed in accordance with the laws of the State of Colorado.
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DESCRIPTION OF GUARANTEE
We will execute and deliver the guarantee concurrently with the issuance of
preferred securities by Capital Trust for your benefit. The guarantee trustee
will hold the guarantee for your benefit. This summary of certain provisions of
the guarantee is not complete. You should read the form of the guarantee, which
is filed as an exhibit to the registration statement of which this prospectus
is a part. A copy of the form of guarantee is available upon request from the
guarantee trustee.
General
We will irrevocably and unconditionally agree to pay in full on a
subordinated basis, to the extent set forth in the guarantee and described
herein, the guarantee payments described below to you, as and when due,
regardless of any defense, right of set-off or counterclaim that Capital Trust
may have or assert other than the defense of payment. The following payments
with respect to the preferred securities, to the extent not paid by or on
behalf of Capital Trust, will be subject to the guarantee:
. any accrued and unpaid distributions required to be paid on such
preferred securities, to the extent that Capital Trust has funds on hand
available therefor at such time;
. the redemption price with respect to any preferred securities called for
redemption, to the extent that Capital Trust has funds on hand available
for its payment at such time; and
. upon a voluntary or involuntary dissolution, termination, winding up or
liquidation of Capital Trust, unless the junior subordinated debentures
are distributed to you, the lesser of:
(a) the aggregate of the liquidation amount and all accumulated and
unpaid distributions to the date of payment, to the extent that
Capital Trust has funds on hand available for their payment; and
(b) the amount of assets of Capital Trust remaining available for
distribution to you on liquidation of Capital Trust.
Our obligation to make a guarantee payment may be satisfied by our direct
payment to you or by causing Capital Trust to pay these amounts to you.
The guarantee will be an irrevocable guarantee of payment on a subordinated
basis of Capital Trust's obligations under the preferred securities, but will
apply only to the extent that Capital Trust has funds sufficient to make such
payments, and is not a guarantee of collection.
If we do not make payments on the junior subordinated debentures held by
Capital Trust, Capital Trust will not be able to pay any amounts payable in
respect of the preferred securities and will not have funds legally available
for these payments. The guarantee will rank subordinate and junior in right of
payment to all of our senior indebtedness. See "--Status of the Guarantee." The
guarantee does not limit our ability to incur or issue other secured or
unsecured debt, including senior indebtedness, whether under the indenture or
any other indenture that we may enter into in the future or otherwise.
We have through the guarantee, the trust agreement, the junior subordinated
debentures and the indenture, taken together, fully, irrevocably and
unconditionally guaranteed all Capital Trust's obligations under the preferred
securities on a subordinated basis. No single document standing alone or
operating in conjunction with fewer than all the other documents constitutes
such guarantee. Only the combined operation of these documents has the effect
of providing a full, irrevocable and unconditional guarantee of Capital Trust's
obligations in respect of the preferred securities. See "Relationship Among the
Preferred Securities, the Junior Subordinated Debentures and the Guarantee."
Status of the Guarantee
The guarantee will constitute our unsecured obligation and will rank
subordinate and junior in right of payment to all of our Senior Debt,
Subordinated Debt and Additional Senior Obligations.
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The guarantee will constitute a guarantee of payment and not of collection.
This means that the guarantee trustee may institute a legal proceeding
directly against us as the guarantor to enforce its rights under the guarantee
without first instituting a legal proceeding against any other person or
entity. The guarantee will be held by the guarantee trustee for your benefit.
The guarantee will not be discharged except by payment of the guarantee
payments in full to the extent not paid by Capital Trust or distribution to
the holders of the preferred securities of the junior subordinated debentures.
Amendments and Assignment
Except with respect to any changes which do not materially adversely affect
your rights (in which case no consent will be required), the guarantee may not
be amended without the prior approval of the holders of not less than a
majority of the aggregate liquidation amount of the outstanding preferred
securities. The manner of obtaining any such approval is set forth under
"Description of Preferred securities--Voting Rights; Amendment of Trust
Agreement." All guarantees and agreements contained in the guarantee shall
bind our successors, assigns, receivers, trustees and representatives and
shall inure to your benefit and the benefit of all of the holders of the
preferred securities then outstanding.
Events of Default
An event of default under the guarantee will occur if we fail to perform
any of our payment or other obligations under the guarantee. The holders of
not less than a majority in aggregate liquidation amount of the outstanding
preferred securities have the right to direct the time method and place of
conducting any proceeding for any remedy available to the guarantee trustee in
respect of the guarantee or to direct the exercise of any trust or power
conferred upon the guarantee trustee under the guarantee.
You may institute a legal proceeding directly against us to enforce your
rights under the guarantee without first instituting a legal proceeding
against Capital Trust, the guarantee trustee or any other person or entity.
We are required, as guarantor, to certify annually to the guarantee trustee
whether or not we are in compliance with all the conditions and covenants
applicable to us under the guarantee.
Information Concerning the Guarantee Trustee
The guarantee trustee, other than during the occurrence and continuance of
a default by us in performance of the guarantee, undertakes to perform only
such duties as are specifically set forth in the guarantee and, after the
occurrence of an event of default with respect to the guarantee, must exercise
the same degree of care and skill as a prudent person would exercise or use in
the conduct of his or her own affairs. Subject to this provision, the
guarantee trustee is under no obligation to exercise any of the powers vested
in it by the guarantee at your request unless it is offered reasonable
indemnity against the costs, expenses and liabilities that it might incur in
the exercise of these powers.
Termination of the Guarantee
The guarantee will terminate and be of no further force and effect upon
full payment of the redemption price of the preferred securities, upon full
payment of the amounts payable with respect to the preferred securities upon
liquidation of Capital Trust or upon distribution of junior subordinated
debentures to you and the other holders of the preferred securities in
exchange for all of the preferred securities. The guarantee will continue to
be effective or will be reinstated, as the case may be, if at any time you
must restore payment of any sums paid to you under the preferred securities or
the guarantee.
Governing Law
The guarantee will be governed by and construed in accordance with the laws
of the State of Colorado.
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EXPENSE AGREEMENT
We will, pursuant to the agreement as to expenses and liabilities entered
into by us under the trust agreement, irrevocably and unconditionally guarantee
to each person or entity to whom Capital Trust becomes indebted or liable, the
full payment of any costs, expenses or liabilities of Capital Trust, other than
obligations of Capital Trust to pay to the holders of the preferred securities
or other similar interests in Capital Trust of the amounts due such holders
pursuant to the terms of the preferred securities or such other similar
interests, as the case may be. Third party creditors of Capital Trust may
proceed directly against us under the expense agreement, regardless of whether
such creditors had notice of the expense agreement.
RELATIONSHIP AMONG THE PREFERRED SECURITIES, THE JUNIOR
SUBORDINATED DEBENTURES, AND THE GUARANTEE
Full and Unconditional Guarantee
We have irrevocably guaranteed, on a subordinate basis, payments of
distributions and other amounts due on the preferred securities (to the extent
that Capital Trust has funds available for such payment) and to the extent set
forth under "Description of Guarantee." Taken together, our obligations under
the junior subordinated debentures, the indenture, the trust agreement and the
guarantee provide, in the aggregate, a full, irrevocable and unconditional
guarantee of payments of distributions and other amounts due on the preferred
securities. No single document standing alone or operating in conjunction with
fewer than all the other documents constitute such guarantee. It is only the
combined operation of these documents that has the effect of providing full,
irrevocable and unconditional guarantee of Capital Trust's obligations in
respect of the preferred securities.
If and to the extent that we do not make payments on the junior subordinated
debentures, Capital Trust will not have sufficient funds to pay distributions
or other amounts due on the preferred securities. The guarantee does not cover
payment of amounts payable with respect to the preferred securities when
Capital Trust does not have sufficient funds to pay such amounts. In such
event, your remedy is to institute a legal proceeding directly against us for
enforcement of our payment obligations under the junior subordinated debentures
having a principal amount equal to the liquidation amount of the preferred
securities you hold.
Our obligations under the junior subordinated debentures and the guarantee
are subordinate and junior in right of payment to all of our Senior Debt,
Subordinated Debt and Additional Senior Obligations.
Sufficiency of Payments
As long as we make the payments on the junior subordinated debentures when
they are due, such payments will be sufficient to cover distributions and other
payments distributable on the preferred securities, primarily because:
. the aggregate principal amount of the junior subordinated debentures
will be equal to the sum of the aggregate stated liquidation amount of
the preferred securities and common securities;
. the interest rate and interest and other payment dates on the junior
subordinated debentures will match the distribution rate, distribution
dates and other payment dates for the preferred securities;
. we will pay for any and all costs, expenses and liabilities of Capital
Trust except Capital Trust's obligations to you and the holders of the
common securities; and
. the trust agreement further provides that Capital Trust will not engage
in any activity that is not consistent with the limited purposes of
Capital Trust.
Notwithstanding anything to the contrary in the indenture, we have the right
to set-off any payment we are otherwise required to make thereunder against and
to the extent we have previously made, or are concurrently on the date of such
payment making, a payment under the guarantee.
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Enforcement Rights of Holders of Preferred Securities
You may institute a legal proceeding directly against us to enforce your
rights under the guarantee without first instituting a legal proceeding against
the guarantee trustee, Capital Trust or any other person or entity. See
"Description of Guarantee."
A default or event of default under any of our Senior Debt, Subordinated
Debt and Additional Senior Obligations would not constitute a default or event
of default in respect of the preferred securities. However, in the event of
payment defaults under, or acceleration of, our senior indebtedness, the
subordination provisions of the indenture provide that no payments may be made
in respect of the junior subordinated debentures until such senior indebtedness
has been paid in full or any payment default on senior indebtedness has been
cured or waived. See "Description of Junior Subordinated Debentures--
Subordination. "
Limited Purpose of Capital Trust
The preferred securities represent preferred undivided beneficial interests
in the assets of Capital Trust, and Capital Trust exists for the sole purpose
of issuing the preferred securities and common securities and investing the
proceeds from their issuance in the junior subordinated debentures. A principal
difference between your rights as a holder of preferred securities and a holder
of a junior subordinated debenture is that a holder of a junior subordinated
debenture is entitled to receive from us payments on junior subordinated
debentures held, while you are entitled to receive distributions or other
amounts distributable with respect to the preferred securities from Capital
Trust (or from us under the Guarantee) only if and to the extent Capital Trust
has funds available for the payment of such distributions.
Rights Upon Dissolution
Upon any voluntary or involuntary dissolution of Capital Trust, other than
any such dissolution involving the distribution of the junior subordinated
debentures, after satisfaction of liabilities to creditors of Capital Trust as
required by applicable law, you will be entitled to receive, out of assets held
by Capital Trust, the liquidation distribution in cash. See "Description of
Preferred Securities--Liquidation Distribution Upon Dissolution." If we are
voluntarily or involuntarily liquidated or declare bankruptcy, Capital Trust,
as registered holder of the junior subordinated debentures, will be our
subordinated creditor, subordinated and junior in right of payment to all our
Senior Debt, Subordinated Debt and Additional Senior Obligations as set forth
in the indenture, but entitled to receive payment in full of all amounts
payable with respect to the junior subordinated debentures before any of our
stockholders receive payments or distributions. Since we are the guarantor
under the guarantee and have agreed under the indenture to pay for all costs,
expenses and liabilities of Capital Trust (other than Capital Trust's
obligations to you and the holders of the common securities), your position as
a holder of the preferred securities and the position of a holder of such
junior subordinated debentures relative to other creditors and to our
stockholders in the event of our liquidation or bankruptcy are expected to be
substantially the same.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General
The preferred securities and payments on the preferred securities generally
are subject to taxation. Therefore, you should consider the tax consequences of
owning and receiving payments on the preferred securities before acquiring
them.
We have engaged Blackwell Sanders Peper Martin LLP, Kansas City, Missouri as
special tax counsel ("Tax Counsel") to review the following discussion. They
have given us their written legal opinion that the discussion correctly
describes the principal aspects of the U.S. federal tax treatment of beneficial
owners ("Owners") of preferred securities.
The following discussion is general and may not apply to your particular
circumstances for any of the following (or other) reasons:
. This summary is based on federal tax laws in effect as of the date of
this prospectus. Changes to any of these laws after this date may affect
the tax consequences described below.
. This summary discusses only preferred securities you acquire at original
issuance at the original offering price and hold as capital assets
(within the meaning of federal tax law). It does not discuss all of the
tax consequences that may be relevant to Owners who are subject to
special rules, such as banks, thrift institutions, real estate
investment trusts, regulated investment companies, insurance companies,
brokers and dealers in securities or currencies, certain securities
traders, tax-exempt organizations and certain other financial
institutions. This discussion also does not discuss tax consequences
that may be relevant to an Owner in light of the Owner's particular
circumstances, such as an Owner holding a preferred security as a
position in a straddle, hedge, conversion or other integrated
investment.
. This summary does not address:
(a) The income tax consequences to stockholders in, or partners or
beneficiaries of, a holder of preferred securities;
(b) the United States alternative minimum tax consequences of
purchasing, owning and disposing of preferred securities; or
(c) any state, local or foreign tax consequences of purchasing, owning
and disposing of preferred securities.
The authorities on which this summary is based are subject to various
interpretations, and the opinions of Tax Counsel are not binding on the
Internal Revenue Service (the "IRS") or the courts, either of which could take
a contrary position. Moreover, no rulings have been or will be sought from the
IRS with respect to the transaction described herein. Accordingly, we cannot
assure you that the IRS will not challenge the opinion expressed herein or that
a court would not sustain such a challenge.
We advise you to consult your own tax advisors regarding the tax
consequences of purchasing, owning and disposing of the preferred securities
because the following discussion may not apply to you.
U.S. Holders
In General. For purposes of the following discussion, a "U.S. Holder" means:
. a citizen or individual resident of the United States;
. a corporation or partnership created or organized in or under the laws
of the United States or any political subdivision thereof;
. an estate the income of which is includible in its gross income for U.S.
federal income tax purposes without regard to its source; or
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. a trust if a court within the United States is able to exercise primary
supervision over its administration and at least one United States
person has the authority to control all substantial decisions of the
trust.
Characterization of Capital Trust. Prior to the time that the preferred
securities are issued, Tax Counsel will give its opinion that (1) under then
current law and based on the representations, facts and assumptions set forth
in this prospectus, and (2) assuming full compliance with the terms of the
trust agreement (and other relevant documents), and (3) based on certain
assumption and qualifications referred to in the opinion, Capital Trust will be
characterized for United States federal income tax purposes as a grantor trust.
Accordingly, for United States federal income tax purposes, if you, as a U.S.
Holder, purchase a preferred security you will be considered the owner of an
undivided interest in the junior subordinated debentures owned by Capital
Trust, and you will be required to include all income or gain recognized for
United States federal income tax purposes with respect to your share of the
junior subordinated debentures on your income tax return.
Characterization of the Junior Subordinated Debentures. We intend to take
the position that, under current law, the junior subordinated debentures are
our debt for United States federal income tax purposes. We, along with Capital
Trust and you (by acceptance of a beneficial interest in a preferred security),
agree to treat the junior subordinated debentures as the Company's debt and the
preferred securities as evidence of a beneficial ownership interest in Capital
Trust. We cannot assure you, however, that such position will not be challenged
by the IRS or, if challenged, that a challenge will not be successful. The
remainder of this discussion assumes that the junior subordinated debentures
will be classified as our debt for United States federal income tax purposes.
Interest Income and Original Issue Discount. Under the terms of the junior
subordinated debentures, we have the ability to defer payments of interest from
time to time by extending the interest payment period for a period not
exceeding 20 consecutive quarterly periods, but not beyond the maturity of the
junior subordinated debentures. Treasury regulations provide that debt
instruments like the junior subordinated debentures will not be considered
issued with original issue discount ("OID") even if their issuer can defer
payments of interest if the likelihood of any deferral is "remote."
We have concluded, and this discussion assumes, that, as of the date of this
prospectus, the likelihood of our deferring payments of interest is "remote"
within the meaning of the applicable Treasury regulations. This conclusion is
based in part on the fact that exercising that option would prevent us from
declaring dividends on our common stock and would prevent us from making any
payments with respect to debt securities that rank equally with or junior to
the junior subordinated debentures. Therefore, the junior subordinated
debentures should not be treated as issued with OID by reason of our deferral
option. Rather, you will be taxed on stated interest on the junior subordinated
debentures when it is paid or accrued in accordance with your method of
accounting for income tax purposes. You should note, however, that no published
rulings or any other published authorities of the IRS have addressed this
issue. Accordingly, it is possible that the IRS could take a position contrary
to the interpretation described herein.
If we exercise our option to defer payments of interest, the junior
subordinated debentures would be treated as redeemed and reissued for OID
purposes. The sum of the remaining interest payments (and any de minimis OID)
on the junior subordinated debentures would thereafter be treated as OID. The
OID would accrue, and be includible in your taxable income, on an economic
accrual basis (regardless of your method of accounting for income tax purposes)
over the remaining term of the junior subordinated debentures (including any
period of interest deferral), without regard to the timing of payments under
the junior subordinated debentures. Subsequent distributions of interest on the
junior subordinated debentures generally would not be taxable. The amount of
OID that would accrue in any period would generally equal the amount of
interest that accrued on the junior subordinated debentures in that period at
the stated interest rate. Consequently, during any period of interest deferral,
you will include OID in gross income in advance of the receipt of cash, and if
you dispose of a preferred security prior to the record date for payment of
distributions on the junior
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subordinated debentures following that period, you will be subject to income
tax on OID accrued through the date of disposition (and not previously included
in income), but you will not receive cash from Capital Trust with respect to
the OID.
If the possibility of our exercising our option to defer payments of
interest is not remote, the junior subordinated debentures would be treated as
initially issued with OID in an amount equal to the aggregate stated interest
(plus any de minimis OID) over the term of the junior subordinated debentures.
You would include that OID in your taxable income, over the term of the junior
subordinated debentures, on an economic accrual basis.
Characterization of Income. Because the income underlying the preferred
securities will not be characterized as dividends for income tax purposes, if
you are a corporate holder of the preferred securities you will not be entitled
to a dividends-received deduction for any income you recognize with respect to
the preferred securities.
Market Discount and Bond Premium. Under certain circumstances, you may be
considered to have acquired your undivided interests in the junior subordinated
debentures with market discount or acquisition premium (as each phrase is
defined for United States federal income tax purposes).
Receipt of Junior Subordinated Debentures or Cash Upon Liquidation of
Capital Trust. Under certain circumstances described above (see "Description of
the Preferred Securities--Liquidation Distribution Upon Dissolution"), Capital
Trust may distribute the junior subordinated debentures to you in exchange for
your preferred securities and in liquidation of Capital Trust. Except as
discussed below, such a distribution would not be a taxable event for United
States federal income tax purposes, and you would have an aggregate adjusted
basis in the junior subordinated debentures you receive for United States
federal income tax purposes equal to your aggregate adjusted basis in your
preferred securities. For United States federal income tax purposes, your
holding period in the junior subordinated debentures you receive in such a
liquidation of Capital Trust would include the period during which you held the
preferred securities. If, however, the relevant event is a Tax Event, which
results in Capital Trust being treated as an association taxable as a
corporation, the distribution would likely constitute a taxable event to you
for United States federal income tax purposes.
Under certain circumstances described herein (see "Description of the
Preferred Securities"), we may redeem junior subordinated debentures for cash
and distribute the proceeds of such redemption to you in redemption of your
preferred securities. Such a redemption would be taxable for United States
federal income tax purposes, and you would recognize gain or loss as if you had
sold the preferred securities for cash. See "--Sales of Preferred Securities"
below.
Sales of Preferred Securities. If you sell preferred securities, you will
recognize gain or loss equal to the difference between your adjusted basis in
the preferred securities and the amount realized on the sale of such preferred
securities. Your adjusted basis in the preferred securities generally will be
the initial purchase price, increased by OID previously included (or currently
includible) in your gross income to the date of disposition, and decreased by
payments received on the preferred securities (other than any interest received
with respect to the period prior to the effective date we first exercise our
option to defer payments of interest). Any such gain or loss generally will be
capital gain or loss, and generally will be a long-term capital gain or loss if
you have held the preferred securities for more than one year prior to the date
of disposition.
If you dispose of your preferred securities between record dates for
payments of distributions thereon, you will be required to include accrued but
unpaid interest (or OID) on the junior subordinated debentures through the date
of disposition in your taxable income for United States federal income tax
purposes (notwithstanding that you may receive a separate payment from the
purchaser with respect to accrued interest). You may deduct that amount from
the sales proceeds received (including the separate payment, if any, with
respect to accrued interest) for the preferred securities (or as to OID only,
to add such amount to your adjusted tax basis in the preferred securities). To
the extent the selling price is less than your adjusted tax basis (which will
include
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accrued but unpaid OID if any), you will recognize a capital loss. Subject to
certain limited exceptions, capital losses cannot be applied to offset ordinary
income for United States federal income tax purposes.
Pending Tax Litigation Affecting the Preferred Securities
Last year, a taxpayer filed a petition in the United States Tax Court
contesting the IRS's disallowance of interest deductions that taxpayer claimed
in respect of securities issued in 1993 and 1994 that are, in some respects,
similar to the preferred securities. (Enron Corp. v. Commissioner, Docket No.
6149-98, filed April 1, 1998). An adverse decision by the Tax Court concerning
the deductibility of such interest may cause a Tax Event. Such a Tax Event
would give us the right to redeem the junior subordinated debentures. See
"Description of Junior Subordinated Debentures--Redemption" and "Description of
Preferred Securities--Liquidation Distribution Upon Dissolution."
Non-U.S. Holders
The following discussion applies to you if you are not a U.S. Holder as
described above.
Payments to you, as a non-U.S. Holder, on a preferred security will
generally not be subject to withholding of income tax, provided that:
. you did not (directly or indirectly, actually or constructively) own 10%
or more of the total combined voting power of all classes of our stock
entitled to vote;
. you are not a controlled foreign corporation that is related to us
through stock ownership; and
. either (a) you certify to Capital Trust or its agent under penalties of
perjury, that you are not a U.S. Holder and provide your name and
address, or (b) a securities clearing organization, bank or other
financial institution that holds customers' securities in the ordinary
course of its trade or business, and holds the preferred security in
such capacity, certifies to Capital Trust or its agent, under penalties
of perjury, that it requires and has received such a statement from you
or another financial institution between it and you in the chain of
ownership, and furnishes Capital Trust or its agent with a copy thereof.
As discussed above, it is possible that changes in the law affecting the
income tax consequences of the junior subordinated debentures could adversely
affect our ability to deduct interest payable on the junior subordinated
debentures. Such changes could also cause the junior subordinated debentures to
be classified as our equity (rather than our debt) for United States federal
income tax purposes. This might cause the income derived from the junior
subordinated debentures to be characterized as dividends, generally subject to
a 30% (or lower rate under an applicable income tax treaty) income tax (on a
withholding basis) when paid to you if you are not a U.S. Holder, rather than
as interest which, as discussed above, generally is exempt from income tax in
the hands of a person who is not a U.S. Holder.
You, as a non-U.S. Holder, will generally not be subject to withholding of
income tax on any gain realized upon the sale or other disposition of a
preferred security.
If you hold the preferred securities in connection with the active conduct
of a United States trade or business, you will be subject to income tax on all
income and gains recognized with respect to your proportionate share of the
junior subordinated debentures.
Information Reporting
In general, information reporting requirements will apply to payments made
on, and proceeds from the sale of, the preferred securities held by a
noncorporate U.S. Holder within the United States. In addition, payments made
on, and payments of the proceeds from the sale of, the preferred securities to
or through the United States office of a broker are subject to information
reporting unless you certify as to your non-U.S.
112
<PAGE>
Holder status or otherwise establish an exemption from information reporting
and backup withholding. See "--Backup Withholding." Taxable income on the
preferred securities for a calendar year should be reported to U.S. Holders on
the appropriate forms by the following January 31st.
Backup Withholding
Payments made on, and proceeds from the sale of, the preferred securities
may be subject to a "backup" withholding tax of 31% unless you comply with
certain identification or exemption requirements. Any amounts so withheld will
be allowed as a credit against your income tax liability, or refunded, provided
the required information is provided to the IRS.
The preceding discussion is only a summary and does not address the
consequences to particular persons of the purchase, ownership and disposition
of the preferred securities. Potential purchasers of the preferred securities
are urged to contact their own tax advisors to determine their particular tax
consequences.
CERTAIN ERISA CONSIDERATIONS
We and certain of our affiliates may each be considered a "party in
interest" within the meaning of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") or a "disqualified person" within the meaning of
Section 4975 of the Code with respect to many employee benefit plans that are
subject to ERISA. The purchase of the preferred securities by an employee
benefit plan that is subject to the fiduciary responsibility provisions of
ERISA or the prohibited transaction provisions of Section 4975(e)(1) of the
Code and with respect to which we, or any affiliate of ours, is a service
provider (or otherwise is a party in interest or a disqualified person), may
constitute or result in a prohibited transaction under ERISA or Section 4975 of
the Code, unless the preferred securities are acquired pursuant to and in
accordance with an applicable exemption. Any pension or other employee benefit
plan proposing to acquire any preferred securities should consult with its
counsel.
113
<PAGE>
UNDERWRITING
Under the terms and conditions of an underwriting agreement, the form of
which is filed as an exhibit to the registration statement containing this
prospectus, the underwriters named below, represented by Tucker Anthony Cleary
Gull and U.S. Bancorp Piper Jaffray Inc., have severally agreed to purchase
from Capital Trust the number of preferred securities set forth opposite their
respective names below:
<TABLE>
<CAPTION>
Number of
Underwriter Preferred Securities
- ----------- --------------------
<S> <C>
Tucker Anthony Cleary Gull.................................
U.S. Bancorp Piper Jaffray Inc.............................
---------
Total.................................................... 1,100,000
=========
</TABLE>
The underwriters are offering the preferred securities subject to their
acceptance of the securities from the Trust and subject to prior sale. The
underwriters are obligated to purchase all the preferred securities if any are
purchased. If an underwriter fails to purchase its share of preferred
securities, the purchase commitments of the other underwriters may be increased
or the underwriting agreement may be terminated.
The representatives propose initially to offer the preferred securities to
the public at the public offering price set forth on the cover page of this
prospectus, and to certain dealers at such price less a concession not in
excess of $ per preferred security. The underwriters may allow, and such
dealers may re-allow, a discount not in excess of $ per preferred security
to certain other dealers. After the initial public offering, the public
offering price, concession and discount may be changed.
Because Capital Trust will use proceeds of the sale of the preferred
securities to purchase the junior subordinated debentures from us, the
underwriting agreement provides that we will pay the underwriters as
compensation for their services $ per preferred security (or $ in the
aggregate if the over-allotment option is exercised).
Capital Trust has granted the Underwriters an option to purchase up to an
additional 165,000 preferred securities at the public offering price. This
option, which expires 45 days from the date of this prospectus, may be
exercised solely to cover over-allotments. If the underwriters exercise this
option, each of the underwriters will generally be obligated to purchase its
proportionate share of the additional preferred securities.
If the underwriters exercise their option to purchase additional preferred
securities, Capital Trust will issue and sell to us the amount of common
securities necessary for us to continue to hold common securities in an
aggregate liquidation amount equal to at least 3% of the total capital of
Capital Trust and we will issue and sell to Capital Trust junior subordinated
debentures in an aggregate principal amount equal to the total aggregate
liquidation amount of the additional preferred securities and common securities
being purchased.
In connection with the offering of the preferred securities, the
underwriters and any selling group members and their respective affiliates may
engage in transactions effected in accordance with Rule 104 of the SEC's
Regulation M that are intended to stabilize, maintain or otherwise affect the
market price of the preferred securities. These transactions may include over-
allotment transactions in which the underwriters create a short position for
their own account by selling more preferred securities than they are committed
to purchase from Capital Trust. In such case, to cover all or part of the short
position, the underwriters may exercise the over-allotment option described
above or may purchase preferred securities in the open market following the
initial offering of the preferred securities. The underwriters also may engage
in stabilizing transactions in which they bid for and purchase preferred
securities at a level above that which might otherwise prevail in the open
market for the purpose of preventing or retarding a decline in the market price
of the preferred securities. The underwriters may also reclaim any selling
concessions allowed to an underwriter or dealer if the underwriters repurchase
preferred securities distributed by that underwriter or dealer.
114
<PAGE>
Any of the foregoing transactions may result in the maintenance of a price
for the preferred securities at a level above that which might otherwise
prevail in the open market. Neither we nor any of the underwriters makes any
representation or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of the preferred
securities. The underwriters are not required to engage in any of the foregoing
activities and, if they do, they may end these activities at any time without
notice.
During a period of 180 days from the date of this prospectus, neither
Capital Trust nor we will, subject to certain exceptions, without the prior
written consent of the representatives, directly or indirectly sell, offer to
sell, grant any option for sale of, or otherwise dispose of, any preferred
securities, any security convertible into or exchangeable into or exchangeable
for preferred securities or junior subordinated debentures or any debt
securities substantially similar to the junior subordinated debentures or
equity securities substantially similar to the preferred securities, except in
this offering.
Because we expect the National Association of Securities Dealers, Inc. to
view the preferred securities as interests in a direct participation program,
we are making the offering of the preferred securities in compliance with the
applicable provisions of Rule 2810 of the NASD's Conduct Rules.
Before this offering there was no public market for the preferred
securities. We have applied for listing of the preferred securities on the
Nasdaq National Market under the trading symbol "MTXCP". The representatives
have advised Capital Trust that they currently intend to make a market in the
preferred securities after the commencement of trading on the Nasdaq National
Market. The representatives are not obligated to make a market in the preferred
securities, however, and may cease market making activities at any time. We
cannot give any assurance that an active or liquid trading market for the
preferred securities will develop or, if it does, that it will continue.
Capital Trust, the underwriters and we have agreed to indemnify one another
against, or contribute to payments that may be required to make in respect of,
certain liabilities, including liabilities under the Securities Act.
The parent company of U.S. Bancorp Piper Jaffray Inc. is U.S. Bancorp. U.S.
Bancorp provides financing to Matrix Financial under a warehouse line of credit
and to Matrix Bank under a bank stock loan.
LEGAL MATTERS
Certain matters of Delaware law relating to the validity of the preferred
securities, the enforceability of the trust agreement and the formation of
Capital Trust, will be passed upon by Morris, Nichols, Arsht & Tunnell, special
Delaware counsel to us and Capital Trust. Certain legal matters for us and
Capital Trust, including matters relating to United States federal income tax
considerations and the validity of the guarantee and the junior subordinated
debentures, will be passed upon for us and Capital Trust by Blackwell Sanders
Peper Martin LLP, Kansas City, Missouri, counsel to us and Capital Trust.
Certain legal matters will be passed upon for the Underwriters by Goodwin,
Procter & Hoar LLP, Boston, Massachusetts.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at December 31, 1998 and 1997, and for each of the three
years in the period ended December 31, 1998, as set forth in their report. We
have included our financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on
their authority as experts in accounting and auditing.
115
<PAGE>
AVAILABLE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act and file reports, proxy statements and other information with the SEC.
These reports, proxy statements and other information may be inspected and
copied at the public reference facilities maintained by the SEC at: Room 1024,
450 Fifth Street, N.W., Washington, DC 20549 and at the SEC's regional offices
at: 7 World Trade Center, 13th Floor, Suite 1300, New York, NY 10048 and Suite
1400, Citicorp Center, 500 West Madison Street, Chicago, IL 60661.
Copies of these material may also be obtained by mail from the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Washington, DC 20549 at
prescribed rates. If available, this information may also be accessed through
the SEC EDGAR system on the SEC home page on the Internet (http://www.sec.gov).
Our common stock is traded on the Nasdaq National Market. Our reports, proxy
statements and other information also may be inspected at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, DC 20006.
We have filed with the SEC a registration statement on Form S-1 pursuant to
the Securities Act with respect to the securities offered by this prospectus.
This prospectus does not contain all of the information in the registration
statement and the exhibits and schedules relating thereto as permitted by the
rules and regulations of the SEC. For further information pertaining to us and
the securities offered by this prospectus, we refer you to the registration
statement and the exhibits thereto. Items of information omitted from this
prospectus, but contained in the registration statement, may be obtained at the
prescribed rates or inspected without charge at the offices of the SEC set
forth above. Any statements contained herein concerning the provisions of any
document are not necessarily complete, and, in each instance, reference is made
to the copy of such document filed as an exhibit to the registration statement
or otherwise filed with the SEC. Each such statement is qualified in its
entirety by such reference.
No separate financial statements of Capital Trust have been included in this
prospectus. We do not consider that these financial statements would be
material to you because:
. all of the voting securities of Capital Trust will be owned by us, a
reporting company under the Securities Exchange Act;
. Capital Trust has no independent operations but exists for the sole
purpose of issuing securities representing undivided beneficial interest
in its assets and investing the proceeds in the junior subordinated
debentures issued by us; and
. our obligations described in this prospectus to provide certain
indemnities in respect of, and be responsible for certain costs,
expenses, debts and liabilities of, the Capital Trust under the
indenture and pursuant to the trust agreement, the guarantee, and the
junior subordinated debentures, taken together, constitute, in our
belief, a full and unconditional guarantee of payments due on the
preferred securities. See "Description of the Junior Subordinated
Debentures" and "Description of the Guarantee."
Capital Trust is not currently subject to the information reporting
requirements of the Securities Exchange Act. Capital Trust will become subject
to such requirements upon the effectiveness of the registration statement,
although it intends to seek and expects to receive an exemption therefrom.
116
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Consolidated Financial Statements of Matrix Bancorp, Inc.
<TABLE>
<S> <C>
Condensed Consolidated Balance Sheet--March 31, 1999 (unaudited).......... F-2
Condensed Consolidated Statements of Income--for the quarters ended March
31, 1999,
and 1998 (unaudited)..................................................... F-3
Condensed Consolidated Statements of Changes in Shareholders' Equity--for
the quarters ended March 31, 1999 and 1998 (unaudited)................... F-4
Condensed Consolidated Statements of Cash Flows--for the quarters ended
March 31, 1999 and 1998 (unaudited)...................................... F-5
Notes to Unaudited Condensed Consolidated Financial Statements............ F-6
Report of Independent Auditors............................................ F-10
Consolidated Balance Sheets--December 31, 1998 and 1997................... F-11
Consolidated Statements of Income--for the years ended December 31, 1998,
1997
and 1996................................................................. F-12
Consolidated Statements of Shareholders' Equity--for the years ended
December 31, 1998, 1997 and 1996......................................... F-13
Consolidated Statements of Cash Flows--for the years ended December 31,
1998, 1997
and 1996................................................................. F-14
Notes to Consolidated Financial Statements--December 31, 1998............. F-15
</TABLE>
F-1
<PAGE>
MATRIX BANCORP, INC.
Condensed Consolidated Balance Sheets
(Dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
March 31,
1999
---------
<S> <C>
Assets
Cash................................................................. $ 19,502
Interest-earning deposits............................................ 5,406
Loans held for sale, net............................................. 700,526
Loans held for investment, net....................................... 102,476
Mortgage servicing rights, net....................................... 67,437
Other receivables.................................................... 43,947
Federal Home Loan Bank of Dallas stock............................... 15,855
Premises and equipment, net.......................................... 10,714
Other assets......................................................... 30,656
--------
Total assets....................................................... $996,519
========
Liabilities and shareholders' equity
Liabilities:
Deposits........................................................... $543,954
Custodial escrow balances.......................................... 98,266
Drafts payable..................................................... 2,080
Payable for purchase of mortgage servicing rights.................. 9,469
Federal Home Loan Bank of Dallas borrowings........................ 113,000
Borrowed money..................................................... 169,849
Other liabilities.................................................. 6,298
Income taxes payable............................................... 1,734
--------
Total liabilities................................................ 944,650
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 6,724,911............................................. 1
Additional paid in capital......................................... 22,426
Retained earnings.................................................. 29,442
--------
Total shareholders' equity....................................... 51,869
--------
Total liabilities and shareholders' equity....................... $996,519
========
</TABLE>
See accompanying notes.
F-2
<PAGE>
MATRIX BANCORP, INC.
Condensed Consolidated Statements of Income
(Dollars in thousands except per share information)
(unaudited)
<TABLE>
<CAPTION>
Quarter Ended
March 31,
-------------------
1998 1999
--------- ---------
<S> <C> <C>
Interest income
Loans.................................................... $ 11,301 $ 17,238
Interest-earning deposits................................ 285 367
--------- ---------
Total interest income.................................... 11,586 17,605
Interest expense
Deposits................................................. 2,864 5,195
Borrowings............................................... 4,289 5,182
--------- ---------
Total interest expense................................... 7,153 10,377
--------- ---------
Net interest income before provision for loan and
valuation losses........................................ 4,433 7,228
Provision for loan and valuation losses.................. 450 675
--------- ---------
Net interest income.................................... 3,983 6,553
Noninterest income
Loan administration...................................... 3,743 5,293
Brokerage................................................ 1,672 1,672
Trust services........................................... 1,001 1,279
Gain on sale of loans.................................... 1,062 532
Gain on sale of mortgage servicing rights................ 837 --
Loan origination......................................... 1,482 1,954
Other.................................................... 1,122 3,476
--------- ---------
Total noninterest income............................... 10,919 14,206
Noninterest expense
Compensation and employee benefits....................... 5,127 6,869
Amortization of mortgage servicing rights................ 1,594 4,726
Occupancy and equipment.................................. 666 838
Postage and communication................................ 542 669
Professional fees........................................ 249 300
Data processing.......................................... 346 326
Other general and administrative......................... 2,854 3,131
--------- ---------
Total noninterest expense.............................. 11,378 16,859
--------- ---------
Income before income taxes............................. 3,524 3,900
Provision for income taxes............................... 1,339 1,395
--------- ---------
Net income............................................. $ 2,185 $ 2,505
========= =========
Net income per share....................................... $ .33 $ .37
========= =========
Net income per share assuming dilution..................... $ .32 $ .37
========= =========
Weighted average shares.................................... 6,704,026 6,724,693
========= =========
Weighted average shares assuming dilution.................. 6,841,679 6,848,571
========= =========
</TABLE>
See accompanying notes.
F-3
<PAGE>
MATRIX BANCORP, INC.
Condensed Consolidated Statements of Shareholders' Equity
(Dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Common Stock
----------------
Additional
Paid In Retained
Shares Amount Capital Earnings Total
--------- ------ ---------- -------- -------
<S> <C> <C> <C> <C> <C>
Quarter ended March 31, 1998
Balance at December 31, 1997...... 6,703,880 $ 1 $22,185 $18,424 $40,610
Exercise of stock options......... 200 -- 2 -- 2
Net income........................ -- -- -- 2,185 2,185
--------- --- ------- ------- -------
Balance at March 31, 1998......... 6,704,080 $ 1 $22,187 $20,609 $42,797
========= === ======= ======= =======
Quarter ended March 31, 1999
Balance at December 31, 1998...... 6,723,911 $ 1 $22,416 $26,937 $49,354
Exercise of stock options......... 1,000 -- 10 -- 10
Net income........................ -- -- -- 2,505 2,505
--------- --- ------- ------- -------
Balance at March 31, 1999......... 6,724,911 $ 1 $22,426 $29,442 $51,869
========= === ======= ======= =======
</TABLE>
See accompanying notes.
F-4
<PAGE>
MATRIX BANCORP, INC.
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Quarter Ended
March 31,
-------------------
1998 1999
--------- --------
<S> <C> <C>
Operating activities
Net income............................................... $ 2,185 $ 2,505
Adjustments to reconcile net income to net cash used by
operating activities:
Depreciation and amortization.......................... 421 1,351
Provision for loan and valuation losses................ 450 675
Amortization of mortgage servicing rights.............. 1,594 4,726
Gain on sale of loans.................................. (1,062) (532)
Gain on sale of mortgage servicing rights, net......... (837) --
Loans originated for sale, net of loans sold........... (27,582) 29,181
Loans purchased for sale............................... (110,674) (25,016)
Proceeds from sale of loans purchased for sale......... 64,580 40,041
Originated mortgage servicing rights, net.............. (651) (465)
Increase in other receivables and other assets......... (86) (21,643)
Decrease in other liabilities and income taxes
payable............................................... (689) (3,599)
--------- --------
Net cash provided (used) by operating activities......... (72,351) 27,224
Investing activities
Loans originated and purchased for investment............ (13,806) (20,202)
Principal repayments on loans............................ 29,339 17,267
Purchase of Federal Home Loan Bank of Dallas stock....... (449) (212)
Purchases of premises and equipment...................... (376) (880)
Acquisition of mortgage servicing rights................. (10,170) (16,185)
Proceeds from sale of mortgage servicing rights.......... 2,256 161
--------- --------
Net cash provided (used) by investing activities......... 6,794 (20,051)
Financing activities
Net increase in deposits................................. 91,321 53,438
Net increase in custodial escrow balances................ 21,927 1,442
Decrease in revolving lines and repurchase agreements,
net..................................................... (44,587) (77,550)
Repayments of notes payable.............................. (11,436) (12,965)
Proceeds from notes payable.............................. 23,822 26,619
Repayment of financing arrangements...................... (45) (44)
Proceeds from issuance of common stock related to
employee stock option plan.............................. 2 10
--------- --------
Net cash provided (used) by financing activities......... 81,004 (9,050)
--------- --------
Increase (decrease) in cash and cash equivalents......... 15,447 (1,877)
Cash and cash equivalents at beginning of period......... 9,633 26,785
--------- --------
Cash and cash equivalents at end of period............... $ 25,080 $ 24,908
========= ========
Supplemental disclosure of noncash activity
Payable for purchase of mortgage servicing rights........ $ 14,374 $ 9,469
========= ========
Drafts payable........................................... $ 11,063 $ 2,080
========= ========
Supplemental disclosure of cash flow information
Cash paid for interest expense........................... $ 7,703 $ 5,014
========= ========
Cash paid for income taxes............................... $ -- $ --
========= ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
MATRIX BANCORP, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 1999
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
Matrix Bancorp, Inc. (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of only normal
recurring accruals) necessary for a fair presentation have been included. For
further information, refer to the consolidated financial statements for the
year ended December 31, 1998 and footnotes thereto included elsewhere in this
prospectus.
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.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("Statement No. 133"), which is required to be adopted
in years beginning after June 15, 1999. Statement No. 133 permits early
adoption as of the beginning of any fiscal quarter after its issuance. The
Company expects to adopt the new Statement effective January 1, 2001. This
Statement requires the Company to recognize all derivatives on the balance
sheet at fair value. Derivatives that are not hedges must be adjusted to fair
value through income. If the derivative is a hedge, depending on the nature of
the hedge, changes in the fair value of derivatives will either be offset
against the change in fair value of the hedged assets, liabilities or firm
commitments through earnings or recognized in other comprehensive income until
the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
The Company has not yet determined what effect Statement No. 133 will have on
the earnings and financial position of the Company.
2. Net Income Per Share
The following table sets forth the computation of net income per share and
net income per share assuming dilution:
<TABLE>
<CAPTION>
Quarter Ended March 31,
-----------------------
1998 1999
----------- -----------
(Dollars in thousands)
(unaudited)
<S> <C> <C>
Numerator:
Net income available to common shareholders...... $ 2,185 $ 2,505
=========== ===========
Denominator:
Weighted average shares outstanding.............. 6,704,026 6,724,693
Effect of dilutive securities:
Common stock options........................... 118,034 109,424
Common stock warrants.......................... 19,619 14,454
----------- -----------
Dilutive potential common shares................. 137,653 123,878
----------- -----------
Denominator for net income per share assuming
dilution........................................ 6,841,679 6,848,571
=========== ===========
</TABLE>
F-6
<PAGE>
MATRIX BANCORP, INC.
Notes to Unaudited Condensed Consolidated Financial Statements--(Continued)
March 31, 1999
3. Mortgage Servicing Rights
The activity in the Mortgage Servicing Rights ("MSRs") is summarized as
follows:
<TABLE>
<CAPTION>
Quarter Ended
March 31, 1999
--------------
(unaudited)
(In thousands)
<S> <C>
Balance at beginning of period................................ $58,147
Purchases..................................................... 13,551
Originated, net............................................... 465
Amortization.................................................. (4,726)
Sales......................................................... --
-------
Balance at end of period...................................... $67,437
=======
</TABLE>
Accumulated amortization of MSRs aggregated approximately $31.6 million at
March 31, 1999. The Company's servicing portfolio (excluding subserviced loans)
was comprised of the following:
<TABLE>
<CAPTION>
March 31, 1999
------------------------
Principal
Number Balance
of Loans Outstanding
--------- -------------
(unaudited)
(Dollars in thousands)
<S> <C> <C>
FHLMC.............................................. 19,299 $ 1,227,490
Fannie Mae......................................... 40,500 2,539,418
GNMA............................................... 15,970 752,562
Other VA, FHA and conventional loans............... 17,516 1,677,274
--------- -------------
93,285 $ 6,196,744
========= =============
</TABLE>
The Company's custodial escrow balances shown in the accompanying condensed
consolidated balance sheet at March 31, 1999 pertain to escrowed payments of
taxes and insurance and the float on principal and interest payments on loans
serviced by the Company.
F-7
<PAGE>
MATRIX BANCORP, INC.
Notes to Unaudited Condensed Consolidated Financial Statements--(Continued)
March 31, 1999
4. Deposits
Deposit account balances are summarized as follows:
<TABLE>
<CAPTION>
March 31, 1999
--------------------------
Weighted
Average
Amount Percent Rate
-------- ------- --------
(unaudited)
(Dollars in thousands)
<S> <C> <C> <C>
Passbook accounts.................................. $ 2,830 0.52% 3.42%
NOW accounts....................................... 46,652 8.58 1.41
Money market accounts.............................. 234,641 43.13 3.28
-------- ------ ----
284,123 52.23 3.00
Certificate accounts............................... 259,831 47.77 5.22
-------- ------ ----
$543,954 100.00% 3.98%
======== ====== ====
</TABLE>
At March 31, 1999 brokered deposits accounted for approximately $129.0
million of the total certificate accounts shown above. Additionally, included
in money market accounts is approximately $107.1 million at March 31, 1999,
from a third party title company.
5. Commitments and Contingencies
At March 31, 1999, the Company had $98.0 million in pipeline and funded
loans offset with mandatory forward commitments of $79.9 million and
nonmandatory forward commitments of $5.8 million.
As of March 31, 1999, the Company had identified and hedged approximately
$548 million of its mortgage servicing portfolio using a program of exchange-
traded future and options. At March 31, 1999, the net realized deferred losses
and the unrealized deferred losses of the open positions was approximately $1.2
million.
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
Planned Unit Development Agreement ("Development Agreement") with the City of
Ft. Lupton ("City"). The Development Agreement is a residential and golf course
development agreement providing for the orderly planning, engineering and
development of a golf course and surrounding residential community. The City is
responsible for the development of the golf course and the Company is
responsible for the development of the surrounding residential lots and certain
offsite infrastructure. The Development Agreement sets forth a mandatory
obligation on the part of the Company to secure future payment to the City of
pledged golf course enhancement fees of $600,000, which are to be paid in no
more than $60,000 annual increments by the Company through 2007 if not covered
through permit fees paid by successor homebuilders. The Company has, to date,
posted a $300,000 letter of credit to secure those referenced enhancement fees.
The Company also entered into a development management agreement with a local
developer to complete the development of the land. At March 31, 1999 the total
basis of the land development was $4.2 million, and is classified in other
assets in the accompanying condensed consolidated balance sheets.
F-8
<PAGE>
MATRIX BANCORP, INC.
Notes to Unaudited Condensed Consolidated Financial Statements--(Continued)
March 31, 1999
6. Segment Information
<TABLE>
<CAPTION>
Servicing
Traditional Mortgage Brokerage and
Banking Banking Consulting
----------- -------- -------------
(In thousands)
(unaudited)
<S> <C> <C> <C>
Quarter ended March 31, 1998:
Revenues from external customers:
Interest income........................... $ 9,802 $ 1,778 $ --
Noninterest income........................ 2,693 4,663 2,017
Intersegment revenues....................... -- 325 159
Segment profit (loss)....................... 4,315 71 985
Quarter ended March 31, 1999:
Revenues from external customers:
Interest income........................... $15,571 $ 1,274 $ --
Noninterest income........................ 2,026 6,696 3,004
Intersegment revenues....................... 135 339 250
Segment profit (loss)....................... 7,040 (1,833) 1,178
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended
March 31, 1998 March 31, 1999
-------------- --------------
(In thousands)
(unaudited)
<S> <C> <C>
Profit:
Total profit for reportable segments............ $5,371 $ 6,385
Other profit (loss)............................. (1,763) (2,289)
Adjustment of intersegment profit (loss) in
consolidation.................................. (84) (196)
------ -------
Income before income taxes...................... $3,524 $ 3,900
====== =======
</TABLE>
F-9
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Matrix Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of Matrix
Bancorp, Inc. (Company) as of December 31, 1997 and 1998, and the related
consolidated statements of income, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1998. 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, 1997 and 1998, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
As discussed in Note 2 to the consolidated financial statements, in 1997 the
Company adopted Statement of Financial Accounting Standards No. 125, Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities.
Phoenix, Arizona
March 18, 1999
/s/ Ernst & Young LLP
F-10
<PAGE>
MATRIX BANCORP, INC.
Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31
-------------------
1997 1998
-------- ----------
<S> <C> <C>
ASSETS
Cash....................................................... $ 3,296 $ 18,665
Interest-earning deposits.................................. 6,337 8,120
Loans held for sale, net................................... 456,978 754,226
Loans held for investment, net............................. 54,394 94,222
Mortgage servicing rights, net............................. 36,440 58,147
Other receivables.......................................... 22,695 40,018
Federal Home Loan Bank of Dallas stock..................... 8,700 15,643
Premises and equipment, net................................ 9,012 10,328
Other assets............................................... 8,893 13,271
-------- ----------
Total assets............................................. $606,745 $1,012,640
======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits.................................................. $224,982 $ 490,516
Custodial escrow balances................................. 53,760 96,824
Drafts payable............................................ 7,506 5,423
Payable for purchase of mortgage servicing rights......... 8,660 12,103
Federal Home Loan Bank of Dallas borrowings............... 171,943 168,000
Borrowed money............................................ 89,909 178,789
Other liabilities......................................... 9,192 11,283
Income taxes payable...................................... 183 348
-------- ----------
Total liabilities........................................ 566,135 963,286
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 6,723,911 and 6,703,880
shares at December 31, 1998 and 1997, respectively....... 1 1
Additional paid in capital................................ 22,185 22,416
Retained earnings......................................... 18,424 26,937
-------- ----------
Total shareholders' equity............................... 40,610 49,354
-------- ----------
Total liabilities and shareholders' equity............... $606,745 $1,012,640
======== ==========
</TABLE>
See accompanying notes.
F-11
<PAGE>
MATRIX BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands except per share information)
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Interest income
Loans and mortgage-backed securities............ $ 16,084 $ 31,096 $ 59,452
Interest-earning deposits....................... 465 1,053 1,242
--------- --------- ---------
Total interest income........................... 16,549 32,149 60,694
Interest expense
Savings and time deposits....................... 3,292 5,098 11,789
Demand and money market deposits................ 468 3,278 4,432
FHLB borrowings................................. 2,039 3,435 8,554
Borrowed money.................................. 4,691 6,450 11,729
--------- --------- ---------
Total interest expense.......................... 10,490 18,261 36,504
--------- --------- ---------
Net interest income before provision for loan
and valuation losses........................... 6,059 13,888 24,190
Provision for loan and valuation losses......... 143 874 4,607
--------- --------- ---------
Net interest income............................. 5,916 13,014 19,583
Noninterest income
Loan administration............................. 8,827 16,007 17,411
Brokerage....................................... 4,364 3,921 7,054
Trust services.................................. 3,061 3,561 4,169
Gain on sale of loans and mortgage-backed
securities..................................... 3,121 2,441 3,108
Gain on sale of mortgage servicing rights....... 3,232 3,365 803
Loan origination................................ 1,809 4,694 5,677
Other........................................... 2,173 4,040 8,523
--------- --------- ---------
Total noninterest income........................ 26,587 38,029 46,745
Noninterest expense
Compensation and employee benefits.............. 12,722 14,724 22,194
Amortization of mortgage servicing rights....... 2,432 6,521 10,563
Occupancy and equipment......................... 1,776 2,132 3,059
Postage and communication....................... 1,214 1,522 2,393
Professional fees............................... 666 976 1,439
Data processing................................. 642 843 1,344
Losses related to recourse sales................ 787 1,237 --
Federal Deposit Insurance Corporation premiums.. 635 107 211
Other general and administrative................ 5,781 9,684 11,736
--------- --------- ---------
Total noninterest expense....................... 26,655 37,746 52,939
--------- --------- ---------
Income before income taxes...................... 5,848 13,297 13,389
Provision for income taxes...................... 2,278 5,159 4,876
--------- --------- ---------
Net income...................................... $ 3,570 $ 8,138 $ 8,513
========= ========= =========
Net income per common share..................... $ .69 $ 1.22 $ 1.27
========= ========= =========
Net income per common share--assuming dilution.. $ .68 $ 1.20 $ 1.24
========= ========= =========
Weighted average common shares.................. 5,034,788 6,681,269 6,704,991
========= ========= =========
Weighted average common shares--assuming
dilution....................................... 5,077,321 6,781,808 6,881,890
========= ========= =========
</TABLE>
See accompanying notes.
F-12
<PAGE>
MATRIX BANCORP, INC.
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, 1995... 4,668,531 $-- $ 3,769 $ 6,917 $10,686
Issuance of stock, net of
issuance costs of $1,934...... 2,012,500 1 18,190 -- 18,191
Cash dividends paid by pooled
company prior to merger....... -- -- -- (201) (201)
Capital contribution into
pooled company prior to
merger........................ -- -- 24 -- 24
Net income..................... -- -- -- 3,570 3,570
--------- ---- ------- ------- -------
Balance at December 31, 1996... 6,681,031 1 21,983 10,286 32,270
Issuance of stock related to
employee stock purchase plan
and options................... 22,849 -- 202 -- 202
Net income..................... -- -- -- 8,138 8,138
--------- ---- ------- ------- -------
Balance at December 31, 1997... 6,703,880 1 22,185 18,424 40,610
Issuance of stock related to
employee stock purchase plan
and options................... 20,031 -- 231 -- 231
Net income..................... -- -- -- 8,513 8,513
--------- ---- ------- ------- -------
Balance at December 31, 1998... 6,723,911 $ 1 $22,416 $26,937 $49,354
========= ==== ======= ======= =======
</TABLE>
See accompanying notes.
F-13
<PAGE>
MATRIX BANCORP, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Operating activities
Net income...................................... $ 3,570 $ 8,138 $ 8,513
Adjustments to reconcile net income to net cash
used by operating activities:
Depreciation and amortization.................. 1,106 1,382 2,519
Provision for loan and valuation losses........ 143 874 4,607
Amortization of mortgage servicing rights...... 2,432 6,521 10,563
Accretion of premium on deposits............... (7) -- --
Deferred income taxes.......................... (54) (2) 48
Gain on sale of loans and mortgage-backed
securities.................................... (3,121) (2,441) (3,108)
Gain on sale of mortgage servicing rights...... (3,232) (3,365) (803)
Losses related to recourse sales............... 787 1,237 --
Loans originated for sale, net of loans sold... 8,099 (18,800) (76,544)
Loans purchased for sale....................... (159,015) (493,693) (678,150)
Proceeds from sale of loans purchased for
sale.......................................... 57,147 198,010 319,430
Gain on sale of premises and equipment......... (78) -- --
Originated mortgage servicing rights, net...... (441) (818) 24
Increase in other receivables and other
assets........................................ (796) (13,279) (23,743)
Increase (decrease) in other liabilities and
income taxes payable.......................... (2,320) 2,832 2,256
-------- -------- --------
Net cash used by operating activities........... (95,780) (313,404) (434,388)
Investing activities
Loans originated and purchased for investment... (15,048) (56,793) (82,547)
Principal repayments on loans................... 22,982 73,908 176,520
Purchase of Federal Home Loan Bank of Dallas
stock.......................................... (917) (5,829) (6,943)
Purchases of premises and equipment............. (2,695) (2,295) (3,028)
Purchase of land under development.............. (1,431) -- --
Purchase of revenue anticipation warrants....... (818) -- --
Purchase of residential homes................... (1,003) -- --
Acquisition of mortgage servicing rights........ (10,410) (36,535) (31,388)
Proceeds from sale of mortgage servicing
rights......................................... 8,410 19,817 5,160
Proceeds from sale of available for sale
securities..................................... 21,548 -- --
-------- -------- --------
Net cash provided (used) by investing
activities..................................... 20,618 (7,727) 57,774
Financing activities
Net increase in deposits........................ 41,309 134,803 265,534
Net increase in custodial escrow balances....... 10,870 15,879 43,064
Increase in revolving lines and repurchase
agreements, net................................ 17,151 137,527 64,564
Repayments of notes payable..................... (13,923) (34,347) (64,539)
Proceeds from notes payable..................... 6,924 45,148 85,078
Proceeds from senior notes, net................. -- 19,100 --
Repayment of financing arrangements............. (564) (157) (166)
Dividends paid by pooled company prior to
merger......................................... (201) -- --
Capital contribution into pooled company prior
to merger...................................... 24 -- --
Proceeds from issuance of common stock related
to employee stock purchase plan and options.... 18,191 202 231
-------- -------- --------
Net cash provided by financing activities....... 79,781 318,155 393,766
-------- -------- --------
(Decrease) increase in cash and cash
equivalents.................................... 4,619 (2,976) 17,152
Cash and cash equivalents at beginning of the
year........................................... 7,990 12,609 9,633
-------- -------- --------
Cash and cash equivalents at end of the year.... $ 12,609 $ 9,633 $ 26,785
======== ======== ========
Supplemental disclosure of noncash activity
Payable for purchase of mortgage servicing
rights......................................... $ 8,044 $ 8,660 $ 12,103
======== ======== ========
Drafts payable.................................. $ 5,961 $ 7,506 $ 5,423
======== ======== ========
Supplemental disclosure of cash flow information
Cash paid for interest expense.................. $ 10,598 $ 17,379 $ 34,547
======== ======== ========
Cash paid for income taxes...................... $ 2,298 $ 6,019 $ 4,664
======== ======== ========
</TABLE>
See accompanying notes.
F-14
<PAGE>
MATRIX BANCORP, INC.
Notes to Consolidated Financial Statements
December 31, 1998
1. Organization
Matrix Bancorp, Inc. (Company) is a unitary thrift holding company that,
through its subsidiaries, is a diversified financial services company. In
December 1998, the Company changed its name to "Matrix Bancorp, Inc." from
Matrix Capital Corporation. The Company's operations are conducted primarily
through Matrix Capital Bank (Matrix Bank), Matrix Financial Services
Corporation (Matrix Financial), United Financial, Inc. (United Financial) and
The Vintage Group, Inc. (Vintage), all of which are wholly owned.
Matrix Bank, a federally chartered savings and loan association, serves its
local communities of Las Cruces, New Mexico and Phoenix, Arizona, by providing
personal and business depository services, offering residential and consumer
loans and providing, on a limited basis, commercial real estate loans.
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
primarily in the secondary market as well as through Matrix Financial's
wholesale loan origination offices in the Atlanta, Denver, Las Vegas and
Phoenix metropolitan areas.
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 and residential mortgage loans, 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.
Vintage's operations, which are located in Texas, consist of a nonbank trust
company specializing in the administration of self-directed qualified
retirement plans, individual retirement accounts, custodial and directed trust
accounts, and a NASD broker/dealer that provides services to individuals and
deferred contribution plans.
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.
Pooling of Interests Accounting
On February 5, 1997, the Company completed the merger of Vintage with the
issuance of 779,592 shares of the Company's common stock, which was accounted
for as a pooling of interests. The financial information
F-15
<PAGE>
MATRIX BANCORP, INC.
Notes to Consolidated Financial Statements--(Continued)
December 31, 1998
for all prior periods presented has been restated to present the combined
financial condition and results of operations of both companies as if the
merger of Vintage had been in effect for all periods presented.
The following table sets forth separate company financial information for
the year ended December 31, 1996. The separate company financial information
for Vintage for 1997 was not significant due to the pooling occurring on
February 5, 1997.
<TABLE>
<CAPTION>
Year Ended
December 31, 1996
------------------
Company Vintage
--------- --------
(In thousands)
<S> <C> <C>
Net interest income...................................... $ 5,859 $ 57
Total noninterest income................................. 22,471 4,116
Total noninterest expense................................ 22,951 3,704
Net income............................................... 3,273 297
</TABLE>
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 and a
valuation allowance, 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.
The Company includes in loans held for sale first mortgage loans which are
acquired under several purchase/repurchase facilities. The Company earns
interest income on all the facilities and on some of the facilities receives a
profit participation when the loans are subsequently sold which is included in
interest income.
Gains and losses on loan sales are determined based on the difference
between the allocated cost basis of the assets sold and the proceeds, which
includes the fair value of any assets or liabilities that are newly created as
a result of the transaction. 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, less
unearned discounts and premiums, deferred loan fees, loans in process and
allowance for loan losses.
Allowance for Loan Losses
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
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
F-16
<PAGE>
MATRIX BANCORP, INC.
Notes to Consolidated Financial Statements--(Continued)
December 31, 1998
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, loan type 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.
The Company considers a loan impaired when, based on current information and
events, it is probable that it will be unable to collect all amounts due
according to the contractual terms of the loan. The Company evaluates its
residential loans collectively due to their homogeneous nature. Accordingly,
potential impaired loans of the Company 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. When a loan
is identified as "impaired," accrual of interest ceases. The Company had no
impaired loans as of or for the years ended December 31, 1998, 1997 and 1996.
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, unless the interest is guaranteed through
recourse provisions. Previously accrued but unpaid interest is reversed and
charged against interest income, if not collectible, 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.
Mortgage Servicing Rights (MSRs)
Effective January 1, 1997, Statement of Financial Accounting Standards
(Statement) No. 122, Accounting for Mortgage Servicing Rights, was superseded
by Statement No. 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities. The Company adopted Statement No.
125 in 1997 and 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. MSRs are carried at the lower of
cost (allocated cost for OMSRs), less accumulated amortization, or fair value.
MSRs are amortized in proportion to and over the period of the estimated future
net servicing income.
The fair value of MSRs 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 MSRs by
product type and investor to reflect the predominant risk characteristics.
To determine the fair value of MSRs, the Company uses a valuation model that
calculates the present value of future cash flows to determine the fair value
of the MSRs. 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, 1998, no valuation
allowance was required and the fair value of the aggregate MSRs was
approximately $61,000,000.
F-17
<PAGE>
MATRIX BANCORP, INC.
Notes to Consolidated Financial Statements--(Continued)
December 31, 1998
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.
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 $916,000 and $1,242,000 at
December 31, 1998 and 1997, respectively. All of the Company's foreclosed
properties relate to residential real estate as of December 31, 1998.
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, 1998 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.
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.
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 servicing brokerage and
consulting services. Brokerage income is recognized when earned.
F-18
<PAGE>
MATRIX BANCORP, INC.
Notes to Consolidated Financial Statements--(Continued)
December 31, 1998
Trust Services Income
Trust services income represents fees earned related to services provided
for self-directed IRA, qualified benefit plans and escrow arrangements. Trust
services income is recognized when earned.
Gain on Sale of Servicing Rights
Gain on sale of servicing rights is recognized when substantially all the
risks and rewards inherent in owning the MSRs have been transferred to the
buyer, and any protection provisions retained by the Company are minor and can
be reasonably estimated.
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. The Company accounts for stock option grants in accordance with APB
Opinion No. 25, Accounting for Stock Issued to Employees, and, accordingly,
recognizes no compensation expense for stock option grants.
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.
Hedging of Mortgage Servicing Rights
The Company hedges a segment of its servicing portfolio using exchange
traded futures and options. A change in the market value of the futures
contract is deferred and amortized in proportion to and over the period of the
estimated future net servicing income of the hedged servicing portfolio. The
option premium or cost is amortized ratably over the period of the option. If
any of the hedged servicing portfolio is sold, then the realized and unrealized
gain or loss from the futures and options attributable to the portion sold is
included in the basis of the MSRs sold for purposes of calculating gain or loss
on sale. These realized and unrealized hedging gains and losses are considered
in the determination of the fair value of the MSRs.
