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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Matrix Bancorp, Inc.
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(Exact name of registrant as specified in its charter)
Colorado
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(State or other jurisdiction of incorporation or organization)
6035
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(Primary Standard Industrial Classification Code Number)
84-1233716
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(I.R.S. Employer Identification No.)
Matrix Bancorp Capital Trust I
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(Exact name of registrant as specified in its charter)
Delaware
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(State or other jurisdiction of incorporation or organization)
6712
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(Primary Standard Industrial Classification Code Number)
Applied for
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(I.R.S. Employer Identification No.)
1380 Lawrence Street, Suite 1400, Denver, Colorado 80204; (303) 595-9898
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(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 LLP Goodwin Procter & Hoar LLP
Two Pershing Square Exchange Place
2300 Main Street, Suite 1000 Boston, MA 02109-2881
Kansas City, MO 64108 (617) 570-1000
(816) 983-8000
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(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.
Calculation of Registration Fee
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<CAPTION>
Proposed maximum Proposed maximum
Title of each class of offering price aggregate Amount
securities to be registered Amount to be registered per unit (1) offering price (1) of registration fee
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Preferred Securities
Of Matrix Bancorp
Capital Trust I 1,265,000 $25.00 $31,625,000.00 $8,791.75
Junior Subordinated
Debentures of
Matrix Bancorp, Inc. (2) -- -- --
Guarantee of Matrix
Bancorp, Inc. with
Respect to the
Preferred Securities (3) -- -- --
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(1) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(a).
(2) The ___% Junior Subordinated Debentures will be purchased by Matrix Bancorp
Capital Trust I with the proceeds of the sale of the ___% Cumulative
Preferred Securities. The Junior Subordinated Debentures may be later
distributed for no additional consideration to the holders of the Preferred
Securities upon the dissolution of Matrix Bancorp Capital Trust I and the
distribution of its assets.
(3) This Registration Statement is deemed to cover the Junior Subordinated
Debentures of Matrix Bancorp, Inc., the rights of holders of the Junior
Subordinated Debentures of Matrix Bancorp, Inc. under the Indenture, the
rights of holders of the Preferred Securities under the Trust Agreement,
the Guarantee, the Expense Agreement and certain backup undertakings as
described herein which, taken together, fully, irrevocably and
unconditionally guarantee all of the respective obligations of Matrix
Bancorp Capital Trust I under the Preferred Securities. No separate
consideration will be received for the Guarantee the Expense Agreement or
such backup undertakings.
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.
Page 1 of 215
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The information is 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 [ ], 1999
1,100,000 Preferred Securities
MATRIX BANCORP CAPITAL TRUST I
[ ]% Trust Preferred Securities guaranteed by
MATRIX BANCORP, INC.
_____________________________________________________________________________
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 [ ] 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 June 30, September 30,
December 31, and March 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 10 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.
Per trust preferred security Total
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Public Offering Price $ 25.00 $ [ ]
Underwriting Commissions $ [ ] $ [ ]
Proceeds to Capital Trust $ $ [ ]
Capital Trust will use all proceeds to purchase the junior subordinated
debentures. Matrix Bancorp will pay all underwriting discounts and commissions.
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
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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 Bank;
. purchasing and selling 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 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 foreclosed
properties; and
. providing broker-dealer services to 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 in 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
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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.
. 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 services loans for
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.
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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 and United Special 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.
The Offering
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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
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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;
. 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
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. mature on _______________, although they may be redeemed earlier.
Guarantee of the Preferred We have executed a guarantee that requires us to pay accrued and unpaid
Securities 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 below 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
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all existing and future liabilities of our subsidiaries, including Matrix Bank's
deposit 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 __________. 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 certain events. 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.
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Distribution of the Junior We have the right to dissolve Capital Trust at any time. If we dissolve
Subordinated Debentures 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.
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 estimated to be $_____________ from the sale of the junior
subordinated debentures to purchase a portion of our outstanding 14% senior
subordinated notes callable June, 1999, to make a contribution to Matrix Bank
to fund its operations, to make a contribution to Matrix Financial to fund
its operations and for other general corporate purposes. 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 The Company has applied to have the preferred securities approved for
Securities quotation on the Nasdaq National Market under the symbol "MTXCP".
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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 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.
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<CAPTION>
As of and for the As of and for the
Year Ended December 31, Three Months Ended March 31,
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1996 1997 1998 1998 1999
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(Dollars in thousands, except per share data)
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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
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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% 1.00%
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 1.29x 1.24x
Excluding interest on deposits............. 1.84x 2.30x 1.64x 1.48x 1.47x
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 1.73
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 31.12 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 $80.6 million at March 31, 1998.
(6) Calculations are based on average daily balances where available and monthly
averages otherwise.
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(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.
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.
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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 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
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"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 certain events 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 __________, 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.
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."
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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
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 and United Capital Markets, not at all.
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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 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.
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."
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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."
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
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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 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."
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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 estimated to be $___________ from the
sale of the junior subordinated debentures to purchase a portion of our
outstanding 14% senior subordinated notes callable June, 1999, to make a
contribution to Matrix Bank to fund its operations, to make a contribution to
Matrix Financial to fund its operations and for other general corporate
purposes. 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 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.
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.
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<TABLE>
<CAPTION>
March 31, 1999
-------------------------------------------
Actual As Adjusted
------------ -----------------------
(Dollars in thousands)
<S> <C> <C>
Borrowings:
Borrowed money (2)...................................... $ 169,849 $ 169,849
Guaranteed preferred beneficial interests in the Company's
junior subordinated debentures (1)...................... - 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 ................................ 51,869 79,369
</TABLE>
________________
(1) 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 $____________ (including underwriters' compensation
of $____________). The junior subordinated debentures will mature on
___________ which date may be shortened to a date no earlier than
______________, if certain conditions are met.
(2) Does not include deposits, custodial escrow deposits or Federal Home Loan
Bank advances.
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. The Company and Capital
Trust may not publicly announce revisions to forward-looking statements
contained in this prospectus.
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
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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 (near Denver), 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 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 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.
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;
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. 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, located in Waco, Texas, and First
Matrix Investment Services Corporation, located in Arlington, Texas.
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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 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
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.
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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 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
generally acts as a sub-servicer for 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
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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:
. 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
23
<PAGE>
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 $198.3 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 $39.5 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 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:
24
<PAGE>
. 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 are 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
25
<PAGE>
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
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.
26
<PAGE>
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 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 $15.7 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.
27
<PAGE>
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 subserviced by
Matrix Financial. At March 31, 1999, Matrix Financial serviced approximately
$6.2 billion of mortgage loans, including $2.0 billion subserviced 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. 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
28
<PAGE>
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 Nummber 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............ 2,607 545% 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%
===== ==== ==== ===== ==== ==== ===== ==== ====
</TABLE>
29
<PAGE>
<TABLE>
<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.
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
----------------------------------------
Percentage
Number Aggregate of Aggregate
of Principal Principal
Rate Loans Balance Balance
---- ----- --------- ------------
(Dollars in thousands)
<S> <C> <C> <C>
Less than 7.00% 3,545 $ 145,720 5.82%
7.00%--7.99% 12,269 726,800 29.01
8.00%--8.99% 14,011 838,215 33.46
9.00%--9.99% 9,567 413,598 16.51
10.00%--10.99% 6,322 301,837 12.05
11.00%--11.99% 1,144 45,111 1.80
12.00% and over 924 33,755 1.35
------ ---------- ------
Total 47,782 $2,505,036 100.00%
====== ========== ======
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
----------------------------------------
1997
----------------------------------------
Percentage
Number Aggregate of Aggregate
of Principal Principal
Rate Loans Balance Balance
---- ----- --------- ------------
(Dollars in thousands)
<S> <C> <C> <C>
Less than 7.00% 2,968 $ 220,582 6.59%
7.00%--7.99% 13,836 915,789 27.35
8.00%--8.99% 19,800 1,121,807 33.51
9.00%--9.99% 15,780 696,575 20.80
10.00%--10.99% 9,086 390,956 11.68
11.00%--11.99% 37 2,110 0.06
12.00% and over 10 243 0.01
------ ---------- ------
Total 61,517 $3,348,062 100.00%
====== ========== ======
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
----------------------------------------
1998
----------------------------------------
Percentage
Number Aggregate of Aggregate
of Principal Principal
Rate Loans Balance Balance
---- ----- --------- ------------
(Dollars in thousands)
<S> <C> <C> <C>
Less than 7.00% 7,123 $ 662,491 12.36%
7.00%--7.99% 22,341 1,799,472 33.59
8.00%--8.99% 26,702 1,859,471 34.71
9.00%--9.99% 15,557 731,586 13.65
10.00%--10.99% 6,067 284,637 5.31
11.00%--11.99% 251 9,441 0.18
12.00% and over 305 10,631 0.20
------ ---------- ------
Total 78,346 $5,357,729 100.00%
====== ========== ======
</TABLE>
<TABLE>
<CAPTION>
As of March 31,
----------------------------------------
1999
----------------------------------------
Percentage
Number Aggregate of Aggregate
of Principal Principal
Rate Loans Balance Balance
---- ----- --------- ------------
(Dollars in thousands)
<S> <C> <C> <C>
Less than 7.00% 6,972 $ 616,524 9.95%
7.00%--7.99% 26,062 2,162,641 34.90
8.00%--8.99% 34,042 2,310,017 37.28
9.00%--9.99% 17,820 755,209 12.18
10.00%--10.99% 7,414 324,544 5.24
11.00%--11.99% 740 21,158 0.34
12.00% and over 235 6,651 0.11
------ ---------- ------
Total 93,285 $6,196,744 100.00%
====== ========== ======
</TABLE>
Loan administration fees decrease as the principal balance on the outstanding
loan decreases and as the remaining time to maturity of the loan shortens. The
following table sets forth certain information regarding the remaining maturity
of the mortgage loans serviced by 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.
30
<PAGE>
<TABLE>
<CAPTION>
1996
------------------------------------------------------
Percentage
Number Percentage Unpaid Unpaid
of of Number Principal Principal
Maturity Loans of Loans Amount Amount
-------- ------ ---------- ------------ ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
1--5 years 5,020 10.51% $ 77,136 3.08%
6--10 years 8,784 18.39 184,629 7.37
11--15 years 6,418 13.43 340,282 13.58
16--20 years 14,066 29.44 566,862 22.63
21--25 years 7,006 14.66 545,336 21.77
More than 25 years 6,488 13.57 790,791 31.57
------ ------ ---------- ------
Total 47,782 100.00% $2,505,036 100.00%
====== ====== ========== ======
</TABLE>
<TABLE>
<CAPTION>
1997
------------------------------------------------------
Percentage
Number Percentage Unpaid Unpaid
of of Number Principal Principal
Maturity Loans of Loans Amount Amount
-------- ------ ---------- ------------ ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
1--5 years 7,485 12.17% $ 103,761 3.10%
6--10 years 11,405 18.54 257,208 7.68
11--15 years 14,325 23.29 589,747 17.62
16--20 years 9,600 15.61 558,605 16.68
21--25 years 7,427 12.07 687,563 20.54
More than 25 years 11,275 18.32 1,151,178 34.38
------ ------ ---------- ------
Total 61,517 100.00% $3,348,062 100.00%
====== ====== ========== ======
</TABLE>
<TABLE>
<CAPTION>
1998
------------------------------------------------------
Percentage
Number Percentage Unpaid Unpaid
of of Number Principal Principal
Maturity Loans of Loans Amount Amount
-------- ------ ---------- ------------ ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
1--5 years 9,478 12.10% $ 216,441 4.04%
6--10 years 21,320 27.21 943,428 17.61
11--15 years 10,231 13.06 534,187 9.97
16--20 years 7,870 10.04 545,628 10.18
21--25 years 12,524 15.99 1,184,562 22.11
More than 25 years 16,923 21.60 1,933,483 36.09
------ ------ ---------- ------
Total 78,346 100.00% $5,357,729 100.00%
====== ====== ========== ======
</TABLE>
<TABLE>
<CAPTION>
As of March 31,
------------------------------------------------------
1999
------------------------------------------------------
Percentage
Number Percentage Unpaid Unpaid
of of Number Principal Principal
Maturity Loans of Loans Amount Amount
-------- ------ ---------- ------------ ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
1--5 years 11,145 11.95% $ 218,259 3.52%
6--10 years 26,040 27.91 1,064,606 17.18
11--15 years 10,166 10.90 549,335 8.86
16--20 years 8,203 8.79 568,617 9.18
21--25 years 20,053 21.50 1,831,205 29.55
More than 25 years 17,678 18.95 1,964,722 31.71
------ ------ ---------- ------
Total 93,285 100.00% $6,196,744 100.00%
====== ====== ========== ======
</TABLE>
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:
31
<PAGE>
<TABLE>
<CAPTION>
For the year ended December 31,
------------------------------------------------------------------------------------------------
1996 1997(1) 1998(2)(3) 1999(3)(4)
---------------------- ---------------------- ---------------------- ---------------------
<S> <C> <C> <C> <C>
Quarter ended:
December 31........................ 12.19% 12.52% 28.36% N/A %
September 30....................... 11.53 12.75 23.60 N/A
June 30............................ 12.00 10.94 21.53 N/A
March 31........................... 11.83 8.97 17.00 27.60
---------------- ---------------- ---------------- ----------------
Annual average...................... 11.89% 11.30% 22.62% N/A %
================ ================ ================ ================
</TABLE>
_________________
(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) This prepayment rate excludes prepayment experience for mortgage servicing
rights subserviced for us by others of $380 million for the quarter ended
March 31, 1999.
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.
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
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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.
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
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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-
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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.
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
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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.
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 Corp. 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.
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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.
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;
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. 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.
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Any change in applicable laws, regulations or regulatory policies may have a
material effect on our business, operations and prospects.
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
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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 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
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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;
. 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
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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 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.
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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,
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<PAGE>
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 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
44
<PAGE>
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.
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
--------------- --------------
<S> <C> <C>
(Dollars in thousands)
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
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<PAGE>
. 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 $7.3 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 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;
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<PAGE>
. 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.
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
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<PAGE>
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
material real estate that we own or lease:
<TABLE>
<CAPTION>
Monthly Rent
of Mortgage
Location Square Feet Owned/Leased Occupant Payment
- --------------------- ----------- ---------------------------------- -------------------------- -------------
<S> <C> <C> <C> <C>
Denver, CO 14,000 Leased through December 31, 2002 Company, United $185,000
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, 1999 (5) First Matrix $ 1,506
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 values.
(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.
(5) Management of First Matrix anticipates renewal of this lease at its
expiration for an additional one-year term at a slightly higher monthly
payment.
Legal Proceedings
United Financial is a defendant is 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,
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<PAGE>
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. United Financial is considering
an appeal of the $75,000 award to the plaintiff.
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, if decided adversely to us or our subsidiaries, would have a
material adverse effect on our consolidated financial condition, results of
operations or cash flows.
MANAGEMENT
Directors
The following sets forth the name, age and certain biographical information of
our directors:
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.
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<PAGE>
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 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.
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
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<PAGE>
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
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<PAGE>
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.
