<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
Commission file number: 0-21231
MATRIX BANCORP, INC.
(Exact name of registrant as specified in its charter)
Colorado 84-1233716
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1380 Lawrence Street, Suite 1400
Denver, Colorado 80204
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 595-9898
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Number of shares of Common Stock ($.0001 par value) outstanding at the close
of business on July 30, 1999 was 6,729,911 shares.
<PAGE>
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1999 (unaudited) and December 31, 1998................3
Condensed Consolidated Statements of Income
Quarters and six months ended June 30, 1999
and 1998 (unaudited)...........................................4
Condensed Consolidated Statements of Changes in
Shareholders' Equity
Six months ended June 30, 1999 and 1998 (unaudited)............5
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 1999 and 1998 (unaudited)............6
Notes to Unaudited Condensed Consolidated Financial Statements.....7
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.........................................11
PART II - Other Information
ITEM 4 Submissions of Matters to a Vote of Security Holders.............23
ITEM 6 Exhibits and Reports on Form 8-K.................................23
SIGNATURES................................................................25
2
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
Matrix Bancorp, Inc.
Condensed Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------------- -------------------
Assets (unaudited)
<S> <C> <C>
Cash..................................................................... $ 16,351 $ 18,665
Interest-earning deposits................................................ 24,986 8,120
Loans held for sale, net................................................. 730,474 754,226
Loans held for investment, net........................................... 105,486 94,222
Mortgage servicing rights, net........................................... 61,265 58,147
Other receivables........................................................ 39,019 40,018
Federal Home Loan Bank of Dallas stock................................... 16,063 15,643
Premises and equipment, net.............................................. 10,849 10,328
Other assets............................................................. 30,206 13,271
------------------- -------------------
Total assets................................................. $ 1,034,699 $ 1,012,640
=================== ===================
Liabilities and shareholders' equity
Liabilities:
Deposits................................................................ $ 564,587 $ 490,516
Custodial escrow balances............................................... 121,983 96,824
Drafts payable.......................................................... 4,802 5,423
Payable for purchase of mortgage servicing rights....................... 5,743 12,103
Federal Home Loan Bank of Dallas borrowings............................. 115,533 168,000
Borrowed money.......................................................... 161,948 178,789
Other liabilities....................................................... 4,887 11,283
Income taxes payable.................................................... 502 348
------------------- -------------------
Total liabilities............................................ 979,985 963,286
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 6,729,911 and 6,723,911 at June 30, 1999 and December
31, 1998, respectively................................................. 1 1
Additional paid in capital.............................................. 22,481 22,416
Retained earnings....................................................... 32,232 26,937
------------------- -------------------
Total shareholders' equity................................... 54,714 49,354
------------------- -------------------
Total liabilities and shareholders' equity................... $ 1,034,699 $ 1,012,640
=================== ===================
</TABLE>
See accompanying notes.
3
<PAGE>
Matrix Bancorp, Inc.
Condensed Consolidated Statements of Income
(Dollars in thousands except per share information)
(unaudited)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income
Loans.................................................. $ 16,870 $ 13,576 $ 34,108 $ 24,877
Interest-earning deposits.............................. 327 243 694 528
----------- ----------- ----------- -----------
Total interest income................................. 17,197 13,819 34,802 25,405
Interest expense
Deposits............................................... 5,189 3,854 10,384 6,718
Borrowings............................................. 4,904 4,454 10,086 8,887
----------- ----------- ----------- -----------
Total interest expense................................ 10,093 8,308 20,470 15,605
----------- ----------- ----------- -----------
Net interest income before provision for loan and
valuation losses.................................... 7,104 5,511 14,332 9,800
Provision for loan and valuation losses.............. 675 538 1,350 988
----------- ----------- ----------- -----------
Net interest income.................................... 6,429 4,973 12,982 8,812
Noninterest income
Loan administration.................................... 5,601 4,587 10,894 8,329
Brokerage.............................................. 1,746 1,870 3,417 3,542
Trust services......................................... 1,210 1,090 2,489 2,091
Gain on sale of loans.................................. 1,157 742 1,690 1,804
Gain on sale of mortgage servicing rights.............. - - - 838
Loan origination....................................... 1,751 1,387 3,706 2,869
Other.................................................. 4,221 1,670 7,696 2,792
----------- ----------- ----------- -----------
Total noninterest income.............................. 15,686 11,346 29,892 22,265
Noninterest expense
Compensation and employee benefits..................... 7,314 5,240 14,183 10,367
Amortization of mortgage servicing rights.............. 4,684 2,262 9,410 3,856
Occupancy and equipment................................ 918 757 1,756 1,423
Postage and communication.............................. 606 664 1,275 1,206
Professional fees...................................... 498 376 798 626
Data processing........................................ 378 364 703 710
Other general and administrative....................... 3,418 2,967 6,550 5,676
----------- ----------- ----------- -----------
Total noninterest expense............................. 17,816 12,630 34,675 23,864
----------- ----------- ----------- -----------
Income before income taxes............................ 4,299 3,689 8,199 7,213
Provision for income taxes............................. 1,509 1,343 2,904 2,682
----------- ----------- ----------- -----------
Net income............................................ $ 2,790 $ 2,346 $ 5,295 $ 4,531
=========== =========== =========== ===========
Net income per share.................................... $ .41 $ .35 $ .79 $ .68
=========== =========== =========== ===========
Net income per share assuming dilution.................. $ .41 $ .34 $ .77 $ .66
=========== =========== =========== ===========
Weighted average shares................................. 6,727,889 6,704,878 6,726,300 6,704,454
=========== =========== =========== ===========
Weighted average shares assuming dilution............... 6,835,400 6,960,628 6,842,322 6,916,571
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
4
<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>
Six Months Ended June 30, 1999
- -------------------------------------
Balance at December 31, 1998......... 6,723,911 $ 1 $ 22,416 $ 26,937 $ 49,354
Exercise of stock options............ 6,000 - 65 - 65
Net income........................... - - - 5,295 5,295
--------- -------- ------------ ---------- --------
Balance at June 30, 1999............. 6,729,911 $ 1 $ 22,481 $ 32,232 $ 54,714
========= ======== ============ ========== ========
Six Months Ended June 30, 1998
- -------------------------------------
Balance at December 31, 1997......... 6,703,880 $ 1 $ 22,185 $ 18,424 $ 40,610
Exercise of stock options............ 1,350 - 17 - 17
Net income........................... - - - 4,531 4,531
--------- -------- ------------ ---------- --------
Balance at June 30, 1998............. 6,705,230 $ 1 $ 22,202 $ 22,955 $ 45,158
========= ======== ============ ========== ========
</TABLE>
See accompanying notes.
5
<PAGE>
Matrix Bancorp, Inc.
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
--------------- ---------------
<S> <C> <C>
Operating activities
Net income......................................................................... $ 5,295 $ 4,531
Adjustments to reconcile net income to net cash used by operating activities:
Depreciation and amortization..................................................... 2,814 921
Provision for loan and valuation losses........................................... 1,350 988
Amortization of mortgage servicing rights......................................... 9,410 3,856
Gain on sale of loans............................................................. (1,690) (1,804)
Gain on sale of mortgage servicing rights, net.................................... - (838)
Loans originated for sale, net of loans sold...................................... 41,823 (42,703)
Loans purchased for sale.......................................................... (231,293) (335,200)
Proceeds from sale of loans purchased for sale.................................... 98,236 137,282
Originated mortgage servicing rights, net......................................... (839) (1,204)
Increase in other receivables and other assets.................................... (16,581) (17,601)
Increase (decrease) in other liabilities and income taxes payable................. (6,342) 1,654
--------------- ---------------
Net cash used by operating activities.............................................. (97,817) (250,118)
Investing activities
Loans originated and purchased for investment...................................... (39,211) (48,113)
Principal repayments on loans...................................................... 141,443 105,784
Purchase of Federal Home Loan Bank of Dallas stock................................. (420) (1,400)
Purchases of premises and equipment................................................ (1,541) (1,976)
Acquisition of mortgage servicing rights........................................... (18,048) (20,694)
Proceeds from sale of mortgage servicing rights.................................... 159 5,082
--------------- ---------------
Net cash provided by investing activities.......................................... 82,382 38,683
Financing activities
Net increase in deposits........................................................... 74,071 180,039
Net increase in custodial escrow balances.......................................... 25,159 45,615
Decrease in revolving lines and repurchase agreements, net......................... (83,787) (23,397)
Repayments of notes payable........................................................ (14,771) (18,364)
Proceeds from notes payable........................................................ 29,320 41,329
Repayment of financing arrangements................................................ (70) (86)
Proceeds from issuance of common stock related to employee stock option plan....... 65 17
--------------- ---------------
Net cash provided by financing activities.......................................... 29,987 225,153
--------------- ---------------
Increase in cash and cash equivalents.............................................. 14,552 13,718
Cash and cash equivalents at beginning of period................................... 26,785 9,633
--------------- ---------------
Cash and cash equivalents at end of period......................................... $ 41,337 $ 23,351
=============== ===============
Supplemental disclosure of noncash activity
Payable for purchase of mortgage servicing rights.................................. $ 5,743 $ 3,633
=============== ===============
Drafts payable..................................................................... $ 4,802 $ 8,922
=============== ===============
Supplemental disclosure of cash flow information
Cash paid for interest expense..................................................... $ 20,512 $ 14,026
=============== ===============
Cash paid for income taxes......................................................... $ 2,749 $ 3,050
=============== ===============
</TABLE>
See accompanying notes.
6
<PAGE>
Matrix Bancorp, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 1999
(unaudited)
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 and footnotes hereto
included in the Company's annual report on Form 10-K for the year ended December
31, 1998.
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 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133 - an amendment of FASB Statement No. 133. Now, Statement No. 133 is
required to be adopted in years beginning after June 15, 2000, however,
Statement No. 133 permits early adoption as of the beginning of any fiscal
quarter after its issuance. The Company expects to adopt Statement No. 133
effective January 1, 2001. This Statement requires the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of derivatives
will either be offset against the change in fair value of the hedged assets,
liabilities or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. The Company has not yet determined what effect
Statement No. 133 will have on the earnings and financial position of the
Company.
2. Net Income Per Share
The following table sets forth the computation of net income per share and net
income per share assuming dilution:
<TABLE>
<CAPTION>
Quarter Ended June 30, Six Months Ended June 30,
1999 1998 1999 1998
------------------ ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Numerator:
Net income available to common
shareholders $ 2,790 $ 2,346 $ 5,295 $ 4,531
================== ================= ================= =================
Denominator:
Weighted average shares outstanding 6,727,889 6,704,878 6,726,300 6,704,454
Effect of dilutive securities:
Common stock options 98,055 214,268 104,008 178,713
Common stock warrants 9,456 41,482 12,014 33,404
------------------ ----------------- ----------------- -----------------
Dilutive potential common shares 107,511 255,750 116,022 212,117
------------------ ----------------- ----------------- -----------------
Denominator for net income per
share assuming dilution 6,835,400 6,960,628 6,842,322 6,916,571
================== ================= ================= =================
</TABLE>
7
<PAGE>
Matrix Bancorp, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 1999
(unaudited)
3. Mortgage Servicing Rights
The activity in the Mortgage Servicing Rights ("MSRs") is summarized as follows:
<TABLE>
<CAPTION>
Six Months Year Ended
Ended June 30, December 31, 1998
1999
------------------- -------------------
<S> <C> <C>
(In thousands)
Balance at beginning of period..................... $ 58,147 $ 36,440
Purchases.......................................... 11,689 34,831
Originated, net.................................... 839 (24)
Amortization....................................... (9,410) (10,563)
Sales.............................................. - (2,537)
------------------- -------------------
Balance at end of period........................... $ 61,265 $ 58,147
=================== ===================
</TABLE>
Accumulated amortization of MSRs aggregated approximately $36.4 million and
$26.9 million at June 30, 1999 and December 31, 1998, respectively. The
Company's servicing portfolio (excluding subserviced loans) was comprised of the
following:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
---------------------------------- ------------------------------------------
Principal Principal
Number Balance Number Balance
of Loans Outstanding of Loans Outstanding
------------ ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
(Dollars in thousands)
FHLMC..................................... 17,970 $ 1,120,653 19,227 $ 1,221,074
Fannie Mae................................ 36,016 2,192,043 23,198 1,419,345
GNMA...................................... 16,072 715,619 17,552 838,081
Other VA, FHA and conventional loans...... 16,006 1,440,151 18,369 1,879,229
------------ ---------------- ----------------- -----------------
86,064 $ 5,468,466 78,346 $ 5,357,729
============ ================ ================= =================
</TABLE>
The Company's custodial escrow balances shown in the accompanying condensed
consolidated balance sheets at June 30, 1999 and December 31, 1998 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:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------------------------------------------ -------------------------------------------
Weighted Weighted
Average Average
Amount Percent Rate Amount Percent Rate
--------------- ----------- -------------- --------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Passbook accounts........ $ 3,032 0.54% 3.48% $ 2,830 0.58% 3.58%
NOW accounts............. 48,418 8.57 1.35 42,178 8.60 1.63
Money market accounts.... 185,177 32.80 3.19 170,957 34.85 3.13
--------------- ----------- -------------- --------------- ------------- ---------
236,627 41.91 2.90 215,965 44.03 2.84
Certificate accounts..... 327,960 58.09 5.16 274,551 55.97 5.52
--------------- ----------- -------------- --------------- ------------- ---------
$ 564,587 100.00% 3.97% $ 490,516 100.00% 4.37%
=============== =========== ============== =============== ============= =========
</TABLE>
8
<PAGE>
Matrix Bancorp, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 1999
(unaudited)
4. Deposits (continued)
At June 30, 1999 and December 31, 1998, brokered deposits accounted for
approximately $200.2 million and $148.7 million, respectively, of the total
certificate accounts shown above. Additionally, included in money market
accounts is approximately $46.0 million and $47.1 million at June 30, 1999 and
December 31, 1998, respectively, from a third party title company.
5. Commitments and Contingencies
At June 30, 1999, the Company had $76.3 million in pipeline and funded loans
offset with mandatory forward commitments of $51.1 million and nonmandatory
forward commitments of $8.5 million.
As of June 30, 1999, the Company had identified and hedged approximately $714
million of its mortgage servicing portfolio using a program of exchange-traded
future and options. At June 30, 1999, the net realized deferred losses and the
unrealized deferred losses of the open positions was approximately $2.1 million.
6. Segment Information
<TABLE>
<CAPTION>
Servicing
Traditional Mortgage Banking Brokerage and
Banking Consulting
-------------------- --------------------- ---------------------
(In thousands)
Quarter ended June 30, 1999:
Revenues from external customers:
<S> <C> <C> <C>
Interest income..................... $ 15,312 $ 1,241 $ -
Noninterest income.................. 3,573 6,480 2,631
Intersegment revenues................ 14 361 202
Segment profit(loss)................. 7,647 (1,712) 1,022
Quarter ended June 30, 1998:
Revenues from external customers:
Interest income..................... $ 11,947 $ 1,865 $ -
Noninterest income.................. 1,312 5,703 2,478
Intersegment revenues................ - 213 56
Segment profit(loss)................. 4,343 (288) 1,115
Six months ended June 30, 1999:
Revenues from external customers:
Interest income..................... $ 30,954 $ 2,515 $ -
Noninterest income.................. 5,599 13,176 5,635
Intersegment revenues................ 78 700 452
Segment profit(loss)................. 14,687 (3,545) 2,200
Six months ended June 30, 1998:
Revenues from external customers:
Interest income..................... $ 21,749 $ 3,643 $ -
Noninterest income.................. 4,005 10,366 4,495
Intersegment revenues................ - 538 215
Segment profit(loss)................. 8,658 (219) 2,100
</TABLE>
9
<PAGE>
Matrix Bancorp, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 1999
(unaudited)
6. Segment Information (continued)
<TABLE>
<CAPTION>
Quarter Ended June 30, Six Months Ended June 30,
------------------------- ---------------------------
1999 1998 1999 1998
---------- --------- ----------- ----------
<S> <C> <C> <C> <C>
(In thousands)
Profit:
Total profit for reportable segments............... $ 6,957 $ 5,170 $ 13,342 $ 10,539
Other loss......................................... (2,569) (1,435) (4,858) (3,197)
Adjustment of intersegment loss in consolidation... (89) (46) (285) (129)
---------- --------- ----------- ----------
Income before income taxes......................... $ 4,299 $ 3,689 $ 8,199 $ 7,213
========== ========= =========== ==========
</TABLE>
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
The Company's principal activities focus on traditional banking, mortgage
banking and the administration of self-directed trust accounts. The Company's
traditional banking activities include originating and servicing residential,
commercial and consumer loans and providing a broad range of depository
services. The Company's mortgage banking activities consist primarily of
purchasing and selling residential mortgage loans and residential mortgage
servicing rights (MSRs); offering brokerage, consulting and analytic services to
financial services companies and financial institutions; servicing residential
mortgage portfolios for investors; originating residential mortgages; and
providing real estate management and disposition services. The Company's trust
activities focus primarily on the administration of self-directed individual
retirement accounts, qualified retirement plans and custodial and directed trust
accounts. These activities are conducted through the Company's primary
operating subsidiaries, Matrix Capital Bank ("Matrix Bank"), Matrix Financial
Services Corporation ("Matrix Financial"), Sterling Trust Company ("Sterling
Trust"), United Financial, Inc. ("United Financial"), United Special Services,
Inc. ("USS") and United Capital Markets, Inc. ("UCM").
The principal components of the Company's revenues consist primarily of net
interest income recorded by Matrix Bank and Matrix Financial, loan
administration fees generated by Matrix Financial and Matrix Bank, brokerage
fees realized by United Financial, loan origination fees and gains on sales of
mortgage loans and MSRs generated by Matrix Bank and Matrix Financial, trust
service fees generated by Sterling Trust and consulting and service fee income
earned by UCM and USS, respectively. The Company's results of operations are
influenced by changes in interest rates and the effect of these changes on the
interest spreads of the Company, the volume of loan originations, mortgage loan
prepayments and the value of mortgage servicing portfolios.
Forward-Looking Information
Certain statements contained in this quarterly report that are not historical
facts, including, but not limited to, statements that can be identified by the
use of forward-looking terminology such as "may", "will", "expect",
"anticipate", "predict", "plan", "estimate", or "continue" or the negative
thereof or other variations thereon or comparable terminology, are forward-
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995, and involve a number of risks and uncertainties. The actual
results of the future events described in such forward-looking statements in
this quarterly report could differ materially from those stated in such forward-
looking statements. Among the factors that could cause actual results to differ
materially are: interest rate fluctuations; level of delinquencies; defaults and
prepayments; general economic conditions; competition; government regulation;
possible future litigation; the actions or inactions of third parties
(particularly of third party sources upon whom the Company is relying in
connection with Year 2000 issues); unanticipated developments in connection with
the design, implementation or completion of the Company's Year 2000 Plan
(including, without limitation, the resignation or removal of the Company's Year
2000 Director, or any other key employees responsible for the Year 2000 Plan, or
the misrepresentation by a third party source upon whom the Company is dependent
as to the status of their Year 2000 readiness, progress or compliance); the
risks and uncertainties discussed in the Company's current report on Form 8-K,
filed with the Securities and Exchange Commission on March 23, 1999; and the
uncertainties set forth from time to time in the Company's periodic reports,
filings and other public statements.
Comparison of Results of Operations for the Quarters Ended June 30, 1999 and
1998
Net Income; Return on Average Equity. Net income increased $444,000, or 18.9%,
to $2.8 million, or $.41 per diluted share, for the quarter ended June 30, 1999
as compared to $2.3 million, or $.34 per share, for the quarter ended June 30,
1998. Returns on average equity were comparable at 21.1% for the quarter ended
June 30, 1999 and 21.6% for the quarter ended June 30, 1998.
Net Interest Income. Net interest income before provision for loan and
valuation losses increased $1.6 million, or 28.9%, to $7.1 million for the
quarter ended June 30, 1999 as compared to $5.5 million for the quarter ended
June 30, 1998. The Company's net interest margins were comparable at 3.33% and
3.34% for the quarters ended June 30, 1999 and 1998, respectively. Interest rate
spread increased to 2.98% for the quarter ended June 30, 1999 from 2.81% for the
quarter ended June 30, 1998. The increases in net interest income before
provision for loan and valuation losses and interest rate spread and the
comparability in net interest margin between periods were attributable to the
following: a 28.2% increase in the Company's average loan balance to $822.8
million for the quarter ended June 30, 1999 from $641.6 million for the quarter
ended June 30, 1998 and a decrease in the cost of
11
<PAGE>
interest-bearing liabilities to 5.09% for the quarter ended June 30, 1999 as
compared to 5.56% for the quarter ended June 30, 1998. The above were offset by
a 32.5% increase in average interest-bearing liabilities to $792.5 million for
the quarter ended June 30, 1999 as compared to $598.1 million for the quarter
ended June 30, 1998 and a decrease in the Company's yield on interest-earning
assets to 8.07% from 8.37% for the quarters ended June 30, 1999 and 1998,
respectively. The decrease in the yield on loans is primarily attributable to
the increase in the balance of single family residential mortgages. The decrease
in the cost of interest-bearing liabilities was primarily driven by decreases in
the rates paid for Federal Home Loan Bank ("FHLB") 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 $137,000 to $675,000 for the quarter ended June 30, 1999 as
compared to $538,000 for the quarter ended June 30, 1998. This increase was
primarily attributable to the increase in the balance of loans receivable, which
included higher balances of commercial real estate loans and direct financing
leases. Loans receivable which increased to $836.0 million at June 30, 1999 as
compared to $696.4 million at June 30, 1998. For a discussion of the Company's
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 $1.0 million, or 22.1%,
to $5.6 million for the quarter ended June 30, 1999 as compared to $4.6 million
for the quarter June 30, 1998. Loan administration fees are affected by factors
that include the size of the Company's residential mortgage loan servicing
portfolio, the servicing spread, the timing of payment collections and the
amount of ancillary fees received. The mortgage loan servicing portfolio
increased to an average balance of $5.4 billion for the quarter ended June 30,
1999 as compared to $4.0 billion for the quarter ended June 30, 1998. This
increase was offset by a reduction in the actual service fee rate (including all
ancillary income) to 0.42% for the second quarter of 1999 as compared to 0.46%
for the second quarter of 1998.
Brokerage Fees. Brokerage fees represent income earned from brokerage and
consulting services performed pertaining to MSRs. Brokerage fees decreased
$124,000, or 6.6%, to $1.7 million for the quarter ended June 30, 1999 as
compared to $1.9 million for the quarter ended June 30, 1998, due to a decrease
in the principal balance of portfolios brokered by United Financial. MSRs
brokered, in terms of aggregate unpaid principal balances on the underlying
loans, were $13.8 billion and $17.1 billion for the quarters ended June 30, 1999
and 1998, respectively. Due to current market conditions for MSRs, the Company
is unable to predict whether United Financial will continue to broker the volume
of MSRs that it did in this and other recent quarters.
Trust Services. Trust service fees increased $120,000, or 11.0%, to $1.2
million for the quarter ended June 30, 1999 as compared to $1.1 million for the
quarter ended June 30, 1998. This increase is associated with the growth in the
number of trust accounts under administration at Sterling Trust, which increased
to 37,650 at June 30, 1999 from 31,695 at June 30, 1998 and the increase in the
total assets under administration, which increased to over $2.3 billion at June
30, 1999 from approximately $1.7 billion at June 30, 1998.
Gain on Sale of Loans. Gain on the sale of loans increased $415,000 to $1.2
million for the quarter ended June 30, 1999 as compared to $742,000 for the
quarter ended June 30, 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 the Company purchases and the particular loan portfolios the Company
elects to sell.
Gain on Sale of Mortgage Servicing Rights. The Company did not sell any MSRs
during the quarters ended June 30, 1999 and 1998. Gains from the sale of MSRs
can fluctuate significantly from quarter to quarter and year to year based on
the market value of the Company's servicing portfolio, the particular servicing
portfolios the Company elects to sell and the availability of similar portfolios
in the market. Due to the Company's position in and knowledge of the market,
the Company will at times pursue opportunistic sales of MSRs.
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 direct origination costs. Loan
origination income increased $364,000, or 26.2%, to $1.8 million for the quarter
ended June 30, 1999 as compared to $1.4 million for the quarter ended June 30,
1998. The increase in loan origination income resulted from differences in the
pricing of loans originated, as well as increased refinance income received,
which offset the decrease in wholesale residential mortgage
12
<PAGE>
loan production to $124.9 million for the quarter ended June 30, 1999 as
compared to $132.7 million for the quarter ended June 30, 1998.
