-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H3R+zL/9x1sw9IVp3wDq8XPJ22TI9zn6wjDe+i+PSdC0ZREuoB5iJD4V3h5JYA7H MH+s1dWgUP3gprAYs9b8FQ== 0000927356-97-000356.txt : 19970401 0000927356-97-000356.hdr.sgml : 19970401 ACCESSION NUMBER: 0000927356-97-000356 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MATRIX CAPITAL CORP /CO/ CENTRAL INDEX KEY: 0000944725 STANDARD INDUSTRIAL CLASSIFICATION: MORTGAGE BANKERS & LOAN CORRESPONDENTS [6162] IRS NUMBER: 841233716 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-21231 FILM NUMBER: 97570758 BUSINESS ADDRESS: STREET 1: 1380 LAWRENCE STREET STREET 2: SUITE 1410 CITY: DENVER STATE: CO ZIP: 80204 BUSINESS PHONE: 3035959898 MAIL ADDRESS: STREET 1: 1380 LAWRENCE STREET STREET 2: SUITE 1410 CITY: DENVER STATE: CO ZIP: 80204 10-K 1 FORM 10-K MATRIX CAPITAL CORPORATION UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to _______________ Commission File Number: 0-21231 MATRIX CAPITAL CORPORATION -------------------------------------------- (Exact name of registrant as specified in its charter) Colorado 84-1233716 - ------------------------------- -------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1380 Lawrence Street, Suite 1410 Denver, Colorado 80204 -------------------------------------- --------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (303) 595-9898 Securities registered pursuant to Section 12(b) of the Act: None. Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.0001 per share. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes No --- --- As of March 5, 1997, 6,681,031 shares of common stock were outstanding. The aggregate market value of common stock held by nonaffiliates of the registrant based on the closing price of such stock on the Nasdaq National Market on March 4, 1997 was $38,010,033. For purposes of this computation, all executive officers, directors and 10% beneficial owners of registrant are deemed to be affiliates. Such determination should not be deemed an admission that such executive officers, directors and 10% beneficial owners are affiliates. DOCUMENTS INCORPORATED BY REFERENCE: The Company's definitive proxy statement in connection with the Annual Meeting of the Shareholders to be held May 1, 1997, to be filed with the Commission pursuant to Regulation 14A, is incorporated by reference into Part III of this report. PAGE ---- PART I ITEM 1. BUSINESS. 3 ITEM 2. PROPERTIES. 16 ITEM 3. LEGAL PROCEEDINGS. 17 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 17 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. 18 ITEM 6. SELECTED FINANCIAL DATA. 19 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 20 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. 35 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. 35 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. 36 ITEM 11. EXECUTIVE COMPENSATION. 36 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. 36 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. 36 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. 37 PART I ITEM 1. BUSINESS -------- GENERAL Matrix Capital Corporation (the "Company") is a specialized financial services company that, through its subsidiaries, (the "Subsidiaries") focuses on mortgage merchant banking by purchasing and selling residential mortgage loans and residential mortgage servicing rights; offering brokerage, consulting and analytical services to other financial services companies and financial institutions; servicing residential mortgage portfolios for investors; originating residential mortgages; providing real estate management and disposition services. The Company also provides self-directed qualified retirement plans, individual retirement accounts, custodial and directed trust accounts, and broker dealer services to individuals and deferred contribution plans. The Company is a unitary thrift holding company that was incorporated in Colorado in June 1993. Its principal executive offices are located at 1380 Lawrence Street, Suite 1410, Denver, Colorado 80204, and its telephone number is (303) 595-9898. THE SUBSIDIARIES The Company's core business operations are conducted through the following operating Subsidiaries: UNITED FINANCIAL. United Financial, Inc. ("United Financial") provides brokerage and consulting services to financial institutions and financial services companies in the mortgage banking industry. These services include the brokering and analysis of residential mortgage loan servicing rights, corporate and mortgage loan servicing portfolio valuations (which includes the complex valuation and analysis required under Statement of Financial Accounting Standards No. 122, Accounting for Mortgage Servicing Rights ("FAS 122")), and, to a lesser extent, consultation and brokerage services in connection with mergers and acquisitions of mortgage banking entities. United Financial provides brokerage services to several of the nation's largest financial institutions, such as Banc One Mortgage Corporation, Chase Manhattan Mortgage Corporation, and Mellon Mortgage Corporation. During 1995 and 1996, United Financial brokered the sale of 103 and 92 mortgage loan servicing portfolios totaling $32.6 billion and $26.4 billion in outstanding mortgage loan principal balances, respectively. As a result of this volume of brokerage activity, the Company has access to a wide array of information relating to the mortgage banking industry, including emerging market trends, prevailing market prices, pending regulatory changes, and changes in levels of supply and demand. Consequently, the Company is able to identify certain types of mortgage servicing portfolios that are well suited to its particular servicing platform and unique corporate structure. MATRIX FINANCIAL. Matrix Financial Services Corporation ("Matrix Financial") acquires residential mortgage loan servicing rights on a nationwide basis through purchases in the secondary market, services the loans underlying these rights, and originates mortgage loans through its wholesale loan origination network. As of December 31, 1996, Matrix Financial serviced 50,599 borrower accounts representing $2.6 billion in principal balances (including $140.0 million in subservicing for non-affiliates of the Company), the majority of which were seasoned loans having lower principal and higher custodial escrow balances than newly originated mortgage loans. As a servicer of mortgage loans, Matrix Financial is required to establish custodial escrow accounts for the deposit of borrowers' payments, which may include principal, interest, taxes and insurance. These payments are held at Matrix Capital Bank ("Matrix Bank"). At December 31, 1996, the custodial escrow accounts related to the Company's servicing portfolio maintained at Matrix Bank were $27.4 million in the aggregate. For the calendar year 1996, Matrix Financial originated $583.3 million in wholesale mortgage loans through its regional production offices located in Atlanta, Denver, and Phoenix. The loans originated by Matrix Financial on a wholesale basis are typically sold in the secondary market. MATRIX BANK. With its main office in Las Cruces, New Mexico and a full service branch in Sun City, Arizona, Matrix Bank serves its local communities by providing a broad range of personal and business depository services, offering residential loans, and providing, on a limited basis, consumer loans and commercial real estate loans. In addition, in January 1997, a branch was established in Evergreen, Colorado that primarily will originate residential real estate construction loans and commercial loans in the Colorado market. Matrix Bank also holds the non-interest bearing custodial escrow deposits related to the residential mortgage loan servicing portfolio serviced by Matrix Financial. These custodial escrow deposits, as well as other traditional deposits, are used to fund bulk purchases of mortgage loan portfolios throughout the United States, a substantial portion of which are subserviced by Matrix Financial following their purchase. As of December 31, 1996, Matrix Bank was deemed to be "well-capitalized" under applicable regulatory standards. 3 UNITED SPECIAL SERVICES. United Special Services, Inc. ("USS") provides real estate management and disposition services to financial services companies and financial institutions. In addition to the unaffiliated clients currently served by USS, Matrix Financial uses USS exclusively in handling the disposition of its foreclosed real estate. USS also provides limited collateral valuation opinions to clients, such as the Federal Home Loan Mortgage Corporation ("FHLMC"), that are interested in assessing the value of the collateral underlying mortgage loans, as well as to clients such as Matrix Bank and other third-party mortgage loan buyers evaluating potential bulk purchases of mortgage loans. UNITED CAPITAL MARKETS. United Capital Markets, Inc. ("UCM") is a wholly owned subsidiary of the Company, formed in December 1996. UCM will focus on risk management services for institutional clients. It will provide a professional outsourcing alternative to in-house risk management departments or Wall Street derivative products. The focus will be on interest rate and prepayment risk as it relates to specific client objectives. The strategy will include modeling asset risk, setting up and trading individual hedge accounts and mirroring accounting practice and management goals. Although many asset classes will be considered for management and advice, mortgage servicing rights (sometimes referred to herein as MSRs') will be the initial focus. UCM is managed by former senior executives from nationally recognized investment banks and the mortgage banking industry with many years of experience in risk management and hedging strategies. UCM generated no revenues in 1996 and there can be no assurance that its operations will generate significant revenues during 1997 or future years. THE VINTAGE GROUP INC. On February 5, 1997 the Company completed its acquisition of The Vintage Group Inc. ("Vintage"). Vintage's subsidiaries, Sterling Trust Company ("Sterling Trust") and First Matrix Investment Services Corp. ("First Matrix") are located in Waco, and Arlington, Texas, respectively. Sterling Trust was incorporated in 1984 as a Texas independent, non-bank trust company specializing in self-directed qualified retirement plans, individual retirement accounts, custodial, and directed trust accounts. As of December 31, 1996, Sterling Trust had in excess of 23,000 accounts with assets under administration of over $1.1 billion. First Matrix is a NASD broker/dealer that provides services to individuals and deferred contribution plans. The purchase price was $11.25 million, which was paid through the issuance of 779,592 shares of common stock of the Company. The transaction was accounted for as a pooling of interests. BROKERAGE AND CONSULTING SERVICES BROKERAGE SERVICES. United Financial operates as a national, full-service mortgage servicing broker. It is capable of analyzing, packaging, marketing and closing servicing portfolio and selected corporate merger and acquisition transactions. United Financial markets its services to all types and sizes of market participants, thereby developing diverse relationships. United Financial has provided brokerage services to each of the following clients during the last 12 months: Banc One Mortgage Corporation Knutson Mortgage Bank of America Mellon Mortgage Corporation Chase Manhattan Mortgage Corporation NVR Mortgage Finance, Inc. First of America Loan Services, Inc. Principal Residential Mortgage, Inc. Firstar Bank Resource Bancshares Mortgage Group
The Company believes that the client relationships developed by United Financial through its national network of contacts with commercial banks, mortgage companies, savings associations, and other institutional investors represent a significant competitive advantage and form the basis for United Financial's national market presence. These contacts also enable United Financial to identify prospective clients for other Subsidiaries and make referrals where appropriate. The secondary market for purchasing and selling mortgage servicing rights has become increasingly more active since its inception during the early 1980s. While servicing rights are the primary asset of most mortgage companies, other institutions such as commercial banks and savings associations also build portfolios of mortgage servicing rights, which can serve as significant sources of non-interest income. Most institutions that own mortgage servicing rights have found that careful management of these assets is necessary due to their susceptibility to interest rate cycles, changing prepayment patterns of mortgage loans, and fluctuating earnings rates achieved on custodial escrow balances. With the implementation of FAS 122, which requires companies to capitalize originated mortgage servicing rights, management of mortgage servicing assets has become even more critical. These managerial efforts, combined with interest rate sensitivity of the assets and the growth strategies of market participants, create constantly changing supply and demand and, therefore, price levels in the secondary market for mortgage servicing rights. 4 The sale and transfer of mortgage servicing rights occurs in a market that is inefficient and often requires an intermediary to facilitate matching buyers and sellers. Prices are unpublished and closely guarded by market participants, unlike most other major financial secondary markets. This lack of pricing information complicates an already difficult process of differentiating between servicing product types, evaluating regional, economic and socioeconomic trends and predicting the impact of interest rate movements. Due to its significant contacts, United Financial has access to information on the availability of mortgage servicing portfolios and helps bring together interested buyers and sellers. CONSULTING AND ANALYTIC SERVICES. The analytics group of United Financial has developed expertise in helping companies implement and, on an ongoing basis, track their FAS 122 valuations and analyses. Expansion into the FAS 122 valuations arena represented a logical progression for United Financial. In connection with the consulting services performed by United Financial on pools of mortgage servicing rights held for sale by United Financial's clients, United Financial performed many of the same types of analyses required by FAS 122. Therefore, United Financial was able to enhance its existing valuation models and create a software program that could be customized to fit its customers' many different needs and unique situations in performing FAS 122 analyses. In addition, United Financial has the infrastructure and management information system capabilities necessary to undertake the complex analyses required by FAS 122. Many of the companies affected by the implementation of FAS 122 have determined to outsource this function to a third party rather than dedicate the resources necessary to develop systems for and perform their own FAS 122 valuations. To provide an additional consulting service to the mortgage banking industry, the Company formed UCM in December 1996. FAS 122 requires that servicing portfolios be valued at lower of cost or market. As a result, the management of the servicing asset has become a critical component to the holders of mortgage servicing rights. Due to the of risk of companies incurring an impairment of their servicing portfolio, the need to hedge has become much more prevalent. UCM will market to many of the same companies as United Financial and will focus its efforts on providing hedging strategies for institutional clients servicing portfolios. Management believes that providing these consulting and analytic services enhances the Company's ability to attract and retain client relationships. RESIDENTIAL LOAN SERVICING ACTIVITIES RESIDENTIAL MORTGAGE LOAN SERVICING. Matrix Financial and Matrix Bank each has its own mortgage servicing portfolio, but the Company conducts its servicing activities exclusively through Matrix