Net Income Per Share
As of December 31, 1997, the Company adopted Statement No. 128, Earnings per
Share, and restated all prior period earnings per share (EPS) data, as
required. Statement No. 128 replaced the presentation of primary and fully
diluted EPS pursuant to APB Opinion No. 15, Earnings per Share, with the
presentation of basic and diluted EPS. Basic EPS, or net income per common
share, excludes dilution and is computed by dividing net
F-19
<PAGE>
MATRIX BANCORP, INC.
Notes to Consolidated Financial Statements--(Continued)
December 31, 1998
income by the weighted average number of common shares outstanding for the
period. Net income per common share assuming dilution is computed by dividing
net income by the weighted average number of common shares outstanding for the
period and the dilutive effect, if any, of stock options and warrants
outstanding for the period.
Comprehensive Income
The Company adopted Statement No. 130, Reporting Comprehensive Income, as of
January 1, 1998. Statement No. 130 establishes new rules for the reporting and
display of comprehensive income and its components, however, the adoption of
this Statement did not result in any change in presentation and had no impact
on the Company's net income or shareholders' equity. Statement No. 130 requires
reclassification of financial statements for earlier periods provided for
comparative purposes.
Segment Reporting
Effective January 1, 1998, the Company adopted Statement No. 131,
Disclosures about Segments of an Enterprise and Related Information. Statement
No. 131 superceded FASB Statement No. 14, Financial Reporting for Segments of a
Business Enterprise. Statement No. 131 establishes standards for the way that
public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. Statement
No. 131 also establishes standards for related disclosures about products and
services, geographic areas and major customers. The adoption of Statement No.
131 did not affect results of operations or financial position.
Impact of Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, which is
required to be adopted in years beginning after June 15, 1999. Statement No.
133 permits early adoption as of the beginning of any fiscal quarter after its
issuance. The Company expects to adopt the new Statement effective January 1,
2000. Statement No. 133 will require the Company to recognize all derivatives
on the balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge, depending
on the nature of the hedge, changes in the fair value of derivatives will
either be offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings.
The Company has not yet determined what effect Statement No. 133 will have
on the earnings and financial position of the Company.
Reclassifications
Certain amounts in the prior period financial statements have been
reclassified to conform to the current period presentation.
F-20
<PAGE>
MATRIX BANCORP, INC.
Notes to Consolidated Financial Statements--(Continued)
December 31, 1998
3. Net Income Per Share
The following table sets forth the computation of net income per share and
net income per share, assuming dilution:
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------
1996 1997 1998
--------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Numerator:
Net income................................ $ 3,570 $ 8,138 $ 8,513
Less: preferred stock dividends from
pooled company........................... (112) -- --
--------- --------- ---------
Net income available to common
shareholders............................. $ 3,458 $ 8,138 $ 8,513
========= ========= =========
Denominator:
Weighted average shares outstanding....... 5,034,788 6,681,269 6,704,991
Effect of dilutive securities:
Common stock options...................... 42,533 89,333 150,478
Common stock warrants..................... -- 11,206 26,421
--------- --------- ---------
Dilutive potential common shares............ 42,533 100,539 176,899
--------- --------- ---------
Denominator for net income per share,
assuming dilution.......................... 5,077,321 6,781,808 6,881,890
========= ========= =========
</TABLE>
4. Loans Receivable
Loans Held for Investment
Loans held for investment consist of the following:
<TABLE>
<CAPTION>
December 31
----------------
1997 1998
------- --------
(In thousands)
<S> <C> <C>
Residential loans.......................................... $ 7,523 $ 5,563
Multi-family, commercial real estate, and commercial....... 32,189 56,130
Construction loans......................................... 14,878 43,672
Consumer loans and other................................... 10,942 9,997
------- --------
65,532 115,362
Less:
Loans in process......................................... 9,784 18,941
Purchase discounts, net.................................. 236 212
Unearned fees on loans (excluding consumer).............. 220 524
Unearned fees on consumer loans.......................... 209 327
Allowance for loan losses................................ 689 1,136
------- --------
11,138 21,140
------- --------
$54,394 $ 94,222
======= ========
</TABLE>
F-21
<PAGE>
MATRIX BANCORP, INC.
Notes to Consolidated Financial Statements--(Continued)
December 31, 1998
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31
------------------------
1996 1997 1998
------- ------- --------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of period..................... $ 227 $ 270 $ 689
Provision for loan losses.......................... 34 554 1,178
Charge-offs........................................ (6) (166) (789)
Recoveries......................................... 15 31 58
------ ------ --------
Balance at end of period........................... $ 270 $ 689 $ 1,136
====== ====== ========
</TABLE>
Nonaccrual loans in the loans held for investment portfolio totaled
approximately $376,000 and $381,000 or 0.4 percent and 0.7 percent of the total
loans held for investment portfolio at December 31, 1998 and 1997,
respectively.
The Company had commitments to extend credit on consumer, commercial and
construction loans of approximately $40,768,000 at December 31, 1998.
Loans Held for Sale
Loans held for sale consist of the following as of:
<TABLE>
<CAPTION>
December 31
-----------------
1997 1998
-------- --------
(In thousands)
<S> <C> <C>
Residential loans......................................... $456,552 $730,247
Commercial loans, leases and other........................ 2,728 30,268
-------- --------
459,280 760,515
Less:
Purchase discounts, net................................. 1,235 3,715
Valuation allowance..................................... 1,067 2,574
-------- --------
2,302 6,289
-------- --------
$456,978 $754,226
======== ========
</TABLE>
Included in loans held for sale are approximately $49,459,000 and
$36,352,000 at December 31, 1998 and 1997, respectively, of first mortgage
loans which the Company has acquired under purchase/repurchase facilities with
several parties. The terms of the purchase/repurchase facilities vary with each
seller but include provisions which require the seller to repurchase the loans
within a defined period of time, provide, at the Company's option, the ability,
on short notice, to require the seller to repurchase the loans, or in some
cases, allow the seller to repurchase the loans.
F-22
<PAGE>
MATRIX BANCORP, INC.
Notes to Consolidated Financial Statements--(Continued)
December 31, 1998
Activity in the valuation allowance is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------
1996 1997 1998
------- -------- --------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of period.................. $ 716 $ 769 $ 1,067
Provision for valuation allowance............... 109 320 3,429
Charge-offs..................................... (64) (22) (1,922)
Recoveries...................................... 8 -- --
------ -------- --------
Balance at end of period........................ $ 769 $ 1,067 $ 2,574
====== ======== ========
</TABLE>
Nonaccrual loans related to the loans and direct financing leases held for
sale portfolio aggregated approximately $12,833,000 and $4,609,000 at December
31, 1998 and 1997, respectively. Interest income that would have been recorded
for all nonaccrual loans was approximately $524,000, $89,000 and $120,000
during the years ended December 31, 1998, 1997 and 1996, respectively.
During 1996, the Company 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.
During 1996, the Company purchased numerous automobile retail installment
contracts and sold approximately $18,500,000 of such contracts, subject to
certain recourse provisions. During 1997 and 1996, the Company was required to
repurchase approximately $4,000,000 of automobile installment contracts and
repossessed automobiles pursuant to the recourse provisions.
In December 1997, the Company sold the remaining automobile retail
installment contracts including its repossessed assets and the charged-off
accounts for $800,000, to an independent third party. The Company received
$260,000 in cash and financed the remaining balance, with recourse limited to
the assets sold. The Company realized a loss of approximately $54,000 upon the
sale. The Company recorded losses of $-0-, $1,237,000 and $787,000 for the
years ended December 31, 1998, 1997 and 1996, respectively, related to the
repurchase and ultimate disposition of the loans and automobiles.
5. Premises and Equipment
Premises and equipment consist of the following:
<TABLE>
<CAPTION>
December 31
---------------
1997 1998
------- -------
(In thousands)
<S> <C> <C>
Land....................................................... $ 684 $ 684
Buildings.................................................. 4,348 4,486
Leasehold improvements..................................... 460 1,116
Office furniture and equipment............................. 5,485 7,697
Other equipment............................................ 1,268 1,297
------- -------
12,245 15,280
Less: accumulated depreciation and amortization............ 3,233 4,952
------- -------
$ 9,012 $10,328
======= =======
</TABLE>
F-23
<PAGE>
MATRIX BANCORP, INC.
Notes to Consolidated Financial Statements--(Continued)
December 31, 1998
Included in occupancy and equipment expense is depreciation and amortization
expense of premises and equipment of approximately $1,712,000, $1,170,000 and
$828,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
6. Mortgage Servicing Rights
The activity in the MSRs is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------
1996 1997 1998
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year..................... $13,817 $23,680 $36,440
Purchases........................................ 17,142 37,151 34,831
Originated, net of OMSRs sold.................... 441 818 (24)
Amortization..................................... (2,432) (6,521) (10,563)
Transfer of MSRs to FHLMC........................ (110) -- --
Sales............................................ (5,178) (18,688) (2,537)
------- ------- -------
Balance at end of year........................... $23,680 $36,440 $58,147
======= ======= =======
</TABLE>
Accumulated amortization of MSRs aggregated approximately $26,921,000 and
$17,223,000 at December 31, 1998 and 1997, respectively.
The Company's servicing activity is diversified throughout 50 states with
concentrations at December 31, 1998 in California, Florida and Texas of
approximately 19.9 percent, 9.5 percent and 8.3 percent, respectively, based on
aggregate outstanding unpaid principal balances of the mortgage loans serviced.
As of December 31, 1998 and 1997, the Company subserviced loans for others of
approximately $9,900,000 and $239,000,000, respectively.
The Company's servicing portfolio (excluding subserviced loans) comprised
the following:
<TABLE>
<CAPTION>
December 31
-----------------------------------------
1997 1998
-------------------- --------------------
Principal Principal
Number Balance Number Balance
of Loans Outstanding of Loans Outstanding
-------- ----------- -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
FHLMC............................... 13,134 $ 715,513 19,227 $1,221,074
FNMA................................ 18,000 1,168,199 23,198 1,419,345
GNMA................................ 15,845 615,234 17,552 838,081
Other VA, FHA, and conventional
loans.............................. 14,538 849,116 18,369 1,879,229
------ ---------- ------ ----------
61,517 $3,348,062 78,346 $5,357,729
====== ========== ====== ==========
</TABLE>
The Company's custodial escrow balances shown in the accompanying
consolidated balance sheets at December 31, 1998 and 1997 pertain to escrowed
payments of taxes and insurance and the float on principal and interest
payments on loans serviced on behalf of others of approximately $6,111,000 and
$6,801,000, respectively, and owned by the Company of approximately $89,546,000
and $42,878,000, respectively. The Company also has custodial accounts on
deposit from other mortgage companies aggregating approximately $1,167,000 and
$4,081,000 at December 31, 1998 and 1997, respectively. The Companies custodial
accounts
F-24
<PAGE>
MATRIX BANCORP, INC.
Notes to Consolidated Financial Statements--(Continued)
December 31, 1998
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 taxes and insurance payments.
7. Deposits
Deposit account balances are summarized as follows:
<TABLE>
<CAPTION>
December 31
-----------------------------------------------------
1997 1998
-------------------------- --------------------------
Weighted Weighted
Average Average
Amount Percent Rate Amount Percent Rate
-------- ------- -------- -------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Passbook accounts........... $ 2,851 1.27% 3.95% $ 2,830 0.58% 3.58%
NOW accounts................ 26,382 11.73 1.62 42,178 8.60 1.63
Money market accounts....... 99,899 44.40 2.96 170,957 34.85 3.13
-------- ------ ---- -------- ------ ----
129,132 57.40 2.70 215,965 44.03 2.84
Certificate accounts........ 95,850 42.60 5.94 274,551 55.97 5.52
-------- ------ ---- -------- ------ ----
$224,982 100.00% 4.09% $490,516 100.00% 4.37%
======== ====== ==== ======== ====== ====
</TABLE>
Included in NOW accounts are noninterest-bearing DDA accounts of $22,672,000
and $9,218,000 for the years ended December 31, 1998 and 1997, respectively.
Contractual maturities of certificate accounts as of December 31, 1998:
<TABLE>
<CAPTION>
Under 12 12 to 36 36 to 60
months months months
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
4.00-4.99%........................................... $127,469 $ 294 $ --
5.00-5.99%........................................... 106,772 15,607 5,970
6.00-6.99%........................................... 7,210 4,620 6,481
7.00-7.99%........................................... -- 126 2
-------- ------- -------
$241,451 $20,647 $12,453
======== ======= =======
</TABLE>
Approximately $137,043,000 and $108,990,000 of assets under administration
by Vintage are included in NOW, DDA and money market accounts as of December
31, 1998 and 1997, respectively. Included in certificate accounts is
$148,676,000 of brokered deposits as of December 31, 1998. Additionally,
included in money market accounts is approximately $47,078,000 from a title
company.
Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31
------------------------
1996 1997 1998
------- ------- --------
(In thousands)
<S> <C> <C> <C>
Passbook accounts..................................... $ 82 $ 113 $ 102
NOW accounts.......................................... 63 795 522
Money market.......................................... 405 2,483 3,910
Certificates of deposit............................... 3,210 4,985 11,687
------- ------- --------
$ 3,760 $ 8,376 $ 16,221
======= ======= ========
</TABLE>
F-25
<PAGE>
MATRIX BANCORP, INC.
Notes to Consolidated Financial Statements--(Continued)
December 31, 1998
The aggregate amount of deposit accounts with a balance greater than
$100,000 (excluding brokered deposits) was approximately $17,622,000 and
$7,185,000 at December 31, 1998 and 1997, respectively.
8. Borrowed Money
Borrowed money is summarized as follows:
<TABLE>
<CAPTION>
December 31
---------------
1997 1998
------- -------
(In thousands)
<S> <C> <C>
Revolving Lines
$90,000,000 revolving warehouse loan agreement with banks,
secured by mortgage loans held for sale, interest at federal
funds rate plus 0.85-2.00 percent (6.01 percent average rate
at December 31, 1998); $17,843,000 available at December 31,
1998......................................................... $45,962 $72,157
$10,000,000 working capital facility with banks secured by
mortgage loans held for sale, MSRs, eligible servicing
advance receivables and eligible delinquent mortgage
receivables; interest at federal funds rate plus 1.5 percent
(6.18 percent at December 31, 1998); $5,521,000 available at
December 31, 1998............................................ 2,376 4,479
$11,500,000 revolving line of credit with a third party
financial institution, secured by common stock of Matrix
Bank; interest due monthly at prime; $1,200,000 available at
December 31, 1998............................................ -- 10,300
------- -------
Total revolving lines......................................... 48,338 86,936
Term Notes Payable
$45,000,000 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 January 31, 2003; interest at federal funds
rate plus 2.00 percent (6.68 percent at December 31, 1998);
$14,137,000 available at December 31, 1998................... 12,348 26,974
Senior notes, interest at 11.50 percent payable semiannually,
unsecured and maturing September 30, 2004.................... 20,000 20,000
Senior subordinated notes, interest at 14 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
$8,500,000 note payable to a third party financial institution
(revised bank stock loan) due in quarterly installments of
$303,591, plus interest, through June 30, 2001,
collateralized by the common stock of Matrix Bank; interest
at prime..................................................... 1,786 7,893
Notes payable to banks, secured by a deeds of trust on real
estate, interest at prime plus 1.0 percent................... 1,740 1,715
Other......................................................... 1,465 1,296
------- -------
Total term notes.............................................. 40,249 60,788
</TABLE>
F-26
<PAGE>
MATRIX BANCORP, INC.
Notes to Consolidated Financial Statements--(Continued)
December 31, 1998
<TABLE>
<CAPTION>
December 31
----------------
1997 1998
------- --------
(In thousands)
<S> <C> <C>
Other
Agreements with a bank to sell mortgage loans and direct
financing leases 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 and 8 percent on
direct lease financing. Total commitment amount of these
agreements is $25,000,000, with $9,933,000 available at
December 31, 1998. Increases are at the discretion of the
bank........................................................ $ -- $ 15,067
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....... 800 800
MSR financing, collateralized by MSR's with unpaid principal
balances of $42,900,000 at December 31, 1998................ 522 356
Agreement with bank to finance direct financing leases to
charter schools, interest is at 7 percent and can be
terminated at any time by either party. Total commitment
amount is at the option of the bank......................... -- 1,125
Financing agreement, collateralized by direct financing
leases, interest variable................................... -- 13,717
------- --------
Total other.................................................. 1,322 31,065
------- --------
Total borrowed money......................................... $89,909 $178,789
======= ========
</TABLE>
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.
As of December 31, 1998 the maturities of term notes payable during the next
five years and thereafter are as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
1999.......................................................... $ 9,531
2000.......................................................... 8,519
2001.......................................................... 12,192
2002.......................................................... 4,984
2003.......................................................... 4,959
Thereafter.................................................... 20,603
-------
$60,788
=======
</TABLE>
The Company must comply with certain financial and other covenants related
to the foregoing debt agreements including, among other things, the maintenance
of specific ratios, net worth and other amounts as defined in the credit
agreements limiting the Company's ability to declare dividends (and its
subsidiaries) or incur additional debt, and establishes requirements to
maintain certain capital levels in certain subsidiaries. These covenants
include requirements for the Company to maintain consolidated tangible capital
of not less than $44.4 million, maintain adjusted debt to shareholders' equity
of less than 4:1 and maintain the
F-27
<PAGE>
MATRIX BANCORP, INC.
Notes to Consolidated Financial Statements--(Continued)
December 31, 1998
requirements necessary such that Matrix Bank will not be classified as other
than "well capitalized," as defined. At December 31, 1998, the Company was in
compliance with these covenants.
On February 22, 1999, the Company renegotiated the revolving credit
facilities for its $90,000,000 warehouse loan agreement, the $10,000,000
working capital loan agreement and its $45,000,000 million servicing
acquisition loan agreement. With this renegotiation, the aggregate amount of
revolving warehouse lines of credit facilities was increased to $120,000,000
and the aggregate amount of the servicing acquisition facility and the
aggregate amount of the working capital facility were unchanged. The new credit
facility agreement requires Matrix Financial to maintain, among other things,
(i) total shareholder's equity of at least $13,000,000 plus 90 percent of
capital contributed after January 1, 1999, plus 90 percent of cumulative
quarterly net income, (ii) adjusted net worth, as defined, of at least
$25,000,000, (iii) a servicing portfolio of at least $4,000,000,000, (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, (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, (vii) a ratio of outstanding term-line
borrowings outstanding to adjusted net worth of no more than 2.5 to 1.0 and
(viii) principal debt of working capital borrowings and term line borrowings of
no more than the lesser of 95 percent of the appraised value of the mortgage
servicing portfolio or 1.25 percent of the unpaid principal balance of the
mortgage servicing portfolio.
Direct Financing Leases Financing Agreement
During 1998, the Company placed tax-exempt direct financing leases it
originated to charter schools into a partnership trust, USBI, Trust Series 1998
(Trust). The Trust then issued Class "A" Certificates and Class "B"
Certificates, with the Class "A" Certificates being sold under a private
placement at a price of par.
The "A" Certificates are guaranteed by a letter of credit issued by the
Guarantor, which is a third party investment bank (Investment Bank) and the
underlying leases. The "A" Certificates interest rate may be determined weekly,
monthly or for a term for up to one year. The interest rate and the term of the
interest rate are determined by the Remarking Agent, which is also the
Investment Bank. Generally, the Trust is short-term in nature with an average
life of one year or less.
The "B" Certificates are owned in part by the Company and in part by the
Investment Bank. The interest rate paid on the "A" Certificates and the "B"
Certificates owned by the Investment Bank is considered the Company's financing
cost. The approximate cost of the financing at December 31, 1998 was 6.88
percent. The interest that the Company receives through its part ownership of
the "B" Certificates is tax-exempt.
Although the Investment Bank acts as Guarantor to the "A" Certificates, the
Company provides full recourse to the Investment Bank in all cases of loss or
default. Due to the nature of the recourse and the ability of the "A"
Certificate holders to put the certificates to the Trust, the transaction has
been treated as a financing.
9. Federal Home Loan Bank of Dallas Borrowings
Federal Home Loan Bank of Dallas (FHLB) borrowings aggregated $168,000,000
and $171,943,000 at December 31, 1998 and 1997, respectively. Advances of
$121,000,000 bear interest at rates which adjust daily and are based on the
mortgage repo rate. Advances of $47,000,000 at December 31, 1998, were borrowed
under a Short Option Advance (SOA) Agreement with the FHLB. These SOA
borrowings have a term of ten
F-28
<PAGE>
MATRIX BANCORP, INC.
Notes to Consolidated Financial Statements--(Continued)
December 31, 1998
years, but are callable by the FHLB beginning after a six month or one year
lock-out period depending on the particular SOA borrowing. After the expiration
of the lock-out period, the SOA borrowings are callable at three month
intervals. If the FHLB exercises its call option on a SOA borrowing, the FHLB
is required to offer replacement funding to the Company at a market rate of
interest for the remaining term of the SOA borrowing. The interest rates on the
SOA borrowings ranged from 4.85 percent to 4.94 percent at December 31, 1998
and their possible call dates varied from January 15, 1999 to April 14, 1999.
Additionally, under the terms of the SOA Agreement, the Company is not
permitted to prepay or otherwise retire a callable SOA borrowing prior to the
final maturity date. All advances are secured by first mortgage loans of Matrix
Bank and all of its FHLB stock.
Matrix Bank has a commitment from the FHLB for advances of approximately
$310,700,000 at December 31, 1998. 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 FHLB. However, in 1999, Matrix Bank has been notified that it
will be placed on full blanket status, which will be phased-in during 1999 by
25 percent at each quarter end. Management believes that this decision will not
affect Matrix Bank's borrowing capabilities from the FHLB, but will impact
where the collateral that secures the FHLB borrowings will be held.
10. Income Taxes
The income tax provision consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------
1996 1997 1998
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Current
Federal.......................................... $ 1,871 $ 4,108 $ 3,837
State............................................ 461 1,053 991
Deferred
Federal.......................................... (42) (2) 42
State............................................ (12) -- 6
------- ------- -------
$ 2,278 $ 5,159 $ 4,876
======= ======= =======
</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
-------------------------
1996 1997 1998
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Expected income tax provision..................... $ 1,988 $ 4,521 $ 4,552
Effect of federal tax brackets.................... -- -- 13
State income taxes................................ 296 694 660
Other............................................. (6) (56) (349)
------- ------- -------
$ 2,278 $ 5,159 $ 4,876
======= ======= =======
</TABLE>
F-29
<PAGE>
MATRIX BANCORP, INC.
Notes to Consolidated Financial Statements--(Continued)
December 31, 1998
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
----------------
1997 1998
------- -------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Allowance for losses..................................... $ 475 $ 1,383
Discounts and premiums................................... 106 144
Amortization of servicing rights......................... 156 --
Deferred fees............................................ 328 718
Delinquent interest...................................... 52 215
Other.................................................... 6 30
------- -------
Total deferred tax assets.................................. 1,123 2,490
Deferred tax liabilities:
Gain on sale of loans.................................... (732) (931)
Amortization of servicing rights......................... -- (1,025)
Depreciation............................................. (335) (526)
------- -------
Total deferred tax liabilities............................. (1,067) (2,482)
------- -------
Net deferred tax asset..................................... $ 56 $ 8
======= =======
</TABLE>
11. 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 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.
Quantitative measures established by regulation to ensure capital adequacy
require Matrix Bank to maintain minimum amounts and ratios (set forth in the
following table) 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, 1998 and 1997,
that Matrix Bank meets all capital adequacy requirements to which it is
subject.
As of December 31, 1998, 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 have been no conditions or events since
that notification that management believes have changed the institution's
category.
F-30
<PAGE>
MATRIX BANCORP, INC.
Notes to Consolidated Financial Statements--(Continued)
December 31, 1998
<TABLE>
<CAPTION>
For Capital
Actual Adequacy Purposes
------------- ----------------------------------------------------
Amount Ratio Amount Ratio
------- ----- --------------------------- ------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
As of December
31, 1998
Total Capital
(to Risk
Weighted
Assets)........ $54,148 11.7% (greater than or =) $36,938 (greater than or =) 8.0%
Core Capital
(to Adjusted
Tangible
Assets)........ 51,163 6.2% (greater than or =) $32,828 (greater than or =) 4.0%
Tangible Capital
(to Tangible
Assets)........ 51,163 6.2% (greater than or =) $12,310 (greater than or =) 1.5%
Tier I Capital
(to Risk
Weighted
Assets)........ 51,163 11.1% N/A
As of December
31, 1997
Total Capital
(to Risk
Weighted
Assets)........ 29,714 10.8% (greater than or =) $21,969 (greater than or =) 8.0%
Core Capital
(to Adjusted
Tangible
Assets)........ 27,958 5.7% (greater than or =) $19,498 (greater than or =) 4.0%
Tangible Capital
(to Tangible
Assets)........ 27,958 5.7% (greater than or =) $ 7,312 (greater than or =) 1.5%
Tier I Capital
(to Risk
Weighted
Assets)........ 27,958 10.2% N/A
<CAPTION>
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
-----------------------------------------------------
Amount Ratio
--------------------------- -------------------------
<S> <C> <C>
As of December
31, 1998
Total Capital
(to Risk
Weighted
Assets)........ (greater than or =) $46,173 (greater than or =) 10.0%
Core Capital
(to Adjusted
Tangible
Assets)........ (greater than or =) $41,035 (greater than or =) 5.0%
Tangible Capital
(to Tangible
Assets)........ N/A
Tier I Capital
(to Risk
Weighted
Assets)........ (greater than or =) $27,704 (greater than or =) 6.0%
As of December
31, 1997
Total Capital
(to Risk
Weighted
Assets)........ (greater than or =) $27,462 (greater than or =) 10.0%
Core Capital
(to Adjusted
Tangible
Assets)........ (greater than or =) $24,372 (greater than or =) 5.0%
Tangible Capital
(to Tangible
Assets)........ N/A
Tier I Capital
(to Risk
Weighted
Assets)........ (greater than or =) $16,477 (greater than or =) 6.0%
</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 $6,860,000 and $6,897,000 in 1998 and 1997,
respectively.
Matrix Bank is required by Federal regulations to maintain a minimum level
of liquid assets of four percent. Matrix Bank exceeded the Federal requirement
at December 31, 1998 and 1997, 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 $3,089,000 at December 31, 1998 and $2,587,000 at December 31, 1997.
12. 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 6,723,911, 6,703,880 and
6,681,031 shares of common stock outstanding at December 31, 1998, 1997 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.
F-31
<PAGE>
MATRIX BANCORP, INC.
Notes to Consolidated Financial Statements--(Continued)
December 31, 1998
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 APB Opinion No. 25, Accounting for Stock
Issued to Employees and related interpretations in accounting for its employee
stock options because, as discussed below, the alternative fair value
accounting provided for under 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 Opinion No. 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.
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 No. 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 1998, 1997 and 1996, respectively: risk-free interest rates of
5.4 percent, 5.7 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, .38 and .39: and a weighted-average expected life of the option of four
years.
F-32
<PAGE>
MATRIX BANCORP, INC.
Notes to Consolidated Financial Statements--(Continued)
December 31, 1998
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.
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:
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------
1996 1997 1998
--------- --------- ---------
(Dollars in thousands except
per share data)
<S> <C> <C> <C>
Pro forma net income............................. $ 3,534 $ 7,960 $ 8,256
Pro forma earnings per share:
Basic.......................................... 0.67 1.19 1.23
Diluted........................................ 0.67 1.17 1.20
</TABLE>
A summary of the Company's stock option activity, and related information
for the years ended December 31 follows:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------------------------------
1996 1997 1998
---------------------- ----------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Options Exercise Price Options Exercise Price Options Exercise Price
------- -------------- ------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning
of year................ 79,500 $5.13 209,100 $ 8.15 330,150 $10.55
Granted................. 129,600 10.00 149,500 14.12 63,000 12.96
Exercised............... -- -- (2,100) 10.00 (1,725) 12.25
Forfeited............... -- -- (26,350) 11.93 (3,725) 14.00
------- ------- -------
Outstanding, end of
year................... 209,100 8.15 330,150 10.55 387,700 10.90
======= ======= =======
Exercisable at end of
year................... 87,000 5.55 117,700 6.75 167,350 8.49
Weighted average fair
value of options
granted during the
year................... $ 4.06 $ 6.67 $ 6.03
</TABLE>
Options outstanding at December 31, 1998 have exercise prices ranging from
$5.13 to $26.50 per share, with a weighted average exercise price of $10.90 per
share, as outlined in the following table:
<TABLE>
<CAPTION>
Weighted Average Weighted Average Weighted Average
Range of Exercise Number of Options Exercise Price Remaining Number of Options Exercise Price
Prices Outstanding Per Share Contractual Life Exercisable Per Share
----------------- ----------------- ---------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
$5.13................... 79,500 $ 5.13 6.00 79,500 $5.13
8.13.................... 25,000 8.13 9.79 -- --
10.00................... 110,700 10.00 7.83 59,850 10.00
10.38-13.88............. 74,000 13.20 8.22 14,000 13.17
14.25-17.25............. 95,500 15.20 8.56 12,500 15.17
26.50................... 3,000 26.50 9.33 1,500 26.50
------- ------ ---- ------- -----
387,700 $10.90 7.85 167,350 $8.49
======= ====== ==== ======= =====
</TABLE>
F-33
<PAGE>
MATRIX BANCORP, INC.
Notes to Consolidated Financial Statements--(Continued)
December 31, 1998
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, 1998 and
1997.
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.
Employee Stock Purchase Plan
In September 1996, the board of directors and shareholders adopted the
Matrix Bancorp, Inc. 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.
13. Commitments, Contingencies and Related Party Transactions
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, 1998 are approximately as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
1999.......................................................... $ 770
2000.......................................................... 692
2001.......................................................... 599
2002.......................................................... 384
2003.......................................................... 22
------
$2,467
======
</TABLE>
Total rent expense aggregated approximately $955,000, $631,000 and $541,000
for the years ended December 31, 1998, 1997 and 1996, respectively.
Hedging of Pipeline
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, 1998, the Company had $133,724,000 in Pipeline and funded loans offset with
mandatory forward commitments of $110,006,000 and nonmandatory forward
commitments of $10,057,000. At December 31, 1997, the Company had $72,803,000
in Pipeline and funded loans offset with mandatory forward commitments of
$45,622,000 and nonmandatory forward commitments of $9,070,000. 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.
F-34
<PAGE>
MATRIX BANCORP, INC.
Notes to Consolidated Financial Statements--(Continued)
December 31, 1998
Hedging of MSRs
Ownership of MSRs exposes the Company to impairment of its value in certain
interest rate environments. The incidence of prepayment of a mortgage loan
increases during periods of declining interest rates as the homeowner seeks to
refinance the loan to a lower interest rate. If the level of prepayment on
segments of the Company's mortgage servicing portfolio achieves a level higher
than projected by the Company for an extended period of time, then an
impairment in the associated basis in the MSRs may occur. To mitigate this risk
of impairment due to declining interest rates, the Company hedged a segment of
its mortgage servicing portfolio beginning in September 1997. As of December
31, 1998, the Company had identified and hedged approximately $674 million of
its mortgage servicing portfolio using a program of exchange traded futures
and options.
At December 31, 1998, the Company had the following open positions:
<TABLE>
<CAPTION>
Open Positions
Expiration (No. of Notional Fair Value by
Date Contracts) Amount Contract
------------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
Ten year Treasury Note
futures................ March 1999 205 $20,500,000 $ (42,656)
Ten year Treasury Note
put options............ February 1999 188 18,800,000 (185,782)
Ten year Treasury Note
call options........... February 1999 157 15,700,000 112,219
</TABLE>
During 1997, the Company closed a portion of its hedge positions which
resulted in a realized gain of approximately $250,000 being recognized in
connection with the sale of a portion of the hedged servicing portfolio. At
December 31, 1998 the net realized deferred gains and the unrealized deferred
losses of the open positions was approximately $420,000.
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
Planned Unit Development Agreement (Development Agreement) with the City of Ft.
Lupton (City). The Development Agreement is a residential and golf course
Development Agreement providing for the orderly planning, engineering and
development of a golf course and surrounding residential community. The City is
responsible for the development of the golf course and the Company is
responsible for the development of the surrounding residential lots and certain
offsite infrastructure (estimated at $1,300,000 as of December 31, 1998). The
Development Agreement also provides for the rebate of certain development fees,
infrastructure fees and storm drainage fees from the City to the Company
(estimated at $1,635,000 as of December 31, 1998).
The Development Agreement sets forth a mandatory obligation on the part of
the Company to secure future payment to the City of pledged Golf Course
Enhancement Fees of $600,000. These pledged Enhancement Fees require successor
homebuilders to pay the City a $2,000 fee with the issuance of each building
permit. In the event that less than thirty (30) permits are issued per year,
the Company is obligated to pay the balance of $60,000 in assessment fees per
year beginning in the year 1998 through the year 2007. The Company, has to
date, posted a $300,000 letter of credit to secure those referenced Enhancement
Fees.
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 plus the preferred
rate of return has been paid, the remaining profits are split equally. As of
December 31, 1998 and 1997, the Company has included in its basis in the
development $197,000 and $118,000, respectively, in capitalized interest costs.
At December 31, 1998 and 1997, the total basis of the land development is
$4,055,000 and $2,835,000, respectively, and is classified in other assets in
the accompanying consolidated balance sheets.
F-35
<PAGE>
MATRIX BANCORP, INC.
Notes to Consolidated Financial Statements--(Continued)
December 31, 1998
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
The Company is a defendant in a lawsuit that was commenced on or about May
23, 1997 in which the plaintiff-buyer alleges that the Company, as broker for
the seller, made false representations regarding the GNMA certification of
certain mortgage pools the servicing rights of which were offered for sale in a
written offering. The plaintiff further alleges that it relied on the Company's
representations in purchasing the servicing rights from the seller. Trial was
conducted during the week of July 12, 1998. The jury returned a verdict in
favor of the Company on four counts and in favor of the plaintiff on one count
and awarded the plaintiff $75,000. On July 31, 1998, the plaintiff filed a
motion for judgment notwithstanding the verdict, or alternatively, a new trial.
On November 6, 1998, the court denied the plaintiff's motion. Plaintiff has
appealed the court's ruling and the Company is considering an appeal of the
$75,000 award to the plaintiff.
The Company has been named defendant in an action which commenced on or
about February 7, 1999. The plaintiff alleges that the Company, as seller of
certain mortgage loans to the plaintiff, breached a representation and warranty
given to the plaintiff by the Company under the purchase agreement relating to
such loans. The action relates to approximately $700,000 in principal amount of
mortgage loans and plaintiff has requested specific performance of the
repurchase obligations of the Company under the purchase agreement and/or an
unspecified amount of damages.
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 the foregoing 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 had a note receivable from an affiliate of $750,000 at December
31, 1997, which bore interest at 13 percent and was due October 1, 2000. In
January 1998, the note was paid in full. The Company had leased office space to
the affiliate for approximately $8,500 per month. In January 1998, the space
was leased to a third party.
At December 31, 1998, the Company had unsecured loan receivables from an
executive officer, a director and a shareholder of $57,500, $85,000 and
approximately $80,000, respectively, which all bear interest at the prime rate
and are renewable at the Company's option. Due dates on the loan receivables
are as follows: $50,000 due February 15, 1999, $7,500 due September 29, 1999,
$85,000 due September 8, 1999 and approximately $80,000 due December 31, 1999.
The Company occupies office space under a lease agreement expiring June 30,
2001, at a monthly rental payment of $13,553, in which four officers of
subsidiaries of the Company own an equity interest in the lessor.
F-36
<PAGE>
MATRIX BANCORP, INC.
Notes to Consolidated Financial Statements--(Continued)
December 31, 1998
14. 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 $10,000 in 1998. 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 $162,000, $116,000 and $110,000 during the years ended December
31, 1998, 1997 and 1996, respectively.
15. 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 13) 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 $50,254,000 at December 31, 1998. 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.
The Company's credit risks comprised the outstanding loans held for sale and
loans held for investment as shown in the consolidated balance sheets. 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
-----------------------------------
1997 1998
----------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash................................. $ 3,296 $ 3,296 $ 18,665 $ 18,665
Interest-earning deposits............ 6,337 6,337 8,120 8,120
Loans held for sale, net............. 456,978 459,231 754,226 758,279
Loans held for investment, net....... 54,394 54,394 94,222 94,476
Federal Home Loan Bank of Dallas
stock............................... 8,700 8,700 15,643 15,643
Financial liabilities:
Deposits............................. 224,982 225,780 490,516 492,003
Custodial escrow balances............ 53,760 53,760 96,824 96,824
Drafts payable....................... 7,506 7,506 5,423 5,423
Payable for purchase of MSRs......... 8,660 8,660 12,103 12,103
Federal Home Loan Bank of Dallas
borrowings.......................... 171,943 171,943 168,000 171,544
Borrowed money....................... 89,909 89,909 178,789 178,789
</TABLE>
F-37
<PAGE>
MATRIX BANCORP, INC.
Notes to Consolidated Financial Statements--(Continued)
December 31, 1998
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, FHLB stock, drafts payable, payable for purchase of MSRs,
FHLB borrowings and borrowed money approximate those assets' and liabilities'
fair values.
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, 1998 and 1997 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).
16. Parent Company Condensed Financial Information
Condensed financial information of Matrix Bancorp, Inc. (Parent Company) is
as follows:
<TABLE>
<CAPTION>
December 31
-----------------------
1996 1997 1998
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Condensed Balance Sheets
Assets:
Cash.............................................. $ 45 $ 1,459 $ 158
Other receivables................................. 872 1,040 105
Premises and equipment, net....................... 1,405 1,481 2,393
Other assets...................................... 507 1,840 1,601
Investment in and advances to subsidiaries........ 36,199 62,042 88,791
------- ------- -------
Total assets........................................ $39,028 $67,862 $93,048
======= ======= =======
Liabilities and shareholders' equity:
Borrowed money (a)................................ $ 6,372 $26,002 $42,275
Other liabilities................................. 386 1,250 1,419
------- ------- -------
Total liabilities................................... 6,758 27,252 43,694
Shareholders' equity:
Common stock...................................... 1 1 1
Additional paid in capital........................ 21,983 22,185 22,416
Retained earnings................................. 10,286 18,424 26,937
------- ------- -------
Total shareholders' equity.......................... 32,270 40,610 49,354
------- ------- -------
Total liabilities and shareholders' equity.......... $39,028 $67,862 $93,048
======= ======= =======
</TABLE>
- --------
(a) The Parent's debt is set forth below. The Parent also guarantees the
revolving warehouse and servicing acquisition loan agreements and the
financing related to the direct financing leases to charter schools. See
Note 8 for additional information regarding the debt.
F-38
<PAGE>
MATRIX BANCORP, INC.
Notes to Consolidated Financial Statements--(Continued)
December 31, 1998
<TABLE>
<CAPTION>
December 31
----------------------
1996 1997 1998
------ ------- -------
(In thousands)
<S> <C> <C> <C>
Revolving line of credit............................. $ -- $ -- $10,300
Senior subordinated notes............................ 2,910 2,910 2,910
Bank stock loan...................................... 2,003 1,786 7,893
Note payable to a bank secured by real estate........ 938 895 870
Notes payable secured by MSRs........................ 521 411 302
Senior notes......................................... -- 20,000 20,000
------ ------- -------
$6,372 $26,002 $42,275
====== ======= =======
</TABLE>
As of December 31, 1998, the maturities of term notes payable during the
next five years and thereafter are as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
1999.......................................................... $ 2,922
2000.......................................................... 2,052
2001.......................................................... 6,275
2002.......................................................... 726
2003.......................................................... --
Thereafter.................................................... 20,000
-------
$31,975
=======
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------
1996 1997 1998
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Condensed Statements of Income
Income:
Interest income on loans...................... $ 142 $ 118 $ 17
Other......................................... 130 352 463
------- ------- -------
Total income.................................... 272 470 480
Expenses:
Compensation and employee benefits............ 1,344 1,700 2,412
Occupancy and equipment....................... 299 333 600
Interest on borrowed money.................... 805 1,593 3,601
Professional fees............................. 138 279 295
Other general and administrative (b).......... 329 1,353 1,416
------- ------- -------
Total expenses.................................. 2,914 5,258 8,324
------- ------- -------
Loss before income taxes and equity income of
subsidiaries................................... (2,642) (4,788) (7,844)
Income taxes (a)................................ -- -- --
------- ------- -------
Loss before equity income of subsidiaries....... (2,642) (4,788) (7,844)
Equity income of subsidiaries................... 6,212 12,926 16,357
------- ------- -------
Net income...................................... $ 3,570 $ 8,138 $ 8,513
======= ======= =======
</TABLE>
- --------
(a) 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
F-39
<PAGE>
MATRIX BANCORP, INC.
Notes to Consolidated Financial Statements--(Continued)
December 31, 1998
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.
(b) The Parent Company has entered into a subaccounting agreement with third
parties which require the Parent Company to pay a fee to the third party
company for record keeping services performed related to custodial escrow
deposits directed by that company and maintained at Matrix Bank. The total
amount of the subaccounting fees paid by the Parent Company are
approximately $199,000, $544,000 and $-0- for the years ended 1998, 1997
and 1996, respectively.
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------
1996 1997 1998
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Condensed Statements of Cash Flows
Cash flows from operating activities:
Net income...................................... $ 3,570 $ 8,138 $ 8,513
Adjustments to reconcile net income to net cash
used by operating activities:
Equity income of subsidiaries.................. (6,212) (12,926) (16,357)
Dividend from subsidiaries..................... 1,843 2,916 4,534
Depreciation and amortization.................. 127 192 281
Increase (decrease) in other liabilities....... (78) 864 169
Decrease (increase) in other receivables and
other assets.................................. (133) (701) 945
-------- -------- --------
Net cash used by operating activities............ (883) (1,517) (1,915)
Investing activities:
Purchases of premises and equipment............. (88) (168) (964)
Investment in and advances to subsidiaries...... (16,630) (15,833) (14,926)
-------- -------- --------
Net cash used by investing activities............ (16,718) (16,001) (15,890)
Financing activities:
Repayments of notes payable and revolving line
of credit...................................... (438) (7,870) (14,774)
Proceeds from notes payable and revolving line
of credit...................................... 59 7,500 31,047
Dividends paid by pooled company prior to
merger......................................... (201) -- --
Capital contribution by pooled company prior to
merger......................................... 24 -- --
Proceeds from senior notes, net................. -- 19,100 --
Proceeds from issuance of common stock.......... -- 202 231
Proceeds from the sale of common stock.......... 18,191 -- --
-------- -------- --------
Net cash provided by financing activities........ 17,635 18,932 16,504
-------- -------- --------
Increase (decrease) in cash...................... 34 1,414 (1,301)
Cash at beginning of year........................ 11 45 1,459
-------- -------- --------
Cash at end of year.............................. $ 45 $ 1,459 $ 158
======== ======== ========
</TABLE>
F-40
<PAGE>
MATRIX BANCORP, INC.
Notes to Consolidated Financial Statements--(Continued)
December 31, 1998
17. Selected Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
1997 1998
----------------------------------- -------------------------------------
Fourth Third Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
-------- -------- -------- -------- ---------- -------- -------- --------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operations
Net interest income
after provision for
loan and valuation
losses................ $ 3,863 $ 3,677 $ 3,216 $ 2,258 $ 4,326 $ 6,445 $ 4,973 $ 3,839
Noninterest income..... 10,605 9,069 9,412 8,943 13,154 11,326 11,346 10,919
Noninterest expense.... 10,760 9,057 9,603 8,326 15,273 13,802 12,630 11,234
-------- -------- -------- -------- ---------- -------- -------- --------
Income before income
taxes.................. 3,708 3,689 3,025 2,875 2,207 3,969 3,689 3,524
Income taxes............ 1,424 1,459 1,155 1,121 762 1,432 1,343 1,339
-------- -------- -------- -------- ---------- -------- -------- --------
Net income............. $ 2,284 $ 2,230 $ 1,870 $ 1,754 $ 1,445 $ 2,537 $ 2,346 $ 2,185
======== ======== ======== ======== ========== ======== ======== ========
Net Income per Share
Data
Basic.................. $ .34 $ .33 $ .28 $ .26 $ .22 $ .38 $ .35 $ .33
======== ======== ======== ======== ========== ======== ======== ========
Diluted................ $ .34 $ .33 $ .28 $ .26 $ .21 $ .37 $ .34 $ .32
======== ======== ======== ======== ========== ======== ======== ========
Balance Sheet
Total assets........... $606,745 $525,511 $502,563 $422,476 $1,012,640 $929,607 $834,657 $698,517
Total loans, net....... 511,372 426,007 394,537 319,489 848,448 753,464 696,358 573,586
Shareholders' equity... 40,610 38,124 35,894 34,024 49,354 47,699 45,158 42,797
</TABLE>
The net income per share for the first three quarters of 1997 have been
restated to comply with the requirements of Statement No. 128.
18. Transactions with MCA Mortgage Corporation
During recent years, the Company entered into several purchase transactions
with MCA Mortgage Corporation (MCA), a Michigan-based mortgage banking entity.
At December 31, 1998, the Company was carrying approximately $5,000,000 of
residential mortgage loans on its balance sheet that were purchased from MCA on
a servicing retained basis. The Company also had an outstanding receivable
relating to brokerage and consulting services provided to MCA. In January 1999,
the Company learned that MCA was closing its operations. Additionally, in
February 1999, the Company learned that MCA had declared bankruptcy and it
appeared likely that some of the loans purchased by the Company had been sold
multiple times or pledged multiple times as security for repayment of various
credit facilities. The Company also discovered that there appeared to be
servicing issues relating to some of the purchased loans. The servicing issues
consisted of instances in which loans owned by the Company and serviced by MCA
had previously paid off, but for which MCA had continued to remit monthly
principal and interest, rather than the payoff proceeds. As a result of the
above MCA issues, the Company recorded a provision for valuation losses of
approximately $2,200,000 as of December 31, 1998. Additionally, the Company
wrote off approximately $100,000 of accounts receivable and accrued interest
relating to MCA as of December 31, 1998.
19. Segments of the Company and Related Information
The Company has three reportable segments under Statement No. 131: the
Company's traditional banking subsidiary, the Company's mortgage banking
subsidiary and the Company's servicing brokerage and consulting subsidiaries.
The Company's traditional banking subsidiary provides deposit and lending
services to its customers and also makes investments in residential mortgage
loans and residential MSRs. The Company's mortgage banking subsidiary acquires
residential MSRs and services the mortgage loans underlying those
F-41
<PAGE>
MATRIX BANCORP, INC.
Notes to Consolidated Financial Statements--(Continued)
December 31, 1998
MSRs, and in addition, originates residential mortgage loans through its
wholesale loan origination offices. The Company's servicing brokerage
subsidiary offers brokerage, consulting and risk management services for
residential MSRs. The remaining subsidiaries of the Company are included in the
"all other" category for purposes of the Statement No. 131 disclosures and
consist of the Company's trust operations, real estate disposition services, a
broker/dealer and the Parent Company operations.
The Company evaluates performance and allocates resources based on operating
profit or loss before income taxes. The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies. Transactions between affiliates, the resulting revenues of
which are shown in the intersegment revenue category, are conducted at market
prices (i.e., prices that would be paid if the companies were not affiliates).
For the years ended December 31:
<TABLE>
<CAPTION>
Servicing
Traditional Mortgage Brokerage and
Banking Banking Consulting All Others Total
----------- -------- ------------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
1998
Revenues from external
customers:
Interest income.......... $ 52,445 $ 8,227 $ -- $ 22 $ 60,694
Noninterest income....... 7,603 22,017 9,993 7,132 46,745
Intersegment revenues...... (133) 991 501 1,665 3,024
Interest expense........... 24,972 7,895 1 3,636 36,504
Depreciation/amortization.. 1,516 10,334 227 1,005 13,082
Segment profit (loss)...... 21,470 (4,725) 4,119 (7,475) 13,389
Segment assets(a).......... 821,448 181,883 3,143 28,304 1,034,778
1997
Revenues from external
customers:
Interest income.......... 27,313 4,664 -- 172 32,149
Noninterest income....... 6,410 21,623 4,283 5,713 38,029
Intersegment revenues...... 33 1,213 230 1,141 2,617
Interest expense........... 11,812 4,781 1 1,667 18,261
Depreciation/amortization.. 1,344 5,835 214 510 7,903
Segment profit (loss)...... 10,290 6,269 1,393 (4,655) 13,297
Segment assets(a).......... 486,857 111,228 1,225 24,759 624,069
1996
Revenues from external
customers:
Interest income.......... 12,697 3,653 -- 199 16,549
Noninterest income....... 5,107 12,372 4,462 4,646 26,587
Intersegment revenues...... -- 448 169 365 982
Interest expense........... 5,811 3,811 -- 868 10,490
Depreciation/amortization.. 428 2,622 72 416 3,538
Segment profit (loss)...... 4,635 2,166 1,420 (2,373) 5,848
Segment assets(a).......... 196,874 70,880 2,107 16,606 286,467
</TABLE>
- --------
(a) See reconciliation to total consolidated assets in the following table.
F-42
<PAGE>
MATRIX BANCORP, INC.
Notes to Consolidated Financial Statements--(Continued)
December 31, 1998
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- ----------
<S> <C> <C> <C>
Revenues for year ended December 31
Interest income for reportable segments....... $ 16,350 $ 31,977 $ 60,672
Noninterest income for reportable segments.... 21,941 32,316 39,613
Intersegment revenues for reportable
segments..................................... 617 1,476 1,359
Other revenues................................ 5,210 7,026 8,819
Elimination of intersegment revenues.......... (982) (2,617) (3,024)
-------- -------- ----------
Total consolidated revenues................. $ 43,136 $ 70,178 $ 107,439
======== ======== ==========
Profit or loss for year ended December 31
Total profit or loss for reportable segments.. $ 8,221 $ 17,952 $ 20,864
Other profit or loss.......................... (2,373) (4,531) (7,367)
Adjustment to intersegment profit (loss) in
consolidation................................ -- (124) (108)
-------- -------- ----------
Income before income tax.................... $ 5,848 $ 13,297 $ 13,389
======== ======== ==========
Assets as of December 31
Total assets for reportable segments.......... $269,861 $599,310 $1,006,474
Other assets.................................. 16,606 24,759 28,304
Elimination of intercompany receivables....... (11,908) (17,200) (21,905)
Other eliminations............................ -- (124) (233)
-------- -------- ----------
Total consolidated assets................... $274,559 $606,745 $1,012,640
======== ======== ==========
Other Significant Items for the year ended
December 31
Depreciation/amortization expense:
Segment totals................................ $ 3,122 $ 7,393 $ 12,077
Adjustments................................... 416 510 1,005
-------- -------- ----------
Consolidated totals......................... $ 3,538 $ 7,903 $ 13,082
======== ======== ==========
Interest expense:
Segment totals................................ $ 9,622 $ 16,594 $ 32,868
Adjustments................................... 868 1,667 3,636
-------- -------- ----------
Consolidated totals......................... $ 10,490 $ 18,261 $ 36,504
======== ======== ==========
</TABLE>
F-43
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[LOGO OF MATRIX BANCORP APPEARS HERE]
Tucker Anthony Cleary Gull
U.S. Bancorp Piper Jaffray
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution(1)
<TABLE>
<CAPTION>
Nature of Expense Amount
----------------- --------
<S> <C>
SEC filing fee(2)..................................................... $ 8,792
Nasdaq listing fee.................................................... 40,230
NASD filing fee....................................................... 3,663
Printing, postage and mailing......................................... 100,000
Legal fees and expenses............................................... 75,000
Accounting fees and expenses.......................................... 60,000
Trustees' fees and expenses........................................... 15,000
Transfer agent and Registrar fees..................................... 10,000
Blue Sky fees and expenses............................................ 10,000
Miscellaneous......................................................... 27,315
--------
Total............................................................... $350,000
========
</TABLE>
- --------
(1) The amounts set forth above, except for the SEC and NASD fees, are in each
case estimated.
(2) Based upon the sale of 1,265,000 Preferred Securities at $25.00 per
Preferred Security.
Item 14. Indemnification of Directors and Officers
The Amended and Restated Articles of Incorporation of the Company, together
with its Bylaws, provide that the Company shall indemnify officers and
directors, and may indemnify its other officers and agents, to the fullest
extent permitted by law. The laws of the State of Colorado permit, and in some
cases require, corporations to indemnify officers, directors, agents and
employees who are or who have been a party to or are threatened to be made a
party to litigation against judgments, fines, settlements and reasonable
expenses under certain circumstances.
The Company has also adopted provisions in its Amended and Restated Articles
of Incorporation that limit the liability of its directors to the fullest
extent permitted by the laws of the State of Colorado. Under the Company's
Articles of Incorporation, as permitted by the laws of the State of Colorado, a
director is not liable to the Company or its shareholders for damages for a
breach of fiduciary duty. Such limitation of liability does not affect
liability for (i) breach of the director's duty of loyalty, (ii) knowing
violation of the law, (iii) any transaction from which the director directly or
indirectly derived an improper personal benefit, or (iv) the payment of any
unlawful distribution. The Company has agreed to indemnify the Underwriters,
and the Underwriters have agreed to indemnify the Company against certain civil
liabilities, including liabilities under the Securities Act of 1933, as
amended.
Item 15. Recent Sales of Unregistered Securities
The following sets forth information as of June 25, 1999, regarding all
sales of unregistered securities of the Company during the past three years. In
connection with each of these transactions, the shares were sold to a limited
number of persons, such persons were provided access to all relevant
information concerning the issuer and/or represented to the issuer that they
were "sophisticated investors", and such persons represented to the issuer that
the shares were purchased for investment purposes only and not with a view
toward distribution. Each such issuance was made in reliance on 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 non-employee directors of the Company,
5,000 shares of Common Stock to an advisory director of
II-1
<PAGE>
the Company and 114,600 shares of Common Stock to various 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.
In October, 1996, 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
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 date of grant. The exercise price of the shares of Common
Stock underlying such warrants is $12.00 per share.
In February, 1997, the Company issued an aggregate of 779,592 shares of
Common Stock to the 43 former shareholders of The Vintage Group, Inc.
("Vintage"), in connection with the Company's acquisition of all of the
outstanding capital stock of Vintage.
During 1997, prior to the filing of a Registration Statement on Form S-8,
the Company issued options exercisable for an aggregate of (A) 55,000 shares of
Common Stock to three executive officers of the Company, with exercise prices
ranging from $10.375 to $14.25 per share; and (B) 69,500 shares of Common Stock
to non-executive employees of the Company, with exercise prices ranging from
$12.00 to $17.25 per share.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
The following is a complete list of exhibits filed as a part of this
Registration Statement:
<TABLE>
<C> <C> <S>
1.1 Draft form of Underwriting Agreement by and between the Registrant
as issuer and Tucker Anthony Cleary Gull and U.S. Bancorp Piper
Jaffray, Inc. as Representatives of the several Underwriters
3.1 Y Amended and Restated Articles of Incorporation of the Registrant
(3.1)
3.2 + Bylaws, as amended, of the Registrant (3.2)
4.1 x Indenture by and among the Registrant and First Trust National
Association, as trustee, relating to 11.50% Senior Notes due 2004
(4.1)
4.2 + Specimen certificate for Common Stock of the Registrant (4.1)
4.3 +. Amended and Restated 1996 Stock Option Plan (4.2)
4.4 ***. Employee Stock Purchase Plan, as amended (4.4)
4.5 + Form of Common Stock Purchase Warrant by and between the Registrant
and Piper Jaffray, Inc. (4.4)
4.6 + Form of Common Stock Purchase Warrant by and between the Registrant
and Keefe, Bruyette & Woods, Inc. (4.5)
4.7 Draft form of Indenture of the Registrant relating to the Junior
Subordinated Debentures
4.8 Draft form of Junior Subordinated Debentures
4.9 * Certificate of Trust of Matrix Bancorp Capital Trust I
4.10 Draft form of Amended and Restated Trust Agreement of Matrix Bancorp
Capital Trust I
4.11 Draft form of Preferred Security Certificate for Matrix Bancorp
Capital Trust I
4.12 * Draft form of Preferred Securities Guarantee Agreement of the
Company relating to the Preferred Securities
4.13 * Draft form of Agreement as to Expenses and Liabilities
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <C> <S>
5.1 * Opinion of Blackwell Sanders Peper Martin LLP as to legality of the
Junior Subordinated Debentures and the Guarantee to be issued by the
Company
5.2 Opinion of Morris, Nichols, Arsht & Tunnell (Special Delaware
Counsel) as to legality of the Preferred Securities to be issued by
Matrix Bancorp Capital Trust I
8.1 * Opinion of Blackwell Sanders Peper Martin LLP as to certain federal
income tax matters
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 +. Executive Employment Agreement, dated as of January 1, 1996, by and
between the Registrant and David Kloos (10.4)
10.5 +. Employment Agreement, dated as of January 1, 1995, between Matrix
Bank and Gary Lenzo and as amended January 1, 1996 (10.5)
10.6 + Multiple Advance Term Loan Agreement, dated as of June 27, 1994, by
and between Matrix Capital Corporation and CorTrust Bank (10.8)
10.7 + 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)
10.8 + 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)
10.9 + 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)
10.10 + 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)
10.11 + Development Management Agreement, dated as of June 28, 1996, by and
among Fort Lupton, L.L.C. and Matrix Funding Corp. (10.31)
10.12 Y Coyote Creek Planned Unit Development Agreement, dated as of July 1,
1998, by and among Fort Lupton, L.L.C. and Matrix Funding Corp.
(10.12)
10.13 Y. Employment Agreement Addendum of Gary Lenzo, dated December 16, 1998
(10.13)
10.14 Y Promissory Note, dated as of December 31, 1998, from D. Mark
Spencer, as maker, to the Registrant, as payee (10.14)
10.15 + Fort Lupton Golf Course Residential and Planned Unit Development
Agreement, dated as of November 28, 1995 (10.36)
10.16 + Loan Agreement, dated as of June 21, 1996, by and between Matrix
Funding Corporation and The First Security Bank (10.41)
10.17 + Loan Agreement, dated as of June 29, 1995, by and between the
Registrant and Bank One, Arizona, N.A. (10.42)
10.18 + Promissory Note, dated as of June 29, 1995, from the Registrant to
Bank One, Arizona, N.A. (10.43)
10.19 + 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)
10.20 Y Fourth Modification Agreement to the Loan Agreement, dated February
28, 1999, by and between the Registrant and Bank One, Arizona, N.A.
(10.20)
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <C> <S>
10.21 + Loan Agreement, dated July 10, 1992, by and between American
Strategic Income Portfolio Inc. and Matrix Financial Services
Corporation (10.45)
10.22 + 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)
10.23 ** Revolving Subordinated Loan Agreement, dated as of October 18, 1996,
by and between Matrix Financial Services Corporation and the
Registrant (10.31)
10.24 ** 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
(10.32)
10.25 ** Amended and Restated Swing Note, dated as of January 31, 1997, from
Matrix Financial Services Corporation, as borrower to the lenders
under the Amended and Restated Loan Agreement (10.34)
10.26 ** Amended and Restated Guaranty, dated as of January 31, 1997, from
the Registrant to Bank One, Texas, N.A., as agent (10.37)
10.27 *** Third Amendment to Amended and Restated Loan Agreement, dated as of
March 1, 1998, between Matrix Financial Services Corporation, as
borrower, Bank One, Texas, N.A., as agent, and certain lenders, as
lenders (10.39)
10.28 *** Overline Note, dated as of March 1, 1998, from Matrix Financial
Services Corporation, as borrower, to Bank One, Texas, N.A., as
lender (10.40)
10.29 // Fourth Amendment to Amended and Restated Loan Agreement, dated as of
May 27, 1998, between Matrix Financial Services Corporation, as
borrower, Bank One, Texas, N.A., as agent, and certain lenders, as
lenders (10.6)
10.30 // Fifth Amendment to Amended and Restated Loan Agreement, dated as of
June 26, 1998, between Matrix Financial Services Corporation, as
borrower, Bank One, Texas, N.A., as agent, and certain lenders, as
lenders (10.7)
10.31 Y Sixth Amendment to Amended and Restated Loan Agreement, dated as of
October 31, 1998, between Matrix Financial Services Corporation, as
borrower, Bank One, Texas, N.A., as agent, and certain lenders, as
lenders (10.31)
10.32 Y Seventh Amendment to Amended and Restated Loan Agreement, dated as
of January 28, 1999, between Matrix Financial Services Corporation,
as borrower, Bank One, Texas, N.A., as agent, and certain lenders,
as lenders (10.32)
10.33 Y Eighth Amendment to Amended and Restated Loan Agreement, dated as of
February 12, 1999, between Matrix Financial Services Corporation, as
borrower, Bank One, Texas, N.A., as agent, and certain lenders, as
lenders(10.33)
10.34 Y Ninth Amendment to Amended and Restated Loan Agreement, dated as of
February 22, 1999, between Matrix Financial Services Corporation, as
borrower, Bank One, Texas, N.A., as agent, and certain lenders, as
lenders (10.34)
10.35 Y Warehouse Note, dated as of February 22, 1999, from Matrix Financial
Services Corporation, as borrower, to Bank One, Texas, N.A., as
lender (10.35)
10.36 Y Warehouse Note, dated as of February 22, 1999, from Matrix Financial
Services Corporation, as borrower, to U.S. Bank National
Association, as lender (10.36)
10.37 Y Warehouse Note, dated as of February 22, 1999, from Matrix Financial
Services Corporation, as borrower, to Residential Funding
Corporation, as lender (10.37)
10.38 Y Amended and Restated Term-Line Note, dated as of February 22, 1999,
from Matrix Financial Services Corporation, as borrower, to Bank
One, Texas, N.A., as lender (10.38)
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <C> <S>
10.39 Y Amended and Restated Term-Line Note, dated as of February 22, 1999,
from Matrix Financial Services Corporation, as borrower, to U.S.
Bank National Association, as lender (10.39)
10.40 Y Amended and Restated Term-Line Note, dated as of February 22, 1999,
from Matrix Financial Services Corporation, as borrower, to
Residential Funding Corporation, as lender (10.40)
10.41 I Amended and Restated Working-Capital Note, dated as of February 22,
1999, from Matrix Financial Services Corporation, as borrower, to
Bank One, Texas, N.A., as lender (10.41)
10.42 I Amended and Restated Working-Capital Note, dated as of February 22,
1999, from Matrix Financial Services Corporation, as borrower, to
U.S. Bank National Association, as lender (10.42)
10.43 I Amended and Restated Working-Capital Note, dated as of February 22,
1999, from Matrix Financial Services Corporation, as borrower, to
Residential Funding Corporation, as lender (10.43)
10.44 **. Employment Agreement, dated as of February 4, 1997, by and between
the Registrant and Paul Skretny (10.38)
10.45 ** 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 (10.39)
10.46 ** Guaranty Form, dated as of March 12, 1997, from each of the
Registrant's significant subsidiaries to Bank One, Texas, N.A., as
agent (10.42)
10.47 / Second Amendment to Credit Agreement, dated as of September 23,
1997, between Matrix Capital Corporation, as borrower, and Bank
One, Texas, N.A., as agent, and certain lenders, as lenders (10.1)
10.48 / Third Amendment to Credit Agreement, dated as of March 12, 1998,
between Matrix Capital Corporation, as borrower, and Bank One,
Texas, N.A., as agent, and certain lenders, as lenders (10.2)
10.49 // Fourth Amendment to Credit Agreement, dated as of June 29, 1998,
between Matrix Capital Corporation, as borrower, and Bank One,
Texas, N.A., as agent, and certain lenders, as lenders (10.1)
10.50 // Term Note, dated as of June 29, 1998, from Matrix Capital
Corporation, as borrower, to U.S. Bank National Association, as
lender (10.2)
10.51 // Term Note, dated as of June 29, 1998, from Matrix Capital
Corporation, as borrower, to Bank One, Texas, N.A., as lender
(10.3)
10.52 // Revolving Note, dated as of June 29, 1998, from Matrix Capital
Corporation, as borrower, to U.S. Bank National Association, as
lender (10.4)
10.53 // Revolving Note, dated as of June 29, 1998, from Matrix Capital
Corporation, as borrower, to Bank One, Texas, N.A., as lender
(10.5)
10.54 I Fifth Amendment to Credit Agreement, dated as of November 12, 1998,
between Matrix Capital Corporation, as borrower, and Bank One,
Texas, N.A., as agent, and certain lenders, as lenders (10.54)
10.55 I Sixth Amendment to Credit Agreement, dated as of January 29, 1999,
between Matrix Capital Corporation, as borrower, and Bank One,
Texas, N.A., as agent, and certain lenders, as lenders (10.55)
10.56 ***. Agreement, dated October 1, 1997, with T. Allen McConnell (10.37)
10.57 +++ Agreement and Plan of Merger, dated as of March 25, 1998, among
Fidelity National Financial, Inc., MCC Merger, Inc. and Matrix
Capital Corporation (99.2)
10.58 I Promissory Note, dated as of February 15, 1999, from Thomas P.
Cronin, as maker, to the Registrant, as payee (10.58)
</TABLE>
II-5
<PAGE>
<TABLE>
<C> <C> <S>
10.59 /// Merger Termination Agreement between Matrix Capital Corporation,
Fidelity National Financial, Inc., and MCC Merger Sub, Inc., dated
August 28, 1998 (10.1)
10.60 I Promissory Note, dated as of September 30, 1998, from Thomas P.
Cronin, as maker, to the Registrant, as payee (10.60)
10.61 YY. Promissory Note, dated as of January 15, 1999, from Thomas M.
Piercy, as maker, to the Registrant, as payee (10.1)
12 Statements re: Computations of Ratios
21 I Subsidiaries of the Registrant (21)
23.1 * Consent of Blackwell Sanders Peper Martin LLP (see Exhibits 5.1 and
8.1)
23.2 Consent of Morris, Nichols, Arsht & Tunnell (Special Delaware
Counsel)(see Exhibit 5.2)
23.3 Consent of Ernst & Young LLP
24.1 Power of Attorney (set forth on the signature page to this
Registration Statement)
25.1 * Form T-1 Statement of Eligibility of State Street Bank and Trust
Company to act as Trustee under the Indenture
25.2 * Form T-1 Statement of Eligibility of State Street Bank and Trust
Company to act as Trustee under the Amended and Restated Trust
Agreement
25.3 * Form T-1 Statement of Eligibility of State Street Bank and Trust
Company to act as Trustee under the Preferred Securities Guaranty
Agreement
</TABLE>
- --------
* Previously filed.