Other Income. Other income increased $2.6 million, or 152.8%, to $4.2 million
for the quarter ended June 30, 1999 as compared to $1.7 million for the quarter
ended June 30, 1998. The increase in other income was primarily due to
increased service fee income earned by USS ($893,000 for the quarter ended June
30, 1999 as compared to $414,000 for the quarter ended June 30, 1998), increased
consulting income earned by UCM ($737,000 for the quarter ended June 30, 1999 as
compared to $541,000 for the quarter ended June 30, 1998) and increased school
services income earned by ABS School Services ("ABS"), which totaled $630,000
for the quarter ended June 30, 1999. The remainder of the increase in other
income pertains to various financing transactions and service fees earned by
Matrix Financial and Matrix Bank.
Noninterest Expense. Noninterest expense increased $5.2 million, or 41.1%, to
$17.8 million for the quarter ended June 30, 1999 as compared to $12.6 million
for the quarter ended June 30, 1998. This increase was predominantly due to
increases in the amortization of MSRs and growth and expansion of the Company
throughout 1998 and 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 other subsidiaries of the Company,
including ABS. The following table details the major components of noninterest
expense for the periods indicated:
<TABLE>
<CAPTION>
Quarter Ended
June 30,
----------------------------------
1999 1998
------------ ------------
<S> <C> <C>
(In thousands)
Compensation and employee benefits........................................ $ 7,314 $ 5,240
Amortization of mortgage servicing rights................................. 4,684 2,262
Occupancy and equipment................................................... 918 757
Postage and communication................................................. 606 664
Professional fees......................................................... 498 376
Data processing........................................................... 378 364
Other general and administrative.......................................... 3,418 2,967
------------ ------------
Total.................................................................. $ 17,816 $ 12,630
============ ============
</TABLE>
Compensation and employee benefits expense increased $2.1 million, or 39.6%, to
$7.3 million for the quarter ended June 30, 1999 as compared to $5.2 million for
the quarter ended June 30, 1998. This increase was primarily the result of the
growth and expansion of the Company (as discussed above) and an increase in
incentive compensation at several subsidiaries. The Company experienced an
increase of 150 employees to 565 full-time employees at June 30, 1999 as
compared to 415 employees at June 30, 1998.
Amortization of MSRs increased $2.4 million, or 107.1%, to $4.7 million for the
quarter ended June 30, 1999 as compared to $2.3 million for the quarter ended
June 30, 1998. Amortization of MSRs fluctuates based on the size of the
Company's mortgage servicing portfolio and the prepayment rates experienced with
respect to the underlying mortgage loan portfolio. In response to the lower
interest rates prevalent in the market, prepayment speeds have remained high due
to borrowers refinancing into lower interest rate mortgages. The Company's
prepayment rates on its servicing portfolio averaged 23.8% for the quarter ended
June 30, 1999 as compared to 21.5% for the quarter ended June 30, 1998.
The remainder of noninterest expense, which includes occupancy and equipment
expense, postage and communication expense, professional fees, data processing
costs and other expenses, increased $690,000, or 13.5%, to $5.8 million for the
quarter ended June 30, 1999 as compared to $5.1 million for the quarter ended
June 30, 1998. This increase was primarily attributable to the growth and
expansion of the Company (as discussed above).
Provision for Income Taxes. The provision for income taxes increased by
$166,000 to $1.5 million for the quarter ended June 30, 1999 as compared to $1.3
million for the quarter ended June 30, 1998. The increase in pretax income was
offset by a reduction in the effective tax rate to 35.1% for the quarter ended
June 30, 1999 as compared to 36.4% for the quarter ended June 30, 1998. The
decrease in the effective tax rate was the result of the origination and
ownership of tax-exempt leases by the Company.
13
<PAGE>
Comparison of Results of Operations for the Six Months Ended June 30, 1999 and
1998
Net Income; Return on Average Equity. Net income increased $764,000, or 16.9%,
to $5.3 million, or $.77 per diluted share, for the six months ended June 30,
1999 as compared to $4.5 million, or $.66 per diluted share, for the six months
ended June 30, 1998. Returns on average equity were 20.5% and 21.4% for the six
months ended June 30, 1999 and 1998, respectively.
Net Interest Income. Net interest income before provision for loan and
valuation losses increased $4.5 million, or 46.2%, to $14.3 million for the six
months ended June 30, 1999 as compared to $9.8 million for the six months ended
June 30, 1998. The Company's net interest margin increased to 3.33% for the six
months ended June 30, 1999 as compared to 3.20% for the six months ended June
30, 1998. Additionally, the interest rate spread increased to 3.06% for the six
months ended June 30, 1999 from 2.72% for the six months ended June 30, 1998.
The increases in net interest income before provision for loan and valuation
losses, net interest margin and interest rate spread for the six months ended
June 30, 1999 were attributable to the following: a 40.2% increase in the
Company's average loan balance to $828.4 million for the six months ended June
30, 1999 from $590.7 million for the six months ended June 30, 1998, and a
decrease in the cost of interest-bearing liabilities to 5.04% for the six months
ended June 30, 1999 from 5.57% for the six months ended June 30, 1998. The
above were offset by a decrease in the yield on the Company's loan portfolio to
8.23% for the six months ended June 30, 1999 from 8.42% for the six months ended
June 30, 1998, and a 45.0% increase in the average interest-bearing liabilities
to $812.0 million for the six months ended June 30, 1999 as compared to $559.9
million for the six months ended June 30, 1998. The loan portfolio yield
decrease is attributable to the increase in the balance of single family
residential mortgage loans and the acquisition of fewer discounted loans by the
Company. The decrease in the cost of interest-bearing liabilities was due to
decreases in the cost of FHLB borrowings, certificates of deposit, including
brokered certificates of deposit, as well as a 36 basis point decrease in the
cost of borrowed money. For a tabular presentation of the changes in net
interest income due to changes in volume of interest-earning assets and changes
in interest rates, see "--Analysis of Changes in Net Interest Income Due to
Changes in Interest Rates and Volumes."
Provision for Loan and Valuation Losses. Provision for loan and valuation
losses increased $362,000 to $1.4 million for the six months ended June 30, 1999
as compared to $988,000 for the six months ended June 30, 1998. As previously
mentioned, this increase was primarily attributable to the increase in the
balance of loans receivable, including the origination of commercial real estate
loans and direct financing leases. For a discussion of the Company's allowance
for loan losses as it relates to nonperforming assets, see "--Asset Quality--
Nonperforming Assets."
Loan Administration. Loan administration fees increased $2.6 million, or 30.8%,
to $10.9 million for the six months ended June 30, 1999 as compared to $8.3
million for the six months ended June 30, 1998. Loan administration fees are
affected by factors that include the size of the Company's residential mortgage
loan servicing portfolio, the servicing spread, the timing of payment
collections and the amount of ancillary fees received. The mortgage servicing
portfolio increased to an average balance of $5.1 billion for the six months
ended June 30, 1999 as compared to an average balance of $3.7 billion for the
six months ended June 30, 1998. This increase was offset by a reduction in the
actual service fee rate (including all ancillary income) to 0.42% for the six
months ended June 30, 1999 as compared to 0.45% for the six months ended June
30, 1998.
Brokerage Fees. Brokerage fees decreased $125,000, or 3.5%, to $3.4 million for
the six months ended June 30, 1999 as compared to $3.5 million for the six
months ended June 30, 1998. This decrease was the result of a slight decrease
in the balance of residential mortgage servicing portfolios brokered by United
Financial. In terms of aggregate unpaid principal balances on the underlying
loans, servicing portfolios brokered during the six months ended June 30, 1999
were $30.6 billion as compared to $31.6 billion for the six months ended June
30, 1998.
Trust Services. Trust services fees increased $398,000, or 19.0%, to $2.5
million for the six months ended June 30, 1999 as compared to $2.1 million for
the six months ended June 30, 1998. As mentioned earlier, this increase is
associated with the growth in the number of trust accounts and total assets
under administration at Sterling Trust.
Gain on Sale of Loans. Gain on the sale of loans decreased $114,000 to $1.7
million for the six months ended June 30, 1999 as compared to $1.8 million for
the six months ended June 30, 1998. Gain on the sale of loans can fluctuate
significantly from quarter to quarter and from year to year based on a variety
of factors, such as the current interest rate environment, the supply of loan
portfolios in the market, the mix of loan portfolios available in the market,
the type of loan portfolios the Company purchases and the particular loan
portfolios the Company elects to sell.
14
<PAGE>
Gain on Sale of Mortgage Servicing Rights. Gain on the sale of MSRs decreased
$838,000 as the Company did not sell any MSRs during the six months ended June
30, 1999. Gains from the sale of MSRs can fluctuate significantly from quarter
to quarter and from year to year based on the market value of the Company's
servicing portfolio, the particular servicing portfolios the Company elects to
sell and the availability of similar portfolios in the market. Due to the
Company's position in and knowledge of the market, the Company will at times
pursue opportunistic sales of MSRs.
Loan Origination. Loan origination income increased $837,000, or 29.2%, to $3.7
million for the six months ended June 30, 1999 as compared to $2.9 million for
the six months ended June 30, 1998. The increase resulted from differences in
the pricing of loans originated, as well as increased refinance income received,
which offset the decrease in wholesale production to $259.7 million for the six
months ended June 30, 1999 as compared to $284.0 million for the six months
ended June 30, 1998.
Other Income. Other income increased $4.9 million, or 175.6%, to $7.7 million
for the six months ended June 30, 1999 as compared to $2.8 million for the six
months ended June 30, 1998. The increase in other income for the six month
period ended June 30, 1999 was partially driven by increased revenues from UCM,
USS and ABS. In combination, these subsidiaries accounted for over 50.0% of the
total increase. The remainder of the increase pertains to various financing
transactions and service fees earned by Matrix Financial and Matrix Bank.
Noninterest Expense. Noninterest expense increased $10.8 million, or 45.3%, to
$34.7 million for the six months ended June 30, 1999 as compared to $23.9
million for the six months ended June 30, 1998. This increase was primarily due
to increases in the amortization of MSRs and growth and expansion of the
Company. The following table details the major components of noninterest expense
for the periods indicated:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------------------
1999 1998
------------ ------------
<S> <C> <C>
(In thousands)
Compensation and employee benefits........................................ $ 14,183 $ 10,367
Amortization of mortgage servicing rights................................. 9,410 3,856
Occupancy and equipment................................................... 1,756 1,423
Postage and communication................................................. 1,275 1,206
Professional fees......................................................... 798 626
Data processing........................................................... 703 710
Other general and administrative.......................................... 6,550 5,676
------------ ------------
Total.................................................................. $ 34,675 $ 23,864
============ ============
</TABLE>
Compensation and employee benefits increased $3.8 million, or 36.8%, to $14.2
million for the six months ended June 30, 1999 as compared to $10.4 million for
the six months ended June 30, 1998. This increase was primarily the result of
growth at all of the Company's subsidiaries, most predominately, however, were
the additions due to ABS and the growth at Matrix Financial and Sterling Trust.
Also, incentive compensation was higher between the two periods for several of
the Company's subsidiaries.
Amortization of mortgage servicing rights increased $5.5 million, or 144.0% to
$9.4 million for the six months ended June 30, 1999 as compared to $3.9 million
for the six months ended June 30, 1998. Amortization of mortgage servicing
rights fluctuates based on the size of the Company's mortgage servicing
portfolio and the prepayment rates experienced with respect to the underlying
mortgage loan portfolio. The Company's prepayment rates on its servicing
portfolio averaged 25.7% for the six months ended June 30, 1999 as compared to
19.3% for the six months ended June 30, 1998.
The remainder of noninterest expense, which includes occupancy and equipment
expense, postage and communication expense, professional fees, data processing
costs and other expenses increased $1.5 million, or 14.9%, to $11.1 million for
the six months ended June 30, 1999 as compared to $9.6 million for the six
months ended June 30, 1998. The increase was primarily attributable to the
growth and expansion discussed above.
Provision for Income Taxes. The provision for income taxes increased by
$222,000 to $2.9 million for the six months ended June 30, 1999 as compared to
$2.7 million for the six months ended June 30, 1998. The increase in pretax
income was offset by a reduction in the effective tax rate to 35.4% for the six
months ended June 30, 1999 as
15
<PAGE>
compared to 37.2% for the six months ended June 30, 1998. The decrease in the
effective tax rate was the result of the origination and ownership of tax-exempt
leases by the Company.
Average Balance Sheet
The following table sets forth for the periods and as of the dates indicated,
information regarding the Company's average balances of assets and liabilities,
as well as the dollar amounts of interest income from interest-earning assets
and interest expense on interest-bearing liabilities and the resultant yields
and costs. Average interest rate information for the quarters and six months
ended June 30, 1999 and 1998 have been annualized. Ratio, yield and rate
information is based on daily averages where available; otherwise, average
monthly balances have been used. Nonaccrual loans have been included in the
calculation of average balances for loans for the periods indicated.
16
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended
June 30,
-------------------------------------------------------------------------
1999 1998
----------------------------------- ---------------------------------
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...................... $ 822,798 $16,870 8.20% $641,576 $13,576 8.46%
Interest-earning deposits....... 13,725 120 3.50 9,651 109 4.52
FHLB stock...................... 15,857 207 5.22 8,968 134 5.98
---------- ------- ------- -------- ------- ------
Total interest-earning assets. 852,380 17,197 8.07 660,195 13,819 8.37
Noninterest-earning assets:
Cash............................ 22,384 12,871
Allowance for loan and valuation
losses........................ (4,195) (2,047)
Premises and equipment.......... 10,778 9,735
Other assets.................... 133,590 84,714
---------- --------
Total noninterest-earning
assets....................... 162,557 105,273
---------- --------
Total assets.................. $1,014,937 $765,468
========== ========
LIABILITIES & SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Passbook accounts............... $ 2,728 24 3.52 $ 2,772 25 3.61
Money market and NOW accounts 235,827 1,781 3.02 123,974 941 3.04
Certificates of deposit......... 264,009 3,384 5.13 207,460 2,888 5.57
FHLB borrowings................. 121,001 1,490 4.93 134,967 1,824 5.41
Borrowed money.................. 168,911 3,414 8.09 128,919 2,630 8.16
---------- ------- ------- -------- ------- ------
Total interest-bearing
liabilities.................. 792,476 10,093 5.09 598,092 8,308 5.56
---------- ------- ------- -------- ------- ------
Noninterest-bearing liabilities:
Demand deposits (including
custodial escrow balances).... 150,989 104,795
Other liabilities............... 18,579 19,039
---------- --------
Total noninterest-bearing
liabilities 169,568 123,834
Shareholders' equity.............. 52,893 43,542
---------- --------
Total liabilities and
shareholders' equity............. $1,014,937 $765,468
========== ========
Net interest income before
provision for loan and valuation
losses.......................... $ 7,104 $ 5,511
======= =======
Interest rate spread.............. 2.98% 2.81%
======= ======
Net interest margin............... 3.33% 3.34%
======= ======
Ratio of average interest-earning
assets to average
interest-bearing liabilities.... 107.56% 110.38%
======= ======
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------------------------------------------------------
1999 1998
----------------------------------- ---------------------------------
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...................... $ 828,429 $ 34,108 8.23% $590,730 $ 24,877 8.42%
Interest-earning deposits....... 15,608 274 3.51 13,007 259 3.98
FHLB stock...................... 15,752 420 5.33 9,050 269 5.95
---------- -------- ------- -------- -------- ------
Total interest-earning assets. 859,789 34,802 8.10 612,787 25,405 8.29
Noninterest-earning assets:
Cash............................ 20,146 10,134
Allowance for loan and valuation
losses........................ (3,839) (1,946)
Premises and equipment.......... 10,667 9,404
Other assets.................... 130,468 76,110
---------- --------
Total noninterest-earning
assets....................... 157,442 93,702
---------- --------
Total assets.................. $1,017,231 $706,489
========== ========
LIABILITIES & SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Passbook accounts............... $ 2,760 48 3.48 $ 2,826 53 3.75
Money market and NOW accounts 252,370 3,944 3.13 120,205 1,778 2.96
Certificates of deposit......... 248,009 6,392 5.16 174,325 4,887 5.61
FHLB borrowings................. 138,136 3,388 4.91 138,287 3,788 5.48
Borrowed money.................. 170,727 6,698 7.85 124,267 5,099 8.21
---------- -------- ------- -------- -------- ------
Total interest-bearing
liabilities.................. 812,002 20,470 5.04 559,910 15,605 5.57
---------- -------- ------- -------- -------- ------
Noninterest-bearing liabilities:
Demand deposits (including
custodial escrow balances).... 132,192 88,278
Other liabilities............... 21,319 15,932
---------- --------
Total noninterest-bearing
liabilities 153,511 104,210
Shareholders' equity.............. 51,718 42,369
---------- --------
Total liabilities and
shareholders' equity............. $1,017,231 $706,489
========== ========
Net interest income before
provision for loan and valuation
losses.......................... $ 14,332 $ 9,800
======== ========
Interest rate spread.............. 3.06% 2.72%
======= ======
Net interest margin............... 3.33% 3.20%
======= ======
Ratio of average interest-earning
assets to average
interest-bearing liabilities.... 105.89% 109.44%
======= ======
</TABLE>
17
<PAGE>
Analysis of Changes in Net Interest Income Due to Changes in Interest Rates and
Volumes
The following table presents the dollar amount of changes in interest income and
interest expense for major components of interest-earning assets and interest-
bearing liabilities. It distinguishes between the increase or decrease related
to changes in balances and changes in interest rates. For each category of
interest-earning assets and interest-bearing liabilities, information is
provided on changes attributable to (i) changes in volume (i.e., changes in
volume multiplied by old rate) and (ii) changes in rate (i.e., changes in rate
multiplied by old volume). For purposes of this table, changes attributable to
both rate and volume, which cannot be segregated, have been allocated
proportionately to change due to volume and change due to rate.
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
1999 vs 1998 1999 vs 1998
--------------------------------------------- -------------------------------------------
Increase (Decrease) Due to Change in
-------------------------------------------------------------------------------
Volume Rate Total Volume Rate Total
-------------- --------- ----------- -------------- --------- --------
(In thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Loans, net $ 3,835 $ (541) $ 3,294 $ 10,010 $ (779) $ 9,231
Interest-earning deposits 46 (35) 11 52 (37) 15
FHLB stock 103 (30) 73 199 (48) 151
-------------- --------- ----------- -------------- --------- --------
Total interest-earning
assets 3,984 (606) 3,378 10,261 (864) 9,397
Interest-bearing
liabilities:
Passbook accounts - (1) (1) (1) (4) (5)
Money market and NOW accounts 849 (9) 840 1,955 211 2,166
Certificates of deposit 787 (291) 496 2,066 (561) 1,505
FHLB borrowings (189) (145) (334) (4) (396) (400)
Borrowed money 816 (32) 784 1,906 (307) 1,599
-------------- --------- ----------- -------------- --------- --------
Total interest-bearing liabilities 2,263 (478) 1,785 5,922 (1,057) 4,865
-------------- --------- ----------- -------------- --------- --------
Change in net interest income before
provision for loan and valuation
losses $ 1,721 $ (128) $ 1,593 $ 4,339 $ 193 $ 4,532
============== ========= =========== ============== ========= ========
</TABLE>
Asset Quality
Nonperforming Assets
The following table sets forth information on the Company's nonperforming assets
("NPAs"). NPAs consist primarily of nonaccrual loans and foreclosed real
estate. Loans are placed on nonaccrual when full payment of principal or
interest is in doubt or when they are past due 90 days as to either principal or
interest. Foreclosed real estate arises primarily through foreclosure on
mortgage loans owned.
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998 June 30,
1998
--------------- ------------------ ----------------
(Dollars in thousands)
<S> <C> <C> <C>
Nonaccrual mortgage loans......................... $ 6,888 $ 8,208 $ 7,076
Nonaccrual commercial loans and direct financing
leases........................................... 6,972 4,349 -
Nonaccrual consumer loans......................... 164 652 168
--------------- ------------------ -----------------
Total nonperforming loans........................ 14,024 13,209 7,244
Foreclosed real estate............................ 1,571 916 865
--------------- ------------------ -----------------
Total nonperforming assets....................... $ 15,595 $ 14,125 $ 8,109
=============== ================== =================
Total nonperforming loans to total loans.......... 1.67% 1.55% 1.04%
=============== ================== =================
Total nonperforming assets to total assets........ 1.51% 1.39% 0.97%
=============== ================== =================
Ratio of allowance for loan and valuation losses
to total nonperforming loans..................... 32.16% 28.09% 30.98%
=============== ================== ================
</TABLE>
18
<PAGE>
As of June 30, 1999, the Company had approximately $102,000 of non-government
accruing loans that were contractually past due 90 days or more. The Company
accrues for government-sponsored loans such as FHA insured and VA guaranteed
loans that 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
$170.7 million at June 30, 1999. 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. At June 30, 1999, $6.4 million, or 46.0%, of the
nonaccrual loans were loans that were residential loans purchased in bulk loan
portfolios and remain classified as "held for sale". Total loans held for sale
at June 30, 1999 were $730.5 million, of which $13.3 million, or 1.8%, were
nonaccrual loans. Against the loans held for sale, the Company has $3.5 million
of purchase discounts.
The increases in nonaccrual commercial loans and direct financing leases at
December 31, 1998 and June 30, 1999 were caused by tax-exempt lease financing
originated by the Company for charter schools for the purchase of real estate
and equipment. These leases are classified by the Company as held for sale. Due
to enrollment issues and the timing of receipt state funding, some of the leases
originated have been placed on nonaccrual status. The schools receive state
funding based on their fiscal year, which typically begins on July 1. With the
funding scheduled to begin with the start of a new fiscal year, it is
anticipated that a portion of the schools will have the ability to bring their
leases current.
The percentage of the allowance for loan losses to nonaccrual loans varies
widely due to the nature of the Company's portfolio of loans. The Company
analyzes the collateral for each nonperforming 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 Quarters Ended June
30, 1999 and 1998."
Liquidity and Capital Resources
Liquidity represents the ability of the Company to generate funds to support
asset growth, satisfy disbursement needs, maintain reserve requirements and
otherwise operate on an ongoing basis.
On July 30, 1999, the Company, through Matrix Bancorp Capital Trust I, completed
a registered offering of $27.5 million in 10% Trust Preferred Securities
("Preferred Securities") due September 30, 2029, raising net proceeds of
approximately $26.0 million. Cumulative cash distributions on the Preferred
Securities are payable at an annual rate of 10% of the $25 liquidation amount of
each Preferred Security. Distributions began to accumulate on July 30, 1999 and
are payable quarterly in arrears on March 31, June 30, September 30 and December
31 of each year, beginning on September 30, 1999.
On June 30, 1999, the Company amended its bank stock loan agreement. The
amended bank stock loan has two components, a $10.0 million term loan and a
revolving line of credit of $10.0 million. As of July 1, 1999, the balance of
the term loan and the revolving line of credit were $10.0 million and $7.5
million, respectively. The amended bank stock loan requires the Company 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 shareholders' equity after the closing date; and total
adjusted debt to net worth less than 4:1.
The trend of net cash used by the Company's operating activities results
primarily from growth at Matrix Bank in its residential loan purchasing
activity. The Company anticipates the trend of a net use of cash from
operations to continue for the foreseeable future. This anticipation results
from the expected growth at Matrix Bank, which management believes will consist
primarily of increased activity in the purchasing of loan and mortgage servicing
portfolios.
The Company anticipates that the growth at Matrix Bank (discussed above) and its
lending, investing and other general activities will be funded through retail
deposits, custodial escrow deposits, directed trust deposits, brokered deposits,
FHLB borrowings and the holding company's recent Preferred Securities offering;
many of which are already a primary source of funds for Matrix Bank. Contractual
loan payments and deposit inflows and outflows are a generally predictable
source of funds, while loan prepayments and loan sales are significantly
influenced by general market interest rates and economic conditions. Borrowings
on a short-term basis are used as a cash
19
<PAGE>
management vehicle to compensate for seasonal or other reductions in normal
sources of funds. Matrix Bank utilizes advances from the FHLB as its primary
source for borrowings. At June 30, 1999, Matrix Bank had overnight borrowings
from the FHLB of $115.5 million. The directed trust deposits generated from the
Company's trust administration services fluctuate based on the trust assets
under administration, and to a lesser extent, the general economic conditions.
The custodial escrow balances held by Matrix Bank fluctuate based upon the mix
and size of the related mortgage servicing portfolios and the timing of payments
for taxes and insurance.