Financial. Matrix Bank's mortgage servicing rights are subserviced under a contract with Matrix Financial. At December 31, 1996, Matrix Financial serviced approximately $2.6 billion of mortgage loans, including $424.0 million for Matrix Bank and $140.0 million subserviced for non-affiliates of the Company. Servicing mortgage loans involves a contractual right to receive a fee for processing and administering loan payments. This processing involves collecting monthly mortgage payments on behalf of investors, reporting information to those investors on a monthly basis and maintaining custodial escrow accounts for the payment of principal and interest to investors and property taxes and insurance premiums on behalf of borrowers. These payments are held in custodial escrow accounts at Matrix Bank, where the money can be invested by the Company in interest-earning assets at returns that historically have been greater than could be realized by the Company using the custodial escrow deposits as compensating balances to reduce the effective borrowing cost on existing warehouse credit facilities. As compensation for its mortgage servicing activities, the Company receives servicing fees usually ranging from 0.25% to 0.75% per annum of the loan balances serviced, plus any late charges collected from delinquent borrowers and other fees incidental to the services provided. At December 31, 1996, the Company's weighted average servicing fee was 0.40 %. In the event of a default by the borrower, the Company receives no servicing fees until the default is cured. Servicing is provided on mortgage loans on a recourse or nonrecourse basis. The Company's policy is to accept only a limited number of servicing assets on a recourse basis. As of December 31, 1995 and 1996, on the basis of outstanding principal balances only 0.7% and 0.4%, respectively, of the mortgage servicing contracts owned by the Company involved recourse servicing. To the extent that servicing is done on a recourse basis, the Company is exposed to credit risk with respect to the underlying loan in the event of a repurchase. Additionally, many of the nonrecourse mortgage servicing contracts owned by the Company require the Company to advance all or part of the scheduled payments to the owner of the mortgage loan in the event of a default by the borrower. Many owners of mortgage loans also require the servicer to advance insurance premiums and tax payments on schedule even though sufficient escrow funds may not be available. The Company, therefore, must bear the funding costs associated with making such advances. If the delinquent loan does not become current, these advances are typically recovered at the time of the foreclosure sale. Foreclosure expenses are 5 generally not fully reimbursable by the Federal National Mortgage Association ("FNMA"), FHLMC or the Government National Mortgage Association ("GNMA"), for whom the Company provides significant amounts of mortgage loan servicing. Mortgage servicing rights represent a contract right to service and not a beneficial ownership interest in underlying mortgage loans. Failure to service the loans in accordance with contract requirements may lead to the termination of the servicing rights and the loss of future servicing fees. To date, there have been no terminations of mortgage servicing rights by any mortgage loan owners because of the Company's failure to service the loans in accordance with its contractual obligations. In order to track information on its servicing portfolio, the Company utilizes a data processing system provided by Alltel Information Services, Inc. ("Alltel"), one of the largest mortgage banking service bureaus in the United States. Management believes that this system gives the Company sufficient capacity to support anticipated expansion of its residential mortgage loan servicing portfolio. The following table sets forth certain information regarding the composition of the Company's mortgage servicing portfolio (excluding loans subserviced for others) as of the dates indicated:
AS OF DECEMBER 31, ---------------------------------------------- 1994 1995 1996 ------------- ------------- -------------- (IN THOUSANDS) FHA--insured/VA guaranteed residential............. $ 28,630 $ 37,135 $ 318,145 Conventional loans................................. 980,003 1,544,808 2,171,016 Other loans........................................ 33,152 14,442 15,875 ------------ ------------ ----------- Total mortgage servicing portfolio............ $ 1,041,785 $ 1,596,385 $ 2,505,036 ============ ============ =========== Fixed rate loans................................... $ 669,933 $ 1,073,803 $ 1,986,599 Adjustable rate loans.............................. 371,852 522,582 518,437 ------------ ------------ ----------- Total mortgage servicing portfolio............. $ 1,041,785 $ 1,596,385 $ 2,505,036 ============ ============ ===========
The following table shows the delinquency statistics for the mortgage loans serviced by the Company (excluding loans subserviced for others) compared with national average delinquency rates as of the dates presented:
AS OF DECEMBER 31, ------------------------------------------------------------------------------------------------------ 1994 1995 1996 -------------------------------- -------------------------------- ---------------------------------- NATIONAL NATIONAL NATIONAL COMPANY AVERAGE(1) COMPANY AVERAGE(2) COMPANY AVERAGE(3) ------------------ ---------- ------------------- ---------- --------------------- ---------- PERCENTAGE PERCENTAGE PERCENTAGE NUMBER OF PERCENTAGE NUMBER OF PERCENTAGE NUMBER OF PERCENTAGE OF SERVICING OF OF SERVICING OF OF SERVICING OF LOANS PORTFOLIO(4) LOANS LOANS PORTFOLIO(4) LOANS LOANS PORTFOLIO(4) LOANS ------ ------------ ---------- ------- ------------ ----------- ------- ------------ ----------- Loans delinquent for: 30-59 days.............. 648 3.28 % 2.76 % 843 3.37 % 3.07 % 2,607 5.45 % 3.04 % 60-89 days.............. 223 1.13 0.67 195 0.78 0.70 667 1.40 0.71 90 days and over........ 287 1.46 0.74 166 0.67 0.71 684 1.43 0.62 ----- ---- ---- ----- ---- ---- ----- ---- ---- Total delinquencies..... 1,158 5.87 % 4.17 % 1,204 4.82 % 4.48 % 3,958 8.28 % 4.37 % ===== ==== ==== ===== ==== ==== ===== ==== ==== Foreclosures............ 236 1.20 % 0.86 % 277 1.11 % 0.87 % 264 .55 % 1.03 % - ----------
(1) Source: Mortgage Bankers Association, "Delinquency Rates of 1- to 4-Unit Residential Mortgage Loans" (Seasonally Adjusted) (March 7, 1995 report). (2) Source: Mortgage Bankers Association, "Delinquency Rates of 1- to 4-Unit Residential Mortgage Loans" (Seasonally Adjusted) (March 14, 1996 report). (3) Source: Mortgage Bankers Association, "Delinquency Rates of 1- to 4-Unit Residential Mortgage Loans" (Seasonally Adjusted) (March 6, 1997 report). (4) Delinquencies and foreclosures generally exceed the national average due to high rates of delinquencies and foreclosures on certain bulk loan and bulk servicing portfolios acquired by the Company at a discount. In the fourth quarter of 1996, the Company acquired a seasoned servicing portfolio which had higher delinquencies primarily in the 30 day category. The higher delinquencies were considered in the pricing of the portfolio. 6 During periods of declining interest rates, prepayments of mortgage loans increase as homeowners seek to refinance at lower interest rates, resulting in a decrease in the value of the servicing portfolio. Mortgage loans with higher interest rates are more likely to result in prepayments. The following table sets forth certain information regarding the number and aggregate principal balance of the mortgage loans serviced by the Company, including both fixed and adjustable rate loans (excluding loans subserviced for others), at various mortgage interest rates:
AS OF DECEMBER 31, ------------------------------------------------------------------------------------------------------------------ 1994 1995 1996 ---------------------------------- ---------------------------------------- ------------------------------------ PERCENTAGE PERCENTAGE PERCENTAGE NUMBER AGGREGATE OF AGGREGATE NUMBER AGGREGATE OF AGGREGATE NUMBER AGGREGATE OF AGGREGATE OF PRINCIPAL PRINCIPAL OF PRINCIPAL PRINCIPAL OF PRINCIPAL PRINCIPAL RATE LOANS BALANCE BALANCE LOANS BALANCE BALANCE LOANS BALANCE BALANCE ---- ------ --------- ------------ ------- ------------- ------------ -------- ----------- ------------- (DOLLARS IN THOUSANDS) Less than 7.00%. 2,113 $ 162,274 15.58 % 2,781 $ 218,914 13.71 % 3,545 $ 145,720 5.82 % 7.00%--7.99%... 3,798 204,024 19.58 7,386 576,255 36.10 12,269 726,800 29.01 8.00%--8.99%... 4,894 261,630 25.11 7,160 442,634 27.73 14,011 838,215 33.46 9.00%--9.99%... 4,314 200,025 19.20 4,460 191,549 12.00 9,567 413,598 16.51 10.00%--10.99%.. 2,179 142,504 13.68 2,005 125,544 7.86 6,322 301,837 12.05 11.00%--11.99%.. 756 33,772 3.24 519 24,220 1.52 1,144 45,111 1.80 12.00% and over. 1,667 37,556 3.61 647 17,269 1.08 924 33,755 1.35 ------ ---------- ------- ------ ----------- ------ ------ ----------- ------ Total......... 19,721 $1,041,785 100.00 % 24,958 $ 1,596,385 100.00 % 47,782 $ 2,505,036 100.00 % ====== =========== ======= ====== =========== ====== ====== =========== ======
Loan administration fees decrease as the principal balance on the outstanding loan decreases and as the remaining time to maturity of the loan shortens. The following table sets forth certain information regarding the remaining maturity of the mortgage loans serviced by the Company (excluding loans subserviced for others) as of the dates shown:
AS OF DECEMBER 31, ------------------------------------------------ 1994 ------------------------------------------------ PERCENTAGE NUMBER PERCENTAGE UNPAID UNPAID OF OF NUMBER PRINCIPAL PRINCIPAL MATURITY LOANS OF LOANS AMOUNT AM0UNT - -------- ------ --------- --------- ------------ (DOLLARS IN THOUSANDS) 1--5 years..................... 2,116 10.73 % $ 43,818 4.21 % 6--10 years.................... 5,538 28.08 125,648 12.06 11--15 years.................... 4,131 20.95 155,598 14.94 16--20 years.................... 1,529 7.75 92,028 8.83 21--25 years.................... 3,989 20.23 322,703 30.98 More than 25 years......................... 2,418 12.26 301,990 28.98 ------ ------ ---------- ------ Total......................... 19,721 100.00 % $1,041,785 100.00 % ====== ====== ========== ======
AS OF DECEMBER 31, --------------------------------------------------- 1995 --------------------------------------------------- PERCENTAGE NUMBER PERCENTAGE UNPAID UNPAID OF OF NUMBER PRINCIPAL PRINCIPAL MATURITY LOANS OF LOANS AMOUNT AM0UNT - -------- ------- --------- ----------- ------------- (DOLLARS IN THOUSANDS) 1--5 years.................... 3,077 12.33 % 60,496 3.79 % 6--10 years................... 4,898 19.62 118,928 7.45 11--15 years................... 5,263 21.09 302,332 18.94 16--20 years................... 2,608 10.45 168,166 10.53 21--25 years................... 4,880 19.55 472,613 29.61 More than 25 years........................ 4,232 16.96 473,850 29.68 ------ ------ ----------- ------ Total........................ 24,958 100.00 % $ 1,596,385 100.00 ====== ====== =========== ======
AS OF DECEMBER 31, ------------------------------------------------- 1996 ------------------------------------------------- PERCENTAGE NUMBER PERCENTAGE UNPAID UNPAID OF OF NUMBER PRINCIPAL PRINCIPAL MATURITY LOANS OF LOANS AMOUNT AM0UNT - -------- ------- --------- ----------- ------------ (DOLLARS IN THOUSANDS) 1--5 years................... 5,020 10.51 % $ 77,136 3.08 % 6--10 years.................. 8,784 18.39 184,629 7.37 11--15 years.................. 6,418 13.43 340,282 13.58 16--20 years.................. 14,066 29.44 566,862 22.63 21--25 years.................. 7,006 14.66 545,336 21.77 More than 25 years....................... 6,488 13.57 790,791 31.57 ------ ------ ---------- ------ Total....................... 47,782 100.00 % $2,505,036 100.00 % ====== ====== ========== ======
The following table sets forth the geographic distribution of the mortgage loans (including delinquencies) serviced by the Company (excluding loans subserviced for others) by state:
AS OF DECEMBER 31, ------------------------------------------------ 1994 ------------------------------------------------ PERCENTAGE PERCENTAGE OF OF NUMBER AGGREGATE AGGREGATE TOTAL OF PRINCIPAL PRINCIPAL DELINQS. STATE LOANS BALANCE BALANCE BY STATE(1) - ----- ----- ----------- ---------- ------------ (DOLLARS IN THOUSANDS) CA(2).......................... 2,822 $ 343,135 32.94 % 29.24 % TX(2).......................... 945 25,721 2.47 6.64 NY............................. 943 36,831 3.54 7.49 MD............................. 1,828 104,384 10.02 4.80 AZ............................. 4,132 145,980 14.01 7.49 MA............................. 353 21,625 2.08 3.53 Other(3)....................... 8,698 364,109 34.94 40.81 ------ ----------- ------ ----- Total.......................... 19,721 $ 1,041,785 100.00 % 100.00 % ====== =========== ====== ======
AS OF DECEMBER 31, ----------------------------------------------------- 1995 ----------------------------------------------------- PERCENTAGE PERCENTAGE OF OF NUMBER AGGREGATE AGGREGATE TOTAL OF PRINCIPAL PRINCIPAL DELINQS. STATE LOANS BALANCE BALANCE BY STATE(1) - ----- ----- --------- ---------- ------------ (DOLLARS IN THOUSANDS) CA(2).......................... 4,948 $ 533,590 33.42 % 39.04 % TX(2).......................... 4,291 265,242 16.62 7.31 NY............................. 532 32,620 2.04 3.49 MD............................. 1,628 93,495 5.86 4.65 AZ............................. 3,787 139,038 8.71 7.89 MA............................. 890 83,593 5.24 2.82 Other(3)....................... 8,882 448,807 28.11 34.80 ------ ----------- ------- ------ Total.......................... 24,958 $ 1,596,385 100.00 % 100.00 % ====== =========== ======= ======
AS OF DECEMBER 31, ----------------------------------------------- 1996 ----------------------------------------------- PERCENTAGE PERCENTAGE OF OF NUMBER AGGREGATE AGGREGATE TOTAL OF PRINCIPAL PRINCIPAL DELINQS. STATE LOANS BALANCE BALANCE BY STATE(1) - ----- ----- ------------ ---------- ------------ (DOLLARS IN THOUSANDS) CA(2)......................... 6,971 $ 680,075 27.15 % 14.60% TX(2)......................... 12,257 410,892 16.40 37.34 NY............................ 2,396 214,228 8.55 3.87 MD............................ 2,415 133,298 5.32 2.17 AZ............................ 3,265 128,251 5.12 4.17 MA............................ 953 81,170 3.24 1.37 Other(3)...................... 19,525 857,122 34.22 36.48 ------ ----------- ------ ------ Total......................... 47,782 $ 2,505,036 100.00 % 100.00 % ====== =========== ====== ======