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
President, Chief Executive Officer and 1998 $250,000 $50,000 $ -- -- $33,500(3)(4)(7)
Director of Matrix Bancorp; Chairman 1997 250,000 -- -- -- 8,375(3)(4)
of the Board of Matrix Financial 1996 250,000 -- 47,514(2) -- 8,375(3)(4)
Richard V. Schmitz
Chairman of the Board of Matrix Bancorp; 1998 $250,000 $50,000 $ -- -- $31,820(3)(4)(7)
Chairman of the Board of United Financial 1997 257,211 -- -- -- 8,525(3)(4)
1996 250,000 -- -- -- 8,375(3)(4)
D. Mark Spencer
Vice Chairman of Matrix 1998 $250,000 $50,000 $ -- -- $34,920(3)(4)(7)
Bancorp; Chairman of the Board of Matrix 1997 257,211 -- -- -- 9,025(3)(4)
Bank 1996 250,000 -- -- -- 8,375(3)(4)
Thomas M. Piercy
Director of Matrix Bancorp 1998 $250,000 $ -- $ -- -- $ --
Managing Director of United Financial 1997 280,631 -- -- -- 373(6)
1996 293,626 -- -- -- 2,375(4)
Thomas P. Cronin
Vice Chairman of Matrix Bancorp; 1998 $250,000 $20,000 $ -- -- $ 2,500(4)
Chief Executive Officer of United 1997 208,333 -- -- 25,000(5) --
Financial 1996 -- -- -- -- --
</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.
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<PAGE>
(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.
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
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<PAGE>
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.
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, our
Vice Chairman of the Board and a shareholder, 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.
54
<PAGE>
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.
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 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.
55
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially
Owned (1)
------------------------ Percent
Name Number 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 658,413 (3) 9.8
601 2nd Ave. South
Minneapolis, MN 55402-4302
Fleet Financial Group, Inc. 366,900 (4) 5.5
One Federal Street
Boston, MA 02211
Financial Stocks, Inc. 424,300 (5) 6.3
507 Carew Tower
441 Vine Street
Cincinnati, Ohio 45202
All directors, advisory directors and executive 3,958,628 (2) 58.3
officers as a group (13 persons)
</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.
(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 the 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.
56
<PAGE>
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
57
<PAGE>
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.
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."
SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
OF MATRIX BANCORP, INC.
The following selected 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.
58
<PAGE>
<TABLE>
<CAPTION>
As of and for the
Year Ended December 31,
-------------------------------------------------------------------------------
1994 1995 1996 1997 1998
------------ ----------- ----------- ----------- ---------
(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.......................... $ 4,004 $ 3,592 $ 6,059 $ 13,888 $ 24,190
Provision for loan and valuation losses.......... 216 401 143 874 4,607
----------- ----------- ----------- ----------- -----------
Net interest income after provision for loan
and valuation losses.......................... 3,788 3,191 5,916 13,014 19,583
----------- ----------- ----------- ----------- -----------
Non interest income:
Loan administration........................... 6,926 7,749 8,827 16,007 17,411
Brokerage..................................... 4,017 4,787 4,364 3,921 7,054
Trust services................................ 2,488 2,869 3,061 3,561 4,169
Gain on sale of loans and mortgage-backed
securities................................... 1,590 3,039 3,121 2,441 3,108
Gain on sale of mortgage servicing rights..... 684 1,164 3,232 3,365 803
Loan origination (1).......................... 1,294 2,302 1,809 4,694 5,677
Other......................................... 940 1,744 2,173 4,040 8,523
----------- ----------- ----------- ----------- -----------
Total non interest income.................. 17,939 23,654 26,587 38,029 46,745
Non interest expense............................. 16,593 20,453 26,655 37,746 52,939
----------- ----------- ----------- ----------- -----------
Income before income taxes....................... 5,134 6,392 5,848 13,297 13,389
Income taxes..................................... 2,014 2,469 2,278 5,159 4,876
----------- ----------- ----------- ----------- -----------
Net income....................................... $ 3,120 $ 3,923 $ 3,570(2) $ 8,138 $ 8,513
=========== =========== =========== =========== ===========
Net income per share assuming dilution (3)....... $ 0.69 $ 0.83 $ 0.68 $ 1.20 1.24
Weighted average common shares assuming dilution. 4,529,593 4,707,221 5,077,321 6,781,808 6,881,890
Cash dividends (4)............................... $ -- $ -- $ 201 $ -- $ --
Balance Sheet Data
Total assets..................................... $ 113,597 $ 186,313 $ 274,559 $ 606,745 $ 1,012,640
Total loans, net................................. 89,340 146,665 212,361 511,372 848,448
Mortgage servicing rights, net................... 6,183 13,817 23,680 36,440 58,147
Deposits (5)(6).................................. 41,910 48,877 90,179 224,982 490,516
Custodial escrow balances........................ 24,687 27,011 37,881 53,760 96,824
FHLB borrowings.................................. 14,600 19,000 51,250 171,943 168,000
Borrowed money................................... 18,438 65,093 42,431 89,909 178,789
Total shareholders' equity....................... 6,662 10,686 32,270 40,610 49,354
Operating Ratios and Other Selected Data
Return on average assets (7)..................... 3.13% 2.59% 1.69% 1.78% 1.02%
Return on average equity (7)..................... 57.06 47.62 24.30 22.71 18.92
Average equity to average assets (7)............. 5.49 5.44 6.97 7.86 5.41
Net interest margin (7)(8)....................... 4.64 2.84 3.45 3.70 3.37
Operating efficiency ratio (9)................... 70.22 68.40 74.20 60.14 59.74
Total amount of loans purchased.................. $ 80,048 $ 91,774 $ 159,015 $ 493,693 $ 678,150
Balance of owned servicing portfolio (end of
period)......................................... $ 1,041,785 $ 1,596,385 $ 2,505,036 $ 3,348,062 $ 5,357,729
Trust assets under administration (end of period) $ 750,186 $ 952,528 $ 1,162,231 $ 1,437,478 $ 2,089,562
Wholesale loan origination volume................ $ 183,130 $ 388,937 $ 583,279 $ 402,984 $ 574,963
Ratio of Earnings to Fixed Charges (10)
Including interest on deposits................. 2.58x 1.86x 1.54x 1.71x 1.36x
Excluding interest on deposits................. 3.91x 2.22x 1.84x 2.30x 1.64x
Loan Performance Ratios and Data
Allowance for loan and valuation losses.......... $ 728 $ 943 $ 1,039 $ 1,756 $ 3,710
Non-performing loans and leases (11)............. 3,314 5,538 3,903 4,990 13,209
Non performing loans and leases/total loans (11). 3.68% 3.75% 1.83% 0.97% 1.55%
Non performing assets/total assets (11).......... 3.40 3.42 1.89 1.03 1.39
Net loan charge-offs/average loans (7)........... 0.03 0.15 0.03 0.04 0.38
Allowance for loan and valuation losses/
total loans.................................. 0.81 0.64 0.49 0.34 0.44
Allowance for loan and valuation losses/
non performing loans......................... 21.97 17.03 26.62 35.19 28.09
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
As of and for the
Three Months Ended March 31,
--------------------------------------------
1998 1999
------------------ --------------
(Dollars in thousands, except
per share data)
<S> <C> <C>
Statement of Income Data
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 after provision for loan
and valuation losses.......................... 3,983 6,553
------------- --------------
Non interest income:
Loan administration........................... 3,743 5,293
Brokerage..................................... 1,672 1,672
Trust services................................ 1,001 1,279
Gain on sale of loans and mortgage-backed
securities................................... 1,062 532
Gain on sale of mortgage servicing rights..... 837 --
Loan origination (1).......................... 1,482 1,954
Other......................................... 1,122 3,476
------------- --------------
Total non interest income.................. 10,919 14,206
Non interest expense............................. 11,378 16,859
------------- --------------
Income before income taxes....................... 3,524 3,900
Income taxes..................................... 1,339 1,395
------------- --------------
Net income....................................... $ 2,185 $ 2,505
============= ==============
Net income per share assuming dilution (3)....... $ 0.33 $ 0.37
Weighted average common shares assuming dilution. 6,841,679 6,848,571
Cash dividends (4)............................... $ -- $ --
Balance Sheet Data
Total assets..................................... $ 698,517 $ 996,519
Total loans, net................................. 573,586 803,002
Mortgage servicing rights, net................... 48,845 67,437
Deposits (5)(6).................................. 316,303 543,954
Custodial escrow balances........................ 75,687 98,266
FHLB borrowings.................................. 104,000 113,000
Borrowed money................................... 125,607 169,849
Total shareholders' equity....................... 42,797 51,869
Operating Ratios and Other Selected Data
Return on average assets (7)..................... 1.35% 1.00%
Return on average equity (7)..................... 21.22 19.83
Average equity to average assets (7)............. 6.35 4.97
Net interest margin (7)(8)....................... 3.14 3.34
Operating efficiency ratio (9)................... 63.73 56.61
Total amount of loans purchased.................. $ 110,674 $ 25,016
Balance of owned servicing portfolio (end of
period)......................................... $ 4,325,559 $ 6,196,744
Trust assets under administration (end of period) $ 1,555,486 $ 2,228,682
Wholesale loan origination volume................ $ 151,330 $ 134,766
Ratio of Earnings to Fixed Charges (10)
Including interest on deposits................. 1.29x 1.24x
Excluding interest on deposits................. 1.48x 1.47x
Loan Performance Ratios and Data
Allowance for loan and valuation losses.......... $ 2,021 $ 4,182
Non-performing loans and leases (11)............. 6,492 15,475
Non performing loans and leases/total loans (11). 1.13% 1.92%
Non performing assets/total assets (11).......... 1.09 1.73
Net loan charge-offs/average loans (7)........... 0.03 0.02
Allowance for loan and valuation losses/
total loans.................................. 0.35 0.52
Allowance for loan and valuation losses/
non performing loans......................... 31.12 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.
60
<PAGE>
(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 $80.6
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.
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.
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<PAGE>
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
. 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:
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<PAGE>
. 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
63
<PAGE>
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 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
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<PAGE>
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 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
------------ ------------
<S> <C> <C>
(In thousands)
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.
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<PAGE>
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 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.
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<PAGE>
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 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
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<PAGE>
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 $198.3 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
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<PAGE>
wholesale residential 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
----------- --------
<S> <C> <C>
(In thousands)
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.
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<PAGE>
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 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:
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. 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."
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
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<PAGE>
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 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.
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<PAGE>
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:
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<PAGE>
<TABLE>
<CAPTION>
Year Ended
December 31,
-------------------------
1996 1997
----------- --------
<S> <C> <C>
(In thousands)
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>
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.
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.
74
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------------------------
1996 1997 1998
--------------------------------- -------------------------------- ------------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
--------- ---------- --------- --------- ---------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
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%
========= ========= ========
</TABLE>
75
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended
March 31,
----------------------------------------------------------------------------------
1998 1999
------------------------------------- -------------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
--------- ---------- ----------- ----------- ----------- --------
Assets (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans, net................................. $ 539,449 $ 11,301 8.38 % $ 833,534 $ 17,238 8.27%
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
Noninterest-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 noninterest-earning assets....... 83,442 151,378
--------- -----------
Total assets........................... $ 648,425 $ 1,017,839
========= ===========
Liabilities & 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
--------- ---------- ----------- ----------- ----------- --------
Noninterest-bearing liabilities:
Demand deposits (including
custodial escrow balances)............. 71,596 113,050
Other liabilities......................... 14,431 24,077
--------- -----------
Total noninterest-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>
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.
76
<PAGE>
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 December 31, 1997 vs 1996 Year Ended December 31, 1998 vs 1997
---------------------------------------- ----------------------------------------
Increase (Decrease) Due to Change in Increase (Decrease) Due to Change in
---------------------------------------- ----------------------------------------
Volume Rate Total Volume Rate Total
------------ -------- -------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
(In thousands)
Interest-earning assets:
Loans receivable, net........................$ 18,688 $ (3,325) $ 15,363 $ 28,914 $ (558) $ 28,356
Mortgage-backed securities................... (351) -- (351) -- -- --
Interest-earning deposits.................... 551 (85) 466 (14) (137) (151)
FHLB stock................................... 120 2 122 351 (11) 340
------------ -------- -------- ---------- ------- ---------
Total interest-earning assets............... 19,008 (3,408) 15,600 29,251 (706) 28,545
------------ -------- -------- ---------- ------- ---------
Interest-bearing liabilities:
Passbook accounts............................ 16 15 31 -- (11) (11)
Money market and NOW accounts................ 3,322 (512) 2,810 1,412 (258) 1,154
Certificates of deposit...................... 1,708 67 1,775 7,043 (341) 6,702
FHLB advances................................ 1,374 22 1,396 5,338 (219) 5,119
Borrowed money............................... 2,151 (392) 1,759 5,441 (162) 5,279
------------ -------- -------- ---------- ------- ---------
Total interest-bearing liabilities.......... 8,571 (800) 7,771 19,234 (991) 18,243
------------ -------- -------- ---------- ------- ---------
Change in net interest income before provision
for loan and valuation losses................$ 10,437 $ (2,608) $ 7,829 $ 10,017 $ 285 $ 10,302
============ ======== ======== ========== ======= =========
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended March 31,
1999 vs 1998
----------------------------------------
Increase (Decrease) Due to Change in
----------------------------------------
Volume Rate Total
---------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable, net....................................................... $ 6,082 $ (145) $ 5,937
Interest-earning deposits................................................... 8 (3) 5
FHLB stock.................................................................. 88 (11) 77
---------- --------- ---------
Total interest-earning assets............................................ 6,178 (159) 6,019
---------- --------- ---------
Interest-bearing liabilities:
Passbook accounts........................................................... (1) (3) (4)
Money market and NOW accounts............................................... 1,226 99 1,325
Certificates of deposit..................................................... 1,172 (162) 1,010
FHLB advances............................................................... 193 (259) (66)
Borrowed money.............................................................. 971 (12) 959
---------- --------- ---------
Total interest-bearing liabilities....................................... 3,561 (337) 3,224
---------- --------- ---------
Change in net interest income before provision for loan and valuation losses.. $ 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 its non interest income and improve
the match between interest-earning assets and interest-bearing liabilities.
These strategies include:
77
<PAGE>
. 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;
. 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.
78
<PAGE>
<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
--------- ---------- --------- --------
<S> <C> <C> <C> <C>
(In thousands)
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>
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
---------- --------- -------
<S> <C> <C> <C>
(In thousands)
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
79
<PAGE>
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,
---------------------------------------
1994 1995 1996 1997 1998
------ ------ ------ ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Non accrual mortgage loans............ $3,275 $5,523 $3,031 $4,796 $ 8,208
Non accrual commercial loans and
direct financing leases.............. -- -- -- -- 4,349
Non accrual consumer loans............ 39 15 872 194 652
------ ------ ------ ------ -------
Total non performing loans and
leases.......................... 3,314 5,538 3,903 4,990 13,209
Foreclosed real estate................ 543 835 788 1,242 916
Repossessed automobiles............... -- -- 506 -- --
------ ------ ------ ------ -------
Total non performing assets....... $3,857 $6,373 $5,197 $6,232 $14,125
====== ====== ====== ====== =======
Total non performing loans and leases
to total loans and leases............ 3.68% 3.75% 1.83% 0.97% 1.55%
====== ====== ====== ====== =======
Total non performing assets to total
assets............................... 3.40% 3.42% 1.89% 1.03% 1.39%
====== ====== ====== ====== =======
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%
====== ====== ====== ====== =======
Interest income on non performing
loans not included in interest
income............................... $ 140 $ 156 $ 120 $ 89 $ 524
====== ====== ====== ====== =======
</TABLE>
<TABLE>
<CAPTION>
As of March 31,
----------------------
1998 1999
------ -------
(Dollars in thousands)
<S> <C> <C>
Non accrual mortgage loans............................. $6,248 $ 7,970
Non accrual commercial loans and direct financing
leases................................................ -- 7,312
Non accrual consumer loans............................. 244 193
------ -------
Total non performing loans and leases.............. 6,492 15,475
Foreclosed real estate................................. 1,095 1,627
------ -------
Total non performing assets........................ $7,587 $17,102
====== =======
Total non performing loans and leases to total loans
and leases............................................ 1.13% 1.92%
====== =======
Total non performing assets to total assets............ 1.09% 1.73%
====== =======
Ratio of allowance for loan and valuation losses to
total non performing loans and leases................. 31.12% 27.02%
====== =======
</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 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
80
<PAGE>
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."