Matrix Bank, a well capitalized institution, had a leverage capital ratio of
6.4% at June 30, 1999. This exceeded the well capitalized leverage capital
requirement of 5.0% of adjusted assets by $12.0 million. Matrix Bank's risk-
based capital ratio was 11.9% at June 30, 1999, which currently exceeds the well
capitalized risk-based capital requirement of 10.0% of risk weighted assets by
$9.4 million.
Effective July 30, 1999, Matrix Financial amended its Loan Agreement for the
funding of its servicing acquisition, loan origination and working capital
needs. The terms and conditions of the new Loan Agreement are very similar to
the previous agreement, except under the new Loan Agreement, the $10.0 million
discretionary overline facility has been eliminated.
The Company's principal source of funding for its servicing acquisition
activities consists of a line of credit facility provided to Matrix Financial by
unaffiliated financial institutions. As of June 30, 1999, Matrix Financial's
servicing acquisition facility aggregated $45.0 million, of which $2.3 million
was available to be utilized after deducting drawn amounts. It is anticipated
that the Company will increase the line of credit facility for servicing
acquisition activities as needed.
The Company's principal source of funding for its 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 June 30,
1999, Matrix Financial's warehouse line of credit facility aggregated $120.0
million, of which $81.4 million was available to be utilized. Matrix Financial
also has a $25.0 million sale/repurchase facility with a third party financial
institution.
The Company's principal source of funding for the working capital needs of
Matrix Financial consists of working capital facilities provided to Matrix
Financial by unaffiliated financial institutions. As of June 30, 1999, Matrix
Financial's working capital facilities aggregated $10.0 million, of which $9.8
million was available.
The Company's principal source of funding for direct financing leases is a line
of credit facility and a partnership trust with an unaffiliated financial
institution. Amounts available under the line of credit facility and the
partnership trust are at the lender's sole discretion.
In the ordinary course of business, the Company makes commitments to originate
residential mortgage loans and holds originated loans until delivery to an
investor. Inherent in this business are risks associated with changes in
interest rates and the resulting change in the market value of the loans being
held for delivery. The Company mitigates this risk through the use of mandatory
and nonmandatory forward commitments to sell loans. As of June 30, 1999, the
Company had $76.3 million in pipeline and funded loans offset with mandatory
forward commitments of $51.1 million and nonmandatory forward commitments of
$8.5 million. The inherent value of the forward commitments is considered in
the determination of the lower of cost or market for such loans.
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.
The Company's Year 2000 Plan consists of the following five separate phases:
. Awareness - The process of informing all of the Company's employees, vendors
and significant customers about the nature and extent of the Year 2000
problem.
20
<PAGE>
. 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, application,
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, application, vendors, third
party service providers and non-information systems. This phase also includes
the updating of backup, contingency and disaster recovery plans.
The current Year 2000 progress of Sterling Trust, Matrix Bank and Matrix
Financial is seen in the following tables:
<TABLE>
<CAPTION>
Sterling Trust Year 2000 Progress
--------------------------------------------------------------------------------------------------------
Awareness Assessment Renovation Validation Implementation
--------------- --------------- --------------- --------------- --------------------
<S> <C> <C> <C> <C> <C>
Information Systems......... 100% 100% 100% 50% 85%
Estimated completion date. -- -- -- 8/15/99 8/15/99
Non-information systems..... 100% 100% 100% 100% 100%
Estimated completion date. -- -- -- -- --
Third parties............... 100% 100% 100% 25% 100%
Estimated completion date. -- -- -- 8/15/99 --
</TABLE>
<TABLE>
<CAPTION>
Matrix Bank Year 2000 Progress
--------------------------------------------------------------------------------------------------------
Awareness Assessment Renovation Validation Implementation
--------------- --------------- --------------- --------------- --------------------
<S> <C> <C> <C> <C> <C>
Information Systems......... 100% 100% 100% 100% 100%
Estimated completion date. -- -- -- -- --
Non-information systems..... 100% 100% 100% 95% 95%
Estimated completion date. -- -- -- 9/30/99 9/30/99
Third parties............... 100% 100% 100% 100% 100%
Estimated completion date. -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
Matrix Financial Year 2000 Progress
--------------------------------------------------------------------------------------------------------
Awareness Assessment Renovation Validation Implementation
--------------- --------------- --------------- --------------- --------------------
<S> <C> <C> <C> <C> <C>
Information Systems......... 100% 100% 100% 100% 90%
Estimated completion date. -- -- -- -- 8/31/99
Non-information systems..... 100% 100% 100% 100% 100%
Estimated completion date. -- -- -- -- --
Third parties............... 100% 90% 90% 90% 90%
Estimated completion date. -- 8/31/99 8/31/99 8/31/99 8/31/99
</TABLE>
The current progress of the remaining companies is seen in the following table.
<TABLE>
<CAPTION>
Remaining Companies' Year 2000 Progress
--------------------------------------------------------------------------------------------------------
Awareness Assessment Renovation Validation Implementation
--------------- --------------- --------------- --------------- --------------------
<S> <C> <C> <C> <C> <C>
Information Systems......... 100% 90% 85% 50% 75%
Estimated completion date. -- 8/15/99 8/15/99 8/31/99 8/31/99
Non-information systems..... 100% 100% 100% 100% 90%
Estimated completion date. -- -- -- -- 8/31/99
Third parties............... 100% 100% 100% 100% 90%
Estimated completion date. -- -- -- -- 8/31/99
</TABLE>
21
<PAGE>
Assuming the proper functioning of the Company's telecommunication and utility
providers, the failure of which would have a significant impact on the Company's
ability to conduct its 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 the Company were to take no further steps to prevent Year 2000 non-
compliance. Sterling Trust relies on electronic information received from
various external sources such as mutual fund companies, life insurance
companies, broker/dealers, etc., to prepare quarterly statements and to process
the investment directions of clients. Sterling Trust's most reasonably likely
worst case scenario lies in not being able to obtain this data. Many of
Sterling Trust's external service providers are either regulated by the National
Association of Securities Dealers or are owned by one of the stock exchanges.
As such, Sterling Trust anticipates that most of these companies will be
compliant. 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 their 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 the Bank's
customers, but do not contribute significantly to the net income of the Company
on a consolidated basis.
Under Matrix Financial's most reasonably likely worst case Year 2000 scenario,
two areas may be affected. The first is the production department where loan
documentation is received from outside brokers and processed by Matrix
Financial. These loan documents could contain inaccurate calculations resulting
from a Year 2000 problem with the software/hardware used by the broker to
generate the documents. Matrix Financial risks inputting these loans into their
PC-based in-house loan processing system, resulting in the bad input information
being carried forward in the system. Since there are more than 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. As
such, additional legal disclosures are being reviewed to protect Matrix
Financial in the event of such a problem. Additionally, due to the large number
of brokers, Matrix Financial intends to cease the acceptance of loan documents
from those brokers that are identified as non-compliant. The loss of business
from any one broker will not have a material impact on the Company, as no broker
is individually significant to the Company's 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 (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.
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 that have been
represented to the Company as compliant by vendors may not work. If the
validation phase is not completed on these items, the Company will have no
assurance of these systems' and applications' compliance, and as such, may have
inoperable programs, which could significantly affect aspects of the Company's
business. The database used by USS for tracking its properties under management
is undergoing the renovation process, after which it will need to be tested. If
this process is not completed, it will be uncertain as to whether USS would be
able to continue to accurately track its properties under management, which
could significantly affect its business.
The Company anticipates 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 the Company's results of operations. Most
of the costs associated with the Year 2000 issue will be expensed as incurred;
however, any costs attributable to the purchase of new software will be
capitalized. Through June 30, 1999, the Company had expensed approximately
$186,000 for costs associated with Year 2000 compliance. The costs of the Year
2000 project and the deadlines by which the Company believes that it 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
22
<PAGE>
no guarantee that these estimates will be achieved and actual results could
differ materially from those anticipated. Management presently believes that the
Year 2000 issue will not pose significant operational problems for its computer
systems. However, if the required modifications or replacements are not made, or
are not completed in a timely manner, the Year 2000 could have a material impact
on the operations of the Company. Additionally, despite the Company's efforts to
verify the Year 2000 compliance of third parties, there can be no guarantee that
the systems of other companies on which the Company relies will be converted
timely and will not have an adverse effect on the Company or its systems.
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
On May 14, 1999, the Company held its Annual Meeting of Shareholders ( the
"Annual Meeting"). At the Annual Meeting, the shareholders re-elected Mssrs.
Schmitz and Spencer; Mssrs. Skiba, Frank, Gibson, Kloos and Piercy continued in
office as directors of the Company. One other motion was voted upon at the
meeting. The other motion was to ratify the appointment of Ernst & Young LLP as
independent auditors for the Company for the 1999 fiscal year. With regard to
this motion, 6,051,462 of the shares entitled to vote were in favor of this
motion, with 1,525 against, and 2,000 abstentions.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
*10.1 Seventh Amendment to Credit Agreement, dated as of June 30, 1999,
between Matrix Bancorp, Inc., as borrower, Bank One, Texas, N.A., as
existing and resigning agent, and U.S. Bank National Association, as
successor agent for lenders
*10.2 Term Note, dated as of June 30, 1999, from Matrix Bancorp, Inc., as
borrower, to U.S. Bank National Association, as lender
*10.3 Term Note, dated as of June 30, 1999, from Matrix Bancorp, Inc., as
borrower, to Bank One, Texas, N.A., as lender
*10.4 Term Note, dated as of June 30, 1999, from Matrix Bancorp, Inc., as
borrower, to Residential Funding Corporation, as lender
*10.5 Revolving Note, dated as of June 30, 1999, from Matrix Bancorp, Inc.,
as borrower, to U.S. Bank National Association, as lender
*10.6 Revolving Note, dated as of June 30, 1999, from Matrix Bancorp, Inc.,
as borrower, to Bank One, Texas, N.A., as lender
*10.7 Revolving Note, dated as of June 30, 1999, from Matrix Bancorp, Inc.,
as borrower, to Residential Funding Corporation, as lender
*10.8 Tenth Amendment to Amended and Restated Loan Agreement, dated as of
June 30, 1999, between Matrix Financial Services Corporation, as
borrower, Bank One, Texas, N.A., as agent, and certain lenders, as
lenders
*10.9 Deed of Trust, Security Agreement, Assignment of Leases and Rents and
Fixture Filing, dated as of March 25, 1999, between Registrant, as
trustor, Sidney N. Mendelsohn, Jr., as trustee, and The Ohio National
Life Insurance Company, as beneficiary
*10.10 Promissory Note Secured by Deed of Trust, dated as of March 25, 1999,
between Registrant, as maker, to the Ohio National Life Insurance
Company, as holder
23
<PAGE>
* 27 Financial Data Schedule
(b) Reports on Form 8-K
None.
______________________
* Filed herewith.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MATRIX BANCORP, INC.
Dated: August 3, 1999 /s/ Guy A. Gibson
-------------------------------------- --------------------------
Guy A. Gibson
President and
Chief Executive Officer
(Principal Executive
Officer)
Dated: August 3, 1999 /s/ David W. Kloos
-------------------------------------- --------------------------
David W. Kloos Senior
Vice President and Chief
Financial Officer
(Principal Accounting
and Financial Officer)
25
<PAGE>
Exhibit 10.1
SEVENTH AMENDMENT TO CREDIT AGREEMENT
-------------------------------------
(And Amendment to Other Loan Documents)
THIS DOCUMENT is entered into as of June 30, 1999, between MATRIX BANCORP,
INC, a Colorado corporation formerly named Matrix Capital Corporation
("Borrower"), the Lenders named on the signature pages of this document, BANK
ONE, TEXAS, N.A., as existing and resigning Agent for Lenders ("Bank One"), and
U.S. BANK NATIONAL ASSOCIATION, as successor Agent for Lenders ("US Bank").
Borrower, Bank One, and US Bank are party to the Credit Agreement (as
renewed, extended, and amended, the "Credit Agreement") dated as of March 12,
1997, providing for a $8,500,000 Term Loan and a Revolving Facility of up to
$11,500,000. Borrower, Lenders, Bank One, and US Bank have agreed, upon the
following terms and conditions, among other things, to (a) provide, as stated in
Paragraph 2 below, for the resignation of Bank One and the appointment of US
Bank as Agent for Lenders, (b) amend the Credit Agreement, as stated in
Paragraph 3 below, to increase the Term Loan to $10,000,000, reduce the
Revolving Facility to $10,000,000, extend the Stated-Termination Date for the
Revolving Facility, change the amount of the quarterly principal installments
due in respect of the Term Loan, add Residential Funding Corporation as a
Lender, and permit additional Debt to be incurred, and (c) amend the Guaranties
and the Pledge Agreement as stated in Paragraphs 4 and 5 below. Accordingly,
for adequate and sufficient consideration, Borrower, Lenders, Bank One, and US
Bank agree as follows:
1. TERMS AND REFERENCES. Unless otherwise stated in this document (A) terms
--------------------
defined in the Credit Agreement have the same meanings when used in this
document and (B) references to "Sections," "Schedules," and "Exhibits" are to
the Credit Agreement's sections, schedules, and exhibits.
2. SUCCESSOR AGENT. In accordance with Section 11.6, Bank One resigns as
---------------
Agent for Lenders, and US Bank accepts its appointment as successor Agent for
Lenders. US Bank acknowledges that by accepting its appointment as Agent it
will succeed to, and become vested with, all the Rights and duties of Bank One
in its capacity as the resigning Agent. The provisions of Section 11 and other
relevant provisions of the Loan Documents continue to inure to the benefit of
Bank One as to any actions taken or omitted to be taken by it while it was Agent
under the Credit Agreement. The appointment of US Bank as Agent will not
release Bank One from any liability it may have for any actions taken or omitted
to be taken by it while it was Agent under the Credit Agreement. Each reference
in any Loan Document to "Agent" is changed to refer to US Bank. Within ten days
after the date that this document become effective, as provided in Paragraph 7
below, Bank One shall deliver to US Bank the stock certificates and blank stock
powers held as Collateral under the Pledge Agreement.
3. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is amended as follows:
------------------------------
(A) The introductory paragraph of the Credit Agreement is entirely
amended as follows:
THIS AGREEMENT is entered into as of March 12, 1997, between
MATRIX BANCORP, INC. a Colorado corporation formerly named Matrix
Capital Corporation ("Borrower"), the Lenders described below, and
U.S. BANK NATIONAL ASSOCIATION (as the successor to Bank One, Texas,
N.A.). as Agent for Lenders.
(B) The recitals to the Credit Agreement are entirely amended as follows:
Borrower has requested that Lenders extend credit to Borrower not
to exceed a total outstanding principal amount of $20,000,000 (as
that amount may be reduced or canceled pursuant to this agreement) to
be used by Borrower as provided in Section 6.1 and allocated as (A) a
term loan of $10,000,000 (the "Term Loan"), and (B) a revolving-
credit facility of $10,000,000 (the "Revolving Facility") to be
funded by Lenders from time to time on
Seventh Amendment
-----------------
<PAGE>
and after the Closing Date but before the Actual-Termination Date.
Lenders are willing to extend the requested credit on the terms and
conditions of this agreement.
(C) Section 1.1 is amended to entirely amend or to add, as the case may
be, the following definitions in alphabetical order with the other definitions
in that section:
"Agent" means, at any time, U.S. Bank National Association (or its
successor appointed under Section 11.6), acting as administrative,
collateral, managing, and syndication agent for Lenders under the Loan
Documents.
"Stated-Termination Date" means the earlier of either (a) June 30,
2000, or (b) 30 days after the date on which at least 90% of the total
Commitments for the Revolving Facility have been funded under Section 2.2.
"Subordinated Debentures" means the Junior Subordinated Debentures
proposed to be issued by Borrower in the total principal amount of not more
than $31,625,000 under the Indenture proposed to be entered into by
Borrower and State Street Bank and Trust Company as Trustee, as described
in the Form S-1 filed by Borrower with the Securities and Exchange
Commission via EDGAR on June 1, 1999.
"Subordinated Debt" means, at any time (a) Debt existing on June 30,
1999, that is by its terms subordinated to the payment of the Obligation,
(b) the Debt evidenced by the Subordinated Debentures, and (c) Debt of
Borrower that (i) is subject to subordination, payment blockage, and
standstill provisions at least as favorable to Lenders as are applicable to
the Subordinated Debentures, (ii) does not subject Borrower to
representations, covenants, events of default, and other provisions
significantly more onerous to Borrower than those contained in the
Subordinated Debentures, (iii) does not have any scheduled or mandatory
principal or sinking fund payment due before 180 days after the Maturity
Date, and (iv) is upon terms and conditions otherwise reasonably acceptable
to Determining Lenders.
(D) The first bullet paragraph of Section 3.2(a) is entirely amended as
follows:
The Principal Debt of the Term Loan is payable in seven consecutive
quarterly installments equal to 1/28th of the amount of that
Principal Debt on July 1, 1999, payable on the last day of each
March, June, September, and December (commencing September 30, 1999),
with a final installment in the amount of the unpaid Principal Debt
of the Term Loan due on the Maturity Date.
(E) Section 8.1 is amended to add the following clauses (h), (i), (j),
and (k) to that section:
(h) Matrix Bancorp Capital Trust I Guaranty. Guaranty by
---------------------------------------
Borrower of the payment obligations of Matrix Bancorp Capital Trust I
under the 1,100,000 Trust Preferred Securities proposed to be issued
under the Amended and Restated Trust Agreement proposed to be entered
into by Borrower, State Street Bank and Trust Company as Property
Trustee, Wilmington Trust Company as Delaware Trustee, and certain
administrative trustees, as described in the Form S-1 filed by
Borrower with the Securities and Exchange Commission via EDGAR on
June 1, 1999.
(i) Matrix Financial Services Guaranty. Guaranty by Borrower of
----------------------------------
the obligations of Matrix Financial Services Corporation under the
SS&TG Customer Agreement and the Agreement for Early Funding, both
dated May 4, 1994, and both between Matrix Financial Services
Corporation and the Federal Home Loan Mortgage Corporation related to
the purchase and sale of mortgage-related and debt securities issued
or guaranteed by the Federal Home Loan Mortgage Corporation and
related options or forwards.
2 Seventh Amendment
-----------------
<PAGE>
(j) PaineWebber Guaranty. Guaranty by Borrower of the
--------------------
obligations of Matrix Financial Services Corporation to PaineWebber
Incorporated in connection with transactions for the purchase, sale,
lending, borrowing, and delivery of securities and related
transactions.
(k) Subordinated Debt. Subordinated Debt, so long as Borrower
-----------------
does not (A) prepay or cause to be prepaid any principal of, or any
interest on, any of the Subordinated Debt except (i) conversions of
Subordinated Debt to equity of Borrower that is not mandatorily
redeemable, (ii) exchanges of Subordinated Debt for other
Subordinated Debt, and (ii) prepayment of Subordinated Debt with the
proceeds of the issuance of additional Subordinated Debt or capital
stock issued by Borrower, or (B) amend or modify the terms of any
Subordinated Debt to the extent that (i) any of the applicable
subordination, payment blockage, or standstill provisions are less
favorable to Lenders than exists for the Subordinated Debentures, as
described in the Form S-1 filed by Borrower with the Securities and
Exchange Commission via EDGAR on June 1, 1999, (ii) the applicable
representations, covenants, events of default, and other provisions
are materially more onerous to the obligor than exists for the
Subordinated Debentures, as described in the Form S-1 filed by
Borrower with the Securities and Exchange Commission via EDGAR on
June 1, 1999, or (iii) scheduled or mandatory principal or sinking
fund payment obligations before 180 days after the Maturity Date are
made applicable to any Subordinated Debt.
(F) For purposes of Section 12.2, Agent's address is entirely amended as
follows:
U.S. Bank National Association, Agent
950 17th Street, Suite 300
Denver, CO 80202
Attn: Andrea C. Koeneke, Vice President
Tel (303) 585-4234
Fax (303) 585-6273
(G) Schedule 2 and Exhibits A-1, A-2, D-1, D-2, and F are entirely
amended in the forms of, and all references to that schedule and those exhibits
are changed to, the attached Third Amended Schedule 2, Second Amended Exhibit A-
1, Second Amended Exhibit A-2, Second Amended Exhibit D-1, Third Amended Exhibit
D-2, and Amended Exhibit F, respectively.
4. AMENDMENTS TO GUARANTIES. The introductory paragraph and recitals of the
------------------------
Guaranty dated as of March 12, 1997, executed and delivered under the Credit
Agreement by Matrix Financial Services Corporation, Matrix Funding Corporation,
United Capital Markets, Inc., United Financial, Inc., United Special Services,
Inc., Vintage Delaware Holdings, Inc., Vintage Financial Services Corporation
(now named First Matrix Investment Services Corp.), and The Vintage Group, Inc.,
and the Guaranty dated as of March 12, 1997, re-executed and delivered by First
Matrix Investment Services Corp., in each case in favor of Bank One, Texas,
N.A., as Agent for Lenders, are each entirely amended as follows:
THIS GUARANTY is executed as of March 12, 1997, by the
undersigned (each a "Guarantor") for the benefit of U.S. BANK
NATIONAL ASSOCIATION (as successor to Bank One, Texas, N.A., in its
capacity as Agent for the Lenders now or in the future party to the
Credit Agreement described below, "Agent").
MATRIX BANCORP, INC., a Colorado corporation formerly named
Matrix Capital Corporation ("Borrower"), Agent, and Lenders have
executed the Credit Agreement (as renewed, extended, amended, or
restated, the "Credit Agreement") dated as of March 12, 1997. The
execution and delivery of this guaranty are requirements to Agent's
and Lenders' execution of the Credit Agreement, are integral to the
transactions contemplated by the Loan Documents, and are conditions
precedent to Lenders' obligations to extend credit under the
3 Seventh Amendment
-----------------
<PAGE>
Credit Agreement. The execution and delivery of this guaranty in no
way constitute a condition to or inducement to any Lender to extend
any other credit to any Guarantor.
5. AMENDMENT TO PLEDGE AGREEMENT. The introductory paragraph of the Pledge
-----------------------------
Agreement dated as of March 12, 1997, executed and delivered under the Credit
Agreement by Borrower and Bank One, Texas, N.A., as Agent for Lenders, is
entirely amended as follows:
THIS AGREEMENT is entered into as of March 12, 1997, between
MATRIX BANCORP, INC., a Colorado corporation formerly named Matrix
Capital Corporation ("Debtor"), certain Lenders, and U.S. BANK
NATIONAL ASSOCIATION as successor to Bank One, Texas, N.A., as Agent
for Lenders (in that capacity, "Secured Party").
6. SETTLEMENT AMONG LENDERS. US Bank and Lenders agree among themselves (and
------------------------
Borrower consents) that, concurrently with the effectiveness of this document,
there shall be deemed to have occurred assignments and assumptions with respect
to the Obligation, Liens, Rights, and obligations under the Loan Documents in
respect of the Revolving Facility and Term Loan such that, after giving effect
to those assignments and assumptions, the Obligation, Liens, Rights, and
obligations under the Loan Documents in respect of the Revolving Facility and
Term Loan are owned by each Lender in accordance with its Commitment Percentage
for Revolving Facility Commitments and Term Loan Commitments after giving effect
to this document. Lenders make those assignments and assumptions and shall make
all appropriate payments and adjustments among themselves through US Bank in
order to effectuate the appropriate purchase price for, and other amounts
payable with respect to, those assignments and assumptions.
7. CONDITIONS PRECEDENT. Notwithstanding any contrary provision, the foregoing
--------------------
paragraphs in this document are not effective unless and until (A) the
representations and warranties in this document are true and correct, and (B) US
Bank receives (1) counterparts of this document executed by Bank One, US Bank,
Lenders, Borrower, and each other Company named on the signature pages of this
document and (2) each other document and item listed on the attached Annex A,
each of which must be in form and substance acceptable to US Bank and its
special counsel.
8. RATIFICATIONS. To induce Bank One, US Bank, and Lenders to enter into this
-------------
document, Borrower (A) ratifies and confirms all provisions of the Loan
Documents as amended by this document, (B) ratifies and confirms that all
guaranties, assurances, and Liens granted, conveyed, or assigned to Bank One, US
Bank, and Lenders under the Loan Documents (as they may have been renewed,
extended, and amended) are not released, reduced, or otherwise adversely
affected by this document and continue to guarantee, assure, and secure full
payment and performance of the present and future Obligation, and (C) agrees to
perform those acts and duly authorize, execute, acknowledge, deliver, file, and
record those additional agreements, and certificates as Bank One, US Bank, or
any Lender may request in order to create, perfect, preserve, and protect those
guaranties, assurances, and Liens.