- -------------- (1) In terms of number of loans outstanding. (2) The concentration in California and Texas does not reflect a business strategy of the Company but rather the pursuit of specific opportunities. (3) No other state accounted for greater than 5.0%, based on aggregate principal balances, of the Company's mortgage loan servicing portfolio as of December 31, 1996. 7 ACQUISITION OF SERVICING RIGHTS. The Company acquires substantially all of its mortgage servicing rights in the secondary market. The secondary market for purchasing and selling mortgage servicing rights is inefficient in several respects, including the lack of a centralized exchange for conducting trading, the lack of definitive market prices, and the lack of conformity in modeling assumptions. The industry expertise of United Financial's and Matrix Financial's employees allows the Company to capitalize upon these inefficiencies when acquiring mortgage servicing rights. Prior to completing any such acquisition, the Company analyzes a wide range of characteristics of each portfolio considered for purchase. This analysis includes projecting revenues and expenses and reviewing geographic distribution, interest rate distribution, loan-to-value ratios, outstanding balances, delinquency history, and other pertinent statistics. Due diligence is performed either by Matrix Financial's employees or a designated independent contractor on a representative sample of the mortgages involved. The purchase price is based on the present value of the expected future cash flow, calculated by using a discount rate and loan prepayment assumptions that management considers to be appropriate to reflect the risk associated with the investment. SERVICING SALES. The Company periodically sells its purchased mortgage servicing portfolios and generally sells all of its originated mortgage loan servicing rights. Such sales increase revenue, as reflected in loan origination income and gain on sale of servicing, and generate cash at the time of sale, but reduce future servicing fee income. Originated mortgage servicing rights were sold on a bulk and flow basis on loans having an aggregate principal amount of $89.0 million and $303.3 million during the years ended December 31, 1995 and 1996, respectively. Periodically, the Company may also sell purchased mortgage servicing rights to restructure its portfolio or generate revenues. Purchased mortgage servicing rights were sold on loans having an aggregate principal amount of $31.8 million and $646.0 million during the years ended December 31, 1995 and 1996, for net gains of $1.2 million and $3.2 million, respectively. The Company anticipates that it will continue to adhere to its policy of selling substantially all of its originated mortgage servicing rights. The Company also may sell purchased mortgage servicing rights. Management intends to base decisions regarding future mortgage servicing sales upon the Company's cash requirements, purchasing opportunities, capital needs, earnings and the market price for mortgage servicing rights. During a quarter in which a sale occurs, reported income will tend to be greater than if such sale had not occurred during that quarter. Prices obtained for mortgage servicing rights vary depending on servicing fee rates, anticipated prepayment rates, average loan balances, remaining time to maturity, servicing costs, custodial escrow balances, delinquency and foreclosure experience, and purchasers' required rates of return. In the ordinary course of selling mortgage servicing rights, the Company, in accordance with industry standards, makes certain representations and warranties to purchasers of mortgage servicing rights. If a loan defaults when there has been a breach of representations or warranties and the Company has no third-party recourse, the Company may become liable for the unpaid principal and interest on defaulted loans. In such a case, the Company may be required to repurchase the mortgage loan and bear any subsequent loss on the loan. In connection with any purchases by the Company of mortgage servicing rights, the Company also is exposed to liability to the extent that an originator or seller of the servicing rights is unable to honor its representations and warranties. During 1995 and 1996, the Company recognized losses of $205,000 and $150,000 respectively, on loan repurchases resulting from a particular servicing portfolio purchased by the Company. The Company does not anticipate any additional material losses with respect to this or any other servicing portfolio due to breaches of representations and warranties; however, there can be no assurance that the Company will not experience such losses. PURCHASE AND SALE OF BULK LOAN PORTFOLIOS LOAN PURCHASES. In addition to its traditional mortgage loan origination and servicing-related activities, the Company makes bulk purchases of mortgage loans through Matrix Bank. The Company believes that its structure provides advantages over its competitors in the purchase of bulk mortgage loan packages. United Financial, through its networking within the mortgage banking industry, is able to refer to Matrix Bank mortgage banking companies that are interested in selling mortgage loan portfolios. The direct contacts reduce the number of portfolios that must be purchased through competitive bid situations, thereby reducing the cost associated with the acquisition of bulk mortgage loan portfolios. Because the Company services mortgage loans for more than 200 private investors, including banks, savings associations, and insurance companies, it is presented with opportunities to purchase the underlying mortgages. In many cases, the mortgage loans increase in value solely due to the increased liquidity provided by uniting ownership of the 8 mortgage servicing rights with the underlying mortgage loans. As servicer, Matrix Financial possesses information about the quality and performance history related to each of these loans, and, in many cases, the Company acts as custodian for the legal and credit documents on the underlying loans. With such information available, the Company is in a position to negotiate advantageous pricing on loans, which provides the Company an opportunity to resell the mortgage loans at a higher price (an "arbitrage" opportunity). Controlling ownership of the mortgage servicing and the underlying mortgage loan provides the Company maximum arbitrage opportunity in a sale. During the years ended December 31, 1995 and 1996, the Company made bulk purchases of approximately $91.8 million and $159.0 million in mortgage loans, respectively. TYPES OF LOANS PURCHASED. The Company reviews many loan portfolios for prospective acquisition. The Company primarily focuses on acquiring seasoned first lien priority loans secured primarily by one-to-four single family residential properties valued at less than $350,000. The purchased loan portfolios typically include both fixed and adjustable rate mortgage loans. Mortgage loan portfolios are purchased from various sellers who, in some cases, have originated the loans; but in most cases such sellers have acquired the loan portfolios in bulk purchases. The Company considers several factors prior to the purchase. Among others, the Company considers the product type, the current loan balance, the current interest rate environment, the seasoning of the mortgage loans, payment histories, geographic location of the underlying collateral, price, the current liquidity of the Company, and the product mix in its existing mortgage loan portfolio. In many cases, the mortgage loan portfolios that the Company acquires are purchased at a discount to par. Some of the loans in these portfolios are considered performing loans that have had payment problems in the past or have had document deficiencies. These types of portfolios afford the Company an arbitrage opportunity if the purchase discount on such portfolios accurately reflects the additional risks associated with purchasing these types of loans. Loan document deficiencies are identified in the due diligence process and, to the extent practical, are cured by the Company prior to reselling the loans. The Company also analyzes the payment history on each mortgage loan portfolio. Many prior problems may be a result of inefficient servicing or may be attributable to several servicing transfers of the loans over a short period of time. Because many considerations may impact pricing or yield, each loan package evaluated is priced based on the specific underlying loan characteristics. The Company purchased fewer loan portfolios at a discount in 1996 versus historical levels. The higher prices paid in 1996 resulted primarily from the Company acquiring loan portfolios believed to have better payment histories and fewer document deficiencies on average. DUE DILIGENCE. The Company performs comprehensive due diligence on each mortgage loan portfolio that the Company desires to purchase on a bulk basis. These procedures consist of analyzing a representative sample of the mortgage loans in the portfolio and are typically performed by Company employees, but occasionally are outsourced to third party contractors. The underwriter takes into account many factors in analyzing the sample of mortgage loans in the subject portfolio, including the general economic conditions in the geographic area or areas in which the underlying residential properties are situated, the loan-to-value ratios on the underlying loans, the payment histories of the borrowers, and other pertinent statistics. In addition, the underwriter attempts to verify that each sample loan conforms to the standards for loan documentation set by FNMA and FHLMC and, in cases where a significant portion of the sample loans contains non-conforming documentation, the Company assesses the additional risk involved in purchasing such loans. Once the underwriting and due diligence process is complete, the Company categorizes each loan pool into one of four categories. This process helps the Company determine whether the mortgage loan portfolio meets the Company's investment criteria and, if it does, the range of pricing that the Company feels is appropriate. LOAN SALES. Substantially all of the mortgage loans in the Company's loan portfolio are classified as held for sale. The Company continually monitors the secondary market for purchases and sales of mortgage loan portfolios and typically undertakes a sale of a particular loan portfolio held by the Company in an attempt to "match" an anticipated bulk purchase of a particular mortgage loan portfolio or to generate current period earnings and cash flow. To the extent that the Company is unsuccessful in matching its purchases and sales of mortgage loans, the Company may have excess capital at Matrix Bank, resulting in less than optimum leverage and capital ratios. During the years ended December 31, 1995 and 1996, the Company made bulk sales of approximately $70.2 million and $79.0 million in loans, for gains on sale of bulk mortgage loans of $3.3 million and $3.4 million, respectively. 9 RESIDENTIAL MORTGAGE LOAN ORIGINATION WHOLESALE ORIGINATIONS. The Company originates residential mortgage loans primarily on a wholesale basis through Matrix Financial. For the years ended December 31, 1995 and 1996, Matrix Financial originated a total of $388.9 million and $583.3 million in wholesale residential mortgage loans, respectively. Matrix Financial's source of mortgage loan originations is its wholesale division, which originates mortgage loans through approved independent mortgage loan brokers that qualify to participate in Matrix Financial's program through a formal application process that includes an analysis of the broker's financial condition and sample loan files, as well as the broker's reputation, general lending expertise and references. As of December 31, 1996, Matrix Financial had approved relationships with approximately 500 mortgage loan brokers. From Matrix Financial's offices in Atlanta, Denver and Phoenix, the sales staff solicit mortgage loan brokers throughout the Southeastern and Rocky Mountain areas of the United States for loan packages that meet Matrix Financial's criteria. Mortgage loans submitted by brokers are funded after being underwritten by Matrix Financial. Mortgage loan brokers act as intermediaries between borrowers and Matrix Financial in arranging mortgage loans. Matrix Financial, as an approved FNMA, FHLMC and GNMA seller/servicer, provides such brokers access to the secondary market for the sale of mortgage loans that they otherwise cannot access because they do not meet the applicable seller/servicer net worth requirements. Matrix Financial attracts and maintains relationships with mortgage loan brokers by offering a variety of services and products. By concentrating on wholesale mortgage banking services through independent mortgage loan brokers, Matrix Financial is able to originate mortgage loans in a cost-effective manner. Historically, retail mortgage loan origination has involved higher fixed overhead costs such as offices, furniture, computer equipment and telephones, as well as additional personnel costs such as sales representatives and loan processors. By limiting the number of offices and personnel needed to generate business, Matrix Financial has transferred the overhead burden of mortgage origination to the independent mortgage loan brokers that originate the loans. As a result, Matrix Financial can match its origination costs more directly to loan origination volume so that a substantial portion of its costs are variable rather than fixed. In June 1996, the Company implemented a program to supplement its product offerings made through its wholesale loan origination networks by adding products tailored to borrowers who are unable or unwilling to obtain mortgage financing from conventional mortgage sources. The borrowers who need this type of loan product often have impaired or unsubstantiated credit histories and/or unverifiable income and require or seek a high degree of personalized services and swift response to their loan applications. As a result, these borrowers generally are not averse to paying higher interest rates that the Company will charge for this loan product type as compared with the interest rates charged by conventional lending sources. The Company has established classifications with respect to the credit profiles of these borrowers. The classifications range from A-minus through D depending upon a number of factors, including the borrower's credit history and employment status. To date, the operations of the B/C Lending Division have not been material to those of the Company. RETAIL ORIGINATIONS. On a limited basis, and primarily in order to serve the communities in which it operates, Matrix Bank originates residential loans on a retail basis through its branches in Las Cruces, New Mexico and Sun City, Arizona. In early 1997, the Bank opened a lending branch in Evergreen, Colorado, which is anticipated to increase the amount of Matrix Bank's retail originations. This location will primarily originate residential construction loans and some commercial loans in the local market place. It is anticipated that the construction loans will be converted to permanent mortgage loans and funded through Matrix Bank. The retail loans originated by Matrix Bank consist of a broad range of residential (both at fixed and at adjustable rates) and consumer loan products and on a more limited basis, consumer loan products and commercial real estate loans. QUALITY CONTROL. The Company has a loan quality control process designed to ensure sound lending practices and compliance with FNMA, FHLMC, and applicable private investor guidelines. Prior to funding any wholesale or retail loan, the Company performs a pre-funding quality control audit that consists of the verification of a borrower's credit and employment and utilizes a detailed checklist. Subsequent to funding, the Company on a monthly basis selects 10% of all closed loans for a detailed audit conducted by its own personnel or a third-party service provider. The quality control process entails performing a complete underwriting review and independent reverification of all employment information, tax returns, source of down payment funds, bank accounts, and credit. Furthermore, 10% of the audited loans are chosen for an independent field review and standard factual credit report. All discovered deficiencies in these audits are reported 10 to senior management of the Company to determine trends and additional training needs. All resolvable issues are addressed and cured by the Company. Any loans that fail to meet applicable investment criteria of an investor are reported to such investor, which could result in a requirement by the investor for the Company to repurchase the loan. The Company also performs a quality control audit on all early payment defaults, first payment defaults, and 60-day delinquent loans; the findings are reported to the appropriate investor and/or senior management. SALE OF LOAN ORIGINATIONS. The Company generally sells the loans that it originates. In the future, however, it is anticipated that Matrix Bank will hold for investment certain mortgage loans that it has originated. Under ongoing programs established with FNMA and FHLMC, conforming conventional loans may be sold on a cash basis or pooled by the Company and exchanged for securities guaranteed by FNMA or FHLMC. These securities are then sold by Matrix Financial and Matrix