+ 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.
++ Incorporated by reference from the exhibit number shown in parenthesis from
the Registrant's quarterly report on Form 10-Q for the quarter ended
September 30, 1997, filed by the Registrant with the Commission.
+++ Incorporated by reference from the exhibit number shown in parenthesis
from the Registrant's report on Form 8-K, filed by the Registrant with the
Commission on April 8, 1998.
x Incorporated by reference from the exhibit number shown in parenthesis from
the Registrant's registration statement on Form S-1 (No. 333-34977), filed
by the Registrant with the Commission.
** Incorporated by reference from the exhibit number shown in parenthesis from
the Registrant's annual report on Form 10-K for the fiscal year ended
December 31, 1996, filed by the Registrant with the Commission.
*** Incorporated by reference from the exhibit number shown in parenthesis
from the Registrant's annual report on Form 10-K for the fiscal year ended
December 31, 1997, filed by the Registrant with the Commission.
/ Incorporated by reference from the exhibit number shown in parenthesis from
the Registrant's quarterly report on Form 10-Q for the quarter ended March
31, 1998, filed by the Registrant with the Commission.
// Incorporated by reference from the exhibit number shown in parenthesis from
the Registrant's quarterly report on Form 10-Q for the quarter ended June
30, 1998, filed by the Registrant with the Commission.
/// Incorporated by reference from the exhibit number shown in parenthesis
from the Registrant's quarterly report on Form 10-Q for the quarter ended
September 30, 1998, filed by the Registrant with the Commission.
. Management contract or compensatory plan or arrangement
I Incorporated by reference from the exhibit number shown in parenthesis from
the Registrant's annual report on Form 10-K for the fiscal year ended
December 31, 1998, filed by the Registrant with the Commission.
YY Incorporated by reference from the exhibit number shown in parenthesis from
the Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1999, filed by the Registrant with the Commission.
II-6
<PAGE>
(b) Financial Statement Schedules
No financial statement schedules are applicable.
Item 17. Undertakings
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(b) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(c) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Denver, State of
Colorado, on June 28, 1999.
Matrix Bancorp Capital Trust I
By /s/ T. Allen McConnell
--------------------------------
T. Allen McConnell, Administrative
Trustee
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Denver, State of
Colorado, on June 28, 1999.
Matrix Bancorp, Inc
By: /s/Guy A. Gibson
----------------
Guy A. Gibson, President and
Chief Executive Officer
II- 9
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* President, Chief June 28, 1999
___________________________________________ Executive Officer and
Guy A. Gibson Director (Principal
executive officer)
* Chairman of the Board June 28, 1999
___________________________________________
Richard V. Schmitz
* Vice Chairman and June 28, 1999
___________________________________________ Director
D. Mark Spencer
* Director June 28, 1999
___________________________________________
Thomas M. Piercy
* Senior Vice President June 28, 1999
___________________________________________ and Chief Financial
David W. Kloos Officer and Director
(Principal financial
officer)
* Director June 28, 1999
___________________________________________
Stephen Skiba
* Director June 28, 1999
___________________________________________
David A. Frank
</TABLE>
* By: /s/ T. Allen McConnell
----------------------
T. Allen McConnell,
Attorney-in-Fact
II-10
<PAGE>
SIGNATURES
Each individual whose signature appears below hereby designates and appoints
Guy A. Gibson, David W. Kloos, and T. Allen McConnell, and each of them, any
one of whom may act without the joinder of the other, as such person's true and
lawful attorney-in-fact and agents (the "Attorneys-in-Fact") with full power of
substitution and re-substitution, for such person and in such person's name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, which
amendments may make changes in this Registration Statement as either Attorney-
in-Fact deems appropriate, and registration statements relating to the same
offering filed pursuant to Rule 462(b) under the Securities Act of 1933 and
requests to accelerate the effectiveness of such registration statements, and
to file each such amendment with all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange Commission, granting
unto such Attorneys-in-Fact and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as such person
might or could do in person, hereby ratifying and confirming all that such
Attorneys-in-Fact or either of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
Administrative
/s/ Guy A. Gibson Trustee June 28, 1999
- ------------------------------------
Guy A. Gibson
Administrative
/s/ David W. Kloos Trustee June 28, 1999
- ------------------------------------
David W. Kloos
Administrative
/s/ T. Allen McConnell Trustee June 28, 1999
- ------------------------------------
T. Allen McConnell
</TABLE>
II-11
<PAGE>
EXHIBIT 1.1
1,100,000 PREFERRED SECURITIES
MATRIX BANCORP CAPITAL TRUST I
____% CUMULATIVE TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY)
UNDERWRITING AGREEMENT
Boston, Massachusetts
July ___, 1999
TUCKER ANTHONY CLEARY GULL
One Beacon Street
Boston, Massachusetts 02108
U.S. BANCORP PIPER JAFFRAY, INC.
222 South Ninth Street
Minneapolis, Minnesota 55402
Ladies and Gentlemen:
Matrix Bancorp, Inc., a Colorado corporation (the "Company") and its
financing subsidiary, Matrix Bancorp Capital Trust I, a Delaware business trust
(the "Trust", and hereinafter together with the Company, the "Offerors"),
confirm their agreement with Tucker Anthony Cleary Gull ("Tucker Anthony"), U.S.
Bancorp Piper Jaffray, Inc. ("Piper Jaffray") and each of the other
Underwriters, if any, named in Schedule A hereto (collectively, the
----------
"Underwriters", which term shall also include any Underwriters substituted as
hereinafter provided in Section 11), for whom Tucker Anthony and Piper Jaffray
are acting as representatives (in such capacity, Tucker Anthony and Piper
Jaffray are herein collectively called the "Representative"), with respect to
the sale by the Trust and the purchase by the Underwriters, acting severally and
not jointly, of an aggregate of 1,100,000 of the Trust's _____% Cumulative Trust
Preferred Securities, with a liquidation amount of $25 per preferred security
("Preferred Securities"), to be issued under the Trust Agreement (as hereinafter
defined), the terms of which are more fully described in the Prospectus (as
hereinafter defined) (the aforementioned 1,100,000 Preferred Securities to be
sold to the Underwriters being referred to herein as the "Firm Preferred
Securities"), and with respect to the grant by the Trust to the Underwriters,
acting severally and not jointly, of the option described in Section 2(b) hereof
to purchase therefrom all or any part of an additional 165,000 Preferred
Securities for the purpose of covering over-allotments, if any. The Firm
Preferred Securities and all or any part of the Preferred Securities subject to
the option described in Section 2(b) hereof (the "Option Preferred Securities")
are hereinafter collectively referred to as the "Designated Preferred
Securities." The words "you" and "your" refer to the Representative of the
Underwriters.
<PAGE>
1. REPRESENTATIONS AND WARRANTIES OF THE OFFERORS.
The Offerors jointly and severally represent and warrant to, and agree
with, each of the Underwriters as of the date hereof, and as of the Closing
Date, as defined in Section 2(a) hereof, and the Option Closing Date, as defined
in Section 2(b) hereof, if any, as follows:
(a) A registration statement on Form S-1 (File No. 333-79731) with
respect to the Designated Preferred Securities, the Guarantee (as defined
in Section 2(d) hereof) and $31,625,000 aggregate principal amount of
Debentures (as defined in Section 2(d) hereof), including a prospectus
subject to completion, has been prepared by the Offerors in conformity with
the requirements of the Securities Act of 1933, as amended (the "Act"), and
the applicable Rules and Regulations (as defined below) of the Securities
and Exchange Commission (the "Commission") and the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act") and the rules and regulations
thereunder, and has been filed with the Commission; such amendments to such
registration statement, and such amended prospectuses subject to
completion, as may have been required prior to the date hereof have been
similarly prepared and filed with the Commission; and the Offerors will
file such additional amendments to such registration statement, and such
amended prospectuses subject to completion, as may hereafter be required.
Copies of such registration statement and each such amendment, each such
related prospectus subject to completion (collectively, the "Preliminary
Prospectuses" and individually, a "Preliminary Prospectus"), each document
incorporated by reference therein and each exhibit thereto have been
delivered to you. For purposes hereof, "Rules and Regulations" means the
rules and regulations adopted by the Commission under either the Act or the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as
applicable. If the registration statement has been declared effective
under the Act by the Commission, the Company will prepare and promptly file
with the Commission, pursuant to subparagraph (1) or (4) of Rule 424(b) of
the Rules and Regulations under the Act or as part of a post-effective
amendment to the registration statement (including a final form of
prospectus), the information omitted from the registration statement
pursuant to Rule 430A(a) of the Rules and Regulations under the Act. The
term "Registration Statement" as hereinafter used in this Agreement shall
mean such registration statement, including financial statements, schedules
and exhibits in the form in which it became or becomes effective
(including, if the Company omitted information from the registration
statement pursuant to Rule 430A(a) of the Rules and Regulations under the
Act, the information deemed to be a part of the registration statement at
the time it became effective pursuant to Rule 430A(b) of the Rules and
Regulations under the Act) and, in the event of any amendment thereto after
the effective date of such registration statement, shall also mean (from
and after the effectiveness of such amendment) such registration statement
as so amended, together with any registration statement filed by the
Company pursuant to Rule 462(b) under the Act. The term "Prospectus" as
used in this Agreement shall mean the prospectus relating to the Designated
Preferred Securities as included in such registration statement at the time
it
2
<PAGE>
became or becomes effective, except that if any revised prospectus shall be
provided to the Underwriters by the Offerors for use in connection with the
offering of the Designated Preferred Securities that differs from the
Prospectus on file with the Commission at the time the registration
statement became or becomes effective (whether or not such revised
prospectus is required to be filed with the Commission pursuant to Rule
424(b)(3) of the Rules and Regulations under the Act), the term
"Prospectus" shall refer to such revised prospectus from and after the time
it is first provided to the Underwriters for such use. Any reference herein
to the Registration Statement, the Prospectus, any amendment or supplement
thereto or any Preliminary Prospectus shall be deemed to refer to and
include the documents incorporated by reference therein, and any reference
herein to the terms "amend," "amendment" or "supplement" with respect to
the Registration Statement or Prospectus shall be deemed to refer to and
include the filing of any document with the Commission deemed to be
incorporated by reference therein.
(b) Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any Preliminary
Prospectus, or instituted proceedings for that purpose, and each such
Preliminary Prospectus, at the time of filing thereof, conformed in all
material respects to the requirements of the Act and the Rules and
Regulations and, at the time of filing thereof, did not include any untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein not misleading. At the time the
Registration Statement became or becomes effective and at all times
subsequent thereto up to and including the Closing Date (as hereinafter
defined) and any Option Closing Date (as hereinafter defined), and during
such longer period as the Prospectus may be required to be delivered in
connection with sales by an Underwriter or a dealer, (i) the Registration
Statement and Prospectus, and any amendments or supplements thereto,
contained and will contain all material information required to be included
therein by the Act and the Rules and Regulations and conformed and will
conform in all material respects to the requirements of the Act and the
Rules and Regulations and the Trust Indenture Act (and the rules and
regulations thereunder), and (ii) neither the Registration Statement nor
the Prospectus, nor any amendment or supplement thereto, included or will
include any untrue statement of a material fact or omitted or will omit to
state any material fact required to be stated therein or necessary to make
the statements therein in light of the circumstances under which they were
made not misleading.
(c) (i) The Company has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of Colorado.
Each of the subsidiaries of the Company (collectively, the "Subsidiaries"
and individually, a "Subsidiary") has been duly organized and is validly
existing in good standing under the laws of its jurisdiction of
organization. The Company and each of the Subsidiaries are duly qualified
and licensed as foreign corporations and in good standing in each
jurisdiction in which their respective operations requires such
qualification or licensing, except where the failure to be so qualified
would not have a material adverse effect on the condition, financial or
otherwise, or on the business affairs, position, prospects, value,
3
<PAGE>
operation, properties, business or results of operation of the Company and
the Subsidiaries taken as a whole, whether or not arising in the ordinary
course of business (a "Material Adverse Effect"). The Company and each of
the Subsidiaries have all requisite power and authority, and have obtained
any and all necessary authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all governmental or
regulatory officials and bodies to own or lease their respective properties
and conduct their respective businesses as described in the Prospectus
(collectively, "Government Approvals"), except where the failure to so
obtain any such Government Approval would not have a Material Adverse
Effect; the Company and each of the Subsidiaries are and have been doing
business in compliance with all such Government Approvals, except where the
failure to so comply would not have a Material Adverse Effect; and neither
the Company nor any of the Subsidiaries has received any notice of
proceedings relating to the revocation or modification of any such
Government Approvals. All of the outstanding shares of capital stock of
each of the Subsidiaries have been duly authorized and validly issued, are
fully paid and non-assessable and are owned by the Company or a Subsidiary
free and clear of all liens, encumbrances and security interests (other
than those arising from the existing Bank stock loan), and no options,
warrants or other rights to purchase, agreements or other obligations to
issue or other rights to convert any obligations into, or exchange any
securities for shares of capital stock of or ownership interests in any of
the Subsidiaries are outstanding. The Company's only bank subsidiary is
Matrix Capital Bank (the "Bank"). The deposit accounts of the Bank are
insured by the Savings Association Insurance Fund administered by the
Federal Deposit Insurance corporation (the "FDIC") up to the maximum amount
provided by law and no proceedings for the modification, termination or
revocation of any such insurance are pending or threatened.
(ii) The Trust has been duly created and is validly existing as
a statutory business trust in good standing under the Delaware Business
Trust Act with the power and authority (trust and other) to issue and sell
its common securities (the "Common Securities") to the Company pursuant to
the Trust Agreement, to issue and sell the Designated Preferred Securities,
to enter into and perform its obligations under this Agreement and to
consummate the transactions herein contemplated; the Trust has conducted
and will conduct no business other than the transactions contemplated by
this Agreement and described in the Prospectus; the Trust is not a party to
or bound by any agreement or instrument other than this Agreement, the
Trust Agreement and the agreements and instruments contemplated by the
Trust Agreement and described in the Prospectus; the Trust has no
liabilities or obligations other than those arising out of the transactions
contemplated by this Agreement and the Trust Agreement and described in the
Prospectus; the Trust is not a party to or subject to any action, suit or
proceeding of any nature; the Trust is not, and at the Closing Date or any
Option Closing Date will not be, to the knowledge of the Offerors,
classified as an association taxable as a corporation for United States
federal income tax purposes; and the Trust is, and as of the Closing Date
or any Option Closing Date will be, treated as a consolidated subsidiary of
the Company pursuant to generally accepted accounting principles.
4
<PAGE>
(d) (i) The capital stock of the Company and the equity securities
of the Trust, the Debentures and the Guarantee conform in all material
respects to the description thereof contained in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus),
and neither Offeror is a party to or bound by any instrument, agreement or
other arrangement (except as disclosed in the Prospectus) providing for it
to issue any capital stock, rights, warrants, options or other securities,
except for this Agreement. All issued and outstanding shares of capital
stock and equity securities of each Offeror have been duly authorized and
validly issued and are fully paid and non-assessable and were not issued in
violation of any preemptive rights or other rights to subscribe for or
purchase securities.
(ii) (A) The Trust has all requisite power and authority to
issue, sell and deliver the Designated Preferred Securities in
accordance with and upon the terms and conditions set forth in this
Agreement, the Trust Agreement, the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus). All corporate and trust action required to
be taken by the Offerors for the authorization, issuance, sale and
delivery of the Designated Preferred Securities in accordance with
such terms and conditions has been validly and sufficiently taken.
The Designated Preferred Securities, when delivered in accordance with
this Agreement, will be duly and validly issued and outstanding, will
be fully paid and nonassessable undivided beneficial interests in the
assets of the Trust, will be entitled to the benefits of the Trust
Agreement, will not be issued in violation of or subject to any
preemptive or similar rights, and will conform in all material
respects to the description thereof in the Registration Statement, the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) and the Trust Agreement. None of the
Designated Preferred Securities, immediately prior to delivery, will
be subject to any security interest, lien, mortgage, pledge,
encumbrance, restriction upon voting or transfer, preemptive rights,
claim, equity or other title defect.
(B) The Debentures have been duly and validly authorized,
and, when duly and validly executed, authenticated and issued as
provided in the Indenture and delivered to the Trust pursuant to the
Trust Agreement, will constitute valid and legally binding obligations
of the Company entitled to the benefits of the Indenture and will
conform in all material respects to the description thereof contained
in the Prospectus.
(C) The Guarantee has been duly and validly authorized, and,
when duly and validly executed and delivered to the guarantee trustee
for the benefit of the Trust, will constitute a valid and legally
binding obligation of the Company and will conform in all material
respects to the description thereof contained in the Prospectus.
5
<PAGE>
(D) The Agreement as to Expenses and Liabilities (the
"Expense Agreement") has been duly and validly authorized, and, when
duly and validly executed and delivered to the Company, will
constitute a valid and legally binding obligation of the Company and
will conform in all material respects to the description thereof
contained in the Prospectus.
(e) The audited and unaudited consolidated financial statements of the
Company, together with the notes and schedules thereto, included in the
Registration Statement, each Preliminary Prospectus and the Prospectus
fairly present the financial position and the results of operations,
changes in cash flows and changes in stockholders' equity of the Company at
the respective dates and for the respective periods to which they apply;
and each of such audited consolidated financial statements has been
prepared in conformity with generally accepted accounting principles and
the Rules and Regulations, consistently applied throughout the periods
involved, all adjustments necessary for a fair presentation of results for
such periods have been made and such unaudited consolidated financial
statements have been prepared on a basis substantially consistent with that
of such audited consolidated financial statements. Except as described in
the Prospectus, there has been no change or development involving a
Material Adverse Effect since the date of the consolidated financial
statements included in any of the Preliminary Prospectuses, the Prospectus
and the Registration Statement, and the outstanding debt, the property,
both tangible and intangible, and the business of the Company and each of
the Subsidiaries conform in all material respects to the descriptions
thereof contained in the Registration Statement and the Prospectus. The
summary and selected consolidated financial and statistical data included
in the Registration Statement and the Prospectus present fairly the
information shown therein and have been compiled on a basis consistent with
the unaudited and audited consolidated financial statements included
therein. The Company's internal accounting controls are sufficient to
cause the Company to comply with the Foreign Corrupt Practices Act of 1977,
as amended. Neither the Company nor any of the Subsidiaries has any
material contingent obligation which is not disclosed in the Registration
Statement.
(f) Ernst & Young LLP, whose reports are filed with the Commission as
a part of the Registration Statement, are independent certified public
accountants as required by the Act and the Rules and Regulations.
(g) (i) the Company and each of the Subsidiaries have paid all
federal, state, local and foreign taxes for which they are respectively
liable and which are due and payable, including, but not limited to,
withholding taxes and amounts payable under Chapters 21 through 24 of the
Internal Revenue Code of 1986, as amended, and (ii) none of the Company or
any Subsidiary has any tax deficiency or claims outstanding, assessed or,
to its knowledge, proposed against it.
(h) No transfer tax, stamp duty or other similar tax is payable by or
on behalf
6
<PAGE>
of the Underwriters in connection with (i) the issuance by the Trust of the
Designated Preferred Securities, (ii) the purchase by the Underwriters of
the Designated Preferred Securities, or (iii) the consummation by the
Offerors of any of their respective obligations under this Agreement.
(i) The Offerors and each of the Subsidiaries maintain insurance of
the types and in the amounts which are adequate for their businesses, all
of which insurance is in full force and effect.
(j) Except as disclosed in the Prospectus, there is no action, suit,
proceeding, inquiry, investigation, litigation or governmental proceeding,
domestic or foreign, pending or, to the Offerors' knowledge, threatened
against (or currently existing or previously occurring facts or
circumstances that provide a basis for the same), or involving the
properties or business of the Offerors or any of the Subsidiaries, that (i)
questions the validity of the capital stock or equity securities of the
Offerors or this Agreement or of any action taken or to be taken by the
Offerors pursuant to or in connection with this Agreement, (ii) is required
to be disclosed in the Registration Statement that is not so disclosed (and
such proceedings, if any, as are summarized in the Registration Statement
are accurately summarized in all material respects), or (iii) would have a
Material Adverse Effect.
(k) Each of the Offerors has full legal right, power and authority to
enter into this Agreement and to consummate the transactions provided for
herein and therein; and this Agreement has been duly authorized, executed
and delivered by each of the Offerors. This Agreement, assuming it has
been duly authorized, executed and delivered by the Underwriters,
constitutes a legal, valid and binding agreement of the each of the
Offerors enforceable against each of the Offerors in accordance with its
terms (except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights and
the application of equitable principles in any action, legal or equitable,
and except as rights to indemnity or contribution may be limited by
applicable law). Each of the Indenture, the Trust Agreement, the Guarantee
and the Expense Agreement has been duly authorized by the Company, and,
when executed and delivered by the Company on the Closing Date, each of
said agreements will constitute a valid and legally binding obligation of
the Company and will be enforceable against the Company in accordance with
its terms (except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights and
the application of equitable principles in any action, legal or equitable,
and except as rights to indemnity or contribution may be limited by
applicable law). Each of the Indenture, the Trust Agreement and the
Guarantee has been duly qualified under the Trust Indenture Act and will
conform to the description thereof contained in the Prospectus in all
material respects. The execution and delivery of this Agreement by the
Offerors, their performance hereunder, their consummation of
7
<PAGE>
the transactions contemplated herein and the conduct of their business and
that of each of the Subsidiaries as currently conducted and as described in
the Registration Statement, the Prospectus and any amendments or
supplements thereto, has not, does not and will not conflict with in any
material respect or result in any breach or violation of any of the
material terms or provisions of, or constitute a default under, or result
in the creation or imposition of any lien, charge, claim, encumbrance,
pledge, security interest, defect or other restriction on equity of any
kind whatsoever upon, any property or assets (tangible or intangible) of
either Offeror or any of the Subsidiaries, pursuant to the terms of (i) the
corporate charter, operating agreement or by-laws of the Company or any of
the Subsidiaries or the Trust Agreement, the Guarantee or the Indenture,
(ii) any license, contract, indenture, mortgage, deed of trust, voting
trust agreement, stockholders agreement, note, loan or credit agreement or
any other agreement or instrument to which either Offeror or any of the
Subsidiaries is a party or by which any of them is or may be bound or to
which any of their respective properties or assets (tangible or intangible)
is or may be subject or (iii) any statute, judgment, decree, order, rule or
regulation applicable to either Offeror or any of the Subsidiaries of any
arbitrator, court, regulatory body or administrative agency or other
governmental agency or body, domestic or foreign, having jurisdiction over
either Offeror or any of the Subsidiaries or any of their respective
activities or properties.
(l) Except for certain waivers relating to existing registration
rights, which waivers have been provided to the Representative, no consent,
approval, authorization or order of, and no filing with, any court,
regulatory body, government agency or other body, domestic or foreign, is
required for the issuance of the Designated Preferred Securities pursuant
to the Prospectus and the Registration Statement, or the performance of
this Agreement, the Trust Agreement, the Guarantee or the Indenture and the
transactions contemplated thereby, except such as have been or may be
obtained under the Act, the Exchange Act or the Rules and Regulations or
may be required under state securities or Blue Sky laws in connection with
the Underwriters' purchase and distribution of the Designated Preferred
Securities.
(m) The descriptions in the Registration Statement of contracts and
other documents are accurate in all material respects and fairly present
the information required to be shown with respect thereto by Form S-1, and
there are no contracts or other documents that are required by the Act to
be described in the Registration Statement or filed as exhibits to the
Registration Statements that are not described or filed as required, and
the exhibits that have been filed are complete and correct copies of the
documents of which they purport to be copies.
(n) Subsequent to the respective dates as of which information is set
forth in the Registration Statement and Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, neither Offeror
nor any of the Subsidiaries has (i) issued any securities or incurred any
liability or obligation, direct or contingent, for borrowed
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money except for changes in deposit account balances in the ordinary
course, (ii) entered into any transaction which could reasonably be
expected to have a Material Adverse Effect or (iii) declared or paid any
dividend or made any other distribution on or in respect of its capital
stock or equity securities.
(o) Except as disclosed in the Registration Statement, (i) neither of
the Offerors is in violation of its corporate charter, bylaws or other
governing documents (including without limitation the Trust Agreement), and
(ii) no material default exists in the due performance and observance of
any term, covenant or condition of any material license, contract,
indenture, mortgage, installment sale agreement, lease, deed of trust,
voting trust agreement, stockholders agreement, note, loan or credit
agreement or any other agreement or instrument evidencing an obligation for
borrowed money, or any other agreement or instrument to which either
Offeror or any of the Subsidiaries is a party or by which either Offeror or
any of the Subsidiaries may be bound or to which any of the property or
assets (tangible or intangible) of either Offeror or any of the
Subsidiaries is subject or affected.
(p) The Offerors and each of the Subsidiaries have a generally
satisfactory employer-employee relationship with their respective employees
and are in compliance with all federal, state, local, and, where
applicable, foreign, laws and regulations respecting employment and
employment practices, terms and conditions of employment and wages and
hours, except where the failure to so comply would not have a Material
Adverse Effect. To the Offerors' knowledge, there are no pending
investigations involving the Offerors or any of the Subsidiaries by the
United States Department of Labor or any other governmental agency
responsible for the enforcement of such federal, state, local or foreign
laws and regulations. To the Offerors' knowledge, there is no unfair labor
practice charge or complaint against either Offeror or any of the
Subsidiaries pending before the National Labor Relations Board or any
strike, picketing, boycott, dispute, slowdown or stoppage pending or
threatened against or involving either Offeror or any of the Subsidiaries,
and no such strike, picketing, boycott, dispute, slowdown or stoppage has
ever occurred. No representation question exists respecting the employees
of either Offeror or any of the Subsidiaries, and no collective bargaining
agreement or modification thereof is currently being negotiated by either
Offeror or any of the Subsidiaries. There are no expired or existing
collective bargaining agreements of either Offeror or any of the
Subsidiaries.
(q) Neither Offeror nor any of the Subsidiaries has incurred any
liability arising under or as a result of any breach of the provisions of
the Act.
(r) Except as disclosed in the Prospectus, neither Offeror nor any of
the Subsidiaries maintains, sponsors or contributes to any program or
arrangement that is an "employee pension benefit plan", an "employee
welfare benefit plan", or a "multiemployer plan" (collectively, the "ERISA
Plans") as such terms are defined in Sections 3(2), 3(1) and 3(37),
respectively, of the Employee Retirement Income Security
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Act of 1974, as amended ("ERISA"). With respect to any ERISA Plan that an
Offeror or any of the Subsidiaries, now or at any time previously,
maintains or contributes to, all applicable federal laws and regulations
have been complied with, except for such instances of noncompliance which,
either singly or in the aggregate, would not have a Material Adverse
Effect. Neither Offeror nor any of the Subsidiaries has ever completely or
partially withdrawn from a "multiemployer plan."
(s) Each Offeror maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization;
(ii) transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(t) The Offerors have not distributed and will not distribute prior to
the Closing Date any prospectus in connection with the Offering, other than
a Preliminary Prospectus, the Prospectus, the Registration Statement and
the other materials permitted by the 1933 Act and the 1933 Act Rules and
Regulations and reviewed by the Underwriters.
(u) No holders of any equity securities of the Offerors or of any
options, warrants or other convertible or exchangeable securities of the
Offerors exercisable for or convertible or exchangeable for equity
securities of the Offerors have the right (except as have been duly
waived), to include any securities issued by the Company in the
Registration Statement or any registration statement to be filed by the
Company within 180 days of the date hereof or to require the Company or the
Trust to file a registration statement under the Act during such 180 day
period.
(v) Neither Offeror has taken or will take, directly or indirectly
(except for any action that may be taken by the Underwriters), any action
designed to or which has constituted or which might reasonably be expected
to cause or result in, under the Exchange Act or otherwise, stabilization
or manipulation of the price of any security of either Offeror to
facilitate the sale or resale of the Designated Preferred Securities or
otherwise.
(w) Except to the extent disclosed in the Prospectus, (i) the Offerors
and each of the Subsidiaries own or possess, or have a license or other
right to use, the patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
technology, trademarks, service marks and trade names, together with all
applications for any of the foregoing, currently used or held for use by
them in connection with their respective businesses, except where the
failure to own or possess, alone or in
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<PAGE>
aggregate, would not have a Material Adverse Effect on the Offerors, (ii)
neither the Offerors nor any of the Subsidiaries has received any notice of
infringement of or conflict with asserted rights of others with respect to
any of the foregoing which has not been finally resolved and (iii) except
as set forth in the Registration Statement, neither the Offerors nor any of
the Subsidiaries is obligated or under any liability whatsoever to make any
material payments by way of royalties, fees or otherwise to any owner or
licensee of, or other claimant to, any patent, patent right, license,
invention, trademark, service mark, trade name, copyright, know-how
(including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), technology
or other intangible asset, with respect to the use thereof or in connection
with the conduct of its business or otherwise.
(x) The Offerors and each of the Subsidiaries have good and
marketable title to, or valid and enforceable leasehold estates in, all
items of real and personal property stated in the Prospectus (including the
financial statements included or incorporated by reference therein) to be
owned or leased by them, free and clear of all liens, charges, claims,
encumbrances, pledges, security interests, defects or other restrictions on
equity of any kind whatsoever, other than (i) those referred to in the
Prospectus (including such financial statements), (ii) liens for taxes not
yet due and payable and (iii) mechanics, materialmen, warehouse and other
statutory liens arising in the ordinary course of business which, either
individually or in the aggregate, do not have a Material Adverse Effect.
(y) Except as described in the Prospectus under "Underwriters" and on
the cover page of the Prospectus, there are no claims, payments, issuances,
arrangements or understandings for services in the nature of a finder's or
origination fee with respect to the sale of the Designated Preferred
Securities hereunder or any other arrangements, agreements, understandings,
payments or issuance with respect to the Offerors or any of the
Subsidiaries or any of their respective officers, directors, employees or
affiliates that may affect the Underwriters' compensation, as determined by
the National Association of Securities Dealers, Inc. ("NASD").
(z) The Preferred Securities have been approved for listing on the
Nasdaq Stock Market, Inc.'s National Market System (the "NASDAQ-NM") under
the symbol "MTXCP" subject to official notice of issuance.
(aa) The Company is not an "investment company" or an "affiliated
person" or "promoter" of, or "principal Underwriter" for, an "investment
company", as such terms are defined in the Investment Company Act of 1940,
as amended (the "1940 Act"), or subject to regulation under the 1940 Act.
(ab) Any certificate signed by any officer of either Offeror and
delivered to the Underwriters or to the Underwriters' Counsel (as
hereinafter defined) shall be deemed a representation and warranty by such
Offeror to the Underwriters as to the matters covered
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<PAGE>
thereby.
(ac) Except as described in the Prospectus, there are no contractual
encumbrances or restrictions or material legal restrictions on the ability
of any of the Subsidiaries (i) to pay dividends or make any other
distributions on its capital stock or to pay any indebtedness owed to the
Offerors, (ii) to make any loans or advances to, or investments in, the
Offerors or (iii) to transfer any of its property or assets to the
Offerors.
2. PURCHASE, SALE AND DELIVERY OF THE DESIGNATED PREFERRED SECURITIES;
DESCRIPTION OF DESIGNATED PREFERRED SECURITIES.
(a) On the basis of the representations, warranties and agreements
herein contained, and subject to the terms and conditions herein set forth,
the Offerors hereby agree that the Trust shall issue and sell the Firm
Preferred Securities to the several Underwriters, and each Underwriter,
severally and not jointly, agrees to purchase that number of Firm Preferred
Securities set forth in Schedule A opposite its name plus any additional
----------
number of Firm Preferred Securities that such Underwriter may become
obligated to purchase pursuant to the provisions of Section 11 hereof. The
time and date of payment for and delivery of the Firm Preferred Securities
is herein called the "Closing Date." Because the proceeds from the sale of
the Firm Preferred Securities will be used to purchase from the Company its
Junior Subordinated Debentures (as described in the Prospectus), the
Company shall pay to the Underwriters a commission of $1.00 per Firm
Preferred Security purchased (the "Firm Preferred Securities Commission").
(b) In addition, on the basis of the representations, warranties,
covenants and agreements herein contained and upon not less than two
business days' notice from the Representative, for a period of forty-five
(45) days from the effective date of this Agreement, the Trust grants to
the Underwriters an option to purchase up to 165,000 Option Preferred
Securities. Such option is granted solely for the purpose of covering
over-allotments in the sale of Firm Preferred Securities and is exercisable
by written notice to the Trust within 30 days after the Closing Date.
Option Preferred Securities shall be purchased severally for the account of
the Underwriters in proportion to the number of Firm Preferred Securities
set forth opposite the name of such Underwriters in Schedule A hereto. The
----------
time and date of delivery of any of the Option Preferred Securities is
herein called the "Option Closing Date". Because the proceeds from the
sale of the Option Preferred Securities will be used to purchase from the
Company its Junior Subordinated Debentures (as described in the
Prospectus), the Company shall pay to the Underwriters a commission of
$1.00 per Option Preferred Security purchased (the "Option Preferred
Securities Commission"). The respective purchase obligations of each
Underwriter with respect to the Option Preferred Securities may be adjusted
by the Representative so that no Underwriter shall be obligated to purchase
Option Preferred Securities other than in 100 unit increments. The price
of both the Firm Preferred Securities and any Option Preferred Securities
shall be $25 per Preferred Security.
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<PAGE>
(c) Payment of the purchase price and Firm Preferred Securities
Commission and Option Preferred Securities Commission for, and delivery of
certificates for, the Firm Preferred Securities and the Option Preferred
Securities shall be made on each of the Closing Date and the Option Closing
Date, respectively, by wire transfer of immediately available funds,
payable to the order of the Trust, at the offices of Tucker Anthony at One
Beacon Street, Boston, Massachusetts, or at such other place as shall be
agreed upon by the Representative and the Offerors or, if mutually agreed
to by the Representative and the Offerors, by wire transfer, upon delivery
of certificates (in form described below) representing such securities to
the Representative. Delivery and payment for the Firm Preferred Securities
shall be made at 10:00 a.m. (Eastern Time) on the third business day
following the public offering, or at such other time and date as shall be
agreed upon by the Representative and the Trust. In the event that any or
all of the Option Preferred Securities are purchased by the Underwriters,
the date and time at which certificates for Option Preferred Securities are
to be delivered shall be determined by the Representative and the Trust but
shall not be earlier than three nor later than ten full business days after
the exercise of such option, nor in any event prior to the Closing Date.
The Firm Preferred Securities and the Option Preferred Securities, if any,
shall be issued in the form of one or more fully registered global
securities (the "Global Securities") in book-entry form in such
denominations and registered in the name the Representatives may request in
writing at least two business days before the Closing Date or the Option
Closing Date, as applicable. The Global Preferred Securities representing
the Firm Preferred Securities and the Option Preferred Securities, if any,
shall be made available for examination by the Representatives and counsel
to the Underwriters not later than 9:30 A.M. (Eastern Time) on the last
business day prior to the Closing Date or the Option Closing Date, as
applicable.
(d) The Offerors propose that the Trust issue the Designated Preferred
Securities pursuant to an Amended and Restated Trust Agreement among State
Street Bank and Trust Company, as Property Trustee, Wilmington Trust
Company, as Delaware Trustee, the Administrative Trustees named therein
(collectively, the "Trustees"), and the Company, in substantially the form
heretofore delivered to the Underwriters, said Agreement being hereinafter
referred to as the "Trust Agreement." In connection with the issuance of
the Designated Preferred Securities, the Company proposes (i) to issue its
Junior Subordinated Debentures (the "Debentures") pursuant to an Indenture,
between the Company and State Street Bank and Trust Company, as Debenture
Trustee (the "Indenture") and (ii) to guarantee certain payments on the
Designated Preferred Securities pursuant to a Guarantee Agreement between
the Company and State Street Bank and Trust Company, as Guarantee Trustee
(the "Guarantee"), to the extent described therein.
3. PUBLIC OFFERING OF THE DESIGNATED PREFERRED SECURITIES.
As soon after the Registration Statement becomes effective as the
Underwriters deem advisable, the Underwriters shall make a public offering of
the Designated Preferred Securities
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at the price and upon the other terms set forth in the Prospectus. The
Underwriters may from time to time thereafter reduce the public offering price
and change the other selling terms, provided the proceeds to the Trust shall not
be reduced as a result of such reduction or change. Because the NASD is expected
to view the Preferred Securities as interests in a direct participation program,
the offering of the Preferred Securities is being made in compliance with the
applicable provisions of Rule 2810 of the NASD's Conduct Rules.
The Underwriters may reserve and sell such of the Designated Preferred
Securities purchased by the Underwriters as the Underwriters may elect to
dealers chosen by them (the "Selected Dealers") at the public offering price set
forth in the Prospectus less the applicable Selected Dealers' concessions set
forth therein, for re-offering by Selected Dealers to the public at the public
offering price. The Underwriters may allow, and Selected Dealers may re-allow,
a concession set forth in the Prospectus to certain other brokers and dealers.
4. COVENANTS OF THE COMPANY AND THE SELLING STOCKHOLDERS.
The Offerors jointly and severally agree with each of the Underwriters as
follows:
(a) The Offerors will use their best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date
that this Agreement is executed and delivered by the parties hereto, to
become effective as promptly as possible; they will notify the
Representative, promptly after they shall receive notice thereof, of the
time when the Registration Statement or any subsequent amendment to the
Registration Statement has become effective or any supplement to the
Prospectus has been filed; if the Offerors omitted information from the
Registration Statement at the time it was originally declared effective in
reliance upon Rule 430A(a), the Offerors will provide evidence satisfactory
to the Representative that the Prospectus contains such information and has
been filed, within the time period prescribed, with the Commission pursuant
to subparagraph (1) or (4) of Rule 424(b) of the Rules and Regulations
under the Act or as part of a post-effective amendment to such Registration
Statement as originally declared effective which is declared effective by
the Commission; if for any reason the filing of the final form of
Prospectus is required under Rule 424(b)(3) of the Rules and Regulations
under the Act, they will provide evidence satisfactory to the
Representative that the Prospectus contains such information and has been
filed with the Commission within the time period prescribed; they will
notify the Representative promptly of any request by the Commission for the
amending or supplementing of the Registration Statement or the Prospectus
or for additional information; promptly upon the Representative's request,
they will prepare and file with the Commission any amendments or
supplements to the Registration Statement or Prospectus which, in the
opinion of counsel for the Underwriters ("Underwriters' Counsel"), may be
necessary or advisable so as to comply with all applicable laws and
regulations (including, without limitation, Section 11 under the Act and
Rule 10b-5 under the Exchange Act) in connection with the distribution of
the Designated Preferred Securities by the Underwriters; they will promptly
prepare and file
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<PAGE>
with the Commission, and promptly notify the Representative of the filing
of, any amendments or supplements to the Registration Statement or
Prospectus which may be necessary to correct any statements or omissions,
if, at any time when a prospectus relating to the Designated Preferred
Securities is required to be delivered under the Act, any event shall have
occurred as a result of which the Prospectus or any other prospectus
relating to the Designated Preferred Securities as then in effect would
include an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; in case any
Underwriter is required so as to comply with all applicable laws and
regulations (including, without limitation, Section 11 under the Act and
Rule 10b-5 under the Exchange Act) to deliver a prospectus nine months or
more after the effective date of the Registration Statement in connection
with the sale of the Designated Preferred Securities, they will prepare
promptly upon request, but at the expense of the Underwriters, such
amendment or amendments to the Registration Statement and such prospectus
or prospectuses as may be necessary to permit compliance with the
requirements of Section 10(a)(3) of the Act; they will file no amendment or
supplement to the Registration Statement or Prospectus (other than any
document required to be filed under the Exchange Act that upon filing is
deemed incorporated therein by reference) which shall not previously have
been submitted to the Representative a reasonable time prior to the
proposed filing thereof or to which you shall reasonably object in writing
or which is not in compliance with the Act and the Rules and Regulations
under the Act and until the distribution of the Designated Preferred
Securities pursuant to the Prospectus has been completed, the Offerors will
furnish to the Representative at or prior to the filing thereof a copy of
any document that upon filing is deemed to be incorporated by reference in
the Registration Statement or Prospectus.
(b) The Offerors will advise the Representative, promptly after they
shall receive notice or obtain knowledge thereof, of the issuance of any
stop order by the Commission suspending the effectiveness of the
Registration Statement or of the initiation or threat of any proceeding for
that purpose; and they will promptly use their best efforts to prevent the
issuance of any stop order or to obtain their withdrawal at the earliest
possible moment if such stop order should be issued.
(c) The Offerors will use their best efforts to qualify the Designated
Preferred Securities for offering and sale under the securities laws of
such jurisdictions as the Representative may designate and to continue such
qualifications in effect for so long as may be required for the purposes of
the distribution of the Designated Preferred Securities, except that either
Offeror shall not be required in connection therewith or as a condition
thereof to qualify as a foreign corporation or to execute a general consent
to service of process in any jurisdiction. In each jurisdiction in which
the Designated Preferred Securities shall have been qualified as above
provided, the Offerors will make and file such statements and reports in
each year as are or may be reasonably required by the laws of such
jurisdiction.
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<PAGE>
(d) The Offerors will furnish to the Representative, as soon as
available, copies of the Registration Statement (including exhibits, with
the Commission's confirmation of filing), each Preliminary Prospectus, the
Prospectus and any amendment or supplements to such documents, including
any prospectus prepared to permit compliance with Section 10(a)(3) of the
Act, all in such quantities as you may from time to time reasonably
request.
(e) The Offerors will make generally available to their
securityholders as soon as practicable, but in any event not later than the
45th day following the end of the fiscal quarter first occurring after the
first anniversary of the effective date of the Registration Statement, an
earnings statement (which will be in reasonable detail but need not be
audited) complying with the provisions of Section 11(a) of the Act and
covering a twelve-month period beginning after the effective date of the
Registration Statement.
(f) For five years from the date hereof, the Offerors shall furnish to
the Representative copies of all reports and communications (financial or
otherwise) furnished by the Offerors to the holders of the Designated
Preferred Securities as a class, copies of all reports and financial
statements filed with or furnished to the Commission or with any national
securities exchange or the NASDAQ-NM and such other documents, reports and
information concerning the business and financial conditions of the
Offerors as the Representative may reasonably request. During such five
year period the Offerors' financial statements shall be on a consolidated
basis to the extent that the accounts of the Offerors and the Subsidiaries
are consolidated, and shall be accompanied by similar financial statements
for any Subsidiary which is not so consolidated.
(g) The Offerors will apply the net proceeds from the sale of the
Designated Preferred Securities being sold by it in the manner set forth
under the caption "Use of Proceeds" in the Prospectus.
(h) The Offerors will maintain a transfer agent and a registrar (which
may be the same entity as the transfer agent) for the Preferred Securities.
(i) If at any time during the 90-day period after the Registration
Statement becomes effective, any publication or event relating to or
affecting either Offeror shall occur as a result of which in your opinion
the market price of the Preferred Securities has been or is likely to be
materially affected (regardless of whether such publication or event
necessitates a supplement to or amendment of the Prospectus), the Offerors
will, after written notice from the Representative advising the Offerors to
the effect set forth above, forthwith prepare, consult with the
Representative concerning the substance of and disseminate a press release
or other public statement, reasonably satisfactory to the Representative,
responding to or commenting on such publication or event, consistent with
past practice.
(j) Unless you have declined to proceed with the offering contemplated
hereby,
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<PAGE>
for a period ending 180 days from the date of the Prospectus, the Offerors
will not, without your prior written consent, directly or indirectly, offer
for sale, sell or agree to sell or otherwise dispose of any Preferred
Securities other than pursuant to this Agreement, any other beneficial
interests in the assets of the Trust or any securities of the Trust or the
Company that are substantially similar to the Designated Preferred
Securities or the Debentures, including any guarantee of such beneficial
interests or substantially similar securities, or securities convertible
into or exchangeable for or that represent the right to receive any such
beneficial interest or substantially similar securities.
5. PAYMENT OF EXPENSES.
(a) The Company hereby agrees to pay on each of the Closing Date and
the Option Closing Date (to the extent not paid on the Closing Date) all
expenses and fees (other than expenses and fees of Underwriters' Counsel,
except as provided in (iii), (v) and (vii) below) incident to the
performance of the obligations of the Offerors under this Agreement,
including, without limitation, (i) the fees and expenses of accountants and
counsel for the Offerors; (ii) all costs and expenses incurred in
connection with the preparation, duplication, printing, filing (including
the filing fees of the Commission), mailing (including postage with respect
thereto) and delivery of the Registration Statement, the Preliminary
Prospectuses and the Prospectus and any amendments and supplements thereto,
including the cost of all copies thereof supplied to the Representative in
quantities as hereinabove stated, (iii) all costs and expenses incurred in
connection with the printing, mailing and delivery of this Agreement, the
Selected Dealer Agreements, and related documents, including the cost of
all copies thereof supplied to the Underwriters in quantities as
hereinabove stated, (iv) the printing, engraving, issuance and delivery of
the Designated Preferred Securities, including any transfer or other taxes
payable thereon, (v) the qualification of the Designated Preferred
Securities under state or foreign securities or Blue Sky laws, including
the costs of printing and mailing a Blue Sky Memorandum and any supplements
or amendments thereto and disbursements and fees of Underwriters' Counsel
in connection therewith (up to $10,000), (vi) fees and expenses of the
Trust's transfer agent, (vii) fees and expenses incurred in connection with
the review by the NASD of certain of the matters set forth in this
Agreement, and (viii) the fees and expenses incurred in connection with the
listing of the Designated Preferred Securities on the NASDAQ-NM and any
other exchange.
(b) In connection with the Offering, the Offerors agree to reimburse
the Underwriters for their reasonable out-of-pocket expenses ("Reimbursable
Expenses"), including: (i) their reasonable out-of-pocket expenses in
connection with the Registration Statement and related documentation; (ii)
the cost of advertising the Offering; and (iii) the Underwriters' travel
and promotional expenses. To the extent the Reimbursable Expenses (in
addition to expenses payable pursuant to Section 5(a)(v) above) exceed the
$50,000 limit, the Underwriters will bear their own out-of-pocket expenses.
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(c) If this Agreement is terminated by the Representative in
accordance with the provisions of Section 6, Section 10(b) or Section 12,
or if the Offerors shall terminate this Agreement under Section 10(a),
unless the basis upon which the Representative terminates this Agreement
results from the default or omission of any Underwriter, the Company shall
reimburse and indemnify the Underwriters for (i) all of their reasonable
out-of-pocket expenses, including the fees and disbursements of
Underwriters' Counsel, plus (ii) the fees and expenses identified in
Section 5(a)(v) and 5(a)(vii) above.
6. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS.
The obligations of the Underwriters hereunder shall be subject to the
continuing accuracy of the representations and warranties of the Offerors herein
as of the date hereof and as of the Closing Date and the Option Closing Date, if
any, as if they had been made on and as of the Closing Date or the Option
Closing Date, as the case may be; the accuracy on and as of the Closing Date or
Option Closing Date, if any, of the statements of officers of the Offerors made
pursuant to the provisions hereof; and the performance by the Offerors on and as
of the Closing Date and the Option Closing Date, if any, of their respective
covenants and obligations hereunder and to the following further conditions:
(a) The Registration Statement shall have become effective not later
than 5:00 p.m., Eastern Time, on the date of this Agreement or such later
date and time as shall be consented to by the Representative, and, at the
Closing Date and the Option Closing Date, if any, no stop order suspending
the effectiveness of the Registration Statement shall have been issued and
no proceedings for that purpose shall have been instituted or shall be
pending or contemplated by the Commission and any request on the part of
the Commission for additional information shall have been complied with to
the satisfaction of Underwriters' Counsel. If the Offerors have elected to
rely upon Rule 430A of the Rules and Regulations under the Act, the price
of the Designated Preferred Securities and any other information previously
omitted from the effective Registration Statement pursuant to such Rule
430A shall have been transmitted to the Commission for filing pursuant to
Rule 424(b) of the Rules and Regulations under the Act within the
prescribed time period, and, prior to the Closing Date, the Offerors shall
have provided evidence satisfactory to the Representative of such timely
filing, or a post-effective amendment providing such information shall have
been promptly filed and declared effective in accordance with the
requirements of Rule 430A of the Rules and Regulations under the Act.
(b) The Representative shall not have advised the Offerors that the
Registration Statement, or any amendment thereto, contains an untrue
statement of fact that, in the Representative's opinion or in the opinion
of Underwriters' Counsel, is material, or omits to state a fact that, in
the Representative's opinion or in the opinion of Underwriters' Counsel, is
material and is required to be stated therein or is necessary to make the
statements therein not misleading, or that the Prospectus, or any
supplement thereto,
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contains an untrue statement of fact that, in the Representative's opinion
or in the opinion of Underwriters' Counsel, is material, or omits to state
a fact that, in the Representative's opinion or in the opinion of
Underwriters' Counsel, is material and is required to be stated therein or
is necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(c) On the Closing Date and the Option Closing Date, if any, the
Representative shall have received from Underwriters' Counsel the favorable
opinion to the effect that:
(i) the Preferred Securities conform in all material respects to
the description thereof contained in the Prospectus;
(ii) the Registration Statement is effective under the Act, and
if applicable, the filing of all pricing and other
information has been timely made in the appropriate form
under Rule 430A of the Rules and Regulations, and, to such
counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued,
and no proceedings for that purpose have been instituted or
threatened by the Commission. Such counsel shall state that
such counsel has participated in conferences with officers
and other representatives of the Company, counsel for the
Company, representatives of the independent certified public
accountants for the Company and the Representative, at which
conferences the contents of the Registration Statement and
the Prospectus and related matters were discussed and,
although such counsel is not passing upon and does not
assume any responsibility for, nor has such counsel
independently verified, the accuracy, completeness or
fairness of the statements contained in the Registration
Statement and Prospectus (except as to matters referred to
in subparagraph (i) above of this Section 6(c)), no facts
have come to the attention of such counsel (relying as to
materiality to a large extent upon the opinions of officers
and other representatives of the Company) that lead them to
believe that either the Registration Statement or any
amendment thereto, at the time such Registration Statement
or amendment became effective or any Preliminary Prospectus
(other than information omitted pursuant to Rule 430A) or
the Prospectus or any amendment or supplement thereto as of
the date of such opinion contained or contains any untrue
statement of a material fact or omitted or omits to state a
material fact required to be stated therein or necessary to
make the statements therein not misleading (it being
understood that such counsel need express no view with
respect to the financial statements and schedules and other
financial and statistical data included in any Preliminary
Prospectus, the
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Registration Statement (including any exhibit thereto) or
the Prospectus or any amendment or supplement thereto); and
(iii) each of the Preliminary Prospectuses, the Registration
Statement and the Prospectus and any amendments or
supplements thereto (other than the financial statements
and schedules, related notes and other financial and
statistical data included therein, as to which no opinion
need be rendered) comply as to form in all material
respects with the requirements of the Act and the Rules and
Regulations.
The opinion of Underwriters' Counsel to be dated the Option Closing Date,
if any, may confirm as of the Option Closing Date the statements made by
such counsel in their opinion delivered on the Closing Date.
(d) (1) On the Closing Date and the Option Closing Date, if any, the
Underwriters shall have received the favorable opinion of Blackwell Sanders
Peper Martin LLP, counsel to the Offerors, dated the Closing Date and the
Option Closing Date, if any, addressed to the Underwriters and in form and
substance reasonably satisfactory to Underwriters' Counsel, to the effect
that:
(i) (A) the Company and each of the Subsidiaries are duly
organized, validly existing and in good standing under the
laws of their respective jurisdictions of organization, and
(B) the Company is duly qualified as a foreign corporation
and in good standing in listed jurisdictions; all of the
outstanding shares of capital stock of each of Matrix
Capital Bank, Matrix Financial Services Corporation and
United Financial, Inc. (the "Primary Subsidiaries") the
Subsidiaries have been duly authorized and validly issued
and are fully-paid and non-assessable and are owned of
record by the Company or a Subsidiary; to such counsel's
knowledge, (A) the outstanding shares of capital stock of
the Subsidiaries are owned by the Company or a Subsidiary
free and clear of all liens, encumbrances and security
interests (other than those created by the outstanding Bank
stock loan) and (B) no options, warrants or other rights to
purchase, agreements or other obligations to issue or other
rights to convert any obligations into, or exchange any
securities for, any shares of capital stock of or ownership
interests in any of the Subsidiaries are outstanding;
(ii) the Company and each of the Primary Subsidiaries have the
corporate power to own, lease and operate their respective
properties and to conduct their respective businesses as
described in the Prospectus;
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(iii) The capital stock, Debentures and Guarantee of the Company
and the equity securities of the Trust conform to the
description thereof contained in the Prospectus in all
material respects. To such counsel's knowledge, there are
no outstanding rights, options or warrants to purchase, no
other outstanding securities convertible into or
exchangeable for, and no commitments, plans or arrangements
to issue, any shares of capital stock of the Company or
equity securities of the Trust, except as described in the
Prospectus. To such counsel's knowledge, the Firm Preferred
Securities and the Option Preferred Securities are not and
will not be subject to any preemptive rights under Colorado
law or similar statutory rights. The issuance, sale and
delivery of the Designated Preferred Securities and
Debentures in accordance with the terms and conditions of
this Agreement and the Indenture have been duly authorized
by all necessary actions of the Company. All of the
Designated Preferred Securities have been duly and validly
authorized and, when delivered in accordance with this
Agreement will be duly and validly issued, fully paid and
nonassessable, and will conform in all material respects to
the description thereof in the Registration Statement, the
Prospectus and the Trust Agreement; and the Designated
Preferred Securities have been approved for quotation on
NASDAQ-NMS subject to official notice of issuance. There
are no preemptive or other rights to subscribe for or to
purchase, and no restrictions upon the voting or transfer
of, any shares of capital stock or equity securities of the
Offerors or the Subsidiaries pursuant to the corporate
charter, by-laws or other governing documents (including,
without limitation, the Trust Agreement) of the Offerors or
the Subsidiaries, or, to the best of such counsel's
knowledge, any agreement or other instrument to which
either Offeror or any of the Subsidiaries is a party or by
which either Offeror or any of the Subsidiaries may be
bound. To the best of such counsel's knowledge, holders of
securities of the Offerors either do not have any right
that, if exercised, would require the Offerors to cause
such securities to be included in the Registration
Statement or any registration statement to be filed by the
Company within 180 days of the date hereof or to require
the Company to file a registration statement under the Act
during such 180 day period, or have waived such right.
(iv) the Registration Statement is effective under the Act, and,
if applicable, the filing of all pricing and other
information has been timely made in the appropriate form
under Rule 430A of the Rules and Regulations under the Act,
and, to the best of such counsel's
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knowledge, no stop order suspending the effectiveness of
the Registration Statement has been issued, and no
proceedings for that purpose have been instituted or, to
such counsel's knowledge, threatened by the Commission;
(v) the Registration Statement and the Prospectus and any
amendment or supplement thereto (other than the financial
statements and schedules, related notes and other financial
and statistical data included therein, as to which no
opinion need be rendered) comply as to form in all material
respects with the requirements of the Act and the Rules and
Regulations under the Act; and to the best of such
counsel's knowledge, there are no contracts, agreements,
leases or other documents of a character required to be
disclosed in the Registration Statement or Prospectus or to
be filed as exhibits to the Registration Statement that are
not so disclosed or filed;
(vi) (A) to such counsel's knowledge, there is not pending or
threatened against the Offerors or any of the Subsidiaries,
or involving any of their respective properties or
businesses, any action, suit, proceeding, inquiry,
investigation, litigation or governmental proceeding,
domestic or foreign, that (y) is required to be disclosed
in the Registration Statement and is not so disclosed (and
such proceedings as are summarized in the Registration
Statement are accurately summarized in all material
respects), or (z) questions the validity of the capital
stock or equity securities of the Company or the Trust,
this Agreement, or any action taken or to be taken by the
Offerors pursuant to or in connection with this Agreement
and (B) no statute or regulation or legal or, to such
counsel's knowledge, governmental proceeding required to be
described in the Prospectus is not described as required;
(vii) the Company has all requisite corporate power and authority
to enter into this Agreement and to consummate the
transactions provided for herein; and this Agreement has
been duly authorized, executed and delivered by the
Offerors and constitutes the legal, valid and binding
obligation of the Offerors enforceable in accordance with
its terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application relating to
or affecting enforcement of creditors' rights and the
application of equitable principles in any action, legal or
equitable, and except as rights to indemnity or
contribution may be limited by applicable law). The
execution, delivery and performance of this Agreement
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and the consummation of the transactions contemplated
herein and in the Trust Agreement does not and will not
result in any breach or violation of any of the material
terms or provisions of, or constitute a default under, or
result in the creation or imposition of any lien, charge,
claim, pledge, security interest, or other encumbrance
upon, any property or assets (tangible or intangible) of
the Company or any of the Primary Subsidiaries or the
Designated Preferred Securities pursuant to the terms of
(A) the corporate charter, operating agreement or by-laws,
or other governing instrument of the Company or any of the
Primary Subsidiaries, (B) to such counsel's knowledge, the
Guarantee, the Indenture, the Expense Agreement, any
indenture, mortgage, deed of trust, note, loan or credit
agreement or other agreement or instrument known to such
counsel to which the Company or any of the Subsidiaries is
a party or by which any of them is or may be bound or to
which any of their respective properties or assets
(tangible or intangible) is or may be subject, or (C) any
statute, rule or regulation or, to such counsel's
knowledge, any judgment, decree or order applicable to the
Company or any of the Subsidiaries of any arbitrator,
court, regulatory body or administrative agency or other
governmental agency or body having jurisdiction over the
Company or any of the Subsidiaries or any of their
respective activities or properties, the violation of
which would have a Material Adverse Effect;
(viii) each of the Indenture, the Trust Agreement and the
Guarantee has been duly qualified under the Trust
Indenture Act, has been duly authorized, executed and
delivered by the Company, and is a valid and legally
binding obligation of the Company enforceable in
accordance with its terms;
(ix) the Debentures have been duly authorized, executed, and
delivered by the Company, are entitled to the benefits of
the Indenture and are legal, valid and binding obligations
of the Company enforceable against the Company in
accordance with their terms;
(x) the Expense Agreement has been duly authorized, executed
and delivered by the Company, and is a valid and legally
binding obligation of the Company enforceable in
accordance with its terms;
(xi) no consent, approval, authorization or order of, and no
filing with, any federal or state regulatory body,
government agency or other body (other than such as have
been effected under the Act and the Exchange Act and such
as may be required under Blue Sky or state
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<PAGE>
securities laws or the rules of the NASD in connection
with the purchase and distribution of the Designated
Preferred Securities by the Underwriters, as to which no
opinion need be rendered) is required to be obtained or
made by the Company in connection with the issuance of the
Designated Preferred Securities pursuant to the Prospectus
and the Registration Statement, the performance of this
Agreement and the transactions contemplated hereby;
(xii) to such counsel's knowledge, neither the Company nor any
of the Primary Subsidiaries is in violation of any term or
provision of its corporate charter or by-laws; and
(xiii) the statements in the Prospectus under the captions
"Description of the Preferred Securities," "Description of
the Business--Regulation," "Description of the Junior
Subordinated Debentures," "Description of the Guarantee,"
"Relationship Among the Preferred Securities, the Junior
Subordinated Debentures and the Guarantee," "Certain
Federal Income Tax Consequences," and "ERISA
Considerations" have been reviewed by such counsel, and
insofar as they refer to statements of law, descriptions
of statutes, written contracts, or rules or regulations,
are correct in all material respects.
Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Offerors
and representatives of the independent certified public accountants
for the Offerors, at which conferences the contents of the
Registration Statement and the Prospectus and related matters were
discussed, and, although such counsel is not passing upon and does not
assume any responsibility for, nor has such counsel independently
verified, the accuracy, completeness or fairness of the statements
contained in the Registration Statement and Prospectus, no facts have
come to the attention of such counsel that lead them to believe that
either the Registration Statement or any amendment thereto, at any
time such Registration Statement or amendment became effective or any
Preliminary Prospectus circulated by the Underwriters (other than
information omitted pursuant to Rule 430A as of the date of such
Preliminary Prospectus) or the Prospectus or any amendment or
supplement thereto as of the date of such opinion contained or
contains any untrue statement of a material fact or omitted or omits
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the
circumstances under which they were made (it being understood that
such counsel need express no view with respect to the financial
statements and schedules, related notes, and other financial and
statistical data included or incorporated by reference in any
Preliminary Prospectus circulated by the Underwriters, the
Registration Statement (including
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<PAGE>
any exhibit thereto) or the Prospectus or any amendment or supplement
thereto).
The foregoing opinion may be limited to the laws of Missouri, the laws
of the jurisdictions of incorporation of the Company and the
Subsidiaries and applicable United States federal law. In rendering
the foregoing opinions, counsel may rely, to the extent they deem such
reliance proper, on the opinions of other counsel as to matters
governed by the laws of jurisdictions other than the United States and
the State of Missouri. In rendering such opinion, such counsel may
assume that Missouri law is the same as Massachusetts law in all
relevant respects. In rendering such opinions, such counsel may rely
as to matters of fact, to the extent they deem proper, on certificates
and written statements of responsible officers of the Offerors and the
Subsidiaries and certificates or other written statements of officers
of departments of various jurisdictions having custody of documents
respecting the corporate existence or good standing of the Company and
the Subsidiaries, provided that copies of any such statements or
certificates shall be delivered to Underwriters' Counsel if requested.
For purposes of any of the opinions to be rendered by such counsel
pursuant to this subsection (d) of Section 6, the term "to such
counsel's knowledge" shall mean, to the extent that such opinion
relates to a factual issue or to a mixed question of law and fact,
that after examination of documents in such counsel's files relating
to the Offering and considering the actual knowledge of the individual
attorneys in such counsel's firm who have given substantive attention
to matters on behalf of the Offerors, such counsel finds no reason to
believe that any of such opinions is factually incorrect.
The opinion of counsel to the Offerors, to be dated the Option Closing
Date, if any, may confirm as of the Option Closing Date the statements
made by such counsel in their opinion delivered on the Closing Date.