9. REPRESENTATIONS. To induce Bank One, US Bank, and Lenders to enter into
---------------
this document, Borrower represents and warrants to Bank One, US Bank, and
Lenders that as of the date of this document (A) each Company has all requisite
authority and power to execute, deliver, and perform its obligations under this
document, which execution, delivery, and performance have been duly authorized
by all necessary corporate action, require no action by or filing with any
Tribunal, do not violate corporate charter or bylaws or (except where not a
Material-Adverse Event) violate any Law applicable to it or any material
agreement to which it or its assets are bound, (B) upon execution and delivery
by all parties to it, this document will constitute each Company's legal and
binding obligation, enforceable against it in accordance with this document's
terms except as that enforceability may be limited by Debtor Laws and general
principles of equity, (C) all other representations and warranties in the Loan
Documents are true and correct in all material respects except to the extent
that (1) any of them speak to a different specific date or (2) the facts on
which any of them were based have been changed by transactions contemplated or
permitted by the Credit Agreement, and (D) no Material-Adverse Event, Default,
or Potential Default exists.
4 Seventh Amendment
-----------------
<PAGE>
10. EXPENSES. Borrower shall pay all costs, fees, and expenses paid or
--------
incurred by US Bank incident to this document, including, without limitation,
the reasonable fees and expenses of US Bank's counsel in connection with the
negotiation, preparation, delivery, and execution of this document and any
related agreements.
11. MISCELLANEOUS. All references in the Loan Documents to the "Credit
-------------
Agreement" refer to the Credit Agreement as amended by this document. This
document is a "Loan Document" referred to in the Credit Agreement; therefore,
the provisions relating to Loan Documents in Sections 1 and 12 are incorporated
in this document by reference. Except as specifically amended and modified in
this document, the Credit Agreement is unchanged and continues in full force and
effect. This document may be executed in any number of counterparts with the
same effect as if all signatories had signed the same document. All
counterparts must be construed together to constitute one and the same
instrument. This document binds and inures to each of the undersigned and their
respective successors and permitted assigns, subject to SECTION 12.12. THIS
DOCUMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES IN RESPECT OF THE MATTERS COVERED BY THE LOAN DOCUMENTS AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS BY THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGES FOLLOW.
5 Seventh Amendment
-----------------
<PAGE>
EXECUTED as of the date first stated in this Seventh Amendment to Credit
Agreement.
MATRIX BANCORP, INC., (formerly Matrix BANK ONE, TEXAS, N.A., as existing and
Capital Corporation), as Borrower resigning Agent and a Lender
By /s/ David W. Kloos By /s/ Carol L. Whitley
__________________________________ __________________________________
David W. Kloos, Carol L. Whitley, Vice President
Chief Financial Officer
U.S. BANK NATIONAL ASSOCIATION, as RESIDENTIAL FUNDING CORPORATION, as a
successor Agent and a Lender new Lender
By /s/ Andrea C. Koeneke By /s/ Mitchell K. Nomura
__________________________________ __________________________________
Andrea C. Koeneke, Vice President Mitchell K. Nomura, Director
1 of 2 Signature Pages
<PAGE>
CONSENT AND AGREEMENT
---------------------
To induce Bank One, US Bank, and Lenders to enter into this document, the
undersigned jointly and severally (a) consent and agree to this document's
execution and delivery, (b) ratify and confirm in all respects (i) the
amendments to the Guaranties provided for in Paragraph 4 of this document and
(ii) that all guaranties, assurances, Liens, and subordinations granted,
conveyed, or assigned to Bank One, US Bank, or any Lender under the Loan
Documents (as they may have been renewed, extended, and amended) are not
released, diminished, impaired, reduced, or otherwise adversely affected by this
document and continue to guarantee, assure, secure, and subordinate other debt
to the full payment and performance of all present and future Obligation, (c)
agree to perform those acts and duly authorize, execute, acknowledge, deliver,
file, and record those additional guaranties, assignments, security agreements,
deeds of trust, mortgages, and other agreements, agreements, instruments, and
certificates as Bank One, US Bank, or any Lender may reasonably deem necessary
or appropriate in order to create, perfect, preserve, and protect those
guaranties, assurances, Liens, and subordinations, (d) represent and warrant to
Bank One, US Bank, and Lenders that (i) the value of the consideration received
and to be received by the undersigned in respect of those guaranties,
assurances, Liens, and subordinations are reasonably worth at least as much as
the related liability and obligation, (ii) that liability and obligation may
reasonably be expected to directly or indirectly benefit the undersigned, and
(iii) each undersigned is, and after giving effect to those guaranties,
assurances, Liens, subordinations, and the Loan Documents, in light of all
existing facts and circumstances (including, without limitation, collateral for
and other obligors in respect of the Obligation and various components of it and
various rights of subrogation and contribution), each undersigned will be,
Solvent, and (e) waive notice of acceptance of this consent and agreement, which
consent and agreement binds the undersigned and their successors and permitted
assigns and inures to Bank One, US Bank, and Lenders and their respective
successors and permitted assigns.
MATRIX FINANCIAL SERVICES CORPORATION UNITED CAPITAL MARKETS, INC.
and MATRIX FUNDING CORPORATION
By /s/ George R. Bender By /s/ Austin Tilghman
____________________________________ _________________________________
George R. Bender, President of Austin Tilghman, President
each above Company
UNITED FINANCIAL, INC. UNITED SPECIAL SERVICES, INC.
By /s/ Richard Schmitz By /s/ Linda Preston
____________________________________ _________________________________
Richard Schmitz, Chairman Linda Preston, President
VINTAGE DELAWARE HOLDINGS, INC. FIRST MATRIX INVESTMENT SERVICES CORP.
and THE VINTAGE GROUP, INC.
By /s/ David W. Kloos By /s/ Paul E. Skretny
____________________________________ _________________________________
David W. Kloos, Chairman Paul E. Skretny, Chairman of the
Board and Chief Executive Officer
of each above Company
2 of 2 Signature Pages
<PAGE>
Exhibit 10.2
TERM NOTE
---------
$5,000,000 June 30, 1999
FOR VALUE RECEIVED, MATRIX BANCORP, INC., a Colorado corporation formerly
named Matrix Capital Corporation ("Borrower"), promises to pay to the order of
U.S. BANK NATIONAL ASSOCIATION ("Lender") $5,000,000, together with interest.
This note is a "Term Note" under the Credit Agreement (as renewed,
extended, amended, or restated, the "Credit Agreement") dated as of March 12,
1997, between Borrower, Lender, certain other Lenders, and U.S. Bank National
Association, as Agent for Lenders. All of the defined terms in the Credit
Agreement have the same meanings when used, unless otherwise defined, in this
note.
This note incorporates by reference the principal and interest payment
terms in the Credit Agreement for this note, including, without limitation, the
final maturity, which is the Maturity Date. Principal and interest are payable
to the holder of this note through Agent at either (a) its offices at 950 17th
Street, Denver, Colorado 80202, or (b) at any other address so designated by
Agent in written notice to Borrower.
This note incorporates by reference all other provisions in the Credit
Agreement applicable to this note, such as provisions for disbursements of
principal, applicable-interest rates before and after Default, voluntary and
mandatory prepayments, acceleration of maturity, exercise of Rights, payment of
attorneys' fees, court costs, and other costs of collection, certain waivers by
Borrower and other obligors, assurances and security, choice of Texas and United
States federal Law, usury savings, and other matters applicable to Loan
Documents under the Credit Agreement.
This note is a renewal, extension, increase of, and substitution for (but
not novation of), the existing Term Note dated as of June 29, 1998, executed by
Borrower, payable to Payee, and in the stated principal amount of $4,250,000.
MATRIX BANCORP, INC., as Borrower
By /s/ Guy A. Gibson
_________________________________________________
Guy A. Gibson, Chief Executive Officer and
President
<PAGE>
Exhibit 10.3
TERM NOTE
---------
$2,500,000 June 30, 1999
FOR VALUE RECEIVED, MATRIX BANCORP, INC., a Colorado corporation formerly
named Matrix Capital Corporation ("Borrower"), promises to pay to the order of
BANK ONE, TEXAS, N.A. ("Lender") $2,500,000, together with interest.
This note is a "Term Note" under the Credit Agreement (as renewed,
extended, amended, or restated, the "Credit Agreement") dated as of March 12,
1997, between Borrower, Lender, certain other Lenders, and U.S. Bank National
Association, as Agent for Lenders. All of the defined terms in the Credit
Agreement have the same meanings when used, unless otherwise defined, in this
note.
This note incorporates by reference the principal and interest payment
terms in the Credit Agreement for this note, including, without limitation, the
final maturity, which is the Maturity Date. Principal and interest are payable
to the holder of this note through Agent at either (a) its offices at 950 17th
Street, Denver, Colorado 80202, or (b) at any other address so designated by
Agent in written notice to Borrower.
This note incorporates by reference all other provisions in the Credit
Agreement applicable to this note, such as provisions for disbursements of
principal, applicable-interest rates before and after Default, voluntary and
mandatory prepayments, acceleration of maturity, exercise of Rights, payment of
attorneys' fees, court costs, and other costs of collection, certain waivers by
Borrower and other obligors, assurances and security, choice of Texas and United
States federal Law, usury savings, and other matters applicable to Loan
Documents under the Credit Agreement.
This note is a renewal, extension, increase of, and substitution for (but
not novation of), the existing Term Note dated as of June 29, 1998, executed by
Borrower, payable to Payee, and in the stated principal amount of $4,250,000.
MATRIX BANCORP, INC., as Borrower
By /s/ Guy A. Gibson
_________________________________________________
Guy A. Gibson, Chief Executive Officer and
President
<PAGE>
Exhibit 10.4
TERM NOTE
---------
$2,500,000 June 30, 1999
FOR VALUE RECEIVED, MATRIX BANCORP, INC., a Colorado corporation formerly
named Matrix Capital Corporation ("Borrower"), promises to pay to the order of
RESIDENTIAL FUNDING CORPORATION ("Lender") $2,500,000, together with interest.
This note is a "Term Note" under the Credit Agreement (as renewed,
extended, amended, or restated, the "Credit Agreement") dated as of March 12,
1997, between Borrower, Lender, certain other Lenders, and U.S. Bank National
Association, as Agent for Lenders. All of the defined terms in the Credit
Agreement have the same meanings when used, unless otherwise defined, in this
note.
This note incorporates by reference the principal and interest payment
terms in the Credit Agreement for this note, including, without limitation, the
final maturity, which is the Maturity Date. Principal and interest are payable
to the holder of this note through Agent at either (a) its offices at 950 17th
Street, Denver, Colorado 80202, or (b) at any other address so designated by
Agent in written notice to Borrower.
This note incorporates by reference all other provisions in the Credit
Agreement applicable to this note, such as provisions for disbursements of
principal, applicable-interest rates before and after Default, voluntary and
mandatory prepayments, acceleration of maturity, exercise of Rights, payment of
attorneys' fees, court costs, and other costs of collection, certain waivers by
Borrower and other obligors, assurances and security, choice of Texas and United
States federal Law, usury savings, and other matters applicable to Loan
Documents under the Credit Agreement.
This note is a renewal, extension, increase of, and substitution for (but
not novation of), the existing Term Note dated as of June 29, 1998, executed by
Borrower, payable to Payee, and in the stated principal amount of $4,250,000.
MATRIX BANCORP, INC., as Borrower
By /s/ Guy A. Gibson
_________________________________________________
Guy A. Gibson, Chief Executive Officer and
President
<PAGE>
Exhibit 10.5
REVOLVING NOTE
--------------
$5,000,000 June 30, 1999
FOR VALUE RECEIVED, MATRIX BANCORP, INC., a Colorado corporation formerly
named Matrix Capital Corporation ("Borrower"), promises to pay to the order of
U.S. BANK NATIONAL ASSOCIATION ("Lender") that portion of the principal amount
of $5,000,000 that may from time to time be disbursed and outstanding under this
note together with interest.
This note is a "Revolving Note" under the Credit Agreement (as renewed,
extended, amended, or restated, the "Credit Agreement") dated as of March 12,
1997, between Borrower, Lender, certain other Lenders, and U.S. Bank National
Association, as Agent for Lenders. All of the defined terms in the Credit
Agreement have the same meanings when used, unless otherwise defined, in this
note.
This note incorporates by reference the principal and interest payment
terms in the Credit Agreement for this note, including, without limitation, the
final maturity, which is the Maturity Date. Principal and interest are payable
to the holder of this note through Agent at either (a) its offices at 950 17th
Street, Denver, Colorado 80202, or (b) at any other address so designated by
Agent in written notice to Borrower.
This note incorporates by reference all other provisions in the Credit
Agreement applicable to this note, such as provisions for disbursements of
principal, applicable-interest rates before and after Default, voluntary and
mandatory prepayments, acceleration of maturity, exercise of Rights, payment of
attorneys' fees, court costs, and other costs of collection, certain waivers by
Borrower and other obligors, assurances and security, choice of Texas and United
States federal Law, usury savings, and other matters applicable to Loan
Documents under the Credit Agreement.
This note is a renewal, extension, increase of, and substitution for (but
not novation of), the existing Revolving Note dated as of June 29, 1998,
executed by Borrower, payable to Payee, and in the stated principal amount of
$5,750,000.
MATRIX BANCORP, INC., as Borrower
By /s/ Guy A. Gibson
________________________________________________
Guy A. Gibson, Chief Executive Officer and
President
<PAGE>
Exhibit 10.6
REVOLVING NOTE
--------------
$2,500,000 June 30, 1999
FOR VALUE RECEIVED, MATRIX BANCORP, INC., a Colorado corporation formerly
named Matrix Capital Corporation ("Borrower"), promises to pay to the order of
BANK ONE, TEXAS, N.A. ("Lender") that portion of the principal amount of
$2,500,000 that may from time to time be disbursed and outstanding under this
note together with interest.
This note is a "Revolving Note" under the Credit Agreement (as renewed,
extended, amended, or restated, the "Credit Agreement") dated as of March 12,
1997, between Borrower, Lender, certain other Lenders, and U.S. Bank National
Association, as Agent for Lenders. All of the defined terms in the Credit
Agreement have the same meanings when used, unless otherwise defined, in this
note.
This note incorporates by reference the principal and interest payment
terms in the Credit Agreement for this note, including, without limitation, the
final maturity, which is the Maturity Date. Principal and interest are payable
to the holder of this note through Agent at either (a) its offices at 950 17th
Street, Denver, Colorado 80202, or (b) at any other address so designated by
Agent in written notice to Borrower.
This note incorporates by reference all other provisions in the Credit
Agreement applicable to this note, such as provisions for disbursements of
principal, applicable-interest rates before and after Default, voluntary and
mandatory prepayments, acceleration of maturity, exercise of Rights, payment of
attorneys' fees, court costs, and other costs of collection, certain waivers by
Borrower and other obligors, assurances and security, choice of Texas and United
States federal Law, usury savings, and other matters applicable to Loan
Documents under the Credit Agreement.
This note is a renewal, extension, increase of, and substitution for (but
not novation of), the existing Revolving Note dated as of June 29, 1998,
executed by Borrower, payable to Payee, and in the stated principal amount of
$5,750,000.
MATRIX BANCORP, INC., as Borrower
By /s/ Guy A. Gibson
_________________________________________________
Guy A. Gibson, Chief Executive Officer and
President
<PAGE>
Exhibit 10.7
REVOLVING NOTE
--------------
$2,500,000 June 30, 1999
FOR VALUE RECEIVED, MATRIX BANCORP, INC., a Colorado corporation formerly
named Matrix Capital Corporation ("Borrower"), promises to pay to the order of
RESIDENTIAL FUNDING CORPORATION ("Lender") that portion of the principal amount
of $2,500,000 that may from time to time be disbursed and outstanding under this
note together with interest.
This note is a "Revolving Note" under the Credit Agreement (as renewed,
extended, amended, or restated, the "Credit Agreement") dated as of March 12,
1997, between Borrower, Lender, certain other Lenders, and U.S. Bank National
Association, as Agent for Lenders. All of the defined terms in the Credit
Agreement have the same meanings when used, unless otherwise defined, in this
note.
This note incorporates by reference the principal and interest payment
terms in the Credit Agreement for this note, including, without limitation, the
final maturity, which is the Maturity Date. Principal and interest are payable
to the holder of this note through Agent at either (a) its offices at 950 17th
Street, Denver, Colorado 80202, or (b) at any other address so designated by
Agent in written notice to Borrower.
This note incorporates by reference all other provisions in the Credit
Agreement applicable to this note, such as provisions for disbursements of
principal, applicable-interest rates before and after Default, voluntary and
mandatory prepayments, acceleration of maturity, exercise of Rights, payment of
attorneys' fees, court costs, and other costs of collection, certain waivers by
Borrower and other obligors, assurances and security, choice of Texas and United
States federal Law, usury savings, and other matters applicable to Loan
Documents under the Credit Agreement.
MATRIX BANCORP, INC., as Borrower
By /s/ Guy A. Gibson
----------------------------------------------
Guy A. Gibson, Chief Executive Officer and
President
<PAGE>
Exhibit 10.8
TENTH AMENDMENT TO
AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------
THIS DOCUMENT is entered into as of June 30, 1999, between MATRIX FINANCIAL
SERVICES CORPORATION, an Arizona corporation ("Borrower"), the Lenders listed on
the signature page below, and BANK ONE, TEXAS, N.A., as Agent for Lenders (in
that capacity "Agent").
Borrower, Lenders, and Agent have entered into the Amended and Restated
Loan Agreement (as renewed, extended, amended, or restated, the "Loan
Agreement") dated as of January 31, 1997, providing for loans to Borrower both
on a revolving and a term basis. Borrower, Agent, and Lenders have agreed, upon
the following terms and conditions, to extend the termination of the Loan
Agreement as described in Paragraph 2 below.
Accordingly, for adequate and sufficient consideration, Borrower, Lenders,
and Agent agree as follows:
1. TERMS AND REFERENCES. Unless otherwise stated in this document (A)
-- --------------------
terms defined in the Loan Agreement have the same meanings when used in this
document and (B) all references to "Sections," "Schedules," and "Exhibits" are
to the Loan Agreement's sections, schedules, and exhibits.
2. AMENDMENTS. The following definitions in Section 1.1 of the Loan
-- ----------
Agreement are entirely amended as follows:
"Tranche B-Stated-Termination Date" means the earlier of either (a)
July 30, 1999, or (b) the 30th calendar day after the calendar day that at
least $31,500,000 of Tranche B is outstanding at any one time.
"Warehouse-Stated-Termination Date" means July 30, 1999.
3. CONDITIONS PRECEDENT. Notwithstanding any contrary provision, the
-- --------------------
foregoing paragraphs in this document are not effective unless and until (A) the
representations and warranties in this document are true and correct and (B)
Agent receives counterparts of this document executed by each party on the
signature pages of this document.
4. RATIFICATIONS. To induce Agent and Lenders to enter into this
-- -------------
document, Borrower (A) ratifies and confirms all provisions of the Loan
Documents as amended by this document, (B) ratifies and confirms that all
guaranties, assurances, and Liens granted, conveyed, or assigned to Agent and
Lenders under the Loan Documents (as they may have been renewed, extended, and
amended) are not released, reduced, or otherwise adversely affected by this
document and continue to guarantee, assure, and secure full payment and
performance of the present and future Obligation, and (C) agrees to perform
those acts and duly authorize, execute, acknowledge, deliver, file, and record
those additional documents, and certificates as Agent or any Lender may request
in order to create, perfect, preserve, and protect those guaranties, assurances,
and Liens.
5. REPRESENTATIONS. To induce Agent and Lenders to enter into this
-- ---------------
document, Borrower represents and warrants to Agent and Lenders that as of the
date of this document (A) Borrower has all requisite authority and power to
execute, deliver, and perform its obligations under this document, which
execution, delivery, and performance have been duly authorized by all necessary
corporate action, require no action by or filing with any Tribunal, do not
violate its corporate charter or bylaws, or (except where not a Material-Adverse
Event) violate any Law applicable to it or any material agreement to which it or
its assets are bound, (B) upon execution and delivery by all parties to it, this
document will constitute Borrower's legal and binding obligation, enforceable
against it in accordance with their respective terms except as that
enforceability may be limited by Debtor Laws and general principles of equity,
(C) all other representations and warranties in the Loan Documents are true and
correct in all material respects except to the extent that
Tenth Amendment
---------------
<PAGE>
(1) any of them speak to a different specific date or (2) the facts on which any
of them were based have been changed by transactions contemplated or permitted
by the Loan Agreement, and (D) no Material-Adverse Event, Default, or Potential
Default exists.
6. EXPENSES. Borrower shall pay all costs, fees, and expenses paid or
-- --------
incurred by Agent incident to this document, including, without limitation, the
reasonable fees and expenses of Agent's special counsel in connection with the
negotiation, preparation, delivery, and execution of this document and any
related documents.
7. MISCELLANEOUS. All references in the Loan Documents to the "Loan
-- -------------
Agreement" refer to the Loan Agreement as amended by this document. This
document is a "Loan Document" referred to in the Loan Agreement; therefore, the
provisions relating to Loan Documents in Sections 1 and 12 are incorporated in
this document by reference. Except as specifically amended and modified in this
document, the Loan Agreement is unchanged and continues in full force and
effect. This document may be executed in any number of counterparts with the
same effect as if all signatories had signed the same document. All counterparts
must be construed together to constitute one and the same instrument. This
document binds and inures to each of the undersigned and their respective
successors and permitted assigns, subject to Section 12.12.
THIS DOCUMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS,
OR SUBSEQUENT ORAL AGREEMENTS BY THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
Remainder of page intentionally blank.
Signature page follows.
2 Tenth Amendment
---------------
<PAGE>
EXECUTED as of the date first stated in this Tenth Amendment to Amended and
Restated Loan Agreement.
<TABLE>
<CAPTION>
<S> <C>
MATRIX FINANCIAL SERVICES CORPORATION, BANK ONE, TEXAS, N.A., as Agent, as a Lender,
as Borrower and as Bank One
By /s/ George R. Bender By /s/ Carol L. Whitley
------------------------------------ ------------------------------------
George R. Bender, President Carol L. Whitley, Vice President
U.S. BANK NATIONAL ASSOCIATION, formerly RESIDENTIAL FUNDING CORPORATION, as a
Colorado National Bank, as a Lender Lender
By /s/ Susan Derber By /s/ Mitchell K. Nomura
------------------------------------ ------------------------------------
Susan Derber, Senior Vice President Mitchell K. Nomura, Director
</TABLE>
CONSENT AND AGREEMENT
---------------------
To induce Agent and Lenders to enter into this document, the undersigned
(a) consents and agrees to this document's execution and delivery, (b) ratifies
and confirms that all guaranties, assurances, Liens, and subordinations granted,
conveyed, or assigned to Agent and Lenders under the Loan Documents (as they may
have been renewed, extended, and amended) are not released, diminished,
impaired, reduced, or otherwise adversely affected by this document and continue
to guarantee, assure, secure, and subordinate other debt to the full payment and
performance of all present and future Obligation, (c) agrees to perform those
acts and duly authorize, execute, acknowledge, deliver, file, and record those
additional guaranties, assignments, security agreements, deeds of trust,
mortgages, and other agreements, documents, instruments, and certificates as
Agent or any Lender may reasonably deem necessary or appropriate in order to
create, perfect, preserve, and protect those guaranties, assurances, Liens, and
subordinations, (d) represents and warrants to Agent and Lenders that (i) the
value of the consideration received and to be received by the undersigned in
respect of those guaranties, assurances, Liens, and subordinations are
reasonably worth at least as much as the related liability and obligation, (ii)
that liability and obligation may reasonably be expected to directly or
indirectly benefit the undersigned, and (iii) the undersigned is -- and after
giving effect to those guaranties, assurances, Liens, subordinations, and the
Loan Documents, in light of all existing facts and circumstances (including,
without limitation, collateral for and other obligors in respect of the
Obligation and various components of it and various rights of subrogation and
contribution), the undersigned will be -- Solvent, and (e) waives notice of
acceptance of this consent and agreement, which consent and agreement binds the
undersigned and its successors and permitted assigns and inures to Agent, each
Lender, and their successors and permitted assigns.
MATRIX BANCORP, INC., as Guarantor
By /s/ Guy A. Gibson
-------------------------------
Guy A. Gibson, Chief Executive
Officer and President
Signature Page
<PAGE>
EXHIBIT 10.9
WHEN RECORDED RETURN TO:
Sidney N. Mendelsohn, Jr.
Mendelsohn, Oseran & Eisner, P.C.