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
81
<PAGE>
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 -- -- --
Direct financing leases................ -- -- -- -- --
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
82
<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
Amount each Amount each Amount each Amount each Amount each
Category to Category to Category to Category to Category to
Total Loans Total Loans Total Loans Total Loans Total Loans
------- ------------- -------- ------------ -------- ------------ -------- ------------ ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
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.
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<PAGE>
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 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
84
<PAGE>
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.
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.
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<PAGE>
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, 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:
86
<PAGE>
<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.
(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.
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<PAGE>
(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
---------- --------- --------- ---------- --------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
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>
__________
(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.
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<PAGE>
(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 $ 51,250 $ 35,838 $ 53,650 5.69% 5.84 %
borrowings
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 171,943 59,984 171,943 5.73 6.37
borrowings
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 168,000 159,381 271,000 5.37 4.90
borrowings (2)
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 us to declare or pay
any dividends.
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 12 C.F.R. Section 565.4.
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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.
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, 1998 at a redemption price
equal to:
. 102% of par through July 14, 1999 and, thereafter, at 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
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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 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 termination agreement, Fidelity National Title moved approximately
$47.1 million of deposits to Matrix Bank during the fourth quarter of 1998. The
balance of the title deposits at March 31, 1999 was $107.1 million. The
following two tables sets forth the average balances for each major category of
Matrix
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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,
----------------------------------------------------------------------------------------------------------
1996 1997 1998
---------------------------------- ----------------------------------- ---------------------------------
Weighted Weighted Weighted
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
--------------- ------------------ --------------- ------------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Passbook accounts......... $ 2,389 3.45 % $ 2,859 3.95 % $ 2,859 3.58 %
NOW accounts.............. 2,813 2.24 23,837 3.34 17,586 2.97
Money market accounts..... 9,151 4.43 73,145 3.39 124,796 3.13
Time deposits (except
brokered) 54,824 5.85 83,993 5.94 108,107 5.79
Brokered deposits......... -- -- -- -- 103,485 5.25
--------------- ------------------ --------------- ------------------- ---------------- ----------------
Total deposits.......... $ 69,177 5.43 % $ 183,834 4.56 % $ 356,833 4.37 %
=============== ================== =============== =================== ================ ================
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended
March 31, 1998 March 31, 1999
-------------------------------- -------------------------------
Weighted Weighted
Average Average Average Average
Balance Rate Balance Rate
--------------- -------------- --------------- -------------
<S> <C> <C> <C> <C>
(unaudited)
(Dollars in thousands)
Passbook accounts............. $ 2,881 3.85 % 2,764 3.42 %
NOW accounts.................. 13,671 3.06 23,844 2.59
Money market accounts......... 102,736 2.85 245,004 3.28
Time deposits (except
brokered).................... 97,484 5.84 127,762 5.54
Brokered deposits............. 43,340 5.32 102,850 4.82
--------------- -------------- --------------- -------------
Total deposits........... $ 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
------------------ ------------------
<S> <C> <C>
(Dollars in thousands)
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 servicing
rights owned by Matrix
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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
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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 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.
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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.
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
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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 March 31, 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
Estimated completion 100% 100% 100% 25% 85%
date -- -- -- 6/15/99 6/15/99
Non-information systems
Estimated completion 100% 100% 100% 50% 50%
date -- -- -- 6/15/99 6/15/99
Third parties
Estimated completion 100% 100% 100% 0% 100%
date -- -- -- 6/15/99 --
</TABLE>
<TABLE>
<CAPTION>
Matrix Bank Year 2000 Progress
--------------------------------------------------------------------------------------------------------
Awareness Assessment Renovation Validation Implementation
--------------- --------------- --------------- --------------- --------------------
<S> <C> <C> <C> <C> <C>
Information Systems 100% 100% 100% 70% 70%
Estimated completion date -- -- -- 6/30/99 6/30/99
Non-information systems 100% 100% 98% 90% 90%
Estimated completion date -- -- 6/30/99 6/30/99 6/30/99
Third parties 100% 100% 75% 0% 0%
Estimated completion date -- -- 9/30/99 9/30/99 9/30/99
</TABLE>
<TABLE>
<CAPTION>
Matrix Financial Year 2000 Progress
--------------------------------------------------------------------------------------------------------
Awareness Assessment Renovation Validation Implementation
--------------- --------------- --------------- --------------- --------------------
<S> <C> <C> <C> <C> <C>
Information Systems 100% 85% 80% 68% 65%
Estimated completion date -- 4/30/99 5/31/99 6/15/99 6/15/99
Non-information systems 90% 70% 40% 37% 33%
Estimated completion date 4/30/99 5/31/99 6/30/99 6/30/99 6/30/99
Third parties 90% 90% 90% 90% 90%
Estimated completion date 4/30/99 6/15/99 6/30/99 6/30/99 6/30/99
</TABLE>
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 March 31, 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
Estimated completion 100% 75% 75% 50% 75%
date -- 4/30/99 5/31/99 6/30/99 6/30/99
Non-information systems
Estimated completion 100% 75% 50% 70% 70%
date -- 4/30/99 5/31/99 6/30/99 6/30/99
Third parties
Estimated completion 100% 50% 75% 50% 50%
date -- 4/30/99 6/30/99 6/30/99 6/30/99
</TABLE>
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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 June 30, 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 that loan documents
received from outside brokers and processed by Matrix Financial 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 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.
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<PAGE>
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 has also not yet been tested to
determine year 2000 compliance. 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 $400,000; 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 March
31, 1999, we had expensed approximately $172,000 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";
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. 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.
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 ________ ___,
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<PAGE>
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.
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.
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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 _________, 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.
"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:
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. 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
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to the risk-based capital adequacy guidelines of the Federal Reserve. We are not
currently subject to such guidelines.
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
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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.
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.
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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.
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.
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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 a 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
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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 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.
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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
. 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,
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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
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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.
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.
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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 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
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. 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 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
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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.
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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.
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
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subordinated debentures issued by us. The junior subordinated debentures will
bear interest, accruing from ________________, 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 _________________, 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.
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 _____________, subject to
our right to shorten the maturity date at any time to any date not earlier than
___________, 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
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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 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.
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Redemption
We may redeem the junior subordinated debentures prior to maturity at our
option (1) on or after _________________, ____, 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."
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
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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
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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 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:
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. 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 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
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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."
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:
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. 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:
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. 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
. 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.
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"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.
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
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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."
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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.
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
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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.
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
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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.
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
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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.
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.
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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;
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. 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
. 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
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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 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
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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 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.
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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. 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.
136
<PAGE>
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.
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:
Underwriter Number of Preferred Securities
- ----------- ------------------------------
Tucker Anthony Cleary Gull...........
U.S. Bancorp Piper Jaffray Inc.......
Total........................... 1,100,000
=========
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
137
<PAGE>
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 shares distributed by
that underwriter or dealer.
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
138
<PAGE>
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. Blackwell Sanders Peper Martin LLP
will rely on the opinion of Morris, Nichols, Arsht & Tunnell as to matters of
Delaware law.
139
<PAGE>
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.
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 SECC 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
140
<PAGE>
. 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.
141
<PAGE>
Index to Financial Statements
Consolidated Financial Statements of Matrix Bancorp, Inc.
<TABLE>
<CAPTION>
<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
-------------------
Assets
<S> <C>
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, 2000. 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
March 31, 1999
3. Mortgage Servicing Rights
The activity in the Mortgage Servicing Rights ("MSRs") is summarized as follows:
Quarter Ended
March 31, 1999
-------------------
(unaudited)
(Dollars in thousands)
Balance at beginning of period..................... $ 58,147
Purchases.......................................... 13,551
Originated, net.................................... 465
Amortization....................................... (4,726)
Sales.............................................. -
-------------------
Balance at end of period........................... $ 67,437
===================
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:
March 31, 1999
-----------------------------------
Principal
Number Balance
of Loans Outstanding
------------ ----------------
(unaudited)
(Dollars in thousands)
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
============ ================
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.
4. Deposits
Deposit account balances are summarized as follows:
F-7
<PAGE>
Matrix Bancorp, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 1999
4. Deposits (continued)
March 31, 1999
------------------------------------------
Weighted
Average
Amount Percent Rate
------------- ----------- -------------
(unaudited)
(Dollars in thousands)
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%
============= =========== =============
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
March 31, 1999
6. Segment Information
<TABLE>
<CAPTION>
Servicing
Traditional Brokerage and
Banking Mortgage 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 March Quarter Ended March
31, 1998 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
------------ -----------
ASSETS
<S> <C> <C>
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.
F-15
<PAGE>
Matrix Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
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 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.
Year Ended
December 31, 1996
-----------------------
Company Vintage
---------- ---------
(In thousands)
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
F-16
<PAGE>
Matrix Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
2. Significant Accounting Policies (continued)
Loans Held for Sale
Loans originated or purchased with the intent for sale in the secondary market
are carried at the lower of cost, net of discounts or premiums 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 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,
F-17
<PAGE>
Matrix Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
2. Significant Accounting Policies (continued)
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.
F-18
<PAGE>
Matrix Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
2. Significant Accounting Policies (continued)
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.
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
F-19
<PAGE>
Matrix Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
2. Significant Accounting Policies (continued)
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.
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.
F-20
<PAGE>
Matrix Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
2. Significant Accounting Policies (continued)
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.
F-21
<PAGE>
Matrix Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
2. Significant Accounting Policies (continued)
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 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
F-22
<PAGE>
Matrix Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
2. Significant Accounting Policies (continued)
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.
3. Net Income Per Share
The following table sets forth the computation of net income per share and net
income per share, assuming dilution:
F-23
<PAGE>
Matrix Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
3. Net Income Per Share (continued)
<TABLE>
<CAPTION>
Year Ended December 31
1996 1997 1998
---------------------------------------------------------
<S> <C> <C> <C>
(Dollars in thousands)
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-24
<PAGE>
Matrix Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
4. Loans Receivable (continued)
Activity in the allowance for loan losses is summarized as follows:
Year Ended December 31
1996 1997 1998
------ ------ ------
(In thousands)
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
====== ====== ======
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:
December 31
1997 1998
-------- --------
(In thousands)
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
======== ========
F-25
<PAGE>
Matrix Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
4. Loans Receivable (continued)
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.
Activity in the valuation allowance is summarized as follows:
Year Ended December 31
1996 1997 1998
-------- -------- --------
(In thousands)
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
======== ======== ========
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.
F-26
<PAGE>
Matrix Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
4. Loans Receivable (continued)
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:
December 31
1997 1998
------- -------
(In thousands)
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
======= =======
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.
F-27
<PAGE>
Matrix Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
6. Mortgage Servicing Rights
The activity in the MSRs is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
(In thousands)
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>
F-28
<PAGE>
Matrix Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
6. Mortgage Servicing Rights (continued)
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 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.
F-29
<PAGE>
Matrix Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
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.
F-30
<PAGE>
Matrix Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
7. Deposits (continued)
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>
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
------- -------
<S> <C> <C>
(In thousands)
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
</TABLE>
F-31
<PAGE>
Matrix Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
8. Borrowed Money (continued)
<TABLE>
<CAPTION>
December 31
1997 1998
------- -------
(In thousands)
<S> <C> <C>
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-32
<PAGE>
Matrix Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
8. Borrowed Money (continued)
<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>
F-33
<PAGE>
Matrix Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
8. Borrowed Money (continued)
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 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
F-34
<PAGE>
Matrix Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
8. Borrowed Money (continued)
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.
F-35
<PAGE>
Matrix Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
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 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.
F-36
<PAGE>
Matrix Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
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-37
<PAGE>
Matrix Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
10. Income Taxes (continued)
Deferred tax assets and liabilities result from the tax effects of temporary
differences between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes shown below.
<TABLE>
<CAPTION>
December 31
1997 1998
-----------------------
<S> <C> <C>
(In thousands)
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.
F-38
<PAGE>
Matrix Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
11. Regulatory (continued)
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.
<TABLE>
<CAPTION>
For Capital
Actual Adequacy Purposes
-------------- -------------------------------------------------------
Amount Ratio Amount Ratio
------- ----- ---------------------------- -------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
As of December 31, 1998
Total Capital
(to Risk Weighted Assets) $54,148 11.7% (GREATER OR EQUAL TO)$36,938 (GREATER OR EQUAL TO)8.0%
Core Capital
(to Adjusted Tangible Assets) 51,163 6.2% (GREATER OR EQUAL TO) 32,828 (GREATER OR EQUAL TO)4.0%
Tangible Capital
(to Tangible Assets) 51,163 6.2% (GREATER OR EQUAL TO) 12,310 (GREATER OR EQUAL TO)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 OR EQUAL TO) 21,969 (GREATER OR EQUAL TO)8.0%
Core Capital
(to Adjusted Tangible Assets) 27,958 5.7% (GREATER OR EQUAL TO) 19,498 (GREATER OR EQUAL TO)4.0%
Tangible Capital
(to Tangible Assets) 27,958 5.7% (GREATER OR EQUAL TO) 7,312 (GREATER OR EQUAL TO)1.5%
Tier I Capital
(to Risk Weighted Assets) 27,958 10.2% N/A
</TABLE>
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
--------------------------------------------------------
Amount Ratio
---------------------------- --------------------------
(Dollars in thousands)
<S> <C> <C>
As of December 31, 1998
Total Capital
(to Risk Weighted Assets) (GREATER OR EQUAL TO)$46,173 (GREATER OR EQUAL TO)10.0%
Core Capital
(to Adjusted Tangible Assets) (GREATER OR EQUAL TO) 41,035 (GREATER OR EQUAL TO) 5.0%
Tangible Capital
(to Tangible Assets) N/A
Tier I Capital
(to Risk Weighted Assets) (GREATER OR EQUAL TO) 27,704 (GREATER OR EQUAL TO) 6.0%
As of December 31, 1997
Total Capital
(to Risk Weighted Assets) (GREATER OR EQUAL TO) 27,462 (GREATER OR EQUAL TO)10.0%
Core Capital
(to Adjusted Tangible Assets) (GREATER OR EQUAL TO) 24,372 (GREATER OR EQUAL TO) 5.0%
Tangible Capital
(to Tangible Assets) N/A
Tier I Capital
(to Risk Weighted Assets) (GREATER OR EQUAL TO) 16,477 (GREATER OR EQUAL TO) 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.
F-39
<PAGE>
Matrix Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
11. Regulatory (continued)
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.
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
F-40
<PAGE>
Matrix Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
12. Shareholders' Equity (continued)
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
F-41
<PAGE>
Matrix Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
12. Shareholders' Equity (continued)
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.
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:
F-42
<PAGE>
Matrix Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
12. Shareholders' Equity (continued)
<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 $ 4.06 $6.67 $6.03
the year
</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>
Range of Weighted Average Weighted Average Weighted Average
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-43
<PAGE>
Matrix Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
12. Shareholders' Equity (continued)
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:
F-44
<PAGE>
Matrix Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
13. Commitments, Contingencies and Related Party Transactions (continued)
(In thousands)
1999 $ 770
2000 692
2001 599
2002 384
2003 22
------
$2,467
======
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.