(2) Morris, Nichols, Arsht & Tunnell, special Delaware counsel to the
Offerors, shall have furnished to you their signed opinion, dated as of Closing
Date or the Option Closing Date, as the case may be, in form and substance
satisfactory to Underwriters' Counsel, to the effect that:
(i) The Trust has been duly created and is validly existing in good
standing as a business trust under the Delaware Business Trust
Act, 12 Del. C. (S)(S) 3801 et seq. (the "Delaware Act"),
---- -- -- ----
with the business trust power and authority to (a) own its
property and conduct its business as described in the
Prospectus, (b) execute and deliver, and perform its
obligations under, this Agreement and (c) issue and perform its
obligations under the Trust Preferred Securities.
(ii) The Trust Agreement constitutes a legal, valid and binding
obligation of the Company and the trustees of the Trust in
accordance with its terms.
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(iii) Under the Trust Agreement and the Delaware Act, all necessary
trust action has been taken on the part of the Trust to duly
authorize the execution and delivery of this Agreement by the
Trust and the performance of its obligations hereunder.
(iv) The Designated Preferred Securities have been duly authorized
for issuance by the Trust Agreement and, when issued and
delivered in accordance with the terms of the Trust Agreement
and this Agreement and as described in the Prospectus, will be
validly issued and (subject to the terms of the Trust
Agreement) fully paid and non-assessable undivided beneficial
interests in the assets of the Trust. The holders of the
Preferred Securities will be entitled to the benefits of the
Trust Agreement and will be entitled to the same limitation of
personal liability extended to stockholders of private
corporations for profit organized under the Delaware General
Corporation Law. Such opinion may note that the holders of the
Preferred Securities may be required to make payment or provide
indemnity or security as set forth in the Trust Agreement.
(v) Under the Trust Agreement and the Delaware Act, the issuance of
the Preferred Securities is not subject to preemptive rights.
(vi) The issuance and sale by the Trust of the Designated Preferred
Securities and the Common Securities, the execution, delivery
and performance by the Trust of this Agreement, and the
consummation by the Trust of the transactions contemplated by
this Agreement do not violate (a) any of the provisions of the
Certificate of Trust or the Trust Agreement or (b) any
applicable Delaware law or administrative regulation.
Such opinion may state that it is limited to the laws of the State of Delaware
and that the opinion expressed in paragraph (ii) above is subject to the effect
upon the Trust Agreement of (i) bankruptcy, insolvency, receivership,
liquidation, fraudulent conveyance, reorganization, moratorium and similar laws
of general applicability relating to or affecting creditors' rights and
remedies, (ii) general principles of equity (regardless of whether considered
and applied in a proceeding in equity or at law), and (iii) considerations of
public policy and the effect of applicable law relating to fiduciary duties.
(e) On or prior to each of the Closing Date and the Option Closing
Date, if any, Underwriters' Counsel shall have been furnished such
customary documents, certificates and opinions as they may reasonably
require for the purpose of enabling them to review or pass upon the matters
referred to in subsection (d) of this Section 6, or in order to evidence
the accuracy, completeness or satisfaction of any of the representations,
warranties or conditions of the Offerors herein contained.
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(f) Prior to each of the Closing Date and the Option Closing Date, if
any, (i) from the respective dates as of which information is set forth in
the Registration Statement and Prospectus, there shall have been no
developments that, individually or in the aggregate, have had a Material
Adverse Effect; (ii) there shall have been no transaction, not in the
ordinary course of business, entered into by either of the Offerors or any
of the Subsidiaries, from the latest date as of which the financial
condition of the Offerors and the Subsidiaries is set forth in the
Registration Statement and Prospectus, that, individually or in the
aggregate, has had a Material Adverse Effect; (iii) neither the Offerors
nor any of the Subsidiaries shall be in default under any provision of any
instrument relating to any of their respective outstanding indebtedness;
(iv) no material amount of the assets of the Offerors or any of the
Subsidiaries shall have been pledged or mortgaged, except as set forth in
the Registration Statement and Prospectus (including the exhibits to the
Registration Statement); (v) no action, suit or proceeding, at law or in
equity, shall have been pending or, to the knowledge of the Offerors,
threatened against the Offerors or any of the Subsidiaries, or affecting
any of their respective properties or businesses before or by any court or
federal, state or foreign commission, board or other administrative agency
wherein an unfavorable decision, ruling or finding would have a Material
Adverse Effect; and (vi) no stop order shall have been issued under the Act
and no proceedings therefor shall have been initiated, or, to the
Offerors's knowledge, threatened or contemplated by the Commission.
(g) At each of the Closing Date and the Option Closing Date, if any,
the Representative shall have received a certificate of the Offerors signed
by the principal executive officer and by the chief financial officer of
the Company and by the Administrative Trustees of the Trust, dated the
Closing Date or Option Closing Date, as the case may be, to the effect that
each of such persons has carefully examined the Registration Statement, the
Prospectus and this Agreement and that:
(i) the representations and warranties of the applicable
Offeror in this Agreement are true and correct, as if made
on and as of the Closing Date or the Option Closing Date,
as the case may be, and the applicable Offeror has
complied with all agreements and covenants and satisfied
all conditions contained in this Agreement on its part to
be performed or satisfied at or prior to such Closing Date
or Option Closing Date, as the case may be;
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings
for that purpose have been instituted or are pending or,
to the knowledge of such officer, are threatened under the
Act;
(iii) none of the Registration Statement, the Prospectus nor any
amendment or supplement thereto includes any untrue
statement of
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a material fact or omits to state any material fact
required to be stated therein or necessary to make the
statements therein not misleading and neither the
Preliminary Prospectus nor any supplement thereto included
any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
and
(iv) subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus,
neither the Offerors nor any of the Subsidiaries has
incurred up to and including the Closing Date or the
Option Closing Date, as the case may be, other than in the
ordinary course of their respective businesses, any
material liabilities or obligations, direct or contingent;
the Offerors have not paid or declared any dividends or
other distributions on their capital or equity securities;
neither the Offerors nor any of the Subsidiaries has
entered into any transactions not in the ordinary course
of business; and there has not been any material change in
the capital stock or long-term debt or any material
increase in the short-term borrowings of the Offerors or
any of the Subsidiaries; neither the Offerors nor any of
the Subsidiaries has sustained any material loss or damage
to its property or assets, whether or not insured; there
is no litigation that is pending or, to the knowledge of
such officers, threatened against the Offerors or any of
the Subsidiaries that is required to be set forth in an
amended or supplemented Prospectus that has not been set
forth; and there has occurred no event required to be set
forth in an amended or supplemented Prospectus that has
not been set forth.
References to the Registration Statement and the Prospectus in this
subsection (g) are to such documents as amended and supplemented at the
date of such certificate.
(h) On the date of this Agreement, the Representative shall have
received a letter in form and substance satisfactory to the Representative
and the Underwriters' Counsel addressed to the Underwriters and dated the
date of this Agreement from Ernst and Young and signed by such firm with
respect to such matters as shall have been specified to such firm by the
Underwriters prior to the date hereof. At the Closing Date and the Option
Closing Date, if any, the Underwriters shall have received from Ernst and
Young a letter, dated as of the Closing Date or the Option Closing Date, as
the case may be, reaffirming the statements made in the letter furnished by
Ernst and Young to the Underwriters concurrently with the execution of this
Agreement, each such reaffirming letter to be in form and substance
satisfactory to the Underwriters and the Underwriters' Counsel.
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(i) On each of the Closing Date and the Option Closing Date, if any,
there shall have been duly tendered to the Representative for the several
Underwriters' accounts the appropriate number of Designated Preferred
Securities.
(j) No order suspending the sale of the Designated Preferred
Securities in any jurisdiction designated by the Representative pursuant to
subsection (c) of Section 4 hereof shall have been issued on either the
Closing Date or the Option Closing Date, if any, and no proceedings for
that purpose shall have been instituted or to the knowledge of the
Representative or the Offerors shall be contemplated.
(k) The Designated Preferred Securities delivered on the Closing Date
or the Option Closing Date shall have been duly listed, subject to notice
of official issuance, on the NASDAQ-NM.
(l) On the Closing Date, you shall have received duly executed
counterparts of the Trust Agreement, the Guarantee, the Indenture and the
Expense Agreement.
(m) The NASD, upon review of the terms of the public offering of the
Designated Preferred Securities, shall not have objected to the
Underwriters' participation in such offering.
(n) Prior to the Closing Date and, if applicable, the Option Closing
Date, the Offerors shall have furnished to you and Underwriters' Counsel
all such other documents, certificates and opinions as they have reasonably
requested.
If any condition to the Underwriters' obligations hereunder to be fulfilled
prior to or at the Closing Date or the relevant Option Closing Date, as the case
may be, is not so fulfilled, the Underwriters may terminate this Agreement or,
if the Underwriters so elect, they may waive any such conditions that have not
been fulfilled or extend the time for their fulfillment.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) The Offerors jointly and severally agree to defend, indemnify and
hold harmless each Underwriter against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may become
subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any breach of any representation, warranty, agreement or
covenant of the Company or the Trust herein contained or any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading; and agree to
reimburse each
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Underwriter subject to subsection (d) for any legal or other expenses
reasonably incurred by it in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
Offerors shall not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made
in the Registration Statement, such Preliminary Prospectus or the
Prospectus, or any such amendment or supplement, in reliance upon and in
conformity in all material respects with written information furnished with
respect to any Underwriters by such Underwriter expressly for use in the
Registration Statement, any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, provided that such written information or
omissions only pertain to disclosures in the Registration Statement, any
preliminary Prospectus or the Prospectus or any amendment or supplement
thereto directly relating to the transactions effected by the Underwriters
in connection with this offering, and provided further that the foregoing
indemnity with respect to any Preliminary Prospectus shall not inure to the
benefit of any Underwriter (or to the benefit of any person controlling
such Underwriter) if such untrue statement or omission or alleged untrue
statement or omission made in any Preliminary Prospectus is eliminated or
remedied in the Prospectus and a copy of the Prospectus has not been
furnished to the person asserting any such loss, claim, damage or liability
at or prior to the written confirmation of the sale of such Preferred
Securities to such person.
The indemnity agreement in this Section 7(a) shall extend upon the
same terms and conditions to, and shall inure to the benefit of each
person, if any, who controls any Underwriter within the meaning of the Act.
This indemnity agreement shall be in addition to any liabilities which the
Offerors may otherwise have.
(b) Each Underwriter, severally and not jointly, agrees to indemnify
and hold harmless the Offerors to the same extent as the foregoing
indemnity from the Offerors to the Underwriters but only with respect to
statements or omissions, if any, made in the Registration Statement, any
Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto made in reliance upon, and in conformity in all material respects
with, written information furnished with respect to any Underwriter by such
Underwriter expressly for use in the Registration Statement, any
Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, provided that such written information or omissions only pertain
to disclosures in the Registration Statement, any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto directly relating to
the transactions effected by the Underwriters in connection with this
offering.
The indemnity agreement in this Section 7(b) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each
officer and director of the Company and the Trust who has signed the
Registration Statement, and each person, if any, who controls the Company
or the Trust within the meaning of the Act. This indemnity agreement shall
be in addition to any liabilities which each Underwriter may otherwise
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have. For purposes of this Agreement, the Offerors acknowledge that the
statements with respect to the public offering of the Designated Preferred
Securities set forth under the heading "UNDERWRITERS" and the stabilization
legend in the Prospectus and the last paragraph on the outside front cover
page of the Prospectus have been furnished by the Underwriters expressly
for use therein and constitute the only information furnished in writing by
or on behalf of the Underwriters for inclusion in the Prospectus.
(c) Promptly after receipt by an indemnified party under this Section
7 of notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying party
under this Section 7, notify the indemnifying party in writing of the
commencement thereof, but the omission so to notify the indemnifying party
will not relieve it from any liability which it may have to any indemnified
party under this Section 7 (except to the extent that the omission of such
notice causes actual prejudice to the indemnifying party), or otherwise
than under this Section 7. In case any such action is brought against any
indemnified party, and it notified the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate therein, and to the extent that it may elect by written notice
delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party; provided,
however, if the defendants in any such action include both the indemnified
parties and the indemnifying party and counsel for the indemnified party
shall have reasonably concluded that there may be legal defenses available
to it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party, the indemnified
party or parties shall have the right to select separate counsel reasonably
satisfactory to the indemnifying party or parties to assume such legal
defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties. Upon receipt of notice from
the indemnifying party to such indemnified party of its election so to
assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified
party under this Section 7 for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof
unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being
understood, however, that the indemnifying party shall not be liable for
the expenses of more than one separate counsel approved by the indemnifying
party, representing all the indemnified parties under Section 7(a), 7(b) or
7(c) hereof who are parties to such action), (ii) the indemnifying party
shall not have employed counsel reasonably satisfactory to the indemnified
party to represent the indemnified party within a reasonable time after
notice of commencement of the action, or (iii) the indemnifying party has
authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party. In no event shall any indemnifying
party be liable in respect of any amounts paid in settlement of any action
unless the indemnifying party shall have approved the terms of such
settlement; provided however that such consent shall not be unreasonably
withheld.
31
<PAGE>
(d) In order to provide for just and equitable contribution in any
action in which a claim for indemnification is made pursuant to this
Section 7 but it is judicially determined (by the entry of a final judgment
or decree by a court of competent jurisdiction and the expiration of time
to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact
that this Section 7 provides for indemnification in such case, all the
parties hereto shall contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others)
in such proportion so that the Underwriters are responsible pro rata for
the portion represented by the percentage that the underwriting commission
bears to the public offering price, and the Offerors are responsible for
the remaining portion, provided, however, that (i) no Underwriter shall be
required to contribute any amount in excess of the underwriting commission
applicable to the Preferred Securities purchased by such Underwriter and
(ii) no person guilty of a fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to a contribution from any
person who is not guilty of such fraudulent misrepresentation.
(e) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including without limitation
the provisions of this Section 7, and are fully informed regarding such
provisions. They further acknowledge that the provisions of this Section 7
fairly allocate the risks in light of the ability of the parties to
investigate the Offerors and their business in order to assure that
adequate disclosure is made in the Registration Statement and Prospectus as
required by the Act and the Exchange Act. The parties are advised that
federal or state public policy, as interpreted by the courts in certain
jurisdictions, may be contrary to certain of the provisions of this Section
7, and the parties hereto hereby expressly waive and relinquish any right
or ability to assert such public policy as a defense to a claim under this
Section 7 and further agree not to attempt to assert any such defense.
8. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY.
All representations, warranties and agreements contained in this Agreement
or contained in certificates of officers of the Offerors submitted pursuant
thereto shall be deemed to be representations, warranties and agreements at the
Closing Date and the Option Closing Date, as the case may be, and such
representations, warranties and agreements, and the indemnity and contribution
agreements contained in Section 7 hereof, shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
Underwriter, the Offerors or any controlling person, and shall survive
termination of this Agreement or the issuance or sale and delivery of the
Designated Preferred Securities to the Underwriters.
9. EFFECTIVE DATE.
This Agreement shall become effective at 2:00 p.m., Eastern Time, on the
date hereof, or
32
<PAGE>
at such earlier time after the Registration Statement becomes effective as the
Representative, in its sole discretion, shall release the Designated Preferred
Securities for the sale to the public, provided, however that the provisions of
Sections 5, 7 and 9 of this Agreement shall at all times be effective. For
purposes of this Section 9, the Designated Preferred Securities to be purchased
hereunder shall be deemed to have been so released upon the earlier of dispatch
by the Representative of telegrams to securities dealers releasing such
Designated Preferred Securities for offering or the release by the
Representative for publication of the first newspaper advertisement that is
subsequently published relating to the Designated Preferred Securities.
10. TERMINATION.
(a) Subject to subsection (d) of this Section 10, the Offerors may at
any time before this Agreement becomes effective in accordance with Section
9, terminate this Agreement.
(b) Subject to subsection (d) of this Section 10, the Representative
shall have the right to terminate this Agreement, (i) if any calamitous
domestic or international event or act or occurrence has materially
disrupted, or in the Representative's opinion will in the immediate future
materially disrupt, general securities markets in the United States; or
(ii) if trading on the New York Stock Exchange, the NASDAQ-NM or in the
over-the-counter market shall have been suspended, or minimum or maximum
prices for trading shall have been fixed, or maximum ranges for prices for
securities shall have been required on the over-the-counter market by the
NASD or by order of the Commission or any other government authority having
jurisdiction; or (iii) if the United States shall have become involved in a
war or major hostilities; or (iv) if a banking moratorium has been declared
by the State of New York, the Commonwealth of Massachusetts or any federal
authority; or (v) if a moratorium in foreign exchange trading has been
declared; or (vi) if the Company or the Trust shall have sustained a loss
material or substantial to the Company or the Trust by fire, flood,
accident, hurricane, earthquake, theft, sabotage or other calamity or
malicious act that, whether or not such loss shall have been insured, will,
in the Representative's reasonable opinion, make it inadvisable to proceed
with the delivery of the Designated Preferred Securities; or (vii) if there
shall have been a Material Adverse Effect.
(c) If any party hereto elects to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section 10,
such party shall notify, on the same day as such election is made, the
other parties hereto in accordance with the provisions of Section 13
hereof.
(d) Notwithstanding any contrary provision contained in this
Agreement, any election hereunder or any termination of this Agreement
(including, without limitation, pursuant to Sections 11 and 12 hereof), and
whether or not this Agreement is otherwise carried out, the provisions of
Sections 5, 7 and 9 shall not be in any way affected by such
33
<PAGE>
election or termination or failure to carry out the terms of this Agreement
or any part thereof.
11. SUBSTITUTION OF THE UNDERWRITERS.
If one or more of the Underwriters shall fail (otherwise than for a reason
sufficient to justify the termination of this Agreement under the provisions of
Section 6, Section 10 or Section 12 hereof) to purchase the Designated Preferred
Securities that it or they are obligated to purchase on such date under this
Agreement (the "Defaulted Securities"), the Representative shall use its best
efforts within 24 hours thereafter, to make arrangements for one or more of the
non-defaulting Underwriters, or any other underwriters, to purchase all, but not
less than all, of the Defaulted Securities in such amounts as may be agreed upon
and upon the terms herein set forth; if, however, the Representative shall not
have completed such arrangements within such 24 hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the
total number of Firm Preferred Securities to be purchased on such date, the
non-defaulting Underwriters shall be obligated to purchase the full amount
thereof in the proportions that their respective underwriting obligations
hereunder bear to the underwriting obligations of all non-defaulting
Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the total
number of Firm Preferred Securities and arrangements satisfactory to the
Representative for the purchase of the Defaulted Securities are not made
within 36 hours, this Agreement shall terminate without liability on the
part of any non-defaulting Underwriters. The Offerors may assist the
Representative in making such arrangements by procuring another party
satisfactory to the Representative to purchase the Defaulted Securities on
the terms set forth herein.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of any default by such Underwriter under
this Agreement.
In the event of any such default that does not result in a termination of
this Agreement, the Representative shall have the right to postpone the Closing
Date for a period not exceeding seven days in order to effect any required
changes in the Registration Statement or Prospectus or in any other documents or
arrangements.
12. DEFAULT BY THE TRUST.
If the Trust shall fail at the Closing Date or the Option Closing Date, as
applicable, to sell and deliver the number of Preferred Securities that it is
obligated to sell hereunder on such date, then this Agreement shall terminate
(or, if such default shall occur with respect to any Option Preferred Securities
to be purchased on the Option Closing Date, the Underwriters may, at the
34
<PAGE>
Representative's option, by notice from the Representative to the Company,
terminate the Underwriters' several obligations to purchase Designated Preferred
Securities from the Company on such date) without any liability on the part of
any non-defaulting party other than pursuant to Section 5 and Section 7 hereof.
No action taken pursuant to this Section shall relieve the Trust from liability,
if any, in respect of such default.
13. NOTICES.
All notices and communications hereunder may be mailed or transmitted by
any standard form of telecommunication and, except as herein otherwise
specifically provided, shall be in writing and shall be deemed to have been duly
given when delivered to a notice party hereto at the address specified herein or
at the address subsequently communicated in writing to the notice parties.
Notices to the Underwriters shall be directed to the Representative c/o Tucker
Anthony Incorporated, One Beacon Street, Boston, Massachusetts 02108, Attention:
Gregory W. Benning, Managing Director, with a copy to Regina M. Pisa, P.C.,
Goodwin, Procter & Hoar LLP, Exchange Place, Boston, Massachusetts 02109.
Notices to the Company or the Trust shall be directed to c/o Matrix Bancorp,
Inc., 1380 South 14th Street, Denver, Colorado 80204, facsimile (303) 595-9906
with a copy to Steven F. Carman, Esq., Blackwell Sanders Peper Martin LLP, 2300
Main Street, Kansas City, MO 64108, facsimile (816) 983-8080. In each case a
notice party may change its address for notice hereunder by a written
communication to the other notice parties.
14. PARTIES.
This Agreement shall inure solely to the benefit of and shall be binding
upon the Underwriters, the Offerors and the controlling persons, directors and
officers referred to in Section 7 hereof, and their respective successors, legal
representatives and assigns, and no other person shall have or be construed to
have any legal or equitable right, remedy or claim under or in respect of or by
virtue of this Agreement or any provisions herein contained. No purchaser of
Preferred Securities from any Underwriter shall be deemed to be a successor by
reason merely of such purchase.
15. CONSTRUCTION.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS WITHOUT GIVING
EFFECT TO THE CHOICE OF LAW OR CONFLICT OF LAWS PRINCIPLES.
16. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, and all of which taken together shall be
deemed to be one and the same instrument.
35
<PAGE>
17. ENTIRE AGREEMENT.
This Agreement and the Schedules hereto contain the entire agreement
between the parties hereto in connection with the subject matter hereof and
supersede all prior agreements, written or oral, with respect to such subject
matter.
18. AMENDMENT.
This Agreement and the Schedules hereto may not be amended, modified or
altered without the written agreement of the Offerors and the Underwriters.
If the foregoing correctly sets forth the understanding between the
Underwriters and the Offerors, please so indicate in the space provided below
for that purpose, whereupon this letter shall constitute a binding agreement
among us.
Very truly yours,
MATRIX BANCORP, INC.
By:____________________________
Name:
Title:
MATRIX BANCORP CAPITAL TRUST I
By:_______________________________
Name:
Title:
CONFIRMED AND ACCEPTED AS OF THE
DATE FIRST ABOVE WRITTEN:
TUCKER ANTHONY CLEARY GULL
By:________________________________
Name:
Title:
36
<PAGE>
U.S. BANCORP PIPER JAFFRAY, INC.
By:________________________________
Name:
Title:
37
<PAGE>
SCHEDULE A
----------
NAME NUMBER OF FIRM PREFERRED SECURITIES
- ---- -----------------------------------
Tucker Anthony Cleary Gull ___________
U.S. Bancorp Piper Jaffray, Inc. ___________
Total ___________
38
<PAGE>
Exhibit 4.7
MATRIX BANCORP, INC.
AND
STATE STREET BANK AND TRUST COMPANY
AS TRUSTEE
INDENTURE
______% JUNIOR SUBORDINATED DEBENTURES DUE 2029
DATED AS OF _____________, 1999.
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Section of Section of
Trust Indenture Act Indenture
-----------------
of 1939, as amended
- -----------------------------------------------------------------------------
<C> <S> <C>
310 (a) 9.10
- -----------------------------------------------------------------------------
310 (b) 9.9, 9.11
- -----------------------------------------------------------------------------
310 (c) Not Applicable
- -----------------------------------------------------------------------------
311 (a) 9.14
- -----------------------------------------------------------------------------
311 (b) 9.14
- -----------------------------------------------------------------------------
311 (c) Not Applicable
- -----------------------------------------------------------------------------
312 (a) 6.1, 6.2(a)
- -----------------------------------------------------------------------------
312 (b) 6.2(c)
- -----------------------------------------------------------------------------
313 (a) 6.4(a)
- -----------------------------------------------------------------------------
313 (b) 6.4(b)
- -----------------------------------------------------------------------------
313 (c) 6.4(a), 6.4(b)
- -----------------------------------------------------------------------------
313 (d) 6.4(c)
- -----------------------------------------------------------------------------
314 (a) 6.3(a)
- -----------------------------------------------------------------------------
314 (b) Not Applicable
- -----------------------------------------------------------------------------
314 (c) 15.7
- -----------------------------------------------------------------------------
314 (d) Not Applicable
- -----------------------------------------------------------------------------
314 (e) 15.7
- -----------------------------------------------------------------------------
314 (f) Not Applicable
- -----------------------------------------------------------------------------
315 (a) 9.1(a), 9.3
- -----------------------------------------------------------------------------
315 (b) 9.2
- -----------------------------------------------------------------------------
315 (c) 9.1(a)
- -----------------------------------------------------------------------------
315 (d) 9.1(b)
- -----------------------------------------------------------------------------
315 (e) 7.7
- -----------------------------------------------------------------------------
316 (a) 1.1, 7.6
- -----------------------------------------------------------------------------
316 (b) 7.4(b)
- -----------------------------------------------------------------------------
316 (c) 10.1(b)
- -----------------------------------------------------------------------------
317 (a) 7.2
- -----------------------------------------------------------------------------
317 (b) 5.3
- -----------------------------------------------------------------------------
318 (a) 15.9
- -----------------------------------------------------------------------------
</TABLE>
Note: This Cross-Reference Table does not constitute part of this Indenture and
shall not affect the interpretation of any of its terms or provisions.
<PAGE>
INDENTURE
INDENTURE, dated as of ______________, 1999, between MATRIX BANCORP, INC., a
Colorado corporation (the "Company") and STATE STREET BANK AND TRUST COMPANY, a
trust company duly organized and existing under the laws of The Commonwealth of
Massachusetts, as trustee (the "Trustee");
RECITALS
WHEREAS, for its lawful corporate purposes, the Company has duly authorized
the execution and delivery of this Indenture to provide for the issuance of
securities to be known as its _____% Junior Subordinated Debentures due 2029
(hereinafter referred to as the "Debentures"), the form and substance of such
Debentures and the terms, provisions and conditions thereof to be set forth as
provided in this Indenture; and
WHEREAS, Matrix Bancorp Capital Trust I, a Delaware statutory business trust
(the "Trust"), has offered to the public up to $31,625,000 aggregate liquidation
amount of its Preferred Securities (as defined herein) and proposes to invest
the proceeds from such offering, together with the proceeds of the issuance and
sale by the Trust to the Company of $978,125 aggregate liquidation amount of its
Common Securities (as defined herein), in $32,603,125 aggregate principal amount
of the Debentures; and
WHEREAS, the Company has requested that the Trustee execute and deliver this
Indenture; and
WHEREAS, all requirements necessary to make this Indenture a valid instrument
in accordance with its terms, and to make the Debentures, when executed by the
Company and authenticated and delivered by the Trustee, the valid obligations of
the Company, have been performed, and the execution and delivery of this
Indenture have been duly authorized in all respects; and
WHEREAS, to provide the terms and conditions upon which the Debentures are to
be authenticated, issued and delivered, the Company has duly authorized the
execution of this Indenture; and
WHEREAS, all things necessary to make this Indenture a valid agreement of the
Company, in accordance with its terms, have been done.
NOW, THEREFORE, in consideration of the premises and the purchase of the
Debentures by the holders thereof, it is mutually covenanted and agreed as
follows for the equal and ratable benefit of the holders of the Debentures:
ARTICLE I.
DEFINITIONS
SECTION 1.1. DEFINITIONS OF TERMS.
The terms defined in this Section 1.1 (except as in this Indenture otherwise
expressly provided or unless the context otherwise requires) for all purposes of
this Indenture and of any indenture supplemental hereto shall have the
respective meanings specified in this Section 1.1 and shall include the plural
as well as the singular. All other terms used in this Indenture that are defined
in the Trust Indenture Act, or that are by reference in the Trust Indenture Act
defined in the Securities Act (except as herein otherwise expressly provided or
unless the context otherwise requires), shall have the meanings assigned to such
terms in the Trust Indenture Act and in the Securities Act as in force at the
date of the execution of this instrument. All accounting terms used herein and
not expressly defined shall have the meanings assigned to such terms in
accordance with Generally Accepted Accounting Principles.
1
<PAGE>
"Accelerated Maturity Date" means if the Company elects to accelerate the
Maturity Date in accordance with Section 2.2(c), the date selected by the
Company which is prior to the Scheduled Maturity Date, but is on or after 2004.
"Additional Interest" shall have the meaning set forth in Section 2.5.
"Additional Senior Obligations" means all indebtedness of the Company whether
incurred on or prior to the date of this Indenture or thereafter incurred, for
claims in respect of derivative products such as interest and foreign exchange
rate contracts, commodity contracts and similar arrangements; provided, however,
that Additional Senior Obligations does not include claims in respect of Senior
Debt or Subordinated Debt or obligations which, by their terms, are expressly
stated to be not superior in right of payment to the Debentures or to rank pari
passu in right of payment with the Debentures. For purposes of this definition,
"claim" shall have the meaning assigned thereto in Section 101(4) of the United
States Bankruptcy Code of 1978, as amended.
"Administrative Trustees" shall have the meaning set forth in the Trust
Agreement.
"Affiliate" means, with respect to a specified Person, (a) any Person directly
or indirectly owning, controlling or holding with power to vote 10% or more of
the outstanding voting securities or other ownership interests of the specified
Person; (b) any Person 10% or more of whose outstanding voting securities or
other ownership interests are directly or indirectly owned, controlled or held
with power to vote by the specified Person; (c) any Person directly or
indirectly controlling, controlled by, or under common control with the
specified Person; (d) a partnership in which the specified Person is a general
partner; (e) any officer or director of the specified Person; and (f) if the
specified Person is an individual, any entity of which the specified Person is
an officer, director or general partner.
"Agent Member" means any member of, or participant in, the Depositary.
"Applicable Procedures" means, with respect to any transfer or transaction
involving a Global Debenture or beneficial interest therein, the rules and
procedures of the Depositary for such Global Debenture, in each case to the
extent applicable to such transaction and as in effect from time to time.
"Authenticating Agent" means an authenticating agent with respect to the
Debentures appointed by the Trustee pursuant to Section 2.12.
"Bankruptcy Law" means Title 11, U.S. Code, or any similar federal or state
law for the relief of debtors.
"Board of Directors" means the Board of Directors of the Company or any duly
authorized committee of such Board.
"Board Resolution" means a copy of a resolution certified by the Secretary or
an Assistant Secretary of the Company to have been duly adopted by the Board of
Directors and to be in full force and effect on the date of such certification.
"Business Day" means, with respect to the Debentures, any day other than a
Saturday or a Sunday or a day on which federal or state banking institutions in
Boston, Massachusetts, are authorized or required by law, executive order or
regulation to close, or a day on which the Corporate Trust Office of the Trustee
or the Property Trustee is closed for business.
"Capital Treatment Event" means the receipt by the Trust of an Opinion of
Counsel, rendered by a law firm experienced in such matters to the effect that,
as a result of any amendment to or any change (including any announced
prospective change) in the laws (or any regulations thereunder) of the United
States or any political subdivision thereof or therein, or as a result of any
official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
such proposed change, pronouncement or decision is announced on or after the
date of issuance of the Preferred Securities under the Trust
2
<PAGE>
Agreement, there is more than an insubstantial risk of impairment of the
Company's ability to treat the aggregate Liquidation Amount of the Preferred
Securities (or any substantial portion thereof) as "Tier 1 Capital" (or the then
equivalent thereof) for purposes of the capital adequacy guidelines of the
Federal Reserve, if and to the extent then applicable to the Company, provided,
however, that the inability of the Company to treat all or any portion of the
Liquidation Amount of the Preferred Securities as Tier 1 Capital shall not
constitute the basis for a Capital Treatment Event if such inability results
from the Company having cumulative preferred capital in excess of the amount
which may qualify for treatment as Tier 1 Capital under applicable capital
adequacy guidelines of the Federal Reserve.
"Certificate" means a certificate signed by the principal executive officer,
the principal financial officer, the principal accounting officer, the treasurer
or any vice president of the Company. The Certificate need not comply with the
provisions of Section 15.7.
"Change in 1940 Act Law" shall have the meaning set forth in the definition of
"Investment Company Event."
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or, if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Common Securities" means undivided beneficial interests in the assets of the
Trust which rank pari passu with the Preferred Securities; provided, however,
that upon the occurrence of an Event of Default, the rights of holders of Common
Securities to payment in respect of (i) distributions, and (ii) payments upon
liquidation, redemption and otherwise, are subordinated to the rights of holders
of Preferred Securities.
"Company" means Matrix Bancorp, Inc., a Colorado corporation , a corporation
duly organized and existing under the laws of The Commonwealth of Massachusetts,
and, subject to the provisions of Article XII, shall also include its successors
and assigns.
"Company Request" and "Company Order" mean, respectively, the written request
or order signed in the name of the Company by any Chairman of the Board of
Directors, any Vice Chairman of the Board of Directors, its President or a Vice
President, and by its Chief Financial Officer, its Treasurer, its Secretary or
an Assistant Secretary, and delivered to the Trustee.
"Compounded Interest" shall have the meaning set forth in Section 4.1.
"Corporate Trust Office" means the office of the Trustee at which, at any
particular time, its corporate trust business shall be principally administered,
which office at the date hereof is located at Two International Place, 4th
Floor, Boston, Massachusetts 02110, Attention: Corporate Trust Department.
"Coupon Rate" shall have the meaning set forth in Section 2.5.
"Custodian" means any receiver, trustee, assignee, liquidator, or similar
official under any Bankruptcy Law.
"Debentures" shall have the meaning set forth in the Recitals hereto.
"Debentureholder," "holder of Debentures," "registered holder," or other
similar term, means the Person or Persons in whose name or names a particular
Debenture shall be registered on the books of the Company or the Trustee kept
for that purpose in accordance with the terms of this Indenture.
"Debenture Register" shall have the meaning set forth in Section 2.7(b).
"Debenture Registrar" shall have the meaning set forth in Section 2.7(b).
3
<PAGE>
"Debt" means with respect to any Person, whether recourse is to all or a
portion of the assets of such Person and whether or not contingent, (i) every
obligation of such Person for money borrowed; (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person; (iv) every obligation of such Person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business); (v) every capital lease obligation of such Person; and (vi) and every
obligation of the type referred to in clauses (i) through (v) of another Person
and all dividends of another Person the payment of which, in either case, such
Person has guaranteed or is responsible or liable, directly or indirectly, as
obligor or otherwise.
"Default" means any event, act or condition that with notice or lapse of time,
or both, would constitute an Event of Default.
"Deferred Interest" shall have the meaning set forth in Section 4.1.
"Depositary" means the Depositary Trust Company, or its successor.
"Dissolution Event" means that as a result of the occurrence and continuation
of a Special Event, the Trust is to be dissolved in accordance with the Trust
Agreement and the Debentures held by the Property Trustee are to be distributed
to the holders of the Trust Securities issued by the Trust pro rata in
accordance with the Trust Agreement.
"Distribution" shall have the meaning set forth in the Trust Agreement.
"Event of Default" means, with respect to the Debentures, any event specified
in Section 7.1, which has continued for the period of time, if any, and after
the giving of the notice, if any, therein designated.
"Exchange Act," means the Securities Exchange Act of 1934, as amended, as in
effect at the date of execution of this instrument.
"Extension Period" shall have the meaning set forth in Section 4.1.
"Federal Reserve" means the Board of Governors of the Federal Reserve System.
"Generally Accepted Accounting Principles" means such accounting principles as
are generally accepted at the time of any computation required hereunder.
"Global Debenture" shall mean a Debenture in the form prescribed in Section
2.4 evidencing all or part of the Debentures, issued to the Depositary or its
nominee, and registered in the name of the Depositary or its nominee.
"Governmental Obligations" means securities that are (i) direct obligations of
the United States of America for the payment of which its full faith and credit
is pledged; or (ii) obligations of a Person controlled or supervised by and
acting as an agency or instrumentality of the United States of America, the
payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America that, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depositary receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act) as custodian with respect to any such Governmental
Obligation or a specific payment of principal of or interest on any such
Governmental Obligation held by such custodian for the account of the holder of
such depositary receipt; provided, however, that (except as required by law)
such custodian is not authorized to make any deduction from the amount payable
to the holder of such depositary receipt from any amount received by the
custodian in respect of the Governmental Obligation or the specific payment of
principal of or interest on the Governmental Obligation evidenced by such
depositary receipt.
4
<PAGE>
"Herein," "hereof," and "hereunder," and other words of similar import, refer
to this Indenture as a whole and not to any particular Article, Section or other
subdivision.
"Indenture" means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into in accordance with the terms hereof.
"Interest Payment Date" shall have the meaning set forth in Section 2.5.
"Investment Company Act," means the Investment Company Act of 1940, as
amended, as in effect at the date of execution of this instrument.
"Investment Company Event" means the receipt by the Trust of an Opinion of
Counsel, rendered by a law firm experienced in such matters, to the effect that,
as a result of the occurrence of a change in law or regulation or a change in
interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority (a "Change in 1940 Act Law"),
the Trust is or shall be considered an "investment company" that is required to
be registered under the Investment Company Act, which Change in 1940 Act Law
becomes effective on or after the date of original issuance of the Preferred
Securities under the Trust Agreement.
"Maturity Date" means the date on which the Debentures mature and on which the
principal shall be due and payable together with all accrued and unpaid interest
thereon including Compounded Interest and Additional Interest, if any.
"Ministerial Action" shall have the meaning set forth in Section 3.2.
"Officers' Certificate" means a certificate signed by the President or a Vice
President and by the Treasurer or an Assistant Treasurer or the Controller or an
Assistant Controller or the Secretary or an Assistant Secretary of the Company
that is delivered to the Trustee in accordance with the terms hereof. Each such
certificate shall include the statements provided for in Section 15.7, if and to
the extent required by the provisions thereof.
"Opinion of Counsel" means an opinion in writing of legal counsel, who may be
an employee of or counsel for the Company, that is delivered to the Trustee in
accordance with the terms hereof. Each such opinion shall include the statements
provided for in Section 15.7, if and to the extent required by the provisions
thereof.
"Outstanding," when used with respect to the Debentures, means, as of the date
of determination, all of the Debentures theretofore executed and delivered by
the Trustee under this Indenture, except:
(a) the Debentures theretofore canceled by the Trustee or any Paying Agent, or
delivered to the Trustee or any Paying Agent for cancellation;
(b) the Debentures for whose payment or redemption money in the necessary
amount has been theretofore deposited with the Trustee or any Paying Agent
(other than the Company) for the holders of such Debentures;
(c) the Debentures which have been paid or in exchange for or in lieu of which
other Debentures have been executed and delivered pursuant to Section 2.7;
provided, however, that in determining whether the holders of a majority or
specified percentage in aggregate principal amount of the Debentures have given
any request, demand, authorization, direction, notice, consent or waiver
hereunder, the Debentures owned by the Company or any other obligor on the
Debentures or any Person directly or indirectly controlling or controlled by or
under common control with the Company or any other obligor on the Debentures
shall be disregarded and deemed not to be Outstanding, except that (a) in
determining whether any Trustee shall be protected in relying upon any such
request, demand, authorization, direction, notice, consent or waiver, only the
Debentures that such Trustee actually knows to be so owned shall be so
disregarded; and (b) for the purposes hereof, the Trust shall be deemed not to
be controlled by the Company. The Debentures so owned which have been pledged in
good faith may be regarded as Outstanding if the
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pledgee establishes to the satisfaction of the Trustee the pledgee's right so to
act with respect to such Debentures and the pledgee is not a Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with the Company or any such other obligor.
"Paying Agent" means any paying agent or co-paying agent appointed pursuant to
Section 5.3.
"Person" means any individual, corporation, partnership, joint-venture, trust,
limited liability company, joint-stock company, unincorporated organization or
government or any agency or political subdivision thereof.
"Predecessor Debenture" means every previous Debenture evidencing all or a
portion of the same debt as that evidenced by such particular Debenture; and,
for the purposes of this definition, any Debenture authenticated and delivered
under Section 2.9 in lieu of a lost, destroyed or stolen Debenture shall be
deemed to evidence the same debt as the lost, destroyed or stolen Debenture.
"Preferred Securities" means undivided beneficial interests in the assets of
the Trust which rank pari passu with Common Securities issued by the Trust;
provided, however, that upon the occurrence of an Event of Default, the rights
of holders of Common Securities to payment in respect of (i) distributions, and
(ii) payments upon liquidation, redemption and otherwise, are subordinated to
the rights of holders of Preferred Securities.
"Preferred Securities Guarantee" means any guarantee that the Company may
enter into with the Trustee or other Persons that operates directly or
indirectly for the benefit of holders of Preferred Securities.
"Property Trustee" has the meaning set forth in the Trust Agreement.
"Responsible Officer" when used with respect to the Trustee means the Chairman
of the Board of Directors, the President, any Vice President, the Secretary, the
Treasurer, any trust officer, any corporate trust officer or any other officer
or assistant officer of the Trustee customarily performing functions similar to
those performed by the Persons who at the time shall be such officers,
respectively, or to whom any corporate trust matter is referred because of his
or her knowledge of and familiarity with the particular subject.
"Scheduled Maturity Date" means _________________, 2029.
"Securities Act," means the Securities Act of 1933, as amended, as in effect
at the date of execution of this instrument.
"Securities Register" and "Securities Registrar" have the respective meanings
set forth in the Trust Agreement.
"Senior Debt" means the principal of (and premium, if any) and interest, if
any (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not such
claim for post-petition interest is allowed in such proceeding), on Debt,
whether incurred on or prior to the date of this Indenture or thereafter
incurred, unless, in the instrument creating or evidencing the same or pursuant
to which the same is outstanding, it is provided that such obligations are not
superior in right of payment to the Debentures or to other Debt which is pari
passu with, or subordinated to, the Debentures; provided, however, that Senior
Debt shall not be deemed to include (i) any Debt of the Company which when
incurred and without respect to any election under section 1111(b) of the United
States Bankruptcy Code of 1978, as amended, was without recourse to the Company;
(ii) any Debt of the Company to any of its subsidiaries; (iii) Debt to any
employee of the Company; (iv) Debt which by its terms is subordinated to trade
accounts payable or accrued liabilities arising in the ordinary course of
business to the extent that payments made to the holders of such Debt by the
holders of the Debentures as a result of the subordination provisions of this
Indenture would be greater than they otherwise would have been as a result of
any obligation of such holders to pay amounts over to the obligees on such trade
accounts payable or accrued liabilities arising in the ordinary course of
business as a result of subordination provisions to which such Debt is subject;
and (v) Debt which constitutes Subordinated Debt.
"Senior Indebtedness" shall have the meaning set forth in Section 16.1.
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"Special Event" means a Tax Event, a Capital Treatment Event or an Investment
Company Event.
"Subordinated Debt" means the principal of (and premium, if any) and interest,
if any (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not such
claim for post-petition interest is allowed in such proceeding), on Debt (other
than the Debentures), whether incurred on or prior to the date of this Indenture
or thereafter incurred, which is by its terms expressly provided to be junior
and subordinate to other Debt of the Company (other than the Debentures).
"Subsidiary" means, with respect to any Person, (i) any corporation at least a
majority of whose outstanding Voting Stock shall at the time be owned, directly
or indirectly, by such Person or by one or more of its Subsidiaries or by such
Person and one or more of its Subsidiaries; (ii) any general partnership, joint
venture, trust or similar entity, at least a majority of whose outstanding
partnership or similar interests shall at the time be owned by such Person, or
by one or more of its Subsidiaries, or by such Person and one or more of its
Subsidiaries; and (iii) any limited partnership of which such Person or any of
its Subsidiaries is a general partner.
"Tax Event" means the receipt by the Trust of an Opinion of Counsel, rendered
by a law firm experienced in such matters, to the effect that, as a result of
any amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
which pronouncement or decision is announced on or after the date of issuance of
the Preferred Securities under the Trust Agreement, there is more than an
insubstantial risk that (i) the Trust is, or shall be within 90 days after the
date of such Opinion of Counsel, subject to United States federal income tax
with respect to income received or accrued on the Debentures; (ii) interest
payable by the Company on the Debentures is not, or within 90 days after the
date of such Opinion of Counsel, shall not be, deductible by the Company, in
whole or in part, for United States federal income tax purposes; or (iii) the
Trust is, or shall be within 90 days after the date of such Opinion of Counsel,
subject to more than a de minimis amount of other taxes, duties, assessments or
other governmental charges. The Trust or the Company shall request and receive
such Opinion of Counsel with regard to such matters within a reasonable period
of time after the Trust or the Company shall have become aware of the possible
occurrence of any of the events described in clauses (i) through (iii) above.
"Trust" means Matrix Bancorp Capital Trust I, a Delaware statutory business
trust.
"Trust Agreement" means the Amended and Restated Trust Agreement, dated
________________, 1999, of the Trust.
"Trustee" means State Street Bank and Trust Company and, subject to the
provisions of Article IX, shall also include its successors and assigns, and, if
at any time there is more than one Person acting in such capacity hereunder,
"Trustee" shall mean each such Person.
"Trust Indenture Act," means the Trust Indenture Act of 1939, as amended,
subject to the provisions of Sections 11.1, 11.2, and 12.1, as in effect at the
date of execution of this instrument.
"Trust Securities" means the Common Securities and Preferred Securities,
collectively.
"Voting Stock," as applied to stock of any Person, means shares, interests,
participations or other equivalents in the equity interest (however designated)
in such Person having ordinary voting power for the election of a majority of
the directors (or the equivalent) of such Person, other than shares, interests,
participations or other equivalents having such power only by reason of the
occurrence of a contingency.
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ARTICLE II.
ISSUE, DESCRIPTION, TERMS, CONDITIONS
REGISTRATION AND EXCHANGE OF THE DEBENTURES
SECTION 2.1 DESIGNATION AND PRINCIPAL AMOUNT.
There is hereby authorized Debentures designated the "______% Junior
Subordinated Debentures due 2029," limited in aggregate principal amount up to
$32,603,125, which amount shall be as set forth in any written order of the
Company for the authentication and delivery of Debentures pursuant to Section
2.6.
SECTION 2.2. MATURITY.
(a) The Maturity Date shall be either:
(i) the Scheduled Maturity Date; or
(ii) if the Company elects to accelerate the Maturity Date to be a date
prior to the Scheduled Maturity Date in accordance with Section 2.2(b), the
Accelerated Maturity Date.
(b) The Company may, on one occasion, at any time before the day which is 90
days before the Scheduled Maturity Date and on or after ________________, 2004,
elect to shorten the Maturity Date to the Accelerated Maturity Date provided
that the Company has received any necessary regulatory approvals.
(c) If the Company elects to accelerate the Maturity Date in accordance with
Section 2.2(b), the Company shall give notice to the registered holders of the
Debentures, the Property Trustee and the Trust of the acceleration of the
Maturity Date and the Accelerated Maturity Date at least 90 days and no more
than 180 days before the Accelerated Maturity Date.
SECTION 2.3. FORM AND PAYMENT.
The Debentures shall be issued in the form attached hereto as Exhibit A
without interest coupons. Debentures distributed to holders of Global Preferred
Securities (as defined in the Trust Agreement) upon the dissolution of the Trust
shall be distributed in the form of one or more Global Debentures registered in
the name of a Depositary or its nominee, and deposited with the Securities
Registrar, as custodian for such Depositary, or with such Depositary, for credit
by the Depositary to the respective accounts of the beneficial owners of the
Debentures represented thereby (or such other accounts as they may direct).
Principal and interest on the Debentures issued in certificated form shall be
payable, the transfer of such Debentures shall be registrable and such
Debentures shall be exchangeable for Debentures bearing identical terms and
provisions at the office or agency of the Trustee; provided, however, that
payment of interest may be made at the option of the Company by check mailed to
the holder at such address as shall appear in the Debenture Register or by wire
transfer to an account maintained by the holder as specified in the Debenture
Register, provided that the holder provides proper transfer instructions by the
regular record date. Notwithstanding the foregoing, so long as the holder of any
Debentures is the Property Trustee, the payment of the principal of and interest
(including Compounded Interest and Additional Interest, if any) on such
Debentures held by the Property Trustee shall be made at such place and to such
account as may be designated by the Property Trustee.
SECTION 2.4. ADDITIONAL PROVISIONS REQUIRED IN GLOBAL DEBENTURE
Any Global Debenture issued hereunder shall, in addition to the provisions
contained in the form of Debenture set forth in Exhibit A, bear a legend in
substantially the following form:
THIS DEBENTURE IS A GLOBAL DEBENTURE WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE OF A DEPOSITARY. THIS DEBENTURE IS EXCHANGEABLE FOR DEBENTURES
REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY
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IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE AND MAY NOT BE
TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY
OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE
DEPOSITARY, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
SECTION 2.5. INTEREST.
(a) Each Debenture shall bear interest at the rate of _____% per annum (the
"Coupon Rate") from the original date of issuance until the principal thereof
becomes due and payable, and on any overdue principal and (to the extent that
payment of such interest is enforceable under applicable law) on any overdue
installment of interest at the Coupon Rate, compounded quarterly, payable
(subject to the provisions of Article IV) quarterly in arrears on March 31, June
30, September 30, and December 31 of each year (each, an "Interest Payment
Date," commencing on ________________, 1999), to the Person in whose name such
Debenture or any Predecessor Debenture is registered, at the close of business
on the regular record date for such interest installment, which shall be the
fifteenth day of the last month of the calendar quarter.
(b) The amount of interest payable for any period shall be computed on the
basis of a 360-day year of twelve 30-day months. The amount of interest payable
for any period shorter than a full quarterly period for which interest is
computed shall be computed on the basis of the number of days elapsed in a 360-
day year of twelve 30-day months. In the event that any date on which interest
is payable on the Debentures is not a Business Day, then payment of interest
payable on such date shall be made on the next succeeding day which is a
Business Day (and without any interest or other payment in respect of any such
delay) with the same force and effect as if made on the date such payment was
originally payable.
(c) If, at any time while the Property Trustee is the holder of any
Debentures, the Trust or the Property Trustee is required to pay any taxes,
duties, assessments or governmental charges of whatever nature (other than
withholding taxes) imposed by the United States, or any other taxing authority,
then, in any case, the Company shall pay as additional interest ("Additional
Interest") on the Debentures held by the Property Trustee, such additional
amounts as shall be required so that the net amounts received and retained by
the Trust and the Property Trustee after paying such taxes, duties, assessments
or other governmental charges shall be equal to the amounts the Trust and the
Property Trustee would have received had no such taxes, duties, assessments or
other government charges been imposed.
SECTION 2.6. EXECUTION AND AUTHENTICATIONS.
(a) The Debentures shall be signed on behalf of the Company by its Chief
Executive Officer, President or one of its Vice Presidents, under its corporate
seal attested by its Secretary or one of its Assistant Secretaries. Signatures
may be in the form of a manual or facsimile signature. The Company may use the
facsimile signature of any Person who shall have been a Chief Executive Officer,
President or Vice President thereof, or of any Person who shall have been a
Secretary or Assistant Secretary thereof, notwithstanding the fact that at the
time the Debentures shall be authenticated and delivered or disposed of such
Person shall have ceased to be the Chief Executive Officer, President or a Vice
President, or the Secretary or an Assistant Secretary, of the Company. The seal
of the Company may be in the form of a facsimile of such seal and may be
impressed, affixed, imprinted or otherwise reproduced on the Debentures. The
Debentures may contain such notations, legends or endorsements required by law,
stock exchange rule or usage. Each Debenture shall be dated the date of its
authentication by the Trustee.
(b) A Debenture shall not be valid until manually authenticated by an
authorized signatory of the Trustee, or by an Authenticating Agent. Such
signature shall be conclusive evidence that the Debenture so authenticated has
been duly authenticated and delivered hereunder and that the holder is entitled
to the benefits of this Indenture.
(c) At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Debentures executed by the Company to the
Trustee for authentication, together with a written order of the Company for the
authentication and delivery of such Debentures signed by its Chief Executive
Officer, President or
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any Vice President and its Treasurer or any Assistant Treasurer, and the Trustee
in accordance with such written order shall authenticate and deliver such
Debentures.
(d) In authenticating such Debentures and accepting the additional
responsibilities under this Indenture in relation to such Debentures, the
Trustee shall be entitled to receive, and (subject to Section 9.1) shall be
fully protected in relying upon, an Opinion of Counsel stating that the form and
terms thereof have been established in conformity with the provisions of this
Indenture.
(e) The Trustee shall not be required to authenticate such Debentures if the
issue of such Debentures pursuant to this Indenture shall affect the Trustee's
own rights, duties or immunities under the Debentures and this Indenture or
otherwise in a manner that is not reasonably acceptable to the Trustee.
SECTION 2.7. REGISTRATION OF TRANSFER AND EXCHANGE.
(a) Debentures may be exchanged upon presentation thereof at the office or
agency of the Company designated for such purpose in Boston, Massachusetts , or
at the office of the Debenture Registrar, for other Debentures and for a like
aggregate principal amount, upon payment of a sum sufficient to cover any tax or
other governmental charge in relation thereto, all as provided in this Section
2.7. In respect of any Debentures so surrendered for exchange, the Company shall
execute, the Trustee shall authenticate and such office or agency shall deliver
in exchange therefor the Debenture or Debentures that the Debentureholder making
the exchange shall be entitled to receive, bearing numbers not contemporaneously
outstanding.
(b) The Company shall keep, or cause to be kept, at its office or agency
designated for such purpose in Boston, Massachusetts, or at the office of the
Debenture Registrar, or such other location designated by the Company a register
or registers (herein referred to as the "Debenture Register") in which, subject
to such reasonable regulations as it may prescribe, the Company shall register
the Debentures and the transfers of Debentures as in this Article II provided
and which at all reasonable times shall be open for inspection by the Trustee.
The registrar for the purpose of registering Debentures and transfer of
Debentures as herein provided shall initially be the Trustee and thereafter as
may be appointed by the Company as authorized by Board Resolution (the
"Debenture Registrar"). Upon surrender for transfer of any Debenture at the
office or agency of the Company designated for such purpose, the Company shall
execute, the Trustee shall authenticate and such office or agency shall deliver
in the name of the transferee or transferees a new Debenture or Debentures for a
like aggregate principal amount. All Debentures presented or surrendered for
exchange or registration of transfer, as provided in this Section 2.7, shall be
accompanied (if so required by the Company or the Debenture Registrar) by a
written instrument or instruments of transfer, in form satisfactory to the
Company or the Debenture Registrar, duly executed by the registered holder or by
such holder's duly authorized attorney in writing.
(c) No service charge shall be made for any exchange or registration of
transfer of Debentures, or issue of new Debentures in case of partial
redemption, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge in relation thereto, other than exchanges
pursuant to Section 2.8, Section 3.5(b) and Section 11.4 not involving any
transfer.
(d) The Company shall not be required (i) to issue, exchange or register the
transfer of any Debentures during a period beginning at the opening of business
15 days before the day of the mailing of a notice of redemption of less than all
the Outstanding Debentures and ending at the close of business on the day of
such mailing; nor (ii) to register the transfer of or exchange any Debentures or
portions thereof called for redemption.
SECTION 2.8. TEMPORARY DEBENTURES.
Pending the preparation of definitive Debentures, the Company may execute, and
the Trustee shall authenticate and deliver, temporary Debentures (printed,
lithographed, or typewritten). Such temporary Debentures shall be substantially
in the form of the definitive Debentures in lieu of which they are issued, but
with such omissions, insertions and variations as may be appropriate for
temporary Debentures, all as may be determined by the Company. Every temporary
Debenture shall be executed by the Company and be authenticated by the Trustee
upon
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the same conditions and in substantially the same manner, and with like effect,
as the definitive Debentures. Without unnecessary delay the Company shall
execute and shall furnish definitive Debentures and thereupon any or all
temporary Debentures may be surrendered in exchange therefor (without charge to
the holders), at the office or agency of the Company designated for the purpose
in Boston, Massachusetts, and the Trustee shall authenticate and such office or
agency shall deliver in exchange for such temporary Debentures an equal
aggregate principal amount of definitive Debentures, unless the Company advises
the Trustee to the effect that definitive Debentures need not be executed and
furnished until further notice from the Company. Until so exchanged, the
temporary Debentures shall be entitled to the same benefits under this Indenture
as definitive Debentures authenticated and delivered hereunder.
SECTION 2.9. MUTILATED, DESTROYED, LOST OR STOLEN DEBENTURES.
(a) In case any temporary or definitive Debenture shall become mutilated or be
destroyed, lost or stolen, the Company (subject to the next succeeding sentence)
shall execute, and upon the Company's request the Trustee (subject as aforesaid)
shall authenticate and deliver, a new Debenture bearing a number not
contemporaneously outstanding, in exchange and substitution for the mutilated
Debenture, or in lieu of and in substitution for the Debenture so destroyed,
lost or stolen. In every case the applicant for a substituted Debenture shall
furnish to the Company and the Trustee such security or indemnity as may be
required by them to save each of them harmless, and, in every case of
destruction, loss or theft, the applicant shall also furnish to the Company and
the Trustee evidence to their satisfaction of the destruction, loss or theft of
the applicant's Debenture and of the ownership thereof. The Trustee shall
authenticate any such substituted Debenture and deliver the same upon the
written request or authorization of the Chairman, President or any Vice
President and the Treasurer or any Assistant Treasurer of the Company. Upon the
issuance of any substituted Debenture, the Company may require the payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in relation thereto and any other expenses (including the fees and expenses of
the Trustee) connected therewith. In case any Debenture that has matured or is
about to mature shall become mutilated or be destroyed, lost or stolen, the
Company may, instead of issuing a substitute Debenture, pay or authorize the
payment of the same (without surrender thereof except in the case of a mutilated
Debenture) if the applicant for such payment shall furnish to the Company and
the Trustee such security or indemnity as they may require to save them
harmless, and, in case of destruction, loss or theft, evidence to the
satisfaction of the Company and the Trustee of the destruction, loss or theft of
such Debenture and of the ownership thereof.
(b) Every replacement Debenture issued pursuant to the provisions of this
Section 2.9 shall constitute an additional contractual obligation of the Company
whether or not the mutilated, destroyed, lost or stolen Debenture shall be found
at any time, or be enforceable by anyone, and shall be entitled to all the
benefits of this Indenture equally and proportionately with any and all other
Debentures duly issued hereunder. All Debentures shall be held and owned upon
the express condition that the foregoing provisions are exclusive with respect
to the replacement or payment of mutilated, destroyed, lost or stolen
Debentures, and shall preclude (to the extent lawful) any and all other rights
or remedies, notwithstanding any law or statute existing or hereafter enacted to
the contrary with respect to the replacement or payment of negotiable
instruments or other securities without their surrender.
SECTION 2.10. CANCELLATION.
All Debentures surrendered for the purpose of payment, redemption, exchange or
registration of transfer shall, if surrendered to the Company or any Paying
Agent, be delivered to the Trustee for cancellation, or, if surrendered to the
Trustee, shall be canceled by it, and no Debentures shall be issued in lieu
thereof except as expressly required or permitted by any of the provisions of
this Indenture. On request of the Company at the time of such surrender, the
Trustee shall deliver to the Company canceled Debentures held by the Trustee. In
the absence of such request the Trustee may dispose of canceled Debentures in
accordance with its standard procedures and deliver a certificate of disposition
to the Company. If the Company shall otherwise acquire any of the Debentures,
however, such acquisition shall not operate as a redemption or satisfaction of
the indebtedness represented by such Debentures unless and until the same are
delivered to the Trustee for cancellation.
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SECTION 2.11. BENEFIT OF INDENTURE.
Nothing in this Indenture or in the Debentures, express or implied, shall give
or be construed to give to any Person, other than the parties hereto and the
holders of the Debentures (and, with respect to the provisions of Article XVI,
the holders of Senior Indebtedness) any legal or equitable right, remedy or
claim under or in respect of this Indenture, or under any covenant, condition or
provision herein contained; all such covenants, conditions and provisions being
for the sole benefit of the parties hereto and of the holders of the Debentures
(and, with respect to the provisions of Article XVI, the holders of Senior
Indebtedness).
SECTION 2.12. AUTHENTICATION AGENT.
(a) So long as any of the Debentures remain Outstanding there may be an
Authenticating Agent for any or all such Debentures, which the Trustee shall
have the right to appoint. Said Authenticating Agent shall be authorized to act
on behalf of the Trustee to authenticate Debentures issued upon exchange,
transfer or partial redemption thereof, and Debentures so authenticated shall be
entitled to the benefits of this Indenture and shall be valid and obligatory for
all purposes as if authenticated by the Trustee hereunder. All references in
this Indenture to the authentication of Debentures by the Trustee shall be
deemed to include authentication by an Authenticating Agent. Each Authenticating
Agent shall be acceptable to the Company and shall be a corporation that has a
combined capital and surplus, as most recently reported or determined by it,
sufficient under the laws of any jurisdiction under which it is organized or in
which it is doing business to conduct a trust business, and that is otherwise
authorized under such laws to conduct such business and is subject to
supervision or examination by federal or state authorities. If at any time any
Authenticating Agent shall cease to be eligible in accordance with these
provisions, it shall resign immediately.
(b) Any Authenticating Agent may at any time resign by giving written notice
of resignation to the Trustee and to the Company. The Trustee may at any time
(and upon request by the Company shall) terminate the agency of any
Authenticating Agent by giving written notice of termination to such
Authenticating Agent and to the Company. Upon resignation, termination or
cessation of eligibility of any Authenticating Agent, the Trustee may appoint an
eligible successor Authenticating Agent acceptable to the Company. Any successor
Authenticating Agent, upon acceptance of its appointment hereunder, shall become
vested with all the rights, powers and duties of its predecessor hereunder as if
originally named as an Authenticating Agent pursuant hereto.
SECTION 2.13. GLOBAL DEBENTURES
(a) Each Global Debenture issued under this Indenture shall be registered in
the name of the Depositary designated by the Company for such Global Debentures
or a nominee thereof and delivered to such Depositary or a nominee thereof or
custodian therefor, and each such Global Debenture shall constitute a single
Debenture for all purposes of this Indenture.
(b) Notwithstanding any other provision in this Indenture, no Global Debenture
may be exchanged in whole or in part for Debentures registered, and no transfer
of a Global Debenture in whole or in part may be registered, in the name of any
Person other than the Depositary for such Global Debenture or a nominee thereof
unless (i) such Depositary advises the Trustee in writing that such Depositary
is no longer willing or able to properly discharge its responsibilities as
Depositary with respect to such Global Debenture, and the Company is unable to
locate a qualified successor within 90 days of receipt of such notice from the
Depositary, (ii) the Company executes and delivers to the Trustee a Company
Order stating that the Company elects to terminate the book-entry system through
the Depositary, or (iii) there shall have occurred and be continuing an Event of
Default.
(c) If any Global Debenture is to be exchanged for other Debentures or
cancelled whole, it shall be surrendered by or on behalf of the Depositary or
its nominee to the Debenture Registrar for exchange or cancellation as provided
in this Article II. If any Global Debenture is to be exchanged for other
Debentures or canceled in part, or if another Debenture is to be exchanged in
whole or in part for a beneficial interest in any Global Debenture, then either
(i) such Global Debenture shall be so surrendered for exchange or cancellation
as provided in this Article II or (ii) the principal amount thereof shall be
reduced, or increased by an amount equal to the portion thereof to be so
exchanged or canceled, or equal to the principal amount of such other Debenture
to be so exchanged for a beneficial interest
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therein, as the case may be, by means of an appropriate adjustment made on the
records of the Debenture Registrar, whereupon the Trustee, in accordance with
the Applicable Procedures, shall instruct the Depositary or its authorized
representative to make a corresponding adjustment to its records. Upon any such
surrender or adjustment of a Global Debenture by the Depositary, accompanied by
registration instructions, the Trustee shall, subject to Section 2.7 and as
otherwise provided in this Article II, authenticate and deliver any Debentures
issuable in exchange for such Global Debenture (or any portion thereof) in
accordance with the instructions of the Depositary. The Trustee shall not be
liable for any delay in delivery of such instructions and may conclusively rely
on, and shall be fully protected in relying on, such instructions.
(d) Every Debenture authenticated and delivered upon registration of transfer
of, or in exchange for or in lieu of, a Global Debenture or any portion thereof,
whether pursuant to this Article II or otherwise, shall be authenticated and
delivered in the form of, and shall be, a Global Debenture, unless such
Debenture is registered in the name of a Person other than the Depositary for
such Global Debenture or a nominee thereof.
(e) The Depositary or its nominee, as the registered owner of a Global
Debenture, shall be the Holder of such Global Debenture for all purposes under
this Indenture and the Debentures, and owners of beneficial interests in a
Global Debenture shall hold such interests pursuant to the Applicable
Procedures. Accordingly, any such owner's beneficial interest in a Global
Debenture shall be shown only on, and the transfer of such interest shall be
effected only through, records maintained by the Depositary or its nominee or
agent. Neither the Trustee nor the Securities Registrar shall have any
liability in respect of any transfers effected by the Depositary.