Bank to national or regional broker/dealers. Mortgage loans sold to FNMA or FHLMC are sold on a nonrecourse basis so that foreclosure losses are generally borne by FNMA or FHLMC and not by the Company. The Company also sells nonconforming mortgage loans on a nonrecourse basis to other secondary market investors. These loans are typically first lien mortgage loans that do not meet all of the agencies' underwriting guidelines, and are originated instead for other institutional investors with whom the Company has previously negotiated purchase commitments, and for which the Company occasionally pays a fee. This practice would also apply to the sale of residential mortgage loans originated through the Company's B/C Lending Division. The Company sells mortgage loans on a servicing-retained or servicing- released basis. Certain purchasers of mortgage loans require that the loan be sold to them servicing released. In all other cases the decision is left to the Company. Generally, the Company sells conforming loans on a servicing-retained basis and nonconforming loans on a servicing-released basis. See "--Residential Loan Servicing Activities." In connection with the Company's mortgage loan originations and sales, the Company makes customary representations and warranties, similar in nature and scope to those provided in connection with sales of mortgage servicing rights. To date, they have not resulted in any significant repurchases of loans by the Company or any pending or threatened claims by the purchasers against the Company. However, there can be no assurance that losses will not occur in the future due to the representations and warranties issued. The sale of mortgage loans may generate a gain or loss for the Company. Gains or losses result primarily from two factors. First, the Company may make a loan to a borrower at a price that is higher or lower than it would receive if it immediately sold the loan in the secondary market. These price differences occur primarily as a result of competitive pricing conditions in the primary loan origination market. Second, gains or losses may result from the changes in interest rates that result in changes in the market value of the mortgage loans from the time that the price commitment is given to the borrower until the time that the mortgage loan is sold to the investor. In order to hedge against the interest rate risk resulting from these timing differences, the Company historically has committed to sell all closed originated mortgage loans held for sale and a portion of the mortgage loans that are not yet closed but for which the interest rate has been established ("pipeline loans"). The Company adjusts its net commitment position daily either by entering into new commitments to sell or by buying back commitments to sell depending upon its projection of the portion of the pipeline loans that it expects to close. These projections are based on numerous factors, including changes in interest rates and general economic trends. The accuracy of the underlying assumptions bears directly upon the effectiveness of the Company's use of forward commitments and subsequent profitability. At December 31, 1995, the Company had approximately $93.1 million in pipeline and funded loans offset with mandatory forward commitments of approximately $64.7 million and non-mandatory forward commitments of approximately $15.3 million. At, December 31, 1996, the Company had approximately $62.6 million in pipeline and funded loans offset with mandatory forward commitments of approximately $49.1 million and non-mandatory forward commitments of approximately $8.1 million. The inherent value of the forward commitments is considered in the determination of the lower of cost or market in valuing the Company's pipeline and funded loans at any given time. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Comparison of Results of Operations for the Years Ended December 31, 1996 and 1995--Loan Origination." 11 REAL ESTATE MANAGEMENT AND DISPOSITION SERVICES USS, which began operations in June 1995, provides real estate management and disposition services to customers across the United States. In addition to the unaffiliated clients currently served by USS, Matrix Financial uses USS exclusively in handling the disposition of its foreclosed real estate. Having USS provide this service as opposed to Matrix Financial transforms the disposition process into a revenue generator for the Company, since USS typically collects a fee of 1% of the value of the foreclosed real estate from the real estate broker involved in the sale transaction. USS is able to provide this disposition service on an outsourced basis and at no additional cost to the mortgage loan servicer, since USS collects its fee from the real estate broker. USS is able to pass the cost of the disposition on to the real estate broker because of the volume it generates. In addition, USS provides limited collateral valuation opinions to clients such as FHLMC who are interested in assessing the value of the underlying collateral on non-performing mortgage loans, as well as to clients such as Matrix Bank and other third-party mortgage loan originators and buyers interested in evaluating potential bulk purchase of mortgage loans. To date, the operations of USS have not been material to those of the Company. SAVINGS BANK ACTIVITIES With branches in Las Cruces, New Mexico and Sun City, Arizona, Matrix Bank serves its local communities by providing a broad range of personal and business depository services, offering residential and consumer loans and providing, on a more limited basis, commercial real estate loans. In May 1996, a subsidiary of Matrix Bank, Sterling Finance Co., Inc. ("Sterling"), purchased substantially all of the assets of a Denver-based originator and seller of sub-prime automobile retail installment sales contracts. On December 31, 1996, Matrix Bank sold the fixed assets of Sterling Finance Co., Inc. to a third party buyer and ceased operations. In conjunction with contractual obligations associated with selling loans into the secondary market, Matrix Bank repurchased approximately $2.5 million of installment loans and repossessed automobiles that Sterling sold to outside investors. These assets will be disposed of or serviced under the direction of Matrix Bank. In January 1997, a loan production branch was established in Evergreen, Colorado that will primarily originate residential real estate construction loans and commercial loans in the Colorado market. For a discussion of the depository services offered by Matrix Bank, see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." For a discussion of the historical loan portfolio of the Company, including that of Matrix Bank, see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Asset and Liability Management--Lending Activities." SELF-DIRECTED TRUST ACTIVITIES Sterling Trust provides services for self-directed individual retirement accounts, qualified business retirement plans, personal custodial accounts, and a variety of corporate trust and escrow arrangements. Sterling Trust actively markets its services on a nationwide basis to the financial services industry, specifically broker/dealers, registered representatives, insurance agents, tax professionals, financial planners and advisors, and investment product sponsors. At December 31, 1996, Sterling Trust Co. was administering assets in excess of $1.1 billion. Historically, approximately 6% to 8% of the assets under administration are maintained in money market accounts. Sterling retains no discretion with respect to the investment of trust assets, and executes no investment transaction until so instructed by the client or the client's designated representative. In February 1997, Sterling Trust Co. moved approximately $80.0 million of money market balances from a third party institution to Matrix Capital Bank. COMPETITION The industries in which the Company competes are highly competitive. The Company competes for the acquisition of mortgage loan servicing rights and bulk loan portfolios mainly with mortgage companies, savings associations, commercial banks, and other institutional investors. The Company believes that it has competed successfully for the acquisition of mortgage loan servicing rights and bulk loan portfolios by relying on the advantages provided by its unique corporate structure and the secondary marketing expertise of the employees in each Subsidiary. Competition in mortgage loan and mortgage servicing rights brokerage and consulting arises mainly from other mortgage banking consulting firms, national and regional investment banking companies, and accounting firms. Management believes that the distinction among market participants is based primarily on customer service. United Financial competes for its brokerage and consulting activities by recruiting qualified and experienced sales people, by 12 developing innovative sales techniques, by providing financing opportunities to its customers through its affiliation with Matrix Bank, and by seeking to provide a higher level of service than is furnished by its competitors. Competition in originating mortgage loans arises mainly from other mortgage companies, savings associations, and commercial banks. The distinction among market participants is based primarily on price and, to a lesser extent, the quality of customer service and name recognition. Aggressive pricing policies of the Company's competitors, especially during a declining period of mortgage loan originations, could in the future result in a decrease in the Company's mortgage loan origination volume and/or a decrease in the profitability of the Company's loan originations, thereby reducing the Company's revenues and net income. The Company competes for loans by offering competitive interest rates and product types, and by seeking to provide a higher level of personal service to mortgage brokers and borrowers than is furnished by competitors. However, the Company does not have a significant market share of the lending markets in which it conducts operations. Management believes that Matrix Bank's most direct competition for deposits comes from local financial institutions. The distinction among market participants is based primarily on price and, to a lesser extent, the quality of customer service and name recognition. Matrix Bank's cost of funds fluctuates with general market interest rates. During certain interest rate environments, additional significant competition for deposits may be expected from corporate and governmental debt securities, as well as money market mutual funds. Matrix Bank competes for conventional deposits by emphasizing quality of service, extensive product lines, and competitive pricing. Sterling Trust faces considerable competition in all of the services and products which it offers. The main competition comes from the other self-directed trust companies. However, Sterling Trust also faces competition from other trust companies and trust divisions of other financial institutions. Sterling's niche has been, and will continue to be providing high quality customer service and servicing niche retirement products. In an effort to increase market share, Sterling Trust will endeavor to provide superior service, expand its marketing efforts, provide competitive pricing, and continue to diversify its product mix. EMPLOYEES At December 31, 1996, the Company had 192 employees. Management believes that its relations with its employees are good. Neither Matrix Capital nor any of the Subsidiaries is a party to any collective bargaining agreement. REGULATION AND SUPERVISION Set forth below is a brief description of various laws and regulations affecting the operations of the Company. The description of laws and regulations contained herein does not purport to be complete and is qualified in its entirety by reference to applicable laws and regulations. Any change in applicable laws, regulations or regulatory policies may have a material effect on the business, operations and prospects of the Company. MATRIX CAPITAL. The Company is a unitary thrift holding company within the meaning of the Home Owners' Loan Act of 1933, as amended ("HOLA"). As such, Matrix Capital has registered with the OTS and is subject to OTS regulation, examination, supervision and reporting requirements. In addition, the OTS has enforcement authority over Matrix Capital and its non-savings institution subsidiaries. Among other things, this authority permits the OTS to restrict or prohibit activities that are determined to be a serious risk to Matrix Bank. In addition, Matrix Bank must notify the OTS at least 30 days before making any distribution to Matrix Capital. As a unitary thrift holding company, Matrix Capital generally is not restricted under existing laws as to the types of business activities in which it may engage, provided that Matrix Bank continues to be a "qualified thrift lender" under HOLA ("QTL"). Upon any nonsupervisory acquisition by Matrix Capital of another savings association or savings bank that meets the QTL test and is deemed to be a savings institution by OTS, Matrix Capital would become a multiple thrift holding company (if the acquired institution is held as a separate subsidiary) and would be subject to extensive limitations on the types of business activities in which it could engage. HOLA limits the activities of a multiple thrift holding company and its uninsured institution subsidiaries primarily to activities permissible for bank holding companies under Section 4(c)(8) of the Bank Holding Company Act of 1956, as amended (the "BHC Act"), subject to the prior approval of the OTS, and activities authorized by OTS regulation. 