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
F-45
<PAGE>
Matrix Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
13. Commitments, Contingencies and Related Party Transactions (continued)
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).
F-46
<PAGE>
Matrix Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
13. Commitments, Contingencies and Related Party Transactions (continued)
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.
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 is 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
F-47
<PAGE>
Matrix Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
13. Commitments, Contingencies and Related Party Transactions (continued)
$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-48
<PAGE>
Matrix Bancorp, Inc.
Notes to Consolidated Financial Statements
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:
F-49
<PAGE>
Matrix Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
15. Financial Instruments (continued)
<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>
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.
F-50
<PAGE>
Matrix Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
15. Financial Instruments (continued)
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
-------- -------- -------
Condensed Balance Sheets (In thousands)
<S> <C> <C> <C>
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-51
<PAGE>
Matrix Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
16. Parent Company Condensed Financial Information (continued)
<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:
(In thousands)
1999 $ 2,922
2000 2,052
2001 6,275
2002 726
2003 -
Thereafter 20,000
-------
$31,975
=======
F-52
<PAGE>
Matrix Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
16. Parent Company Condensed Financial Information (continued)
<TABLE>
<CAPTION>
Year Ended December 31
1996 1997 1998
---- ---- ----
(In thousands)
Condensed Statements of Income
<S> <C> <C> <C>
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 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
F-53
<PAGE>
Matrix Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
16. Parent Company Condensed Financial Information (continued)
<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-54
<PAGE>
Matrix Bancorp, Inc.
Notes to Consolidated Financial Statements
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.
F-55
<PAGE>
Matrix Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
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 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).
F-56
<PAGE>
Matrix Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
19. Segments of the Company and Related Information (continued)
For the years ended December 31:
<TABLE>
<CAPTION>
Servicing
Traditional Mortgage Banking Brokerage and
Banking Consulting All Others Total
-------------- ------------------ ------------------ ------------ ---------------
1998 (In thousands)
<S> <C> <C> <C> <C> <C>
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-57
<PAGE>
Matrix Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
19. Segments of the Company and Related Information (continued)
<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-58
<PAGE>
===============================================================================
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.
____________________________
TABLE OF CONTENTS
Prospectus Summary........................................2
Risk Factors..............................................10
Use of Proceeds...........................................17
Capitalization............................................17
The Company...............................................18
Management................................................49
Matrix Bancorp Capital Trust..............................57
Selected Consolidated Financial and
Operating Information...................................58
Management's Discussion and Analysis of
Financial Condition and Results of
Operations..............................................61
Market for the Preferred Securities.......................99
Accounting Treatment......................................99
Description of the Preferred Securities...................100
Description of the Junior Subordinated
Debentures..............................................116
Description of the Guarantee..............................126
Expense Agreement.........................................129
Relationship Among the Preferred
Securities, the Junior Subordinated
Debentures and the Guarantee............................129
Certain Federal Income Tax Consequences...................131
ERISA Considerations......................................137
Underwriting..............................................137
Legal Matters.............................................139
Experts...................................................140
Available Information.....................................140
Financial Statements......................................F-1
===============================================================================
1,100,000 Preferred Securities
MATRIX BANCORP CAPITAL TRUST I
% Cumulative Trust Preferred Securities
(Liquidation Amount $25 per Preferred Security)
guaranteed as described herein by
MATRIX BANCORP, INC.
_________________________
27,500,000__%
Junior Subordinated Debentures of
MATRIX BANCORP, INC.
_________________________
Prospectus
_________________________
_________, 1999
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)
Nature of Expense Amount (3)
----------------- ----------
SEC filing fee(2)........................ $
Nasdaq listing fee.......................
NASD filing fee..........................
Printing, postage and mailing............
Legal fees and expenses..................
Accounting fees and expenses.............
Trustees' fees and expenses..............
Transfer agent and Registrar fees........
Blue Sky fees and expenses...............
Miscellaneous............................
Total...............................
(1) The amounts set forth above, except for the SEC and NASD fees, are in each
case estimated.
(2) Based upon the sale of ____________________ Preferred Securities at $25.00
per Preferred Security.
(3) To be filed by amendment.
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, a 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 March 31, 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
II-1
<PAGE>
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 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> <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
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
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
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, Nicholas, 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)
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
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)
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)
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
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)
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)
</TABLE>
II-5
<PAGE>
<TABLE>
<C> <S>
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)
</TABLE>
II-6
<PAGE>
<TABLE>
<C> <S>
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)
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)
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)
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
27 . Financial Data Schedule
</TABLE>
__________________________
* To be filed by Amendment
+ 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.
II-7
<PAGE>
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.
(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
II-8
<PAGE>
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-9
<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 May 28, 1999.
MATRIX BANCORP CAPITAL TRUST I
By /s/ David W. Kloos
___________________________________________
David W. Kloos, Administrative Trustee
II-10
<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 May 28, 1999.
MATRIX BANCORP, INC
By /s/ Guy A. Gibson
____________________________________________
Guy A. Gibson, President and Chief Executive
Officer
II-11
<PAGE>
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.
Signatures Title Date
- ---------- ----- ----
/s/ Guy A. Gibson
______________________ President, Chief Executive Officer May 28, 1999
Guy A. Gibson and Director
(Principal executive officer)
/s/ Richard V. Schmitz
______________________ Chairman of the Board May 28, 1999
Richard V. Schmitz
/s/ D. Mark Spencer
______________________ Vice Chairman and Director May 28, 1999
D. Mark Spencer
/s/ Thomas M. Piercy
______________________ Director May 28, 1999
Thomas M. Piercy
/s/ David W. Kloos
______________________ Senior Vice President and May 28, 1999
David W. Kloos Chief Financial Officer and
Director
(Principal financial officer)
/s/ Stephen Skiba
______________________ Director May 28, 1999
Stephen Skiba
/s/ David A. Frank
______________________ Director May 28, 1999
David A. Frank
II-12
<PAGE>
Each individual whose signature appears below hereby designates and
appoints Richard V. Schmitz, David W. Kloos and D. Mark Spencer, 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.
Signatures Title Date
- ---------- ----- ----
/s/ Richard V. Schmitz
______________________ Administrative Trustee May 28, 1999
Richard V. Schmitz
/s/ David W. Kloos
______________________ Administrative Trustee May 28, 1999
David W. Kloos
/s/ D. Mark Spencer
______________________ Administrative Trustee May 28, 1999
D. Mark Spencer
II-13
<PAGE>
EXHIBIT 4.7
MATRIX BANCORP, INC.
AND
STATE STREET BANK AND TRUST COMPANY
AS TRUSTEE
INDENTURE
______% JUNIOR SUBORDINATED DEBENTURES DUE ______
DATED AS OF _____________, 1999.
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Section of
Trust Indenture Act Section of
of 1939, as amended Indenture
- --------------------------------------------------------------------------------
<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 _______
(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
________________.
"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, as 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 pledgee establishes to the
satisfaction of the Trustee the pledgee's right so to act with respect to such
Debentures and
5
<PAGE>
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 _________________.
"Securities Act," means the Securities Act of 1933, as amended, as in effect
at the date of execution of this instrument.
"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.
"Special Event" means a Tax Event, a Capital Treatment Event or an Investment
Company Event.
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"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 _____," 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 ________________, elect
to shorten the Maturity Date to the Accelerated Maturity Date provided that the
Company has received the prior approval of the Federal Reserve if then required
under applicable capital guidelines or policies of the Federal Reserve.
(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
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REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY
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
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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.
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
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(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 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 prior approval of the Federal Reserve,
if then required under the applicable capital guidelines or policies of the
Federal Reserve, 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 the prior approval of the Federal
Reserve, if then required under the applicable capital guidelines or policies of
the Federal Reserve, 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 (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.
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, plus
Deferred Interest, if any. 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.
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(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
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deem advisable. In any case in which notice of redemption is to be given by the
Trustee or any such Paying Agent, 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
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the Trustee of its selection of such Extension Period two Business Days before
the earlier of (i) the next succeeding 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
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deem desirable or expedient; provided, however, that no such designation or
rescission shall in any manner relieve 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.
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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.
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 upon prior approval of the Federal Reserve if then so required
under applicable capital guidelines or policies of the Federal Reserve; (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 ________________.
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
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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.
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 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
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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 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
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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 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
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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.
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
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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.
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;
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(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;
(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;
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(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 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.
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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 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.
(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.
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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 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
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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.
(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
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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.
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
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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,
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
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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 (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
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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.
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).
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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.
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, 9.7 and 9.10, which shall survive until the date
of maturity or redemption date, as the case may be, and Sections 9.6 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 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
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Trustee and thereupon such Paying Agent shall be released from all further
liability with respect to such moneys or Governmental Obligations.
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.
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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.
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.
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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.
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.
37
<PAGE>
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
38
<PAGE>
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
39
<PAGE>
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 or assets to which any holder
of such Senior Indebtedness shall be entitled by virtue of this Article XVI or
otherwise.
40
<PAGE>
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:
------------------------
41
<PAGE>
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
<PAGE>
EXHIBIT 4.8
Certificate No. 1
CUSIP No. ___________ $32,603,125
MATRIX BANCORP, INC.
_____% JUNIOR SUBORDINATED DEBENTURE
DUE ____________
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 ____________ (the "Stated
Maturity"), and to pay interest on said principal sum from __________, 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 ____________, 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
___________, subject to the Company having received prior approval of the
Federal Reserve if then required under applicable capital guidelines or policies
of the Federal Reserve.
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
____________ (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, plus Additional Interest, if any. 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 "Extended Interest Payment Period"), at the end of which period the
Company shall pay all interest then accrued and unpaid, including any Additional
Interest and Compounded Interest (as defined in the Indenture and together, the
"Deferred Payments") that shall be payable to the holders of the Debentures in
whose
<PAGE>
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 Extended Interest Payment Period, the Company may further extend such
Extended Interest Payment Period, provided that such Extended Interest Payment
Period together with all such further extensions thereof shall not exceed 20
consecutive quarters. At the termination of any such Extended Interest Payment
Period and upon the payment of all Deferred Payments then due, the Company may
commence a new Extended Interest Payment 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 4.9
CERTIFICATE OF TRUST
OF
MATRIX BANCORP CAPITAL TRUST I
THIS CERTIFICATE OF TRUST OF MATRIX BANCORP CAPITAL TRUST I (the
"Trust"), dated as of May 26, 1999, is being duly executed and filed by
WILMINGTON TRUST COMPANY, a Delaware banking corporation, as Delaware trustee,
and Richard V. Schmitz, David W. Kloos and D. Mark Spencer, Each an individual,
as administrative trustees, to form a business trust under the Delaware Business
Trust Act (12 Del. C. (S)(S) 3801 et seq.)
---- -- -- ----
1. NAME. The name of the business trust formed hereby is Matrix
Bancorp Capital Trust I.
2. DELAWARE TRUSTEE. The name and business address of the trustee of
the Trust in the State of Delaware are Wilmington Trust Company, Rodney Square
North, 1100 North Market Street, Wilmington, New Castle County, Delaware 19890-
0001, Attention: Corporate Trust Administration.
3. EFFECTIVE DATE. This Certificate of Trust shall be effective upon
the date and timing of filing.
4. COUNTERPARTS. This Certificate of Trust may be executed in one or
more counterparts.
IN WITNESS WHEREOF, the undersigned, being the sole trustees of the
Trust, have executed this Certificate of Trust as of the date first above
written.
WILMINGTON TRUST COMPANY,
as Delaware trustee
/s/ Jill K. Morrison
---------------------------------
Name: Jill K. Morrison
Title: Administrative Account Manager
/s/ Richard V. Schmitz
---------------------------------
Richard V. Schmitz, Administrative Trustee
/s/ David W. Kloos
---------------------------------
David W. Kloos, Administrative Trustee
/s/ D. Mark Spencer
---------------------------------
D. Mark Spencer, Administrative Trustee
<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) __________________, an
individual, __________________, an individual, and ___________________, 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 __________________,
__________________ and _____________________, each as an Administrative Trustee,
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 _________________, 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 _________________, 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 Richard V. Schmitz, D. Mark Spencer
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 _____, 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.
5
<PAGE>
"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 504.
"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) 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) 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 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).
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 co-
trustee or separate trustee so resigned or removed may be appointed in the
manner provided in this Section 809.
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(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
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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
Certificate Number Number of Preferred Securities
- -------------------------------------------------------------------------------
TP-1 1,265,000
CUSIP
- -------------------------------------------------------------------------------
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 __________, 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>
Certificate of Authentication
This is one of the ______% Cumulative Trust Preferred Securities described in
the within-mentioned Amended and Restated Trust Agreement.
Dated: _______________
STATE STREET BANK AND TRUST COMPANY,
as Securities Registrar
By_______________________________
Authorized Signatory
<PAGE>
EXHIBIT 4.12
PREFERRED SECURITIES GUARANTEE AGREEMENT
BY AND BETWEEN
MATRIX BANCORP, INC.
AND
STATE STREET BANK AND TRUST COMPANY
________________, 1999
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Section of
Trust Indenture Act Section of
of 1939, as amended Indenture
- ---------------------------------------------------------------------------
<S> <C>
310(a)................................................. 4.1(a)
- ---------------------------------------------------------------------------
310(b)................................................. 4.1(c), 2.8
- ---------------------------------------------------------------------------
310(c)................................................. Not Applicable
- ---------------------------------------------------------------------------
311(a)................................................. 2.2(b)
- ---------------------------------------------------------------------------
311(b)................................................. 2.2(b)
- ---------------------------------------------------------------------------
311(c)................................................. Not Applicable
- ---------------------------------------------------------------------------
312(a)................................................. 2.2(a)
- ---------------------------------------------------------------------------
312(b)................................................. 2.2(b)
- ---------------------------------------------------------------------------
313.................................................... 2.3
- ---------------------------------------------------------------------------
314(a)................................................. 2.4
- ---------------------------------------------------------------------------
314(b)................................................. Not Applicable
- ---------------------------------------------------------------------------
314(c)................................................. 2.5
- ---------------------------------------------------------------------------
314(d)................................................. Not Applicable
- ---------------------------------------------------------------------------
314(e)................................................. 1.1, 2.5,3.2
- ---------------------------------------------------------------------------
314(f)................................................. 2.1, 3.2
- ---------------------------------------------------------------------------
315(a)................................................. 3.1(d)
- ---------------------------------------------------------------------------
315(b)................................................. 2.7
- ---------------------------------------------------------------------------
315(c)................................................. 3.1
- ---------------------------------------------------------------------------
315(d)................................................. 3.1(d)
- ---------------------------------------------------------------------------
316(a)................................................. 1.1, 2.6, 5.4
- ---------------------------------------------------------------------------
316(b)................................................. 5.3
- ---------------------------------------------------------------------------
317(a)................................................. 3.1
- ---------------------------------------------------------------------------
317(b)................................................. Not Applicable
- ---------------------------------------------------------------------------
318(a)................................................. 2.1
- ---------------------------------------------------------------------------
318(b)................................................. 2.1
- ---------------------------------------------------------------------------
318(c)................................................. 2.1(b)
- ---------------------------------------------------------------------------
</TABLE>
Note: This Cross-Reference Table does not constitute part of this Agreement and
shall not affect the interpretation of any of its terms or provisions.