(f) The rights of owners of beneficial interests in a Global Debenture shall
be exercised only through the Depositary and shall be limited to those
established by law and agreements between such owners and the Depositary and/or
its Agent Members.
ARTICLE III.
REDEMPTION OF DEBENTURES
SECTION 3.1. REDEMPTION.
Subject to the Company having received any necessary regulatory approvals, the
Company may redeem the Debentures issued hereunder on and after the dates set
forth in and in accordance with the terms of this Article III.
SECTION 3.2. SPECIAL EVENT REDEMPTION.
Subject to the Company having received any necessary regulatory approvals, if
a Special Event has occurred and is continuing, then, notwithstanding Section
3.3(a) but subject to Section 3.3(b), the Company shall have the right upon not
less than 30 days nor more than 60 days notice to the holders of the Debentures
to redeem the Debentures, in whole but not in part, for cash within 180 days
following the occurrence of such Special Event (the "180-Day Period") at a
redemption price equal to 100% of the principal amount to be redeemed plus any
accrued and unpaid interest thereon to the date of such redemption, including
any Deferred Interest (the "Redemption Price"), provided that if at the time
there is available to the Company the opportunity to eliminate, within the 180-
Day Period, a Tax Event by taking some ministerial action (a "Ministerial
Action"), such as filing a form or making an election, or pursuing some other
similar reasonable measure which has no adverse effect on the Company, the Trust
or the holders of the Trust Securities issued by the Trust, the Company shall
pursue such Ministerial Action in lieu of redemption, and, provided further,
that the Company shall have no right to redeem the Debentures while the Trust is
pursuing any Ministerial Action pursuant to its obligations hereunder. The
Redemption Price shall be paid prior to 12:00 noon, Boston time, on the date of
such redemption or such earlier time as the Company determines, provided that
the Company shall deposit with the Trustee an amount sufficient to pay the
Redemption Price by 10:00 a.m., Boston time, on the date such Redemption Price
is to be paid.
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SECTION 3.3. OPTIONAL REDEMPTION BY COMPANY.
(a) Subject to the provisions of Section 3.3(b), except as otherwise may be
specified in this Indenture, the Company shall have the right to redeem the
Debentures, in whole or in part, from time to time, on or after June 30, 2003,
at a Redemption Price equal to 100% of the principal amount to be redeemed plus
any accrued and unpaid interest thereon to the date of such redemption,
including any Deferred Interest. Any redemption pursuant to this Section 3.3(a)
shall be made upon not less than 30 days nor more than 60 days notice to the
holder of the Debentures, at the Redemption Price. If the Debentures are only
partially redeemed pursuant to this Section 3.3, the Debentures shall be
redeemed pro rata or by lot or in such other manner as the Trustee shall deem
appropriate and fair in its discretion. The Redemption Price shall be paid prior
to 12:00 noon, Boston time, on the date of such redemption or at such earlier
time as the Company determines provided that the Company shall deposit with the
Trustee an amount sufficient to pay the Redemption Price by 10:00 a.m., Boston
time, on the date such Redemption Price is to be paid.
(b) If a partial redemption of the Debentures would result in the delisting of
the Preferred Securities issued by the Trust from the Nasdaq National Market or
any national securities exchange or other organization on which the Preferred
Securities are then listed, the Company shall not be permitted to effect such
partial redemption and may only redeem the Debentures in whole.
SECTION 3.4. NOTICE OF REDEMPTION.
(a) In case the Company shall desire to exercise such right to redeem all or,
as the case may be, a portion of the Debentures in accordance with the right
reserved so to do, the Company shall, or shall cause the Trustee to upon receipt
of 45 days' written notice from the Company (which notice shall, in the event of
a partial redemption, include a representation to the effect that such partial
redemption shall not result in the delisting of the Preferred Securities as
described in Section 3.3(b) above), give notice of such redemption to holders of
the Debentures to be redeemed by mailing, first class postage prepaid, a notice
of such redemption not less than 30 days and not more than 60 days before the
date fixed for redemption to such holders at their last addresses as they shall
appear upon the Debenture Register unless a shorter period is specified in the
Debentures to be redeemed. Any notice that is mailed in the manner herein
provided shall be conclusively presumed to have been duly given, whether or not
the registered holder receives the notice. In any case, failure duly to give
such notice to the holder of any Debenture designated for redemption in whole or
in part, or any defect in the notice, shall not affect the validity of the
proceedings for the redemption of any other Debentures. In the case of any
redemption of Debentures prior to the expiration of any restriction on such
redemption provided in the terms of such Debentures or elsewhere in this
Indenture, the Company shall furnish the Trustee with an Officers' Certificate
evidencing compliance with any such restriction. Each such notice of redemption
shall specify the date fixed for redemption and the Redemption Price and shall
state that payment of the Redemption Price shall be made at the office or agency
of the Company in Boston, Massachusetts or at the Corporate Trust Office, upon
presentation and surrender of such Debentures, that interest accrued to the date
fixed for redemption shall be paid as specified in said notice and that from and
after said date interest shall cease to accrue. If less than all the Debentures
are to be redeemed, the notice to the holders of the Debentures shall specify
the particular Debentures to be redeemed. If the Debentures are to be redeemed
in part only, the notice shall state the portion of the principal amount thereof
to be redeemed and shall state that on and after the redemption date, upon
surrender of such Debenture, a new Debenture or Debentures in principal amount
equal to the unredeemed portion thereof shall be issued.
(b) If less than all the Debentures are to be redeemed, the Company shall give
the Trustee at least 45 days' notice in advance of the date fixed for redemption
as to the aggregate principal amount of Debentures to be redeemed, and thereupon
the Trustee shall select, by lot or in such other manner as it shall deem
appropriate and fair in its discretion, the portion or portions (equal to $25 or
any integral multiple thereof) of the Debentures to be redeemed and shall
thereafter promptly notify the Company in writing of the numbers of the
Debentures to be redeemed, in whole or in part. The Company may, if and whenever
it shall so elect pursuant to the terms hereof, by delivery of instructions
signed on its behalf by its President or any Vice President, instruct the
Trustee or any Paying Agent to call all or any part of the Debentures for
redemption and to give notice of redemption in the manner set forth in this
Section 3.4, such notice to be in the name of the Company or its own name as the
Trustee or such Paying Agent may deem advisable. In any case in which notice of
redemption is to be given by the Trustee or any such Paying Agent,
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the Company shall deliver or cause to be delivered to, or permit to remain with,
the Trustee or such Paying Agent, as the case may be, such Debenture Register,
transfer books or other records, or suitable copies or extracts therefrom,
sufficient to enable the Trustee or such Paying Agent to give any notice by mail
that may be required under the provisions of this Section 3.4.
SECTION 3.5. PAYMENT UPON REDEMPTION.
(a) If the giving of notice of redemption shall have been completed as above
provided, the Debentures or portions of Debentures to be redeemed specified in
such notice shall become due and payable on the date and at the place stated in
such notice at the applicable Redemption Price, and interest on such Debentures
or portions of Debentures shall cease to accrue on and after the date fixed for
redemption, unless the Company shall default in the payment of such Redemption
Price with respect to any such Debenture or portion thereof. On presentation and
surrender of such Debentures on or after the date fixed for redemption at the
place of payment specified in the notice, said Debentures shall be paid and
redeemed at the Redemption Price (but if the date fixed for redemption is an
Interest Payment Date, the interest installment payable on such date shall be
payable to the registered holder at the close of business on the applicable
record date pursuant to Section 3.3).
(b) Upon presentation of any Debenture that is to be redeemed in part only,
the Company shall execute and the Trustee shall authenticate and the office or
agency where the Debenture is presented shall deliver to the holder thereof, at
the expense of the Company, a new Debenture of authorized denomination in
principal amount equal to the unredeemed portion of the Debenture so presented.
SECTION 3.6. NO SINKING FUND.
The Debentures are not entitled to the benefit of any sinking fund.
ARTICLE IV.
EXTENSION OF INTEREST PAYMENT PERIOD
SECTION 4.1. EXTENSION OF INTEREST PAYMENT PERIOD.
So long as no Event of Default has occurred and is continuing, the Company
shall have the right, at any time and from time to time during the term of the
Debentures, to defer payments of interest by extending the interest payment
period of such Debentures for a period not exceeding 20 consecutive quarters
(the "Extension Period"), during which Extension Period no interest shall be due
and payable; provided that no Extension Period may extend beyond the Maturity
Date. Interest, the payment of which has been deferred because of the extension
of the interest payment period pursuant to this Section 4.1, shall bear interest
thereon at the Coupon Rate compounded quarterly for each quarter of the
Extension Period ("Compounded Interest"). At the end of the Extension Period,
the Company shall calculate (and deliver such calculation to the Trustee) and
pay all interest accrued and unpaid on the Debentures, including any Additional
Interest and Compounded Interest (together, "Deferred Interest") that shall be
payable to the holders of the Debentures in whose names the Debentures are
registered in the Debenture Register on the first record date after the end of
the Extension Period. Before the termination of any Extension Period, the
Company may further extend such period, provided that such period together with
all such further extensions thereof shall not exceed 20 consecutive quarters, or
extend beyond the Maturity Date of the Debentures. Upon the termination of any
Extension Period and upon the payment of all Deferred Interest then due, the
Company may commence a new Extension Period, subject to the foregoing
requirements. No interest shall be due and payable during an Extension Period,
except at the end thereof, but the Company may prepay at any time all or any
portion of the interest accrued during an Extension Period.
SECTION 4.2. NOTICE OF EXTENSION.
(a) If the Property Trustee is the only registered holder of the Debentures at
the time the Company selects an Extension Period, the Company shall give written
notice to the Administrative Trustees, the Property Trustee and the Trustee of
its selection of such Extension Period two Business Days before the earlier of
(i) the next succeeding
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date on which Distributions on the Trust Securities issued by the Trust are
payable; or (ii) the date the Trust is required to give notice of the record
date, or the date such Distributions are payable, to the Nasdaq National Market
or other applicable self-regulatory organization or to holders of the Preferred
Securities issued by the Trust, but in any event at least one Business Day
before such record date.
(b) If the Property Trustee is not the only holder of the Debentures at the
time the Company selects an Extension Period, the Company shall give the holders
of the Debentures and the Trustee written notice of its selection of such
Extension Period at least two Business Days before the earlier of (i) the next
succeeding Interest Payment Date; or (ii) the date the Company is required to
give notice of the record or payment date of such interest payment to the Nasdaq
National Market or other applicable self-regulatory organization or to holders
of the Debentures.
(c) The quarter in which any notice is given pursuant to paragraphs (a) or (b)
of this Section 4.2 shall be counted as one of the 20 quarters permitted in the
maximum Extension Period permitted under Section 4.1.
SECTION 4.3. LIMITATION ON TRANSACTIONS.
If (i) the Company shall exercise its right to defer payment of interest as
provided in Section 4.1; or (ii) there shall have occurred any Event of Default,
then (a) the Company shall not declare or pay any dividend on, make any
distributions with respect to, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its capital stock; (b) the Company
shall not make any payment of interest, principal or premium, if any, or repay,
repurchase or redeem any debt securities issued by the Company which rank pari
passu with or junior to the Debentures; or make any guarantee payments with
respect to any guarantee by the Company of the debt securities of any subsidiary
of the Company if such guarantee ranks pari passu with or junior in interest to
the Debentures; provided, however, that notwithstanding the foregoing the
Company may make payments pursuant to its obligations under the Preferred
Securities Guarantee; and (c) the Company shall not redeem, purchase or acquire
less than all of the Outstanding Debentures or any of the Preferred Securities.
ARTICLE V.
PARTICULAR COVENANTS OF THE COMPANY
SECTION 5.1. PAYMENT OF PRINCIPAL AND INTEREST.
The Company shall duly and punctually pay or cause to be paid the principal of
and interest on the Debentures at the time and place and in the manner provided
herein. Each such payment of the principal of and interest on the Debentures
shall relate only to the Debentures, shall not be combined with any other
payment of the principal of or interest on any other obligation of the Company,
and shall be clearly and unmistakably identified as pertaining to the
Debentures.
SECTION 5.2. MAINTENANCE OF AGENCY.
So long as any of the Debentures remain Outstanding, the Company shall
maintain an office or agency in Boston, Massachusetts, and at such other
location or locations as may be designated as provided in this Section 5.2,
where (i) Debentures may be presented for payment; (ii) Debentures may be
presented as hereinabove authorized for registration of transfer and exchange;
and (iii) notices and demands to or upon the Company in respect of the
Debentures and this Indenture may be given or served, such designation to
continue with respect to such office or agency until the Company shall, by
written notice signed by its President or a Vice President and delivered to the
Trustee, designate some other office or agency for such purposes or any of them.
If at any time the Company shall fail to maintain any such required office or
agency or shall fail to furnish the Trustee with the address thereof, such
presentations, notices and demands may be made or served at the Corporate Trust
Office of the Trustee, and the Company hereby appoints the Trustee as its agent
to receive all such presentations, notices and demands. In addition to any such
office or agency, the Company may from time to time designate one or more
offices or agencies outside of Boston, Massachusetts, where the Debentures may
be presented for registration or transfer and for exchange in the manner
provided herein, and the Company may from time to time rescind such designation
as the Company may deem desirable or expedient; provided, however, that no such
designation or rescission shall in any manner relieve
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the Company of its obligation to maintain any such office or agency in Boston,
Massachusetts, for the purposes above mentioned. The Company shall give the
Trustee prompt written notice of any such designation or rescission thereof.
SECTION 5.3. PAYING AGENTS.
(a) The Property Trustee shall act as the Paying Agent. If the Company shall
appoint one or more paying agents for the Debentures, other than the Property
Trustee, the Company shall cause each such paying agent to execute and deliver
to the Trustee an instrument in which such agent shall agree with the Trustee,
subject to the provisions of this Section 5.3:
(i) that it shall hold all sums held by it as such agent for the payment
of the principal of or interest on the Debentures (whether such sums have been
paid to it by the Company or by any other obligor of such Debentures) in trust
for the benefit of the Persons entitled thereto;
(ii) that it shall give the Trustee notice of any failure by the Company
(or by any other obligor of such Debentures) to make any payment of the
principal of or interest on the Debentures when the same shall be due and
payable;
(iii) that it shall, at any time during the continuance of any failure
referred to in the preceding paragraph (a)(ii) above, upon the written request
of the Trustee, forthwith pay to the Trustee all sums so held in trust by such
Paying Agent; and
(iv) that it shall perform all other duties of Paying Agent as set forth
in this Indenture.
(b) If the Company shall act as its own Paying Agent with respect to the
Debentures, it shall on or before each due date of the principal of or interest
on such Debentures, set aside, segregate and hold in trust for the benefit of
the Persons entitled thereto a sum sufficient to pay such principal or interest
so becoming due on Debentures until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and shall promptly notify the Trustee
of such action, or any failure (by it or any other obligor on such Debentures)
to take such action. Whenever the Company shall have one or more Paying Agents
for the Debentures, it shall, prior to each due date of the principal of or
interest on any Debentures, deposit with the Paying Agent a sum sufficient to
pay the principal or interest so becoming due, such sum to be held in trust for
the benefit of the Persons entitled to such principal or interest, and (unless
such Paying Agent is the Trustee) the Company shall promptly notify the Trustee
of this action or failure so to act.
(c) Notwithstanding anything in this Section 5.3 to the contrary, (i) the
agreement to hold sums in trust as provided in this Section 5.3 is subject to
the provisions of Section 13.3 and 13.4; and (ii) the Company may at any time,
for the purpose of obtaining the satisfaction and discharge of this Indenture or
for any other purpose, pay, or direct any Paying Agent to pay, to the Trustee
all sums held in trust by the Company or such Paying Agent, such sums to be held
by the Trustee upon the same terms and conditions as those upon which such sums
were held by the Company or such Paying Agent; and, upon such payment by any
Paying Agent to the Trustee, such Paying Agent shall be released from all
further liability with respect to such money.
SECTION 5.4. APPOINTMENT TO FILL VACANCY IN OFFICE OF TRUSTEE.
The Company, whenever necessary to avoid or fill a vacancy in the office of
Trustee, shall appoint, in the manner provided in Section 9.11, a Trustee, so
that there shall at all times be a Trustee hereunder.
SECTION 5.5. COMPLIANCE WITH CONSOLIDATION PROVISIONS.
The Company shall not, while any of the Debentures remain Outstanding,
consolidate with, or merge into, or merge into itself, or sell or convey all or
substantially all of its property to any other company unless the provisions of
Article XII hereof are complied with.
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SECTION 5.6. LIMITATION ON TRANSACTIONS.
If Debentures are issued to the Trust or a trustee of the Trust in connection
with the issuance of Trust Securities by the Trust and (i) there shall have
occurred any event that would constitute an Event of Default; (ii) the Company
shall be in default with respect to its payment of any obligations under the
Preferred Securities Guarantee relating to the Trust; or (iii) the Company shall
have given notice of its election to defer payments of interest on such
Debentures by extending the interest payment period as provided in this
Indenture and such Extension Period, or any extension thereof, shall be
continuing, then (a) the Company shall not declare or pay any dividend on, make
any distributions with respect to, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its capital stock; (b) the Company
shall not make any payment of principal, interest or premium, if any, or repay,
repurchase or redeem any debt securities issued by the Company which rank pari
passu with or junior to the Debentures; provided, however, that the Company may
make payments pursuant to its obligations under the Preferred Securities
Guarantee; and (c) the Company shall not redeem, purchase or acquire less than
all of the Outstanding Debentures or any of the Preferred Securities.
SECTION 5.7. COVENANTS AS TO THE TRUST.
For so long as the Trust Securities of the Trust remain outstanding, the
Company shall (i) maintain 100% direct or indirect ownership of the Common
Securities of the Trust; provided, however, that any permitted successor of the
Company under this Indenture may succeed to the Company's ownership of the
Common Securities; (ii) not voluntarily terminate, wind up or liquidate the
Trust, except after receiving any necessary regulatory approvals; (iii) use its
reasonable efforts to cause the Trust (a) to remain a business trust, except in
connection with a distribution of Debentures, the redemption of all of the Trust
Securities of the Trust or certain mergers, consolidations or amalgamations,
each as permitted by the Trust Agreement; and (b) to otherwise continue not to
be treated as an association taxable as a corporation or partnership for United
States federal income tax purposes; and (iv) use its reasonable efforts to cause
each holder of Trust Securities to be treated as owning an individual beneficial
interest in the Debentures. In connection with the distribution of the
Debentures to the holders of the Preferred Securities issued by the Trust upon a
Dissolution Event, the Company shall use its best efforts to list such
Debentures on the Nasdaq National Market or on such other exchange as the
Preferred Securities are then listed.
SECTION 5.8. COVENANTS AS TO PURCHASES.
Except upon the exercise by the Company of its right to redeem the Debentures
pursuant to Section 3.2 upon the occurrence and continuation of a Special Event,
the Company shall not purchase any Debentures, in whole or in part, from the
Trust prior to ________________, 2004.
ARTICLE VI.
DEBENTUREHOLDERS' LISTS AND REPORTS
BY THE COMPANY AND THE TRUSTEE
SECTION 6.1. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF
DEBENTUREHOLDERS.
The Company shall furnish or cause to be furnished to the Trustee (a) on a
quarterly basis on each regular record date (as described in Section 2.5) a
list, in such form as the Trustee may reasonably require, of the names and
addresses of the holders of the Debentures as of such regular record date,
provided that the Company shall not be obligated to furnish or cause to furnish
such list at any time that the list shall not differ in any respect from the
most recent list furnished to the Trustee by the Company (in the event the
Company fails to provide such list on a monthly basis, the Trustee shall be
entitled to rely on the most recent list provided by the Company); and (b) at
such other times as the Trustee may request in writing within 30 days after the
receipt by the Company of any such request, a list of similar form and content
as of a date not more than 15 days prior to the time such list is furnished;
provided, however, that, in either case, no such list need be furnished if the
Trustee shall be the Debenture Registrar.
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SECTION 6.2. PRESERVATION OF INFORMATION COMMUNICATIONS WITH
DEBENTUREHOLDERS.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, all information as to the names and addresses of the holders of
Debentures contained in the most recent list furnished to it as provided in
Section 6.1 and as to the names and addresses of holders of Debentures received
by the Trustee in its capacity as Debenture Registrar for the Debentures (if
acting in such capacity).
(b) The Trustee may destroy any list furnished to it as provided in Section
6.1 upon receipt of a new list so furnished.
(c) Debentureholders may communicate as provided in Section 312(b) of the
Trust Indenture Act with other Debentureholders with respect to their rights
under this Indenture or under the Debentures.
SECTION 6.3. REPORTS BY THE COMPANY.
(a) The Company covenants and agrees to file with the Trustee, within 15 days
after the Company is required to file the same with the Commission, copies of
the annual reports and of the information, documents and other reports (or
copies of such portions of any of the foregoing as the Commission may from time
to time by rules and regulations prescribe) that the Company may be required to
file with the Commission pursuant to Section 13 or Section 15(d) of the Exchange
Act; or, if the Company is not required to file information, documents or
reports pursuant to either of such sections, then to file with the Trustee and
the Commission, in accordance with the rules and regulations prescribed from
time to time by the Commission, such of the supplementary and periodic
information, documents and reports that may be required pursuant to Section 13
of the Exchange Act in respect of a security listed and registered on a national
securities exchange as may be prescribed from time to time in such rules and
regulations.
(b) The Company covenants and agrees to file with the Trustee and the
Commission, in accordance with the rules and regulations prescribed from time to
time by the Commission, such additional information, documents and reports with
respect to compliance by the Company with the conditions and covenants provided
for in this Indenture as may be required from time to time by such rules and
regulations.
(c) The Company covenants and agrees to transmit by mail, first class postage
prepaid, or reputable overnight delivery service that provides for evidence of
receipt, to the Debentureholders, as their names and addresses appear upon the
Debenture Register, within 30 days after the filing thereof with the Trustee,
such summaries of any information, documents and reports required to be filed by
the Company pursuant to subsections (a) and (b) of this Section 6.3 as may be
required by rules and regulations prescribed from time to time by the
Commission.
SECTION 6.4. REPORTS BY THE TRUSTEE.
(a) On or before July 15 in each year in which any of the Debentures are
Outstanding, the Trustee shall transmit by mail, first class postage prepaid, to
the Debentureholders, as their names and addresses appear upon the Debenture
Register, a brief report dated as of the preceding May 15, if and to the extent
required under Section 313(a) of the Trust Indenture Act.
(b) The Trustee shall comply with Section 313(b) and 313(c) of the Trust
Indenture Act.
(c) A copy of each such report shall, at the time of such transmission to
Debentureholders, be filed by the Trustee with the Company, with each stock
exchange upon which any Debentures are listed (if so listed) and also with the
Commission. The Company agrees to notify the Trustee when any Debentures become
listed on any stock exchange.
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ARTICLE VII.
REMEDIES OF THE TRUSTEE AND DEBENTUREHOLDERS
ON EVENT OF DEFAULT
SECTION 7.1. EVENTS OF DEFAULT.
(a) Whenever used herein with respect to the Debentures, "Event of Default"
means any one or more of the following events that has occurred and is
continuing:
(i) the Company defaults in the payment of any installment of interest
upon any of the Debentures, as and when the same shall become due and payable,
and continuance of such default for a period of 30 days; provided, however,
that a valid extension of an interest payment period by the Company in
accordance with the terms of this Indenture shall not constitute a default in
the payment of interest for this purpose;
(ii) the Company defaults in the payment of the principal on the
Debentures as and when the same shall become due and payable whether at
maturity, upon redemption, by declaration or otherwise; provided, however,
that a valid extension of the maturity of such Debentures in accordance with
the terms of this Indenture shall not constitute a default in the payment of
principal;
(iii) the Company fails to observe or perform any other of its covenants
or agreements under this Indenture or with respect to the Debentures for a
period of 90 days after the date on which written notice of such failure,
requiring the same to be remedied and stating that such notice is a "Notice of
Default" hereunder, shall have been given to the Company by the Trustee, by
registered or certified mail, or to the Company and the Trustee by the holders
of at least 25% in principal amount of the Debentures at the time Outstanding;
(iv) the Company pursuant to or within the meaning of any Bankruptcy Law
(i) commences a voluntary case; (ii) consents to the entry of an order for
relief against it in an involuntary case; (iii) consents to the appointment of
a Custodian of it or for all or substantially all of its property; or (iv)
makes a general assignment for the benefit of its creditors;
(v) a court of competent jurisdiction enters an order under any
Bankruptcy Law that (i) is for relief against the Company in an involuntary
case; (ii) appoints a Custodian of the Company for all or substantially all of
its property; or (iii) orders the liquidation of the Company, and the order or
decree remains unstayed and in effect for 90 days; or
(vi) the Trust shall have voluntarily or involuntarily dissolved, wound-
up its business or otherwise terminated its existence except in connection
with (i) the distribution of Debentures to holders of Trust Securities in
liquidation of their interests in the Trust; (ii) the redemption of all of the
outstanding Trust Securities of the Trust; or (iii) certain mergers,
consolidations or amalgamations, each as permitted by the Trust Agreement.
(b) In each and every such case, unless the principal of all the Debentures
shall have already become due and payable, either the Trustee or the holders of
not less than 25% in aggregate principal amount of the Debentures then
Outstanding hereunder, by notice in writing to the Company (and to the Trustee
if given by such Debentureholders) may declare the principal of all the
Debentures to be due and payable immediately, and upon any such declaration the
same shall become and shall be immediately due and payable, notwithstanding
anything contained in this Indenture or in the Debentures.
(c) At any time after the principal of the Debentures shall have been so
declared due and payable, and before any judgment or decree for the payment of
the moneys due shall have been obtained or entered as hereinafter provided, the
holders of a majority in aggregate principal amount of the Debentures then
Outstanding hereunder, by written notice to the Company and the Trustee, may
rescind and annul such declaration and its consequences if: (i) the Company has
paid or deposited with the Trustee a sum sufficient to pay all matured
installments of interest upon all the Debentures and the principal of any and
all Debentures that shall have become due otherwise than by acceleration (with
interest upon such principal, and upon overdue installments of interest, at the
rate per annum
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expressed in the Debentures to the date of such payment or deposit) and the
amount payable to the Trustee under Section 9.7; and (ii) any and all Events of
Default under this Indenture, other than the nonpayment of principal on
Debentures that shall not have become due by their terms, shall have been
remedied or waived as provided in Section 7.6. No such rescission and annulment
shall extend to or shall affect any subsequent default or impair any right
consequent thereon.
(d) In case the Trustee shall have proceeded to enforce any right with respect
to Debentures under this Indenture and such proceedings shall have been
discontinued or abandoned because of such rescission or annulment or for any
other reason or shall have been determined adversely to the Trustee, then and in
every such case the Company and the Trustee shall be restored respectively to
their former positions and rights hereunder, and all rights, remedies and powers
of the Company and the Trustee shall continue as though no such proceedings had
been taken.
SECTION 7.2. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE.
(a) The Company covenants that (1) in case it shall default in the payment of
any installment of interest on any of the Debentures, and such default shall
have continued for a period of 90 Business Days; or (2) in case it shall default
in the payment of the principal of any of the Debentures when the same shall
have become due and payable, whether upon maturity of the Debentures or upon
redemption or upon declaration or otherwise, then, upon demand of the Trustee,
the Company shall pay to the Trustee, for the benefit of the holders of the
Debentures, the whole amount that then shall have been become due and payable on
all such Debentures for principal or interest, or both, as the case may be, with
interest upon the overdue principal and upon overdue installments of interest at
the rate per annum expressed in the Debentures; and (if the Debentures are held
by the Trust or a trustee of the Trust, without duplication of any other amounts
paid by the Trust or trustee in respect thereof) upon overdue installments of
interest at the rate per annum expressed in the Debentures; and, in addition
thereto, such further amount as shall be sufficient to cover the costs and
expenses of collection, and the amount payable to the Trustee under Section 9.7.
(b) If the Company shall fail to pay such amounts set forth in Section 7.2(a)
forthwith upon such demand, the Trustee, in its own name and as trustee of an
express trust, shall be entitled and empowered to institute any action or
proceedings at law or in equity for the collection of the sums so due and
unpaid, and may prosecute any such action or proceeding to judgment or final
decree, and may enforce any such judgment or final decree against the Company or
other obligor upon the Debentures and collect the moneys adjudged or decreed to
be payable in the manner provided by law out of the property of the Company or
other obligor upon the Debentures, wherever situated.
(c) In case of any receivership, insolvency, liquidation, bankruptcy,
reorganization, readjustment, arrangement, composition or judicial proceedings
affecting the Company or the creditors or property thereof, the Trustee shall
have power to intervene in such proceedings and take any action therein that may
be permitted by the court and shall (except as may be otherwise provided by law)
be entitled to file such proofs of claim and other papers and documents as may
be necessary or advisable in order to have the claims of the Trustee and of the
holders of the Debentures allowed for the entire amount due and payable by the
Company under this Indenture at the date of institution of such proceedings and
for any additional amount that may become due and payable by the Company after
such date, and to collect and receive any moneys or other property payable or
deliverable on any such claim, and to distribute the same after the deduction of
the amount payable to the Trustee under Section 9.7; and any receiver, assignee
or trustee in bankruptcy or reorganization is hereby authorized by each of the
holders of the Debentures to make such payments to the Trustee, and, in the
event that the Trustee shall consent to the making of such payments directly to
such Debentureholders, to pay to the Trustee any amount due it under Section
9.7.
(d) All rights of action and of asserting claims under this Indenture, or
under any of the terms established with respect to Debentures, may be enforced
by the Trustee without the possession of any of such Debentures, or the
production thereof at any trial or other proceeding relative thereto, and any
such suit or proceeding instituted by the Trustee shall be brought in its own
name as trustee of an express trust, and any recovery of judgment shall, after
provision for payment to the Trustee of any amounts due under Section 9.7, be
for the ratable benefit of the holders of the Debentures. In case of an Event of
Default hereunder, the Trustee may in its discretion proceed to protect and
enforce the rights vested in it by this Indenture by such appropriate judicial
proceedings as the Trustee shall deem most effectual to protect and enforce any
of such rights, either at law or in equity or in bankruptcy or otherwise,
whether for the specific enforcement of any covenant or agreement contained in
this Indenture or in aid of the
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exercise of any power granted in this Indenture, or to enforce any other legal
or equitable right vested in the Trustee by this Indenture or by law. Nothing
contained herein shall be deemed to authorize the Trustee to authorize or
consent to or accept or adopt on behalf of any Debentureholder any plan of
reorganization, arrangement, adjustment or composition affecting the Debentures
or the rights of any holder thereof or to authorize the Trustee to vote in
respect of the claim of any Debentureholder in any such proceeding.
SECTION 7.3. APPLICATION OF MONEYS COLLECTED.
Any moneys collected by the Trustee pursuant to this Article VII with respect
to the Debentures shall be applied in the following order, at the date or dates
fixed by the Trustee and, in case of the distribution of such moneys on account
of principal or interest, upon presentation of the Debentures, and notation
thereon of the payment, if only partially paid, and upon surrender thereof if
fully paid:
FIRST: To the payment of costs and expenses of collection and of all amounts
payable to the Trustee under Section 9.7;
SECOND: To the payment of all Senior Indebtedness of the Company if and to
the extent required by Article XVI; and
THIRD: To the payment of the amounts then due and unpaid upon the Debentures
for principal and interest, in respect of which or for the benefit of which
such money has been collected, ratably, without preference or priority of any
kind, according to the amounts due and payable on such Debentures for
principal and interest, respectively.
SECTION 7.4. LIMITATION ON SUITS.
(a) Except as provided in Section 15.13 hereof, no holder of any Debenture
shall have any right by virtue or by availing of any provision of this Indenture
to institute any suit, action or proceeding in equity or at law upon or under or
with respect to this Indenture or for the appointment of a receiver or trustee,
or for any other remedy hereunder, unless (i) such holder previously shall have
given to the Trustee written notice of an Event of Default and of the
continuance thereof with respect to the Debentures specifying such Event of
Default, as hereinbefore provided; (ii) the holders of not less than 25% in
aggregate principal amount of the Debentures then Outstanding shall have made
written request upon the Trustee to institute such action, suit or proceeding in
its own name as trustee hereunder; (iii) such holder or holders shall have
offered to the Trustee such reasonable indemnity as it may require against the
costs, expenses and liabilities to be incurred therein or thereby; (iv) the
Trustee for 60 days after its receipt of such notice, request and offer of
indemnity, shall have failed to institute any such action, suit or proceeding;
and (v) during such 60 day period, the holders of a majority in principal amount
of the Debentures do not give the Trustee a direction inconsistent with the
request.
(b) Notwithstanding anything contained herein to the contrary or any other
provisions of this Indenture, the right of any holder of the Debentures to
receive payment of the principal of and interest on the Debentures, as therein
provided, on or after the respective due dates expressed in such Debenture (or
in the case of redemption, on the redemption date), or to institute suit for the
enforcement of any such payment on or after such respective dates or redemption
date, shall not be impaired or affected without the consent of such holder and
by accepting a Debenture hereunder it is expressly understood, intended and
covenanted by the taker and holder of every Debenture with every other such
taker and holder and the Trustee, that no one or more holders of Debentures
shall have any right in any manner whatsoever by virtue or by availing of any
provision of this Indenture to affect, disturb or prejudice the rights of the
holders of any other of such Debentures, or to obtain or seek to obtain priority
over or preference to any other such holder, or to enforce any right under this
Indenture, except in the manner herein provided and for the equal, ratable and
common benefit of all holders of Debentures. For the protection and enforcement
of the provisions of this Section 7.4, each and every Debentureholder and the
Trustee shall be entitled to such relief as can be given either at law or in
equity.
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SECTION 7.5. RIGHTS AND REMEDIES CUMULATIVE; DELAY OR OMISSION NOT WAIVER.
(a) Except as otherwise provided in Section 2.9, all powers and remedies given
by this Article VII to the Trustee or to the Debentureholders shall, to the
extent permitted by law, be deemed cumulative and not exclusive of any other
powers and remedies available to the Trustee or the holders of the Debentures,
by judicial proceedings or otherwise, to enforce the performance or observance
of the covenants and agreements contained in this Indenture or otherwise
established with respect to such Debentures.
(b) No delay or omission of the Trustee or of any holder of any of the
Debentures to exercise any right or power accruing upon any Event of Default
occurring and continuing as aforesaid shall impair any such right or power, or
shall be construed to be a waiver of any such default or an acquiescence
therein; and, subject to the provisions of Section 7.4, every power and remedy
given by this Article VII or by law to the Trustee or the Debentureholders may
be exercised from time to time, and as often as shall be deemed expedient, by
the Trustee or by the Debentureholders.
SECTION 7.6. CONTROL BY DEBENTUREHOLDERS.
The holders of a majority in aggregate principal amount of the Debentures at
the time Outstanding, determined in accordance with Section 10.4, shall have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred on
the Trustee; provided, however, that such direction shall not be in conflict
with any rule of law or with this Indenture. Subject to the provisions of
Section 9.1, the Trustee shall have the right to decline to follow any such
direction if the Trustee in good faith shall, by a Responsible Officer or
Officers of the Trustee, determine that the proceeding so directed would involve
the Trustee in personal liability. The holders of a majority in aggregate
principal amount of the Debentures at the time Outstanding affected thereby,
determined in accordance with Section 10.4, may on behalf of the holders of all
of the Debentures waive any past default in the performance of any of the
covenants contained herein and its consequences, except (i) a default in the
payment of the principal of or interest on, any of the Debentures as and when
the same shall become due by the terms of such Debentures otherwise than by
acceleration (unless such default has been cured and a sum sufficient to pay all
matured installments of principal and interest has been deposited with the
Trustee (in accordance with Section 7.1(c)); (ii) a default in the covenants
contained in Section 5.6; or (iii) in respect of a covenant or provision hereof
which cannot be modified or amended without the consent of the holder of each
Outstanding Debenture affected; provided, however, that if the Debentures are
held by the Trust or a trustee of the Trust, such waiver or modification to such
waiver shall not be effective until the holders of a majority in liquidation
preference of Trust Securities of the Trust shall have consented to such waiver
or modification to such waiver; provided further, that if the Debentures are
held by the Trust or a trustee of the Trust, and if the consent of the holder of
each Outstanding Debenture is required, such waiver shall not be effective until
each holder of the Trust Securities of the Trust shall have consented to such
waiver. Upon any such waiver, the default covered thereby shall be deemed to be
cured for all purposes of this Indenture and the Company, the Trustee and the
holders of the Debentures shall be restored to their former positions and rights
hereunder, respectively; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
SECTION 7.7. UNDERTAKING TO PAY COSTS.
All parties to this Indenture agree, and each holder of any Debentures by such
holder's acceptance thereof shall be deemed to have agreed, that any court may
in its discretion require, in any suit for the enforcement of any right or
remedy under this Indenture, or in any suit against the Trustee for any action
taken or omitted by it as Trustee, the filing by any party litigant in such suit
of an undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section 7.7 shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Debentureholder, or group of
Debentureholders holding more than 10% in aggregate principal amount of the
Outstanding Debentures, or to any suit instituted by any Debentureholder for the
enforcement of the payment of the principal of or interest on the Debentures, on
or after the respective due dates expressed in such Debenture or established
pursuant to this Indenture.
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ARTICLE VIII.
FORM OF DEBENTURE AND ORIGINAL ISSUE
SECTION 8.1. FORM OF DEBENTURE.
The Debenture and the Trustee's Certificate of Authentication to be endorsed
thereon are to be substantially in the forms contained as Exhibit A attached
hereto and incorporated herein by reference.
SECTION 8.2. ORIGINAL ISSUE OF DEBENTURES.
Debentures in the aggregate principal amount of $28,350,525 may, upon
execution of this Indenture, be executed by the Company and delivered to the
Trustee for authentication. If the Underwriters exercise their Option and there
is an Option Closing Date (as such terms are defined in Underwriting Agreement,
dated _______________, 1999, by and among the Company, the Trust, Tucker Anthony
Cleary Gull and US Bancorp Piper Jaffray Inc., for themselves and as
representatives of the Underwriters named therein) then, on such Option Closing
Date, Debentures in the additional aggregate principal amount of $4,252,600 may
be executed by the Company and delivered to the Trustee for authentication. In
either such event, the Trustee shall thereupon authenticate and deliver said
Debentures to or upon the written order of the Company, signed by its Chairman,
its Vice Chairman, its President, or any Vice President and its Treasurer or an
Assistant Treasurer, without any further action by the Company.
ARTICLE IX.
CONCERNING THE TRUSTEE
SECTION 9.1. CERTAIN DUTIES AND RESPONSIBILITIES OF TRUSTEE.
(a) The Trustee, prior to the occurrence of an Event of Default and after the
curing of all Events of Default that may have occurred, shall undertake to
perform with respect to the Debentures such duties and only such duties as are
specifically set forth in this Indenture, and no implied covenants shall be read
into this Indenture against the Trustee. In case an Event of Default has
occurred that has not been cured or waived, the Trustee shall exercise such of
the rights and powers vested in it by this Indenture, and use the same degree of
care and skill in their exercise, as a prudent man would exercise or use under
the circumstances in the conduct of his own affairs.
(b) No provision of this Indenture shall be construed to relieve the Trustee
from liability for its own negligent action, its own negligent failure to act,
or its own willful misconduct, except that:
(i) prior to the occurrence of an Event of Default and after the curing
or waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Trustee shall with respect to
the Debentures be determined solely by the express provisions of this
Indenture, and the Trustee shall not be liable with respect to the Debentures
except for the performance of such duties and obligations as are specifically
set forth in this Indenture, and no implied covenants or obligations shall be
read into this Indenture against the Trustee; and
(B) in the absence of bad faith on the part of the Trustee, the
Trustee may with respect to the Debentures conclusively rely, as to the truth
of the statements and the correctness of the opinions expressed therein, upon
any certificates or opinions furnished to the Trustee and conforming to the
requirements of this Indenture; but in the case of any such certificates or
opinions that by any provision hereof are specifically required to be
furnished to the Trustee, the Trustee shall be under a duty to examine the
same to determine whether or not they conform to the requirements of this
Indenture;
(ii) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer or Responsible Officers of the Trustee,
unless it shall be proved that the Trustee was negligent in ascertaining the
pertinent facts;
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(iii) the Trustee shall not be liable with respect to any action taken or
omitted to be taken by it in good faith in accordance with the direction of
the holders of not less than a majority in principal amount of the Debentures
at the time Outstanding relating to the time, method and place of conducting
any proceeding for any remedy available to the Trustee, or exercising any
trust or power conferred upon the Trustee under this Indenture with respect to
the Debentures; and
(iv) none of the provisions contained in this Indenture shall require
the Trustee to expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties or in the exercise
of any of its rights or powers, if there is reasonable ground for believing
that the repayment of such funds or liability is not reasonably assured to it
under the terms of this Indenture or adequate indemnity against such risk is
not reasonably assured to it.
SECTION 9.2. NOTICE OF DEFAULTS.
Within 90 days after actual knowledge by a Responsible Officer of the Trustee
of the occurrence of any default hereunder with respect to the Debentures, the
Trustee shall transmit by mail to all holders of the Debentures, as their names
and addresses appear in the Debenture Register, notice of such default, unless
such default shall have been cured or waived; provided, however, that, except in
the case of a default in the payment of the principal or interest (including any
Additional Interest) on any Debenture, the Trustee shall be protected in
withholding such notice if and so long as the board of directors, the executive
committee or a trust committee of the directors and/or Responsible Officers of
the Trustee determines in good faith that the withholding of such notice is in
the interests of the holders of such Debentures; and provided, further, that in
the case of any default of the character specified in section 7.1(a)(iii), no
such notice to holders of Debentures need be sent until at least 30 days after
the occurrence thereof. For the purposes of this Section 9.2, the term "default"
means any event which is, or after notice or lapse of time or both, would
become, an Event of Default with respect to the Debentures.
SECTION 9.3. CERTAIN RIGHTS OF TRUSTEE.
Except as otherwise provided in Section 9.1:
(a) The Trustee may rely and shall be protected in acting or refraining from
acting upon any resolution, certificate, statement, instrument, opinion, report,
notice, request, consent, order, approval, bond, security or other paper or
document believed by it to be genuine and to have been signed or presented by
the proper party or parties;
(b) Any request, direction, order or demand of the Company mentioned herein
shall be sufficiently evidenced by a Board Resolution or an instrument signed in
the name of the Company by the President or any Vice President and by the
Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer
thereof (unless other evidence in respect thereof is specifically prescribed
herein);
(c) The Trustee shall not be deemed to have knowledge of a default or an Event
of Default, other than an Event of Default specified in Section 7.1(a)(i) or
(ii), unless and until it receives written notification of such Event of Default
from the Company or by holders of at least 25% of the aggregate principal amount
of the Debentures at the time Outstanding (determined as provided in Section
10.4);
(d) The Trustee may consult with counsel and the written advice of such
counsel or any Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken or suffered or omitted hereunder in
good faith and in reliance thereon;
(e) The Trustee shall be under no obligation to exercise any of the rights or
powers vested in it by this Indenture at the request, order or direction of any
of the Debentureholders, pursuant to the provisions of this Indenture, unless
such Debentureholders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities that may be incurred
therein or thereby; nothing contained herein shall, however, relieve the Trustee
of the obligation, upon the occurrence of an Event of Default (that has not been
cured or waived) to exercise with
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respect to the Debentures such of the rights and powers vested in it by this
Indenture, and to use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs;
(f) The Trustee shall not be liable for any action taken or omitted to be
taken by it in good faith and believed by it to be authorized or within the
discretion or rights or powers conferred upon it by this Indenture;
(g) The Trustee shall not be bound to make any investigation into the facts or
matters stated in any resolution, certificate, statement, instrument, opinion,
report, notice, request, consent, order, approval, bond, security, or other
papers or documents, unless requested in writing so to do by the holders of not
less than a majority in principal amount of the Outstanding Debentures
(determined as provided in Section 10.4); provided, however, that if the payment
within a reasonable time to the Trustee of the costs, expenses or liabilities
likely to be incurred by it in the making of such investigation is, in the
opinion of the Trustee, not reasonably assured to the Trustee by the security
afforded to it by the terms of this Indenture, the Trustee may require
reasonable indemnity against such costs, expenses or liabilities as a condition
to so proceeding. The reasonable expense of every such examination shall be paid
by the Company or, if paid by the Trustee, shall be repaid by the Company upon
demand; and
(h) The Trustee may execute any of the trusts or powers hereunder or perform
any duties hereunder either directly or by or through agents or attorneys and
the Trustee shall not be responsible for any misconduct or negligence on the
part of any agent or attorney appointed with due care by it hereunder.
SECTION 9.4. TRUSTEE NOT RESPONSIBLE FOR RECITALS, ETC.
(a) The Recitals contained herein and in the Debentures shall be taken as the
statements of the Company, and the Trustee assumes no responsibility for the
correctness of the same.
(b) The Trustee makes no representations as to the validity or sufficiency of
this Indenture or of the Debentures.
(c) The Trustee shall not be accountable for the use or application by the
Company of any of the Debentures or of the proceeds of such Debentures, or for
the use or application of any moneys paid over by the Trustee in accordance with
any provision of this Indenture, or for the use or application of any moneys
received by any Paying Agent other than the Trustee.
SECTION 9.5. MAY HOLD DEBENTURES.
The Trustee or any Paying Agent or Debenture Registrar for the Debentures, in
its individual or any other capacity, may become the owner or pledgee of
Debentures with the same rights it would have if it were not Trustee, Paying
Agent or Debenture Registrar.
SECTION 9.6. MONEYS HELD IN TRUST.
Subject to the provisions of Section 13.5, all moneys received by the Trustee
shall, until used or applied as herein provided, be held in trust for the
purposes for which they were received, but need not be segregated from other
funds except to the extent required by law. The Trustee shall be under no
liability for interest on any moneys received by it hereunder except such as it
may agree with the Company to pay thereon.
SECTION 9.7. COMPENSATION AND REIMBURSEMENT.
(a) The Company covenants and agrees to pay to the Trustee, and the Trustee
shall be entitled to, such reasonable compensation (which shall not be limited
by any provision of law in regard to the compensation of a trustee of an express
trust), as the Company and the Trustee may from time to time agree in writing,
for all services rendered by it in the execution of the trusts hereby created
and in the exercise and performance of any of the powers and duties hereunder of
the Trustee, and, except as otherwise expressly provided herein, the Company
shall pay or reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by
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the Trustee in accordance with any of the provisions of this Indenture
(including the reasonable compensation and the expenses and disbursements of its
counsel and of all Persons not regularly in its employ) except any such expense,
disbursement or advance as may arise from its negligence or bad faith. The
Company also covenants to indemnify the Trustee (and its officers, agents,
directors and employees) for, and to hold it harmless against, any loss,
liability or expense incurred without negligence or bad faith on the part of the
Trustee and arising out of or in connection with the acceptance or
administration of this trust, including the costs and expenses of defending
itself against any claim of liability in the premises. The indemnification set
forth in this Section 9.7 shall survive the termination of this Indenture.
(b) The obligations of the Company under this Section 9.7 to compensate and
indemnify the Trustee and to pay or reimburse the Trustee for expenses,
disbursements and advances shall constitute additional indebtedness hereunder.
Such additional indebtedness shall be secured by a lien prior to that of the
Debentures upon all property and funds held or collected by the Trustee as such,
except funds held in trust for the benefit of the holders of particular
Debentures.
SECTION 9.8. RELIANCE ON OFFICERS' CERTIFICATE.
Except as otherwise provided in Section 9.1, whenever in the administration of
the provisions of this Indenture the Trustee shall deem it necessary or
desirable that a matter be proved or established prior to taking or suffering or
omitting to take any action hereunder, such matter (unless other evidence in
respect thereof be herein specifically prescribed) may, in the absence of
negligence or bad faith on the part of the Trustee, be deemed to be conclusively
proved and established by an Officers' Certificate delivered to the Trustee and
such certificate, in the absence of negligence or bad faith on the part of the
Trustee, shall be full warrant to the Trustee for any action taken, suffered or
omitted to be taken by it under the provisions of this Indenture upon the faith
thereof.
SECTION 9.9. DISQUALIFICATION; CONFLICTING INTERESTS.
If the Trustee has or shall acquire any "conflicting interest" within the
meaning of Section 310(b) of the Trust Indenture Act, the Trustee and the
Company shall in all respects comply with the provisions of Section 310(b) of
the Trust Indenture Act.
SECTION 9.10. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a Trustee with respect to the Debentures issued
hereunder which shall at all times be a corporation organized and doing business
under the laws of the United States of America or any state or territory thereof
or of the District of Columbia, or a corporation or other Person permitted to
act as trustee by the Commission, authorized under such laws to exercise
corporate trust powers, having a combined capital and surplus of at least
$50,000,000, and subject to supervision or examination by federal, state,
territorial, or District of Columbia authority. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of the aforesaid supervising or examining authority, then for the purposes of
this Section 9.10, the combined capital and surplus of such corporation shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. The Company may not, nor may any Person
directly or indirectly controlling, controlled by, or under common control with
the Company, serve as Trustee. In case at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section 9.10, the Trustee
shall resign immediately in the manner and with the effect specified in Section
9.11.
SECTION 9.11. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) The Trustee or any successor hereafter appointed, may at any time resign
by giving written notice thereof to the Company and by transmitting notice of
resignation by mail, first class postage prepaid, to the Debentureholders, as
their names and addresses appear upon the Debenture Register. Upon receiving
such notice of resignation, the Company shall promptly appoint a successor
trustee with respect to Debentures by written instrument, in duplicate, executed
by order of the Board of Directors, one copy of which instrument shall be
delivered to the resigning Trustee and one copy to the successor trustee. If no
successor trustee shall have been so appointed and have
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accepted appointment within 30 days after the mailing of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor trustee with respect to
Debentures, or any Debentureholder who has been a bona fide holder of a
Debenture or Debentures for at least six months may, subject to the provisions
of Section 9.10, on behalf of himself and all others similarly situated,
petition any such court for the appointment of a successor trustee. Such court
may thereupon after such notice, if any, as it may deem proper and prescribe,
appoint a successor trustee.
(b) In case at any time any one of the following shall occur:
(i) the Trustee shall fail to comply with the provisions of Section 9.9
after written request therefor by the Company or by any Debentureholder who
has been a bona fide holder of a Debenture or Debentures for at least six
months; or
(ii) the Trustee shall cease to be eligible in accordance with the
provisions of Section 9.10 and shall fail to resign after written request
therefor by the Company or by any such Debentureholder; or
(iii) the Trustee shall become incapable of acting, or shall be adjudged
a bankrupt or insolvent, or commence a voluntary bankruptcy proceeding, or a
receiver of the Trustee or of its property shall be appointed or consented to,
or any public officer shall take charge or control of the Trustee or of its
property or affairs for the purpose of rehabilitation, conservation or
liquidation, then, in any such case, the Company may remove the Trustee with
respect to all Debentures and appoint a successor trustee by written
instrument, in duplicate, executed by order of the Board of Directors, one
copy of which instrument shall be delivered to the Trustee so removed and one
copy to the successor trustee, or, subject to the provisions of Section 9.10,
unless the Trustee's duty to resign is stayed as provided herein, any
Debentureholder who has been a bona fide holder of a Debenture or Debentures
for at least six months may, on behalf of that holder and all others similarly
situated, petition any court of competent jurisdiction for the removal of the
Trustee and the appointment of a successor trustee. Such court may thereupon
after such notice, if any, as it may deem proper and prescribe, remove the
Trustee and appoint a successor trustee.
(c) The holders of a majority in aggregate principal amount of the Debentures
at the time Outstanding may at any time remove the Trustee by so notifying the
Trustee and the Company and may appoint a successor Trustee with the consent of
the Company.
(d) Any resignation or removal of the Trustee and appointment of a successor
trustee with respect to the Debentures pursuant to any of the provisions of this
Section 9.11 shall become effective upon acceptance of appointment by the
successor trustee as provided in Section 9.12.
(e) Any successor trustee appointed pursuant to this Section 9.11 may be
appointed with respect to the Debentures, and at any time there shall be only
one Trustee with respect to the Debentures.
SECTION 9.12. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
(a) In case of the appointment hereunder of a successor trustee with respect
to the Debentures, every successor trustee so appointed shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on the request of the
Company or the successor trustee, such retiring Trustee shall, upon payment of
its charges, execute and deliver an instrument transferring to such successor
trustee all the rights, powers, and trusts of the retiring Trustee and shall
duly assign, transfer and deliver to such successor trustee all property and
money held by such retiring Trustee hereunder.
(b) Upon request of any successor trustee, the Company shall execute any and
all instruments for more fully and certainly vesting in and confirming to such
successor trustee all such rights, powers and trusts referred to in paragraph
(a) of this Section 9.12.
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(c) No successor trustee shall accept its appointment unless at the time of
such acceptance such successor trustee shall be qualified and eligible under
this Article IX.
(d) Upon acceptance of appointment by a successor trustee as provided in this
Section 9.12, the Company shall transmit notice of the succession of such
trustee hereunder by mail, first class postage prepaid, to the Debentureholders,
as their names and addresses appear upon the Debenture Register. If the Company
fails to transmit such notice within ten days after acceptance of appointment by
the successor trustee, the successor trustee shall cause such notice to be
transmitted at the expense of the Company.
SECTION 9.13. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to the corporate trust business of the Trustee, shall be
the successor of the Trustee hereunder, provided that such corporation shall be
qualified under the provisions of Section 9.9 and eligible under the provisions
of Section 9.10, without the execution or filing of any paper or any further act
on the part of any of the parties hereto, anything herein to the contrary
notwithstanding. In case any Debentures shall have been authenticated, but not
delivered, by the Trustee then in office, any successor by merger, conversion or
consolidation to such authenticating Trustee may adopt such authentication and
deliver the Debentures so authenticated with the same effect as if such
successor Trustee had itself authenticated such Debentures.
SECTION 9.14. PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY.
The Trustee shall comply with Section 311(a) of the Trust Indenture Act,
excluding any creditor relationship described in Section 311(b) of the Trust
Indenture Act. A Trustee who has resigned or been removed shall be subject to
Section 311(a) of the Trust Indenture Act to the extent included therein.
ARTICLE X.
CONCERNING THE DEBENTUREHOLDERS
SECTION 10.1. EVIDENCE OF ACTION BY HOLDERS.
(a) Whenever in this Indenture it is provided that the holders of a majority
or specified percentage in aggregate principal amount of the Debentures may take
any action (including the making of any demand or request, the giving of any
notice, consent or waiver or the taking of any other action), the fact that at
the time of taking any such action the holders of such majority or specified
percentage have joined therein may be evidenced by any instrument or any number
of instruments of similar tenor executed by such holders of Debentures in Person
or by agent or proxy appointed in writing.
(b) If the Company shall solicit from the Debentureholders any request,
demand, authorization, direction, notice, consent, waiver or other action, the
Company may, at its option, as evidenced by an Officers' Certificate, fix in
advance a record date for the determination of Debentureholders entitled to give
such request, demand, authorization, direction, notice, consent, waiver or other
action, but the Company shall have no obligation to do so. If such a record date
is fixed, such request, demand, authorization, direction, notice, consent,
waiver or other action may be given before or after the record date, but only
the Debentureholders of record at the close of business on the record date shall
be deemed to be Debentureholders for the purposes of determining whether
Debentureholders of the requisite proportion of Outstanding Debentures have
authorized or agreed or consented to such request, demand, authorization,
direction, notice, consent, waiver or other action, and for that purpose the
Outstanding Debentures shall be computed as of the record date; provided,
however, that no such authorization, agreement or consent by such
Debentureholders on the record date shall be deemed effective unless it shall
become effective pursuant to the provisions of this Indenture not later than six
months after the record date.
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SECTION 10.2. PROOF OF EXECUTION BY DEBENTUREHOLDERS.
Subject to the provisions of Section 9.1, proof of the execution of any
instrument by a Debentureholder (such proof shall not require notarization) or
his agent or proxy and proof of the holding by any Person of any of the
Debentures shall be sufficient if made in the following manner:
(a) The fact and date of the execution by any such Person of any
instrument may be proved in any reasonable manner acceptable to the Trustee.
(b) The ownership of Debentures shall be proved by the Debenture Register
of such Debentures or by a certificate of the Debenture Registrar thereof.
(c) The Trustee may require such additional proof of any matter referred
to in this Section 10.2 as it shall deem necessary.
SECTION 10.3. PERSONS DEEMED OWNERS.
(a) The Company, the Trustee and any agent of the Company or the Trustee
shall treat the Person in whose name any Debenture is registered as the owner of
such Debenture for the purpose of receiving payment of principal of and any
interest on such Debenture and for all other purposes whatsoever, whether or not
such Debenture be overdue, and none of the Company, the Trustee or any agent of
the Company or the Trustee shall be affected by notice to the contrary.
(b) No holder of any beneficial interest in any Global Debenture held on
its behalf by a Depositary shall have any rights under this Indenture with
respect to such Global Debenture, and such Depositary may be treated by the
Company, the Trustee and any agent of the Company or the Trustee as the owner of
such Global Debenture for all purposes whatsoever. Notwithstanding the
foregoing, nothing herein shall prevent the Company, the Trustee or any agent of
the Company or the Trustee from giving effect to any written certification,
proxy or other authorization furnished by a Depositary or impair, as between a
Depositary and such holders of beneficial interests, the operation of customary
practices governing the exercise of the rights of the Depositary (or its
nominee) as Holder of any Debenture.
SECTION 10.4. CERTAIN DEBENTURES OWNED BY COMPANY DISREGARDED.
In determining whether the holders of the requisite aggregate principal
amount of Debentures have concurred in any direction, consent or waiver under
this Indenture, the Debentures that are owned by the Company or any other
obligor on the Debentures or by any Person directly or indirectly controlling or
controlled by or under common control with the Company or any other obligor on
the Debentures shall be disregarded and deemed not to be Outstanding for the
purpose of any such determination, except that (i) for the purpose of
determining whether the Trustee shall be protected in relying on any such
direction, consent or waiver, only Debentures that the Trustee actually knows
are so owned shall be so disregarded and (ii) for purposes of this Section 10.4,
the Trust shall be deemed not to be controlled by the Company. The Debentures so
owned that have been pledged in good faith may be regarded as Outstanding for
the purposes of this Section 10.4, if the pledgee shall establish to the
satisfaction of the Trustee the pledgee's right so to act with respect to such
Debentures and that the pledgee is not a Person directly or indirectly
controlling or controlled by or under direct or indirect common control with the
Company or any such other obligor. In case of a dispute as to such right, any
decision by the Trustee taken upon the advice of counsel shall be full
protection to the Trustee.
SECTION 10.5. ACTIONS BINDING ON FUTURE DEBENTUREHOLDERS.
At any time prior to (but not after) the evidencing to the Trustee, as
provided in Section 10.1, of the taking of any action by the holders of the
majority or percentage in aggregate principal amount of the Debentures specified
in this Indenture in connection with such action, any holder of a Debenture that
is shown by the evidence to be included in the Debentures the holders of which
have consented to such action may, by filing written notice with the Trustee,
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and upon proof of holding as provided in Section 10.2, revoke such action so far
as concerns such Debenture. Except as aforesaid any such action taken by the
holder of any Debenture shall be conclusive and binding upon such holder and
upon all future holders and owners of such Debenture, and of any Debenture
issued in exchange therefor, on registration of transfer thereof or in place
thereof, irrespective of whether or not any notation in regard thereto is made
upon such Debenture. Any action taken by the holders of the majority or
percentage in aggregate principal amount of the Debentures specified in this
Indenture in connection with such action shall be conclusively binding upon the
Company, the Trustee and the holders of all the Debentures.
ARTICLE XI.
SUPPLEMENTAL INDENTURES
SECTION 11.1. SUPPLEMENTAL INDENTURES WITHOUT THE CONSENT OF DEBENTUREHOLDERS.
In addition to any supplemental indenture otherwise authorized by this
Indenture, the Company and the Trustee may from time to time and at any time
enter into an indenture or indentures supplemental hereto (which shall conform
to the provisions of the Trust Indenture Act as then in effect), without the
consent of the Debentureholders, for one or more of the following purposes:
(a) to cure any ambiguity, defect, or inconsistency herein, or in the
Debentures;
(b) to comply with Article X;
(c) to provide for uncertificated Debentures in addition to or in place of
certificated Debentures;
(d) to add to the covenants of the Company for the benefit of the holders
of all or any of the Debentures or to surrender any right or power herein
conferred upon the Company;
(e) to add to, delete from, or revise the conditions, limitations, and
restrictions on the authorized amount, terms, or purposes of issue,
authentication, and delivery of Debentures, as herein set forth;
(f) to make any change that does not adversely affect the rights of any
Debentureholder in any material respect;
(g) to provide for the issuance of and establish the form and terms and
conditions of the Debentures, to establish the form of any certifications
required to be furnished pursuant to the terms of this Indenture or of the
Debentures, or to add to the rights of the holders of the Debentures;
(h) qualify or maintain the qualification of this Indenture under the
Trust Indenture Act; or
(i) to evidence a consolidation or merger involving the Company as
permitted under Section 12.1.
The Trustee is hereby authorized to join with the Company in the execution
of any such supplemental indenture, and to make any further appropriate
agreements and stipulations that may be therein contained, but the Trustee shall
not be obligated to enter into any such supplemental indenture that affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
Any supplemental indenture authorized by the provisions of this Section 11.1 may
be executed by the Company and the Trustee without the consent of the holders of
any of the Debentures at the time Outstanding, notwithstanding any of the
provisions of Section 11.2.
SECTION 11.2. SUPPLEMENTAL INDENTURES WITH CONSENT OF DEBENTUREHOLDERS.
With the consent (evidenced as provided in Section 10.1) of the holders of
not less than a majority in aggregate principal amount of the Debentures at the
time Outstanding, the Company, when authorized by Board Resolutions, and the
Trustee may from time to time and at any time enter into an indenture or
indentures supplemental hereto
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(which shall conform to the provisions of the Trust Indenture Act as then in
effect) for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Indenture or of any supplemental
indenture or of modifying in any manner not covered by Section 11.1 the rights
of the holders of the Debentures under this Indenture; provided, however, that
no such supplemental indenture shall without the consent of the holders of each
Debenture then Outstanding and affected thereby, (i) extend the fixed maturity
of any Debentures, reduce the principal amount thereof, or reduce the rate or
extend the time of payment of interest thereon, without the consent of the
holder of each Debenture so affected; or (ii) reduce the aforesaid percentage of
Debentures, the holders of which are required to consent to any such
supplemental indenture; provided further, that if the Debentures are held by the
Trust or a trustee of the Trust, such supplemental indenture shall not be
effective until the holders of a majority in liquidation preference of Trust
Securities of the Trust shall have consented to such supplemental indenture;
provided further, that if the Debentures are held by the Trust or a trustee of
the Trust and if the consent of the holder of each Outstanding Debenture is
required, such supplemental indenture shall not be effective until each holder
of the Trust Securities of the Trust shall have consented to such supplemental
indenture. It shall not be necessary for the consent of the Debentureholders
affected thereby under this Section 11.2 to approve the particular form of any
proposed supplemental indenture, but it shall be sufficient if such consent
shall approve the substance thereof.
SECTION 11.3. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture pursuant to the provisions
of this Article XI, this Indenture shall be and be deemed to be modified and
amended in accordance therewith and the respective rights, limitations of
rights, obligations, duties and immunities under this Indenture of the Trustee,
the Company and the holders of Debentures shall thereafter be determined,
exercised and enforced hereunder subject in all respects to such modifications
and amendments, and all the terms and conditions of any such supplemental
indenture shall be and be deemed to be part of the terms and conditions of this
Indenture for any and all purposes.
SECTION 11.4. DEBENTURES AFFECTED BY SUPPLEMENTAL INDENTURES.
Debentures affected by a supplemental indenture, authenticated and
delivered after the execution of such supplemental indenture pursuant to the
provisions of this Article XI, may bear a notation in form approved by the
Company, provided such form meets the requirements of any exchange upon which
the Debentures may be listed, as to any matter provided for in such supplemental
indenture. If the Company shall so determine, new Debentures so modified as to
conform, in the opinion of the Board of Directors of the Company, to any
modification of this Indenture contained in any such supplemental indenture may
be prepared by the Company, authenticated by the Trustee and delivered in
exchange for the Debentures then Outstanding.