13 Legislation has been proposed that would impose limits on the nonbanking activities of companies that acquire savings associations. It is anticipated that Matrix Capital's holding company status would be "grandfathered" under such legislation, but there can be no assurance that Matrix Capital would be exempt from such limits. Furthermore, any available grandfathering might not continue to be available to Matrix Capital as a result of a possible merger of the federal regulatory agencies. Several proposals have been introduced in Congress over a number of years with increasing frequency and interest in such a merger. If the OTS and Office of the Comptroller of the Currency were merged, as one proposal would require, the federal thrift charter would actually be eliminated. If adopted, such a proposal would require that Matrix Bank become a national bank and would subject it to regulation as such. One effect of such a requirement would be that Matrix Capital could not engage in activities not permitted for national banks. In addition, the ability to branch interstate would become subject to the restrictions of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ("Riegle Act"). Accordingly, any out-of-state branches of Matrix Bank in existence upon the effectiveness of such a proposal that are not permissible under the Riegle Act and, if not grandfathered, could be required to be divested. There are also some benefits to such a charter conversion. For example, Matrix Bank would not, under regulations currently applicable to national banks, be subject to the QTL test. MORTGAGE BANKING OPERATIONS. The rules and regulations applicable to the Company's mortgage banking operations establish underwriting guidelines that, among other things, include anti-discrimination provisions, require provisions for inspections, appraisals, and credit reports on prospective borrowers and fix maximum loan amounts. Moreover, lenders, such as the Company, are required annually to submit to the HUD, FNMA and FHLMC audited financial statements, and each regulatory entity maintains its own financial guidelines for determining net worth and eligibility requirements. The Company's affairs are also subject to examination by HUD, FNMA and FHLMC at any time to assure compliance with the applicable regulations, policies and procedures. Mortgage loan origination activities are subject to, among others, the Equal Credit Opportunity Act, Federal Truth-in-Lending Act and the Real Estate Settlement Procedures Act of 1974, as amended, and the regulations promulgated thereunder that prohibit discrimination and require the disclosure of certain basic information to mortgagors concerning credit terms and settlement costs. Additionally, there are various state and local laws and regulations affecting the Company's operations. The Company is licensed in those states in which it does business requiring such a license where the failure to be licensed would have a material adverse effect on the Company, its business or assets. Conventional mortgage operations also may be subject to state usury statutes. FEDERAL SAVINGS BANK OPERATIONS. Matrix Bank is subject to extensive regulation, examination and supervision by the OTS, as its chartering authority and primary regulator, and by the FDIC, which insures its deposits up to applicable limits. Such regulation and supervision (i) establishes a comprehensive framework of activities in which Matrix Bank can engage (ii) limits the ability of Matrix Bank to extend credit to any given borrower, (iii) imposes specified liquidity requirements, (iv) specifically restricts the transactions in which Matrix Bank may engage with its affiliates, (v) requires Matrix Bank to meet a "Qualified Thrift Lender" test that imposes a level of portfolio assets in which Matrix Bank must invest (primarily residential mortgages and related investments, (vi) places limitations on capital distributions by savings associations such as Matrix Bank, including cash dividends, (vii) imposes assessments to the OTS to fund its operations, (viii) establishes a continuing and affirmative obligation, consistent with Matrix Bank's safe and sound operation, to help meet the credit needs of the entire community, including low and moderate income neighborhoods, (ix) requires Matrix Bank to maintain certain non-interest bearing reserves against its transaction account, (x) establishes various capital categories resulting in various levels of regulatory scrutiny applied to the institutions in a particular category, and (xi) establishes standards for safety and soundness. The regulatory structure is designed primarily for the protection of the insurance fund and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities. Any change in such regulations, whether by the OTS, the FDIC or the Congress could have a material impact on the Bank and its operations. Insurance of Accounts and Regulation by the FDIC. Matrix Bank is a member of the SAIF, which is administered by the FDIC. Savings deposits are insured up to $100,000 per insured member (as defined by law and regulation) by the FDIC. Such insurance is backed by the full faith and credit of the United States. As insurer, the FDIC imposes deposit insurance assessments and is authorized to conduct examinations of and to require reporting by the FDIC-insured institutions. It also may prohibit any FDIC-insured institution from engaging in any activity the FDIC determines by regulation or order to pose a serious risk to the FDIC. The FDIC also may initiate enforcement actions against savings associations and may terminate the deposit insurance if it determines that the institution has engaged or is engaging in unsafe or unsound practices, or is in an unsafe or unsound condition. 14 FDICIA required the FDIC to implement a risk-based deposit insurance assessment system. Pursuant to this requirement, the FDIC has adopted a risk-based assessment system under which all SAIF insured depository associations are placed into one of nine categories and assessed insurance assessments based upon their level of capital and supervisory evaluation. Under this system, associations classified as well capitalized and considered healthy pay the lowest assessment while associations that are less than adequately capitalized and considered of substantial supervisory concern pay the highest assessment. In addition, under FDICIA, the FDIC may impose special assessments on SAIF members to repay amounts borrowed from the United States Treasury or for any other reason deemed necessary by the FDIC. The FDIC may increase assessment rates, on a semiannual basis, if it determines that the reserve ratio of the SAIF will be less than the designated reserve ratio of 1.25% of SAIF insured deposits. In setting these increased assessments, the FDIC must seek to restore the reserve ratio to that designated reserve level, or such higher reserve ratio as established by the FDIC. Matrix Bank's current assessment is .064% of deposits, which is the lowest rate. By contrast, financial institutions that are members of the Bank Insurance Fund ("BIF"), which has higher reserves, experienced lower deposit insurance assessments. The disparity in deposit insurance assessments between SAIF and BIF members was exacerbated by the statutory requirement that both the SAIF and the BIF funds be recapitalized to a 1.25% reserved deposits ratio and that a portion of most thrift's deposit insurance assessments be used to service bonds issued by the Financial Corporation ("FICO"). BIF reached the required reserve ratio in 1995. As a result, financial institutions that have deposits insured by the SAIF were subject to a potential competitive disadvantage as compared to BIF members. To address this rate disparity, on September 30, 1996, the President signed legislation intended to enable SAIF to reach the designated reserve ratio. The legislation provides for a one-time special assessment of .657% to be imposed upon all SAIF deposits as of March 31, 1995. Based on the company's SAIF deposits as of March 31, 1995, the cost of the one-time special assessment was approximately $450,000 (pre-tax). This amount was accrued in the third quarter of 1996 and paid in the fourth quarter of 1996. The legislation also provides for BIF members to service a growing portion of the FICO bond payments. Until January 1, 2000, annual assessments of .013% of BIF deposits and .064% of SAIF deposits will service the annual payments due on the FICO bonds. Accordingly, Matrix Bank's portion of the payment on the FICO bonds is .064% of the deposits. The legislation provides for subsequent full pro rata sharing of FICO bond payments by BIF and SAIF institutions. The legislation called for a merger of the SAIF and BIF as of January 1, 1999, but only if the thrift charter has been eliminated. The financing corporations created by FIRREA and the Competitive Equality Banking Act of 1987 are also empowered to assess premiums on savings associations to help fund the liquidation or sale of troubled associations. Such premiums cannot, however, exceed the amount of SAIF assessments and are paid in lieu thereof. MATRIX BANK'S CAPITAL RATIOS. The following table indicates Matrix Bank's regulatory capital ratios at December 31, 1996:
AS OF DECEMBER 31, 1996 ------------------------- CORE RISK-BASED CAPITAL CAPITAL ---------- --------- (DOLLARS IN THOUSANDS) Shareholder's equity/GAAP capital..................... $ 11,367 $ 11,367 Additional capital items: General valuation allowances...................... -- 1,039 ---------- ---------- Regulatory capital as reported to the OTS............. 11,367 12,406 Minimum capital requirement as reported to the OTS.... 7,875 8,979 ---------- ---------- Regulatory capital--excess............................. $ 3,492 $ 3,427 ========== ========== Capital ratios........................................ 5.77 % 11.05 % Well-capitalized requirement.......................... 5.00 % 10.00 %
FEDERAL HOME LOAN BANK SYSTEM. Matrix Bank is a member of the Federal Home Loan Bank ("FHLB") system, which consists of 12 regional FHLBs. The FHLB provides a central credit facility primarily for member associations and 15 administers the home financing credit function of savings associations. FHLB advances must be secured by specified types of collateral and may only be obtained for the purpose of providing funds for residential housing finance. The FHLB funds its operations primarily from proceeds derived from the sale of consolidated obligations of the FHLB system. Matrix Bank, as a member of the FHLB system, must acquire and hold shares of capital stock in FHLB in an amount at least equal to 1% of the aggregate principal amount of its unpaid residential mortgage loans and similar obligations at the beginning of each year, or 1/20 of its advances (borrowings) from the FHLB, whichever is greater. Matrix Bank was in compliance with this requirement with an investment in FHLB stock at December 31, 1996 of $2.9 million. REGULATION OF SUB-PRIME AUTOMOBILE LENDING. On December 31, 1996, Matrix Bank sold the assets of Sterling to a third party buyer. However, during the time that Matrix Bank owned Sterling, it purchased approximately $18.5 million automobile retail installment contracts and sold them into the secondary market, subject to certain recourse provisions. In conjunction with the contractual obligations associated with those sales, Matrix Bank had, as of December 31, 1996, repurchased approximately $2.5 million of installment loans and repossessed automobiles that Sterling sold to outside investors. Matrix Bank bears the risk of additional repurchases subject to certain terms and conditions of the various sale agreements which are primarily restricted to fraud. The loans will be disposed of or serviced under the direction of Matrix Bank. The automobile lending activities are subject to various federal and state laws and regulations. Consumer lending laws generally require licensing of the lender and purchasers of loans and adequate disclosure of loan terms and impose limitations on the terms of consumer loans and on collection policies and creditor remedies. Federal consumer credit statutes primarily require disclosures of credit terms in consumer finance transactions. In general, the Company's sub-prime automobile lending activities were conducted under licenses issued by individual states and were also subject to the provisions of the federal Consumer Credit Protection Act and its related regulations. Due to the consumer-oriented nature of the industry in which Sterling operated and uncertainties with respect to the application of various laws and regulations in certain circumstances, industry participants are named from time to time as defendants in litigation involving alleged violations of federal and state consumer lending or other similar laws and regulations. A significant judgment against Sterling in connection with any litigation could have a material adverse affect on the Company's financial condition and results of operations. In addition, if it were determined that a material number of loans purchased by Sterling involved violations of applicable lending laws or fraudulent actions by the automobile dealers, the Company's financial condition and results of operations could be materially adversely affected. REGULATION OF STERLING TRUST COMPANY. Sterling Trust Company provides custodial services and directed (nondiscretionary) trustee services. Sterling Trust was chartered under the laws of the State of Texas as a Texas trust company is subject to supervision, regulation and examination by the Texas Department of Banking. ITEM 2. PROPERTIES The executive and administrative offices of the Company, United Financial and USS are located at 1380 Lawrence Street, Suite 1410, Denver, Colorado 80204. The lease on these premises extends through January 1999 and the current annual rent is approximately $120,000. The Company also owns a building in Phoenix, that houses the majority of Matrix Financial's operations. This building was purchased by the Company in 1994 and is subject to third party mortgage indebtedness. See Note 4 to the Consolidated Financial Statements included elsewhere herein. The Company utilizes approximately 18,000 of the 30,000 square feet in this building, and the balance is leased to an affiliated company at current market rates. The Company also leases two smaller office facilities in Atlanta and Denver, where Matrix Financial conducts its wholesale loan origination activities. Matrix Bank owns an approximately 30,000 square foot building in Las Cruces, New Mexico. Of this 30,000 square feet, approximately 9,200 square feet serve as the headquarters for Matrix Bank. Substantially all of the remaining footage is rented to unaffiliated third-party tenants at market rates. Matrix Bank also owns a newly opened 1,800 square foot detached branch in Las Cruces and an approximately 3,000 square foot branch in Sun City, Arizona. In January, 1997, Matrix Bank opened an approximately 1,500 square foot loan origination branch in Evergreen, Colorado. The lease on the Evergreen property provides for a one-year term at an annual cost of $24,000. Sterling Trust occupies approximately 11,300 square feet in Waco, Texas, under a lease agreement that is in place until June 30, 2001, at a monthly rent payment of $13,553. The lease agreement provides for renewal options and allocation of certain expenses the lessee would reimburse over a specified amount during the life of the lease. 16 First Matrix is located in Arlington, Texas and operates in a 1,446 square foot office suite. The current lease requires a monthly payment of $1,265 and matures on April 30, 1997. A 24 month renewal option is available at current market rates which the Company anticipates renewing. The Company believes that all of its present facilities are adequate for its current needs and that additional space is available for future expansion upon acceptable terms. ITEM 3. LEGAL PROCEEDINGS Matrix Financial is a defendant in two lawsuits, Limper v. Matrix Financial Services Corporation (Court of Common Pleas, Ottawa County, Ohio, January 29, 1996), and Mogavero v. Matrix Financial Services Corporation (United States District Court for the District of Massachusetts, June 17, 1996) that purport to cover a nationwide class of plaintiffs and involve similar facts and legal claims. In both cases, the plaintiffs allege that Matrix Financial breached the terms of plaintiffs' promissory notes and mortgages by imposing certain fax and payoff statement fees at the time the plaintiffs prepaid their loans. The plaintiffs claim that such fees constitute unauthorized charges in violation of the terms of the notes, and demand restitution and attorneys' fees. In addition, the plaintiffs in Mogavero seek treble damages for Matrix Financial's alleged violation of 18 U.S.C. ss.1964. Matrix Financial has entered into an agreement, which is subject to court approval, to settle the Limper action and the Mogavero action. The settlement agreement provides for the administration of the settlement in the Limper action and the dismissal of the Mogavero action. Accordingly, a settlement order of dismissal was entered in the Mogavero action on November 13, 1996. The Court in the Limper action granted preliminary approval of the settlement in January 1997. Accordingly, as provided by the settlement agreement, Matrix Financial established a settlement fund of $640,000. The costs of notice and class administration, attorneys' fees, and recovery to class members are all to come from the settlement fund. Notice to class members was mailed in January 1997 and published in February 1997. The final approval hearing for the settlement is scheduled for April 10, 1997. The Company established a reserve in the third quarter of 1996 to account for this contingency. The Company is involved from time to time in routine litigation incidental to its business. However, other than described above, the Company believes that it is not a party to any material pending litigation that, if decided adversely to the Company, would have a significant adverse effect on the Company's consolidated financial condition, results of operations or cash flows. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable. 17 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock, $.0001 par value ("Common Stock"), is traded on the Nasdaq National Market under the symbol "MTXC." The initial public offering of Common Stock occurred on October 18, 1996.