2
<PAGE>
PREFERRED SECURITIES GUARANTEE AGREEMENT
THIS PREFERRED SECURITIES GUARANTEE AGREEMENT (this "Preferred Securities
Guarantee"), dated as of _______________, 1999, is executed and delivered by
MATRIX BANCORP, INC., a Colorado corporation (the "Guarantor"), and STATE STREET
BANK AND TRUST COMPANY, a trust company organized and existing under the laws of
The Commonwealth of Massachusetts, as trustee (the "Preferred Guarantee
Trustee"), for the benefit of the Holders (as defined herein) from time to time
of the Preferred Securities (as defined herein) of MATRIX BANCORP CAPITAL TRUST
I, a Delaware statutory business trust (the "Trust").
RECITALS
WHEREAS, pursuant to an Amended and Restated Trust Agreement (the "Trust
Agreement"), dated as of _______________, 1999, among the trustees of the Trust
named therein, the Guarantor, as depositor, and the holders from time to time of
undivided beneficial interests in the assets of the Trust, the Trust is issuing
on the date hereof 1,265,000 preferred securities, having an aggregate
liquidation amount of $31,625,000, designated the ______% Cumulative Trust
Preferred Securities (the "Preferred Securities");
WHEREAS, as incentive for the Holders to purchase the Preferred Securities,
the Guarantor desires irrevocably and unconditionally to agree, to the extent
set forth in this Preferred Securities Guarantee, to pay to the Holders of the
Preferred Securities the Guarantee Payments (as defined herein) and to make
certain other payments on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the purchase by each Holder of Preferred
Securities, which purchase the Guarantor hereby agrees shall benefit the
Guarantor, the Guarantor executes and delivers this Preferred Securities
Guarantee for the benefit of the Holders.
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1. DEFINITIONS AND INTERPRETATION.
In this Preferred Securities Guarantee, unless the context otherwise requires:
(a) capitalized terms used in this Preferred Securities Guarantee but not
defined in the preamble above have the respective meanings assigned to them in
this Section 1.1;
(b) terms defined in the Trust Agreement as at the date of execution of this
Preferred Securities Guarantee have the same meaning when used in this Preferred
Securities Guarantee;
(c) a term defined anywhere in this Preferred Securities Guarantee has the
same meaning throughout;
(d) all references to "the Preferred Securities Guarantee" or "this Preferred
Securities Guarantee" are to this Preferred Securities Guarantee as modified,
supplemented or amended from time to time;
(e) all references in this Preferred Securities Guarantee to Articles and
Sections are to Articles and Sections of this Preferred Securities Guarantee,
unless otherwise specified;
(f) a term defined in the Trust Indenture Act has the same meaning when used
in this Preferred Securities Guarantee, unless otherwise defined in this
Preferred Securities Guarantee or unless the context otherwise requires; and
(g) a reference to the singular includes the plural and vice versa.
"Additional Senior Obligations" shall have the same meaning as given to that
term in the Indenture.
3
<PAGE>
"Affiliate" has the same meaning as given to that term in Rule 405 of the
Securities Act of 1933, as amended, or any successor rule thereunder.
"Business Day" means any day other than a day on which federal or state
banking institutions in New York, New York are authorized or required by law,
executive order or regulation to close or a day on which the Corporate Trust
Office of the Preferred Guarantee Trustee is closed for business.
"Corporate Trust Office" means the office of the Preferred Guarantee Trustee
at which the corporate trust business of the Preferred Guarantee Trustee shall,
at any particular time, be principally administered, which office at the date of
execution of this Preferred Securities Guarantee is located at Two International
Place, 4th Floor, Boston, Massachusetts 02110, Attention: Corporate Trust
Department.
"Covered Person" means any Holder or beneficial owner of Preferred Securities.
"Debentures" means the _____% Junior Subordinated Debentures due ____________,
____, of the Debenture Issuer held by the Property Trustee of the Trust.
"Debenture Issuer" means the Guarantor.
"Event of Default" means a default by the Guarantor on any of its payment or
other obligations under this Preferred Securities Guarantee.
"Guarantor" means Matrix Bancorp, Inc., a Colorado corporation.
"Guarantee Payments" means the following payments or distributions, without
duplication, with respect to the Preferred Securities, to the extent not paid or
made by the Trust: (i) any accrued and unpaid Distributions that are required to
be paid on such Preferred Securities, to the extent the Trust shall have funds
available therefor, (ii) the redemption price, including all accrued and unpaid
Distributions to the date of redemption (the "Redemption Price"), to the extent
the Trust has funds available therefor, with respect to any Preferred Securities
called for redemption by the Trust, and (iii) upon a voluntary or involuntary
dissolution, winding-up or termination of the Trust (other than in connection
with the distribution of Debentures to the Holders in exchange for Preferred
Securities as provided in the Trust Agreement), the lesser of (a) the aggregate
of the Liquidation Amount and all accrued and unpaid Distributions on the
Preferred Securities to the date of payment, to the extent the Trust shall have
funds available therefor (the "Liquidation Distribution"), and (b) the amount of
assets of the Trust remaining available for distribution to Holders in
liquidation of the Trust.
"Holder" means a Person in whose name a Preferred Security is or Preferred
Securities are registered in the Securities Register; any such Person is a
beneficial owner within the meaning of the Delaware Business Trust Act;
provided, however, that, in determining whether the holders of the requisite
percentage of Preferred Securities have given any request, notice, consent or
waiver hereunder, "Holder" shall not include the Guarantor or any Affiliate of
the Guarantor.
"Indemnified Person" means the Preferred Guarantee Trustee, any Affiliate of
the Preferred Guarantee Trustee, or any officers, directors, shareholders,
members, partners, employees, representatives, nominees, custodians or agents of
the Preferred Guarantee Trustee.
"Indenture" means the Indenture dated as of ______________, 1999, among the
Debenture Issuer and State Street Bank and Trust Company, as trustee, and any
indenture supplemental thereto pursuant to which Subordinated Debentures of the
Debenture Issuer are to be issued to the Property Trustee of the Trust.
"Liquidation Distribution" has the meaning provided therefor in the definition
of Guarantee Payments.
"Majority in Liquidation Amount of the Preferred Securities" means the holders
of more than 50% of the Liquidation Amount (including the stated amount that
would be paid on redemption, liquidation or otherwise, plus accrued and unpaid
Distributions to the date upon which the voting percentages are determined) of
all of the Preferred Securities.
4
<PAGE>
"Officers' Certificate" means, with respect to any Person, a certificate
signed by two authorized officers of such Person. Any Officers' Certificate
delivered with respect to compliance with a condition or covenant provided for
in this Preferred Securities Guarantee shall include:
(a) a statement that each officer signing the Officers' Certificate has read
the covenant or condition and the definition 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.
"Person" means a legal person, including any individual, corporation, estate,
partnership, joint venture, association, joint stock company, limited liability
company, trust, unincorporated association, or government or any agency or
political subdivision thereof, or any other entity of whatever nature.
"Preferred Guarantee Trustee" means State Street Bank and Trust Company, until
a Successor Preferred Guarantee Trustee has been appointed and has accepted such
appointment pursuant to the terms of this Preferred Securities Guarantee and
thereafter means each such Successor Preferred Guarantee Trustee.
"Redemption Price" has the meaning provided therefor in the definition of
Guarantee Payments.
"Responsible Officer" means, with respect to the Preferred Guarantee Trustee,
any officer within the Corporate Trust Office of the Preferred Guarantee
Trustee, including any vice-president, any assistant vice-president, any
assistant secretary, the treasurer, any assistant treasurer or other officer of
the Corporate Trust Office of the Preferred Guarantee Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of that officer's
knowledge of and familiarity with the particular subject.
"Senior Debt" shall have the same meaning given to that term in the Indenture.
"Subordinated Debt" shall have the same meaning given to that term in the
Indenture.
"Successor Preferred Guarantee Trustee" means a successor Preferred Guarantee
Trustee possessing the qualifications to act as Preferred Guarantee Trustee
under Section 4.1.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended, as in
force at the date 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.
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1. TRUST INDENTURE ACT; APPLICATION.
(a) This Preferred Securities Guarantee is subject to the provisions of the
Trust Indenture Act that are required to be part of this Preferred Securities
Guarantee and shall, to the extent applicable, be governed by such provisions.
5
<PAGE>
(b) If and to the extent that any provision of this Preferred Securities
Guarantee limits, qualifies or conflicts with the duties imposed by Section 310
to 317, inclusive, of the Trust Indenture Act, such imposed duties shall
control.
SECTION 2.2. LIST OF HOLDERS OF SECURITIES.
(a) In the event the Preferred Guarantee Trustee is not also the Securities
Registrar, the Guarantor shall provide the Preferred Guarantee Trustee with a
list, in such form as the Preferred Guarantee Trustee may reasonably require, of
the names and addresses of the Holders of the Preferred Securities (the "List of
Holders") as of such date, (i) within 1 Business Day after January 1 and June 30
of each year, and (ii) at any other time within 30 days of receipt by the
Guarantor of a written request for a List of Holders as of a date no more than
15 days before such List of Holders is given to the Preferred Guarantee Trustee;
provided, that the Guarantor shall not be obligated to provide such List of
Holders at any time the List of Holders does not differ from the most recent
List of Holders given to the Preferred Guarantee Trustee by the Guarantor. The
Preferred Guarantee Trustee may destroy any List of Holders previously given to
it on receipt of a new List of Holders.
(b) The Preferred Guarantee Trustee shall comply with its obligations under
Sections 311(a), 311(b) and Section 312(b) of the Trust Indenture Act.
SECTION 2.3. REPORTS BY THE PREFERRED GUARANTEE TRUSTEE.
On or before July 15 of each year, the Preferred Guarantee Trustee shall
provide to the Holders of the Preferred Securities such reports as are required
by Section 313 of the Trust Indenture Act, if any, in the form and in the manner
provided by Section 313 of the Trust Indenture Act. The Preferred Guarantee
Trustee shall also comply with the requirements of Section 313(d) of the Trust
Indenture Act.
SECTION 2.4. PERIODIC REPORTS TO PREFERRED GUARANTEE TRUSTEE.
The Guarantor shall provide to the Preferred Guarantee Trustee such documents,
reports and information as required by Section 314 (if any) and the compliance
certificate required by Section 314 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 2.5. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT.
The Guarantor shall provide to the Preferred Guarantee Trustee such evidence
of compliance with any conditions precedent, if any, provided for in this
Preferred Securities Guarantee 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) may be given in the form
of an Officers' Certificate.
SECTION 2.6. EVENTS OF DEFAULT; WAIVER.
The Holders of a Majority in Liquidation Amount of Preferred Securities may,
by vote, on behalf of the Holders of all of the Preferred Securities, waive any
past Event of Default and its consequences. Upon such waiver, any such Event of
Default shall cease to exist, and any Event of Default arising therefrom shall
be deemed to have been cured, for every purpose of this Preferred Securities
Guarantee, but no such waiver shall extend to any subsequent or other default or
Event of Default or impair any right consequent thereon.
SECTION 2.7. EVENT OF DEFAULT; NOTICE.
(a) The Preferred Guarantee Trustee shall, within 90 days after the occurrence
of an Event of Default, transmit by mail, first class postage prepaid, to the
Holders of the Preferred Securities, notices of all Events of Default actually
known to a Responsible Officer of the Preferred Guarantee Trustee, unless such
defaults have been cured before the giving of such notice; provided, that the
Preferred Guarantee Trustee shall be protected in withholding such notice if and
so long as a Responsible Officer of the Preferred Guarantee Trustee in good
faith determines that the withholding of such notice is in the interests of the
Holders of the Preferred Securities.
6
<PAGE>
(b) The Preferred Guarantee Trustee shall not be deemed to have knowledge of
any Event of Default unless the Preferred Guarantee Trustee shall have received
written notice, or a Responsible Officer of the Preferred Guarantee Trustee
charged with the administration of the Trust Agreement shall have obtained
actual knowledge of such Event of Default.
SECTION 2.8. CONFLICTING INTERESTS.
The Trust Agreement shall be deemed to be specifically described in this
Preferred Securities Guarantee for the purposes of clause (i) of the first
proviso contained in Section 310(b) of the Trust Indenture Act.
ARTICLE III
POWERS, DUTIES AND RIGHTS OF PREFERRED GUARANTEE TRUSTEE
SECTION 3.1. POWERS AND DUTIES OF THE PREFERRED GUARANTEE TRUSTEE.
(a) This Preferred Securities Guarantee shall be held by the Preferred
Guarantee Trustee for the benefit of the Holders of the Preferred Securities,
and the Preferred Guarantee Trustee shall not transfer this Preferred Securities
Guarantee to any Person except a Holder of Preferred Securities exercising his
or her rights pursuant to Section 5.4(b) or to a Successor Preferred Guarantee
Trustee on acceptance by such Successor Preferred Guarantee Trustee of its
appointment to act as Successor Preferred Guarantee Trustee. The right, title
and interest of the Preferred Guarantee Trustee shall automatically vest in any
Successor Preferred Guarantee Trustee, and such vesting and cessation of title
shall be effective whether or not conveyancing documents have been executed and
delivered pursuant to the appointment of such Successor Preferred Guarantee
Trustee.
(b) If an Event of Default actually known to a Responsible Officer of the
Preferred Guarantee Trustee has occurred and is continuing, the Preferred
Guarantee Trustee shall enforce this Preferred Securities Guarantee for the
benefit of the Holders of the Preferred Securities.
(c) The Preferred Guarantee Trustee, before the occurrence of any Event of
Default and after the curing of all Events of Default that may have occurred,
shall undertake to perform only such duties as are specifically set forth in
this Preferred Securities Guarantee, and no implied covenants shall be read into
this Preferred Securities Guarantee against the Preferred Guarantee Trustee. In
case an Event of Default has occurred (that has not been cured or waived
pursuant to Section 2.6) and is actually known to a Responsible Officer of the
Preferred Guarantee Trustee, the Preferred Guarantee Trustee shall exercise such
of the rights and powers vested in it by this Preferred Securities Guarantee,
and use the same degree of care and skill in its exercise thereof, as a prudent
person would exercise or use under the circumstances in the conduct of his or
her own affairs.
(d) No provision of this Preferred Securities Guarantee shall be construed to
relieve the Preferred Guarantee 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 any 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 Preferred Guarantee Trustee shall be
determined solely by the express provisions of this Preferred Securities
Guarantee, and the Preferred Guarantee Trustee shall not be liable except for
the performance of such duties and obligations as are specifically set forth
in this Preferred Securities Guarantee, and no implied covenants or
obligations shall be read into this Preferred Securities Guarantee against
the Preferred Guarantee Trustee; and
(B) in the absence of bad faith on the part of the Preferred Guarantee
Trustee, the Preferred Guarantee Trustee may 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 Preferred
Guarantee Trustee and conforming to the requirements of this Preferred
Securities Guarantee; but in the case of any such certificates or opinions
that by any provision hereof are specifically required to be furnished to the
Preferred Guarantee Trustee, the
7
<PAGE>
Preferred Guarantee Trustee shall be under a duty to examine the same to
determine whether or not they conform to the requirements of this Preferred
Securities Guarantee;
(ii) the Preferred Guarantee Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the Preferred
Guarantee Trustee, unless it shall be proved that the Preferred Guarantee
Trustee was negligent in ascertaining the pertinent facts upon which such
judgment was made;
(iii) the Preferred Guarantee 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 Preferred Securities relating to the time, method and place of
conducting any proceeding for any remedy available to the Preferred Guarantee
Trustee, or exercising any trust or power conferred upon the Preferred
Guarantee Trustee under this Preferred Securities Guarantee; and
(iv) no provision of this Preferred Securities Guarantee shall require the
Preferred Guarantee 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 the Preferred Guarantee Trustee
shall have reasonable grounds for believing that the repayment of such funds
or liability is not reasonably assured to it under the terms of this Preferred
Securities Guarantee or indemnity, reasonably satisfactory to the Preferred
Guarantee Trustee, against such risk or liability is not reasonably assured
to it.