2730 East Broadway, Suite 100
Tucson, Arizona 85716
DEED OF TRUST, SECURITY AGREEMENT, ASSIGNMENT
---------------------------------------------
OF LEASES AND RENTS AND FIXTURE FILING
--------------------------------------
DATE: March 25, 1999
TRUSTOR: MATRIX BANCORP, INC., a Colorado corporation
1380 Lawrence Street, Suite 1400
Denver, Colorado 80204
TRUSTEE: SIDNEY N. MENDELSOHN, JR., a member of the State Bar of Arizona
2730 E. Broadway Boulevard, Suite 100
Tucson, Arizona 85716
BENEFICIARY: THE OHIO NATIONAL LIFE INSURANCE COMPANY
One Financial Way
Cincinnati, Ohio 45242
Attention: Mortgages & Real Estate
Trustor, for itself and its successors and assigns, hereby irrevocably
grants, conveys, transfers and assigns to Trustee, in trust, with power of sale,
all that certain following described property and property rights, corporeal,
incorporeal, tangible or intangible, or otherwise whatsoever (the "Property" or
the "Premises") pursuant to this Deed of Trust, Security Agreement, Assignment
of Leases and Rents and Fixture Filing (the "Deed of Trust"):
I. All that certain real property situate in Maricopa County, Arizona, as
described in Exhibit "A" annexed hereto and hereby incorporated by reference.
-----------
<PAGE>
II. TOGETHER WITH:
(a) All buildings and improvements now placed as well as those
hereafter to be placed both thereon and therein, all rents, issues and
profits thereof, all present and future rights, interests, privileges and
easements, held by or inuring to the benefit of Trustor, including, but not
limited to, any interests of any common areas, common elements or common
facilities, which are appurtenant to, belonging to or are necessary or
convenient for the full use and enjoyment of the Property, all
appurtenances, easements, reversions, remainders, water and water rights
and water rights applications, pumps and pumping plants, pipes, flumes and
ditches thereunto appertaining, all rights to the use of water as well as
all rights in ditches for the irrigation of the Property, all shares of
stock evidencing such rights or any of them.
(b) To the extent owned or hereafter acquired by Trustor, all
fixtures, fittings, furniture, furnishings, appliances, apparatus,
equipment and machinery, including, without limitation, all gas and
electric fixtures, radiators, heaters, engines and machinery, boilers,
appliances, elevators and motors, bathtubs, sinks, water closets, basins,
pipes, faucets and other air-conditioning, plumbing and heating fixtures,
mirrors, mantles, refrigerating plant, carpeting, or other floor coverings,
furniture, cooking apparatus and appurtenances, and all building and
construction materials, supplies and equipment now or hereafter delivered
to the Premises and intended to be installed therein or used in connection
with the construction of improvements upon the Premises or used in
connection with or in the operation of the Premises or any business
conducted thereon; all other fixtures and personal property owned by
Trustor of whatever kind and nature at present contained in or hereafter
placed in any building standing on the Premises; and all renewals or
replacements thereof or articles in substitution thereof; and all proceeds
and profits thereof and all of the estate, right, title and interest of the
Trustor in and to all property of any nature whatsoever, now or hereafter
situated on the Premises which shall be deemed to be fixtures and an
accession to the freehold and a part of the realty as between the parties
hereto, and all persons claiming by, through or under them, and shall be
deemed to be a portion of the security for the indebtedness herein
mentioned and secured by this Deed of Trust. If the lien of this Deed of
Trust on any fixtures or personal property be subject to a lease agreement,
conditional sale agreement or chattel mortgage covering such property,
then, in the Event of Default hereunder, all the rights, title and interest
of the Trustor in and to any and all deposits made thereon or therefor are
hereby assigned to the Trustee, together with the benefit of any payments
now or hereafter made thereon, provided, however, that this sentence shall
not be construed as a waiver by Beneficiary of its position that all lien
rights granted hereunder are intended as paramount in priority to any other
liens of any nature, except as provided in Paragraph 1.01. There is also
transferred, set over and assigned by Trustor to Trustee, its successors
and assigns, hereby, all leases and use agreements of machinery, equipment
and other personal property owned by Trustor in the categories hereinabove
set forth, under which Trustor is the lessee of, or entitled to use, such
items, and Trustor agrees to execute and deliver to Trustee or Beneficiary
of
2
<PAGE>
such leases and agreements when requested by Trustee or Beneficiary; but
nothing herein shall obligate Trustee or Beneficiary to perform any
obligations of Trustor under such leases or agreements unless it so
chooses, which obligations Trustor hereby covenants and agrees to well and
punctually perform.
(c) All deposit and impound accounts, other accounts, accounts
receivable, contract rights, chattel paper and general intangibles,
including without limitation, trade names and trademarks relating solely to
the ownership of, and construction of, improvements upon the Premises,
which are now owned or hereafter owned or acquired by Trustor and/or in
which Trustor now has, or at any time hereafter acquires, an interest and
all renewals, replacements and substitutions thereof and additions thereto.
(d) Any licenses, contracts, permits and agreements now or hereafter
required or used by Trustor in connection with the design, construction,
ownership, operation or maintenance of the Premises.
(e) All proceeds realized from the property described in
subparagraphs (b), (c) and (d) above.
(f) All rents, issues, incomes, profits, revenues, royalties,
bonuses, rights, accounts, contract rights, utility deposits and hook-up
rebates, improvement district rebates, general intangibles and benefits
under any and all leases or tenancies now existing or hereafter created of
the Premises or any part thereof, with the right to receive and apply the
same to the indebtedness secured hereby, and Trustee or Beneficiary may
demand, sue for and recover such payments, but shall not be required to do
so.
(g) All judgments, awards of damages and settlements hereafter made
as a result of or in lieu of any taking of the Premises or any part thereof
or interest therein under the power of eminent domain, or for any damage
(whether caused by such taking or otherwise) to the Premises or the
improvements thereon or any part thereof or interest therein, including any
award for change of grade of streets.
(h) All insurance proceeds due under policies of insurance required
to be kept under this Deed of Trust, all of which are assigned as
additional and further security.
(i) All architectural and engineering plans and specifications
prepared for construction of improvements on the Premises and all studies,
data, and drawings related thereto; and also all construction contracts and
agreements of the Trustor relating to the aforesaid plans and
specifications or to the aforesaid studies, data, and drawings or to the
construction of improvements on the Premises.
The items set forth in these subparagraphs (b) through (i) are sometimes
hereinafter referred to as the "Collateral". This instrument is and shall be
construed as both a deed of trust
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<PAGE>
and a security agreement, and, to the extent that any of the property herein
described, including, without limitation, the Collateral, is deemed to be
personal property or fixtures or property not subject to an encumbrance upon
real estate, Trustor hereby grants unto Beneficiary a security interest in and
to such property pursuant to the Uniform Commercial Code as adopted by and now
in effect in the State of Arizona.
Trustor makes the foregoing grants to Trustee to hold the Property in trust
for the benefit of Beneficiary and for the purposes and upon the terms and
conditions hereinafter set forth.
III. FOR THE PURPOSE OF SECURING:
(a) Payment of the sum of ONE MILLION AND NO/100 DOLLARS
($1,000,000.00) with interest thereon, late charges, attorneys' fees and
other sums due according to the terms of that certain promissory note of
even date herewith, executed and delivered by Trustor to Beneficiary, and
any extensions, modifications, renewals or replacements thereof (the
"Note").
(b) Payment, with interest and other costs and charges thereon, in
accordance with the terms of the obligation or obligations evidencing same,
of any and all additional advances made by Beneficiary to Trustor under the
Note and extensions, modifications, renewals or replacements thereof.
(c) Payment of all obligations incurred, and of all monies expended
or advanced, by the Beneficiary pursuant to the terms hereof, the terms of
the Commitment for Loan and the modification/amendment thereof
(collectively the "Loan Agreement"), or of such other instruments or
documents relating to the indebtedness hereby secured (collectively,
including the Loan Agreement and the Deed of Trust, the "Security
Documents"), and payment of all monies expended or advanced by Beneficiary
or on its behalf to preserve any right of Beneficiary hereunder, or to
preserve any rights of Beneficiary under any other documents or instruments
securing the Note, or to protect or preserve the Property or any part
thereof, all of which are hereby declared to be a lien on the Property and
secured hereby. If there is any conflict between the terms of the Loan
Agreement and the Note or any of the Security Documents, then the terms of
the Note or Security Documents shall prevail.
(d) Provided, however, that if the Trustor shall pay or cause to be
paid to the holder of the Note the principal and all accrued and unpaid
interest to become due thereupon at the time and in the manner stipulated
therein, shall pay or cause to be paid all other sums payable thereunder or
hereunder and all indebtedness hereby secured, then, in such case, the
estate, right, title and interest of the Trustee and Beneficiary in the
Premises shall cease, determine and become void, and upon proof being given
to the satisfaction of the Beneficiary that the Note, together with all
accrued and unpaid interest thereon, have been paid or satisfied, and upon
payment of all fees, costs, charges, expenses
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and liabilities chargeable or incurred or to be incurred by Trustee or
Beneficiary, and of any other sums as herein provided, the Trustee shall,
upon receipt of the written request of the Beneficiary, reconvey, without
warranty, the Property then held hereunder. The recitals in such
reconveyance may be described as "the person or persons legally entitled
thereto".
ARTICLE ONE
Trustor's Covenants
-------------------
Trustor covenants and agrees with Trustee and Beneficiary that:
1.01 Title.
-----
(a) The Trustor warrants that it has good and marketable title to an
indefeasible fee simple estate in the real estate as described in Exhibit
-------
"A" hereto, subject to no liens, charges or encumbrances, except as set
---
forth on Exhibit "B" annexed hereto and hereby incorporated by reference
-----------
(such matters set forth on Exhibit "B" being hereinafter referred to as the
-----------
"Permitted Exceptions"), and that Trustor has full power and authority to
grant, bargain, sell and convey the Premises in the manner and form herein
done or intended hereafter to be done; that this Deed of Trust is and shall
remain a valid and enforceable first lien on the Premises subject only to
the Permitted Exceptions; that Trustor and its successors and assigns shall
warrant and defend the same forever against the lawful claims and demands
of all persons whomsoever; and that this covenant shall not be extinguished
by any exercise of power of sale, foreclosure, sale, acceptance of a deed
in lieu of foreclosure or exercise of other remedies of Beneficiary
hereunder, but shall run with the land.
(b) Trustor has and shall maintain title to the Collateral, including
any additions or replacements thereto, free of all security interests,
liens and encumbrances, other than the security interest hereunder and
other than as disclosed to and accepted by Beneficiary in writing. Trustor
has the unrestricted power, right and authority to subject the Collateral
to the security interest hereunder.
(c) The Trustor shall, at the cost of the Trustor, and without
expense to the Beneficiary, do, execute, acknowledge and deliver all and
every such further acts, deeds, conveyances, deeds of trust, assignments,
notices of assignments, transfers and assurances as the Beneficiary shall
from time to time reasonably require, for the better assuring, conveying,
assigning, transferring and confirming unto the Trustee or Beneficiary the
Property rights hereby conveyed or assigned or which the Trustor may be or
may hereafter become bound to convey or assign to the Trustee or
Beneficiary, or for carrying out the intention or facilitating the
performance of the terms of this Deed of Trust, or for filing, registering
or recording this Deed of Trust, and on demand, shall execute and deliver,
and
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<PAGE>
hereby authorizes the Trustee to execute in the name of the Trustor to the
extent it may lawfully do so, one or more financing statements, chattel
mortgages or comparable security instruments, to evidence more effectively
the lien hereof upon the Collateral.
(d) The Trustor forthwith upon the execution and delivery of this
Deed of Trust, and thereafter from time to time, shall cause this Deed of
Trust, and any security instrument creating a lien or evidencing the lien
hereof upon the Collateral, and each instrument of further assurance to be
filed, registered or recorded in such manner and in such places as may be
required by a present or future law in order to publish notice of and fully
to protect the lien hereof upon, and the interest of the Trustee or
Beneficiary in, the Premises.
(e) The Trustor shall pay all filing, registration or recording fees
of this Deed of Trust and any deed of trust supplemental hereto, any
security instrument with respect to the Collateral, and any instrument of
further assurance, and all federal, state, county and municipal stamp taxes
and other taxes, duties, imposts, assessments and charges arising out of or
in connection with the execution and delivery of the Note, this Deed of
Trust, any deed of trust supplemental hereto, any security instrument with
respect to the Collateral or any instrument of further assurance.
(f) The Trustor shall do all things necessary to preserve and keep in
full force and effect its existence, franchises, rights and privileges
under the laws of the state of its formation and this state if other than
its state of formation and shall comply with all regulations, rules,
ordinances, statutes, orders and decrees of any governmental authority or
court applicable to Trustor or to the Premises or any part thereof.
(g) The Trustor shall timely pay all installments of principal and
interest and all other sums to be paid pursuant to the Note as therein
specified and shall comply with all terms, provisions and performances as
are required by the Security Documents and each of them.
1.02 Taxes and Assessments. The Trustor shall pay in full before
---------------------
delinquent and before any penalty or interest attaches, all general taxes and
assessments, special taxes, special assessments, water charges, sewer service
charges, and all other charges against the Property and shall furnish to
Beneficiary official receipts evidencing the payment thereof; provided, however,
that Trustor shall have no obligation to pay any such tax, assessment or charge
which Trustor is duly contesting in good faith and at Trustor's sole expense.
Trustor shall notify Beneficiary and shall indemnify Beneficiary against the
sale, forfeiture of or creation of a lien against the Premises resulting from
the Trustor's failure to pay the charges set forth in this paragraph 1.02.
1.03 Taxes on Deed of Trust. Trustor shall protect Beneficiary insofar as
----------------------
it may be lawful so to do, against any and all loss from any taxation on
indebtedness or deeds of trust, direct or indirect, that may be or might be
imposed on this Deed of Trust, or the lien of this Deed of
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<PAGE>
Trust on said Property, or upon the debt hereby secured, by any law, rule,
regulation or levy of the Federal government or of the State of Arizona, or any
political subdivision thereof, by the payment by the Trustor of any such tax or
taxes, other than income taxes. Should the Trustor fail, neglect or refuse to
pay before the same becomes delinquent any such tax or taxes, Beneficiary may,
at its option, pay the same, and the amount or amounts thereof shall be secured
by this Deed of Trust, shall be due and payable on demand, and shall bear
interest at the Default Rate of Interest as defined in the Note, from the date
of payment by Beneficiary. In the event the burden of any such taxation on
indebtedness or deeds of trust cannot lawfully be shifted from Beneficiary to
Trustor, Beneficiary may, at its option, declare the whole unpaid principal
balance, together with accrued interest, due and payable thirty (30) days after
notice to Trustor.
1.04 Maintenance and Repair. Trustor shall keep the Premises in good
----------------------
operating order, repair and condition and shall not commit or permit any waste
thereof. Trustor shall make or cause to be made all repairs, replacements,
renewals, additions or improvements and complete and restore promptly and in
good workmanlike manner any building or improvements which may be constructed,
damaged or destroyed thereon, and pay when due all costs incurred therefor.
Trustor shall not remove from the Premises or demolish any of the property
conveyed hereby, nor demolish or materially alter such Premises without the
prior written consent of Beneficiary, except Trustor may alter the Premises
without obtaining consent of Beneficiary if such alterations do not materially
diminish its value or its ability to produce rental income and, further, Trustor
may remove portions of the Property for purposes of repair and restoration which
shall diligently thereafter be replaced. Trustor shall permit Trustee or
Beneficiary or its agents the opportunity to inspect the Premises, including the
interior of any structures, at any reasonable times, upon telephonic notice, and
to protect and care for the same and enforce any rights of Beneficiary
hereunder.
1.05 Liens and Encumbrances. The Trustor shall pay (or bond within ten
----------------------
(10) days after Trustor has knowledge of the recordation of any lien) when due
all obligations, lawful claims or demands of any person which, if unpaid, might
result in or permit the creation of a lien or encumbrance on the Premises or on
the rents, issues, income and profits arising therefrom, whether such lien would
be senior or subordinate hereto, including, but without limiting the generality
of the foregoing, any claims of mechanics, materialmen, laborers and others for
work or labor performed, or materials or supplies furnished, in connection with
any work of demolition, alteration, improvement of or construction upon the
Premises and in general will do or cause to be done everything necessary so the
lien of this Deed of Trust shall be fully preserved, at the cost of the Trustor,
without expense to the Trustee or Beneficiary. Beneficiary shall, upon notice
of any such lien or encumbrance, remove the same by payment or bond.
1.06 Compliance with Laws; Permits, Approvals, Zoning.
------------------------------------------------
(a) Trustor shall comply with all laws, ordinances, regulations,
covenants, conditions and restrictions now or hereafter affecting the
Premises and the operation thereof. Trustor shall obtain and at all times
keep in full force and effect such
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<PAGE>
governmental and municipal approvals as may be necessary to comply with all
environmental, ecological, handicap access and use, and other governmental
requirements relating to the Premises or to the use or occupancy thereof,
as such requirements may from time to time exist.
(b) Trustor shall not initiate, join in or consent to any change in
any private restrictive covenant, zoning ordinance (which may include
dedications of a part of the Property as a condition of such zoning), or
other public or private restrictions, limiting or defining the uses which
may be made of the Property or any part thereof, without first obtaining
the written consent of the Beneficiary, which will not be unreasonably
withheld, provided such consent will not cause Beneficiary to incur any
obligation or liability or result in diminution of value of the Property.
(c) Neither Trustor nor Trustor's agents, representatives, tenants,
nor third-parties in possession shall fail to comply fully with the
requirements of the Americans with Disabilities Act and all regulations
adopted pursuant thereto and any similar or corresponding state or local
laws, ordinances and regulations (collectively, the "ADA").
(d) Trustor, at Trustor's own expense, shall comply and cause its
agents, employees, contractors, and invitees to comply with all present and
hereinafter enacted Environmental Laws (as hereinafter defined), and any
amendments thereto, affecting the use of the Property, or the operations of
Trustor, Trustor's agents, representatives, tenants or third-parties in
possession of the Property. The term "Environmental Laws" shall include,
but not be limited to, all of the following: the Comprehensive
Environmental Response, Compensation, and Liability Act, 42 U.S.C. (S) 9601
et seq.; the Hazardous Materials Transportation Act, 49 U.S.C. (S) 1801 et
-- --- --
seq.; the Resource Conservation and Recovery Act, 42 (S) 6941 et seq.; the
--- -- ---
Toxic Substances Control Act, 15 U.S.C. (S) 2601 et seq.; the Safe Drinking
-- ---
Water Act, 42 U.S.C. (S) 300h et seq.; the Clean Water Act, 33 U.S.C. (S)
-- ---
1251 et seq.; the Clean Air Act, 42 U.S.C. (S) 7401 et seq.; the
-- --- -- ---
Occupational Health and Safety Act, 29 U.S.C. (S) 651 et seq.; the Arizona
-- ---
Hazardous Waste Management Act, A.R.S. (S) 49-921 et seq.; the Arizona
-- ---
Environmental Quality Act, Laws 1986, Ch. 368; Laws 1987, Ch. 317, as
amended; the Arizona Underground Storage Tank Regulation Act, A.R.S. (S)
49-1001 et seq.; and regulations or guidelines thereunder and any other
-- ---
federal, state or local laws, ordinances, rules, regulations and orders now
in effect or hereinafter enacted that deal with the regulation or
protection of the public health or environment (including the ambient air,
groundwater, surface water, and land use, including sub-strata land).
Neither Trustor nor Trustor's agents, representatives, tenants, nor third-
parties in possession shall suffer or permit the Property or any portion
thereof to be used as a site for the storage, disposal, use, generation or
manufacture of any "Hazardous Materials", suffer or permit the Property to
be contaminated by any Hazardous Materials or transport to or from the
Property any Hazardous Materials except that cleaning substances may be
stored and used at the Property in compliance with Environmental Laws. For
the purpose of this Deed of Trust, Hazardous Materials shall
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<PAGE>
include but shall not be limited to: (i) flammable explosives, radioactive
materials, hazardous wastes, toxic substances or related materials and
petroleum fuels or distillates; (ii) all substances defined as "hazardous
substances," "hazardous materials," or "toxic substances" including, but
not limited to, those regulated under the Environmental Laws, and under the
rules, regulations and guidelines promulgated or adopted pursuant to those
laws. Trustor agrees that in the event the Property or any condition
existing thereon is ever determined by any court or governmental agency to
be in violation of any Environmental Law or any ordinance or regulation
relating to occupational health or safety, public health or safety or
public nuisance or menace, Beneficiary, at its option, but without
obligation to do so, may correct such condition or violation and in doing
so shall conclusively be deemed to be acting reasonably and for the purpose
of protecting the value of its collateral, and Beneficiary may charge all
costs of correcting such condition or violation to Trustor, which amounts
shall be due upon demand and secured hereby, and shall bear interest from
the date expended by Beneficiary until paid at the rate set forth in the
Note.
(e) Trustor shall indemnify and hold Beneficiary harmless from all
expenses of ADA compliance or any required remediation in connection with
the ADA, and all expenses of clean-up, removal and/or correction of a
condition or violation as set forth in subparagraph (d) above, occasioned
by the violation of any Environmental Law or the discovery of any Hazardous
Materials on or off of the Property, whether or not any demand for such
action is made by any regulatory agency or demand for reimbursement is made
for such clean-up or correction as performed by such an agency. Trustor
shall provide notice to Beneficiary immediately upon the receipt of claims
made by any third-party, including without limitation, governmental
agencies, against Trustor or the Property because of environmental
contamination of the Property or any portion thereof.
Further, Trustor shall indemnify and hold Beneficiary harmless from
and against all claims, demands, liabilities, costs and expenses,
including, without limiting the generality of the foregoing, attorneys'
fees, expert witness fees and all other costs of defense arising from,
related to or connected with the generation, manufacture, storage,
disposal, use, location, removal and/or transportation of any Hazardous
Material to, upon or from the Property or the contamination of the Property
by any Hazardous Material, whether or not such storage, disposal, use,
location, transportation or contamination occurred before or after Trustor
acquired or disposed of any interest in the Property or was or may be in
whole or in part the result of any act or omission of any third party.
(f) The provisions of this paragraph 1.06: (i) shall be binding on
Trustor and any guarantor of the indebtedness secured hereby or of the Note
and any successor in interest to Trustor or any such guarantor, jointly and
severally, and (ii) shall survive and remain enforceable notwithstanding,
and shall not merge in or be exonerated by the execution, delivery or
acceptance of any deed in lieu of foreclosure or any trustee's or sheriff's
deed
9
<PAGE>
upon foreclosure, by payment and satisfaction of the indebtedness secured
hereby or by the release, satisfaction and discharge of this Deed of Trust.
1.07 Insurance.
---------
(a) Trustor shall keep the buildings and improvements and Collateral
now existing or which hereafter may be erected, placed or situated on the
Property continuously insured by policies of All Risk Replacement Cost
Insurance, including fire and extended coverage for loss or damage by fire,
tornado, windstorm, war risk (if available), flood (if the Property is in
an area which considered a flood-risk area by the U.S. Department of
Housing and Urban Development), in the amount of the full replacement costs
of the buildings and improvements on the Property, but in no event less
than the full balance of the Note remaining unpaid from time to time and in
an amount sufficient to prevent Trustor from being a co-insurer of any
loss, rental or business interruption insurance in an amount equal to not
less than six (6) months gross scheduled rents form the Property for
business losses sustained and expenses necessarily incurred to resume
normal business operations as a result of interruption of business or the
untenantability of the Property when the improvements thereon or Trustor's
personal property is damaged as a result of peril required to be insured
against hereunder, and such other insurance protection as may from time to
time may be required by Beneficiary. This insurance shall not provide for
a deductible of more than Five Thousand and no/100 Dollars ($5,000.00)
without Beneficiary's prior written consent and it shall include "Agreed
Amount" and "Inflation Guard" endorsements.
(b) Trustor shall continuously maintain comprehensive personal
liability insurance, with single limit coverage of not less than One
Million Dollars ($1,000,000.00), naming as insured both Trustor and
Beneficiary.
(c) All insurance to be maintained by Trustor shall be with an
insurance company or companies acceptable to Beneficiary, and shall be in
form and content acceptable to Beneficiary, with loss, if any, payable to
Beneficiary and Trustor as their interests may appear, pursuant to a
standard trust deed beneficiary clause which shall be satisfactory to
Beneficiary. All such policies shall provide that Beneficiary will receive
thirty (30) days' written notice of cancellation, lapse or effectiveness or
any material change in coverage or in the amounts of coverage. Upon the
issuance of such policies, Trustor shall promptly deliver the originals
thereof and all renewals thereof to Beneficiary or its designated agent.