1996 ------------------ High Low -------- ------- Fourth Quarter (beginning October 18, 1996) $ 15.88 $ 10.00
On March 4, 1997, the closing price of the Common Stock was $13.50 per share. Also as of that date the approximate number of holders of record of the Company's Common Stock was 76. This number does not include beneficial owners who hold their shares in a depository trust in "street" name. Since its organization in June 1993, the Company has not paid any dividends on its Common Stock, except for an aggregate of $88,000 in dividends paid to the shareholders of the Company in 1993. The Company expects that it will retain all available earnings generated by its operations for the development and growth of its business and does not anticipate paying any cash dividends in the foreseeable future. Any future determination as to dividend policy will be made at the discretion of the Board of Directors of the Company and will depend on a number of factors, including the future earnings, capital requirements, financial condition and future prospects of the Company and such other factors as the Board of Directors may deem relevant. Under the terms of the Company's 13% Senior Subordinated Notes issued in August 1995 (the "13% Senior Subordinated Notes") and the Company's bank stock loan issued in March 1997, the Company's ability to pay cash dividends to its shareholders is limited. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." In addition, the ability of Matrix Financial and Matrix Bank to pay dividends to the Company may be restricted in certain instances, including covenants under Matrix Financial's existing warehouse facilities and certain other debt covenants of the Company. During 1996, the Company issued the following unregistered securities in reliance on the exemption from registration set forth in Section 4(2) of the Securities Act of 1933, as amended. In October 1996, the Company granted options exercisable for a total of 10,000 shares of Common Stock to the two nonemployee directors of the Company, 5,000 shares of Common Stock to an advisory director of the Company, 75,000 shares of Common Stock to three executive officers of the Company, and 39,600 shares of Common Stock to various non-executive employees of the Company. All such options are exercisable at $10.00 per share, which was the fair market value of the Common Stock on the date of grant of such options. The Company also issued warrants exercisable for an aggregate of 75,000 shares of its common stock to its primary underwriters upon the closing of the Company's initial public offering. The warrants are excercisable from time to time during the four years after the one year anniversary of their date of grant, and are not transferable during the first year after their grant. The exercise price of the shares of common stock underlying such warrant is $12.00 per share. 18 ITEM 6. SELECTED FINANCIAL DATA ----------------------- SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) The selected financial data should be read in conjunction with the Consolidated Financial Statements and Notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
AS OF AND FOR THE YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------------------------- 1992 1993(1) 1994 1995 1996 -------------- ------------- -------------- -------------- ---------------- OPERATING DATA Net interest income (loss) before provision for loan and valuation losses.................... $ (554) $ 944 $ 3,989 $ 3,536 $ 6,002 Provision for loan and valuation losses............................. -- 15 216 401 143 -------- --------- --------- --------- ---------- Net interest income (loss) after provision for loan and valuation losses............................. (554) 929 3,773 3,135 5,859 -------- --------- --------- --------- ---------- Non-interest income: Loan administration............... 6,025 6,427 6,926 7,749 8,827 Brokerage......................... 1,842 2,132 4,017 4,787 4,364 Gain on sale of loans............. 546 2,361 1,590 3,272 3,369 Gain on sale of mortgage servicing rights................. 348 38 684 1,164 3,232 Loan origination(2)............... -- 221 1,294 2,069 1,561 Other............................. 186 466 487 781 1,118 -------- --------- --------- --------- ---------- Total non-interest income....... 8,947 11,645 14,998 19,822 22,471 Non-interest expense................ 8,281 10,464 14,279 17,136 22,951 -------- --------- --------- --------- ---------- Income before income taxes.......... 112 2,110 4,492 5,821 5,379 Income taxes(3)..................... -- 404 1,846 2,260 2,106 -------- --------- --------- --------- ---------- Net income.......................... $ 112 $ 1,706 $ 2,646 $ 3,561 $ 3,273 (4) ======== ========= ========= ========= ========== Net income per common and common equivalent share(5)................. $ .71 $ .91 $ .76 Pro forma net income(6)............. $ 67 $ 1,266 Pro forma net income per common and common equivalent share(6).......... $ .02 $ .35 Weighted average common and common equivalent shares outstanding...... 3,442,501 3,596,251 3,750,001 3,927,629 4,297,448 Cash dividends...................... $ -- $ 88 $ -- $ -- $ -- BALANCE SHEET DATA Total assets........................ $ 10,140 $ 95,747 $ 112,051 $ 184,732 $ 272,863 Total loans (excluding allowance for loan and valuation losses)...... 497 77,034 90,068 147,608 213,400 Allowance for loan and valuation losses............................. -- 538 728 943 1,039 Nonperforming loans(7).............. -- 853 3,314 5,538 3,903 Mortgage servicing rights........... 6,200 1,818 6,183 13,817 23,680 Foreclosed real estate(7)........... 69 726 543 835 788 Deposits............................ -- 45,517 41,910 48,877 90,179 Custodial escrow balances........... -- 31,794 24,687 27,011 37,881 FHLB borrowings..................... -- -- 14,600 19,000 51,250 Borrowed money...................... 5,347 8,791 18,438 65,093 42,431 Total shareholders' equity.......... 1,369 3,030 5,676 9,338 30,802 OPERATING RATIOS AND OTHER SELECTED DATA Return on average assets(8)........ 1.13 % 4.98 % 2.69 % 2.38 % 1.57 % Return on average equity(8)........ 7.73 88.44 58.49 51.38 24.90 Average equity to average assets(8) 14.57 5.63 4.60 4.63 6.29 Net interest margin(8)(9).......... -- 4.15 4.63 2.81 3.43 Operating efficiency ratio(10)..... 98.67 83.22 76.07 74.64 81.01 Total amount of loans purchased.... $ -- $ 32,231 $ 80,048 $ 91,774 $ 159,015 Balance of owned servicing portfolio (end of period).......... $ 855,506 $ 1,007,286 $ 1,041,785 $ 1,596,385 $ 2,505,036 Wholesale loan origination volume.. $ -- $ 126,200 $ 183,130 $ 388,937 $ 583,279
19
AS OF AND FOR THE YEAR ENDED DECEMBER 31, ----------------------------------------------------------------- 1992 1993(1) 1994 1995 1996 -------- --------- --------- --------- ---------- LOAN PERFORMANCE RATIOS Nonperforming loans/total loans(7)..... -- % 1.11 % 3.68 % 3.75 % 1.83 % Nonperforming assets/total assets(7)... -- 1.65 3.44 3.45 1.90 Net loan charge offs/average loans(8).............................. -- 0.18 0.03 0.15 0.03 Allowance for loan and valuation losses/total loans(11)................ -- 0.70 0.81 0.64 0.49 Allowance for loan and valuation losses/nonperforming loans(11)........ -- 63.07 21.97 17.03 26.62 - ----------
(1) The Company acquired all of the outstanding capital stock of Matrix Bank on September 23, 1993. The operations of Matrix Bank have been included in the consolidated operations of the Company from the date of acquisition. (2) On January 1, 1995, the Company adopted FAS 122. Since FAS 122 prohibits retroactive application, the historical accounting results for 1995 and 1996 are not directly comparable to the results for prior periods. (3) Prior to the formation of Matrix Capital in June 1993, Matrix Financial and United Financial had elected for certain periods to be taxed under the provisions of subchapter "s" of the Code and accordingly did not pay income taxes on their respective earnings; instead the shareholders of Matrix Financial and United Financial were liable for such taxes. As a result, there is no income tax provision for earnings during the periods in which subchapter "s" treatment had been elected. (4) See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Comparison of Results of Operations for the Years Ended December 31, 1996 and 1995--Loan Origination Income" for a discussion of the impact on net income of a secondary marketing loss incurred in March 1996. (5) Net income per common and common equivalent share is based on the weighted average number of common shares outstanding during each period and the dilutive effect, if any, of stock options and warrants outstanding. There are no other dilutive securities. (6) Pro forma net income and pro forma net income per share are presented for periods in which the Company was not a taxable entity as a result of its subchapter "s" election. The pro forma net income assumes an effective tax rate of 40%. Pro forma net income per share is computed by dividing pro forma net income by the weighted average number of shares of Common Stock and Common Stock equivalents outstanding during the year. (7) See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Asset and Liability Management--Nonperforming Assets" for a discussion of the impact of certain bulk purchases of mortgage loan portfolios on the level of nonperforming loans and foreclosed real estate, and the effect of repurchasing sub-prime automobile loans. (8) Calculations are based on average daily balances where available and monthly averages otherwise. (9) Net interest margin has been calculated by dividing net interest income before loan and valuation loss provision by average interest-earning assets. (10) The operating efficiency ratio has been calculated by dividing non-interest expense by operating income (net interest income plus non-interest income). (11) The allowance for loan and valuation losses does not include a $600,000 liability reserve account to cover potential losses associated with sub- prime auto loans repurchased by Matrix Bank. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Nonperforming Assets". ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS ----------------------------------------------------------------------- OF OPERATIONS ------------- The following management's discussion and analysis of the financial condition and results of operations of the Company should be read in conjunction with the preceding "Selected Consolidated Financial and Operating Information." Additionally, the Company's Consolidated Financial Statements and the Notes thereto, as well as other data included herein, should be read and analyzed in combination with the analysis below. COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 NET INCOME; RETURN ON AVERAGE EQUITY. Net income decreased $288,000, or 8.1%, to $3.3 million for the year ended December 31, 1996 as compared to $3.6 million for the year ended December 31, 1995. Return on average equity decreased to 24.9% for the year ended December 31, 1996 as compared to 51.4% for the year ended December 31, 1995. 20 The decrease in return on average equity was primarily due to the Company's policy of retaining all of its earning, the issuance of 2,012,500 shares of additional stock in the fourth quarter, the one time expense for the SAIF capitalization, the first quarter secondary marketing loss, the reserve for the probable settlement of certain outstanding litigation and the recourse losses related to the sub-prime autos repurchased at Sterling. See "--Loan Origination" for a discussion of the secondary marketing loss. See "--Asset Liability Management--Nonperforming Assets" for a discussion of the loss relating to the disposition of Sterling. NET INTEREST INCOME. Net interest income before provision for loan and valuation losses increased $2.5 million, or 69.7%, to $6.0 million for the year ended December 31, 1996, as compared to $3.5 million for the year ended December 31, 1995. The increase for the year ended December 31, 1996 was attributable to the increase in the Company's yield on interest earning assets, which increased to 9.42% for the year ended December 31, 1996, as compared to 8.52% for the year ended December 31, 1995, and a decrease in the cost of interest-bearing liabilities, which decreased to 6.59% for the year ended December 31, 1996, as compared to 7.14% for the year ended December 31, 1995. The increase in the Company's yield on interest-earning assets was primarily attributable to an increase in the yield on the Company's adjustable rate loan portfolio, the amortization and payoffs of loans which had significant discounts, and the origination of higher yielding consumer loans. The decrease in the cost of interest-bearing liabilities was attributable to the lower cost of borrowed funds. The Company's net interest margin increased to 3.43% for the year ended December 31, 1996, as compared to 2.81% for the year ended December 31, 1995. The Company's average interest-earning assets increased $49.2 million, or 39.1%, to $175.1 million for the year ended December 31, 1996, as compared to $125.9 million for the year ended December 31, 1995. This increase was attributable primarily to the increase in the size of the Company's loan portfolio held for sale. For a tabular presentation of the changes in net interest income due to changes in volume of interest-earning assets and changes in interest rates, see "--Analysis of Changes in Net Interest Income Due to Changes in Interest Rates and Volumes." PROVISION FOR LOAN AND VALUATION LOSSES. Provision for loan and valuation losses decreased $258,000, or 64.3%, to $143,000 for the year ended December 31, 1996 as compared to $401,000 for the year ended December 31, 1995. This decrease was primarily attributable to the improvement in the portion of the Company's residential loan portfolio classified as non-accrual. For a discussion of the Company's allowance for loan and valuation losses as it relates to nonperforming assets, see "--Asset and Liability Management-Nonperforming Assets." LOAN ADMINISTRATION. Loan administration fees increased $1.1 million, or 13.9%, to $8.8 million for the year ended December 31, 1996, as compared to $7.7 million for the year ended December 31, 1995. This increase was primarily attributable to the increase in the average outstanding principal balance underlying the Company's mortgage servicing rights portfolio for the year ended December 31, 1996, as compared to the year ended December 31, 1995. Loan administration fees are affected by factors that include the size of the Company's residential mortgage loan servicing portfolio, the servicing spread, the timing of payment collections, and the amount of ancillary fees collected. The mortgage loan servicing portfolio owned increased by $908.7 million, or 56.9%, to $2.5 billion for the year ended December 31, 1996, as compared to $1.6 billion for the year ended December 31, 1995, with the majority of the increase occurring in the fourth quarter of 1996. BROKERAGE FEES. Brokerage fees decreased $423,000, or 8.8%, to $4.4 million for the year ended December 31, 1996, as compared to $4.8 million for the year ended December 31, 1995. This decrease is a direct result of the amount of the residential mortgage servicing portfolios brokered by United Financial. The balance of residential mortgage servicing portfolios brokered by United Financial, in terms of aggregate unpaid principal balances on the underlying loans, decreased $6.2 billion, or 19.0%, to $26.4 billion the year ended December 31, 1996, as compared to $32.6 billion for the year ended December 31, 1995. The decrease was primarily due to the amount of servicing brokered in the first quarter of 1996 as mortgage banking firms and financial institutions deferred servicing sales pending their review of the impact of FAS 122 on their portfolios. GAIN ON SALE OF LOANS AND MORTGAGE BACKED SECURITIES. Gain on the sale of loans and mortgage backed securities increased $97,000, or 3.0%, to $3.4 million the year ended December 31, 1996, as compared to $3.3 million for the year ended December 31, 1995. Gain on sale of loans can fluctuate significantly from quarter to quarter and from year to year based on a variety of factors, such as the current interest rate environment, the supply of loan portfolios in the market, the mix of loan portfolios available in the market, the type of loan portfolios the Company purchases, and the particular loan portfolios the Company elects to sell. The Company's strategy has been and will continue to be to match its purchases and sales while managing its desired growth. 