SECTION 3.2. CERTAIN RIGHTS OF PREFERRED GUARANTEE TRUSTEE.
(a) Subject to the provisions of Section 3.1:
(i) the Preferred Guarantee Trustee may conclusively rely, and shall be
fully protected in acting or refraining from acting upon, any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document believed by it to be genuine and to
have been signed, sent or presented by the proper party or parties;
(ii) any direction or act of the Guarantor contemplated by this Preferred
Securities Guarantee shall be sufficiently evidenced by an Officers'
Certificate;
(iii) whenever, in the administration of this Preferred Securities
Guarantee, the Preferred Guarantee Trustee shall deem it desirable that a
matter be proved or established before taking, suffering or omitting any
action hereunder, the Preferred Guarantee Trustee (unless other evidence is
herein specifically prescribed) may, in the absence of bad faith on its part,
request and conclusively rely upon an Officers' Certificate which, upon
receipt of such request, shall be promptly delivered by the Guarantor;
(iv) the Preferred Guarantee Trustee shall have no duty to see to any
recording, filing or registration of any instrument (or any rerecording,
refiling or registration thereof);
(v) the Preferred Guarantee Trustee may consult with counsel, and the
written advice or opinion of such counsel with respect to legal matters 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 accordance
with such advice or opinion. Such counsel may be counsel to the Guarantor or
any of its Affiliates and may include any of its employees. The Preferred
Guarantee Trustee shall have the right at any time to seek instructions
concerning the administration of this Preferred Securities Guarantee from any
court of competent jurisdiction;
(vi) the Preferred Guarantee Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Preferred Securities
Guarantee at the request or direction of any Holder, unless such Holder shall
have provided to the Preferred Guarantee Trustee such security and indemnity,
reasonably satisfactory to the Preferred Guarantee Trustee, against the costs,
expenses (including attorneys' fees and expenses and the expenses of the
Preferred Guarantee Trustee's agents, nominees or custodians) and liabilities
that might be incurred by it in complying with such request or direction,
including such reasonable advances as may be requested by the Preferred
Guarantee Trustee; provided that, nothing contained in this Section 3.2(a)(vi)
shall be
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taken to relieve the Preferred Guarantee Trustee, upon the occurrence of an
Event of Default, of its obligation to exercise the rights and powers vested
in it by this Preferred Securities Guarantee;
(vii) the Preferred Guarantee Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Preferred Guarantee Trustee, in its discretion, may make
such further inquiry or investigation into such facts or matters as it may see
fit;
(viii) the Preferred Guarantee Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by or
through agents, nominees, custodians or attorneys, and the Preferred Guarantee
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;
(ix) no third party shall be required to inquire as to the authority of the
Preferred Guarantee Trustee to so act or as to its compliance with any of the
terms and provisions of this Preferred Securities Guarantee, both of which
shall be conclusively evidenced by the Preferred Guarantee Trustee's or its
agent's taking such action;
(x) whenever in the administration of this Preferred Securities Guarantee
the Preferred Guarantee Trustee shall deem it desirable to receive
instructions with respect to enforcing any remedy or right or taking any other
action hereunder, the Preferred Guarantee Trustee (i) may request instructions
from the Holders of a Majority in Liquidation Amount of the Preferred
Securities, (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 conclusively relying on or acting in accordance with such
instructions.
(b) No provision of this Preferred Securities Guarantee shall be deemed to
impose any duty or obligation on the Preferred Guarantee 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
Preferred Guarantee 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 Preferred Guarantee Trustee shall be construed to be a duty.
SECTION 3.3. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF GUARANTEE.
The Recitals contained in this Guarantee shall be taken as the statements of
the Guarantor, and the Preferred Guarantee Trustee does not assume any
responsibility for their correctness. The Preferred Guarantee Trustee makes no
representation as to the validity or sufficiency of this Preferred Securities
Guarantee.
ARTICLE IV
PREFERRED GUARANTEE TRUSTEE
SECTION 4.1. PREFERRED GUARANTEE TRUSTEE; ELIGIBILITY.
(a) There shall at all times be a Preferred Guarantee Trustee which shall:
(i) not be an Affiliate of the Guarantor; and
(ii) 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 Person permitted by the Securities and
Exchange Commission to act as an institutional trustee under the Trust
Indenture Act, 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 supervising or
examining authority referred to above, then, for the purposes of this Section
4.1(a)(ii), 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.
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(b) If at any time the Preferred Guarantee Trustee shall cease to be eligible
to so act under Section 4.1(a), the Preferred Guarantee Trustee shall
immediately resign in the manner and with the effect set out in Section 4.2(c).
(c) If the Preferred Guarantee Trustee has or shall acquire any "conflicting
interest" within the meaning of Section 310(b) of the Trust Indenture Act, the
Preferred Guarantee Trustee and Guarantor shall in all respects comply with the
provisions of Section 310(b) of the Trust Indenture Act.
SECTION 4.2. APPOINTMENT, REMOVAL AND RESIGNATION OF PREFERRED GUARANTEE
TRUSTEE.
(a) Subject to Section 4.2(b), the Preferred Guarantee Trustee may be
appointed or removed without cause at any time by the Guarantor.
(b) The Preferred Guarantee Trustee shall not be removed in accordance with
Section 4.2(a) until a Successor Preferred Guarantee Trustee has been appointed
and has accepted such appointment by written instrument executed by such
Successor Preferred Guarantee Trustee and delivered to the Guarantor.
(c) The Preferred Guarantee Trustee appointed to office shall hold office
until a Successor Preferred Guarantee Trustee shall have been appointed or until
its removal or resignation. The Preferred Guarantee Trustee may resign from
office (without need for prior or subsequent accounting) by an instrument in
writing executed by the Preferred Guarantee Trustee and delivered to the
Guarantor, which resignation shall not take effect until a Successor Preferred
Guarantee Trustee has been appointed and has accepted such appointment by
instrument in writing executed by such Successor Preferred Guarantee Trustee and
delivered to the Guarantor and the resigning Preferred Guarantee Trustee.
(d) If no Successor Preferred Guarantee Trustee shall have been appointed and
accepted appointment as provided in this Section 4.2 within 60 days after
delivery to the Guarantor of an instrument of resignation, the resigning
Preferred Guarantee Trustee may petition any court of competent jurisdiction for
appointment of a Successor Preferred Guarantee Trustee. Such court may
thereupon, after prescribing such notice, if any, as it may deem proper, appoint
a Successor Preferred Guarantee Trustee.
(e) No Preferred Guarantee Trustee shall be liable for the acts or omissions
to act of any Successor Preferred Guarantee Trustee.
(f) Upon termination of this Preferred Securities Guarantee or removal or
resignation of the Preferred Guarantee Trustee pursuant to this Section 4.2, the
Guarantor shall pay to the Preferred Guarantee Trustee all amounts accrued to
the date of such termination, removal or resignation.
ARTICLE V
GUARANTEE
SECTION 5.1. GUARANTEE.
The Guarantor irrevocably and unconditionally agrees to pay in full to the
Holders the Guarantee Payments (without duplication of amounts theretofore paid
by the Trust), as and when due, regardless of any defense, right of set-off or
counterclaim that the Trust may have or assert. The Guarantor's obligation to
make a Guarantee Payment may be satisfied by direct payment of the required
amounts by the Guarantor to the Holders or by causing the Trust to pay such
amounts to the Holders.
SECTION 5.2. WAIVER OF NOTICE AND DEMAND.
The Guarantor hereby waives notice of acceptance of this Preferred Securities
Guarantee and of any liability to which it applies or may apply, presentment,
demand for payment, any right to require a proceeding first against the Trust or
any other Person before proceeding against the Guarantor, protest, notice of
nonpayment, notice of dishonor, notice of redemption and all other notices and
demands.
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SECTION 5.3. OBLIGATIONS NOT AFFECTED.
The obligations, covenants, agreements and duties of the Guarantor under this
Preferred Securities Guarantee shall in no way be affected or impaired by reason
of the happening from time to time of any of the following:
(a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Trust of any express or implied agreement,
covenant, term or condition relating to the Preferred Securities to be performed
or observed by the Trust;
(b) the extension of time for the payment by the Trust of all or any portion
of the Distributions, Redemption Price, Liquidation Distribution or any other
sums payable under the terms of the Preferred Securities or the extension of
time for the performance of any other obligation under, arising out of, or in
connection with, the Preferred Securities (other than an extension of time for
payment of Distributions, Redemption Price, Liquidation Distribution or other
sum payable that results from the extension of any interest payment period on
the Debentures or any extension of the maturity date of the Debentures permitted
by the Indenture);
(c) any failure, omission, delay or lack of diligence on the part of the
Holders to enforce, assert or exercise any right, privilege, power or remedy
conferred on the Holders pursuant to the terms of the Preferred Securities, or
any action on the part of the Trust granting indulgence or extension of any
kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt of,
or other similar proceedings affecting, the Trust or any of the assets of the
Trust;
(e) any invalidity of, or defect or deficiency in, the Preferred Securities;
(f) any failure or omission to receive any regulatory approval or consent
required in connection with the Preferred Securities (or the common equity
securities issued by the Trust), including the failure to receive any approval
of the Board of Governors of the Federal Reserve System required for the
redemption of the Preferred Securities;
(g) the settlement or compromise of any obligation guaranteed hereby or hereby
incurred; or
(h) any other circumstance whatsoever that might otherwise constitute a legal
or equitable discharge or defense of a guarantor, it being the intent of this
Section 5.3 that the obligations of the Guarantor hereunder shall be absolute
and unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to, or obtain
consent of, the Guarantor with respect to the happening of any of the foregoing.
SECTION 5.4. RIGHTS OF HOLDERS.
(a) The Holders of a Majority in Liquidation Amount of the Preferred
Securities have the right to direct the time, method and place of conducting of
any proceeding for any remedy available to the Preferred Guarantee Trustee in
respect of this Preferred Securities Guarantee or exercising any trust or power
conferred upon the Preferred Guarantee Trustee under this Preferred Securities
Guarantee.
(b) Any Holder of Preferred Securities may institute a legal proceeding
directly against the Guarantor to enforce its rights under this Preferred
Securities Guarantee, without first instituting a legal proceeding against the
Trust, the Preferred Guarantee Trustee or any other Person.
SECTION 5.5. GUARANTEE OF PAYMENT.
This Preferred Securities Guarantee creates a guarantee of payment and not of
collection.
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SECTION 5.6. SUBROGATION.
The Guarantor shall be subrogated to all (if any) rights of the Holders of
Preferred Securities against the Trust in respect of any amounts paid to such
Holders by the Guarantor under this Preferred Securities Guarantee; provided,
however, that the Guarantor shall not (except to the extent required by
mandatory provisions of law) be entitled to enforce or exercise any right that
it may acquire by way of subrogation or any indemnity, reimbursement or other
agreement, in all cases as a result of payment under this Preferred Securities
Guarantee, if, at the time of any such payment, any amounts are due and unpaid
under this Preferred Securities Guarantee. If any amount shall be paid to the
Guarantor in violation of the preceding sentence, the Guarantor agrees to hold
such amount in trust for the Holders and to pay over such amount to the Holders.
SECTION 5.7. INDEPENDENT OBLIGATIONS.
The Guarantor acknowledges that its obligations hereunder are independent of
the obligations of the Trust with respect to the Preferred Securities, and that
the Guarantor shall be liable as principal and as debtor hereunder to make
Guarantee Payments pursuant to the terms of this Preferred Securities Guarantee
notwithstanding the occurrence of any event referred to in subsections (a)
through (h), inclusive, of Section 5.3 hereof.
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 6.1. LIMITATION ON TRANSACTIONS.
So long as any Preferred Securities remain outstanding, if any of the
circumstances described in Section 5.6 of the Indenture shall have occurred,
then
(a) the Guarantor 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 and
(b) the Guarantor shall not make any payment of interest or principal on or
repay, repurchase or redeem any debt securities issued by the Guarantor which
rank pari passu with or junior to the Debentures other than payments under this
Preferred Securities Guarantee and
(c) the Guarantor shall not redeem, purchase or acquire less than all of the
Outstanding Debentures or any of the Preferred Securities.
SECTION 6.2 RANKING.
This Preferred Securities Guarantee will constitute an unsecured obligation of
the Guarantor and will rank (i) subordinate and junior in right of payment to
all Senior Debt, Subordinated Debt and Additional Senior Obligations of the
Guarantor, (ii) pari passu with the most senior preferred securities or
preference stock now or hereafter issued by the Guarantor and with any guarantee
now or hereafter entered into by the Guarantor in respect of any preferred
securities or preference stock of any Affiliate of the Guarantor, and (iii)
senior to the Guarantor's common stock.
ARTICLE VII
TERMINATION
SECTION 7.1. TERMINATION.
This Preferred Securities Guarantee shall terminate upon (i) full payment of
the Redemption Price of all Preferred Securities, (ii) upon full payment of the
amounts payable in accordance with the Trust Agreement upon liquidation of the
Trust, or (iii) upon distribution of the Debentures to the Holders of the
Preferred Securities. Notwithstanding the foregoing, this Preferred Securities
Guarantee shall continue to be effective or shall be reinstated, as the case may
be, if at any time any Holder of Preferred Securities must restore payment of
any sums paid under the Preferred Securities or under this Preferred Securities
Guarantee.
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ARTICLE VIII
INDEMNIFICATION
SECTION 8.1. EXCULPATION.
(a) No Indemnified Person shall be liable, responsible or accountable in
damages or otherwise to the Guarantor or any Covered Person for any loss, damage
or claim incurred by reason of any act or omission performed or omitted by such
Indemnified Person in good faith in accordance with this Preferred Securities
Guarantee and in a manner that such Indemnified Person reasonably believed to be
within the scope of the authority conferred on such Indemnified Person by this
Preferred Securities Guarantee or by law, except that an Indemnified Person
shall be liable for any such loss, damage or claim incurred by reason of such
Indemnified Person's negligence or willful misconduct with respect to such acts
or omissions.
(b) An Indemnified Person shall be fully protected in relying in good faith
upon the records of the Guarantor and upon such information, opinions, reports
or statements presented to the Guarantor by any Person as to matters the
Indemnified Person reasonably believes are within such other Person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Guarantor, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities, profits,
losses, or any other facts pertinent to the existence and amount of assets from
which Distributions to Holders of Preferred Securities might properly be paid.
SECTION 8.2. INDEMNIFICATION.
The Guarantor agrees to indemnify each Indemnified Person for, and to hold
each Indemnified Person harmless against, any loss, liability or expense
incurred without negligence or bad faith on its part, arising out of or in
connection with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses (including reasonable legal fees and
expenses) of defending itself against, or investigating, any claim or liability
in connection with the exercise or performance of any of its powers or duties
hereunder. The obligation to indemnify as set forth in this Section 8.2 shall
survive the termination of this Preferred Securities Guarantee.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1. SUCCESSORS AND ASSIGNS.
All guarantees and agreements contained in this Preferred Securities Guarantee
shall bind the successors, assigns, receivers, trustees and representatives of
the Guarantor and shall inure to the benefit of the Holders of the Preferred
Securities then outstanding.
SECTION 9.2. AMENDMENTS.
Except with respect to any changes that do not materially adversely affect the
rights of Holders (in which case no consent of Holders will be required), this
Preferred Securities Guarantee may only be amended with the prior approval of
the Holders of at least a Majority in Liquidation Amount of the Preferred
Securities. The provisions of Article VI of the Trust Agreement with respect to
meetings of Holders of the Preferred Securities apply to the giving of such
approval.