SECTION 11.5. EXECUTION OF SUPPLEMENTAL INDENTURES.
(a) Upon the request of the Company, accompanied by its Board Resolutions
authorizing the execution of any such supplemental indenture, and upon the
filing with the Trustee of evidence of the consent of Debentureholders required
to consent thereto as aforesaid, the Trustee shall join with the Company in the
execution of such supplemental indenture unless such supplemental indenture
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion but shall not be
obligated to enter into such supplemental indenture. The Trustee, subject to the
provisions of Sections 9.1, may receive an Opinion of Counsel as conclusive
evidence that any supplemental indenture executed pursuant to this Article XI is
authorized or permitted by, and conforms to, the terms of this Article XI and
that it is proper for the Trustee under the provisions of this Article XI to
join in the execution thereof.
(b) Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of this Section 11.5, the
Trustee shall transmit by mail, first class postage prepaid, a notice, setting
forth in general terms the substance of such supplemental indenture, to the
Debentureholders as their names and addresses appear upon the Debenture
Register. Any failure of the Trustee to mail such notice, or any defect therein,
shall not, however, in any way impair or affect the validity of any such
supplemental indenture.
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ARTICLE XII.
SUCCESSOR CORPORATION
SECTION 12.1. COMPANY MAY CONSOLIDATE, ETC.
Nothing contained in this Indenture or in any of the Debentures shall
prevent any consolidation or merger of the Company with or into any other
corporation or corporations (whether or not affiliated with the Company, as the
case may be), or successive consolidations or mergers in which the Company, as
the case may be, or its successor or successors shall be a party or parties, or
shall prevent any sale, conveyance, transfer or other disposition of the
property of the Company, as the case may be, or its successor or successors as
an entirety, or substantially as an entirety, to any other corporation (whether
or not affiliated with the Company, as the case may be, or its successor or
successors) authorized to acquire and operate the same; provided, however, that
the Company hereby covenants and agrees that, (i) upon any such consolidation,
merger, sale, conveyance, transfer or other disposition, the due and punctual
payment, in the case of the Company, of the principal of and interest on all of
the Debentures, according to their tenor and the due and punctual performance
and observance of all the covenants and conditions of this Indenture to be kept
or performed by the Company as the case may be, shall be expressly assumed, by
supplemental indenture (which shall conform to the provisions of the Trust
Indenture Act, as then in effect) satisfactory in form to the Trustee executed
and delivered to the Trustee by the entity formed by such consolidation, or into
which the Company, as the case may be, shall have been merged, or by the entity
which shall have acquired such property; (ii) in case the Company consolidates
with or merges into another Person or conveys or transfers its properties and
assets substantially then as an entirety to any Person, the successor Person is
organized under the laws of the United States or any state or the District of
Columbia; and (iii) immediately after giving effect thereto, an Event of
Default, and no event which, after notice or lapse of time or both, would become
an Event of Default, shall have occurred and be continuing.
SECTION 12.2. SUCCESSOR CORPORATION SUBSTITUTED.
(a) In case of any such consolidation, merger, sale, conveyance, transfer
or other disposition and upon the assumption by the successor corporation, by
supplemental indenture, executed and delivered to the Trustee and satisfactory
in form to the Trustee, of the due and punctual payment of the principal of and
interest on all of the Debentures Outstanding and the due and punctual
performance of all of the covenants and conditions of this Indenture to be
performed by the Company such successor corporation shall succeed to and be
substituted for the Company, with the same effect as if it had been named as the
Company herein, and thereupon the predecessor corporation shall be relieved of
all obligations and covenants under this Indenture and the Debentures.
(b) In case of any such consolidation, merger, sale, conveyance, transfer
or other disposition such changes in phraseology and form (but not in substance)
may be made in the Debentures thereafter to be issued as may be appropriate.
(c) Nothing contained in this Indenture or in any of the Debentures shall
prevent the Company from merging into itself or acquiring by purchase or
otherwise all or any part of the property of any other Person (whether or not
affiliated with the Company).
SECTION 12.3. EVIDENCE OF CONSOLIDATION, ETC. TO TRUSTEE.
The Trustee, subject to the provisions of Section 9.1, may receive an
Opinion of Counsel as conclusive evidence that any such consolidation, merger,
sale, conveyance, transfer or other disposition, and any such assumption, comply
with the provisions of this Article XII.
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ARTICLE XIII.
SATISFACTION AND DISCHARGE
SECTION 13.1. SATISFACTION AND DISCHARGE OF INDENTURE.
If at any time: (a) the Company shall have delivered to the Trustee for
cancellation all Debentures theretofore authenticated (other than any Debentures
that shall have been destroyed, lost or stolen and that shall have been replaced
or paid as provided in Section 2.9) and Debentures for whose payment money or
Governmental Obligations have theretofore been deposited in trust or segregated
and held in trust by the Company (and thereupon repaid to the Company or
discharged from such trust, as provided in Section 13.5); or (b) all such
Debentures not theretofore delivered to the Trustee for cancellation shall have
become due and payable, or are by their terms to become due and payable within
one year or are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of redemption, and the
Company shall deposit or cause to be deposited with the Trustee as trust funds
the entire amount in moneys or Governmental Obligations sufficient or a
combination thereof, sufficient in the opinion of a nationally recognized firm
of independent public accountants expressed in a written certification thereof
delivered to the Trustee, to pay at maturity or upon redemption all Debentures
not theretofore delivered to the Trustee for cancellation, including principal
and interest due or to become due to such date of maturity or date fixed for
redemption, as the case may be, and if the Company shall also pay or cause to be
paid all other sums payable hereunder by the Company; then this Indenture shall
thereupon cease to be of further effect except for the provisions of Sections
2.3, 2.7, 2.9, 5.1, 5.2, 5.3, and 9.10, which shall survive until the date of
maturity or redemption date, as the case may be, and Sections 9.6, 9.7 and 13.5,
which shall survive to such date and thereafter, and the Trustee, on demand of
the Company and at the cost and expense of the Company, shall execute proper
instruments acknowledging satisfaction of and discharging this Indenture.
SECTION 13.2. DISCHARGE OF OBLIGATIONS.
If at any time all Debentures not heretofore delivered to the Trustee for
cancellation or that have not become due and payable as described in Section
13.1 shall have been paid by the Company by depositing irrevocably with the
Trustee as trust funds moneys or an amount of Governmental Obligations
sufficient in the opinion of a nationally recognized certified public accounting
firm to pay at maturity or upon redemption all Debentures not theretofore
delivered to the Trustee for cancellation, including principal and interest due
or to become due to such date of maturity or date fixed for redemption, as the
case may be, and if the Company shall also pay or cause to be paid all other
sums payable hereunder by the Company, then after the date such moneys or
Governmental Obligations, as the case may be, are deposited with the Trustee,
the obligations of the Company under this Indenture shall cease to be of further
effect except for the provisions of Sections 2.3, 2.7, 2.9, 5.1, 5.2, 5.3, 9.6,
9.7, 9.10 and 13.5 hereof which shall survive until such Debentures shall mature
and be paid. Thereafter, Sections 9.6, 9.7 and 13.5 shall survive.
SECTION 13.3. DEPOSITED MONEYS TO BE HELD IN TRUST.
All monies or Governmental Obligations deposited with the Trustee pursuant
to Sections 13.1 or 13.2 shall be held in trust and shall be available for
payment as due, either directly or through any Paying Agent (including the
Company acting as its own Paying Agent), to the holders of the Debentures for
the payment or redemption of which such moneys or Governmental Obligations have
been deposited with the Trustee.
SECTION 13.4. PAYMENT OF MONIES HELD BY PAYING AGENTS.
In connection with the satisfaction and discharge of this Indenture, all
moneys or Governmental Obligations then held by any Paying Agent under the
provisions of this Indenture shall, upon demand of the Company, be paid to the
Trustee and thereupon such Paying Agent shall be released from all further
liability with respect to such moneys or Governmental Obligations.
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SECTION 13.5. REPAYMENT TO COMPANY.
Any monies or Governmental Obligations deposited with any Paying Agent or
the Trustee, or then held by the Company in trust, for payment of principal of
or interest on the Debentures that are not applied but remain unclaimed by the
holders of such Debentures for at least two years after the date upon which the
principal of or interest on such Debentures shall have respectively become due
and payable, shall be repaid to the Company, as the case may be, on May 31 of
each year or (if then held by the Company) shall be discharged from such trust;
and thereupon the Paying Agent and the Trustee shall be released from all
further liability with respect to such moneys or Governmental Obligations, and
the holder of any of the Debentures entitled to receive such payment shall
thereafter, as an unsecured general creditor, look only to the Company for the
payment thereof.
ARTICLE XIV.
IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS
AND DIRECTORS
SECTION 14.1. NO RECOURSE
No recourse under or upon any obligation, covenant or agreement of this
Indenture, or of the Debentures, or for any claim based thereon or otherwise in
respect thereof, shall be had against any incorporator, stockholder, officer or
director, past, present or future as such, of the Company or of any predecessor
or successor corporation, either directly or through the Company or any such
predecessor or successor corporation, whether by virtue of any constitution,
statute or rule of law, or by the enforcement of any assessment or penalty or
otherwise; it being expressly understood that this Indenture and the obligations
issued hereunder are solely corporate obligations, and that no such personal
liability whatever shall attach to, or is or shall be incurred by, the
incorporators, stockholders, officers or directors as such, of the Company or of
any predecessor or successor corporation, or any of them, because of the
creation of the indebtedness hereby authorized, or under or by reason of the
obligations, covenants or agreements contained in this Indenture or in any of
the Debentures or implied therefrom; and that any and all such personal
liability of every name and nature, either at common law or in equity or by
constitution or statute, of, and any and all such rights and claims against,
every such incorporator, stockholder, officer or director as such, because of
the creation of the indebtedness hereby authorized, or under or by reason of the
obligations, covenants or agreements contained in this Indenture or in any of
the Debentures or implied therefrom, are hereby expressly waived and released as
a condition of, and as a consideration for, the execution of this Indenture and
the issuance of such Debentures.
ARTICLE XV.
MISCELLANEOUS PROVISIONS
SECTION 15.1. EFFECT ON SUCCESSORS AND ASSIGNS.
All the covenants, stipulations, promises and agreements in this Indenture
contained by or on behalf of the Company shall bind its successors and assigns,
whether so expressed or not.
SECTION 15.2. ACTIONS BY SUCCESSOR.
Any act or proceeding by any provision of this Indenture authorized or
required to be done or performed by any board, committee or officer of the
Company shall and may be done and performed with like force and effect by the
corresponding board, committee or officer of any corporation that shall at the
time be the lawful sole successor of the Company.
SECTION 15.3. SURRENDER OF COMPANY POWERS.
The Company by instrument in writing executed by appropriate authority of
its Board of Directors and delivered to the Trustee may surrender any of the
powers reserved to the Company, and thereupon such power so surrendered shall
terminate both as to the Company, as the case may be, and as to any successor
corporation.
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SECTION 15.4. NOTICES.
Except as otherwise expressly provided herein any notice or demand that by
any provision of this Indenture is required or permitted to be given or served
by the Trustee or by the holders of Debentures to or on the Company may be given
or served by being deposited first class postage prepaid in a post-office
letterbox addressed (until another address is filed in writing by the Company
with the Trustee) to Matrix Bancorp, Inc., 1380 Lawrence Street, Suite 1400,
Denver, Colorado 80204, Attention: Chief Financial Officer. Any notice,
election, request or demand by the Company or any Debentureholder to or upon the
Trustee shall be deemed to have been sufficiently given or made, for all
purposes, if given or made in writing at the Corporate Trust Office of the
Trustee.
SECTION 15.5. GOVERNING LAW.
This Indenture and each Debenture shall be deemed to be a contract made
under the internal laws of The State of Colorado and for all purposes shall be
construed in accordance with the laws of such State.
SECTION 15.6. TREATMENT OF DEBENTURES AS DEBT.
It is intended that the Debentures shall be treated as indebtedness and not
as equity for federal income tax purposes. The provisions of this Indenture
shall be interpreted to further this intention.
SECTION 15.7. COMPLIANCE CERTIFICATES AND OPINIONS.
(a) Upon any application or demand by the Company to the Trustee to take
any action under any of the provisions of this Indenture, the Company shall
furnish to the Trustee an Officers' Certificate stating that all conditions
precedent provided for in this Indenture relating to the proposed action have
been complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent have been complied with, except that in
the case of any such application or demand as to which the furnishing of such
documents is specifically required by any provision of this Indenture relating
to such particular application or demand, no additional certificate or opinion
need be furnished.
(b) Each certificate or opinion of the Company provided for in this
Indenture and delivered to the Trustee with respect to compliance with a
condition or covenant in this Indenture shall include (1) a statement that the
Person making such certificate or opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based; (3) a statement that, in the opinion of such
Person, he has made such examination or investigation as, in the opinion of such
Person, is necessary to enable him to express an informed opinion as to whether
or not such covenant or condition has been complied with; and (4) a statement as
to whether or not, in the opinion of such Person, such condition or covenant has
been complied with.
SECTION 15.8. PAYMENTS ON BUSINESS DAYS.
In any case where the date of maturity of interest or principal of any
Debenture or the date of redemption of any Debenture shall not be a Business
Day, then payment of interest or principal may (subject to Section 2.5) be made
on the next succeeding Business Day with the same force and effect as if made on
the nominal date of maturity or redemption, and no interest shall accrue for the
period after such nominal date.
SECTION 15.9. CONFLICT WITH TRUST INDENTURE ACT.
If and to the extent that any provision of this Indenture limits, qualifies
or conflicts with the duties imposed by Sections 310 to 317, inclusive, of the
Trust Indenture Act, such imposed duties shall control.
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SECTION 15.10. COUNTERPARTS.
This Indenture may be executed in any number of counterparts, each of which
shall be an original, but such counterparts shall together constitute but one
and the same instrument.
SECTION 15.11. SEPARABILITY.
In case any one or more of the provisions contained in this Indenture or in
the Debentures shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Indenture or of the Debentures,
but this Indenture and the Debentures shall be construed as if such invalid or
illegal or unenforceable provision had never been contained herein or therein.
SECTION 15.12. ASSIGNMENT.
The Company shall have the right at all times to assign any of its
respective rights or obligations under this Indenture to a direct or indirect
wholly owned Subsidiary of the Company, provided that, in the event of any such
assignment, the Company shall remain liable for all such obligations. Subject to
the foregoing, this Indenture is binding upon and inures to the benefit of the
parties thereto and their respective successors and assigns. This Indenture may
not otherwise be assigned by the parties thereto.
SECTION 15.13. ACKNOWLEDGMENT OF RIGHTS; RIGHT OF SETOFF.
(a) The Company acknowledges that, with respect to any Debentures held by
the Trust or a trustee of the Trust, if the Property Trustee fails to enforce
its rights under this Indenture as the holder of the Debentures held as the
assets of the Trust, any holder of Preferred Securities may institute legal
proceedings directly against the Company to enforce such Property Trustee's
rights under this Indenture without first instituting any legal proceedings
against such Property Trustee or any other person or entity. Notwithstanding the
foregoing, and notwithstanding the provisions of Section 7.4(a) hereof, if an
Event of Default has occurred and is continuing and such event is attributable
to the failure of the Company to pay principal or interest on the Debentures on
the date such principal or interest is otherwise payable (or in the case of
redemption, on the redemption date), the Company acknowledges that a holder of
Preferred Securities may directly institute a proceeding for enforcement of
payment to such holder of the principal of or interest on the Debentures having
a principal amount equal to the aggregate liquidation amount of the Preferred
Securities of such holder on or after the respective due date specified in the
Debentures.
(b) Notwithstanding anything to the contrary contained in this Indenture,
the Company shall have the right to setoff any payment it is otherwise required
to make hereunder in respect of any Trust Securities to the extent that the
Company has previously made, or is concurrently making, a payment to the holder
of such Trust Securities under the Preferred Securities Guarantee or in
connection with a proceeding for enforcement of payment of the principal of or
interest on the Debentures directly brought by holders of any Trust Securities.
(c) For so long as any of the Preferred Securities remain outstanding, if,
upon an Event of Default, the Trust holds the Debentures and the Property
Trustee fails or the holders of not less than 25% in principal amount of the
Outstanding Debentures fail to declare the principal of all of the Debentures to
be immediately due and payable, the holders of at least 25% in liquidation
amount of the Preferred Securities then Outstanding (determined as provided in
the Trust Agreement) shall have the right to make such declaration by a notice
in writing to the Depositor and the Property Trustee; and upon any such
declaration such declaration such principal amount of and the accrued interest
on all of the Debentures shall become immediately due and payable, provided that
the payment of principal and interest on such Debentures shall remain
subordinated to the extent provided in this Indenture.
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ARTICLE XVI.
SUBORDINATION OF DEBENTURES
SECTION 16.1. AGREEMENT TO SUBORDINATE.
The Company covenants and agrees, and each holder of Debentures issued
hereunder by such holder's acceptance thereof likewise covenants and agrees,
that all Debentures shall be issued subject to the provisions of this Article
XVI; and each holder of a Debenture, whether upon original issue or upon
transfer or assignment thereof, accepts and agrees to be bound by such
provisions. The payment by the Company of the principal of and interest on all
Debentures issued hereunder shall, to the extent and in the manner hereinafter
set forth, be subordinated and junior in right of payment to the prior payment
in full of all Senior Debt, Subordinated Debt and Additional Senior Obligations
of the Company (collectively, "Senior Indebtedness") to the extent provided
herein, whether outstanding at the date of this Indenture or thereafter
incurred. No provision of this Article XVI shall prevent the occurrence of any
default or Event of Default hereunder.
SECTION 16.2. DEFAULT ON SENIOR DEBT, SUBORDINATED DEBT OR ADDITIONAL SENIOR
OBLIGATIONS.
In the event and during the continuation of any default by the Company in
the payment of principal, premium, interest or any other payment due on any
Senior Indebtedness of the Company, or in the event that the maturity of any
Senior Indebtedness of the Company has been accelerated because of a default,
then, in either case, no payment shall be made by the Company with respect to
the principal (including redemption payments) of or interest on the Debentures.
In the event that, notwithstanding the foregoing, any payment shall be received
by the Trustee when such payment is prohibited by the preceding sentence of this
Section 16.2, such payment shall be held in trust for the benefit of, and shall
be paid over or delivered to, the holders of Senior Indebtedness or their
respective representatives, or to the trustee or trustees under any indenture
pursuant to which any of such Senior Indebtedness may have been issued, as their
respective interests may appear, but only to the extent that the holders of the
Senior Indebtedness (or their representative or representatives or a trustee)
notify the Trustee in writing within 90 days of such payment of the amounts then
due and owing on the Senior Indebtedness and only the amounts specified in such
notice to the Trustee shall be paid to the holders of Senior Indebtedness.
SECTION 16.3. LIQUIDATION; DISSOLUTION; BANKRUPTCY.
(a) Upon any payment by the Company or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
creditors upon any dissolution or winding-up or liquidation or reorganization of
the Company, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all amounts due upon all Senior Indebtedness
of the Company shall first be paid in full, or payment thereof provided for in
money in accordance with its terms, before any payment is made by the Company on
account of the principal or interest on the Debentures; and upon any such
dissolution or winding-up or liquidation or reorganization, any payment by the
Company, or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, to which the holders of the Debentures
or the Trustee would be entitled to receive from the Company, except for the
provisions of this Article XVI, shall be paid by the Company or by any receiver,
trustee in bankruptcy, liquidating trustee, agent or other Person making such
payment or distribution, or by the holders of the Debentures or by the Trustee
under this Indenture if received by them or it, directly to the holders of
Senior Indebtedness of the Company (pro rata to such holders on the basis of the
respective amounts of Senior Indebtedness held by such holders, as calculated by
the Company) or their representative or representatives, or to the trustee or
trustees under any indenture pursuant to which any instruments evidencing such
Senior Indebtedness may have been issued, as their respective interests may
appear, to the extent necessary to pay such Senior Indebtedness in full, in
money or money's worth, after giving effect to any concurrent payment or
distribution to or for the holders of such Senior Indebtedness, before any
payment or distribution is made to the holders of Debentures or to the Trustee.
(b) In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, prohibited by the foregoing, shall be received by the
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Trustee before all Senior Indebtedness of the Company is paid in full, or
provision is made for such payment in money in accordance with its terms, such
payment or distribution shall be held in trust for the benefit of and shall be
paid over or delivered to the holders of such Senior Indebtedness or their
representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing such Senior Indebtedness
may have been issued, as their respective interests may appear, as calculated by
the Company, for application to the payment of all Senior Indebtedness of the
Company, as the case may be, remaining unpaid to the extent necessary to pay
such Senior Indebtedness in full in money in accordance with its terms, after
giving effect to any concurrent payment or distribution to or for the benefit of
the holders of such Senior Indebtedness.
(c) For purposes of this Article XVI, the words "cash, property or
securities" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment, the payment of which
is subordinated at least to the extent provided in this Article XVI with respect
to the Debentures to the payment of all Senior Indebtedness of the Company, as
the case may be, that may at the time be outstanding, provided that (i) such
Senior Indebtedness is assumed by the new corporation, if any, resulting from
any such reorganization or readjustment; and (ii) the rights of the holders of
such Senior Indebtedness are not, without the consent of such holders, altered
by such reorganization or readjustment. The consolidation of the Company with,
or the merger of the Company into, another corporation or the liquidation or
dissolution of the Company following the conveyance or transfer of its property
as an entirety, or substantially as an entirety, to another corporation upon the
terms and conditions provided for in Article XII shall not be deemed a
dissolution, winding-up, liquidation or reorganization for the purposes of this
Section 16.3 if such other corporation shall, as a part of such consolidation,
merger, conveyance or transfer, comply with the conditions stated in Article
XII. Nothing in Section 16.2 or in this Section 16.3 shall apply to claims of,
or payments to, the Trustee under or pursuant to Section 9.7.
SECTION 16.4. SUBROGATION.
(a) Subject to the payment in full of all Senior Indebtedness of the
Company, the rights of the holders of the Debentures shall be subrogated to the
rights of the holders of such Senior Indebtedness to receive payments or
distributions of cash, property or securities of the Company, as the case may
be, applicable to such Senior Indebtedness until the principal of and interest
on the Debentures shall be paid in full; and, for the purposes of such
subrogation, no payments or distributions to the holders of such Senior
Indebtedness of any cash, property or securities to which the holders of the
Debentures or the Trustee would be entitled except for the provisions of this
Article XVI, and no payment over pursuant to the provisions of this Article XVI
to or for the benefit of the holders of such Senior Indebtedness by holders of
the Debentures or the Trustee, shall, as between the Company, its creditors
other than holders of Senior Indebtedness of the Company, and the holders of the
Debentures, be deemed to be a payment by the Company to or on account of such
Senior Indebtedness. It is understood that the provisions of this Article XVI
are and are intended solely for the purposes of defining the relative rights of
the holders of the Debentures, on the one hand, and the holders of such Senior
Indebtedness on the other hand.
(b) Nothing contained in this Article XVI or elsewhere in this Indenture
or in the Debentures is intended to or shall impair, as between the Company, its
creditors (other than the holders of Senior Indebtedness of the Company), and
the holders of the Debentures, the obligation of the Company, which is absolute
and unconditional, to pay to the holders of the Debentures the principal of and
interest on the Debentures as and when the same shall become due and payable in
accordance with their terms, or is intended to or shall affect the relative
rights of the holders of the Debentures and creditors of the Company, as the
case may be, other than the holders of Senior Indebtedness of the Company, as
the case may be, nor shall anything herein or therein prevent the Trustee or the
holder of any Debenture from exercising all remedies otherwise permitted by
applicable law upon default under this Indenture, subject to the rights, if any,
under this Article XVI of the holders of such Senior Indebtedness in respect of
cash, property or securities of the Company, as the case may be, received upon
the exercise of any such remedy.
(c) Upon any payment or distribution of assets of the Company referred to
in this Article XVI, the Trustee, subject to the provisions of Article IX, and
the holders of the Debentures shall be entitled to conclusively rely upon any
order or decree made by any court of competent jurisdiction in which such
dissolution, winding-up, liquidation or reorganization proceedings are pending,
or a certificate of the receiver, trustee in bankruptcy, liquidation trustee,
agent or other Person making such payment or distribution, delivered to the
Trustee or to the holders of the
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Debentures, for the purposes of ascertaining the Persons entitled to participate
in such distribution, the holders of Senior Indebtedness and other indebtedness
of the Company, as the case may be, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article XVI.
SECTION 16.5. TRUSTEE TO EFFECTUATE SUBORDINATION.
Each holder of Debentures by such holder's acceptance thereof authorizes
and directs the Trustee on such holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination provided in this
Article XVI and appoints the Trustee such holder's attorney-in-fact for any and
all such purposes.
SECTION 16.6. NOTICE BY THE COMPANY.
(a) The Company shall give prompt written notice to a Responsible Officer
of the Trustee of any fact known to the Company that would prohibit the making
of any payment of monies to or by the Trustee in respect of the Debentures
pursuant to the provisions of this Article XVI. Notwithstanding the provisions
of this Article XVI or any other provision of this Indenture, the Trustee shall
not be charged with knowledge of the existence of any facts that would prohibit
the making of any payment of monies to or by the Trustee in respect of the
Debentures pursuant to the provisions of this Article XVI, unless and until a
Responsible Officer of the Trustee shall have received written notice thereof
from the Company or a holder or holders of Senior Indebtedness or from any
trustee therefor; and before the receipt of any such written notice, the
Trustee, subject to the provisions of Section 9.1, shall be entitled in all
respects to assume that no such facts exist; provided, however, that if the
Trustee shall not have received the notice provided for in this Section 16.6 at
least two Business Days prior to the date upon which by the terms hereof any
money may become payable for any purpose (including, without limitation, the
payment of the principal of or interest on any Debenture), then, anything herein
contained to the contrary notwithstanding, the Trustee shall have full power and
authority to receive such money and to apply the same to the purposes for which
they were received, and shall not be affected by any notice to the contrary that
may be received by it within two Business Days prior to such date.
(b) The Trustee, subject to the provisions of Section 9.1, shall be
entitled to conclusively rely on the delivery to it of a written notice by a
Person representing himself to be a holder of Senior Indebtedness of the Company
(or a trustee on behalf of such holder) to establish that such notice has been
given by a holder of such Senior Indebtedness or a trustee on behalf of any such
holder or holders. In the event that the Trustee determines in good faith that
further evidence is required with respect to the right of any Person as a holder
of such Senior Indebtedness to participate in any payment or distribution
pursuant to this Article XVI, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of such
Senior Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article XVI, and, if such
evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.
SECTION 16.7. RIGHTS OF THE TRUSTEE; HOLDERS OF SENIOR INDEBTEDNESS.
(a) The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article XVI in respect of any Senior Indebtedness at
any time held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder. The Trustee's right to compensation and reimbursement
of expenses as set forth in Section 9.7 shall not be subject to the
subordination provisions of the Article XVI.
(b) With respect to the holders of Senior Indebtedness of the Company, the
Trustee undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article XVI, and no implied
covenants or obligations with respect to the holders of such Senior Indebtedness
shall be read into this Indenture against the Trustee. The Trustee shall not be
deemed to owe any fiduciary duty to the holders of such Senior Indebtedness and,
subject to the provisions of Section 9.1, the Trustee shall not be liable to any
holder of such Senior Indebtedness if it shall pay over or deliver to holders of
Debentures, the Company or any other Person money
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or assets to which any holder of such Senior Indebtedness shall be entitled by
virtue of this Article XVI or otherwise.
SECTION 16.8. SUBORDINATION MAY NOT BE IMPAIRED.
(a) No right of any present or future holder of any Senior Indebtedness of
the Company to enforce subordination as herein provided shall at any time in any
way be prejudiced or impaired by any act or failure to act on the part of the
Company or by any act or failure to act, in good faith, by any such holder, or
by any noncompliance by the Company with the terms, provisions and covenants of
this Indenture, regardless of any knowledge thereof that any such holder may
have or otherwise be charged with.
(b) Without in any way limiting the generality of Section 16.8(a), the
holders of Senior Indebtedness of the Company may, at any time and from time to
time, without the consent of or notice to the Trustee or the holders of the
Debentures, without incurring responsibility to the holders of the Debentures
and without impairing or releasing the subordination provided in this Article
XVI or the obligations hereunder of the holders of the Debentures to the holders
of such Senior Indebtedness, do any one or more of the following: (i) change the
manner, place or terms of payment or extend the time of payment of, or renew or
alter, such Senior Indebtedness, or otherwise amend or supplement in any manner
such Senior Indebtedness or any instrument evidencing the same or any agreement
under which such Senior Indebtedness is outstanding; (ii) sell, exchange,
release or otherwise deal with any property pledged, mortgaged or otherwise
securing such Senior Indebtedness; (iii) release any Person liable in any manner
for the collection of such Senior Indebtedness; and (iv) exercise or refrain
from exercising any rights against the Company and any other Person.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
MATRIX BANCORP, INC.
By:______________________________________
Name:
Title:
Attest:________________________
STATE STREET BANK AND TRUST
COMPANY as trustee
By:______________________________________
Name:
Title:
Attest:________________________
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THE STATE OF COLORADO )
) ss
COUNTY OF ______________ )
On this ________ day of _________________ , 1999, before me appeared
___________________, to me personally known, who, being by me duly sworn, did
say that he is the_____________________________ of Matrix Bancorp, Inc. and that
the seal affixed to said instrument is the corporate seal of said corporation,
and that said instrument was signed and sealed in behalf of said corporation by
authority of its board of directors and said _____________________, acknowledged
said instrument to be the free act and deed of said corporation.
In testimony whereof I have hereunto set my hand and affixed my official
seal at my office in said county and state the day and year last above written.
________________________
Notary Public
My term expires:
[seal]
THE COMMONWEALTH OF MASSACHUSETTS )
) ss
COUNTY OF SUFFOLK )
On this ________________ day of ____________, 1999, before me appeared
_______________________ , to me personally known, who, being by me duly sworn,
did say that he is the of _________________________ State Street Bank and Trust
Company, and that the seal affixed to said instrument is the corporate seal of
said corporation, and that said instrument was signed and sealed in behalf of
said corporation by authority of its board of directors and said
__________________ , acknowledged said instrument to be the free act and deed of
said corporation.
In testimony whereof I have hereunto set my hand and affixed my official
seal at my office in said county and commonwealth the day and year last above
written.
________________________
Notary Public
My term expires:
42
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EXHIBIT 4.8
Certificate No. 1
CUSIP No. 576819 AB2 $32,603,125
MATRIX BANCORP, INC.
_____% JUNIOR SUBORDINATED DEBENTURE
DUE ____________, 2029
Matrix Bancorp, Inc., a Colorado corporation (the "Company," which term
includes any successor corporation under the Indenture hereinafter referred to),
for value received, hereby promises to pay to State Street Bank and Trust
Company, as Property Trustee for Matrix Bancorp Capital Trust I, or registered
assigns, the principal sum of Thirty-Two Million, Six Hundred Three Thousand,
One Hundred and Twenty-Five Dollars ($32,603,125) on ____________, 2029 (the
"Stated Maturity"), and to pay interest on said principal sum from __________,
1999, or from the most recent interest payment date (each such date, an
"Interest Payment Date") to which interest has been paid or duly provided for,
quarterly (subject to deferral as set forth herein) in arrears on March 31, June
30, September 30 and December 31 of each year commencing ____________, 1999, at
the rate of ______% per annum until the principal hereof shall have become due
and payable, and on any overdue principal and (without duplication) on any
overdue installment of interest at the same rate per annum compounded quarterly.
The amount of interest payable on any Interest Payment Date shall be computed on
the basis of a 360-day year of twelve 30- day months. The amount of interest for
any partial period shall be computed on the basis of the number of days elapsed
in a 360-day year of twelve 30-day months. In the event that any date on which
interest is payable on this Debenture is not a business day, then payment of
interest payable on such date shall be made on the next succeeding day that is a
Business Day (as defined in the Indenture) (and without any interest or other
payment in respect of any such delay) with the same force and effect as if made
on such date. The interest installment so payable, and punctually paid or duly
provided for, on any Interest Payment Date shall, as provided in the Indenture,
be paid to the person in whose name this Debenture (or one or more Predecessor
Debentures, as defined in said Indenture) is registered at the close of business
on the regular record date for such interest installment, which shall be the
close of business on the fifteenth day of the last month of the calendar quarter
in which the Interest Payment Date occurs unless otherwise provided in the
Indenture. Any such interest installment not punctually paid or duly provided
for shall forthwith cease to be payable to the registered holders on such
regular record date and may be paid to the person in whose name this Debenture
(or one or more Predecessor Debentures) is registered at the close of business
on a special record date to be fixed by the Trustee for the payment of such
defaulted interest, notice whereof shall be given to the registered holders of
the Debentures not less than 10 days prior to such special record date, or may
be paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Debentures may be listed,
and upon such notice as may be required by such exchange, all as more fully
provided in the Indenture. The principal of and the interest on this Debenture
shall be payable at the office or agency of the Trustee maintained for that
purpose in any coin or currency of the United States of America that at the time
of payment is legal tender for payment of public and private debts; provided,
however, that payment of interest may be made at the option of the Company by
check mailed to the registered holder at such address as shall appear in the
Debenture Register. Notwithstanding the foregoing, so long as the holder of this
Debenture is the Property Trustee, the payment of the principal of and interest
on this Debenture shall be made at such place and to such account as may be
designated by the Trustee.
This Debenture may be redeemed by the Company on any date not earlier than
___________, 2004, subject to the Company having received any necessary
regulatory approvals.
The indebtedness evidenced by this Debenture is, to the extent provided in the
Indenture, subordinate and junior in right of payment to the prior payment in
full of all Senior Indebtedness (as defined in the Indenture), and this
Debenture is issued subject to the provisions of the Indenture with respect
thereto. Each holder of this Debenture, by accepting the same, (a) agrees to and
shall be bound by such provisions; (b) authorizes and directs the Trustee on his
or her behalf to take such action as may be necessary or appropriate to
acknowledge or effectuate the subordination so provided; and (c) appoints the
Trustee his or her attorney-in-fact for any and all such purposes. Each holder
hereof, by his or her acceptance hereof, hereby waives all notice of the
acceptance of the subordination provisions
<PAGE>
contained herein and in the Indenture by each holder of Senior Indebtedness,
whether now outstanding or hereafter incurred, and waives reliance by each such
holder upon said provisions.
This Debenture shall not be entitled to any benefit under the Indenture
hereinafter referred to, be valid or become obligatory for any purpose until the
Certificate of Authentication hereon shall have been signed by or on behalf of
the Trustee.
The provisions of this Debenture are continued on the reverse side hereof and
such continued provisions shall for all purposes have the same effect as though
fully set forth at this place.
IN WITNESS WHEREOF, the Company has caused this instrument to be executed.
Dated: _________________
MATRIX BANCORP, INC.
By: ________________________________
President and Chief Executive Officer
Attest:
By:____________________________________
Senior Vice President and Treasurer
<PAGE>
_______% SUBORDINATED DEBENTURE
(CONTINUED)
This Debenture is one of the subordinated debentures of the Company (herein
sometimes referred to as the "Debentures"), all issued or to be issued under and
pursuant to an Indenture dated as of __________ (the "Indenture") duly executed
and delivered between the Company and State Street Bank and Trust Company, as
Trustee (the "Trustee"), to which Indenture reference is hereby made for a
description of the rights, limitations of rights, obligations, duties and
immunities thereunder of the Trustee, the Company and the holders of the
Debentures. The Debentures are limited in aggregate principal amount as
specified in the Indenture.
The Company shall have the right to redeem this Debenture at the option of the
Company, without premium or penalty, in whole or in part at any time on or after
______________, 2004 (an "Optional Redemption"), or at any time in certain
circumstances upon the occurrence of a Special Event (as defined in the
Indenture), at a redemption price (the "Redemption Price") equal to 100% of the
principal amount hereof plus any accrued but unpaid interest hereon, to the date
of such redemption, including any Deferred Interest (as defined in the
Indenture). Any redemption pursuant to this paragraph shall be made upon not
less than 30 days nor more than 60 days notice, at the Redemption Price. If the
Debentures are only partially redeemed by the Company pursuant to an Optional
Redemption, the Debentures shall be redeemed pro rata or by lot or by any other
method utilized by the Trustee as described in the Indenture.
In the event of redemption of this Debenture in part only, a new Debenture or
Debentures for the unredeemed portion hereof shall be issued in the name of the
holder hereof upon the cancellation hereof.
In case an Event of Default, as defined in the Indenture, shall have occurred
and be continuing, the principal of all of the Debentures may be declared, and
upon such declaration shall become, due and payable, in the manner, with the
effect and subject to the conditions provided in the Indenture.
The Indenture contains provisions permitting the Company and the Trustee, with
the consent of the holders of not less than a majority in aggregate principal
amount of the Debentures at the time outstanding, as defined in the Indenture,
to execute supplemental indentures for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of the Indenture
or of any supplemental indenture or of modifying in any manner the rights of the
holders of the Debentures; provided, however, that no such supplemental
indenture shall (i) extend the fixed maturity of the Debentures except as
provided in the Indenture, or reduce the principal amount thereof, or reduce the
rate or extend the time of payment of interest thereon, without the consent of
the holder of each Debenture so affected; or (ii) reduce the aforesaid
percentage of Debentures, the holders of which are required to consent to any
such supplemental indenture, without the consent of the holders of each
Debenture then outstanding and affected thereby. The Indenture also contains
provisions permitting the holders of a majority in aggregate principal amount of
the Debentures at the time outstanding, on behalf of all of the holders of the
Debentures, to waive any past default in the performance of any of the covenants
contained in the Indenture, or established pursuant to the Indenture, and its
consequences, except a default in the payment of the principal of or interest on
any of the Debentures. Any such consent or waiver by the registered holder of
this Debenture (unless revoked as provided in the Indenture) shall be conclusive
and binding upon such holder and upon all future holders and owners of this
Debenture and of any Debenture issued in exchange herefor or in place hereof
(whether by registration of transfer or otherwise), irrespective of whether or
not any notation of such consent or waiver is made upon this Debenture.
No reference herein to the Indenture and no provision of this Debenture or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal and interest on this Debenture
at the time and place and at the rate and in the money herein prescribed.
The Company, as further described in the Indenture, shall have the right at
any time during the term of the Debentures and from time to time to extend the
interest payment period of such Debentures for up to 20 consecutive quarters
(each, an "Extension Period"), at the end of which period the Company shall pay
all interest then accrued and unpaid, including any Deferred Interest (as
defined in the Indenture) that shall be payable to the holders of the
<PAGE>
Debentures in whose names the Debentures are registered in the Debenture
Register on the first record date after the end of the Extension Period. Before
the termination of any such Extension Period, the Company may further extend
such Extension Period, provided that such Extension Period together with all
such further extensions thereof shall not exceed 20 consecutive quarters. At the
termination of any such Extension Period and upon the payment of all Deferred
Interest (as defined in the Indenture) then due, the Company may commence a new
Extension Period.
As provided in the Indenture and subject to certain limitations therein set
forth, this Debenture is transferable by the registered holder hereof on the
Debenture Register of the Company, upon surrender of this Debenture for
registration of transfer at the office or agency of the Trustee accompanied by a
written instrument or instruments of transfer in form satisfactory to the
Company or the Trustee duly executed by the registered holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Debentures of
authorized denominations and for the same aggregate principal amount shall be
issued to the designated transferee or transferees. No service charge shall be
made for any such transfer, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in relation
thereto.
Prior to due presentment for registration of transfer of this Debenture, the
Company, the Trustee, any Paying Agent and the Debenture Registrar may deem and
treat the registered holder hereof as the absolute owner hereof (whether or not
this Debenture shall be overdue and notwithstanding any notice of ownership or
writing hereon made by anyone other than the Debenture Registrar) for the
purpose of receiving payment of or on account of the principal hereof and
interest due hereon and for all other purposes, and neither the Company nor the
Trustee nor any Paying Agent nor any Debenture Registrar shall be affected by
any notice to the contrary.
No recourse shall be had for the payment of the principal of or the interest
on this Debenture, or for any claim based hereon, or otherwise in respect
hereof, or based on or in respect of the Indenture, against any incorporator,
stockholder, officer or director, past, present or future, as such, of the
Company or of any predecessor or successor corporation, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty or otherwise, all such liability being, by the acceptance hereof and as
part of the consideration for the issuance hereof, expressly waived and
released.
The Debentures are issuable only in registered form without coupons in
denominations of $25 and any integral multiple thereof (or such other
denominations and any integral multiple thereof as may be deemed necessary by
the Company for the purpose of maintaining the eligibility of the Debentures for
quotation on The Nasdaq Stock Market National Market or any successor thereto).
All terms used in this Debenture that are defined in the Indenture shall have
the meanings assigned to them in the Indenture.
<PAGE>
CERTIFICATE OF AUTHENTICATION
This is one of the Debentures described in the within-mentioned Indenture.
Dated: _______________
STATE STREET BANK AND TRUST COMPANY
as Trustee
By ________________________________________
Authorized Signatory
<PAGE>
EXHIBIT 4.10
====================================================================
-----------------------------
AMENDED AND RESTATED
TRUST AGREEMENT
AMONG
MATRIX BANCORP, INC., AS DEPOSITOR
STATE STREET BANK AND TRUST COMPANY, AS PROPERTY TRUSTEE
WILMINGTON TRUST COMPANY, AS DELAWARE TRUSTEE,
AND
THE ADMINISTRATIVE TRUSTEES NAMED HEREIN
-----------------------------
DATED AS OF ________________, 1999
====================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINED TERMS 1
SECTION 101. DEFINITIONS 1
ARTICLE II ESTABLISHMENT OF THE TRUST 7
SECTION 201. NAME 7
SECTION 202. OFFICE OF THE DELAWARE TRUSTEE; PRINCIPAL PLACE OF BUSINESS 8
SECTION 203. INITIAL CONTRIBUTION OF TRUST PROPERTY; ORGANIZATIONAL EXPENSES 8
SECTION 204. ISSUANCE OF THE PREFERRED SECURITIES 8
SECTION 205. ISSUANCE OF THE COMMON SECURITIES; SUBSCRIPTION AND PURCHASE OF DEBENTURES 8
SECTION 206. DECLARATION OF TRUST 9
SECTION 207. AUTHORIZATION TO ENTER INTO CERTAIN TRANSACTIONS 9
SECTION 208. ASSETS OF TRUST 11
SECTION 209. TITLE TO TRUST PROPERTY 11
ARTICLE III PAYMENT ACCOUNT 11
SECTION 301. PAYMENT ACCOUNT 11
ARTICLE IV DISTRIBUTIONS; REDEMPTION 12
SECTION 401. DISTRIBUTIONS 12
SECTION 402. REDEMPTION 12
SECTION 403. SUBORDINATION OF COMMON SECURITIES 13
SECTION 404. PAYMENT PROCEDURES 14
SECTION 405. TAX RETURNS AND REPORTS 14
SECTION 406. PAYMENT OF TAXES, DUTIES, ETC. OF THE TRUST 14
SECTION 407. PAYMENTS UNDER INDENTURE 14
ARTICLE V TRUST SECURITIES CERTIFICATES 15
SECTION 501. INITIAL OWNERSHIP 15
SECTION 502. THE TRUST SECURITIES CERTIFICATES 15
SECTION 503. EXECUTION AND DELIVERY OF TRUST CERTIFICATES 15
SECTION 504. GLOBAL PREFERRED SECURITIES 15
SECTION 505. REGISTRATION OF TRANSFER AND EXCHANGE GENERALY; CERTAIN TRANSFERS
AND EXCHANGES; PREFERRED SECURITIES CERTIFICATES 16
SECTION 506. MUTILATED, DESTROYED, LOST OR STOLEN TRUST SECURITIES CERTIFICATES 17
SECTION 507. PERSONS DEEMED HOLDERS 18
SECTION 508. ACCESS TO LIST OF HOLDERS' NAMES AND ADDRESSES 18
SECTION 509. MAINTENANCE OF OFFICE OR AGENCY 18
SECTION 510. APPOINTMENT OF PAYING AGENT 18
SECTION 511. OWNERSHIP OF COMMON SECURITIES BY DEPOSITOR 19
SECTION 512. NOTICES TO CLEARING AGENCY 19
SECTION 513. RIGHTS OF HOLDERS 19
ARTICLE VI ACTS OF SECURITYHOLDERS; MEETINGS; VOTING 20
SECTION 601. LIMITATIONS ON VOTING RIGHTS 20
SECTION 602. NOTICE OF MEETINGS 21
SECTION 603. MEETINGS OF PREFERRED SECURITYHOLDERS 21
SECTION 604. VOTING RIGHTS 22
SECTION 605. PROXIES, ETC 22
SECTION 606. SECURITYHOLDER ACTION BY WRITTEN CONSENT 22
SECTION 607. RECORD DATE FOR VOTING AND OTHER PURPOSES 22
SECTION 608. ACTS OF SECURITYHOLDERS 22
SECTION 609. INSPECTION OF RECORDS 23
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE VII REPRESENTATIONS AND WARRANTIES 23
SECTION 701. REPRESENTATIONS AND WARRANTIES OF THE BANK AND THE PROPERTY TRUSTEE 23
SECTION 702. REPRESENTATIONS AND WARRANTIES OF THE DELAWARE BANK AND THE DELAWARE TRUSTEE 24
SECTION 703. REPRESENTATIONS AND WARRANTIES OF DEPOSITOR 25
ARTICLE VIII TRUSTEES 25
SECTION 801. CERTAIN DUTIES AND RESPONSIBILITIES 25
SECTION 802. CERTAIN NOTICES 26
SECTION 803. CERTAIN RIGHTS OF PROPERTY TRUSTEE 26
SECTION 804. NOT RESPONSIBLE FOR RECITALS OR USE OF PROCEEDS 28
SECTION 805. MAY HOLD SECURITIES 28
SECTION 806. COMPENSATION; INDEMNITY; FEES 28
SECTION 807. CORPORATE PROPERTY TRUSTEE REQUIRED; ELIGIBILITY OF TRUSTEES 28
SECTION 808. CONFLICTING INTERESTS 29
SECTION 809. CO-TRUSTEES AND SEPARATE TRUSTEE 29
SECTION 810. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR 30
SECTION 811. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR 31
SECTION 812. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS 31
SECTION 813. PREFERENTIAL COLLECTION OF CLAIMS AGAINST DEPOSITOR OR TRUST 31
SECTION 814. REPORTS BY PROPERTY TRUSTEE 31
SECTION 815. REPORTS TO THE PROPERTY TRUSTEE 32
SECTION 816. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT 32
SECTION 817. NUMBER OF TRUSTEES 32
SECTION 818. DELEGATION OF POWER 32
SECTION 819. VOTING 32
ARTICLE IX DISSOLUTION, LIQUIDATION AND MERGER 32
SECTION 901. DISSOLUTION UPON EXPIRATION DATE 32
SECTION 902. EARLY TERMINATION 33
SECTION 903. TERMINATION 33
SECTION 904. LIQUIDATION 33
SECTION 905. MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE TRUST 34
ARTICLE X MISCELLANEOUS PROVISIONS 35
SECTION 1001. LIMITATION OF RIGHTS OF SECURITYHOLDERS 35
SECTION 1002. AMENDMENT 35
SECTION 1003. SEPARABILITY 36
SECTION 1004. GOVERNING LAW 36
SECTION 1005. PAYMENTS DUE ON NON-BUSINESS DAY 36
SECTION 1006. SUCCESSORS 37
SECTION 1007. HEADINGS 37
SECTION 1008. REPORTS, NOTICES AND DEMANDS 37
SECTION 1009. AGREEMENT NOT TO PETITION 37
SECTION 1010. TRUST INDENTURE ACT; CONFLICT WITH TRUST INDENTURE ACT 38
SECTION 1011. ACCEPTANCE OF TERMS OF TRUST AGREEMENT, GUARANTEE AND INDENTURE 38
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
CROSS-REFERENCE TABLE Section of
Section of Amended
Trust Indenture Act and Restated
of 1939, as amended Trust
- ------------------- -----
Agreement
---------
- --------------------------------------------------------------------------
<S> <C>
310 (a) (1) 807
- --------------------------------------------------------------------------
310 (a) (2) 807
- --------------------------------------------------------------------------
310 (a) (3) 807
- --------------------------------------------------------------------------
310 (a) (4) 207(a)(ii)
- --------------------------------------------------------------------------
310 (b) 808
- --------------------------------------------------------------------------
311 (a) 813
- --------------------------------------------------------------------------
311 (b) 813
- --------------------------------------------------------------------------
312 (a) 507
- --------------------------------------------------------------------------
312 (b) 507
- --------------------------------------------------------------------------
312 (c) 508
- --------------------------------------------------------------------------
313 (a) 814(a)
- --------------------------------------------------------------------------
313 (a) (4) 814(a)
- --------------------------------------------------------------------------
313 (b) 814(a)
- --------------------------------------------------------------------------
313 (c) 1008
- --------------------------------------------------------------------------
313 (d) 814(b)
- --------------------------------------------------------------------------
314 (a) 815
- --------------------------------------------------------------------------
314 (b) Not Applicable
- --------------------------------------------------------------------------
314 (c) (1) 816
- --------------------------------------------------------------------------
314 (c) (2) 816
- --------------------------------------------------------------------------
314 (c) (3) Not Applicable
- --------------------------------------------------------------------------
314 (d) Not Applicable
- --------------------------------------------------------------------------
314 (e) 101, 816
- --------------------------------------------------------------------------
315 (a) 801(a), 803(a)
- --------------------------------------------------------------------------
315 (b) 802, 1008
- --------------------------------------------------------------------------
315 (c) 801(a)
- --------------------------------------------------------------------------
315 (d) 801, 803
- --------------------------------------------------------------------------
316 (a) (2) Not Applicable
- --------------------------------------------------------------------------
316 (b) Not Applicable
- --------------------------------------------------------------------------
316 (c) 607
- --------------------------------------------------------------------------
317 (a) (1) Not Applicable
- --------------------------------------------------------------------------
317 (a) (2) Not Applicable
- --------------------------------------------------------------------------
317 (b) 509
- --------------------------------------------------------------------------
318 (a) 1010
- --------------------------------------------------------------------------
</TABLE>
Note: This Cross-Reference Table does not constitute part of this Agreement and
shall not affect any interpretation of any of its terms or provisions.
<PAGE>
AMENDED AND RESTATED TRUST AGREEMENT
AMENDED AND RESTATED TRUST AGREEMENT, dated as of ____________, 1999, among
(i) MATRIX BANCORP, INC., a Colorado corporation (including any successors or
assigns, the "Depositor"), (ii) STATE STREET BANK AND TRUST COMPANY, a trust
company duly organized and existing under the laws of the Commonwealth of
Massachusetts, as property trustee (the "Property Trustee" and, in its separate
corporate capacity and not in its capacity as Property Trustee, the "Bank"),
(iii) WILMINGTON TRUST COMPANY, a Delaware banking corporation duly organized
and existing under the laws of the State of Delaware, as Delaware trustee (the
"Delaware Trustee," and, in its separate corporate capacity and not in its
capacity as Delaware Trustee, the "Delaware Bank") (iv) Guy A. Gibson, an
individual, T. Allen McConnell, an individual, and David W. Kloos, an
individual, each of whose address is c/o Matrix Bancorp, Inc., 1380 Lawrence
Street, Suite 1400, Denver, Colorado 80204 (each an "Administrative Trustee"
and collectively the "Administrative Trustees") (the Property Trustee, the
Delaware Trustee and the Administrative Trustees referred to collectively as the
"Trustees"), and (v) the several Holders (as hereinafter defined).
RECITALS
WHEREAS, the Depositor, the Delaware Trustee, and the Administrative Trustees
named therein, have heretofore duly declared and established a business trust
pursuant to the Delaware Business Trust Act (as hereinafter defined) by the
entering into of that certain Trust Agreement, dated as of May 26, 1999 (the
"Original Trust Agreement"), and by the execution and filing by the Delaware
Trustee, the Depositor and the Administrative Trustees with the Secretary of
State of the State of Delaware of the Certificate of Trust, filed on May 26,
1999, the form of which is attached as Exhibit A; and
WHEREAS, the Depositor, the Delaware Trustee, the Property Trustee and the
Administrative Trustees desire to amend and restate the Original Trust Agreement
in its entirety as set forth herein to provide for, among other things, (i) the
issuance of the Common Securities (as defined herein) by the Trust (as defined
herein) to the Depositor; (ii) the issuance and sale of the Preferred Securities
(as defined herein) by the Trust pursuant to the Underwriting Agreement (as
defined herein); (iii) the acquisition by the Trust from the Depositor of all of
the right, title and interest in the Debentures (as defined herein); and (iv)
the appointment of the Trustees;
NOW THEREFORE, in consideration of the agreements and obligations set forth
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, each party, for the benefit of the
other parties and for the benefit of the Securityholders (as defined herein),
hereby amends and restates the Original Trust Agreement in its entirety and
agrees as follows:
ARTICLE I
DEFINED TERMS
SECTION 101. DEFINITIONS. For all purposes of this Trust Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article I have the meanings assigned to them in
this Article I and include the plural as well as the singular;
(b) all other terms used herein that are defined in the Trust Indenture Act,
either directly or by reference therein, have the meanings assigned to them
therein;
(c) unless the context otherwise requires, any reference to an "Article" or a
"Section" refers to an Article or a Section, as the case may be, of this Trust
Agreement; and
(d) the words "herein", "hereof" and "hereunder" and other words of similar
import refer to this Trust Agreement as a whole and not to any particular
Article, Section or other subdivision.
1
<PAGE>
"Act" has the meaning specified in Section 608.
"Additional Amount" means, with respect to Trust Securities of a given
Liquidation Amount and/or a given period, the amount of additional interest
accrued on interest in arrears and paid by the Depositor on a Like Amount of
Debentures for such period.
"Additional Interest" has the meaning specified in Section 1.1 of the
Indenture.
"Administrative Trustee" means each of Guy A. Gibson, T. Allen McConnell, and
David W. Kloos, solely in his capacity as Administrative Trustee of the Trust
formed and continued hereunder and not in his individual capacity, or such
Administrative Trustee's successor in interest in such capacity, or any
successor trustee appointed as herein provided.
"Affiliate" means, with respect to a specified Person, (a) any Person
directly or indirectly owning, controlling or holding with power to vote 10% or
more of the outstanding voting securities or other ownership interests of the
specified Person, any Person 10% or more of whose outstanding voting securities
or other ownership interests are directly or indirectly owned, controlled or
held with power to vote by the specified Person; (c) any Person directly or
indirectly controlling, controlled by, or under common control with the
specified Person; (d) a partnership in which the specified Person is a general
partner; (e) any officer or director of the specified Person; and (f) if the
specified Person is an individual, any entity of which the specified Person is
an officer, director or general partner.
"Applicable Procedures" means with respect to any transfer or transaction
involving a Global Preferred Security or beneficial interest therein, the rules
and procedures of the Depositary for such Preferred Security, in each case to
the extent applicable to such transaction and as in effect from time to time.
"Bank" has the meaning specified in the Preamble to this Trust Agreement.
"Bankruptcy Event" means, with respect to any Person:
(a) the entry of a decree or order by a court having jurisdiction in the
premises adjudging such Person a bankrupt or insolvent, or approving as properly
filed a petition seeking liquidation or reorganization of or in respect of such
Person under the United States Bankruptcy Code of 1978, as amended, or any other
similar applicable federal or state law, and the continuance of any such decree
or order unvacated and unstayed for a period of 90 days; or the commencement of
an involuntary case under the United States Bankruptcy Code of 1978, as amended,
in respect of such Person, which shall continue undismissed for a period of 90
days or entry of an order for relief in such case; or the entry of a decree or
order of a court having jurisdiction in the premises for the appointment on the
ground of insolvency or bankruptcy of a receiver, custodian, liquidator, trustee
or assignee in bankruptcy or insolvency of such Person or of its property, or
for the winding up or liquidation of its affairs, and such decree or order shall
have remained in force unvacated and unstayed for a period of 90 days; or
(b) the institution by such Person of proceedings to be adjudicated a
voluntary bankrupt, or the consent by such Person to the filing of a bankruptcy
proceeding against it, or the filing by such Person of a petition or answer or
consent seeking liquidation or reorganization under the United States Bankruptcy
Code of 1978, as amended, or other similar applicable Federal or State law, or
the consent by such Person to the filing of any such petition or to the
appointment on the ground of insolvency or bankruptcy of a receiver or custodian
or liquidator or trustee or assignee in bankruptcy or insolvency of such Person
or of its property, or shall make a general assignment for the benefit of
creditors.
"Bankruptcy Laws" has the meaning specified in Section 1009.
"Board Resolution" means a copy of a resolution certified by the Secretary or
an Assistant Secretary of the Depositor to have been duly adopted by the
Depositor's Board of Directors, or such committee of the Board of Directors or
officers of the Depositor to which authority to act on behalf of the Board of
Directors has been delegated, and to be in full force and effect on the date of
such certification, and delivered to the appropriate Trustee.
"Business Day" means a day other than a Saturday or Sunday, a day on which
banking institutions in the City of Boston are authorized or required by law,
executive order or regulation to remain closed, or a day on which the
2
<PAGE>
Property Trustee's Corporate Trust Office or the Corporate Trust Office of the
Debenture Trustee is closed for business.
"Cede" means Cede & Co.
"Certificate of Trust" means the certificate of trust filed with the
Secretary of State of the State of Delaware with respect to the Trust, as
amended or restated from time to time.
"Clearing Agency" means an organization registered as a "clearing agency"
pursuant to Section 17A of the Securities Exchange Act of 1934, as amended. The
Depositary shall be the initial Clearing Agency.
"Clearing Agency Participant" means a broker, dealer, bank other financial
institution or other person for whom from time to time a Clearing Agency effects
book-entry transfers or pledges of securities deposited with the Clearing
Agency.
"Closing Date" means the date of execution and delivery of this Trust
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or, if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Common Security" means an undivided beneficial interest in the assets of the
Trust, having a Liquidation Amount of $25 and having the rights provided
therefor in this Trust Agreement, including the right to receive Distributions
and a Liquidation Distribution as provided herein.
"Common Securities Certificate" means a certificate evidencing ownership of
Common Securities, substantially in the form attached as Exhibit B.
"Corporate Trust Office" means the office at which, at any particular time,
the corporate trust business of the Property Trustee or the Debenture Trustee,
as the case may be, shall be principally administered, which office at the date
hereof, in each such case, is located at Two International Place, 4th Floor,
Boston, Massachusetts 02110, Attention: Corporate Trust Department.
"Debenture Event of Default" means an "Event of Default" as defined in
Section 7.1 of the Indenture.
"Debenture Redemption Date" means, with respect to any Debentures to be
redeemed under the Indenture, the date fixed for redemption under the Indenture.
"Debenture Trustee" means State Street Bank and Trust Company, a trust
company organized under the laws of The Commonwealth of Massachusetts and any
successor thereto, as trustee under the Indenture.
"Debentures" means the $28,350,525 aggregate principal amount (or up to
$32,603,125 aggregate principal amount if the Underwriter exercises its Option
and there is an Option Closing Date) of the Depositor's ____% Junior
Subordinated Debentures due 2029, issued pursuant to the Indenture.
"Delaware Bank" has the meaning specified in the Preamble to this Trust
Agreement.
"Delaware Business Trust Act" means Chapter 38 of Title 12 of the Delaware
Code, 12 Delaware Code Sections 3801 et seq. as it may be amended from time to
time.
"Delaware Trustee" means the commercial bank or trust company identified as
the "Delaware Trustee" in the Preamble to this Trust Agreement solely in its
capacity as Delaware Trustee of the Trust formed and continued hereunder and not
in its individual capacity, or its successor in interest in such capacity, or
any successor trustee appointed as herein provided.
3
<PAGE>
"Depositary" means the Depositary Trust Company or any successor thereto.
"Depositor" has the meaning specified in the Preamble to this Trust
Agreement.
"Distribution Date" has the meaning specified in Section 401(a).
"Distributions" means amounts payable in respect of the Trust Securities as
provided in Section 401.
"Early Termination Event" has the meaning specified in Section 902.
"Event of Default" means any one of the following events (whatever the reason
for such Event of Default and whether it shall be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body):
(a) the occurrence of a Debenture Event of Default; or
(b) default by the Trust or the Property Trustee in the payment of any
Distribution when it becomes due and payable, and continuation of such default
for a period of 30 days; or
(c) default by the Trust or the Property Trustee in the payment of any
Redemption Price of any Trust Security when it becomes due and payable; or
(d) default in the performance, or breach, in any material respect, of any
covenant or warranty of the Trustees in this Trust Agreement (other than a
covenant or warranty a default in the performance of which or the breach of
which is dealt with in clause (b) or (c), above) and continuation of such
default or breach for a period of 60 days after there has been given, by
registered or certified mail, to the defaulting Trustee or Trustees by the
Holders of at least 25% in aggregate Liquidation Amount of the Outstanding
Preferred Securities a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice of
Default" hereunder; or
(e) the occurrence of a Bankruptcy Event with respect to the Property
Trustee and the failure by the Depositor to appoint a successor Property Trustee
within 60 days thereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Expense Agreement" means the Agreement as to Expenses and Liabilities
between the Depositor and the Trust, substantially in the form attached as
Exhibit C, as amended from time to time.
"Expiration Date" has the meaning specified in Section 901.
"Extension Period" has the meaning specified in Section 4.1 of the Indenture.
"Global Preferred Securities Certificate" means a Preferred Securities
Certificate evidencing ownership of Global Preferred Securities.
"Global Preferred Security" means a Preferred Security, the ownership and
transfers of which shall be made through book entries by a Clearing Agency as
described in Section 504.
"Guarantee" means the Preferred Securities Guarantee Agreement executed and
delivered by the Depositor and State Street Bank and Trust Company, as trustee,
contemporaneously with the execution and delivery of this Trust Agreement, for
the benefit of the Holders of the Preferred Securities, as amended from time to
time.
"Indenture" means the Indenture, dated as of ________________, 1999, between
the Depositor and the Debenture Trustee, as trustee, as amended or supplemented
from time to time pertaining to the Debentures of the Depositor.
4
<PAGE>
"Investment Company Act," means the Investment Company Act of 1940, as
amended, as in effect at the date of execution of this instrument.
"Lien" means any lien, pledge, charge, encumbrance, mortgage, deed of trust,
adverse ownership interest, hypothecation, assignment, security interest or
preference, priority or other security agreement or preferential arrangement of
any kind or nature whatsoever.
"Like Amount" means (a) with respect to a redemption of Trust Securities,
Trust Securities having a Liquidation Amount equal to the principal amount of
Debentures to be contemporaneously redeemed in accordance with the Indenture and
the proceeds of which shall be used to pay the Redemption Price of such Trust
Securities; and (b) with respect to a distribution of Debentures to Holders of
Trust Securities in connection with a dissolution or liquidation of the Trust,
Debentures having a principal amount equal to the Liquidation Amount of the
Trust Securities of the Holder to whom such Debentures are distributed. Each
Debenture distributed pursuant to clause (b) above shall carry with it
accumulated interest in an amount equal to the accumulated and unpaid interest
then due on such Debenture.
"Liquidation Amount" means the stated amount of $25 per Trust Security.
"Liquidation Date" means the date on which Debentures are to be distributed
to Holders of Trust Securities in connection with a dissolution and liquidation
of the Trust pursuant to Section 904(a).
"Liquidation Distribution" has the meaning specified in Section 904(d).
"Officers' Certificate" means a certificate signed by the President or a Vice
President and by the Treasurer or an Assistant Treasurer or the Controller or an
Assistant Controller or the Secretary or an Assistant Secretary, of the
Depositor, and delivered to the appropriate Trustee. One of the officers signing
an Officers' Certificate given pursuant to Section 816 shall be the principal
executive, financial or accounting officer of the Depositor. Any Officers'
Certificate delivered with respect to compliance with a condition or covenant
provided for in this Trust Agreement shall include:
(a) a statement that each officer signing the Officers' Certificate has read
the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers' Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether, in the opinion of each such officer, such
condition or covenant has been complied with.