Trustor shall also deliver to Beneficiary evidence of the payment of
premiums due on such policies at least thirty (30) days prior to the
expiration of any existing or renewal policy. In the event of foreclosure
of this Deed of Trust or other transfer of title to the Property in
extinguishment of the indebtedness secured hereto, all right, title and
interest of Trustor in and to any insurance policies then in force
concerning the Property shall pass to the purchaser or Beneficiary, as the
case may be.
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<PAGE>
(d) Trustor shall not take out separate insurance concurrent in
form or contributing in the event of loss with that required to be
maintained hereunder unless Beneficiary is included thereon under a
Standard Trust Deed Beneficiary Clause acceptable to Beneficiary. Trustor
shall promptly notify Beneficiary whenever any such separate insurance is
taken out and shall promptly deliver to Beneficiary the policy or policies
of such insurance. In the event of a foreclosure or other transfer of title
to the Premises in lieu of foreclosure, or by purchase at the foreclosure
sale, or by the exercise of power of sale, or otherwise, all interest in
any insurance policies in force shall pass to Beneficiary, transferee or
purchaser as the case may be.
1.08 Condemnation and Casualty Damage.
--------------------------------
(a) The Trustor, promptly upon obtaining knowledge of the
institution of any proceeding for the condemnation of the Premises or any
portion thereof, shall notify Beneficiary of the pendency thereof. Trustor
hereby assigns, transfers and sets over unto Beneficiary all compensation,
rights of action, all proceeds to the extent necessary to pay and satisfy
the Note in full of any award and any claim for damages for any of the
Premises taken or damaged under the power of eminent domain or by
condemnation or by sale in lieu thereof. In the event Beneficiary shall
reasonably determine that Trustor is not making a reasonable, diligent
effort to commence, appear in and prosecute any action or proceeding
relating to any condemnation or other taking of the Property, Trustor
authorizes Beneficiary, at Beneficiary's option, as attorney-in-fact for
Trustor, to commence, appear in and prosecute, in Beneficiary's or
Trustor's name, any action or proceeding relating to any condemnation or
other taking of the Property, whether direct or indirect, and to settle or
compromise any claim in connection with such condemnation or other taking.
The condemnation proceeds shall be promptly paid to Beneficiary and applied
to reduce the indebtedness secured hereby, whether or not then due;
provided however, Beneficiary, in its sole discretion and at its sole
option, after deducting therefrom all reasonable expenses, including
attorneys' fees, may apply the proceeds of the award for restoration or
rebuilding of the Premises in a commercially viable manner. Such proceeds
shall be made available in the manner and upon the conditions that the
Beneficiary may require in the manner provided under paragraph 1.08(b),
including the right to require Trustor to deposit with Beneficiary any
deficiency between the proceeds and the cost of restoration. If the
proceeds are made available by the Beneficiary to reimburse Trustor for the
cost of said rebuilding or restoration, any surplus which may remain out of
said award after payment of such cost of rebuilding or restoration shall,
at the option of the Beneficiary, be applied on account of the indebtedness
secured hereby or be paid to Trustor. Trustor agrees to execute such
further assignments of any compensation, award, damages, right of action
and proceeds as Beneficiary may require.
11
<PAGE>
(b) Trustor shall promptly notify Beneficiary of any loss or damage
to the Property, whether covered by insurance or not. In the event of loss
or damage by fire or any other hazard or casualty against which insurance
shall have been required by Beneficiary, Trustor shall promptly make proof
of loss; provided, however, in the event Trustor does not diligently
proceed to make proof of loss and attempt to diligently in good faith
settle and adjust any claim under the insurance policies, then Beneficiary
reserves the right to settle and adjust any claim under such insurance
policies. Trustor hereby authorizes and directs any insurer to pay
insurance proceeds directly to Beneficiary at its option, instead of
jointly to Trustor and Beneficiary. The insurance proceeds shall be
received by Beneficiary and, in Beneficiary's sole discretion and at its
sole option, applied to reduce the indebtedness secured hereby, whether or
not then due, or held by it as trustee and along with Trustor's deposits as
hereinafter provided in this Paragraph made available to Trustor for the
reconstruction or repair as the work progresses, no less frequently than on
a monthly basis, upon certificates by architects licensed to do business in
Arizona showing the application of the amount paid for such repairs,
rebuilding or reconstruction. Prior to the commencement of such
reconstruction or repair, Trustor shall at its expense prepare all plans
and specifications necessary for such restoration or repair (which plans
and specifications shall be subject to Beneficiary's reasonable approval,
and Beneficiary shall have the right to impose reasonable requirements in
connection therewith and with said repairs) and submit the same to
Beneficiary, together with evidence reasonably acceptable to Beneficiary
setting forth the total expenditure needed for such restoration and repair
based upon a bonded, fixed-price contract with a reputable contractor
reasonably acceptable to Beneficiary. In the event the insurance proceeds
are insufficient to complete such repair or restoration in the opinion of
the architects based upon fixed price contract bids or proposals, then
Trustor shall, within ten (10) days of executing any contract for repair or
restoration, deposit with Beneficiary an amount equal to the difference
between the insurance proceeds deposited with Beneficiary and the total
contract price for such restoration and repair. Trustor may then commence
such restoration or repair, and disbursements shall be made from said
account for such restoration or repair in accordance with a disbursement
schedule, and subject to other terms and conditions acceptable to
Beneficiary, provided that such disbursements shall be charged first
against funds deposited in said account by Trustor and, second, after such
funds are exhausted, against the insurance proceeds deposited therein.
1.09 Indemnification; Legal Fees.
---------------------------
(a) If any action or proceeding is commenced to which action or
proceeding the Trustor or Beneficiary is made a party, or in which it
becomes necessary to defend or uphold the lien of this Deed of Trust, the
Trustor shall appear in and defend any suit, action or proceeding that
might in any way, and in the sole judgment of Beneficiary, materially
adversely affect the value of the Property, the title to the Property, the
priority of this Deed of Trust, or the rights and powers of Trustee or
Beneficiary. Beneficiary may, at its option, appear in and defend any such
suit, action or proceeding, and may pay,
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purchase or contest any adverse claim, encumbrance, charge or lien, that in
the judgment of Beneficiary appears to be prior or superior to the lien of
this Deed of Trust. Trustor shall, at all times, indemnify, hold harmless
and, on demand, reimburse Beneficiary for any and all loss, damage, expense
or cost, including cost of evidence of title and accountants' and
attorneys' fees, arising out of or incurred in connection with any such
suit, action or proceeding, including any action before the Federal
Bankruptcy Court, and the sum of such expenditures shall be secured by this
Deed of Trust and shall bear interest at the rate provided in the Note
secured hereby and shall be due and payable on demand. Trustor shall pay
cost of suit, cost of evidence of title and reasonable attorneys' fees in
any proceeding or suit brought by Trustee or Beneficiary to foreclose this
Deed of Trust.
(b) In the event that it becomes necessary for the Beneficiary to
employ legal counsel or to take legal action to collect the indebtedness
secured hereby, to enforce any provision hereof, or to protect any of
Beneficiary's rights hereunder, Trustor agrees to pay to Beneficiary, in
addition to taxable costs of any legal proceeding or action, reasonable
attorneys' fees actually incurred, and all costs of preparation and conduct
of such proceedings, including costs of title searches and title policy
commitments, all of which shall be a lien upon the Property and secured by
these presents, and all of which shall be payable whether suit be brought
or not and whether through courts of original jurisdiction, appellate
courts, Bankruptcy Court or through other legal proceedings. If one or
more of the Events of Default (as hereinafter defined) shall happen,
Trustor shall pay to the Trustee, on demand, all reasonable costs, charges,
fees and disbursements of the Trustee chargeable or incurred in the
administration and the performance of its powers and duties hereunder.
1.10 Advances; Substitute Payment or Performance by Beneficiary.
----------------------------------------------------------
(a) Except as may be otherwise provided in this Deed of Trust,
should Trustor fail to pay or perform when required hereunder any
obligation of Trustor hereunder, Beneficiary may, but shall not be
obligated to, without regard to the adequacy of its security and without
prejudice to its right to declare a default hereunder, pay or perform the
same without notice to or demand upon Trustor. The payment by Beneficiary
of any delinquent tax, assessment or governmental charge, or any lien or
encumbrance which Beneficiary in good faith believes might be prior hereto,
or any insurance premium for insurance which Trustor is obligated to
provide hereunder but which Beneficiary in good faith believes has not been
supplied, shall be conclusive between the parties as to the legality and
amount so paid. Beneficiary shall be subrogated to all rights, equities and
liens discharged by any such expenditure. After any default hereunder and
whether or not an action is instituted to enforce any provision of the
Note, hereof or any other instrument securing the Note, Trustor promises to
pay to Beneficiary any reasonable sums incurred in good faith by
Beneficiary for attorneys' fees and costs to enforce such obligations or to
protect or enforce any of Beneficiary's rights hereunder. Any amounts so
paid pursuant to this paragraph 1.10, or the cost of such performance,
together with all costs and
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expenses incurred by Beneficiary in connection with such payment or
performance, and any amounts for which Trustor is specifically obligated to
reimburse Beneficiary or Trustee pursuant to provisions of this Deed of
Trust, including reasonable attorneys' fees and interest on all such
amounts at the rate of interest provided in the Note which applies after a
default of the Maker therein (the Trustor herein) from the date paid by
Beneficiary until repaid to Beneficiary, shall be payable by Trustor to
Beneficiary immediately upon notice to Trustor of the amount owing, without
further demand and shall be secured by this Deed of Trust.
(b) If any permitted subordinate mortgage, deed of trust or other
lien or encumbrance (the "Encumbrance") shall be in default by reason of
non-payment of principal or interest, or for any reason, Beneficiary may,
but shall not be obligated to, cure such default with notice to Trustor and
the cost of curing such default, with interest at the Default Rate of
Interest as defined in the Note, shall be added to the indebtedness secured
by this Deed of Trust and may be collected from Trustor upon demand at any
time after the time of such advance or advances, and the Beneficiary shall
be subrogated to the rights of the lienholder so paid. The Trustor,
immediately upon receiving any written notice of any default under any
Encumbrance, shall give written notice thereof to Beneficiary and shall
give to Beneficiary promptly upon receipt thereof, a true copy of each and
every notice, summons, legal process, legal paper or other communication
relating in any way to any Encumbrance or to the performance or enforcement
thereof, or to any default thereunder.
(c) Trustor agrees to make monthly deposits in an account with
Beneficiary, which account shall be subject to the control of Beneficiary,
of a sum equal to one-twelfth (1/12) of the yearly taxes and assessments
which may be levied against the Premises, and the annual premiums to become
due for all insurance policies required hereunder. The amount of such
taxes, assessments and insurance premiums, when unknown, shall be estimated
by Beneficiary. Such deposits shall be used by Beneficiary to pay such
taxes, assessments and insurance premiums, if such accumulated funds are
sufficient to pay the same. Any insufficiency of such account to pay such
charges as aforesaid shall be paid by Trustor to Beneficiary on demand.
Beneficiary is further authorized to withhold from the proceeds of any loan
secured by this Deed of Trust, or to require additional deposits by
Beneficiary of, monies to create a deposit sufficient, when added to the
monthly deposits to be made by Trustor prior to the next due dates for such
insurance premiums and taxes and assessments respectively, to pay such next
due insurance premiums, taxes and assessments. If, by reason of any
default by Trustor under any provision of this Deed of Trust, Beneficiary
declares all sums secured hereby to be due and payable, Beneficiary then
may apply any funds in said account against the entire indebtedness secured
hereby. The enforceability of the covenants relating to taxes, assessments
and insurance herein otherwise provided shall not be affected except
insofar as those obligations have been met by compliance with this
paragraph. Beneficiary may from time to time at its option waive, and after
any such waiver reinstate, any or all provisions hereof requiring such
deposits,
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by notice to Trustor in writing. While any such waiver is in effect,
Trustor shall pay taxes and assessments as herein elsewhere provided. Such
deposits and the funds in said account may be commingled with other
deposits and funds held by Beneficiary, and Beneficiary shall not be liable
to Trustor for any interest on such deposits and funds, or for
Beneficiary's commingling or use thereof, provided that monies in
equivalent amount to those deposited by Trustor are utilized in the manner
and for the purposes hereinabove specified.
1.11 Time. The Trustor agrees that time is of the essence hereof in
----
connection with all obligations of the Trustor herein or in said Note or any
other instruments constituting additional security for said Note.
1.12 Estoppel Certificates; Financial Statements. The Trustor within ten
-------------------------------------------
(10) days after request from the Beneficiary, shall furnish a duly acknowledged
written statement setting forth the unpaid balance of the debt secured by this
Deed of Trust, the date to which interest has been paid, copies of all
documents, instruments and modifications evidencing or securing the debt, and
stating either that no defaults, set-offs or defenses are alleged to exist, or
if any exist, the nature and amount thereof.
1.13 Assignment of Rents and Leases.
------------------------------
(a) As additional and collateral security for the payment of the
Note and all sums to become due under this Deed of Trust, Trustor hereby
assigns to Beneficiary all leases, rents and other revenues, rights and
benefits accruing to Trustor hereunder, (including, without limitation,
rents received by Trustor as Landlord under that certain Lease dated
November 30, 1998, as amended on February 17, 1999, in which Matrix
Financial Services Corporation is the "Tenant" of the Premises (the "Matrix
Lease"), and all present and future leases (including all other agreements
by which occupancy of the Premises is granted) on the Premises or any part
thereof (collectively, the "Leases"), with the right to receive the same
and apply them to the Note or other indebtedness secured hereby. Although
the interest of the Beneficiary by virtue of the foregoing assignment shall
be deemed to be vested and choate as of the date hereof, Trustor may
collect and retain such rents and other revenues until Beneficiary gives
written notice of its intention to collect such amounts. Beneficiary shall
not give such notice unless an Event of Default has occurred. Upon giving
such notice, Beneficiary is thereupon further authorized, at its option, to
execute and deliver to the holder of any such Lease upon the Premises
binding receipts for any payments made under the terms of any such Lease or
Leases and to demand, sue for and recover any such payments when due.
Trustor shall not (i) anticipate any rents (except for a period of one
month) that may be collectible under such lease or that may have been
assigned to Beneficiary; (ii) further assign any such Lease or any such
rents; (iii) amend or modify the terms of the Matrix Lease, except within
sixty (60) prior to the Termination Date of the Lease as the term may be
extended by Trustor, Trustor shall provide Beneficiary with a written copy
of a fully executed non-cancellable agreement for the extension of the term
of the Matrix Lease for one (1) additional year at a monthly rent
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of not less Thirty Thousand Six Hundred Twenty-Four Dollars ($30,624.00);
and (iv) enter any lease except as such is approved in writing by
Beneficiary. This Assignment shall terminate and become null and void upon
release of this Deed of Trust.
(b) Upon Beneficiary's request, Trustor shall give Beneficiary
separate specific assignments of rents and leases covering some or all of
the leases, the terms of such assignments being incorporated herein by
reference. Unless otherwise specified by Beneficiary in writing, all
existing and future leases for the use or occupancy of all or any part of
the Premises shall be made and entered only on written lease agreement
forms, which forms shall have been previously approved by Beneficiary in
writing, and shall be inferior to the lien of this Deed of Trust. Trustor
hereby appoints Beneficiary its attorney-in-fact, coupled with an interest,
and power in Beneficiary to subordinate any leases to this Deed of Trust.
Beneficiary reserves the right throughout the term of this Deed of Trust to
require that specific leases be made superior to this Deed of Trust.
(c) After an Event of Default, all rents collected by Trustor shall
be applied in any manner that Beneficiary deems
advisable and without regard to the manner and
priorities set forth in the Assignment of Leases
and Rents. Receipt by Beneficiary of such rents,
issues and profits shall not constitute a waiver
of any right that Beneficiary may enjoy under this
Deed of Trust or under the laws of Arizona, nor
shall the receipt and application thereof cure any
default hereunder nor affect any foreclosure
proceeding or any sale authorized by this Deed of
Trust and the laws of Arizona, unless such rental
amounts under applicable law effect a
reinstatement hereunder.
(d) In the event the Beneficiary shall institute judicial proceedings
to foreclose the lien hereof, and shall be appointed as mortgagee in
possession of the Premises, the Beneficiary during such time as it shall be
mortgagee in possession of the Premises pursuant to an order or decree
entered in such judicial proceedings, shall have, and the Trustor hereby
gives and grants to the Beneficiary, the right, power and authority to make
and enter into leases of the Premises or portions thereof for such rents
and for such periods of occupancy and upon such conditions and provisions
as such mortgagee in possession may deem desirable and Trustor expressly
acknowledges and agrees that the term of any such lease may extend beyond
the date of any sale of the Premises pursuant to a decree rendered in such
judicial proceedings; it being the intention of the Trustor that while the
Beneficiary is a mortgagee in possession of the Premises and pursuant to an
order or decree entered in such judicial proceedings, such Beneficiary
shall be deemed to be and shall be the attorney in fact of the Trustor for
the purpose of making and entering into leases of parts or portions of the
Premises for the rents and upon the terms, conditions and
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provisions deemed desirable to such Beneficiary and with like effect as if
such leases had been made by the Trustor as the owner in fee simple of the
Premises free and clear of any conditions or limitations established by
this Deed of Trust. The power and authority hereby given and granted by the
Trustor to the Beneficiary shall be deemed to be coupled with an interest
and shall not be revocable by Trustor.
1.14 Personal Property Security Interest.
-----------------------------------
(a) This Deed of Trust shall cover and encumber the Collateral. All
of the Collateral, to the fullest extent permitted by law, shall be deemed
fixtures and a part of real property, but, whether or not such property is
deemed a fixture and a part of real property, it shall be fully subject to
this Deed of Trust. This Deed of Trust shall constitute a security
agreement within the meaning of Article 9 of the Uniform Commercial Code of
the State of Arizona ("UCC") as to the property described in this paragraph
1.14(a) and as to any other property covered and encumbered by this Deed of
Trust as to which the provisions of such Article 9 of the UCC may apply,
and is intended to create a security interest in such property in favor of
Beneficiary. This Deed of Trust shall be self-operative with respect to
such property, but Trustor agrees to execute and deliver on demand such
security agreements, financing statements and other instruments as
Beneficiary may request in order to impose or perfect the lien hereof more
specifically upon any of such property. If the lien of this Deed of Trust
on any property is now, or shall hereafter be, subject to a prior security
interest covering such property, by reason of a purchase money security
interest or otherwise, then all the right, title and interest of Trustor in
and to any and all deposits thereon is hereby assigned to Beneficiary,
together with the benefit of any payments now or hereafter made thereon.
The foregoing sentence shall not operate as the Beneficiary's consent to
any such security interest.
(b) In the event Trustor owns or acquires only a lessee's interest in
any such personal property, then, in addition to the foregoing
requirements, before any of said personal property is placed in, on or
about the premises or improvements at any time situate thereon:
(i) The written approval of Beneficiary to the leasing
agreements under which Trustor owns or acquires such lessee's interest
shall have first been obtained, and
(ii) All consents of the lessor of any such leasing
agreements to such security interest of Beneficiary, and all
agreements of the lessor in favor of Beneficiary deemed necessary by
Beneficiary, shall first have been obtained to the satisfaction of
Beneficiary.
(c) Trustor agrees that all property of every nature and description,
whether real or personal, covered by this Deed of Trust, together with all
personal property in
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which Beneficiary has a security interest by reason of a separate agreement
or instrument, are encumbered as one unit, and that, upon default by
Trustor under or with respect to any of the obligations, or under any other
instrument executed in favor of Beneficiary to secure the obligations and
such security interests of Beneficiary may, at Beneficiary's option,
pursuant to A.R.S. (S) 47-9501(D) be foreclosed or sold in the same
proceeding, and all of the premises (both realty and personalty) may, at
Beneficiary's option, be sold as such in one unit as a going business,
subject to the provisions of A.R.S. (S) 33-810(A). The filing or recording
of any financing statement relating to any personal property or rights or
interests generally or specifically described herein shall not be construed
to diminish or alter any of Beneficiary's rights or priorities hereunder.
(d) Upon its recording in the real property records, this Deed of
Trust shall be effective as a financing statement filed as a fixture
filing. In addition, a carbon, photographic or other reproduced copy of
this Deed of Trust and/or any financing statement relating hereto shall be
sufficient for filing and/or recording as a financing statement. The
filing of any other financing statement relating to any personal property,
rights or interest described herein shall not be construed to diminish any
right or priority hereunder.
1.15 Due on Sale or Encumbrance. Trustor acknowledges that Beneficiary
--------------------------
( and not any subsequent transferee), in making the loan secured hereby, has
recognized and relied upon the financial strength and operating ability of the
Trustor. In the event the Trustor voluntarily, involuntarily or by operation of
law, shall sell, convey, transfer, further mortgage or encumber or dispose of
the Property or any part thereof, or any interest therein, or agrees so to do
(the "Transfer"), without the written consent of Beneficiary being first
obtained (which shall not be unreasonably withheld, taking into consideration
those matters, among others, as set forth in subparagraphs [i] through [iv]),
the Beneficiary, at its sole option and within its sole discretion, may declare
the entire indebtedness secured hereby to be due and payable in full and call
for payment of the same in full at once, including a prepayment premium equal to
the premium due in the case of an acceleration of the Note after default as
provided in the Note. Trustor shall not change or dissolve its corporate status
without the prior written approval of Beneficiary which shall not be
unreasonably withheld. Beneficiary agrees not to unreasonably withhold its
consent to a transfer of interest to any family members for estate planning
purpose which aggregate less than voting control of Trustor. In the event
Trustor shall request the consent of Beneficiary to the Transfer or the stock
transfer(s) or corporate dissolution or change of Borrower, Trustor shall
deliver complete information regarding such Transfer with the request and shall
allow the Beneficiary at least thirty (30) days for evaluation of such request.
Consent as to any one Transfer shall not be deemed to be a waiver of the right
to require consent to future Transfers and such consent shall not release the
Trustor from any obligations hereof, the Note or of any of the Security
Documents. The Beneficiary shall be entitled to consider, or to receive, as
appropriate, among other matters, the following with respect to the approvals
requested for a Transfer or for a change or dissolution of Trustor's status:
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(i) A title report as of the date of the Transfer showing no
adverse title consequences since the date hereof; reports of the
creditworthiness, financial strength and proven commercial real estate
experience of the assuming person or entity as determined by
Beneficiary in its sole and good faith discretion after review of all
relevant information requested by Beneficiary (the Beneficiary hereby
reserving the right to require professional leasing and management of
the Premises by a company approved by Beneficiary pursuant to a
contract in form and content acceptable to Beneficiary);
(ii) Such reasonable consideration as Beneficiary may determine
and an administrative fee for all costs and expenses of review and
processing such assumption and Transfer, including, without
limitation, attorneys' fees; and
(iii) The Beneficiary's satisfaction that the assignee can repay
the Note from sources other than the operation or sale of the
Premises.
(iv) From the assuming person or entity an assumption agreement
in form and content acceptable to Beneficiary and its counsel
evidencing the assumption of the obligation to pay the Note and all
other sums secured hereby and perform the other terms and conditions
of the Deed of Trust and guaranties as required by the Beneficiary.
1.16 Operating Statements; Financial Statements.
------------------------------------------
(a) Trustor, within ninety (90) days after the end of each fiscal year
during the term hereof, will furnish to Beneficiary detailed income and expense
statements for the Property, which shall be prepared by a certified public
accountant and satisfactory to Beneficiary. The financial and operating
statements shall include, without limitation, a balance sheet and a profit and
loss statement all, in reasonable detail and conforming to generally accepted
accounting principles, shall be prepared at Trustor's expense and shall be
satisfactory in form and content to Beneficiary. In the event Trustor fails to
furnish any such statements, Beneficiary may cause an audit to be made of the
respective books and records at the sole cost and expense of Trustor.
Beneficiary also shall have the right to examine at their place of safekeeping
at reasonable times all books, accounts and records relating to the operation of
the Premises. Trustor, within ninety (90) days after the end of each calendar
year during the term hereof shall furnish Beneficiary with audited financial
statements of both Borrower and Matrix Financial Corporation..
(b) Trustor shall, until the full release of this Deed of Trust, deliver to
Beneficiary on an semi-annual basis within thirty (30) days following January 1
and July 1 of each Loan Year (as that term is defined in subparagraph (c) below)
a rent roll for the Property certified by the officer of Trustor stating (i) the
names of all tenants, (ii) the amount of space leased to each tenant and their
suite number, (iii) the annual rent being paid by each tenant, (iv) the rent per
square foot paid by each tenant, (v) common area, participation or expense
reimbursement paid by each tenant, (vi)
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lease expiration date and options available for each tenant, and (vii) vacant
space with a suit designation for each vacant space.