SECTION 9.3. NOTICES.
All notices provided for in this Preferred Securities Guarantee shall be in
writing, duly signed by the party giving such notice, and shall be delivered,
telecopied or mailed by registered or certified mail, as follows:
(a) If given to the Preferred Guarantee Trustee, at the Preferred Guarantee
Trustee's mailing address set forth below (or such other address as the
Preferred Guarantee Trustee may give notice of to the Holders of the Preferred
Securities):
State Street Bank and Trust Company
Two International Place, 4th Floor
Boston, Massachusetts 02110
Attention: Corporate Trust Department
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(b) If given to the Guarantor, at the Guarantor's mailing address set forth
below (or such other address as the Guarantor may give notice of to the Holders
of the Preferred Securities):
Matrix Bancorp, Inc.
1380 Lawrence Street, Suite 1400
Denver, Colorado 80204
Attention: Chief Financial Officer
(c) If given to any Holder of Preferred Securities, at the address set forth
on the books and records of the Trust.
All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid except that if a notice or other document is refused delivery or
cannot be delivered because of a changed address of which no notice was given,
such notice or other document shall be deemed to have been delivered on the date
of such refusal or inability to deliver.
SECTION 9.4. BENEFIT.
This Preferred Securities Guarantee is solely for the benefit of the Holders
of the Preferred Securities and, subject to Section 3.1(a), is not separately
transferable from the Preferred Securities.
SECTION 9.5. GOVERNING LAW.
THIS PREFERRED SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF COLORADO.
This Preferred Securities Guarantee is executed as of the day and year first
above written.
MATRIX BANCORP, INC.
as Guarantor
By:
---------------------------------
Name:
Title:
STATE STREET BANK AND TRUST COMPANY
as Preferred Guarantee Trustee
By:
---------------------------------
Name:
Title:
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EXHIBIT 4.13
AGREEMENT AS TO EXPENSE AND LIABILITIES
AGREEMENT AS TO EXPENSES AND LIABILITIES (this "Agreement") dated as of
____________________, 1999, between MATRIX BANCORP, INC., a Colorado corporation
("the Company"), and MATRIX BANCORP CAPITAL TRUST I, a Delaware business trust
(the "Trust").
RECITALS
WHEREAS, the Trust intends to issue its common securities (the "Common
Securities") to, and receive Debentures from, the Company and to issue and sell
up to 1,265,000 ___% Cumulative Trust Preferred Securities (the "Preferred
Securities") with such powers, preferences and special rights and restrictions
as are set forth in 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");
WHEREAS, the Company shall directly or indirectly own all of the Common
Securities of the Trust and shall issue the Debentures;
NOW, THEREFORE, in consideration of the purchase by each holder of the
Preferred Securities, which purchase the Company hereby agrees shall benefit the
Company and which purchase the Company acknowledges shall be made in reliance
upon the execution and delivery of this Agreement, the Company, including in its
capacity as holder of the Common Securities, and the Trust hereby agree as
follows:
ARTICLE I
SECTION 1.1. Guarantee By The Company
Subject to the terms and conditions hereof, the Company, including in its
capacity as holder of the Common Securities, hereby irrevocably and
unconditionally guarantees to each person or entity to whom the Trust is now or
hereafter becomes indebted or liable (the "Beneficiaries") the full payment when
and as due, of any and all Obligations (as hereinafter defined) to such
Beneficiaries. As used herein, "Obligations" means any costs, expenses or
liabilities of the Trust other than obligations of the Trust to pay to holders
of any Preferred Securities or other similar interests in the Trust the amounts
due such holders pursuant to the terms of the Preferred Securities or such other
similar interest, as the case may be. This Agreement is intended to be for the
benefit of, and to be enforceable by, all such Beneficiaries, whether or not
such Beneficiaries have received notice hereof.
SECTION 1.2. Term Of Agreement
This Agreement shall terminate and be of no further force and effect upon
the later of (a) the date on which full payment has been made of all amounts
payable to all holders of all the Preferred Securities (whether upon redemption,
liquidation, exchange or otherwise); and (b) the date on which there are no
Beneficiaries remaining; provided, however, that this Agreement shall
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continue to be effective or shall be reinstated, as the case may be, if at any
time any holder of Preferred Securities or any Beneficiary must restore payment
of any sums paid under the Preferred Securities, under any Obligation, under the
Preferred Securities Guarantee Agreement dated the date hereof by the Company
and State Street Bank and Trust Company as guarantee trustee, or under this
Agreement for any reason whatsoever. This Agreement is continuing, irrevocable,
unconditional and absolute.
SECTION 1.3. Waiver Of Notice
The Company hereby waives notice of acceptance of this Agreement and of any
obligation to which it applies or may apply, and the Company hereby waives
presentment, demand for payment, protest, notice of nonpayment, notice of
dishonor, notice of redemption and all other notices and demands.
SECTION 1.4. No Impairment
The obligations, covenants, agreements and duties of the Company under this
Agreement shall in no way be affected or impaired by reason of the happening
from time to time of any of the following:
(a) the extension of time for the payment by the Trust of all or any
portion of the Obligations or for the performance of any other obligation
under, arising out of, or in connection with, the Obligations;
(b) any failure, omission, delay or lack of diligence on the part of the
Beneficiaries to enforce, assert or exercise any right, privilege, power or
remedy conferred on the Beneficiaries with respect to the Obligations or any
action on the part of the Trust granting indulgence or extension of any kind; or
(c) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt of,
or other similar proceedings affecting, the Trust or any of the assets of the
Trust.
There shall be no obligation of the Beneficiaries to give notice to, or
obtain the consent of, the Company with respect to the happening of any of the
foregoing.
SECTION 1.5. Enforcement
A Beneficiary may enforce this Agreement directly against the Company, and
the Company waives any right or remedy to require that any action be brought
against the Trust or any other person or entity before proceeding against the
Company.
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ARTICLE II
SECTION 2.1. Binding Effect
All guarantees and agreements contained in this Agreement shall bind the
successors, assigns, receivers, trustees and representatives of the Company and
shall inure to the benefit of the Beneficiaries.
SECTION 2.2. Amendment
So long as there remains any Beneficiary or any Preferred Securities of any
series are outstanding, this Agreement shall not be modified or amended in any
manner adverse to such Beneficiary or to the holders of the Preferred
Securities.
SECTION 2.3. Notices
Any notice, request or other communication required or permitted to be
given hereunder shall be given in writing by delivering the same by facsimile
transmission (confirmed by mail), telex, or by registered or certified mail,
addressed as follows (and if so given, shall be deemed given when mailed or upon
receipt of an answer back, if sent by telex):
Matrix Bancorp Capital Trust I, c/o Matrix Bancorp, Inc., 1380 Lawrence
Street, Suite 1400, Denver, Colorado 80204. Facsimile No.: (303) 390-0952.
Attention: Chief Financial Officer.
Matrix Bancorp, Inc., 1380 Lawrence Street, Suite 1400, Denver, Colorado
80204. Facsimile No.: (303) 390-0952. Attention: Chief Financial Officer.
SECTION 2.4. This agreement shall be governed by and construed and
interpreted in accordance with the laws of the State of Colorado (without
regard to conflict of laws principles).
[The remainder of this page has been left blank intentionally]
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THIS AGREEMENT is executed as of the day and year first above written.
MATRIX BANCORP, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
MATRIX BANCORP CAPITAL TRUST I
By:
---------------------------------
Name:
-------------------------------
Title: Administrative Trustee
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EXHIBIT 5.1
[LETTERHEAD OF BLACKWELL SANDERS PEPER MARTIN APPEARS HERE]
May 28, 1999
Matrix Bancorp Capital Trust I
Matrix Bancorp, Inc.
1380 Lawrence Street, Suite 1400
Denver, CO 80204
Ladies and Gentlemen:
We have acted as counsel to Matrix Bancorp, Inc. (the "Company") in
connection with the preparation and filing by the Company and Matrix Bancorp
Capital Trust I (the "Trust") of a registration statement (the "Registration
Statement") on Form S-1 under the Securities Act of 1933, as amended (the
"Act"), with respect to the offer and sale of certain of the Trust's Preferred
Securities (liquidation amount $25 per Preferred Security) (the "Preferred
Securities") and certain of the Company's Junior Subordinated Debentures (the
"Debentures") and the related Preferred Securities Guarantee Agreement by and
between the Company and State Street Bank and Trust Company, as trustee (the
"Guarantee"). In connection therewith, you have requested our opinion as to
certain matters referred to below.
In our capacity as such counsel, we have familiarized ourselves with the
actions taken by the Company in connection with the registration of the
Debentures and the Guarantee. We have examined originals or certified copies of
other documents, including the Registration Statement and the amendment thereto,
as we have deemed relevant and necessary as a basis for the opinion hereinafter
expressed. In such examination, we have assumed the genuineness of all
signatures on original documents and the authenticity of all documents submitted
to us as originals, the conformity to original documents of all copies submitted
to us as conformed or photostatic copies, and the authenticity of the originals
of such latter documents. We have also assumed that when the Debentures are
issued and the Guarantee executed and delivered, the Company will have obtained
any required regulatory approvals. Our opinion is limited to the law of the
State of Colorado and the Federal law of the United States, and we do not
express any opinion herein concerning any other law.
Based upon and subject to the foregoing, we are of the opinion that,
when issued (with respect to the Debentures), or executed and delivered (with
respect to the Guarantee), as set forth in the Registration Statement, the
Debentures and the Guarantee will be the valid and binding obligations of the
Company, enforceable in accordance with their terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, moratorium,
reorganization or
<PAGE>
[LETTERHEAD OF BLACKWELL SANDERS PEPER MARTIN APPEARS HERE]
Matrix Bancorp Capital Trust I
Matrix Bancorp, Inc.
May 28, 1999
Page 2
similar laws relating to or affecting the enforcement of creditors' rights
generally or the rights of creditors of unitary thrifty holding companies, the
accounts of whose subsidiaries are insured by the Savings Association Insurance
Fund of the Federal Deposit Insurance Corporation, or by general equity
principles, regardless of whether such enforceability is considered in a
proceeding in equity or at law.
We consent to the references to this opinion and to Blackwell Sanders
Peper Martin LLP in the Prospectus included as part of the Registration
Statement under the caption "Validity of Securities," and to the inclusion of
this opinion as an exhibit to the Registration Statement.
Very truly yours,
/s/ Blackwell Sanders Peper Martin LLP
--------------------------------------
<PAGE>
EXHIBIT 8.1
[LETTERHEAD OF BLACKWELL SANDERS PEPER MARTIN APPEARS HERE]
May 28, 1999
Matrix Bancorp Capital Trust I
Matrix Bancorp, Inc.
1380 Lawrence Street, Suite 1400
Denver, CO 80204
Ladies and Gentlemen:
We have acted as counsel to Matrix Bancorp, Inc. (the "Company") and to
Matrix Bancorp Capital Trust I (the "Trust") in connection with the registration
statement of the Company and the Trust on Form S-1 (the "Registration
Statement"), of which a prospectus ("Prospectus") is a part, filed by the
Company and the Trust with the United States Securities and Exchange Commission
under the Securities Act of 1933, as amended. This opinion is furnished pursuant
to the requirements of Item 601(b)(8) of Regulation S-K.
For the purposes of rendering this opinion, we have reviewed and relied
upon the Registration Statement and such other documents and instruments as we
deemed necessary for the rendering of this opinion. In our examination of
relevant documents, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, the conformity to
original documents to all documents submitted to us as copies, the authenticity
of such copies and the accuracy and completeness of all corporate records made
available to us by the Company and the Trust.
Based solely upon our review of such documents, and upon such
information as the Company has provided to us (which we have not attempted to
verify in any respect), and reliance upon such documents and information, we
hereby adopt and incorporate by reference the opinion set forth in the
Prospectus under the caption "Certain Federal Income Tax Consequences."
Our opinion is limited to the federal income tax matters described above
and does not address any other federal income tax considerations or any state,
local, foreign, or other tax considerations. If any of the information on which
we have relied is incorrect, or if changes in the relevant facts occur after the
date hereof, our opinion could be affected thereby.
Moreover, our opinion is based on the Internal Revenue Code of 1986, as
amended, applicable Treasury regulations promulgated thereunder, and Internal
Revenue Service rulings, procedures, and other pronouncements published by the
United States Internal Revenue Service. These authorities are all subject to
change, and such change may be made with retroactive effect.
<PAGE>
[LETTERHEAD OF BLACKWELL SANDERS PEPER MARTIN APPEARS HERE]
Matrix Bancorp Capital Trust I
Matrix Bancorp, Inc.
May 28, 1999
Page 2
We can give no assurance that, after such change, our opinion would not be
different. We undertake no responsibility to update or supplement our opinion.
This opinion is not binding on the Internal Revenue Service, and there can be no
assurance, and none is hereby given, that the Internal Revenue Service will not
take a position contrary to one or more of the positions reflected in the
foregoing opinion, or that our opinion will be upheld by the courts if
challenged by the Internal Revenue Service.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. We also consent to the use of our name in the Prospectus
under the caption "Certain Federal Income Tax Consequences."
Very truly yours,
/s/ Blackwell Sanders Peper Martin LLP
--------------------------------------
<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- ) 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
May 28, 1999
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
_________
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2) __
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Maureen Scannell Bateman, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
(Name, address and telephone number of agent for service)
_____________________
Matrix Bancorp, Inc.
(Exact name of obligor as specified in its charter)
Colorado 84-1233716
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1380 Lawrence Street, Suite 1400
Denver, Colorado 80204
(303) 595-9898
(Address of principal executive offices) (Zip Code)
____________________
% Subordinated Debentures
(Title of indenture securities)
<PAGE>
GENERAL
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervisory authority to
which it is subject.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington,
D.C., Federal Deposit Insurance Corporation, Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Trustee is authorized to exercise corporate trust powers.
Item 2. Affiliations with Obligor.
If the Obligor is an affiliate of the trustee, describe each such
affiliation.
The obligor is not an affiliate of the trustee or of its parent,
State Street Boston Corporation.
(See note on page 2.)
Item 3. through Item 15. Not applicable.
Item 16. List of Exhibits.
List below all exhibits filed as part of this statement of eligibility.
1. A copy of the articles of association of the trustee as now in
effect.
A copy of the Articles of Association of the trustee, as now in
effect, is on file with the Securities and Exchange Commission
as Exhibit 1 to Amendment No. 1 to the Statement of Eligibility
and Qualification of Trustee (Form T-1) filed with the
Registration Statement (File No. 22-17940) and is incorporated
herein by reference thereto.
2. A copy of the certificate of of Morse Shoe, Inc. authority of the
trustee to commence business, if not contained in the articles of
association.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the trustee
to commence business was necessary or issued is on file with the
Securities and Exchange Commission as Exhibit 2 to Amendment No.
1 to the Statement of Eligibility and Qualification of Trustee
(Form T-1) filed with the Registration Statement of Morse Shoe,
Inc. (File No. 22-17940) and is incorporated herein by reference
thereto.
3. A copy of the authorization of the trustee to exercise corporate
trust powers, if such authorization is not contained in the
documents specified in paragraph (1) or (2), above.
A copy of the authorization of the trustee to exercise corporate
trust powers is on file with the Securities and Exchange
Commission as Exhibit 3 to Amendment No. 1 to the Statement of
Eligibility and Qualification of Trustee (Form T-1) filed with
the Registration Statement of Morse Shoe, Inc. (File No. 22-
17940) and is incorporated herein by reference thereto.