"Opinion of Counsel" means an opinion in writing of legal counsel, who may be
counsel for the Trust, the Property Trustee, the Delaware Trustee or the
Depositor, but not an employee of any thereof, and who shall be reasonably
acceptable to the Property Trustee.
"Option" means the grant by the Trust to the Underwriters of an option to
purchase all or any portion of an additional 165,000 Preferred Securities,
pursuant to the terms of the Underwriting Agreement.
"Option Closing Date" means the time, date of payment and delivery of the
Preferred Securities Certificates purchased pursuant to the Underwriters'
exercise of the Option, as more particularly described in the Underwriting
Agreement.
"Original Trust Agreement" has the meaning specified in the Recitals to this
Trust Agreement.
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"Outstanding", when used with respect to Preferred Securities, means, as of
the date of determination, all Preferred Securities theretofore executed and
delivered under this Trust Agreement, except:
(a) Preferred Securities theretofore canceled by the Property Trustee or
delivered to the Property Trustee for cancellation;
(b) Preferred Securities for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Property Trustee or any
Paying Agent for the Holders of such Preferred Securities; provided that, if
such Preferred Securities are to be redeemed, notice of such redemption has been
duly given pursuant to this Trust Agreement; and
(c) Preferred Securities which have been paid or in exchange for or in lieu
of which other Preferred Securities have been executed and delivered pursuant to
Sections 505 and 506; provided, however, that in determining whether the Holders
of the requisite Liquidation Amount of the Outstanding Preferred Securities have
given any request, demand, authorization, direction, notice, consent or waiver
hereunder, Preferred Securities owned by the Depositor, any Trustee or any
Affiliate of the Depositor or any Trustee shall be disregarded and deemed not to
be Outstanding, except that (a) in determining whether any Trustee shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Preferred Securities that such Trustee knows to
be so owned shall be so disregarded; and (b) the foregoing shall not apply at
any time when all of the Outstanding Preferred Securities are owned by the
Depositor, one or more of the Trustees and/or any such Affiliate. Preferred
Securities so owned which have been pledged in good faith may be regarded as
Outstanding if the pledgee establishes to the satisfaction of the Administrative
Trustees the pledgee's right so to act with respect to such Preferred Securities
and the pledgee is not the Depositor or any other Obligor upon the Preferred
Securities or a Person directly or indirectly controlling or controlled by or
under direct or indirect common control with the Depositor or any Affiliate of
the Depositor.
"Owner" means each Person who is the beneficial owner of Global Preferred
Securities as reflected in the records of the Clearing Agency or, if a Clearing
Agency Participant is not the Owner, then as reflected in the records of a
Person maintaining an account with such Clearing Agency, directly or indirectly,
in accordance with the rules of such Clearing Agency.
"Paying Agent" means any paying agent or co-paying agent appointed pursuant
to Section 509 and shall initially be the Bank.
"Payment Account" means a segregated non-interest-bearing corporate trust
account maintained by the Property Trustee with the Bank in its trust department
for the benefit of the Securityholders in which all amounts paid in respect of
the Debentures shall be held and from which the Property Trustee shall make
payments to the Securityholders in accordance with Sections 401 and 402.
"Person" means any individual, corporation, partnership, joint venture,
trust, limited liability company or corporation, unincorporated organization or
government or any agency or political subdivision thereof.
"Preferred Security" means an undivided beneficial interest in the assets of
the Trust, having a Liquidation Amount of $25 and having the rights provided
therefor in this Trust Agreement, including the right to receive Distributions
and a Liquidation Distribution as provided herein.
"Preferred Securities Certificate", means a certificate evidencing ownership
of Preferred Securities, substantially in the form attached as Exhibit D.
"Property Trustee" means the commercial bank or trust company identified as
the "Property Trustee," in the Preamble to this Trust Agreement solely in its
capacity as Property Trustee of the Trust heretofore formed and continued
hereunder and not in its individual capacity, or its successor in interest in
such capacity, or any successor property trustee appointed as herein provided.
"Redemption Date" means, with respect to any Trust Security to be redeemed,
the date fixed for such redemption by or pursuant to this Trust Agreement;
provided that each Debenture Redemption Date and the stated maturity of the
Debentures shall be a Redemption Date for a Like Amount of Trust Securities.
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"Redemption Price" means, with respect to any Trust Security, the Liquidation
Amount of such Trust Security, plus accumulated and unpaid Distributions to the
Redemption Date, paid by the Depositor upon the concurrent redemption of a Like
Amount of Debentures, allocated on a pro rata basis (based on Liquidation
Amounts) among the Trust Securities.
"Relevant Trustee" shall have the meaning specified in Section 810.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Register" and "Securities Registrar" have the respective meanings
specified in Section 505.
"Securityholder" or "Holder" means a Person in whose name a Trust Security or
Securities are registered in the Securities Register; any such Person is a
beneficial owner within the meaning of the Delaware Business Trust Act.
"Trust" means Matrix Bancorp Capital Trust I, the Delaware business trust
created and continued hereby.
"Trust Agreement" means this Amended and Restated Trust Agreement, as the
same may be modified, amended or supplemented in accordance with the applicable
provisions hereof, including all exhibits hereto, including, for all purposes of
this Trust Agreement and any such modification, amendment or supplement, the
provisions of the Trust Indenture Act that are deemed to be a part of and govern
this Trust Agreement and any such modification, amendment or supplement,
respectively.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended, as
in force at the date as of which this instrument was executed; provided,
however, that in the event the Trust Indenture Act of 1939, as amended, is
amended after such date, "Trust Indenture Act" means, to the extent required by
any such amendment, the Trust Indenture Act of 1939 as so amended.
"Trust Property" means (a) the Debentures; (b) the rights of the Property
Trustee under the Guarantee; (c) any cash on deposit in, or owing to, the
Payment Account; and (d) all proceeds and rights in respect of the foregoing and
any other property and assets for the time being held or deemed to be held by
the Property Trustee pursuant to the provisions of this Trust Agreement.
"Trust Security" means any one of the Common Securities or the Preferred
Securities.
"Trust Securities Certificate" means any one of the Common Securities
Certificates or the Preferred Securities Certificates.
"Trustees" means, collectively, the Property Trustee, the Delaware Trustee
and the Administrative Trustees.
"Underwriters" means Tucker Anthony Cleary Gull Incorporated, US Bancorp
Piper Jaffray Inc. and the other underwriters named in the Underwriting
Agreement.
"Underwriting Agreement" means the Underwriting Agreement, dated as of
_____________, 1999, among the Trust, the Depositor and the Underwriters named
therein.
ARTICLE II
ESTABLISHMENT OF THE TRUST
SECTION 201. NAME.
The Trust created and continued hereby shall be known as "Matrix Bancorp
Capital Trust I", as such name may be modified from time to time by the
Administrative Trustees following written notice to the Holders of Trust
Securities and the other Trustees, in which name the Trustees may engage in the
transactions contemplated hereby, make and execute contracts and other
instruments on behalf of the Trust and sue and be sued.
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SECTION 202. OFFICE OF THE DELAWARE TRUSTEE; PRINCIPAL PLACE OF BUSINESS.
The address of the Delaware Trustee in the State of Delaware is c/o
Wilmington Trust Company, Rodney Square North, 1100 North Market Street,
Wilmington, Delaware 19890-0001, Attention: Corporate Trust Administration, or
such other address in the State of Delaware as the Delaware Trustee may
designate by written notice to the Securityholders and the Depositor. The
principal executive office of the Trust is c/o Matrix Bancorp, Inc., 1380
Lawrence Street, Suite 1400, Denver, Colorado 80204.
SECTION 203. INITIAL CONTRIBUTION OF TRUST PROPERTY; ORGANIZATIONAL EXPENSES.
The Trustees acknowledge receipt in trust from the Depositor in connection
with the Original Trust Agreement of the sum of $10, which constituted the
initial Trust Property. The Depositor shall pay organizational expenses of the
Trust as they arise or shall, upon request of any Trustee, promptly reimburse
such Trustee for any such expenses paid by such Trustee. The Depositor shall
make no claim upon the Trust Property for the payment of such expenses.
SECTION 204. ISSUANCE OF THE PREFERRED SECURITIES.
On __________________, 1999, the Depositor and an Administrative Trustee, on
behalf of the Trust and pursuant to the Original Trust Agreement, executed and
delivered the Underwriting Agreement. Contemporaneously with the execution and
delivery of this Trust Agreement, an Administrative Trustee, on behalf of the
Trust, shall execute in accordance with Section 502 and deliver in accordance
with the Underwriting Agreement, Preferred Securities Certificates, registered
in the name of the Persons entitled thereto, in an aggregate amount of 1,100,000
Preferred Securities having an aggregate Liquidation Amount of $27,500,000
against receipt of the aggregate purchase price of such Preferred Securities of
$27,500,000, which amount such Administrative Trustee shall promptly deliver to
the Property Trustee. If the Underwriters exercise their Option and there is an
Option Closing Date, then an Administrative Trustee, on behalf of the Trust,
shall execute in accordance with Section 502 and deliver in accordance with the
Underwriting Agreement, Preferred Securities Certificates, registered in the
name of the Persons entitled thereto, in an aggregate amount of up to 165,000
Preferred Securities having an aggregate Liquidation Amount of up to $4,125,000
against receipt of the aggregate purchase price of such Preferred Securities
equal to the product of $25 multiplied by the number of Preferred Securities
purchased pursuant to the Option, which amount such Administrative Trustee shall
promptly deliver to the Property Trustee.
SECTION 205. ISSUANCE OF THE COMMON SECURITIES; SUBSCRIPTION AND PURCHASE OF
DEBENTURES.
(a) Contemporaneously with the execution and delivery of this Trust
Agreement, an Administrative Trustee, on behalf of the Trust, shall execute in
accordance with Section 502 and deliver to the Depositor, Common Securities
Certificates, registered in the name of the Depositor, in an aggregate amount of
34,021 Common Securities having an aggregate Liquidation Amount of $850,525
against payment by the Depositor of such amount. Contemporaneously therewith, an
Administrative Trustee, on behalf of the Trust, shall subscribe to and purchase
from the Depositor Debentures, registered in the name of the Property Trustee on
behalf of the Trust and having an aggregate principal amount equal to
$28,350,525, and, in satisfaction of the purchase price for such Debentures, the
Property Trustee, on behalf of the Trust, shall deliver to the Depositor the sum
of $28,350,525.
(b) If the Underwriters exercise the Option and there is an Option Closing
Date, then an Administrative Trustee, on behalf of the Trust, shall execute in
accordance with Section 502 and deliver to the Depositor, Common Securities
Certificates, registered in the name of the Depositor, in an aggregate amount of
up to 5,104 Common Securities having an aggregate Liquidation Amount of up to
$127,600 against payment by the Depositor of such amount. Contemporaneously
therewith, an Administrative Trustee, on behalf of the Trust, shall subscribe to
and purchase from the Depositor, Debentures, registered in the name of the Trust
and having an aggregate principal amount of up to $4,252,600, and, in
satisfaction of the purchase price of such Debentures, the Property Trustee, on
behalf of the Trust, shall deliver to the Depositor the sum of $4,252,600.
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SECTION 206. DECLARATION OF TRUST.
The exclusive purposes and functions of the Trust are (a) to issue and sell
Trust Securities and use the proceeds from such sale to acquire the Debentures;
and (b) to engage in those activities necessary, convenient or incidental
thereto. The Depositor hereby appoints the Trustees as trustees of the Trust, to
have all the rights, powers and duties to the extent set forth herein, and the
Trustees hereby accept such appointment. The Property Trustee hereby declares
that it shall hold the Trust Property in trust upon and subject to the
conditions set forth herein for the benefit of the Securityholders. The
Administrative Trustees shall have all rights, powers and duties set forth
herein and in accordance with applicable law with respect to accomplishing the
purposes of the Trust. The Delaware Trustee shall not be entitled to exercise
any powers, nor shall the Delaware Trustee have any of the duties and
responsibilities, of the Property Trustee or the Administrative Trustees set
forth herein. The Delaware Trustee shall be one of the Trustees of the Trust for
the sole and limited purpose of fulfilling the requirements of Section 3807 of
the Delaware Business Trust Act.
SECTION 207. AUTHORIZATION TO ENTER INTO CERTAIN TRANSACTIONS.
(a) The Trustees shall conduct the affairs of the Trust in accordance with
the terms of this Trust Agreement. Subject to the limitations set forth in
paragraph (b) of this Section 207 and Article VIII, and in accordance with the
following provisions (i) and (ii), the Administrative Trustees shall have the
authority to enter into all transactions and agreements determined by the
Administrative Trustees to be appropriate in exercising the authority, express
or implied, otherwise granted to the Administrative Trustees under this Trust
Agreement, and to perform all acts in furtherance thereof, including without
limitation, the following:
(i) As among the Trustees, each Administrative Trustee, acting singly or
jointly, shall have the power and authority to act on behalf of the Trust
with respect to the following matters:
(A) the issuance and sale of the Trust Securities;
(B) to cause the Trust to enter into, and to execute, deliver
and perform on behalf of the Trust, the Expense Agreement and such other
agreements or documents as may be necessary or desirable in connection
with the purposes and function of the Trust;
(C) assisting in the registration of the Preferred Securities
under the Securities Act and under state securities or blue sky laws, and
the qualification of this Trust Agreement as a trust indenture under the
Trust Indenture Act;
(D) assisting in the listing of the Preferred Securities upon
the Nasdaq National Market or such securities exchange or exchanges as
shall be determined by the Depositor and the registration of the
Preferred Securities under the Exchange Act, and the preparation and
filing of all periodic and other reports and other documents pursuant to
the foregoing;
(E) the sending of notices (other than notices of default) and
other information regarding the Trust Securities and the Debentures to
the Securityholders in accordance with this Trust Agreement;
(F) the appointment of a Paying Agent and Securities Registrar
in accordance with this Trust Agreement;
(G) to the extent provided in this Trust Agreement, the winding
up of the affairs of and liquidation of the Trust and the preparation,
execution and filing of the certificate of cancellation with the
Secretary of State of the State of Delaware;
(H) to take all action that may be necessary or appropriate for
the preservation and the continuation of the Trust's valid existence,
rights, franchises and privileges as a statutory business trust under the
laws of the State of Delaware and of each other jurisdiction in which
such existence is necessary to protect the limited liability of the
Holders of the Preferred Securities or to enable the Trust to effect the
purposes for which the Trust was created; and
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(I) the taking of any action incidental to the foregoing as the
Administrative Trustees may from time to time determine is necessary or
advisable to give effect to the terms of this Trust Agreement for the
benefit of the Securityholders (without consideration of the effect of
any such action on any particular Securityholder).
(ii) As among the Trustees, the Property Trustee shall have the power,
duty and authority to act on behalf of the Trust with respect to the
following matters:
(A) the establishment of the Payment Account;
(B) the receipt of the Debentures;
(C) the collection of interest, principal and any other payments
made in respect of the Debentures in the Payment Account;
(D) the distribution of amounts owed to the Securityholders in
respect of the Trust Securities in accordance with the terms of this
Trust Agreement;
(E) subject to the terms of this Trust Agreement, the exercise
of all of the rights, powers and privileges of a holder of the
Debentures;
(F) the sending of notices of default and other information
regarding the Trust Securities and the Debentures to the Securityholders
in accordance with this Trust Agreement;
(G) the distribution of the Trust Property in accordance with
the terms of this Trust Agreement;
(H) to the extent provided in this Trust Agreement, the winding
up of the affairs of and liquidation of the Trust;
(I) subject to the terms of this Trust Agreement, after an Event
of Default, the taking of any action incidental to the foregoing as the
Property Trustee may from time to time determine is necessary or
advisable to give effect to the terms of this Trust Agreement and
protect and conserve the Trust Property for the benefit of the
Securityholders (without consideration of the effect of any such action
on any particular Securityholder);
(J) registering transfers of the Trust Securities in accordance
with this Trust Agreement; and
(K) except as otherwise provided in this Section 207(a)(ii), the
Property Trustee shall have none of the duties, liabilities, powers or
the authority of the Administrative Trustees set forth in Section
207(a)(i).
(b) So long as this Trust Agreement remains in effect, the Trust (or the
Trustees acting on behalf of the Trust) shall not undertake any business,
activities or transaction except as expressly provided herein or contemplated
hereby. In particular, the Trustees shall not (i) acquire any investments or
engage in any activities not authorized by this Trust Agreement; (ii) sell,
assign, transfer, exchange, mortgage, pledge, set-off or otherwise dispose of
any of the Trust Property or interests therein, including to Securityholders,
except as expressly provided herein; (iii) take any action that would cause the
Trust to fail or cease to qualify as a "grantor trust" for United States federal
income tax purposes; (iv) incur any indebtedness for borrowed money or issue any
other debt; or (v) take or consent to any action that would result in the
placement of a Lien on any of the Trust Property. The Administrative Trustees
shall defend all claims and demands of all Persons at any time claiming any Lien
on any of the Trust Property adverse to the interest of the Trust or the
Securityholders in their capacity as Securityholders.
(c) In connection with the issue and sale of the Preferred Securities, the
Depositor shall have the right and responsibility to assist the Trust with
respect to, or effect on behalf of the Trust, the following (and any actions
taken by the Depositor in furtherance of the following prior to the date of this
Trust Agreement are hereby ratified and confirmed in all respects):
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(i) the preparation and filing by the Trust with the Commission and the
execution on behalf of the Trust of a registration statement on the
appropriate form in relation to the Preferred Securities and the Debentures,
including any amendments thereto;
(ii) the determination of the States in which to take appropriate action
to qualify or, register for sale all or part of the Preferred Securities and
to do any and all such acts, other than actions which must be taken by or on
behalf of the Trust, and advise the Trustees of actions they must take on
behalf of the Trust, and prepare for execution and filing any documents to be
executed and filed by the Trust or on behalf of the Trust, as the Depositor
deems necessary or advisable in order to comply with the applicable laws of
any such States;
(iii) the preparation for filing by the Trust and execution on behalf of
the Trust of an application to the Nasdaq National Market or a national
stock exchange or other organizations for listing upon notice of issuance of
any Preferred Securities and to file or cause an Administrative Trustee to
file thereafter with such exchange or organization such notifications and
documents as may be necessary from time to time;
(iv) the preparation for filing by the Trust with the Commission and the
execution on behalf of the Trust of a registration statement on Form 8-A
relating to the registration of the Preferred Securities under Section 12(b)
or 12(g) of the Exchange Act, including any amendments thereto;
(v) the negotiation of the terms of, and the execution and delivery of,
the Underwriting Agreement providing for the sale of the Preferred
Securities; and
(vi) the taking of any other actions necessary or desirable to carry out
any of the foregoing activities.
(d) Notwithstanding anything herein to the contrary, the Administrative
Trustees are authorized and directed to conduct the affairs of the Trust and to
operate the Trust so that the Trust shall not be deemed to be an "investment
company" required to be registered under the Investment Company Act, shall be
classified as a "grantor trust" and not as an association taxable as a
corporation for United States federal income tax purposes and so that the
Debentures shall be treated as indebtedness of the Depositor for United States
federal income tax purposes. In this connection, subject to Section 1002, the
Depositor and the Administrative Trustees are authorized to take any action, not
inconsistent with applicable law or this Trust Agreement, that each of the
Depositor and the Administrative Trustees determines in their discretion to be
necessary or desirable for such purposes.
SECTION 208. ASSETS OF TRUST.
The assets of the Trust shall consist of the Trust Property.
SECTION 209. TITLE TO TRUST PROPERTY.
Legal title to all Trust Property shall be vested at all times in the
Property Trustee (in its capacity as such) and shall be held and administered by
the Property Trustee for the benefit of the Securityholders in accordance with
this Trust Agreement.
ARTICLE III
PAYMENT ACCOUNT
SECTION 301. PAYMENT ACCOUNT.
(a) On or prior to the Closing Date, the Property Trustee shall establish
the Payment Account. The Property Trustee and any agent of the Property Trustee
shall have exclusive control and sole right of withdrawal with respect to the
Payment Account for the purpose of making deposits and withdrawals from the
Payment Account in accordance with this Trust Agreement. All monies and other
property deposited or held from time to time in the Payment Account shall be
held by the Property Trustee in the Payment Account for the exclusive benefit of
the Securityholders and for distribution as herein provided, including (and
subject to) any priority of payments provided for herein.
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(b) The Property Trustee shall deposit in the Payment Account, promptly upon
receipt, all payments of principal of or interest on, and any other payments or
proceeds with respect to, the Debentures. Amounts held in the Payment Account
shall not be invested by the Property Trustee pending distribution thereof.
ARTICLE IV
DISTRIBUTIONS; REDEMPTION
SECTION 401. DISTRIBUTIONS.
(a) Distributions on the Trust Securities shall be cumulative, and shall
accumulate whether or not there are funds of the Trust available for the payment
of Distributions. Distributions shall accumulate from ________________, 1999,
and, except during any Extension Period with respect to the Debentures, shall be
payable quarterly in arrears on March 31, June 30, September 30 and December 31
of each year, commencing on ___________________, 1999. If any date on which a
Distribution is otherwise payable on the Trust Securities is not a Business Day,
then the payment of such Distribution shall be made on the next succeeding day
that is a Business Day (and without any interest or other payment in respect of
any such delay) with the same force and effect as if made on such date (each
date on which distributions are payable in accordance with this Section 401(a),
a "Distribution Date").
(b) The Trust Securities represent undivided beneficial interests in the
Trust Property. Distributions on the Trust Securities shall be payable at a rate
of _____% per annum of the Liquidation Amount of the Trust Securities. The
amount of Distributions payable for any full period shall be computed on the
basis of a 360-day year of twelve 30-day months. The amount of Distributions for
any partial period shall be computed on the basis of the number of days elapsed
in a 360-day year of twelve 30 day months. During any Extension Period with
respect to the Debentures, Distributions on the Preferred Securities shall be
deferred for a period equal to the Extension Period. The amount of Distributions
payable for any period shall include the Additional Amounts, if any.
(c) Distributions on the Trust Securities shall be made by the Property
Trustee solely from the Payment Account and shall be payable on each
Distribution Date only to the extent that the Trust has funds then on hand and
immediately available by 12:30 p.m., Boston time, on each Distribution Date in
the Payment Account for the payment of such Distributions.
(d) Distributions on the Trust Securities with respect to a Distribution
Date shall be payable to the Holders thereof as they appear on the Securities
Register for the Trust Securities on the relevant record date, which shall be
15th day of the month in which the Distribution is payable.
SECTION 402. REDEMPTION.
(a) On each Debenture Redemption Date, the Trust shall be required to redeem
a Like Amount of Trust Securities at the Redemption Price.
(b) Notice of redemption shall be given by the Property Trustee by first-
class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior
to the Redemption Date to each Holder of Trust Securities to be redeemed, at
such Holder's address appearing in the Securities Register. The Property Trustee
shall have no responsibility for the accuracy of any CUSIP number contained in
such notice. All notices of redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) the CUSIP number;
(iv) if less than all the outstanding Trust Securities are to be
redeemed, the identification and the aggregate Liquidation Amount of the
particular Trust Securities to be redeemed; and
(v) that, on the Redemption Date, the Redemption Price shall become
due and payable upon each such Trust Security to be redeemed and that
Distributions thereon shall cease to accumulate on and after said date.
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(c) The Trust Securities redeemed on each Redemption Date shall be redeemed
at the Redemption Price with the proceeds from the contemporaneous redemption of
Debentures. Redemptions of the Trust Securities shall be made and the Redemption
Price shall be payable on each Redemption Date only to the extent that the Trust
has immediately available funds then on hand and available in the Payment
Account for the payment of such Redemption Price.
(d) If the Property Trustee gives a notice of redemption in respect of any
Preferred Securities, then, by 12:00 noon, Boston time, on the Redemption Date,
subject to Section 402(c), the Property Trustee shall deposit with the Paying
Agent funds sufficient to pay the applicable Redemption Price and shall give the
Paying Agent irrevocable instructions and authority to pay the Redemption Price
to the Owners of the Preferred Securities upon surrender of their Preferred
Securities Certificates. Notwithstanding the foregoing, Distributions payable on
or prior to the Redemption Date for any Trust Securities called for redemption
shall be payable to the Holders of such Trust Securities as they appear on the
Securities Register for the Trust Securities on the relevant record dates for
the related Distribution Dates. If notice of redemption shall have been given
and funds deposited as required, then upon the date of such deposit, all rights
of Securityholders holding Trust Securities so called for redemption shall
cease, except the right of such Securityholders to receive the Redemption Price
and any Distribution payable on or prior to the Redemption Date, but without
interest, and such Trust Securities shall cease to be Outstanding. In the event
that any date on which any Redemption Price is payable is not a Business Day,
then payment of the Redemption Price payable on such date shall be made on the
next succeeding day that is a Business Day (and without any interest or other
payment in respect of any such delay) with the same force and effect as if made
on such date. In the event that payment of the Redemption Price in respect of
any Trust Securities called for redemption is improperly withheld or refused and
not paid either by the Trust or by the Depositor pursuant to the Guarantee,
Distributions on such Trust Securities shall continue to accumulate, at the then
applicable rate, from the Redemption Date originally established by the Trust
for such Trust Securities to the date such Redemption Price is actually paid, in
which case the actual payment date shall be the date fixed for redemption for
purposes of calculating the Redemption Price.
(e) Payment of the Redemption Price on the Trust Securities shall be made to
the record holders thereof as they appear on the Securities Register for the
Trust Securities on the relevant record date, which shall be the date 15 days
prior to the relevant Redemption Date.
(f) Subject to Section 403(a), if less than all the Outstanding Trust
Securities are to be redeemed on a Redemption Date, then the aggregate
Liquidation Amount of Trust Securities to be redeemed shall be allocated on a
pro rata basis (based on Liquidation Amounts) among the Common Securities and
the Preferred Securities. The particular Preferred Securities to be redeemed
shall be selected not more than 60 days prior to the Redemption Date by the
Property Trustee from the Outstanding Preferred Securities not previously called
for redemption, by such method (including, without limitation, by lot) as the
Property Trustee shall deem fair and appropriate and which may provide for the
selection for redemption of portions (equal to the Liquidation Amount or an
integral multiple of the Liquidation Amount in excess thereof) of the
Liquidation Amount of Preferred Securities of a denomination larger than the
Liquidation Amount. The Property Trustee shall promptly notify the Securities
Registrar in writing of the Preferred Securities selected for redemption and, in
the case of any Preferred Securities selected for partial redemption, the
Liquidation Amount thereof to be redeemed. For all purposes of this Trust
Agreement, unless the context otherwise requires, all provisions relating to the
redemption of Preferred Securities shall relate, in the case of any Preferred
Securities redeemed or to be redeemed only in part, to the portion of the
Liquidation Amount of Preferred Securities which has been or is to be redeemed.
SECTION 403. SUBORDINATION OF COMMON SECURITIES.
(a) Payment of Distributions (including Additional Amounts, if applicable)
on, and the Redemption Price of, the Trust Securities, as applicable, shall be
made, subject to Section 402(f), pro rata among the Common Securities and the
Preferred Securities based on the Liquidation Amount of the Trust Securities;
provided, however, that if on any Distribution Date or Redemption Date any Event
of Default resulting from a Debenture Event of Default shall have occurred and
be continuing, no payment of any Distribution (including Additional Amounts, if
applicable) on, or Redemption Price of, any Common Security, and no other
payment on account of the redemption, liquidation or other acquisition of Common
Securities, shall be made unless payment in full in cash of all accumulated and
unpaid Distributions (including Additional Amounts, if applicable) on all
Outstanding Preferred Securities for all Distribution periods terminating on or
prior thereto, or in the case of payment of the Redemption Price the full
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amount of such Redemption Price on all Outstanding Preferred Securities then
called for redemption, shall have been made or provided for, and all funds
immediately available to the Property Trustee shall first be applied to the
payment in full in cash of all Distributions (including Additional Amounts, if
applicable) on, or the Redemption Price of, Preferred Securities then due and
payable.
(b) In the case of the occurrence of any Event of Default resulting from a
Debenture Event of Default, the Holder of Common Securities shall be deemed to
have waived any right to act with respect to any such Event of Default under
this Trust Agreement until the effect of all such Events of Default with respect
to the Preferred Securities shall have been cured, waived or otherwise
eliminated. Until any such Event of Default under this Trust Agreement with
respect to the Preferred Securities shall have been so cured, waived or
otherwise eliminated, the Property Trustee shall act solely on behalf of the
Holders of the Preferred Securities and not the Holder of the Common Securities,
and only the Holders of the Preferred Securities shall have the right to direct
the Property Trustee to act on their behalf.
SECTION 404. PAYMENT PROCEDURES.
Payments of Distributions (including Additional Amounts, if applicable) in
respect of the Preferred Securities shall be made by check mailed to the address
of the Person entitled thereto as such address shall appear on the Securities
Register or, if the Preferred Securities are held by a Clearing Agency, such
Distributions shall be made to the Clearing Agency in immediately available
funds, which will credit the relevant accounts on the applicable Distribution
Dates. Payments of Distributions to Holders of $1,000,000 or more in aggregate
Liquidation Amount of Preferred Securities may be made by wire transfer of
immediately available funds upon written request of such Holder of Preferred
Securities to the Securities Registrar not later than 15 calendar days prior to
the date on which the Distribution is payable. Payments in respect of the Common
Securities shall be made in such manner as shall be mutually agreed between the
Property Trustee and the Common Securityholder.
SECTION 405. TAX RETURNS AND REPORTS.
The Administrative Trustees shall prepare (or cause to be prepared), at the
Depositor's expense, and file all United States federal, state and local tax and
information returns and reports required to be filed by or in respect of the
Trust. In this regard, the Administrative Trustees shall (a) prepare and file
(or cause to be prepared and filed) the appropriate Internal Revenue Service
form required to be filed in respect of the Trust in each taxable year of the
Trust; and (b) prepare and furnish (or cause to be prepared and furnished) to
each Securityholder the appropriate Internal Revenue Service form required to be
furnished to such Securityholder or the information required to be provided on
such form. The Administrative Trustees shall provide the Depositor with a copy
of all such returns and reports promptly after such filing or furnishing. The
Property Trustee shall comply with United States federal withholding and backup
withholding tax laws and information reporting requirements with respect to any
payments to Securityholders under the Trust Securities.
SECTION 406. PAYMENT OF TAXES, DUTIES, ETC. OF THE TRUST.
Upon receipt under the Debentures of Additional Interest, the Property
Trustee, at the direction of an Administrative Trustee or the Depositor, shall
promptly pay any taxes, duties or governmental charges of any nature (other than
withholding taxes) imposed on the Trust by the United States or any other taxing
authority.
SECTION 407. PAYMENTS UNDER INDENTURE.
Any amount payable hereunder to any Holder of Preferred Securities shall be
reduced by the amount of any corresponding payment such Holder (or any Owner
related thereto) has directly received under the Indenture pursuant to Section
513(b) or (c) hereof.
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ARTICLE V
TRUST SECURITIES CERTIFICATES
SECTION 501. INITIAL OWNERSHIP.
Upon the creation of the Trust and the contribution by the Depositor pursuant
to Section 203 and until the issuance of the Trust Securities, and at any time
during which no Trust Securities are outstanding, the Depositor shall be the
sole beneficial owner of the Trust.
SECTION 502. THE TRUST SECURITIES CERTIFICATES.
(a) The Trust Securities Certificates shall be executed on behalf of the
Trust by manual or facsimile signature of at least one Administrative Trustee,
except as provided in Section 503. Trust Securities Certificates bearing the
signatures of individuals who were at the time when such signatures shall have
been affixed, authorized to sign on behalf of the Trust, shall be validly issued
and entitled to the benefits of this Trust Agreement, notwithstanding that such
individuals or any of them shall have ceased to be so authorized prior to the
delivery of such Trust Securities Certificates. A transferee of a Trust
Securities Certificate shall become a Holder, and shall be entitled to the
rights and subject to the obligations of a Holder hereunder, upon due
registration of such Trust Securities Certificate in such transferee's name
pursuant to Section 505.
(b) Upon their original issuance, Preferred Securities Certificates shall be
issued in the form of one or more fully registered Global Preferred Securities
Certificates which will be deposited with or on behalf of Cede as the
Depositary's nominee and registered in the name of Cede as the Depositary's
nominee. Unless and until it is exchangeable in whole or in part for the
Preferred Securities in definitive form, a global security may not be
transferred except as a whole by the Depositary to a nominee of the Depositary
or by a nominee of the Depositary to the Depositary or another nominee of the
Depositary or by the Depositary or any such nominee to a successor of such
Depositary or a nominee of such successor.
(c) A single Common Securities Certificate representing the Common
Securities shall be issued to the Depositor in the form of a definitive Common
Securities Certificate.
SECTION 503. EXECUTION AND DELIVERY OF TRUST SECURITIES CERTIFICATES.
On the Closing Date, and on the Option Closing Date if applicable, an
Administrative Trustee shall cause Trust Securities Certificates, in an
aggregate Liquidation Amount as provided in Sections 204 and 205, as the case
may be, to be executed on behalf of the Trust and delivered to the Property
Trustee and upon such delivery the Property Trustee shall authenticate such
Trust Securities and deliver such Trust Securities Certificates upon the written
order of the Trust, executed by an Administrative Trustee thereof, without
further corporate action by the Trust, in authorized denominations, whereupon
the Trust Securities evidenced by such Trust Securities Certificates shall be
duly and validly issued undivided beneficial interests in the assets of the
Trust and entitled to the benefits of this Trust Agreement.
SECTION 504. GLOBAL PREFERRED SECURITY.
(a) Any Global Preferred Security issued under this Trust Agreement shall be
registered in the name of the nominee of the Clearing Agency and delivered to
such custodian therefor, and such Global Preferred Security shall constitute a
single Preferred Security for all purposes of this Trust Agreement.
(b) Notwithstanding any other provision in this Trust Agreement, a Global
Preferred Security may not be exchanged in whole or in part for Preferred
Securities registered, and no transfer of the Global Preferred Security in whole
or in part may be registered, in the name of any Person other than the Clearing
Agency for such Global Preferred Security, Cede, or other nominee thereof unless
(i) such Clearing Agency advises the Depository, the Property Trustee and the
Delaware Trustee in writing that such Clearing Agency is no longer willing or
able to properly discharge its responsibilities as Clearing Agency with respect
to such Global Preferred Security, and the Depositor is unable to locate a
qualified successor within 90 days of receipt of such notice from the
Depositary, (ii) the Depositor at its option advises the Depositary in writing
that it elects to terminate the book-entry system through the Clearing Agency,
or (iii) there shall have occurred and be continuing an Event of Default.
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(c) If a Preferred Security is to be exchanged in whole or in part for a
beneficial interest in a Global Preferred Security, then either (i) such Global
Preferred Security shall be surrendered for exchange or cancellation as provided
in this Article V or (ii) the Liquidation Amount thereof shall be reduced or
increased by an amount equal to the portion thereof to be so exchanged or
cancelled, or equal to the Liquidation Amount of such other Preferred Security
to be so exchanged for a beneficial interest therein, as the case may be, by
means of an appropriate adjustment made on the records of the Securities
Registrar, whereupon the Property Trustee, in accordance with the Applicable
Procedures, shall instruct the Clearing Agency or its authorized representative
to make a corresponding adjustment to its records. Upon any such surrender or
adjustment of a Global Preferred Security by the Clearing Agency, accompanied by
registration instructions, the Property Trustee shall, subject to Section 504(b)
and except as otherwise provided in this Article V, authenticate and deliver and
an Administrative Trustee shall execute any Preferred Securities issuable in
exchange for such Global Preferred Security (or any portion thereof) in
accordance with the instructions of the Clearing Agency. The Property Trustee
shall not be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be fully protected in relying on, such
instructions.
(d) Every Preferred Security registered, executed, authenticated, and
delivered upon registration of transfer of, or in exchange for or in lieu of, a
Global Preferred Security or any portion thereof, whether pursuant to this
Article V or Article IV or otherwise, shall be executed, authenticated and
delivered in the form of, and shall be, a Global Preferred Security, unless such
Global Preferred Security is registered in the name of a Person other than the
Clearing Agency for such Global Preferred Security or a nominee thereof.
(e) The Clearing Agency or its nominee, as the registered owner of a Global
Preferred Security, shall be considered the Holder of the Preferred Securities
represented by such Global Preferred Security for all purposes under this Trust
Agreement and the Preferred Securities, and owners of beneficial interests in
such Global Preferred Security shall hold such interests pursuant to the
Applicable Procedures and, except as otherwise provided herein, shall not be
entitled to receive physical delivery of any such Preferred Securities in
definitive form and shall not be considered the Holders thereof under this Trust
Agreement. Accordingly, any such Owner's beneficial interest in the Global
Preferred Security shall be shown only on, and the transfer of such interest
shall be effected only through, records maintained by the Clearing Agency or its
nominee. Neither the Property Trustee, the Securities Registrar nor the
Depositor shall have any liability in respect of any transfers effected by the
Clearing Agency.
(f) The rights of Owners of beneficial interests in a Global Preferred
Security shall be exercised only through the Clearing Agency and shall be
limited to those established by law and agreements between such Owners and the
Clearing Agency.
(g) For so long as any Preferred Securities remain Outstanding, to the
fullest extent permitted by law and subject to the terms of this Trust Agreement
and the Indenture, upon a Debenture Event of Default specified in Section 7.1 of
the Indenture, any Holder of Preferred Securities shall have the right to
institute a proceeding directly against the Depositor, pursuant to Section 15.13
of the Indenture, for enforcement of payment to such Holder of the principal
amount of or interest on Debentures having an aggregate principal amount equal
to the aggregate Liquidation Amount of the Preferred Securities of such Holder
(a "Direct Action"). Except as set forth in this Section and in Sections 513(b)
and 513(c) of this Trust Agreement, the Holders of Preferred Securities shall
have no right to exercise directly any right or remedy available to the holders
of, or in respect of the Debentures.
SECTION 505. REGISTRATION OF TRANSFER AND EXCHANGE GENERALLY; CERTAIN
TRANSFERS AND EXCHANGES; PREFERRED SECURITIES CERTIFICATES.
(a) The Property Trustee shall keep or cause to be kept at its Corporate
Trust Office a register or registers for the purpose of registering Preferred
Trust Securities Certificates and transfers and exchanges of Preferred
Securities Certificates in which the registrar and transfer agent with respect
to the Preferred Securities (the "Securities Register"), subject to such
reasonable regulations as it may prescribe, shall provide for the registration
of Preferred Securities Certificates and Common Securities Certificates (subject
to Section 511 in the case of Common Securities Certificates) and registration
of transfers and exchanges of Preferred Securities Certificates as herein
provided. The Property Trustee is hereby appointed "Securities Registrar" for
the purpose of registering Preferred Securities and transfers of Preferred
Securities as herein provided.
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Upon surrender for registration of transfer of any Preferred Security at the
offices or agencies of the Property Trustee designated for that purpose, an
Administrative Trustee shall execute and the Property Trustee shall authenticate
and deliver, in the name of the designated transferee or transferees, one or
more new Preferred Securities of the same series of any authorized denominations
of like tenor and aggregate Liquidation Amount and bearing such legends as may
be required by this Trust Agreement.
At the option of the Holder, Preferred Securities may be exchanged for other
Preferred Securities of any authorized denominations, of like tenor and
aggregate Liquidation Amount and bearing such legends as may be required by this
Trust Agreement, upon surrender of the Preferred Securities to be exchanged at
such office or agency. Whenever any Preferred Securities are so surrendered for
exchange, an Administrative Trustee shall execute and the Property Trustee shall
authenticate and deliver the Preferred Securities that the Holder making the
exchange is entitled to receive.
All Preferred Securities issued upon any transfer or exchange of Preferred
Securities shall be the valid obligations of the Trust, evidencing the same
interest, and entitled to the same benefits under this Trust Agreement, as the
Preferred Securities surrendered upon such transfer or exchange.
Every Preferred Security presented or surrendered for transfer or exchange
shall (if so required by the Property Trustee) be duly endorsed, or be
accompanied by a written instrument of transfer in form satisfactory to the
Property Trustee and the Securities Registrar, duly executed by the Holder
thereof or such Holder's attorney duly authorized in writing.
No service charge shall be made to a Holder for any transfer or exchange of
Preferred Securities, but the Property Trustee may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any transfer or exchange of Preferred Securities.
Neither the Trust nor the Property Trustee shall be required, pursuant to the
provisions of this Section, (i) to issue, register the transfer of, or exchange
any Preferred Security during a period beginning at the opening of business 15
days before the day of selection for redemption of Preferred Securities pursuant
to Article IV and ending at the close of business on the day of mailing of the
notice of redemption, or (ii) to register the transfer of or exchange any
Preferred Security so selected for redemption in whole or in part, except, in
the case of any such Preferred Security to be redeemed in part, any portion
thereof not to be redeemed.
(b) Certain Transfers and Exchanges. Trust Securities may only be
transferred, in whole or in part, in accordance with the terms and conditions
set forth in this Trust Agreement. Any transfer or purported transfer of any
Trust Security not made in accordance with this Trust Agreement shall be null
and void.
(i) Non-Global Security to Non-Global Security. A Trust Security that
is not a Global Preferred Security may be transferred, in whole or in part,
to a Person who takes delivery in the form of another Trust Security that is
not a Global Preferred Security as provided in Section 505(a).
(ii) Free Transferability. Subject to this Section 505, Preferred
Securities shall be freely transferable.
(iii) Exchanges Between Global Preferred Security and Non-Global
Preferred Security. A beneficial interest in a Global Preferred Security may
be exchanged for a Preferred Security that is not a Global Preferred Security
as provided in Section 504.
SECTION 506. MUTILATED, DESTROYED, LOST OR STOLEN TRUST SECURITIES CERTIFICATES.
If (a) any mutilated Trust Securities Certificate shall be surrendered to the
Securities Registrar, or if the Securities Registrar shall receive evidence to
its satisfaction of the destruction, loss, or theft of any Trust Securities
Certificate and (b) there shall be delivered to the Securities Registrar and the
Administrative Trustees such security or indemnity as may be required by them to
save each of them harmless, then in the absence of notice that such Trust
Securities Certificate shall have been acquired by a bona fide purchaser or a
protected purchaser, the Administrative Trustees, or any one of them, on behalf
of the Trust shall execute and make available for delivery, and the Property
Trustee shall authenticate, in exchange for or in lieu of any such mutilated,
destroyed, lost, or
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stolen Trust Securities Certificate, a new Trust Securities Certificate of like
class, tenor and denomination. In connection with the issuance of any new Trust
Securities Certificate under this Section, the Administrative Trustees or the
Securities Registrar may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection therewith.
Any duplicate Trust Securities Certificate issued pursuant to this Section shall
constitute conclusive evidence of an undivided beneficial interest in the assets
of the Trust corresponding to that evidenced by the lost, stolen or destroyed
Trust Securities Certificate, as if originally issued, whether or not the lost,
stolen or destroyed Trust Securities Certificate shall be found at any time.
SECTION 507. PERSONS DEEMED HOLDERS.
The Property Trustee, the Delaware Trustee, the Administrative Trustees, the
Securities Registrar, or the Depositor shall treat the Person in whose name any
Trust Securities are registered in the Securities Register as the owner of such
Trust Securities for the purpose of receiving Distributions and for all other
purposes whatsoever, and none of the Property Trustee, the Delaware Trustee, the
Administrative Trustees, the Securities Registrar nor the Depositor shall be
bound by any notice to the contrary.
SECTION 508. ACCESS TO LIST OF HOLDERS' NAMES AND ADDRESSES.
At any time when the Property Trustee is not also acting as the Securities
Registrar, the Administrative Trustees or the Depositor shall furnish or cause
to be furnished to the Property Trustee (a) semi-annually on or before January
15 and July 15 in each year, a list, in such form as the Property Trustee may
reasonably require, of the names and addresses of the Securityholders as of the
most recent record date; and (b) promptly after receipt by any Administrative
Trustee or the Depositor of a request therefor from the Property Trustee in
order to enable the Property Trustee to discharge its obligations under this
Trust Agreement, in each case to the extent such information is in the
possession or control of the Administrative Trustees or the Depositor and is not
identical to a previously supplied list or has not otherwise been received by
the Property Trustee in its capacity as Securities Registrar. The rights of
Securityholders to communicate with other Securityholders with respect to their
rights under this Trust Agreement or under the Trust Securities, and the
corresponding rights of the Trustee shall be as provided in the Trust Indenture
Act. Each Holder, by receiving and holding a Trust Securities Certificate, and
each Owner shall be deemed to have agreed not to hold the Depositor, the
Property Trustee, or the Administrative Trustee accountable by reason of the
disclosure of its name and address, regardless of the source from which such
information was derived.
SECTION 509. MAINTENANCE OF OFFICE OR AGENCY.
The Property Trustee shall designate, with the consent of the Administrative
Trustees, which consent shall not be unreasonably withheld, an office or offices
or agency or agencies where Preferred Securities Certificates may be surrendered
for registration of transfer or exchange and where notices and demands to or
upon the Property Trustee and the Delaware Trustee in respect of the Trust
Securities Certificates may be served. The Property Trustee initially designates
its Corporate Trust Office for such purposes. The Delaware Trustee initially
designates its Corporate Trust Office for such purposes. The Property Trustee
and the Delaware Trustee shall give prompt written notice to the Depositor, the
Administrative Trustees and the Holders of any change in the location of the
Securities Register or any such office or agency.
SECTION 510. APPOINTMENT OF PAYING AGENT.
The Paying Agent shall make Distributions to Holders from the Payment Account
and shall report the amounts of such Distributions to the Property Trustee and
the Administrative Trustees. Any Paying Agent shall have the revocable power to
withdraw funds from the Payment Account solely for the purpose of making the
Distributions referred to above. The Property Trustee may revoke such power and
remove any Paying Agent in it sole discretion. The Paying Agent shall initially
be the Property Trustee. Any Person acting as Paying Agent shall be permitted to
resign as Paying Agent upon 30 days' written notice to the Administrative
Trustees and the Property Trustee. In the event that the Property Trustee shall
no longer be the Paying Agent or a successor Paying Agent shall resign or its
authority to act be revoked, the Property Trustee shall appoint a successor
(which shall be a bank or trust company) that is reasonably acceptable to the
Administrative Trustees to act as Paying Agent. Such successor Paying Agent
appointed by the Property Trustee, or any additional Paying Agent appointed by
the Administrative Trustees, shall execute and deliver to the Property Trustee
and the Delaware Trustee an instrument in which such successor Paying Agent or
additional Paying Agent shall agree with the Property Trustee and the
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Delaware Trustee that as Paying Agent, such successor Paying Agent or additional
Paying Agent will hold all sums, if any, held by it for payment to the Holders
in trust for the benefit of the Holders entitled thereto until such sums shall
be paid to such Holders. The Paying Agent shall return all unclaimed funds to
the Property Trustee and upon removal of a Paying Agent such Paying Agent shall
also return all funds in its possession to the Property Trustee. The provisions
of Sections 801, 803 and 806 herein shall apply to the Bank also in its role as
Paying Agent, for so long as the Bank shall act as Paying Agent and, to the
extent applicable, to any other Paying Agent appointed hereunder. Any reference
in this Trust Agreement to the Paying Agent shall include any co-paying agent
chosen by the Property Trustee unless the context requires otherwise.
SECTION 511. OWNERSHIP OF COMMON SECURITIES BY DEPOSITOR.
On the Closing Date, and on the Option Closing Date if applicable, the
Depositor shall acquire and retain beneficial and record ownership of the Common
Securities. Neither the Depositor nor any successor Holder of the Common
Securities may transfer less than all of the Common Securities, and the
Depositor or any successor Holder may transfer the Common Securities only (a) in
connection with a consolidation or merger of the Depositor into another
corporation or any conveyance, transfer or lease by the Depositor of its
properties and assets substantially as an entirety to any Person, pursuant to
Section 8.1 of the Indenture, or (b) a transfer to an Affiliate of the Depositor
in compliance with applicable law (including the Securities Act and applicable
state securities and blue sky laws). To the fullest extent permitted by law, any
other attempted transfer of the Common Securities shall be void. The
Administrative Trustees shall cause each Common Securities Certificate issued to
the Depositor to contain a legend stating "THIS CERTIFICATE IS NOT TRANSFERABLE
EXCEPT TO A SUCCESSOR IN INTEREST TO THE DEPOSITOR OR AN AFFILIATE OF THE
DEPOSITOR IN COMPLIANCE WITH APPLICABLE LAW AND SECTION 511 OF THE TRUST
AGREEMENT."
SECTION 512. NOTICES TO CLEARING AGENCY.
To the extent that a notice or other communication to the Holders is required
under this Trust Agreement, for so long as Preferred Securities are represented
by a Global Preferred Securities Certificate, the Administrative Trustees and
the Property Trustee shall give all such notices and communications specified
herein to be given to the Clearing Agency, and shall have no obligations to the
Owners.
SECTION 513. RIGHTS OF HOLDERS.
(a) The legal title to all Trust Property shall be vested at all times in the
Trust and shall be held and administered by the Property Trustee (in its
capacity as such) in accordance with Section 209, and the Holders shall not have
any right or title therein other than the undivided beneficial interest in the
assets of the Trust conferred by their Trust Securities and they shall have no
right to call for any partition or division of property, profits, or rights of
the Trust except as described below. The Trust Securities shall be personal
property giving only the rights specifically set forth therein in this Trust
Agreement. The Trust Securities shall have no preemptive or similar rights and
when issued and delivered to Holders against payment of the purchase price
therefor will be validly issued, fully paid and nonassessable undivided
beneficial interests in the Trust Property. Subject to Section 406 hereof, the
Holders of the Trust Securities, in their capacities as such, shall be entitled
to the same limitation of personal liability extended to stockholders of private
corporations for profit organized under the General Corporation Law of the State
of Delaware.
(b) For so long as any Preferred Securities remain Outstanding, if, upon a
Debenture Event of Default, the Debenture Trustee fails, or the holders of not
less than 25% in principal amount of the outstanding Debentures fail, to declare
the principal of all of the Debentures to be immediately due and payable, the
Holders of at least 25% in Liquidation Amount of the Preferred Securities then
Outstanding shall have such right to make such declaration by a notice in
writing to the Property Trustee, the Depositor and the Debenture Trustee.
At any time after such a declaration of acceleration with respect to the
Debentures has been made and before a judgment or decree for payment of the
money due has been obtained by the Debenture Trustee as provided in the
Indenture, the Holders of a majority in Liquidation Amount of the Preferred
Securities, by written notice to the Property Trustee, the Depositor and the
Debenture Trustee, may rescind and annul such declaration and its consequences
if:
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(i) The Depositor has paid or deposited with the Debenture Trustee a sum
sufficient to pay:
(A) all overdue installments of interest on all of the Debentures,
(B) any accrued Additional Interest on all of the Debentures,
(C) the principal of (and premium if any, on) any Debentures which have
become due otherwise than by such declaration of acceleration and
interest and Additional Interest thereon at the rate borne by the
Debentures, and
(D) all sums paid or advanced by the Debenture Trustee under the
Indenture and the reasonable compensation, expenses, disbursements and
advances of the Debenture Trustee and the Property Trustee, their agents
and counsel; and
(ii) all Events of Default with respect to the Debentures, other than the
non-payment of the principal of the Debentures which has become due solely by
such acceleration, have been cured or waived as provided in Section 7.1 of
the Indenture.
The Holders of at least a majority in Liquidation Amount of the Preferred
Securities may, on behalf of the Holders of all the Preferred Securities, waive
any past default under the Indenture, except a default in the payment of
principal or interest (unless such default has been cured and a sum sufficient
to pay all matured installments of interest and principal due otherwise than by
acceleration has been deposited with the Debenture Trustee) or a default in
respect of a covenant or provision which under the Indenture cannot be modified
or amended without the consent of the holder of each outstanding Debentures
affected thereby. No such rescission shall affect any subsequent default or
impair any right consequent thereon.
Upon receipt by the Property Trustee of written notice declaring such an
acceleration, or rescission and annulment thereof, by Holders of the Preferred
Securities all or part of which is represented by Global Preferred Securities, a
record date shall be established for determining Holders of Outstanding
Preferred Securities entitled to join in such notice, which record date shall be
at the close of business on the day the Property Trustee receives such notice.
The Holders on such record date, or their duly designated proxies, and only such
Persons, shall be entitled to join in such notice, whether or not such Holders
remain Holders after such record date; provided, that, unless such declaration
of acceleration, or rescission and annulment, as the case may be, shall have
become effective by virtue of the requisite percentage having joined in such
notice prior to the day which is 90 days after such record date, such notice of
declaration of acceleration, or rescission and annulment, as the case may be,
shall automatically and without further action by any Holder be canceled and of
no further effect. Nothing in this paragraph shall prevent a Holder, or a proxy
of a Holder, from giving, after expiration of such 90-day period, a new written
notice of declaration of acceleration, or rescission and annulment thereof, as
the case may be, that is identical to a written notice which has been canceled
pursuant to the proviso to the preceding sentence, in which event a new record
date shall be established pursuant to the provisions of this section 513(b).
(c) For so long as any Preferred Securities remain Outstanding, to the
fullest extent permitted by law and subject to the terms of this Trust Agreement
and the Indenture, upon a Debenture Event of Default specified in Section 7.1 of
the Indenture, any Holder of Preferred Securities shall have the right to
institute a proceeding directly against the Depositor, pursuant to Section 15.13
of the Indenture, for enforcement of payment to such Holder of the principal
amount of or interest on Debentures having an aggregate principal amount equal
to the aggregate Liquidation Amount of the Preferred Securities of such Holder
(a "Direct Action"). Except as set forth in Sections 513(b) and 513(c) of this
Trust Agreement, the Holders of Preferred Securities shall have no right to
exercise directly any right or remedy available to the holders of, or in respect
of, the Debentures.
ARTICLE VI
ACTS OF SECURITYHOLDERS; MEETINGS; VOTING
SECTION 601. LIMITATIONS ON VOTING RIGHTS.
(a) Except as provided in this Section 601, in Sections 513, 810 and 1002
and in the Indenture and as otherwise required by law, no Holder of Preferred
Securities shall have any right to vote or in any manner otherwise
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control the administration, operation and management of the Trust or the
obligations of the parties hereto, nor shall anything herein set forth, or
contained in the terms of the Trust Securities Certificates, be construed so as
to constitute the Securityholders from time to time as partners or members of an
association.
(b) So long as any Debentures are held by the Property Trustee, the Trustees
shall not (i) direct the time, method and place of conducting any proceeding for
any remedy available to the Debenture Trustee, or executing any trust or power
conferred on the Debenture Trustee with respect to such Debentures; (ii) waive
any past default which is waivable under Article VII of the Indenture; (iii)
exercise any right to rescind or annul a declaration that the principal of all
the Debentures shall be due and payable; or (iv) consent to any amendment,
modification or termination of the Indenture or the Debentures, where such
consent shall be required, without, in each case, obtaining the prior approval
of the Holders of at least a majority in Liquidation Amount of all Outstanding
Preferred Securities; provided, however, that where a consent under the
Indenture would require the consent of each holder of outstanding Debentures
affected thereby, no such consent shall be given by the Property Trustee without
the prior written consent of each Holder of Preferred Securities. The Trustees
shall not revoke any action previously authorized or approved by a vote of the
Holders of the Outstanding Preferred Securities, except when authorized by a
subsequent vote of the Holders of the Outstanding Preferred Securities. The
Property Trustee shall notify each Holder of the Outstanding Preferred
Securities of any notice of default received from the Debenture Trustee with
respect to the Debentures. In addition to obtaining the foregoing approvals of
the Holders of the Preferred Securities, prior to taking any of the foregoing
actions, the Trustees shall, at the expense of the Depositor, obtain an Opinion
of Counsel experienced in such matters to the effect that the Trust shall
continue to be classified as a grantor trust and not as an association taxable
as a corporation for United States federal income tax purposes on account of
such action.
(c) If any proposed amendment to the Trust Agreement provides for, or the
Trustees otherwise propose to effect, (i) any action that would adversely affect
in any material respect the powers, preferences or special rights of the
Preferred Securities, whether by way of amendment to the Trust Agreement or
otherwise; or (ii) the dissolution, winding-up or termination of the Trust,
other than pursuant to the terms of this Trust Agreement, then the Holders of
Outstanding Preferred Securities as a class shall be entitled to vote on such
amendment or proposal and such amendment or proposal shall not be effective
except with the approval of the Holders of at least a majority in Liquidation
Amount of the Outstanding Preferred Securities. No amendment to this Trust
Agreement may be made if, as a result of such amendment, the Trust would cease
to be classified as a grantor trust or would be classified as an association
taxable as a corporation for United States federal income tax purposes.
SECTION 602. NOTICE OF MEETINGS.
Notice of all meetings of the Preferred Securityholders, stating the time,
place and purpose of the meeting, shall be given by the Property Trustee
pursuant to Section 1008 to each Preferred Securityholder of record, at his
registered address, at least 15 days and not more than 90 days before the
meeting. At any such meeting, any business properly before the meeting may be so
considered whether or not stated in the notice of the meeting. Any adjourned
meeting may be held as adjourned without further notice.
SECTION 603. MEETINGS OF PREFERRED SECURITYHOLDERS.
(a) No annual meeting of Securityholders is required to be held. The
Administrative Trustees, however, shall call a meeting of Securityholders to
vote on any matter in respect of which Preferred Securityholders are entitled to
vote upon the written request of the Preferred Securityholders of 25% of the
Outstanding Preferred Securities (based upon their aggregate Liquidation Amount)
and the Administrative Trustees or the Property Trustee may, at any time in
their discretion, call a meeting of Preferred Securityholders to vote on any
matters as to which the Preferred Securityholders are entitled to vote.
(b) Preferred Securityholders of record of 50% of the Outstanding Preferred
Securities (based upon their aggregate Liquidation Amount), present in person or
by proxy, shall constitute a quorum at any meeting of Securityholders.
(c) If a quorum is present at a meeting, an affirmative vote by the
Preferred Securityholders of record present, in person or by proxy, holding more
than a majority of the Preferred Securities (based upon their aggregate
Liquidation Amount) held by the Preferred Securityholders of record present,
either in person or by proxy, at such
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meeting shall constitute the action of the Securityholders, unless this Trust
Agreement requires a greater number of affirmative votes.
SECTION 604. VOTING RIGHTS.
Securityholders shall be entitled to one vote for each dollar value of
Liquidation Amount represented by their Trust Securities in respect of any
matter as to which such Securityholders are entitled to vote (and such dollar
value shall be $25 per Preferred Security until such time, if any, as the
Liquidation Amount is changed as provided herein).
SECTION 605. PROXIES, ETC.
At any meeting of Securityholders, any Securityholder entitled to vote
thereat may vote by proxy, provided that no proxy, shall be voted at any meeting
unless it shall have been placed on file with the Administrative Trustees, or
with such other officer or agent of the Trust as the Administrative Trustees may
direct, for verification prior to the time at which such vote shall be taken.
When Trust Securities are held jointly by several persons, any one of them may
vote at any meeting in person or by proxy in respect of such Trust Securities,
but if more than one of them shall be present at such meeting in person or by
proxy, and such joint owners or their proxies so present disagree as to any vote
to be cast, such vote shall not be received in respect of such Trust Securities.
A proxy purporting to be executed by or on behalf of a Securityholder shall be
deemed valid unless challenged at or prior to its exercise, and, the burden of
proving invalidity shall rest on the challenger. No proxy shall be valid more
than three years after its date of execution.
SECTION 606. SECURITYHOLDER ACTION BY WRITTEN CONSENT.
Any action which may be taken by Securityholders at a meeting may be taken
without a meeting if Securityholders holding more than a majority of all
Outstanding Trust Securities (based upon their aggregate Liquidation Amount)
entitled to vote in respect of such action (or such larger proportion thereof as
shall be required by any express provision of this Trust Agreement) shall
consent to the action in writing.
SECTION 607. RECORD DATE FOR VOTING AND OTHER PURPOSES.
For the purposes of determining the Securityholders who are entitled to
notice of and to vote at any meeting or by written consent, or to participate in
any Distribution on the Trust Securities in respect of which a record date is
not otherwise provided for in this Trust Agreement, or for the purpose of any
other action, the Administrative Trustees may from time to time fix a date, not
more than 90 days prior to the date of any meeting of Securityholders or the
payment of Distribution or other action, as the case may be, as a record date
for the determination of the identity of the Securityholders of record for such
purposes.
SECTION 608. ACTS OF SECURITYHOLDERS.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided or permitted by this Trust Agreement to be given, made
or taken by Securityholders may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Securityholders in
person or by an agent duly appointed in writing; and, except as otherwise
expressly provided herein, such action shall become effective when such
instrument or instruments are delivered to an Administrative Trustee. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Securityholders
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Trust Agreement and (subject to Section 801) conclusive in favor
of the Trustees, if made in the manner provided in this Section 608.
(b) The fact and date of the execution by any Person of any such instrument
or writing may be proved by the affidavit of a witness of such execution or by a
certificate of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such execution is by
a signer acting in a capacity other than his individual capacity, such
certificate or affidavit shall also constitute sufficient proof of his
authority. The fact and date of the
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execution of any such instrument or writing, or the authority of the Person
executing the same, may also be proved in any other manner which any Trustee
receiving the same deems sufficient.
(c) The ownership of Preferred Securities shall be proved by the Securities
Register.
(d) Any request, demand, authorization, direction, notice, consent, waiver
or other Act of the Securityholder of any Trust Security shall bind every future
Securityholder of the same Trust Security and the Securityholder of every Trust
Security issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof in respect of anything done, omitted or suffered to
be done by the Trustees or the Trust in reliance thereon, whether or not
notation of such action is made upon such Trust Security.
(e) Without limiting the foregoing, a Securityholder entitled hereunder to
take any action hereunder with regard to any particular Trust Security may do so
with regard to all or any part of the Liquidation Amount of such Trust Security
or by one or more duly appointed agents each of which may do so pursuant to such
appointment with regard to all or any part of such Liquidation Amount.
(f) A Securityholder may institute a legal proceeding directly against the
Depositor under the Guarantee to enforce its rights under the Guarantee without
first instituting a legal proceeding against the Guarantee Trustee (as defined
in the Guarantee), the Trust or any Person.
SECTION 609. INSPECTION OF RECORDS.
Upon reasonable notice to the Administrative Trustees and the Property
Trustee, the records of the Trust shall be open to inspection and copying by
Securityholders and their authorized representatives during normal business
hours for any purpose reasonably related to such Securityholder's interest as a
Securityholder.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
SECTION 701. REPRESENTATIONS AND WARRANTIES OF THE BANK AND THE PROPERTY
TRUSTEE.
The Bank and the Property Trustee, each severally on behalf of and as to
itself, as of the date hereof, and each successor Property Trustee at the time
of the successor Property Trustee's acceptance of its appointment as Property
Trustee hereunder (the term "Bank" being used to refer to such successor
Property Trustee in its separate corporate capacity) hereby represents and
warrants (as applicable) for the benefit of the Depositor and the
Securityholders that:
(a) the Bank is a trust company duly organized, validly existing and in good
standing under the laws of The Commonwealth of Massachusetts;
(b) the Bank has full corporate power, authority and legal right to execute,
deliver and perform its obligations under this Trust Agreement and has taken all
necessary action to authorize the execution, delivery and performance by it of
this Trust Agreement;
(c) this Trust Agreement has been duly authorized, executed and delivered by
the Property Trustee and constitutes the valid and legally binding agreement of
the Property Trustee enforceable against it in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors, rights and to general equity principles;
(d) the execution, delivery and performance by the Property Trustee of this
Trust Agreement has been duly authorized by all necessary corporate or other
action on the part of the Property Trustee and does not require any approval of
stockholders of the Bank and such execution, delivery and performance shall not
(i) violate the Bank's charter or by-laws; (ii) violate any provision of, or
constitute, with or without notice or lapse of time, a default under, or result
in the creation or imposition of, any Lien on any properties included in the
Trust Property pursuant to the provisions of, any indenture, mortgage, credit
agreement, license or other agreement or instrument to which the Property
Trustee or the Bank is a party or by which it is bound; or (iii) violate any
law, governmental rule or
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regulation of the United States or the Commonwealth of Massachusetts, as the
case may be, governing the banking or trust powers of the Bank or the Property
Trustee (as appropriate in context) or any order, judgment or decree applicable
to the Property Trustee or the Bank;
(e) neither the authorization, execution or delivery by the Property Trustee
of this Trust Agreement nor the consummation of any of the transactions by the
Property Trustee contemplated herein or therein requires the consent or approval
of, the giving of notice to, the registration with or the taking of any other
action with respect to any governmental authority or agency under any existing
federal law governing the banking or trust powers of the Bank or the Property
Trustee, as the case may be, under the laws of the United States or the
Commonwealth of Massachusetts; and
(f) there are no proceedings pending or, to the best of the Property
Trustee's knowledge, threatened against or affecting the Bank or the Property
Trustee in any court or before any governmental authority, agency or arbitration
board or tribunal which, individually or in the aggregate, would materially and
adversely affect the Trust or would question the right, power and authority of
the Property Trustee to enter into or perform its obligations as one of the
Trustees under this Trust Agreement.