(c) For the purpose of this subparagraph "Loan Year" means each twelve
(12) month period beginning on the date of the first installment payment due
under the terms of the Note and each anniversary thereafter. Beginning during
the last sixty (60) days of the first Loan Year and during the last sixty (60)
days of each Loan Year thereafter, Trustor shall extend the Matrix Lease for an
additional one (1) year term, thus providing for a minimum remaining term under
the Matrix Lease of five (5) years. Trustor will deliver to Beneficiary annually
a copy of the executed, non-cancelable lease extension in form and content and
on terms and conditions satisfactory to Beneficiary.
1.17 Representations and Warranties of Trustor. The Trustor hereby
-----------------------------------------
represents and warrants as follows:
(a) Trustor is a duly formed, validly existing Colorado corporation
qualified to do business in the State of Arizona, and Trustor has been duly
authorized to incur the indebtedness evidenced by the Note and grant this
Deed of Trust and enter into other instruments executed and delivered to
Beneficiary concurrently herewith or in connection with the Note.
(b) This Deed of Trust, the Note and all other instruments executed
and delivered to Beneficiary concurrently herewith are valid and legally
binding obligations and undertakings of the Trustor and will not conflict
with or cause a breach or default in any of the other obligations or
undertakings of the Trustor.
(c) The execution and delivery of this Deed of Trust, the Note and
any other instruments executed and delivered to Beneficiary concurrently
herewith, and the full and complete performance of the provisions hereof
and thereof will not result in any breach of, or constitute a default
under, or result in the creation of any lien, charge or encumbrance (other
than those contained herein or in any instrument delivered to Beneficiary
concurrently herewith) upon any property or assets of Trustor under any
indenture, mortgage, deed of trust, bank loan, or credit agreement or other
instrument to which Trustor is a party or by which Trustor is bound.
(d) The indebtedness hereby secured is solely for the purpose of
carrying on a business or commercial investment.
(e) That, to best of Trustor's knowledge after investigation and
inquiry, the Property is in all respects in compliance with all Federal,
State of Arizona and local laws, ordinances and regulations relating to
industrial hygiene, environmental protection, occupational health and
safety, public health and safety or public nuisance or menace, including,
without limitation, the Resource Conservation and Recovery Act, 42 U.S.C.
(S)(S)
20
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6901, et seq., the Comprehensive Environmental Response Compensation
-- ---
and Liability Act of 1980, 42 U.S.C. (S)(S) 9600, et seq. and the Superfund
-- ---
Amendments and Reauthorization Act thereof, the Toxic Substances Control
Act, 15 U.S.C. (S)(S) 2601, et seq., the Clean Air Act, 42 U.S.C. (S)(S)
-- ---
7401, et seq., and the Clean Water Act, 33 U.S.C. (S)(S) 1251, et seq., and
-- --- -- ---
the 1984 amendments to the Resource Conversation and Recovery Act
pertaining to underground storage tanks, 42 U.S.C. (S)(S) 6991(a), et seq.,
-- ---
and the laws of the State of Arizona pertaining to the environment as
modified and Arizona Revised Statutes Title 49 or ]otherwise relating to
soil, ambient air and waters of any classification and similar
environmental conditions on site and off site of the Property. Further,
the Property has never been used and will not be used by Trustor or a third
party (including without limitation, any lessee) to generate, manufacture,
store, dispose of or otherwise deal with or transport to or from, any
petroleum-based products or Hazardous Materials; provided, however, Trustor
has and may hereafter store and use cleaning substances in compliance with
all Environmental Laws.
(f) That Trustor has investigated the current and prior uses of the
Property and that there have been no releases, disposal, discharges or
leaks of Hazardous Materials on or from the Property.
(g) That Trustor is not required to obtain any permits or licenses
pursuant to any of the laws referenced in subparagraph 1.06(e) above in
connection with the use, operation and enjoyment of the Property and/or the
business conducted thereon.
(h) That the Property is zoned for the operation of an office
building and there are no violations of any zoning ordinances affecting the
Property.
(i) That to the best of its knowledge, after due and diligent
inquiry, the improvements constructed on the Property and their use comply
fully with (and no notices of violations have been received in connection
with) zoning, planning, building, health, fire, traffic, safety and other
governmental or regulatory rules, laws, ordinances, statutes, codes and
requirements applicable to the Property. The zoning approval for the
Property is not dependent upon the ownership or use of any other property
or rights which are not included within the definition of the Property and
thereby subject to the Deed of Trust.
(j) All authorizations, licenses and permits, operating permits and
all other authorizations or permits required to allow the improvements
constructed on the Property to be fully operated have been obtained, paid
for and are in full force and effect.
(k) All improvements on the Property including but not limited to
parking areas, building entrances, common areas within the improvements to the
Property and as otherwise presently situated or which will be constructed on the
Property are or will be, as applicable, in full compliance with all applicable
requirements of the ADA.
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The aforesaid representations and warranties of Trustor shall survive and
remain enforceable notwithstanding, and shall not merge in or be exonerated by
the execution, delivery or acceptance of any deed in lieu of foreclosure or any
trustee's or sheriff's deed upon foreclosure, by payment and satisfaction of the
indebtedness secured hereby or by the release, satisfaction and discharge of the
indebtedness secured hereby or by the release, satisfaction and discharge of
this Deed of Trust and shall inure to the benefit of the Beneficiary and
Trustee, and their respective successors and assigns.
ARTICLE TWO
Default
-------
2.01 Events of Default. One or more of the following events ("Events of
-----------------
Default") shall be deemed a default hereunder:
(a) Failure to make any payment or perform any monetary obligation
under the Note, the Deed of Trust or other Security Document on the due
date; provided, however, Beneficiary shall not institute a judicial
foreclosure unless Trustor fails to cure such default within ten (10) days
after Beneficiary gives Trustor written notice of the default as provided
in Paragraph 3.08 hereof;
(b) Failure to perform any other obligation (i.e., an obligation
which does not involve the payment of money or the fulfillment of a
monetary obligation) within thirty (30) days after Beneficiary gives
Trustor written notice of default as provided in Paragraph 3.08 hereof; or
(c) Breach of any warranties or material representations or breach
of any of the covenants of Trustor, including, without limitation, those as
set forth in paragraphs 1.06 and 1.17 hereof;
(d) Any breach or default under or the institution of foreclosure or
other proceedings to enforce any permitted junior mortgage, deed of trust,
contract for sale of real estate, or other security interest or other lien
or encumbrance of any kind upon the Premises, or any portion thereof, and
the subordination agreements pertaining thereto unless such foreclosure or
proceeding is dismissed or stayed, prior to the conclusion of the
Beneficiary's remedies herein, in which event the Note and this Deed of
Trust shall be reinstated;
(e) Should the then current owner of the Property or any guarantor
of the Note secured hereby, as the case may be:
(i) file a petition under any chapter of the Federal Bankruptcy
Code or any similar law, state or federal, whether now or hereafter
existing; or
22
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(ii) in any involuntary bankruptcy case commenced against any of
them: (l) file an answer admitting that it is generally not paying its
debts as such debts become due, (2) fail to obtain a dismissal of such
case within forty-five (45) days of its commencement, (3) convert the
case from one chapter of the Bankruptcy Code to another chapter of the
Bankruptcy Code, or (4) be the subject of an order for relief in such
bankruptcy case; or
(iii) have a "trustee", as that term is defined in the Federal
Bankruptcy Code, appointed for it, or have any court take jurisdiction
of its property, or substantially all thereof, in any voluntary
proceeding for the purpose of reorganization, arrangement,
dissolution, or liquidation, if such custodian shall not be discharged
or if such jurisdiction shall not be relinquished, vacated or stayed
on appeal within forty-five (45) days of the appointment; or
(iv) make an assignment for the benefit of its creditors; or
(v) consent to the appointment of a "trustee", as that term is
defined in the Bankruptcy Code, of all of its property or
substantially all thereof.
(f) Notice is received by Trustor from any environmental protection
agency that the Property or any portion thereof is or may be in violation
of any federal, state or local laws, ordinances or regulations adopted in
connection with the protection of the environment, whether any clean-up or
corrective measures with respect thereto may be or is required and Trustor
fails to immediately transmit such notice to Beneficiary or such notice is
received by Trustor, Trustee or Beneficiary and Trustor fails (i) to
promptly respond thereto as may be required by law or regulation, (ii) to
develop a plan of remediation if such is required by law, regulation or
Beneficiary, (iii) to develop a plan of remediation which is acceptable to
the governmental authority having jurisdiction or Beneficiary, or (iv) to
contest any required clean-up or remediation in the manner prescribed by
law or if such contest is unsuccessful fails to timely undertake such
clean-up or remediation as may then be required.
(g) Failure to deliver to Beneficiary as and when required the copy
of the non-cancellable extension of the Matrix Lease as provided in paragraph
1.13(a)(iii) hereof and such failure continues for a period of five (5) days
after Beneficiary gives Trustor written notice of such failure or the
termination of the Matrix Lease prior to repayment in full of the Note.
2.02 Remedies.
--------
(a) Upon and after any such Event of Default, the Beneficiary may
declare the entire principal of the Note then outstanding (if not then due
and payable), and all accrued and unpaid interest thereon, all premiums
payable thereunder and all other obligations of Trustor hereunder to be due
and payable immediately, and upon any such declaration, the
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principal of the Note and said accrued and unpaid interest shall become and
be immediately due and payable, anything in the Note or in this Deed of
Trust to the contrary notwithstanding.
(b) During the existence of an Event of Default, the Trustee or
Beneficiary personally, or by its agents or attorneys, may enter into and
upon all or any part of the Premises, and each and every part thereof, and
may exclude the Trustor, its agents and servants wholly therefrom; and
having and holding the same, may use, operate, manage and control the
Premises and conduct the business thereof, either personally or by its
superintendents, managers, agents, servants, attorneys or receivers; and
upon every such entry, the Trustee or Beneficiary at the expense of the
Trustor, from time to time, either by purchase, repairs or construction,
may maintain and restore the Premises, may complete the construction of the
improvements and in the course of such completion may make such changes in
the contemplated improvements as it may deem desirable and may insure the
same, and likewise, from time to time, at the expense of the Trustor, the
Trustee or Beneficiary may make all necessary or proper repairs, renewals
and replacements and such useful alterations, additions, betterments and
improvements thereto and thereon as to it may seem advisable; and in every
such case the Trustee or Beneficiary shall have the right to manage and
operate the Premises and to carry on the business thereof and exercise all
rights and powers of the Trustor with respect thereto, either in the name
of the Trustor or otherwise as it shall deem best; and the Trustee or the
Beneficiary shall be entitled to give notice to any and all lessees and
tenants under leases that all rent shall be paid to Beneficiary (whether or
not the Beneficiary has entered or taken possession of the Property), to
rent and lease the Property or portions thereof to such persons, for such
periods of time, and on such terms and conditions as Beneficiary, in its
sole discretion, may determine, to collect and receive all earnings,
revenues, rents, issues, profits and income of the Premises and every part
thereof, all of which shall for all purposes constitute property of the
Beneficiary; and
(c) Upon and after any such Event of Default, the Beneficiary shall
have all of the remedies of a Secured Party under the Uniform Commercial
Code of Arizona, including without limitation, the right and power to sell,
or otherwise dispose of, the Collateral, or any part thereof, and for that
purpose may take immediate and exclusive possession of the Collateral or
any part thereof, and with or without judicial process, enter upon any
Premises on which the Collateral, or any part thereof, may be situated and
remove the same therefrom without being deemed guilty of trespass and
without liability for damages thereby occasioned, or at Beneficiary's
option, Trustor shall assemble the Collateral and make it available to the
Beneficiary at the place and at the time designated in the demand.
Beneficiary shall be entitled to hold, maintain, preserve and
prepare the Collateral for sale. Beneficiary, without removal, may render
the Collateral unusable and dispose of the Collateral on the Trustor's
Premises. To the extent permitted by law, Trustor expressly waives any
notice of sale or other disposition of the Collateral and any
24
<PAGE>
other right or remedy of Trustor existing after default hereunder, and to
the extent any such notice is required and cannot be waived, Trustor agrees
that, as it relates to this paragraph (c) only, if such notice is marked,
postage prepaid, to the Trustor at the above address at least ten (10) days
before the time of the sale or disposition, such notice shall be deemed
reasonable and shall fully satisfy any requirement for giving of said
notice.
(d) The Trustee may, and upon the written request of Beneficiary
shall, with or without entry, personally, or by its agents or attorneys,
insofar as applicable:
(i) Sell the Premises and all estate, right, title and
interest, claim and demand therein, and right of redemption thereof,
at one or more sales as an entity or in parcels, and at such time and
place, upon such terms and after such notice thereof as may be
required or permitted by law at public auction to be the highest
bidder for cash, in lawful money of the United States, payable at the
time of sale. If Beneficiary desires Trustee to exercise the power of
sale granted hereby, it shall execute and deliver to Trustee a written
declaration of default and demand for sale and shall surrender to
Trustee this Deed of Trust, the Note and all documents evidencing any
expenditures hereunder, together with such other documents as the
Trustee may reasonably require. Beneficiary shall also execute and
deliver to Trustee all notices to Trustor, if any, that must be signed
by Beneficiary. Upon receipt thereof, Trustee shall sell the property
as provided by law. Trustee may postpone the sale as provided by law;
or
(ii) Institute proceedings for the complete or partial
foreclosure of this Deed of Trust as a mortgage; or
(iii) Apply to any court of competent jurisdiction for the
appointment of a receiver or receivers to take charge of all of the
Property, to manage, operate and carry on any business then being
conducted thereon, or that could be conducted thereon, and to carry
on, protect, preserve, replace and repair the Property, and receive
and collect all the rents, issues and profits thereof and to apply the
same first to the payment of receiver's expense for management,
operation and protection of the business and the Property, and then in
the manner provided in paragraph 1.13(c) hereof. Upon appointment of
such receiver, Trustor will deliver possession of the Premises to the
receiver forthwith;
(iv) Take such steps to protect and enforce their rights whether
by action, suit or proceeding in equity or at law for the specific
performance of any covenant, condition or agreement in the Note or in
this Deed of Trust, or in aid of the execution of any power herein
granted, or for any foreclosure hereunder, or for the enforcement of
any other appropriate legal or equitable remedy or otherwise as the
Beneficiary shall elect.
25
<PAGE>
(e) Beneficiary may at any time request cancellation of Trustee's
notice of sale, whereupon Trustee shall execute and record, or cause to be
recorded, a Cancellation of Notice of Sale in the same county in which the
Notice of Sale was recorded. The exercise by Beneficiary of this right
shall not constitute a waiver of any default existing or subsequently
occurring. In the event this Deed of Trust and the indebtedness and
obligations secured hereby are reinstated in the manner provided by law,
Beneficiary shall forthwith notify Trustee thereof as provided by law.
Upon such notification, Trustee shall record or cause to be recorded a
Cancellation of Notice of Sale in the same county in which the Notice of
Sale was recorded within the period then required by law.
(f) At any time before the Property has been sold pursuant to the
power of sale granted hereby, this Deed of Trust may be foreclosed in the
manner provided by law for the foreclosure of mortgages on real property.
Provided that prior to commencing judicial foreclosure proceedings only,
Beneficiary shall deliver written notice to Trustor, and Trustor shall have
five (5) days from the notice to cure the default, including the payment of
all additional interest and charges as specified herein and in the Note.
(g) Upon the completion of any sale or sales made by the Trustee
under or by virtue of this Section, the Trustee, or an officer of any court
empowered to do so, shall execute and deliver to the accepted purchaser or
purchasers a good and sufficient instrument, or good and sufficient
instruments, conveying, assigning, and transferring all estate, right,
title and interest in and to the property and rights sold, but without any
covenant or warranty, express or implied. The recitals in such deed of any
manners or facts shall be conclusive proof of the truthfulness thereof.
Except as otherwise provided by law, any such sale or sales made under or
by virtue of this Section, whether made under the power of sale herein
granted or under or by virtue of judicial proceedings or of a judgment or
decree of foreclosure and sale, shall operate to divest all the estate,
right, title, interest, claim and demand whatsoever, whether at law or in
equity, of the Trustor in and to the properties and rights so sold, and
shall be a perpetual bar both at law and in equity against the Trustor and
against any and all persons claiming or who may claim the same, or any part
thereof from, through or under the Trustor.
(h) In the event of any sale made under or by virtue of this
Section, whether made under the power of sale herein granted or under or by
virtue of judicial proceedings or of a judgment or decree of foreclosure of
sale, the entire principal of, and interest on, the Note, if not previously
due and payable, and all other sums required to be paid by the Trustor,
pursuant to this Deed of Trust, immediately thereupon shall, anything in
the Note or in this Deed of Trust to the contrary notwithstanding, become
due and payable.
(i) The purchase money proceeds or avails of any sale made under or
by virtue of this Section, together with any other sums which then may be
held by the Trustee or Beneficiary under this Deed of Trust whether under
the provisions of this Section or otherwise, shall be applied as follows:
26
<PAGE>
First: To the payment of the costs and expenses of such sale,
including reasonable compensation to the Trustee and Beneficiary,
their agents and counsel, and of any judicial proceedings wherein the
same may be made, and of all expenses, liabilities and advances made
or incurred by the Trustee or Beneficiary under this Deed of Trust,
together with interest at the rate specified in the Note, on all
advances made by the Beneficiary and all taxes or assessments, except
any taxes, assessments or other charges subject to which the Premises
shall have been sold.
Second: To the payment of the whole amount then due, owing or
unpaid upon the Note for principal and interest, with interest on the
unpaid principal and accrued interest at the rate specified in the
Note, from and after the happening of any Event of Default described
above from the due date of any such payment of principal until the
same is paid.
Third: To the payment of any other sums required to be paid by
the Trustor pursuant to any provisions of this Deed of Trust or of the
Note.
Fourth: The surplus, if any, to whomsoever may be lawfully
entitled to receive the same.
(j) Upon any sale under or by virtue of this Section, whether made
under the power of sale herein granted or under or by virtue of judicial
proceedings or of a judgment or decree of foreclosure and sale, the
Beneficiary may bid for and acquire the Premises or any part thereof and in
lieu of paying cash thereof may make settlement for the purchase price by
crediting upon the indebtedness of the Trustor secured by this Deed of
Trust the net sales price after deducting therefrom the expenses of the
sale and the cost of the action and any other sums which the Beneficiary is
authorized to deduct under this Deed of Trust. The Beneficiary, upon so
acquiring the Premises, or any part thereof, shall be entitled to hold,
lease, rent, operate, manage and sell the same in any manner provided by
applicable laws.
2.03 Foreclosure; Sale of Realty and Personalty as a Unit; Other Remedies.
--------------------------------------------------------------------
Trustor agrees that all property of every nature and description, whether real
or personal, covered by this Deed of Trust, together with all personal property
covered by such security interests, are encumbered as one unit, and that upon
default by Trustor under the Note secured hereby or under this Deed of Trust or
any security agreement interests, at Beneficiary's option, may be foreclosed or
sold in the same proceedings, and all of the Trust Property (both realty and
personalty) may, at Beneficiary's option, be sold as such in one unit, pursuant
to the provisions of Arizona Revised Statutes, Section 47-9501(d), or at
Beneficiary's option, Beneficiary shall be entitled to exercise its rights of
enforcement under the Uniform Commercial Code in force in Arizona at the date of
this Deed of Trust.
27
<PAGE>
2.04 Marshalling of Assets; Waiver. The Trustor on its own behalf and on
-----------------------------
behalf of its successors and assigns hereby expressly waives all rights to
require a marshalling of assets by Trustee or Beneficiary or to require Trustee
or Beneficiary to first resort to the sale of any portion of the Premises which
might have been retained by Trustor before foreclosing upon and selling any
other portion as may be conveyed by Trustor subject to this Deed of Trust. Any
Trustor that has signed this Deed of Trust as a surety or accommodation party,
or that has subjected its property to this Deed of Trust to secure the
indebtedness of another hereby expressly waives the benefits of the provisions
of Arizona Revised Statutes, Section 12-1641, et seq., waives any defense of
-- ---
Trustor or by reason of the cessation from any cause whatsoever of the liability
of Trustor, and waives the benefit of any statutes of limitation affecting the
enforcement hereof.
2.05 Extensions/Waivers by Beneficiary. Beneficiary may at any time
---------------------------------
extend the time for payment of the indebtedness hereby secured, or any part
thereof, or interest thereon, and waive any of the covenants or conditions of
the Note or in this Deed of Trust contain, in whole or in part, either at the
request of the Trustor or of any person having an interest in the property, take
or release other security, release any part of the property or any party
primarily or secondarily liable on the Note or hereunder or on such other
security, grant extensions, renewals or indulgences therein or herein, apply to
the payment of the principal and interest and premium, if any, of the
indebtedness hereby secured any part or all of the proceeds obtained by sale or
otherwise as herein provided, without resort or regard to other security, or
resort to any one or more of the securities or remedies which Beneficiary may
have and which in its absolute discretion it may pursue for the payment of all
or any part of the indebtedness hereby secured, in such order and in such manner
as it may determine, all without in any way releasing Trustor from any of the
covenants, agreements, or conditions of the Note or this Deed of Trust, or
relieving the unreleased property from the lien of this Deed of Trust for all
amounts owing under the Note and this Deed of Trust.
2.06 Non-Waiver. By accepting payment of any sum secured hereby after its
----------
due date or late performance of any right against any person obligated directly
or indirectly hereunder or on any indebtedness hereby secured, Beneficiary shall
not have waived its right either to require prompt payment when due of all other
sums so secured or to declare a default for failure to make such prompt payment.
No exercise of any right or remedy by Trustee or Beneficiary hereunder shall
constitute a waiver of any other right or remedy herein contained or provided by
law.
No delay or omission of the Trustee or Beneficiary in the exercise of
any right, power or remedy accruing hereunder or arising otherwise shall impair
any such right, power or remedy, or be construed to be a waiver of any default
or acquiescence therein.
Except as otherwise provided by law, receipts of rents, awards, and
any other monies or evidences thereof, pursuant to the provisions of this Deed
of Trust and any disposition of the same by Trustee or Beneficiary shall not
constitute a waiver of the power of sale or right
28
<PAGE>
of foreclosure by Trustee or Beneficiary in the event of default or failure of
performance by Trustor of any covenant or agreement contained herein or any
indebtedness secured hereby.
2.07 Additional Rights and Remedies. Beneficiary shall have, in addition
------------------------------
to all other rights and remedies provided herein and at law or in equity, the
rights and remedies afforded by Arizona Revised Statutes, Section 33-702. In
the event Trustor fails or refuses to surrender possession of the Premises after
any sale thereof, Trustor shall be deemed a tenant at sufferance, subject to
eviction by means of forcible entry and detainer proceedings, provided that this
remedy is not exclusive or in derogation of any other right or remedy available
to Beneficiary.
2.08 Non-Election of Remedies or Security. All of the remedies provided
------------------------------------
for in this Deed of Trust or otherwise available to Beneficiary, and the
election as to the use of any one such remedy, shall not be effective to exclude
any other. The taking or acceptance of this Deed of Trust by Beneficiary shall
in no event be considered as a waiver of, or in any way affecting or impairing
any other security which Beneficiary may have, or acquire simultaneously
herewith, or hereafter acquire for the payment of the indebtedness hereby
secured, nor shall the taking at any time by Beneficiary of any such additional
security be construed as a waiver of, or in any way affecting or impairing, the
security of this Deed of Trust, and Beneficiary may resort, for the payment of
the indebtedness secured hereby, to its several securities therefor in such
order and manner as it may think fit.
ARTICLE THREE
General Provisions
------------------
3.01 Acceptance of Trust, Notice of Indemnification. Trustee accepts this
----------------------------------------------
trust when this Deed of Trust, duly executed and acknowledged, becomes a public
record as provided by law. Trustee is not obligated to notify any party hereto
of pending sale under any other deed of trust or of any action or proceeding in
which Trustor, Beneficiary or Trustee shall be a party unless Trustee brings
such action. Trustee shall not be obligated to perform any act required of it
hereunder unless the performance of such act is requested in writing and Trustee
is reasonably indemnified against loss, cost, liability and expense.
3.02 Powers of Trustee. From time to time upon written request of
-----------------
Beneficiary and presentation of this Deed of Trust for endorsement, and without
affecting the personal liability of any person for payment of any indebtedness
or performance of the obligations secured hereby, Trustee may, without liability
therefor and without notice; reconvey all or any part of the Premises; consent
to the making of any map or plat thereof; join in granting any easement thereon;
join in any declaration of covenants and restrictions; or join in any extension
agreement or any agreement subordinating the lien or charge hereof. Trustee or
Beneficiary may from time to time apply in any court of competent jurisdiction
for aid and direction in the execution of the trusts hereunder and the
enforcement of the rights and remedies available hereunder, and Trustee or
Beneficiary may obtain orders or decrees directing or confirming or approving
acts in the execution of said trusts and the enforcement of said remedies.