4. A copy of the existing by-laws of the trustee, or instruments
corresponding thereto.
A copy of the by-laws of the trustee, as now in effect, is on
file with the Securities and Exchange Commission as Exhibit 4 to
the Statement of Eligibility and Qualification of Trustee (Form
T-1) filed with the Registration Statement of Eastern Edison
Company (File No. 33-37823) and is incorporated herein by
reference thereto.
1
<PAGE>
5. A copy of each indenture referred to in Item 4. if the obligor is
in default.
Not applicable.
6. The consents of United States institutional trustees required by
Section 321(b) of the Act.
The consent of the trustee required by Section 321(b) of the Act
is annexed hereto as Exhibit 6 and made a part hereof.
7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or
examining authority.
A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its supervising
or examining authority is annexed hereto as Exhibit 7 and made a
part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the 16th day of April, 1999.
STATE STREET BANK AND TRUST COMPANY
By: /S/ Paul D. Allen
-----------------------
Paul D. Allen
Vice President
2
<PAGE>
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act
of 1939, as amended, in connection with the proposed issuance by Matrix Bancorp,
Inc. of its % Subordinated Debentures, we hereby consent that reports of
examination by Federal, State, Territorial or District authorities may be
furnished by such authorities to the Securities and Exchange Commission upon
request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /S/ Paul D. Allen
---------------------
Paul D. Allen
Vice President
Dated: April 16, 1999
3
<PAGE>
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business December 31, 1998,
-----------------
published in accordance with a call made by the Federal Reserve Bank
of this District pursuant to the provisions of the Federal Reserve Act and in
accordance with a call made by the Commissioner of Banks under General Laws,
Chapter 172, Section 22(a).
<TABLE>
<CAPTION>
Thousands of
ASSETS Dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin.......................................................... 1,209,293
Interest-bearing balances................................................................................... 12,007,895
Securities....................................................................................................... 9,705,731
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary......................................................................... 9,734,476
Loans and lease financing receivables:
Loans and leases, net of unearned income ......................................................... 6,973,125
Allowance for loan and lease losses.................................................................. 84,308
Allocated transfer risk reserve........................................................................... 0
Loans and leases, net of unearned income and allowances..................................................... 6,888,817
Assets held in trading accounts.................................................................................. 1, 574,999
Premises and fixed assets........................................................................................ 523,514
Other real estate owned.......................................................................................... 0
Investments in unconsolidated subsidiaries....................................................................... 612
Customers' liability to this bank on acceptances outstanding..................................................... 47,334
Intangible assets................................................................................................ 212,743
Other assets..................................................................................................... 1,279,224
----------
Total assets..................................................................................................... 43,184,638
==========
LIABILITIES
Deposits:
In domestic offices......................................................................................... 10,852,862
Noninterest-bearing.............................................................. 8,331,830
Interest-bearing................................................................. 2,521,032
In foreign offices and Edge subsidiary...................................................................... 16,761,573
Noninterest-bearing................................................................. 83,010
Interest-bearing................................................................ 16,678,563
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary......................................................................... 10,041,324
Demand notes issued to the U.S. Treasury......................................................................... 108,420
Trading liabilities......................................................................................... 1,240,938
Other borrowed money............................................................................................. 322,331
Subordinated notes and debentures................................................................................ 0
Bank's liability on acceptances executed and outstanding......................................................... 47,334
Other liabilities................................................................................................ 1,126,058
Total liabilities................................................................................................ 40,500,840
----------
EQUITY CAPITAL
Perpetual preferred stock and related surplus.................................................................... 0
Common stock..................................................................................................... 29,931
Surplus.......................................................................................................... 468,511
Undivided profits and capital reserves/Net unrealized holding gains (losses)..................................... 2,164,055
Net unrealized holding gains (losses) on available-for-sale securities...................................... 21,638
Cumulative foreign currency translation adjustments.............................................................. (337)
Total equity capital............................................................................................. 2,683,798
----------
Total liabilities and equity capital............................................................................. 43,184,638
----------
</TABLE>
4
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
<PAGE>
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Truman S. Casner
5
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
_________
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2) __
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Maureen Scannell Bateman, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
(Name, address and telephone number of agent for service)
_____________________
Matrix Bancorp Capital Trust I
(Exact name of obligor as specified in its charter)
Delaware xx-xxxxxxx
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1380 Lawrence Street, Suite 1400
Denver, Colorado 80204
(303) 595-9898
(Address of principal executive offices) (Zip Code)
____________________
Preferred Securities
(Title of indenture securities)
<PAGE>
GENERAL
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervisory authority to which
it is subject.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington, D.C.,
Federal Deposit Insurance Corporation, Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Trustee is authorized to exercise corporate trust powers.
Item 2. Affiliations with Obligor.
If the Obligor is an affiliate of the trustee, describe each such
affiliation.
The obligor is not an affiliate of the trustee or of its parent, State
Street Boston Corporation.
(See note on page 2.)
Item 3. through Item 15. Not applicable.
Item 16. List of Exhibits.
List below all exhibits filed as part of this statement of eligibility.
1. A copy of the articles of association of the trustee as now in effect.
A copy of the Articles of Association of the trustee, as now in
effect, is on file with the Securities and Exchange Commission as
Exhibit 1 to Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the Registration
Statement of Morse Shoe, Inc. (File No. 22-17940) and is incorporated
herein by reference thereto.
2. A copy of the certificate of authority of the trustee to commence
business, if not contained in the articles of association.
A copy of a Statement from the Commissioner of Banks of Massachusetts
that no certificate of authority for the trustee to commence business
was necessary or issued is on file with the Securities and Exchange
Commission as Exhibit 2 to Amendment No. 1 to the Statement of
Eligibility and Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File No. 22-17940) and is
incorporated herein by reference thereto.
3. A copy of the authorization of the trustee to exercise corporate trust
powers, if such authorization is not contained in the documents
specified in paragraph (1) or (2), above.
A copy of the authorization of the trustee to exercise corporate trust
powers is on file with the Securities and Exchange Commission as
Exhibit 3 to Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the Registration
Statement of Morse Shoe, Inc. (File No. 22-17940) and is incorporated
herein by reference thereto.
4. A copy of the existing by-laws of the trustee, or instruments
corresponding thereto.
A copy of the by-laws of the trustee, as now in effect, is on file
with the Securities and Exchange Commission as Exhibit 4 to the
Statement of Eligibility and Qualification of Trustee (Form T-1) filed
with the Registration Statement of Eastern Edison Company
(File No. 33-37823) and is incorporated herein by reference thereto.
1
<PAGE>
5. A copy of each indenture referred to in Item 4. if the obligor is in
default.
Not applicable.
6. The consents of United States institutional trustees required by
Section 321(b) of the Act.
The consent of the trustee required by Section 321(b) of the Act is
annexed hereto as Exhibit 6 and made a part hereof.
7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority.
A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority is annexed hereto as Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the 16th day of April, 1999.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Paul D. Allen
---------------------------------
Paul D. Allen
Vice President
2
<PAGE>
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act
of 1939, as amended, in connection with the proposed issuance by Matrix Bancorp
Capital Trust I of its Preferred Securities, we hereby consent that reports of
examination by Federal, State, Territorial or District authorities may be
furnished by such authorities to the Securities and Exchange Commission upon
request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Paul D. Allen
---------------------------------
Paul D. Allen
Vice President
Dated: April 16, 1999
3
<PAGE>
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business December 31, 1998,
-----------------
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act and in accordance
with a call made by the Commissioner of Banks under General Laws, Chapter 172,
Section 22(a).
<TABLE>
<CAPTION>
Thousands of
ASSETS Dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin......... 1,209,293
Interest-bearing balances.................................. 12,007,895
Securities...................................................... 9,705,731
Federal funds sold and securities purchased under agreements to
resell in domestic offices of the bank and its
Edge subsidiary.............................................. 9,734,476
Loans and lease financing receivables:
Loans and leases, net of unearned income........ 6,973,125
Allowance for loan and lease losses................ 84,308
Allocated transfer risk reserve......................... 0
Loans and leases, net of unearned income and allowances.... 6,888,817
Assets held in trading accounts................................. 1,574,999
Premises and fixed assets....................................... 523,514
Other real estate owned......................................... 0
Investments in unconsolidated subsidiaries...................... 612
Customers' liability to this bank on acceptances outstanding.... 47,334
Intangible assets............................................... 212,743
Other assets.................................................... 1,279,224
----------
Total assets.................................................... 43,184,638
==========
LIABILITIES
Deposits:
In domestic offices........................................ 10,852,862
Noninterest-bearing........................ 8,331,830
Interest-bearing........................... 2,521,032
In foreign offices and Edge subsidiary..................... 16,761,573
Noninterest-bearing........................... 83,010
Interest-bearing.......................... 16,678,563
Federal funds purchased and securities sold under agreements to
repurchase in domestic offices of the bank and of its
Edge subsidiary.............................................. 10,041,324
Demand notes issued to the U.S. Treasury........................ 108,420
Trading liabilities....................................... 1,240,938
Other borrowed money............................................ 322,331
Subordinated notes and debentures............................... 0
Bank's liability on acceptances executed and outstanding........ 47,334
Other liabilities............................................... 1,126,058
Total liabilities............................................... 40,500,840
----------
EQUITY CAPITAL
Perpetual preferred stock and related surplus................... 0
Common stock.................................................... 29,931
Surplus......................................................... 468,511
Undivided profits and capital reserves/Net unrealized holding
gains (losses)............................................... 2,164,055
Net unrealized holding gains (losses) on available-for-sale
securities............................................... 21,638
Cumulative foreign currency translation adjustments............. (337)
Total equity capital............................................ 2,683,798
----------
Total liabilities and equity capital............................ 43,184,638
----------
</TABLE>
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
4
<PAGE>
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Truman S. Casner
5
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
_________
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2) __
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Maureen Scannell Bateman, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
(Name, address and telephone number of agent for service)
_____________________
Matrix Bancorp, Inc.
(Exact name of obligor as specified in its charter)
Colorado 84-1233716
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1380 Lawrence Street, Suite 1400
Denver, Colorado, 80204
(303) 595-9898
(Address of principal executive offices) (Zip Code)
____________________
Guarantee
(Title of indenture securities)
<PAGE>
GENERAL
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervisory authority to which
it is subject.
Department of Banking and Insurance of The Commonwealth of Massachusetts,
100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington, D.C.,
Federal Deposit Insurance Corporation, Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Trustee is authorized to exercise corporate trust powers.
Item 2. Affiliations with Obligor.
If the Obligor is an affiliate of the trustee, describe each such
affiliation.
The obligor is not an affiliate of the trustee or of its parent, State
Street Boston Corporation.
(See note on page 2.)
Item 3. through Item 15. Not applicable.
Item 16. List of Exhibits.
List below all exhibits filed as part of this statement of
eligibility.
1. A copy of the articles of association of the trustee as now in effect.
A copy of the Articles of Association of the trustee, as now in
effect, is on file with the Securities and Exchange Commission as
Exhibit 1 to Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the Registration
Statement of Morse Shoe, Inc. (File No. 22-17940) and is incorporated
herein by reference thereto.
2. A copy of the certificate of authority of the trustee to commence
business, if not contained in the articles of association.
A copy of a Statement from the Commissioner of Banks of Massachusetts
that no certificate of authority for the trustee to commence business
was necessary or issued is on file with the Securities and Exchange
Commission as Exhibit 2 to Amendment No. 1 to the Statement of
Eligibility and Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File No. 22-17940) and is
incorporated herein by reference thereto.
3. A copy of the authorization of the trustee to exercise corporate trust
powers, if such authorization is not contained in the documents
specified in paragraph (1) or (2), above.
A copy of the authorization of the trustee to exercise corporate trust
powers is on file with the Securities and Exchange Commission as
Exhibit 3 to Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the Registration
Statement of Morse Shoe, Inc. (File No. 22-17940) and is incorporated
herein by reference thereto.
4. A copy of the existing by-laws of the trustee, or instruments
corresponding thereto.
A copy of the by-laws of the trustee, as now in effect, is on file
with the Securities and Exchange Commission as Exhibit 4 to the
Statement of Eligibility and Qualification of Trustee (Form T-1) filed
with the Registration Statement of Eastern Edison Company
(File No. 33-37823) and is incorporated herein by reference thereto.
1
<PAGE>
5. A copy of each indenture referred to in Item 4. if the obligor is in
default.
Not applicable.
6. The consents of United States institutional trustees required by
Section 321(b) of the Act.
The consent of the trustee required by Section 321(b) of the Act is
annexed hereto as Exhibit 6 and made a part hereof.
7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority.
A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority is annexed hereto as Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the 16th day of April, 1999.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Paul D. Allen
---------------------------------
Paul D. Allen
Vice President
2
<PAGE>
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act
of 1939, as amended, in connection with the proposed issuance by Matrix Bancorp,
Inc. of its Guarantee, we hereby consent that reports of examination by
Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Paul D. Allen
---------------------------------
Paul D. Allen
Vice President
Dated: April 16, 1999
3
<PAGE>
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business December 31, 1998,
-----------------
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act and in accordance
with a call made by the Commissioner of Banks under General Laws, Chapter 172,
Section 22(a).
<TABLE>
<CAPTION>
Thousands of
ASSETS Dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin........... 1,209,293
Interest-bearing balances.................................... 12,007,895
Securities........................................................ 9,705,731
Federal funds sold and securities purchased under agreements to
resell in domestic offices of the bank and its
Edge subsidiary............................................... 9,734,476
Loans and lease financing receivables:
Loans and leases, net of unearned income.......... 6,973,125
Allowance for loan and lease losses.................. 84,308
Allocated transfer risk reserve........................... 0
Loans and leases, net of unearned income and allowances...... 6,888,817
Assets held in trading accounts................................... 1,574,999
Premises and fixed assets......................................... 523,514
Other real estate owned........................................... 0
Investments in unconsolidated subsidiaries........................ 612
Customers' liability to this bank on acceptances outstanding...... 47,334
Intangible assets................................................. 212,743
Other assets...................................................... 1,279,224
----------
Total assets...................................................... 43,184,638
==========
LIABILITIES
Deposits:
In domestic offices.......................................... 10,852,862
Noninterest-bearing.......................... 8,331,830
Interest-bearing............................. 2,521,032
In foreign offices and Edge subsidiary....................... 16,761,573
Noninterest-bearing............................. 83,010
Interest-bearing............................ 16,678,563
Federal funds purchased and securities sold under agreements to
repurchase in domestic offices of the bank and of its
Edge subsidiary................................................ 10,041,324
Demand notes issued to the U.S. Treasury.......................... 108,420
Trading liabilities........................................ 1,240,938
Other borrowed money.............................................. 322,331
Subordinated notes and debentures................................. 0
Bank's liability on acceptances executed and outstanding.......... 47,334
Other liabilities................................................. 1,126,058
Total liabilities................................................. 40,500,840
----------
EQUITY CAPITAL
Perpetual preferred stock and related surplus..................... 0
Common stock...................................................... 29,931
Surplus........................................................... 468,511
Undivided profits and capital reserves/Net unrealized holding
gains (losses)................................................. 2,164,055
Net unrealized holding gains (losses) on available-for-sale
securities.............................................. 21,638
Cumulative foreign currency translation adjustments............... (337)
Total equity capital.............................................. 2,683,798
----------
Total liabilities and equity capital.............................. 43,184,638
----------
</TABLE>
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
4
<PAGE>
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Truman S. Casner
5