SECTION 702. REPRESENTATIONS AND WARRANTIES OF THE DELAWARE BANK AND THE
DELAWARE TRUSTEE.
The Delaware Bank and the Delaware Trustee, each severally on behalf of and
as to itself, as of the date hereof, and each successor Delaware Trustee at the
time of the successor Delaware Trustee's acceptance of appointment as Delaware
Trustee hereunder (the term "Delaware Bank" being used to refer to such
successor Delaware Trustee in its separate corporate capacity), hereby
represents and warrants (as applicable) for the benefit of the Depositor and the
Securityholders that:
(a) the Delaware Bank is a Delaware banking corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware;
(b) the Delaware Bank has full corporate power, authority and legal right to
execute, deliver and perform its obligations under this Trust Agreement and has
taken all necessary action to authorize the execution, delivery and performance
by it of this Trust Agreement;
(c) this Trust Agreement has been duly authorized, executed and delivered by
the Delaware Trustee and constitutes the valid and legally binding agreement of
the Delaware Trustee enforceable against it in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors, rights and to general equity principles;
(d) the execution, delivery and performance by the Delaware Trustee of this
Trust Agreement has been duly authorized by all necessary corporate or other
action on the part of the Delaware Trustee and does not require any approval of
stockholders of the Delaware Bank and such execution, delivery and performance
shall not (i) violate the Delaware Bank's charter or by-laws; (ii) violate any
provision of, or constitute, with or without notice or lapse of time, a default
under, or result in the creation or imposition of, any Lien on any properties
included in the Trust Property pursuant to the provisions of, any indenture,
mortgage, credit agreement, license or other agreement or instrument to which
the Delaware Bank or the Delaware Trustee is a party or by which it is bound; or
(iii) violate any law, governmental rule or regulation of the United States or
the State of Delaware, as the case may be, governing the banking or trust powers
of the Delaware Bank or the Delaware Trustee (as appropriate in context) or any
order, judgment or decree applicable to the Delaware Bank or the Delaware
Trustee;
(e) neither the authorization, execution or delivery by the Delaware Trustee
of this Trust Agreement nor the consummation of any of the transactions by the
Delaware Trustee contemplated herein or therein requires the consent or approval
of, the giving of notice to, the registration with or the taking of any other
action with respect to any governmental authority or agency under any existing
federal law governing the banking or trust powers of the Delaware Bank or the
Delaware Trustee, as the case may be, under the laws of the United States or the
State of Delaware; and
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(f) there are no proceedings pending or, to the best of the Delaware
Trustee's knowledge, threatened against or affecting the Delaware Bank or the
Delaware Trustee in any court or before any governmental authority, agency or
arbitration board or tribunal which, individually or in the aggregate, would
materially and adversely affect the Trust or would question the right, power and
authority of the Delaware Trustee to enter into or perform its obligations as
one of the Trustees under this Trust Agreement.
SECTION 703. REPRESENTATIONS AND WARRANTIES OF DEPOSITOR.
The Depositor hereby represents and warrants for the benefit of the
Securityholders that:
(a) the Trust Securities Certificates issued on the Closing Date or the
Option Closing Date, if applicable, on behalf of the Trust have been duly
authorized and, shall be, as of such date or dates, if applicable, duly and
validly executed, issued and delivered by the Administrative Trustees pursuant
to the terms and provisions of, and in accordance with the requirements of, this
Trust Agreement and the Securityholders shall be, as of such date or dates, if
applicable, entitled to the benefits of this Trust Agreement; and
(b) there are no taxes, fees or other governmental charges payable by the
Trust (or the Trustees on behalf of the Trust) under the laws of the State of
Delaware or any political subdivision thereof in connection with the execution,
delivery and performance by the Bank, the Property Trustee or the Delaware
Trustee, as the case may be, of this Trust Agreement.
ARTICLE VIII
TRUSTEES
SECTION 801. CERTAIN DUTIES AND RESPONSIBILITIES.
(a) The duties and responsibilities of the Trustees shall be as provided by
this Trust Agreement and, in the case of the Property Trustee, by the Trust
Indenture Act. Notwithstanding the foregoing, no provision of this Trust
Agreement shall require the Trustees to expend or risk their own funds or
otherwise incur any financial liability in the performance of any of their
duties hereunder, or in the exercise of any of their rights or powers, if they
shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
them. No Administrative Trustee nor the Delaware Trustee shall be liable for its
act or omissions hereunder except as a result of its own gross negligence or
willful misconduct. The Property Trustee's liability shall be determined under
the terms of this Trust Agreement and the Trust Indenture Act. Whether or not
therein expressly so provided, every provision of this Trust Agreement relating
to the conduct or affecting the liability of or affording protection to the
Trustees shall be subject to the provisions of this Section 801. To the extent
that, at law or in equity, the Delaware Trustee or an Administrative Trustee has
duties (including fiduciary duties) and liabilities relating thereto to the
Trust or to the Securityholders, the Delaware Trustee or such Administrative
Trustee shall not be liable to the Trust or to any Securityholder for such
Trustee's good faith reliance on the provisions of this Trust Agreement. The
provisions of this Trust Agreement, to the extent that they restrict the duties
and liabilities of the Delaware Trustee or the Administrative Trustees otherwise
existing at law or in equity, are agreed by the Depositor and the
Securityholders to replace such other duties and liabilities of the Delaware
Trustee and the Administrative Trustees, as the case may be.
(b) All payments made by the Property Trustee or a Paying Agent in respect
of the Trust Securities shall be made only from the revenue and proceeds from
the Trust Property and only to the extent that there shall be sufficient revenue
or proceeds from the Trust Property to enable the Property Trustee or a Paying
Agent to make payments in accordance with the terms hereof. With respect to the
relationship of each Securityholder and the Trustee, each Securityholder, by its
acceptance of a Trust Security, agrees that it shall look solely to the revenue
and proceeds from the Trust Property to the extent legally available for
distribution to it as herein provided and that the Trustees are not personally
liable to it for any amount distributable in respect of any Trust Security or
for any other liability in respect of any Trust Security. This Section 801(b)
does not limit the liability of the Trustees expressly set forth elsewhere in
this Trust Agreement or, in the case of the Property Trustee, in the Trust
Indenture Act.
(c) No provision of this Trust Agreement shall be construed to relieve the
Property Trustee from liability for its own negligent action, its own negligent
failure to act, or its own willful misconduct, except that:
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(i) the Property Trustee shall not be liable for any error of judgment
made in good faith by an authorized officer of the Property Trustee, unless
it shall be proved that the Property Trustee was negligent in ascertaining
the pertinent facts;
(ii) the Property Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the Holders of not less than a majority in Liquidation Amount of
the Trust Securities relating to the time, method and place of conducting any
proceeding for any remedy available to the Property Trustee, or exercising
any trust or power conferred upon the Property Trustee under this Trust
Agreement;
(iii) the Property Trustee's sole duty with respect to the custody, safe
keeping and physical preservation of the Debentures and the Payment Account
shall be to deal with such property in a similar manner as the Property
Trustee deals with similar property for its own account, subject to the
protections and limitations on liability afforded to the Property Trustee
under this Trust Agreement and the Trust Indenture Act;
(iv) the Property Trustee shall not be liable for any interest on any
money received by it except as it may otherwise agree with the Depositor and
money held by the Property Trustee need not be segregated from other funds
held by it except in relation to the Payment Account maintained by the
Property Trustee pursuant to Section 301 and except to the extent otherwise
required by law; and
(v) the Property Trustee shall not be responsible for monitoring the
compliance by the Administrative Trustees or the Depositor with their
respective duties under this Trust Agreement, nor shall the Property Trustee
be liable for the negligence, default or misconduct of the Administrative
Trustees or the Depositor.
SECTION 802. CERTAIN NOTICES.
(a) Within 5 Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit, in
the manner and to the extent provided in Section 1008, notice of such Event of
Default to the Securityholders, the Administrative Trustees and the Depositor,
unless such Event of Default shall have been cured or waived. For purposes of
this Section 802 the term "Event of Default" means any event that is, or after
notice or lapse of time or both would become, an Event of Default.
(b) The Administrative Trustees shall transmit, to the Securityholders in
the manner and to the extent provided in Section 1008, notice of the Depositor's
election to begin or further extend an Extension Period on the Debentures
(unless such election shall have been revoked), and of any election by the
Depositor to accelerate the Maturity Date of the Debentures within the time
specified for transmitting such notice to the holders of the Debentures pursuant
to the Indenture as originally executed.
SECTION 803. CERTAIN RIGHTS OF PROPERTY TRUSTEE.
Subject to the provisions of Section 801:
(a) the Property Trustee may rely and shall be protected in acting or
refraining from acting in good faith upon any resolution, Opinion of Counsel,
certificate, written representation of a Holder or transferee, certificate of
auditors or any other certificate, statement, instrument, opinion, report,
notice, request, consent, order, appraisal, bond, debenture, note, other
evidence of indebtedness or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties;
(b) if (i) in performing its duties under this Trust Agreement the Property
Trustee is required to decide between alternative courses of action; or (ii) in
construing any of the provisions of this Trust Agreement the Property Trustee
finds the same ambiguous or inconsistent with other provisions contained herein;
or (iii) the Property Trustee is unsure of the application of any provision of
this Trust Agreement, then, except as to any matter as to which the Preferred
Securityholders are entitled to vote under the terms of this Trust Agreement,
the Property Trustee shall deliver a notice to the Depositor requesting written
instructions of the Depositor as to the course of action to be taken and the
Property Trustee shall take such action, or refrain from taking such action, as
the Property Trustee shall be instructed in writing to take, or to refrain from
taking, by the Depositor; provided, however, that if the Property Trustee does
not receive such instructions of the Depositor within 10 Business Days after it
has
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delivered such notice, or such reasonably shorter period of time set forth in
such notice (which to the extent practicable shall not be less than 2 Business
Days), it may, but shall be under no duty to, take or refrain from taking such
action not inconsistent with this Trust Agreement as it shall deem advisable and
in the best interests of the Securityholders, in which event the Property
Trustee shall have no liability except for its own bad faith, negligence or
willful misconduct;
(c) any direction or act of the Depositor or the Administrative Trustees
contemplated by this Trust Agreement shall be sufficiently evidenced by an
Officers' Certificate;
(d) whenever in the administration of this Trust Agreement, the Property
Trustee shall deem it desirable that a matter be established before undertaking,
suffering or omitting any action hereunder, the Property Trustee (unless other
evidence is herein specifically prescribed) may, in the absence of bad faith on
its part, request and conclusively rely upon an Officer's Certificate which,
upon receipt of such request, shall be promptly delivered by the Depositor or
the Administrative Trustees;
(e) the Property Trustee shall have no duty to see to any recording, filing
or registration of any instrument (including any financing or continuation
statement, any filing under tax or securities laws or any filing under tax or
securities laws) or any rerecording, refiling or reregistration thereof;
(f) the Property Trustee may consult with counsel of its choice (which
counsel may be counsel to the Depositor or any of its Affiliates) and the advice
of such counsel shall be full and complete authorization and protection in
respect of any action taken, suffered or omitted by it hereunder in good faith
and in reliance thereon and, in accordance with such advice, such counsel may be
counsel to the Depositor or any of its Affiliates, and may include any of its
employees; the Property Trustee shall have the right at any time to seek
instructions concerning the administration of this Trust Agreement from any
court of competent jurisdiction;
(g) the Property Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Trust Agreement at the request, order or
direction of any of the Securityholders pursuant to this Trust Agreement, unless
such Securityholders shall have offered to the Property Trustee reasonable
security or indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request, order or direction;
(h) the Property Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval, bond,
debenture, note or other evidence of indebtedness or other paper or document,
unless requested in writing to do so by one or more Securityholders, but the
Property Trustee may make such further inquiry or investigation into such facts
or matters as it may see fit;
(i) the Property Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through its agents or
attorneys, provided that the Property Trustee shall be responsible for its own
negligence or recklessness with respect to selection of any agent or attorney
appointed by it hereunder;
(j) whenever in the administration of this Trust Agreement the Property
Trustee shall deem it desirable to receive instructions with respect to
enforcing any remedy or right or taking any other action hereunder the Property
Trustee (i) may request instructions from the Holders of the Trust Securities
which instructions may only be given by the Holders of the same proportion in
Liquidation Amount of the Trust Securities as would be entitled to direct the
Property Trustee under the terms of the Trust Securities in respect of such
remedy, right or action; (ii) may refrain from enforcing such remedy or right or
taking such other action until such instructions are received; and (iii) shall
be protected in acting in accordance with such instructions; and
(k) except as otherwise expressly provided by this Trust Agreement, the
Property Trustee shall not be under any obligation to take any action that is
discretionary under the provisions of this Trust Agreement. No provision of this
Trust Agreement shall be deemed to impose any duty or obligation on the Property
Trustee to perform any act or acts or exercise any right, power, duty or
obligation conferred or imposed on it, in any jurisdiction in which it shall be
illegal, or in which the Property Trustee shall be unqualified or incompetent in
accordance with applicable law, to perform any such act or acts, or to exercise
any such right, power, duty or obligation. No permissive power or authority
available to the Property Trustee shall be construed to be a duty.
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SECTION 804. NOT RESPONSIBLE FOR RECITALS OR USE OF PROCEEDS.
The Recitals contained herein and in the Trust Securities Certificates shall
be taken as the statements of the Trust, and the Trustees do not assume any
responsibility for their correctness. The Trustees shall not be accountable for
the use or application by the Depositor of the proceeds of the Debentures.
SECTION 805. MAY HOLD SECURITIES.
Any Trustee or any other agent of any Trustee or the Trust, in its individual
or any other capacity, may become the owner or pledgee of Trust Securities and,
subject to Sections 808 and 813 and except as provided in the definition of the
term "Outstanding" in Article I, may otherwise deal with the Trust with the same
rights it would have if it were not a Trustee or such other agent.
SECTION 806. COMPENSATION; INDEMNITY; FEES.
The Depositor agrees:
(a) to pay to the Trustees from time to time reasonable compensation for all
services rendered by them hereunder (which compensation shall not be limited by
any provision of law in regard to the compensation of a trustee of an express
trust);
(b) except as otherwise expressly provided herein, to reimburse the Trustees
upon request for all reasonable expenses, disbursements and advances incurred or
made by the Trustees in accordance with any provision of this Trust Agreement
(including the reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or advance as may be
attributable to such Trustee's negligence, bad faith or willful misconduct (or,
in the case of the Administrative Trustees or the Delaware Trustee, any such
expense, disbursement or advance as may be attributable to its, his or her gross
negligence, bad faith or willful misconduct); and
(c) to indemnify each of the Trustees or any predecessor Trustee for, and to
hold the Trustees harmless against, any loss, damage, claims, liability, penalty
or expense incurred without negligence or bad faith on its part, arising out of
or in connection with the acceptance or administration of this Trust Agreement,
including the costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its powers or
duties hereunder, except any such expense, disbursement or advance as may be
attributable to such Trustee's negligence, bad faith or willful misconduct (or,
in the case of the Administrative Trustees or the Delaware Trustee, any such
expense, disbursement or advance as may be attributable to its, his or her gross
negligence, bad faith or willful misconduct). The foregoing indemnification
shall survive the termination of this Trust Agreement.
No Trustee may claim any Lien on any Trust Property as a result of any amount
due pursuant to this Section 806.
SECTION 807. CORPORATE PROPERTY TRUSTEE REQUIRED; ELIGIBILITY OF TRUSTEES.
(a) There shall at all times be a Property Trustee hereunder with respect to
the Trust Securities. The Property Trustee shall be a Person that is eligible
pursuant to the Trust Indenture Act to act as such and has a combined capital
and surplus of at least $50,000,000. If any such Person publishes reports of
condition at least annually, pursuant to law or to the requirements of its
supervising or examining authority, then for the purposes of this Section 807,
the combined capital and surplus of such Person shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. If at any time the Property Trustee with respect to the Trust
Securities shall cease to be eligible in accordance with the provisions of this
Section 807, it shall resign immediately in the manner and with the effect
hereinafter specified in this Article VIII.
(b) There shall at all times be one or more Administrative Trustees
hereunder with respect to the Trust Securities. Each Administrative Trustee
shall be either a natural person who is at least 21 years of age or a legal
entity that shall act through one or more persons authorized to bind that
entity.
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(c) There shall at all times be a Delaware Trustee with respect to the Trust
Securities. The Delaware Trustee shall either be (i) a natural person who is at
least 21 years of age and a resident of the State of Delaware; or (ii) a legal
entity with its principal place of business in the State of Delaware and that
otherwise meets the requirements of applicable Delaware law that shall act
through one or more persons authorized to bind such entity.
SECTION 808. CONFLICTING INTERESTS.
If the Property Trustee has or shall acquire a conflicting interest within
the meaning of the Trust Indenture Act, the Property Trustee shall either
eliminate such interest or resign, to the extent and in the manner provided by,
and subject to the provisions of, the Trust Indenture Act and this Trust
Agreement.
SECTION 809. CO-TRUSTEES AND SEPARATE TRUSTEE.
(a) Unless an Event of Default shall have occurred and be continuing, at any
time or times, for the purpose of meeting the legal requirements of the Trust
Indenture Act or of any jurisdiction in which any part of the Trust Property may
at the time be located, the Depositor shall have power to appoint, and upon the
written request of the Property Trustee, the Depositor shall for such purpose
join with the Property Trustee in the execution, delivery and performance of all
instruments and agreements necessary or proper to appoint, one or more Persons
approved by the Property Trustee either to act as co-trustee, jointly with the
Property Trustee, of all or any part of such Trust Property, or to the extent
required by law to act as separate trustee of any such property, in either case
with such powers as may be provided in the instrument of appointment, and to
vest in such Person or Persons in the capacity aforesaid, any property, title,
right or power deemed necessary or desirable, subject to the other provisions of
this Section 809. If the Depositor does not join in such appointment within 15
days after the receipt by it of a request so to do, or in case a Debenture Event
of Default has occurred and is continuing, the Property Trustee alone shall have
power to make such appointment. Any co-trustee or separate trustee appointed
pursuant to this Section 809 shall either be (i) a natural person who is at
least 21 years of age and a resident of the United States; or (ii) a legal
entity with its principal place of business in the United States that shall act
through one or more persons authorized to bind such entity.
(b) Should any written instrument from the Depositor be required by any co-
trustee or separate trustee so appointed for more fully confirming to such co-
trustee or separate trustee such property, title, right, or power, any and all
such instruments shall, on request, be executed, acknowledged, and delivered by
the Depositor.
(c) Every co-trustee or separate trustee shall, to the extent permitted by
law, but to such extent only, be appointed subject to the following terms,
namely:
(i) The Trust Securities shall be executed and delivered and all rights,
powers, duties and obligations hereunder in respect of the custody of
securities, cash and other personal property held by, or required to be
deposited or pledged with, the Trustees specified hereunder, shall be
exercised, solely by such Trustees and not by such co-trustee or separate
trustee.
(ii) The rights, powers, duties and obligations hereby conferred or
imposed upon the Property Trustee in respect of any property covered by such
appointment shall be conferred or imposed upon and exercised or performed by
the Property Trustee or by the Property Trustee and such co-trustee or
separate trustee jointly, as shall be provided in the instrument appointing
such co-trustee or separate trustee, except to the extent that under any law
of any jurisdiction in which any particular act is to be performed, the
Property Trustee shall be incompetent or unqualified to perform such act, in
which event such rights, powers, duties and obligations shall be exercised
and performed by such co-trustee or separate trustee.
(iii) The Property Trustee at any time, by an instrument in writing
executed by it, with the written concurrence of the Depositor, may accept the
resignation of or remove any co-trustee or separate trustee appointed under
this Section 809, and, in case a Debenture Event of Default has occurred and
is continuing, the Property Trustee shall have the power to accept the
resignation of, or remove, any such co-trustee or separate trustee without
the concurrence of the Depositor. Upon the written request of the Property
Trustee, the Depositor shall join with the Property Trustee in the execution,
delivery and performance of all instruments and agreements necessary or
proper to effectuate such resignation or removal. A successor to any
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co-trustee or separate trustee so resigned or removed may be appointed in the
manner provided in this Section 809.
(iv) No co-trustee or separate trustee hereunder shall be personally
liable by reason of any act or omission of the Property Trustee or any other
trustee hereunder.
(v) The Property Trustee shall not be liable by reason of any act of a
co-trustee or separate trustee.
(vi) Any Act of Holders delivered to the Property Trustee shall be
deemed to have been delivered to each such co-trustee and separate trustee.
SECTION 810. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) Except as otherwise provided herein, no resignation or removal of any
Trustee (the "Relevant Trustee") and no appointment of a successor Trustee
pursuant to this Article VIII shall become effective until the acceptance of
appointment by the successor Trustee in accordance with the applicable
requirements of Section 811.
(b) Subject to the immediately preceding paragraph, the Relevant Trustee may
resign at any time with respect to the Trust Securities by giving written notice
thereof to the Securityholders. If the instrument of acceptance by the successor
Trustee required by Section 811 shall not have been delivered to the Relevant
Trustee within 30 days after the giving of such notice of resignation, the
Relevant Trustee may petition, at the expense of the Depositor, any court of
competent jurisdiction for the appointment of a successor Relevant Trustee with
respect to the Trust Securities.
(c) Unless a Debenture Event of Default shall have occurred and be
continuing, any Trustee may be removed at any time by Act of the Common
Securityholder. If a Debenture Event of Default shall have occurred and be
continuing, the Property Trustee or the Delaware Trustee, or both of them, may
be removed at such time by Act of the Holders of a majority in Liquidation
Amount of the Preferred Securities, delivered to the Relevant Trustee (in its
individual capacity and on behalf of the Trust). An Administrative Trustee may
be removed by the Common Securityholder at any time.
(d) If any Trustee shall resign, be removed or become incapable of acting as
Trustee, or if a vacancy shall occur in the office of any Trustee for any cause,
at a time when no Debenture Event of Default shall have occurred and be
continuing, the Common Securityholder, by Act of the Common Securityholder
delivered to the retiring Trustee, shall promptly appoint a successor Trustee or
Trustees with respect to the Trust Securities and the Trust, and the successor
Trustee shall comply with the applicable requirements of Section 811. If the
Property Trustee or the Delaware Trustee shall resign, be removed or become
incapable of continuing to act as the Property Trustee or the Delaware Trustee,
as the case may be, at a time when a Debenture Event of Default shall have
occurred and is continuing, the Preferred Securityholders, by Act of the
Securityholders of a majority in Liquidation Amount of the Preferred Securities
then Outstanding delivered to the retiring Relevant Trustee, shall promptly
appoint a successor Relevant Trustee or Trustees with respect to the Trust
Securities and the Trust, and such successor Trustee shall comply with the
applicable requirements of Section 811. If an Administrative Trustee shall
resign, be removed or become incapable of acting as Administrative Trustee, at a
time when a Debenture Event of Default shall have occurred and be continuing,
the Common Securityholder, by Act of the Common Securityholder delivered to an
Administrative Trustee, shall promptly appoint a successor Administrative
Trustee or Administrative Trustees with respect to the Trust Securities and the
Trust, and such successor Administrative Trustee or Administrative Trustees
shall comply with the applicable requirements of Section 811. If no successor
Relevant Trustee with respect to the Trust Securities shall have been so
appointed by the Common Securityholder or the Preferred Securityholders and
accepted appointment in the manner required by Section 811, any Securityholder
who has been a Securityholder of Trust Securities for six consecutive months on
behalf of himself and all others similarly situated may petition a court of
competent jurisdiction for the appointment of a successor Relevant Trustee with
respect to the Trust Securities.
(e) The Property Trustee shall give notice of each resignation and each
removal of a Trustee and each appointment of a successor Trustee to all
Securityholders in the manner provided in Section 1008 and shall give notice to
the Depositor. Each notice shall include the name of the successor Relevant
Trustee and the address of its Corporate Trust Office if it is the Property
Trustee.
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(f) Notwithstanding the foregoing or any other provision of this Trust
Agreement, in the event any Administrative Trustee or a Delaware Trustee who is
a natural person dies or becomes, in the opinion of the Depositor, incompetent
or incapacitated, the vacancy created by such death, incompetence or incapacity
may be filled by (a) the unanimous act of remaining Administrative Trustees if
there are at least two of them; or (b) otherwise by the Depositor (with the
successor in each case being a Person who satisfies the eligibility requirement
for Administrative Trustees set forth in Section 807).
SECTION 811. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
(a) In case of the appointment hereunder of a successor Relevant Trustee
with respect to the Trust Securities and the Trust, the retiring Relevant
Trustee and each successor Relevant Trustee with respect to the Trust Securities
shall execute and deliver an instrument hereto wherein each successor Relevant
Trustee shall accept such appointment and which shall contain such provisions as
shall be necessary or desirable to transfer and confirm to, and to vest in, each
successor Relevant Trustee all the rights, powers, trusts and duties of the
retiring Relevant Trustee with respect to the Trust Securities and the Trust and
upon the execution and delivery of such instrument the resignation or removal of
the retiring Relevant Trustee shall become effective to the extent provided
therein and each such successor Relevant Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Relevant Trustee with respect to the Trust Securities and
the Trust; but, on request of the Trust or any successor Relevant Trustee such
retiring Relevant Trustee shall duly assign, transfer and deliver to such
successor Relevant Trustee all Trust Property, all proceeds thereof and money
held by such retiring Relevant Trustee hereunder with respect to the Trust
Securities and the Trust.
(b) Upon request of any such successor Relevant Trustee, the Trust shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Relevant Trustee all such rights, powers and trusts
referred to in the immediately preceding paragraph, as the case may be.
(c) No successor Relevant Trustee shall accept its appointment unless at the
time of such acceptance such successor Relevant Trustee shall be qualified and
eligible under this Article VIII.
SECTION 812. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any Person into which the Property Trustee, the Delaware Trustee or any
Administrative Trustee may be merged or converted or with which it may be
consolidated, or any Person resulting from any merger, conversion or
consolidation to which such Relevant Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of such Relevant Trustee, shall be the successor of such Relevant Trustee
hereunder, provided such Person shall be otherwise qualified and eligible under
this Article VIII, without the execution or filing of any paper or any further
act on the part of any of the parties hereto.
SECTION 813. PREFERENTIAL COLLECTION OF CLAIMS AGAINST DEPOSITOR OR TRUST.
If and when the Property Trustee or the Delaware Trustee shall be or become a
creditor of the Depositor or the Trust (or any other obligor upon the Debentures
or the Trust Securities), the Property Trustee or the Delaware Trustee, as the
case may be, shall be subject to and shall take all actions necessary in order
to comply with the provisions of the Trust Indenture Act regarding the
collection of claims against the Depositor or Trust (or any such other obligor).
SECTION 814. REPORTS BY PROPERTY TRUSTEE.
(a) The Property Trustee shall transmit to Securityholders such reports
concerning the Property Trustee, its actions under this Trust Agreement and the
property and funds in its possession as Property Trustee as may be required
pursuant to the Trust Indenture Act at the times and in the manner provided
pursuant thereto.
(b) A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Property Trustee with the Nasdaq National Market, and
each national securities exchange or other organization upon which the Trust
Securities are listed, and also with the Commission and the Depositor.
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SECTION 815. REPORTS TO THE PROPERTY TRUSTEE.
The Depositor and the Administrative Trustees on behalf of the Trust shall
provide to the Property Trustee such documents, reports and information as
required by Section 314 of the Trust Indenture Act (if any) and the compliance
certificate required by Section 314(a) of the Trust Indenture Act in the form,
in the manner and at the times required by Section 314 of the Trust Indenture
Act.
SECTION 816. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT.
Each of the Depositor and the Administrative Trustees on behalf of the Trust
shall provide to the Property Trustee such evidence of compliance with any
conditions precedent, if any, provided for in this Trust Agreement that relate
to any of the matters set forth in Section 314(c) of the Trust Indenture Act.
Any certificate or opinion required to be given by an officer pursuant to
Section 314(c)(1) of the Trust Indenture Act shall be given in the form of an
Officers' Certificate.
SECTION 817. NUMBER OF TRUSTEES.
(a) The number of Trustees shall be five, provided that the Holder of all of
the Common Securities by written instrument may increase or decrease the number
of Administrative Trustees. The Property Trustee and the Delaware Trustee may be
the same Person.
(b) If a Trustee ceases to hold office for any reason and the number of
Administrative Trustees is not reduced pursuant to Section 817(a), or if the
number of Trustees is increased pursuant to Section 817(a), a vacancy shall
occur. The vacancy shall be filled with a Trustee appointed in accordance with
Section 810.
(c) The death, resignation, retirement, removal, bankruptcy, incompetence or
incapacity to perform the duties of a Trustee shall not operate to annul the
Trust. Whenever a vacancy in the number of Administrative Trustees shall occur,
until such vacancy is filled by the appointment of an Administrative Trustee in
accordance with Section 810, the Administrative Trustees in office, regardless
of their number (and notwithstanding any other provision of this Agreement),
shall have all the powers granted to the Administrative Trustees and shall
discharge all the duties imposed upon the Administrative Trustees by this Trust
Agreement.
SECTION 818. DELEGATION OF POWER.
(a) Any Administrative Trustee may, by power of attorney consistent with
applicable law, delegate to any other natural person over the age of 21 his or
her power for the purpose of executing any documents contemplated in Section
207(a); and
(b) The Administrative Trustees shall have power to delegate from time to
time to such of their number or to the Depositor the doing of such things and
the execution of such instruments either in the name of the Trust or the names
of the Administrative Trustees or otherwise as the Administrative Trustees may
deem expedient, to the extent such delegation is not prohibited by applicable
law or contrary to the provisions of the Trust, as set forth herein.
SECTION 819. VOTING.
Except as otherwise provided in this Trust Agreement, the consent or approval
of the Administrative Trustees shall require consent or approval by not less
than a majority of the Administrative Trustees, unless there are only two, in
which case both must consent.
ARTICLE IX
DISSOLUTION, LIQUIDATION AND MERGER
SECTION 901. DISSOLUTION UPON EXPIRATION DATE.
Unless earlier dissolved, the Trust shall automatically dissolve on
_____________ (the "Expiration Date") and the Trust Property shall be
distributed in accordance with Section 904.
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SECTION 902. EARLY TERMINATION.
The first to occur of any of the following events is an "Early Termination
Event:"
(a) the occurrence of a Bankruptcy Event in respect of, or the dissolution
or liquidation of, the Depositor;
(b) delivery of written direction to the Property Trustee by the Depositor
at any time (which direction is wholly optional and within the discretion of the
Depositor) to dissolve the Trust and distribute the Debentures to
Securityholders in exchange for the Preferred Securities in accordance with
Section 904;
(c) the redemption of all of the Preferred Securities in connection with the
redemption of all of the Debentures; and
(d) the entry of an order for dissolution of the Trust by a court of
competent jurisdiction.
SECTION 903. TERMINATION.
The respective obligations and responsibilities of the Trustees and the Trust
created and continued hereby shall terminate upon the latest to occur of the
following: (a) the distribution by the Property Trustee to Securityholders upon
the liquidation of the Trust pursuant to Section 904, or upon the redemption of
all of the Trust Securities pursuant to Section 402, of all amounts required to
be distributed hereunder upon the final payment of the Trust Securities; (b) the
payment of any expenses owed by the Trust; (c) the discharge of all
administrative duties of the Administrative Trustees, including the performance
of any tax reporting obligations with respect to the Trust or the
Securityholders; and (d) the filing of a Certificate of Cancellation by the
Administrative Trustee under the Delaware Business Trust Act.
SECTION 904. LIQUIDATION.
(a) If an Early Termination Event specified in clause (a), (b), or (d) of
Section 902 occurs or upon the Expiration Date, the Trust shall be liquidated by
the Trustees as expeditiously as the Trustees determine to be possible by
distributing, after satisfaction of liabilities to creditors of the Trust as
provided by applicable law, (including, without limitation, after paying or
making reasonable provision to pay all claims and obligations of the Trust in
accordance with Section 3808(e) of the Delaware Business Trust Act), to each
Securityholder a Like Amount of Debentures, subject to Section 904(d). Notice of
liquidation shall be given by the Property Trustee by first-class mail, postage
prepaid, mailed not later than 30 nor more than 60 days prior to the Liquidation
Date to each Holder of Trust Securities at such Holder's address appearing in
the Securities Register. All notices of liquidation shall:
(i) state the Liquidation Date;
(ii) state that from and after the Liquidation Date, the Trust
Securities shall no longer be deemed to be Outstanding and any Trust
Securities Certificates not surrendered for exchange shall be deemed to
represent a Like Amount of Debentures; and
(iii) provide such information with respect to the mechanics by which
Holders may exchange Trust Securities Certificates for Debentures, or, if
Section 904(d) applies, receive a Liquidation Distribution, as the
Administrative Trustees or the Property Trustee shall deem appropriate.
(b) Except where Section 902(c) or 904(d) applies, in order to effect the
liquidation of the Trust and distribution of the Debentures to Securityholders,
the Property Trustee shall establish a record date for such distribution (which
shall be not more than 45 days prior to the Liquidation Date) and, either itself
acting as exchange agent or through the appointment of a separate exchange
agent, shall establish such procedures as it shall deem appropriate to effect
the distribution of Debentures in exchange for the Outstanding Trust Securities
Certificates.
(c) Except where Section 902(c) or 904(d) applies, after the Liquidation
Date, (i) the Trust Securities shall no longer be deemed to be outstanding; (ii)
certificates representing a Like Amount of Debentures shall be issued to Holders
of Trust Securities Certificates upon surrender of such certificates to the
Administrative Trustees or their
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agent for exchange; (iii) the Depositor shall use its reasonable efforts to have
the Debentures listed on the Nasdaq National Market or on such other securities
exchange or other organization as the Preferred Securities are then listed or
traded; (iv) any Trust Securities Certificates not so surrendered for exchange
shall be deemed to represent a Like Amount of Debentures, accruing interest at
the rate provided for in the Debentures from the last Distribution Date on which
a Distribution was made on such Trust Securities Certificates until such
certificates are so surrendered (and until such certificates are so surrendered,
no payments of interest or principal shall be made to holders of Trust
Securities Certificates with respect to such Debentures); and (v) all rights of
Securityholders holding Trust Securities shall cease, except the right of such
Securityholders to receive Debentures upon surrender of Trust Securities
Certificates.
(d) In the event that, notwithstanding the other provisions of this Section
904, whether because of an order for dissolution entered by a court of competent
jurisdiction or otherwise, distribution of the Debentures in the manner provided
herein is determined by the Property Trustee not to be practical, the Trust
Property shall be liquidated, and the Trust shall be dissolved by the Property
Trustee in such manner as the Property Trustee determines. In such event, on the
date of the dissolution of the Trust, Securityholders shall be entitled to
receive out of the assets of the Trust available for distribution to
Securityholders, after satisfaction of liabilities to creditors of the Trust as
provided by applicable law, (including, without limitation, after paying or
making reasonable provision to pay all claims and obligations of the Trust in
accordance with Section 3808(e) of the Delaware Business Trust Act), an amount
equal to the Liquidation Amount per Trust Security plus accumulated and unpaid
Distributions thereon to the date of payment (such amount being the "Liquidation
Distribution"). If, upon any such dissolution the Liquidation Distribution can
be paid only in part because the Trust has insufficient assets available to pay
in full the aggregate Liquidation Distribution, then, subject to the next
succeeding sentence, the amounts payable by the Trust on the Trust Securities
shall be paid on a pro rata basis (based upon Liquidation Amounts, subject to
Section 407). The Holder of the Common Securities shall be entitled to receive
Liquidation Distributions upon any such dissolution pro rata (determined as
aforesaid) with Holders of Preferred Securities, except that, if a Debenture
Event of Default has occurred and is continuing, the Preferred Securities shall
have a priority over the Common Securities.
SECTION 905. MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE
TRUST.
The Trust may not merge with or into, consolidate, amalgamate, or be replaced
by, or convey, transfer or lease its properties and assets substantially as an
entirety to any corporation or other Person, except pursuant to this Section
905. At the request of the Depositor, with the consent of the Administrative
Trustees and without the consent of the Holders of the Preferred Securities, the
Property Trustee or the Delaware Trustee, the Trust may merge with or into,
consolidate, amalgamate, be replaced by or convey, transfer or lease its
properties and assets substantially as an entirety to a trust organized as such
under the laws of any State; provided, that (i) such successor entity either (a)
expressly assumes all of the obligations of the Trust with respect to the
Preferred Securities; or (b) substitutes for the Preferred Securities other
securities having substantially the same terms as the Preferred Securities (the
"Successor Securities") so long as the Successor Securities rank the same as the
Preferred Securities rank in priority with respect to distributions and payments
upon liquidation, redemption and otherwise; (ii) the Depositor expressly
appoints a trustee of such successor entity possessing substantially the same
powers and duties as the Property Trustee as the holder of the Debentures; (iii)
the Successor Securities are listed or traded, or any Successor Securities shall
be listed or traded upon notification of issuance, on any national securities
exchange or other organization on which the Preferred Securities are then
listed, if any; (iv) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights, preferences
and privileges of the Holders of the Preferred Securities (including any
Successor Securities) in any material respect; (v) prior to such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease, the
Depositor has received an Opinion of Counsel to the effect that (a) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does not
adversely affect the rights, preferences and privileges of the Holders of the
Preferred Securities (including any Successor Securities) in any material
respect; and (b) following such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, neither the Trust nor such successor
entity shall be required to register as an "investment company" under the
Investment Company Act; and (vi) the Depositor owns all of the Common Securities
of such successor entity and guarantees the obligations of such successor entity
under the Successor Securities at least to the extent provided by the Guarantee,
the Debentures, the Indenture, this Trust Agreement and the Expense Agreement.
Notwithstanding the foregoing, the Trust shall not, except with the consent of
Holders of 100% in Liquidation Amount of the Preferred Securities, consolidate,
amalgamate, merge with or into, or be replaced by or convey, transfer or lease
its properties and assets substantially as an entirety to any
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other Person or permit any other Person to consolidate, amalgamate, merge with
or into, or replace it if such consolidation, amalgamation, merger or
replacement would cause the Trust or the successor entity to be classified as
other than a grantor trust for United States federal income tax purposes.
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 1001. LIMITATION OF RIGHTS OF SECURITYHOLDERS.
The death or incapacity of any Person having an interest, beneficial or
otherwise, in Trust Securities shall not operate to terminate this Trust
Agreement, nor entitle the legal representatives or heirs of such Person or any
Securityholder for such Person, to claim an accounting, take any action or bring
any proceeding in any court for a partition or winding-up of the arrangements
contemplated hereby, nor otherwise affect the rights, obligations and
liabilities of the parties hereto or any of them.
SECTION 1002. AMENDMENT.
(a) This Trust Agreement may be amended from time to time by the
Administrative Trustees, the Property Trustee and the Depositor, without the
consent of any Securityholders, (i) as provided in Section 811 with respect to
acceptance of appointment by a successor Trustee; (ii) to cure any ambiguity,
correct or supplement any provision herein or therein which may be inconsistent
with any other provision herein or therein, or to make any other provisions with
respect to matters or questions arising under this Trust Agreement, that shall
not be inconsistent with the other provisions of this Trust Agreement; or (iii)
to modify, eliminate or add to any provisions of this Trust Agreement to such
extent as shall be necessary to ensure that the Trust shall be classified for
United States federal income tax purposes as a grantor trust at all times that
any Trust Securities are outstanding or to ensure that the Trust shall not be
required to register as an "investment company" under the Investment Company
Act; or (iv) to reduce or increase the Liquidation Amount per Trust Security and
simultaneously to increase or reduce the number of Trust Securities issued and
outstanding solely for the purpose of maintaining the eligibility of the
Preferred Securities for listing or quotation on any national securities
exchange or other organization on which the Preferred Securities are then listed
or quoted (including, if applicable, the Nasdaq National Market), provided,
however, that in the case of clause (ii), such action shall not adversely affect
in any material respect the interests of any Securityholder, and that, in the
case of clause (iv), the aggregate Liquidation Amount of the Trust Securities
outstanding upon completion of any such reduction or increase, must be the same
as the aggregate Liquidation Amount of the Trust Securities outstanding
immediately prior to such reduction or increase, and any amendments of such
Trust Agreement will become effective when notice thereof is given to the
Securityholders (or, in the case of an amendment pursuant to clause (iv), as of
the date specified in the notice).
(b) Except as provided in Section 601(c) or Section 1002(c) hereof, any
provision of this Trust Agreement may be amended by the Administrative Trustees,
the Property Trustee and the Depositor (i) with the consent of Trust
Securityholders representing not less than a majority (based upon Liquidation
Amounts) of the Trust Securities then Outstanding; and (ii) upon receipt by the
Trustees of an Opinion of Counsel to the effect that such amendment or the
exercise of any power granted to the Trustees in accordance with such amendment
shall not affect the Trust's status as a grantor trust for United States federal
income tax purposes or the Trust's exemption from status of an "investment
company" under the Investment Company Act.
(c) In addition to and notwithstanding any other provision in this Trust
Agreement, without the consent of each affected Securityholder (such consent
being obtained in accordance with Section 603 or 606 hereof), this Trust
Agreement may not be amended to (i) change the amount or timing of any
Distribution on the Trust Securities or otherwise adversely affect the amount of
any Distribution required to be made in respect of the Trust Securities as of a
specified date; or (ii) restrict the right of a Securityholder to institute suit
for the enforcement of any such payment on or after such date; notwithstanding
any other provision herein, without the unanimous consent of the Securityholders
(such consent being obtained in accordance with Section 603 or 606 hereof), this
paragraph (c) of this Section 1002 may not be amended.
(d) Notwithstanding any other provisions of this Trust Agreement, no Trustee
shall enter into or consent to any amendment to this Trust Agreement which would
cause the Trust to fail or cease to qualify for the exemption
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from status of an "investment company" under the Investment Company Act or to
fail or cease to be classified as a grantor trust for United States federal
income tax purposes.
(e) Notwithstanding anything in this Trust Agreement to the contrary,
without the consent of the Depositor, this Trust Agreement may not be amended in
a manner which imposes any additional obligation on the Depositor.
(f) In the event that any amendment to this Trust Agreement is made, the
Administrative Trustees shall promptly provide to the Depositor a copy of such
amendment.
(g) Upon the request of the Depositor, accompanied by its board resolutions
authorizing the execution of any such amendments to this Trust Agreement, and
upon the filing with the Property Trustee and the Delaware Trustee of evidence
of the consent of the Securityholders required to consent thereto as aforesaid,
the Property Trustee shall join with the Depositor in the execution of such
amendment to this Trust Agreement unless such amendment affects the Property
Trustee's own rights, duties, or immunities under this Trust Agreement or
otherwise, in which case the Property Trustee may in its own discretion but
shall not be obligated to enter into such amendment to this Trust Agreement. The
Property Trustee, subject to the provisions of Section 801, may receive an
Opinion of Counsel as conclusive evidence that any amendment to this Trust
Agreement executed pursuant to this Article X is authorized or permitted by, and
conforms to, the terms of this Article X and that it is proper for the Property
Trustee under the provisions of this Article X to join in the execution thereof.
SECTION 1003. SEPARABILITY.
In case any provision in this Trust Agreement or in the Trust Securities
Certificates shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
SECTION 1004. GOVERNING LAW.
THIS TRUST AGREEMENT AND THE RIGHTS OF THE PARTIES HEREUNDER SHALL BE
GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE
AND ALL RIGHTS AND REMEDIES SHALL BE GOVERNED BY SUCH LAWS WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICT OF LAWS OF THE STATE OF DELAWARE OR ANY OTHER
JURISDICTION THAT WOULD CALL FOR THE APPLICATION OF THE LAW OF ANY JURISDICTION
OTHER THAN THE STATE OF DELAWARE; PROVIDED, HOWEVER, THAT THERE SHALL NOT BE
APPLICABLE TO THE PARTIES HEREUNDER OR THIS TRUST AGREEMENT ANY PROVISION OF THE
LAWS (STATUTORY OR COMMON) OF THE STATE OF DELAWARE PERTAINING TO TRUSTS THAT
RELATE TO OR REGULATE, IN A MANNER INCONSISTENT WITH THE TERMS HEREOF (A) THE
FILING WITH ANY COURT OR GOVERNMENTAL BODY OR AGENCY OF TRUSTEE ACCOUNTS OR
SCHEDULES OF TRUSTEE FEES AND CHARGES (B) AFFIRMATIVE REQUIREMENTS TO POST BONDS
FOR TRUSTEES, OFFICERS, AGENTS OR EMPLOYEES OF A TRUST, (C) THE NECESSITY FOR
OBTAINING COURT OR OTHER GOVERNMENTAL APPROVAL CONCERNING THE ACQUISITION,
HOLDING OR DISPOSITION OF REAL OR PERSONAL PROPERTY, (D) FEES OR OTHER SUMS
PAYABLE TO TRUSTEES, OFFICERS, AGENTS OR EMPLOYEES OF A TRUST, (E) THE
ALLOCATION OF RECEIPTS AND EXPENDITURES TO INCOME OR PRINCIPAL, (F) RESTRICTIONS
OR LIMITATIONS ON THE PERMISSIBLE NATURE, AMOUNT OR CONCENTRATION OF TRUST
INVESTMENTS OR REQUIREMENTS RELATING TO THE TITLING, STORAGE OR OTHER MANNER OF
HOLDING OR INVESTING TRUST ASSETS OR (G) THE ESTABLISHMENT OF FIDUCIARY OR OTHER
STANDARDS OF RESPONSIBILITY OR LIMITATIONS ON THE ACTS OR POWERS OF TRUSTEES
THAT ARE INCONSISTENT WITH THE LIMITATIONS OR LIABILITIES OR AUTHORITIES AND
POWERS OF THE TRUSTEES HEREUNDER AS SET FORTH OR REFERENCED IN THIS TRUST
AGREEMENT. SECTION 3540 OF TITLE 12 OF THE DELAWARE CODE SHALL NOT APPLY TO THE
TRUST.
SECTION 1005. PAYMENTS DUE ON NON-BUSINESS DAY.
If the date fixed for any payment on any Trust Security shall be a day that
is not a Business Day, then such payment need not be made on such date but may
be made on the next succeeding day which is a Business Day, with
36
<PAGE>
the same force and effect as though made on the date fixed for such payment, and
no distribution shall accumulate thereon for the period after such date.
SECTION 1006. SUCCESSORS.
This Trust Agreement shall be binding upon and shall inure to the benefit of
any successor to the Depositor, the Trust or the Relevant Trustee(s), including
any successor by operation of law. Except in connection with a consolidation,
merger or sale involving the Depositor that is permitted under Article XII of
the Indenture and pursuant to which the assignee agrees in writing to perform
the Depositor's obligations hereunder, the Depositor shall not assign its
obligations hereunder.
SECTION 1007. HEADINGS.
The Article and Section headings are for convenience only and shall not
affect the construction of this Trust Agreement.
SECTION 1008. REPORTS, NOTICES AND DEMANDS.
Any report, notice, demand or other communication which by any provision of
this Trust Agreement is required or permitted to be given or served to or upon
any Securityholder or the Depositor may be given or served in writing by deposit
thereof, first-class postage prepaid, in the United States mail, hand delivery
or facsimile transmission, in each case, addressed, (a) in the case of a
Preferred Securityholder, to such Preferred Securityholder as such
Securityholder's name and address may appear on the Securities Register; and (b)
in the case of the Common Securityholder or the Depositor, to Matrix Bancorp,
Inc., 1380 Lawrence Street, Suite 1400, Denver, Colorado 80204, Attention:
Chief Financial Officer, facsimile no.: (303) 390-0952. Any notice to Preferred
Securityholders shall also be given to such owners as have, within two years
preceding the giving of such notice, filed their names and addresses with the
Property Trustee for that purpose. Such notice, demand or other communication to
or upon a Securityholder shall be deemed to have been sufficiently given or
made, for all purposes, upon hand delivery, mailing or transmission.
Any notice, demand or other communication which by any provision of this
Trust Agreement is required or permitted to be given or served to or upon the
Trust, the Property Trustee or the Administrative Trustees shall be given in
writing addressed (until another address is published by the Trust) as follows:
(a) with respect to the Property Trustee to State Street Bank and Trust Company,
Two International Place, 4th Floor, Boston, Massachusetts 02110, Attention:
Corporate Trust Department; (b) with respect to the Delaware Trustee, to
Wilmington Trust Company, Rodney Square North, 1100 North Market Street,
Wilmington, Delaware 19890-0001, Attention: Corporate Trust Administration; and
(c) with respect to the Administrative Trustees, to them at the address above
for notices to the Depositor, marked "Attention: Administrative Trustees of
Matrix Bancorp Capital Trust I." Such notice, demand or other communication to
or upon the Trust or the Property Trustee shall be deemed to have been
sufficiently given or made only upon actual receipt of the writing by the Trust
or the Property Trustee.
SECTION 1009. AGREEMENT NOT TO PETITION.
Each of the Trustees and the Depositor agrees for the benefit of the
Securityholders that, until at least one year and 1 day after the Trust has been
terminated in accordance with Article IX, they shall not file, or join in the
filing of, a petition against the Trust under any bankruptcy, insolvency,
reorganization or other similar law (including, without limitation, the United
States Bankruptcy Code of 1978, as amended) (collectively, "Bankruptcy Laws") or
otherwise join in the commencement of any proceeding against the Trust under any
Bankruptcy Law. In the event the Depositor takes action in violation of this
Section 1009, the Property Trustee agrees, for the benefit of Securityholders,
that at the expense of the Depositor (which expense shall be paid prior to the
filing), it shall file an answer with the bankruptcy court or otherwise properly
contest the filing of such petition by the Depositor against the Trust or the
commencement of such action and raise the defense that the Depositor has agreed
in writing not to take such action and should be stopped and precluded
therefrom. The provisions of this Section 1009 shall survive the termination of
this Trust Agreement.
37
<PAGE>
SECTION 1010. TRUST INDENTURE ACT; CONFLICT WITH TRUST INDENTURE ACT.
(a) This Trust Agreement is subject to the provisions of the Trust Indenture
Act that are required to be part of this Trust Agreement and shall, to the
extent applicable, be governed by such provisions.
(b) The Property Trustee shall be the only Trustee which is a trustee for
the purposes of the Trust Indenture Act.
(c) If any provision hereof limits, qualifies or conflicts with another
provision hereof which is required to be included in this Trust Agreement by any
of the provisions of the Trust Indenture Act, such required provision shall
control. If any provision of this Trust Agreement modifies or excludes any
provision of the Trust Indenture Act which may be so modified or excluded, the
latter provision shall be deemed to apply to this Trust Agreement as so modified
or to be excluded, as the case may be.
(d) The application of the Trust Indenture Act to this Trust Agreement shall
not affect the nature of the Trust Securities as equity securities representing
undivided beneficial interests in the assets of the Trust.
SECTION 1011. ACCEPTANCE OF TERMS OF TRUST AGREEMENT, GUARANTEE AND
INDENTURE.
The receipt and acceptance of a Trust Security or any interest therein by or
on behalf of a Securityholder or any beneficial owner, without any signature or
further manifestation of assent, shall constitute the unconditional acceptance
by the Securityholder and all others having a beneficial interest in such Trust
Security of all the terms and provisions of this Trust Agreement and agreement
to the subordination provisions and other terms of the Guarantee and the
Indenture, and shall constitute the agreement of the Trust, such Securityholder
and such others that the terms and provisions of this trust agreement shall be
binding, operative and effective as between the Trust and such Securityholder
and such others.
MATRIX BANCORP, INC.
By:______________________________________
Name:
Title:
STATE STREET BANK AND TRUST COMPANY,
as Property Trustee
By:_______________________________________
Name:
Title:
WILMINGTON TRUST COMPANY,
as Delaware Trustee
By:_______________________________________
Name:
Title:
____________________, as Administrative Trustee
____________________, as Administrative Trustee
____________________, as Administrative Trustee
38
<PAGE>
EXHIBIT 4.11
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Certificate Number Number of Preferred Securities
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
TP-1 1,265,000
CUSIP 57681L 208
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Certificate Evidencing Preferred Securities
of
Matrix Bancorp Capital Trust I
_____% Cumulative Trust Preferred Securities
(liquidation amount $25 per Preferred Security)
This Preferred Security Certificate is a Global Preferred Security
Certificate within the meaning of the Trust Agreement hereinafter referred to
and is registered in the name of a Depositary or a nominee of a Depositary.
This Preferred Security Certificate is exchangeable for Preferred Security
Certificates registered in the name of a person other than the Depositary or its
nominee only in the limited circumstances described in the Trust Agreement and
may not be transferred except as a whole by the Depositary or by a nominee of
the Depositary to the Depositary or another nominee of the Depositary, except in
the limited circumstances described in the Trust Agreement.
Unless this Preferred Security Certificate is presented by an authorized
representative of The Depository Trust Company, a New York Corporation ("DTC")
to Matrix Bancorp Capital Trust I or its agent for registration of transfer,
exchange or payment, and any Preferred Security Certificate issued is registered
in the name of such nominee as is requested by an authorized representative of
DTC (and any payment is made to such entity as is required by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO A PERSON IS WRONGFUL inasmuch as the registered owner hereof,
has an interest herein.
Matrix Bancorp Capital Trust I, a statutory business trust created under the
laws of the State of Delaware (the "Trust"), hereby certifies that Cede & Co.
(the "Holder") is the registered owner of One Million Two Hundred and Sixty-Five
Thousand (1,265,000) preferred securities of the Trust representing undivided
beneficial interests in the assets of the Trust and designated the ____%
Cumulative Trust Preferred Securities (liquidation amount $25 per Preferred
Security) (the "Preferred Securities"). The Preferred Securities are
transferable on the books and records of the Trust, in person or by a duly
authorized attorney, upon surrender of this certificate duly endorsed and in
proper form for transfer as provided in Section 505 of the Trust Agreement. The
designations, rights, privileges, restrictions, preferences, and other terms and
provisions of the Preferred Securities are set forth in, and this certificate
and the Preferred Securities represented hereby are issued and shall in all
respects be subject to the terms and provisions of, the Amended and Restated
Trust Agreement of the Trust dated as of __________, 1999, as the same may be
amended from time to time (the "Trust Agreement"), including the designation of
the terms of Preferred Securities as set forth therein. The Holder is entitled
to the benefits of the Preferred Securities Guarantee Agreement entered into by
Matrix Bancorp, Inc., a Colorado corporation, and State Street Bank and Trust
Company, as guarantee trustee, dated as of ________, 1999 (the "Guarantee"), to
the extent provided therein. The Trust shall furnish a copy of the Trust
Agreement and the Guarantee to the Holder without charge upon written request to
the Trust at its principal place of business or registered office.
Upon receipt of this certificate, the Holder is bound by the Trust Agreement
and is entitled to the benefits thereunder.
<PAGE>
IN WITNESS WHEREOF, one of the Administrative Trustees of the Trust has
executed this certificate this ____ day of ___________, 1999.
MATRIX BANCORP CAPITAL TRUST I
By: ____________________________________
Name:
Title:
<PAGE>
EXHIBIT 5.2
[Letterhead of Morris, Nichols, Arsht & Tunnell]
June 29, 1999
Matrix Bancorp Capital Trust I
c/o Matrix Bancorp, Inc.
1380 Lawrence Street, Suite 1400
Denver, Colorado 80204
Re: Matrix Bancorp Capital Trust I
------------------------------
Ladies and Gentlemen:
We have acted as special Delaware counsel to Matrix Bancorp Capital
Trust I, a Delaware statutory business trust (the "Trust"), and Matrix Bancorp,
Inc., a Colorado corporation ("Matrix Bancorp"), in connection with certain
matters relating to (i) the creation of the Trust and (ii) the proposed issuance
by the Trust of Preferred Securities to beneficial owners pursuant to and as
described in Registration Statement No. 333-79731-01 (and the Prospectus forming
a part thereof) on Form S-1 filed with the Securities and Exchange Commission on
June 1, 1999, as amended by Amendment No. 1 thereto (as so amended, the
"Registration Statement"). Capitalized terms used herein and not otherwise
herein defined are used as defined in the Amended and Restated Trust Agreement
of the Trust in the form attached as an exhibit to the Registration Statement
(the "Governing Instrument").
In rendering this opinion, we have examined and relied upon copies of
the following documents in the forms provided to us: the Certificate of Trust of
the Trust as filed in the Office of the Secretary of State of the State of
Delaware (the "State Office") on May 26, 1999 (the "Certificate of Trust"); a
Trust Agreement of the Trust dated as of May 26, 1999 (the "Original Governing
Instrument"); the Governing Instrument; the Indenture to be entered into between
Matrix Bancorp and State Street Bank and Trust Company, as Trustee; the
Preferred Securities Guarantee Agreement to be entered into between Matrix
Bancorp and State Street Bank and Trust Company, as Trustee; the form of
Underwriting Agreement relating to the Preferred Securities among Matrix
Bancorp, the Trust and Tucker Anthony Cleary Gull and U.S. Bancorp Piper
Jaffray, Inc., as representative of the several underwriters (the "Underwriting
Agreement"); the Registration Statement; and a certification of good standing of
the Trust obtained as of a recent date from the State Office. In such
examinations, we have assumed the genuineness of all signatures, the conformity
to original documents of all documents submitted to us as drafts or copies or
forms of
<PAGE>
Matrix Bancorp Capital Trust I
June 29, 1999
Page 2
documents to be executed and the legal capacity of natural persons to complete
the execution of documents. We have further assumed for purposes of this
opinion: (i) the due formation or organization, valid existence and good
standing of each entity (other than the Trust) that is a party to any of the
documents reviewed by us under the laws of the jurisdiction of its respective
formation or organization; (ii) the due authorization, execution and delivery
by, or on behalf of, each of the parties thereto of the above-referenced
documents (including, without limitation, the due authorization, execution and
delivery of the Governing Instrument and the Underwriting Agreement prior to the
first issuance of Preferred Securities); (iii) that no event has occurred
subsequent to the filing of the Certificate of Trust, or will occur prior to the
first issuance of Preferred Securities, that would cause a dissolution or
liquidation of the Trust under the Original Governing Instrument or the
Governing Instrument, as applicable; (iv) that the activities of the Trust have
been and will be conducted in accordance with the Original Governing Instrument
or the Governing Instrument, as applicable, and the Delaware Business Trust Act,
12 Del. C. (S)(S) 3801 et seq. (the "Delaware Act"); (v) that payment of the
---- -- -- ----
required consideration for the Preferred Securities has, or prior to the first
issuance of Preferred Securities will have, been made in accordance with the
terms and conditions of the Governing Instrument, the Registration Statement and
the Underwriting Agreement and that the Preferred Securities are otherwise
issued and sold to the Preferred Securities Holders in accordance with the
terms, conditions, requirements and procedures set forth in the Governing
Instrument, the Registration Statement and the Underwriting Agreement; and (vi)
that the documents examined by us are in full force and effect, express the
entire understanding of the parties thereto with respect to the subject matter
thereof and have not been modified, supplemented or otherwise amended, except as
herein referenced. We have not reviewed any documents other than those
identified above in connection with this opinion, and we have assumed that there
are no other documents that are contrary to or inconsistent with the opinions
expressed herein. Further, we express no opinion with respect to, and assume no
responsibility for the contents of, the Registration Statement or any other
offering material relating to the Preferred Securities. No opinion is expressed
herein with respect to the requirements of, or compliance with, federal or state
securities or blue sky laws. As to any fact material to our opinion, other than
those assumed, we have relied without independent investigation on the above-
referenced documents and on the accuracy, as of the date hereof, of the matters
therein contained.
Based on and subject to the foregoing, and limited in all respects to
matters of Delaware law, it is our opinion that:
1. The Trust is a duly created and validly existing business trust in
good standing under the laws of the State of Delaware.
2. Upon issuance, the Preferred Securities will constitute validly
issued and, subject to the qualifications set forth in paragraph 3 below, fully
paid and nonassessable beneficial interests in the assets of the Trust.
<PAGE>
Matrix Bancorp Capital Trust I
June 29, 1999
Page 3
3. Under the Delaware Act and the terms of the Governing Instrument,
each Preferred Security Holder of the Trust, in such capacity, will be entitled
to the same limitation of personal liability as that extended to stockholders of
private corporations for profit organized under the General Corporation Law of
the State of Delaware; provided, however, we express no opinion with respect to
the liability of any Preferred Security Holder who is, was or may become a named
Trustee of the Trust. Notwithstanding the foregoing, we note that pursuant to
the Governing Instrument, Preferred Security Holders may be obligated to make
payments or provide indemnity or security under the circumstances set forth
therein.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name and reference to our opinion
under the heading "LEGAL MATTERS" in the Prospectus forming a part thereof. In
giving this consent, we do not thereby admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder. This opinion speaks only as of the date hereof and is
based on our understandings and assumptions as to present facts, and on our
review of the above-referenced documents and the application of Delaware law as
the same exist as of the date hereof, and we undertake no obligation to update
or supplement this opinion after the date hereof for the benefit of any person
or entity with respect to any facts or circumstances that may hereafter come to
our attention or any changes in facts or law that may hereafter occur or take
effect. This opinion is intended solely for the benefit of the addressee hereof
in connection with the matters contemplated hereby and may not be relied on by
any other person or entity or for any other purpose without our prior written
consent.
Very truly yours,
/s/ MORRIS, NICHOLS, ARSHT & TUNNELL
MORRIS, NICHOLS, ARSHT & TUNNELL
<PAGE>
Exhibit 12.1
Matrix Bancorp, Inc.
Computation of Ratio of Earnings to Fixed Charges
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months
Year Ended December 31 Ended March 31
1994 1995 1996 1997 1998 1998 1999
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
A. Matrix Bancorp, Inc. and subsidiaries
(consolidated)
Earnings:
1. Income before income taxes $5,134 $ 6,392 $ 5,848 $13,297 $13,389 $ 3,524 $ 3,900
2. Plus interest expense (A) 3,245 7,410 10,670 18,471 36,822 7,371 10,470
------------------------------------------------------------
3. Earnings including interest on
deposits 8,379 13,802 16,518 31,768 50,211 10,895 14,370
4. Less interest on deposits 1,481 2,184 3,760 8,376 16,221 2,864 5,195
------------------------------------------------------------
5. Earnings excluding interest on
deposits $6,898 $11,618 $12,758 $23,392 $33,990 $ 8,031 $ 9,175
============================================================
Fixed Charges:
6. Including interest on deposits
excluding capitalized interest $3,245 $ 7,410 $10,708 $18,551 $36,901 $ 7,389 $10,488
7. Less interest on deposits (Line 4) 1,481 2,184 3,760 8,376 16,221 2,864 5,195
------------------------------------------------------------
8. Excluding interest on deposits $1,764 $ 5,226 $ 6,948 $10,175 $20,680 $ 4,525 $ 5,293
============================================================
Ratio of Earnings to Fixed Charges:
Including interest on deposits
(Line 3 divided by Line 6) 2.58x 1.86x 1.54x 1.71x 1.36x 1.47x 1.37x
===========================================================
Excluding interest on deposits
(Line 5 divided by Line 8) 3.91x 2.22x 1.84x 2.30x 1.64x 1.77x 1.73x
============================================================
</TABLE>
(A) Includes amounts representing the estimated interest component of net rental
payments.
<PAGE>
Exhibit 23.3
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 18, 1999, with respect to the consolidated
financial statements of Matrix Bancorp, Inc. as of December 31, 1997 and 1998
and for each of the three years in the period ended December 31, 1998, in the
Registration Statement (Form S-1 No. 333-79731) and related Prospectus of Matrix
Bancorp, Inc. for the registration of 1,265,000 preferred securities of Matrix
Bancorp Capital Trust I.
/s/ ERNST & YOUNG LLP
Phoenix, Arizona
June 25, 1999