Trustee has no obligation to notify
29
<PAGE>
any party of any pending sale or any action or proceeding unless held or
commenced and maintained by Trustee under this Deed of Trust. Trustor shall pay
to Trustee its reasonable and customary charges for preparation of the release
and reconveyance of the Property upon full payment of the Note.
3.03 Indemnification of Trustee and Beneficiary. Trustor indemnifies
------------------------------------------
Trustee and Beneficiary against all losses, claims, demands, and liabilities
which either may incur, suffer or sustain in the execution of the trusts created
hereunder or in the performance of any act required or permitted hereunder or as
required under the laws of the State of Arizona.
3.04 Substitution of Trustee. From time to time, by a writing signed and
-----------------------
acknowledged by Beneficiary and filed for record in the office of the Recorder
of the County in which the Premises are situated, Beneficiary may appoint
another trustee to act in the place and stead of Trustee or any successor. Such
writing shall refer to this Deed of Trust and set forth the date, book and page
of its recordation. The recordation of such instrument of substitution shall
discharge Trustee herein named and shall appoint the new trustee as the trustee
hereunder with the same effect as if originally named Trustee herein. A writing
recorded pursuant to the provisions of this paragraph shall be conclusive proof
of the proper substitution of such new trustee. The Trustee may act hereunder
and may sell and convey the property as herein provided, although the Trustee
has been, may now be or may hereafter be, attorneys or agents of Beneficiary or
of any other Beneficiary, in respect of any manner or business whatsoever.
3.05 Rules of Construction. When the identity of the parties hereto or
---------------------
other circumstances make it appropriate, the masculine gender includes the
feminine and/or neuter, and the singular number includes the plural. The
headings of each paragraph are for information and convenience only and do not
limit or construe the contents of any provisions hereof.
3.06 Severability. If any terms of this Deed of Trust, or the application
------------
thereof to any person or circumstances shall, to any extent, be invalid or
unenforceable, the remainder of this Deed of Trust, or the application of such
term to persons or circumstances other than those as to which it is invalid or
unenforceable shall not be affected thereby and each term of this Deed of Trust
shall be valid and enforceable to the fullest extent permitted by law.
3.07 Successors in Interest. Subject to the limitations set forth in
----------------------
paragraph 1.15, this Deed of Trust applies to, inures to the benefit of, and is
binding not only on the parties hereto, but on their heirs, executors,
administrators, personal representatives, successors and assigns. All
obligations of Trustor hereunder are joint and several. The term "Beneficiary"
shall mean the holder and owner, including pledgees, of the Note secured hereby,
whether or not named as Beneficiary herein.
3.08 Notices. Every provision for notice, demand or request required in
-------
this Deed of Trust or by applicable law shall be deemed fulfilled by written
notice, demand or request personally served on (or mailed or sent by a
nationwide commercial courier (e.g., Federal
30
<PAGE>
Express, UPS) to, as hereinafter provided) the party entitled thereto or on its
successors or assigns. If mailed, such notice, demand or request shall be made
by certified or registered mail, and deposited in any post office station or
letter-box, enclosed in a postage prepaid envelope addressed to such party at
its address set forth below, or to such other address as either party hereto
shall direct by like written notice and shall be deemed to have been made on the
second day following posting as aforesaid. If personally served or commercially
sent, the party giving such notice shall be deemed to have given such notice on
the day that personal service is made or delivery is made by the national
courier to the party being noticed occurs. For the purposes herein, notices
shall be sent to Trustor and Beneficiary as follows:
TRUSTOR: MATRIX BANCORP, INC.
1380 Lawrence Street, Suite 1400
Denver, Colorado 80204
TRUSTEE: SIDNEY N. MENDELSOHN, JR.
2730 East Broadway Boulevard, Suite 100
Tucson, Arizona 85716
BENEFICIARY: THE OHIO NATIONAL LIFE INSURANCE COMPANY
One Financial Way
Cincinnati, Ohio 45242
Attention: Mortgages & Real Estate
3.09 Modifications. This Deed of Trust may not be amended, modified or
-------------
changed, nor shall any waiver of any provision hereof be effective, except only
by an instrument in writing and signed by the party against whom enforcement of
any waiver, amendment, change, modification or discharge is sought.
3.10 Governing Law. This Deed of Trust shall be construed according to
-------------
and governed by the laws of the State of Arizona.
3.11 Statute of Limitations. The right to plead any and all statutes of
----------------------
limitations as a defense to any obligation secured by this Deed of Trust is
hereby waived.
3.12 Joint and Several. The liability of each person or party signing
-----------------
this Deed of Trust as Trustor shall be joint and several.
3.13 Offset. No offset or claim that Trustor now or may in the future
------
have against Beneficiary shall relieve Trustor from paying installments or
performing any other obligation herein or secured hereby.
31
<PAGE>
3.14 Trustor Requests. The undersigned Trustor requests that a copy of
----------------
any notice of sale hereunder be mailed to it at the address specified in this
Deed of Trust or to such other address as Trustor may, from time to time,
designate in writing.
3.15 Conflicting Provisions. If the terms of this Deed of Trust are in
----------------------
conflict with any term contained in the Note or in any other instrument related
to this transaction, the terms of this Deed of Trust shall prevail.
3.16 Non-disturbance and Attornment. Beneficiary will, upon request of
------------------------------
Trustor, execute non-disturbance and attornment agreements with lessees of the
Premises in a form reasonably acceptable to Beneficiary.
3.17 Acknowledgment of Due Process; Waiver. Trustor hereby waives the
-------------------------------------
following rights it may have:
(a) The right to have a jury trial in connection with any litigation
arising hereunder or under the Note or any of the other Security Documents;
(b) In connection with a foreclosure hereunder, whether by judicial
or non-judicial means, the rights of appraisement and redemption; and
(c) The right to a judicial hearing in connection with the exercise
of any right or remedy provided by this Deed of Trust.
Trustor's waivers under this paragraph have been made voluntarily,
intelligently and knowingly and after Trustor has been apprised and counseled by
its attorneys as to the nature thereof.
3.18 Inspections. Until all obligations of the Trustor are satisfied in
-----------
full, Beneficiary, and its agents, representatives, officers, employees are
authorized to enter at any reasonable time upon or on any part of the Property
for the purpose of inspecting the same and for the purpose of performing any of
the acts Beneficiary is authorized to perform hereunder or under the terms of
any of the Security Documents.
IN WITNESS WHEREOF, the Trustor has caused this instrument to be signed as
of the date first above written.
TRUSTOR:
MATRIX BANCORP, INC.
32
<PAGE>
By: /s/ Thomas J. Osselaer
-----------------------------------------
Name: Thomas J. Osselaer
-----------------------------------------
Title: Agent
-----------------------------------------
Witness
STATE OF ARIZONA )
) ss.
COUNTY OF MARICOPA )
The foregoing instrument was acknowledged before me this _____ day of
March, 1999, by______________________________________________, the
_____________________________ of MATRIX BANCORP, INC., a Colorado corporation.
_______________________________
Notary Public
My Commission Expires:
____________________
STATE OF ARIZONA )
) ss.
COUNTY OF MARICOPA )
The foregoing instrument was acknowledged before me this _____ day of
March, 1999, by ___________________________________, Witness.
_______________________________
Notary Public
My Commission Expires:
____________________
33
<PAGE>
DO NOT DESTROY THIS NOTE: Once paid, this Note, with a Deed of Trust securing
same, must be surrendered to the trustee for cancellation before reconveyance.
PROMISSORY NOTE SECURED BY DEED OF TRUST
U.S. $1,000,000.00 Phoenix, Arizona
March 25, 1999
FOR VALUE RECEIVED, the undersigned, MATRIX BANCORP, INC., a Colorado
corporation (the "Maker"), whose mailing address is 1380 Lawrence Street, Suite
1400, Denver, Colorado 80204, hereby agrees and promises to pay without offset
or deduction to the order of THE OHIO NATIONAL LIFE INSURANCE COMPANY, an Ohio
corporation, its endorsees, successors and assigns (the "Holder"), this
Promissory Note Secured By Deed of Trust (the "Note") which until further notice
shall be made by check payable to the order of Eberhardt Company and delivered
to 3250 West 66th Street, Minneapolis, Minnesota 55435, or thereafter at such
other place as the Holder may from time to time designate, the principal sum of
ONE MILLION AND NO/100 DOLLARS ($1,000,000.00) and such additional sums as may
hereafter be added to said principal sum as hereinafter provided, together with
interest before default on the unpaid principal balance at the rate of seven and
one-tenth percent (7.10%) per annum and charges, if any, from the date hereof.
All sums due hereunder shall be payable in lawful money of the United
States at the times and in the manner set forth herein, and unless sooner
payable as provided herein, then in all events, the entire principal balance
together with all accrued interest and any other charges imposed hereunder shall
become due and payable on the 1st day of April, 2009 (the "Maturity Date").
This Note is secured by a Deed of Trust, Security Agreement and Assignment of
Leases and Rents (the "Deed of Trust") and other instruments executed by Maker
on even date herewith (collectively the "Security Documents").
1. PAYMENTS OF PRINCIPAL AND INTEREST.
----------------------------------
(a) Commencing on the first day of May 1, 1999 and continuing on the
first day of each month thereafter, there shall be principal and interest
payments due and payable in equal monthly installments of Seven Thousand
Eight Hundred and Fourteen Dollars ($7,814.00) until the Maturity Date at
which time, if not sooner paid, the entire unpaid principal balance
together with all accrued interest shall become due and payable.
<PAGE>
(b) All interest shall be computed on the basis of the actual number
of days elapsed on the assumption that each year contains three hundred and
sixty (360) days.
2. DEFAULT RATE OF INTEREST. In the event that any payment of principal
------------------------
or interest provided for herein shall not be paid on or before the tenth (10th)
day of the calendar month in which the same shall become due and payable, each
and every such delinquent payment, including the entire principal balance and
accrued interest in the event of an acceleration of the principal amount due
hereunder, as provided below, shall bear interest to the extent permitted by law
at the rate which is equal to eleven and one-tenth percent (11.10%) per annum
(the "Default Rate of Interest") from the date on which the payment was due and
payable until the delinquent payment is made.
3. LATE CHARGE. Any monthly installment payment or other payment not made
-----------
by Maker within three (3) days after the due date shall be subject to a late
payment charge equal to five percent (5%) of the monthly payment. Said monthly
payment shall be subject to an additional five percent (5%) late payment charge
for each additional month thereafter that said payment remains past due. The
late charge shall apply individually to all payments past due, there will be no
daily adjustment and said late charge shall be used to defray the costs of the
Holder incident to collecting such late payment. The Maker agrees that it would
be extremely difficult and impractical to fix the Holder's actual damages in the
event of a delinquent payment and that the late charge is a reasonable estimate
of the Holder's actual damages in such event. This provision shall not be
deemed to excuse a late payment or be deemed a waiver of any other rights the
Holder may have to collect any other amounts provided or to be paid hereunder or
to declare a default or exercise any remedy available hereunder or under the
Deed of Trust or the Security Documents.
4. PREPAYMENT.
----------
(a) Except as is otherwise provided in Paragraphs 4(d) and (e)
hereof, the principal and interest due hereunder may be prepaid in full at
any time during the term hereof in the manner provided in paragraph 4(c)
below together with the premium calculated as the difference between the
total of (i) each of the principal and interest installment payments which
would have been paid from the date of prepayment to the Maturity Date with
each such installment payment discounted on a monthly basis at the
"Discount Rate," defined in paragraph 4(b) below and (ii) the principal and
interest which would have been payable on the Maturity Date discounted at
the Discount Rate, less the outstanding principal balance due hereunder as
----
of the date of prepayment. Notwithstanding, anything in the previous
sentence to the contrary, the prepayment premium shall in no event be less
than one percent (1%) of the outstanding principal balance and accrued
interest due as of the date of the prepayment.
(b) The term "Discount Rate" as used herein shall be determined as of
the close of the business day which is seven (7) days prior to the date of
prepayment and shall be
<PAGE>
calculated based on the interest rate of the U.S. Treasury Note or Treasury
Bill having a maturity date on or closest to the Maturity Date.
(c) Any prepayment made pursuant to the provisions of paragraph 4(a)
above shall be made on a regularly scheduled installment payment date and
shall be made only upon sixty (60) days' advance written notice to the
Holder.
(d) The Maker shall not make partial prepayments except in the event
they are paid as a result of the operation of the provisions of paragraph
1.08(b) of the Deed of Trust, in which event the premium provided for in
this Paragraph 4 (a) shall not apply.
(e) The Maker may prepay the entire unpaid principal balance plus
accrual and unpaid interest within 180 days prior to the Maturity Date
without the payment of the prepayment premium provided for in Paragraph
4(a) hereof; provided, at least sixty (60) days advance written notice is
given to the Holder.
5. APPLICATION OF PAYMENTS. All payments shall be applied first to fees
-----------------------
and expenses incurred hereunder or under the Security Documents, late charges
and prepayment premiums, if any, then to interest and then to principal, except
that if any advance made by the Holder as a result of the occurrence of a
default under the terms of this Note or any instruments securing the Note is not
repaid on demand, any monies received, at the option of the Holder may first be
applied to repay such advances, plus interest thereon at the Default Rate of
Interest and the balance, if any, shall be applied on account of any
installments then due.
6. EVENT OF DEFAULT.
----------------
(a) It is agreed that time is of the essence in the performance of
this Note.
(b) This Note is the note referred to in and is secured by the
Security Documents of even date given by the Maker. The Deed of Trust
encumbers real property situated in Maricopa County, Arizona (the
"Premises"). The Security Documents, or certain of them, contain
provisions for the acceleration of the maturity of this Note.
(c) Upon the occurrence of an Event of Default as defined in the Deed
of Trust, such default shall constitute an event of default hereunder and
the entire unpaid principal balance together with accrued interest thereon
shall become immediately due and payable at the option of the Holder.
(d) Upon the second default by the Maker under this Note or any
documents securing this Note, the Holder may at any time thereafter require
that payments be made by cashier's or certified check or other form of
payment satisfactory to the Holder.
3
<PAGE>
(e) Upon the occurrence of an Event of Default, as defined in the
Deed of Trust, and following acceleration of maturity hereof by the Holder,
a tender of payment of the amount necessary to satisfy the entire unpaid
principal balance declared due and payable shall be deemed to constitute an
attempted evasion of the aforesaid restrictions on the right of prepayment
and shall be deemed a prepayment hereunder and such payment must,
therefore, include the default prepayment premium provided in paragraph
4(a) above.
7. PERMITTED TRANSFERS. The Deed of Trust contains provisions restricting
-------------------
the transfer or further encumbrance of the real property securing payment
hereof.
8. HOLDER'S RIGHTS CUMULATIVE. The rights or remedies of the Holder as
--------------------------
provided in this Note and the Security Documents shall be cumulative and
concurrent, and may be pursued singly, successively or together against the
Maker, any guarantor hereof and any other funds, property or security held by
the Holder for the payment hereof or otherwise at the sole, absolute and
uncontrolled discretion of the Holder.
9. NO WAIVER. No delay or omission on the part of the Holder in
---------
exercising any right hereunder shall operate as a waiver of such right or of any
other remedy under this Note. No previous waiver and no failure or delay by the
Holder in acting with respect to the terms of this Note or the Security
Documents shall constitute a waiver of any breach, default, or failure of
condition under this Note or any of the Security Documents or any obligations
contained therein or secured thereby. A waiver of any of the terms of this
Note, or any of the Security Documents or of any of the obligations contained
therein or secured thereby must be made in writing and shall be limited to the
express written terms of such waiver.
10. ATTORNEYS' FEES. If any installment of this Note, or any portion
---------------
thereof, or any other monies owing hereunder or under any of the Security
Documents is not paid at the time and place specified in this Note therefor or
therein and the Holder employs counsel for advice with respect thereto or to
this Note or any of the Security Documents, or to intervene, file a petition,
answer, motion or other pleading in any suit or proceeding (bankruptcy or
otherwise) relating to this Note or any of the Security Documents or to attempt
to collect this Note or said other monies from, or to enforce this Note, or any
of the Security Documents against the Holder or any other party, in any such
event, all of the reasonable attorneys' and paralegal fees and expenses arising
from such services, and all expenses, costs and charges relating thereto,
including, without limitation, title searches, reports and guarantees, shall be
an additional liability owing hereunder by the Maker to the Holder, payable on
demand and bearing interest from the date such payment is due or the date of
such demand, whichever is earlier, until payment thereof to the Holder, at the
Default Rate of Interest until paid in full and shall be secured by the lien
evidenced by the Deed of Trust.
11. PERMISSIBLE INTEREST RATE; NONUSURIOUS. All agreements between the
--------------------------------------
Maker and the Holder are hereby expressly limited so that in no contingency or
event
4
<PAGE>
whatsoever, whether by reason of acceleration of maturity of the indebtedness
evidenced hereby or otherwise, shall the amount paid or agreed to be paid to the
Holder for the use, forbearance or the loaning of the indebtedness evidenced
hereby exceed the maximum permissible under applicable law. If from any
circumstances whatsoever, fulfillment of any provision hereof or of the Security
Documents at any time given for the performance of such provision shall be due,
shall involve transcending the limit of validity prescribed by law, then, the
obligation to be fulfilled shall automatically be reduced to the limit of such
validity and if from any circumstances the Holder should ever receive as
interest an amount which would exceed the highest lawful rate of interest, such
amount which would be in excess of interest shall be applied to the reduction of
the principal balance evidenced hereby and not to the payment of interest. This
provision shall control every other provision of all agreements between the
Maker and the Holder.
12. SUCCESSORS AND ASSIGNS. Subject to the restrictions on transfer
----------------------
contained in paragraph 7 hereof, this Note shall be binding upon the Maker and
its heirs, representatives, successors and assigns.
13. AMENDMENT; MODIFICATION. This Note may not be changed, altered,
-----------------------
modified, amended, deleted or supplemented orally, but only by an agreement in
writing duly signed by or on behalf of the Holder and the Maker.
14. JOINT AND SEVERAL OBLIGATIONS. If more than one person signs this
-----------------------------
Note as the Maker, each person shall be jointly and severally obligated to keep
all of the promises made in this Note, including the promise to pay the full
amount owed. Any person who assumes the obligations under this Note or any
person who assumes the obligations of a guarantor, surety or endorser is also
obligated to keep all of the promises made in this Note. The Holder may enforce
its rights under this Note against each person individually or against all of
them together, meaning that any one of them may be required to pay all of the
amounts owed under this Note.
15. WAIVERS BY THE MAKER.
--------------------
(a) The Maker, endorsers, sureties, guarantors and all other persons
liable or to become liable for all or any part of the principal balance
evidenced by this Note severally waive presentment for payment, diligence,
protest and demand, notice of protest and non-payment, dishonor and notices
of all other matters of a like nature. Such parties hereby consent,
without affecting their liability, to any extension or alteration of the
time or terms of payment hereof, any renewal, any release of any or all
part of the security given for the payment hereof, any acceptance of
additional security of any kind, and any release of, or resort to any party
liable for payment hereof.
(b) The right to plead any and all statutes of limitation as a defense
to any demand on this Note, or any guaranty hereof, or any agreement to pay
the same, or any demand secured by and of the Security Documents or any and
all obligations or liabilities arising out of or in connection with this
Note or in the Security Documents is expressly
5
<PAGE>
waived by the Maker and all endorsers, sureties and guarantors to the
fullest extent permitted by law.
16. NOTICES. Every provision for notice, demand or request required in
-------
this Note or by applicable law shall be deemed fulfilled by written notice,
demand or request personally served on (or mailed or sent by a nationwide
commercial courier (e.g., Federal Express, UPS) to, as hereinafter provided) the
party entitled thereto or on its successors or assigns. If mailed, such notice,
demand or request shall be made by certified or registered mail, and deposited
in any post office station or letter-box, enclosed in a postage prepaid envelope
addressed to such party at its address set forth below, or to such other address
as either party hereto shall direct by like written notice and shall be deemed
to have been made on the second day following posting as aforesaid. If
personally served or commercially sent, the party giving such notice shall be
deemed to have given such notice on the day that personal service is made or
delivery is made by the national courier to the party being noticed occurs. For
the purposes herein, notices shall be sent to the Maker and the Holder as
follows:
THE MAKER: MATRIX BANCORP, INC.
1380 Lawrence Street, Suite 1400
Denver, Colorado 80204
THE HOLDER: THE OHIO NATIONAL LIFE INSURANCE COMPANY
One Financial Way
Cincinnati, Ohio 45242
Attention: Mortgages & Real Estate
17. PAYMENT. Receipt of a check shall not constitute payment hereunder
-------
until the Holder's bank gives the Holder full provisional credit therefor (and
such credit is not revoked nor the check subsequently dishonored), or until such
check is fully and finally honored by the bank upon which it is drawn, whichever
first occurs and any wire transfer of funds shall not constitute payment until
actually credited to such bank account of the Holder.
18. CHOICE OF LAW; WAIVER OF JURY TRIAL. This Note is delivered by the
-----------------------------------
Maker to the Holder in Phoenix, Arizona and shall be deemed to have been made
thereat. This Note shall be governed and controlled as to validity,
enforcement, interpretation, construction, effect and in all other respects,
including, but not limited to, the legality of the interest charged hereunder,
by the statutes, laws and decisions of the State of Arizona. The Maker, in
order to induce the Holder to accept this Note and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
Maker hereby consents to the jurisdiction of any state or federal court located
within Maricopa County, Arizona. The Maker waives trial by jury and waives any
objection which the Maker may have based on improper venue or forum
6
<PAGE>
non conveniens to the conduct of any proceeding instituted hereunder. The
- --- ----------
parties agree that venue shall be in Maricopa County, Arizona only.
19. HEADINGS AND TITLES. The headings used herein are for ease of
-------------------
reference only and shall not be used to construe or interpret this Note.
20. ACKNOWLEDGMENT. Within ten (10) days after request therefor, the
--------------
Maker shall from time to time deliver to the Holder or any other party requested
by the Holder a statement executed and acknowledged by an authorized
representative of the Maker certifying the unpaid principal balance, note rate,
due date and such other information respecting this Note or the Maker as shall
be required, which statement may be relied upon by the Holder or any such other
party. If the Maker shall fail timely to execute, acknowledge and deliver any
such statement, the Holder shall be deemed to have a power of attorney to
execute, acknowledge and deliver the statement on behalf of the Maker.
THE MAKER:
MATRIX BANCORP, INC., a Colorado corporation
By: /s/ Thomas J. Osselaer
-----------------------------------------
Name: Thomas J. Osselaer
----------------------------------
Title: Agent
----------------------------------
7
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<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> APR-01-1999 JAN-01-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<CASH> 16,351 16,351
<INT-BEARING-DEPOSITS> 24,986 24,986
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
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<INVESTMENTS-CARRYING> 0 0
<INVESTMENTS-MARKET> 0 0
<LOANS> 840,470 840,470
<ALLOWANCE> 4,510 4,510
<TOTAL-ASSETS> 1,034,699 1,034,699
<DEPOSITS> 686,570 686,570
<SHORT-TERM> 201,902 201,902
<LIABILITIES-OTHER> 15,934 15,934
<LONG-TERM> 75,579 75,579
0 0
0 0
<COMMON> 1 1
<OTHER-SE> 54,713 54,713
<TOTAL-LIABILITIES-AND-EQUITY> 1,034,699 1,034,699
<INTEREST-LOAN> 16,870 34,108
<INTEREST-INVEST> 327 694
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 17,197 34,802
<INTEREST-DEPOSIT> 5,189 10,384
<INTEREST-EXPENSE> 10,093 20,470
<INTEREST-INCOME-NET> 7,104 14,332
<LOAN-LOSSES> 625 1,350
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 17,816 34,675
<INCOME-PRETAX> 4,299 8,199
<INCOME-PRE-EXTRAORDINARY> 2,790 5,295
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,790 5,295
<EPS-BASIC> .41 .79
<EPS-DILUTED> .41 .77
<YIELD-ACTUAL> 3.33 3.33
<LOANS-NON> 14,024 14,024
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 4,182 3,710
<CHARGE-OFFS> 179 392
<RECOVERIES> 17 27
<ALLOWANCE-CLOSE> 4,510 4,510
<ALLOWANCE-DOMESTIC> 4,510 4,510
<ALLOWANCE-FOREIGN> 0 0
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