21 GAIN ON SALE OF MORTGAGE SERVICING RIGHTS. Gain on the sale of mortgage servicing rights increased $2.0 million, or 177.7%, to $3.2 million for the year ended December 31, 1996, as compared to $1.2 million for the year ended December 31, 1995. In terms of aggregate outstanding principal balances of mortgage loans underlying such servicing rights, the Company sold $646.0 million in purchased mortgage servicing rights for the year ended December 31, 1996 as compared to $31.8 million for the year ended December 31, 1995. A portion of the servicing rights sold in 1996 pertained to mortgage servicing portfolios that the Company combined with the related loan participation interests, and then sold as one asset. The servicing portfolio sold in 1995 consisted of loans with non-standard payment accrual methodologies, including the Rule of 78's and daily simple interest accruals, and were secured by second liens. The sales in 1996 were consummated primarily to generate additional cash flow in order to acquire more desirable residential servicing portfolios and to generate revenues. LOAN ORIGINATION. Loan origination income decreased $508,000, or 24.6%, to $1.6 million for the year ended December 31, 1996, as compared to $2.1 million for the year ended December 31, 1995, even though the Company experienced an increase in wholesale residential mortgage loan production of $194.4 million, or 50.0%, to $583.3 million for the year ended December 31, 1996, as compared to $388.9 million for the year ended December 31, 1995. This decrease was primarily attributable to a $1.9 million secondary marketing loss that occurred in March 1996. The secondary marketing loss was attributable to the failure of a former officer of Matrix Financial to adhere to the established hedging policies. As a result, certain closed loans were not adequately hedged which resulted in a $1.9 million loss when interest rates increased dramatically in March 1996, thereby causing the funded loans and pipeline commitments to decline in market value. Had the policies been followed, the Company would still have recognized a loss, albeit significantly smaller, since it is difficult for the Company to be completely hedged when interest rates rapidly and significantly change. The Company has implemented several management and reporting changes to help ensure that the hedging policies established by Matrix Financial's board of directors are adhered to so as to mitigate secondary losses in volatile interest rate markets. Loan origination income includes all mortgage loan fees, secondary marketing activity on new loan originations, servicing release premiums on new originations sold, net of outside origination costs. NONINTEREST EXPENSE. Noninterest expense increased $5.8 million, or 33.9% to $23.0 million for the year ended December 31, 1996, as compared to $17.1 million for the year ended December 31, 1995. This increase was primarily due to the one time SAIF assessment of $450,000 (pre-tax), reserve for the probable settlement of certain outstanding litigation, expenses related to new operating subsidiaries and expenses related to the operating loss and recourse losses on sub-prime automobile installment contracts sold by Sterling and the ceasing of its operations in December 1996. The following table details the major components of noninterest expense for the periods indicated:
YEAR ENDED DECEMBER 31, --------------------- 1995 1996 ---------- ---------- (IN THOUSANDS) Compensation and employee benefits ................................. $ 8,586 $ 10,604 Amortization of mortgage servicing rights .......................... 1,817 2,432 Occupancy and equipment............................................. 1,124 1,415 Professional fees................................................... 660 468 Data processing..................................................... 529 604 Other............................................................... 4,420 7,428 ------- ------- Total........................................................... $ 17,136 $ 22,951 ======= =======
Compensation and employee benefits increased $2.0 million, or 23.5% to $10.6 million for the year ended December 31, 1996, as compared to $8.6 million for the year ended December 31, 1995. This increase was the result of the expansion of the Company's business lines in 1996, including the opening of two new branches of Matrix Bank, the formation of two new operating subsidiaries, and the increased amount of wholesale mortgage loan originations (i.e., employees in the mortgage loan origination area are typically compensated on a commission basis). The Company had an increase of 29 employees, or 17.8%, to 192 employees at year end December 31, 1996, as compared to 163 employees at year end December 31, 1995. The Company also employed an additional 20 employees during portions of 1996 at Sterling. Amortization of mortgage servicing rights increased $615,000, or 33.8%, to $2.4 million for the year ended December 31, 1996, as compared to $1.8 million for the year ended December 31, 1995. Amortization of mortgage 22 servicing rights fluctuates based on the size of the Company's mortgage servicing portfolio and the prepayment rates experienced with respect to the underlying mortgage loan portfolio. The remainder of noninterest expense, which includes occupancy and equipment expenses, professional fees, data processing costs and other expenses increased $3.2 million, or 47.3%, to $9.9 million for the year ended December 31, 1996, as compared to $6.7 million for the year ended December 31, 1995. The increase was primarily attributable to the one-time SAIF assessment, the reserve for the probable settlement of certain outstanding litigation, expansion of both existing and new business lines, the formation of two operating subsidiaries, the opening of two bank branches, and the recourse losses on automobile installment contracts sold by Sterling and the ceasing of operations in December 1996. PROVISION FOR INCOME TAXES. Provision for income taxes decreased $154,000, or 6.8%, to $2.1 million for the year ended December 31, 1996, as compared to $2.3 million for the year ended December 31, 1995. The decrease was due to the decline in pre-tax income. The two periods had comparable effective income tax rates of 39.2% and 38.8% respectively. COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 NET INCOME; RETURN ON AVERAGE EQUITY. Net income increased $915,000, or 34.6%, to $3.6 million for the year ended December 31, 1995, as compared to $2.6 million for the year ended December 31, 1994. Return on average equity decreased to 51.4% for the year ended December 31, 1995, as compared to 58.5% for the year ended December 31, 1994. The decrease in return on average equity was primarily due to the Company's policy of retaining all of its earnings, which increased the Company's equity base. NET INTEREST INCOME. Net interest income before provision for loan and valuation losses decreased $453,000, or 11.4%, to $3.5 million for the year ended December 31, 1995, as compared to $4.0 million for the year ended December 31, 1994. The decrease for the year ended December 31, 1995 was attributable primarily to the increase in the Company's cost of interest-bearing liabilities, which increased to 7.14% for the year ended December 31, 1995, as compared to 5.16% for the year ended December 31, 1994. The increase in the cost of interest-bearing liabilities was primarily related to borrowings used to fund the increase in the mortgage loan originations. The Company's mortgage loan originations are funded through borrowings based on short-term interest rates. The interest rate spread between short-term interest rates and long-term interest rates generally was lower during the year ended December 31, 1995, as compared to the year ended December 31, 1994. The decrease occurred primarily because the cost of interest-bearing liabilities increased more rapidly than the yield on interest-earning assets. The effect of smaller spreads between long-term interest rates and short-term interest rates means generally that the Company earns less net interest income on its wholesale mortgage loan originations which, in turn, reduces its net interest margin (net interest income before provision for loan losses divided by average interest-earning assets). The Company's net interest margin decreased to 2.81% for the year ended December 31, 1995, as compared to 4.63% for the year ended December 31, 1994. The effect of the lower interest rate margin was partially offset by an increase in the Company's average interest-earning assets. The Company's average interest-earning assets increased $39.8 million, or 46.3%, to $125.9 million for the year ended December 31, 1995, as compared to $86.1 million for the year ended December 31, 1994. This increase was attributable primarily to the increase in the size of the Company's loan portfolio held for sale. For a tabular presentation of the changes in net interest income due to changes in volume of interest-earning assets and changes in interest rates, see "--Analysis of Changes in Net Interest Income Due to Changes in Interest Rates and Volumes." PROVISION FOR LOAN AND VALUATION LOSSES. The provision for loan and valuation losses increased $185,000, or 85.6%, to $401,000 for the year ended December 31, 1995, as compared to $216,000 for the year ended December 31, 1994. This increase was attributable primarily to the corresponding increase in the size of the Company's loan portfolio. For a discussion of the Company's allowance for loan and valuation losses as it relates to nonperforming assets, see "--Asset and Liability Management--Nonperforming Assets." LOAN ADMINISTRATION. Loan administration fees increased $823,000, or 11.9%, to $7.7 million for the year ended December 31, 1995, as compared to $6.9 million for the year ended December 31, 1994. This increase was attributable primarily to the increase in the average outstanding principal balance underlying the Company's mortgage servicing rights portfolio for the year ended December 31, 1995, as compared to the year ended December 31, 1994. BROKERAGE FEES. Brokerage fees increased $770,000, or 19.2%, to $4.8 million for the year ended December 31, 1995, as compared to $4.0 million for the year ended December 31, 1994. The increase was primarily attributable to an 23 increase in the volume of residential mortgage servicing portfolios brokered by United Financial. The balance of residential mortgage servicing portfolios brokered by United Financial, in terms of aggregate unpaid principal balances on the underlying loans, increased $3.7 billion, or 12.8%, to $32.6 billion for the year ended December 31, 1995, as compared to $28.9 billion for the year ended December 31, 1994. GAIN ON SALE OF LOANS AND MORTGAGE-BACKED SECURITIES. Gain on sale of mortgage loans and mortgage-backed securities increased by $1.7 million, or 105.8%, to $3.3 million for the year ended December 31, 1995, as compared to $1.6 million for the year ended December 31, 1994. The increase was attributable primarily to the type of loan portfolios that the Company purchased during 1995. The Company's strategy has been and will continue to be to match its purchases and sales while managing its desired growth. Therefore, the increase of $1.7 million in gain on loan sales was attributable to the Company's loan purchases, which affect the mix, and to a limited extent the amount of the loan portfolios that the Company sold. GAIN ON SALE OF MORTGAGE SERVICING RIGHTS. Gain on sale of mortgage servicing rights increased $480,000, or 70.2%, to $1.2 million for the year ended December 31, 1995, as compared to $684,000 for the year ended December 31, 1994. This increase resulted primarily from one particular sale of mortgage servicing rights with aggregate unpaid principal balances of $16.2 million, resulting in a gain of $1.0 million. The servicing portfolio sold consisted of loans with non-standard payment accrual methodologies, including the Rule of 78s and daily simple interest accruals, and were secured by second liens. The sale allowed the Company to deploy the cash generated to purchase new servicing portfolios considered by the Company to be more conforming in nature and, thereby, enhance the efficiencies of the Company's servicing operations. LOAN ORIGINATION. Loan origination income increased $775,000, or 59.9%, to $2.1 million for the year ended December 31, 1995, as compared to $1.3 million for the year ended December 31, 1994. The increase of $775,000 was primarily the result of the increase in new loan origination volume experienced by Matrix Financial during 1995. The new loan origination volume increased $205.8 million, or 112.4%, to $388.9 million for the year ended December 31, 1995, as compared to $183.1 million for the year ended December 31, 1994. NONINTEREST EXPENSE. Noninterest expense increased $2.8 million, or 20.0%, to $17.1 million for the year ended December 31, 1995, as compared to $14.3 million for the year ended December 31, 1994. This increase was primarily a result of the continued expansion and diversification of the Company's operations during 1995. The following table details the major components of noninterest expense for the periods indicated:
YEAR ENDED DECEMBER 31, --------------------- 1994 1995 ---------- ---------- (IN THOUSANDS) Compensation and employee benefits................................... $ 7,719 $ 8,586 Amortization of mortgage servicing rights............................ 1,185 1,817 Occupancy and equipment.............................................. 1,067 1,124 Professional fees.................................................... 485 660 Data processing...................................................... 492 529 Other................................................................ 3,331 4,420 ------- ------- Total............................................................ $ 14,279 $ 17,136 ======= =======
Compensation and employee benefits increased $867,000, or 11.2%, to $8.6 million for the year ended December 31, 1995, as compared to $7.7 million for the year ended December 31, 1994. The majority of the increase was directly related to the increase in the brokerage volume at United Financial and the loan origination volume at Matrix Financial. The majority of employees engaged in these activities are paid on a commission basis. The brokerage volume increased $3.7 billion, or 12.8%, and the loan originations increased $205.8 million, or 112.4%, resulting in an increase in compensation of approximately $800,000. The remainder of the increase is attributable to the Company's development and expansion of both existing and new business lines during 1995, which also resulted in the expansion of the Company's employee base. The Company had a total of 163 employees at December 31, 1995, as compared to 153 at December 31, 1994. 24 Amortization of mortgage servicing rights increased $632,000, or 53.3%, to $1.8 million for the year ended December 31, 1995, as compared to $1.2 million for the year ended December 31, 1994. This increase was due to the growth in the Company's average outstanding balance of servicing rights, but was partially offset by the slower rate of prepayments experienced during the year ended December 31, 1995, as compared to the year ended December 31, 1994. The remaining non-interest expense, including occupancy and equipment expenses, professional fees, data processing costs, and other expenses, such as telephone, postage, advertising and insurance, increased $1.3 million, or 25.3%, to $6.7 million for the year ended December 31, 1995, as compared to $5.4 million for the year ended December 31, 1994. The increase was the result of the development and expansion of both existing and new business lines. PROVISIONS FOR INCOME TAXES. Provisions for income taxes increased $414,000, or 22.4%, to $2.3 million for the year ended December 31, 1995, as compared to $1.8 million for the year ended December 31, 1994. The increase was due to the increase in pre-tax income. The two periods had comparable effective tax rates of 39% and 41%, respectively. AVERAGE BALANCE SHEET The following table sets forth for the periods and as of the dates indicated information regarding the Company's average balances of assets and liabilities as well as the dollar amounts of interest income from interest-earning assets and interest expense on interest-bearing liabilities and the resultant yields or costs. Ratio, yield and rate information are based on average daily balances where available; otherwise, average monthly balances have been used. Nonaccrual loans are included in the calculation of average balances for loans for the periods indicated.
YEAR ENDED DECEMBER 31, ----------------------------------------------------------------------------------------------- 1994 1995 1996 ---------------------------- ----------------------------- ----------------------------- AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE ---------- -------- ------- ----------- -------- ------- ----------- -------- ------- (DOLLARS IN THOUSANDS) ASSETS Interest-earning assets:. Loans receivable, net of discounts.....................$ 79,393 $ 6,681 8.42 % $ 121,206 $ 10,412 8.59 % $ 162,648 $ 15,733 9.67 % Mortgage-backed securities..... -- -- -- -- -- -- 4,653 351 7.54 Interest-earning deposits...... 5,974 299 5.01 3,381 232 6.86 5,191 255 4.91 FHLB stock..................... 716 35 4.89 1,321 86 6.51 2,585 153 5.92 -------- ------ ------- --------- -------- ------ --------- -------- ------- Total interest-earning assets. 86,083 7,015 8.15 125,908 10,730 8.52 175,077 16,492 9.42 Noninterest earning assets: Cash........................... 1,618 2,046 2,543 Allowance for loan and valuation losses.............. (690) (836) (964) Premises and equipment......... 3,639 4,909 6,540 Other assets................... 7,624 17,611 25,704 -------- --------- --------- Total noninterest-earning assets....................... 12,191 23,730 33,823 -------- --------- --------- Total assets..................$ 98,274 $ 149,638 $ 208,900 ======== ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing liabilities: Passbook accounts..............$ 2,788 72 2.58 $ 2,394 85 3.55 $ 2,389 82 3.45 Money market and negotiable order of withdrawal ("NOW") accounts.............. 9,481 271 2.86 8,320 292 3.51 11,964 468 3.91 Certificates of deposit........ 29,273 1,138 3.89 33,332 1,807 5.42 54,824 3,210 5.85 FHLB borrowings................ 3,071 213 6.94 17,662 1,113 6.30 35,838 2,039 5.69 Borrowed money................. 14,008 1,332 9.51 39,021 3,897 9.98 54,171 4,691 8.66 -------- ------ ------- --------- -------- ------ --------- -------- ------- Total interest-bearing liabilities.................. 58,621 3,026 5.16 100,729 7,194 7.14 159,186 10,490 6.59 -------- ------ ------- --------- -------- ------ --------- -------- ------- Noninterest-bearing liabilities: Demand deposits (including custodial escrow balances).... 30,559 35,794 27,934 Other liabilities.............. 4,570 6,184 8,633 -------- --------- --------- Total noninterest bearing liabilities................... 35,129 41,978 36,567 Shareholders' equity........... 4,524 6,931 13,147 -------- --------- --------- Total liabilities and shareholders' equity.........$ 98,274 $ 149,638 $ 208,900 ======== ========= ========= Net interest income before provision for loan and valuation losses............ $ 3,989 $ 3,536 $ 6,002 ====== ======= ======= Interest rate spread............. 2.99 % 1.38 % 2.83 % ======= ====== ====== Net interest margin.............. 4.63 % 2.81 % 3.43 % ======= ====== ====== Ratio of average interest-earning assets to average interest-bearing liabilities..................... 146.8 % 125.00 % 109.98 % ======= ====== ======
25 ANALYSIS OF CHANGES IN NET INTEREST INCOME DUE TO CHANGES IN INTEREST RATES AND VOLUMES The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. It distinguishes between the increase or decrease related to changes in balances and changes in interest rates. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (i.e., changes in volume multiplied by old rate) and (ii) changes in rate (i.e., changes in rate multiplied by old volume). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate.
YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1995 VS 1994 1996 VS 1995 ------------------------------- --------------------------------- INCREASE (DECREASE) INCREASE (DECREASE) DUE TO CHANGE IN DUE TO CHANGE IN ------------------------------- --------------------------------- VOLUME RATE TOTAL VOLUME RATE TOTAL ---------- ---------- --------- --------- ---------- ----------- (IN THOUSANDS) Interest-earning assets: Loans receivable, net of discounts........... $ 3,519 $ 212 $ 3,731 $ 3,561 $ 1,760 $ 5,321 Mortgage-backed securities................... -- -- -- -- 351 351 Interest-earning deposits.................... (130) 63 (67) 124 (101) 23 FHLB stock................................... 30 21 51 82 (15) 67 ------- ------- -------- ------ ------- -------- Total interest-earning assets.............. 3,419 296 3,715 3,767 1,995 5,762 ------- ------- -------- ------ ------- -------- Interest-bearing liabilities: Passbook accounts............................ (10) 23 13 -- (3) (3) Money market and NOW accounts................ (33) 54 21 128 48 176 Certificates of deposit...................... 158 512 670 1,165 238 1,403 FHLB advances................................ 1,012 (112) 900 1,145 (219) 926 Borrowed money............................... 2,378 186 2,564 1,513 (719) 794 ------- ------- -------- ------ ------- -------- Total interest-bearing liabilities......... 3,505 663 4,168 3,951 (655) 3,296 ------- ------- -------- ------ ------- -------- Change in net interest income before provision for loan and valuation losses........ $ (86) $ (367) $ (453) $ (184) $ 2,650 $ 2,466 ======== ======= ======== ======= ======= ========
ASSET AND LIABILITY MANAGEMENT GENERAL. The Company structures its operations to derive the majority of its revenues and earnings from noninterest income. However, a portion of the Company's revenues and net income is derived from net interest income and, accordingly, the Company strives to manage its interest-earning assets and interest-bearing liabilities to generate what management believes to be an appropriate contribution from net interest income. Asset and liability management seeks to control the volatility of the Company's performance due to changes in interest rates. The Company constantly attempts to achieve an appropriate relationship between rate sensitive assets and rate sensitive liabilities. The Company has responded to interest rate volatility by developing and implementing asset and liability management strategies designed to increase its noninterest income and improve the match between interest-earning assets and interest-bearing liabilities. These strategies include: . Utilizing mortgage servicing rights as a source of noninterest income and as a countermeasure against the decline in the value of mortgage loans during a rising interest rate environment. Increases in interest rates tend to increase the value of mortgage servicing rights because of the resulting decrease in prepayment rates on the underlying loans; . Increasing the noninterest bearing custodial escrow balances related to the Company's mortgage servicing rights; . Increasing focus on lines of business that are less interest rate sensitive, such as brokerage activities, consulting services, self- directed trust services, and real estate disposition; . Maintaining a wholesale loan origination operation. Wholesale originations provide a form of hedge against the balance of mortgage loan servicing rights. In a decreasing interest rate environment, the value of the servicing portfolio tends to decrease due to increased prepayments of the underlying loans. During this same period, however, the volume of loan originations generally increases; 26 . Originating and purchasing adjustable rate mortgages and selling newly originated fixed rate residential mortgages in the secondary market; . Increasing emphasis on the origination of construction and commercial real estate lending, which tend to have higher interest rates with shorter loan maturities than residential mortgage loans; . Increasing retail deposits, which are less susceptible to changes in interest rates than other funding sources; and . Pursuing strategic acquisitions that provide fee-based income or generate liabilities that are less expensive or less interest rate sensitive than retail deposits or borrowings from third party institutions to fund the Companies investing activities LENDING ACTIVITIES. The major interest earning asset of the Company is the loan portfolio. Consequently, a significant part of the Company's asset and liability management is monitoring the composition of the Company's loan portfolio, including the corresponding maturities. The table below sets forth the composition of the Company's loan portfolio by loan type as of the dates indicated. The amounts in the table below are shown net of discounts and other deductions.
AS OF DECEMBER 31, ------------------------------------------------------------------------------- 1993 1994 1995 1996 ------------------ ------------------- ------------------ ------------------ AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT -------- ------- ------ ------- ------ ------- ------- -------- (DOLLARS IN THOUSANDS) Residential...................... $ 65,858 86.10 % $ 80,010 89.56 % $ 136,741 93.23 % $198,736 93.59 % Multi-family and commercial real estate......................... 7,813 10.21 7,518 8.41 7,544 5.15 8,734 4.11 Construction..................... 125 0.16 106 0.12 78 0.05 1,061 0.50 Consumer......................... 3,238 4.23 2,434 2.72 3,245 2.21 4,869 2.29 ------- ------ ------- ------ --------- ------ ------ ----- Total loans.................. 77,034 100.70 90,068 100.81 147,608 100.64 213,400 100.49 Less allowance for loan and valuation losses............. 538 0.70 728 0.81 943 0.64 1,039 0.49 -------- ------ -------- ------ --------- ------ -------- ------ Loans receivable, net............ $ 76,496 100.00 % $ 89,340 100.00 % $ 146,665 100.00 % $212,361 100.00 % ======== ====== ======== ====== ========= ====== ======== ======
The following table presents the aggregate maturities of loans in each major category of the Company's loan portfolio as of December 31, 1996. Loans held for sale are classified as maturing within one year. Actual maturities may differ from the contractual maturities shown below as a result of renewals and prepayments or the timing of loan sales.
AS OF DECEMBER 31, 1996 -------------------------------------------- LESS THAN ONE TO OVER FIVE ONE YEAR FIVE YEARS YEARS TOTAL --------- ---------- --------- ------- (IN THOUSANDS) Residential.................................... $ 186,324 $ 618 $11,794 $ 198,736 Multi-family and commercial real estate........ 5 108 8,621 8,734 Construction................................... 1,061 -- -- 1,061 Consumer....................................... 1,159 2,446 1,264 4,869 --------- --------- ------- --------- Total loans................................ $ 188,549 $ 3,172 $21,679 $ 213,400 ========= ========= ======= =========
NONPERFORMING ASSETS. As part of asset and liability management, the Company monitors nonperforming assets ("NPAs") on a monthly basis. NPAs consist primarily of nonaccrual loans and foreclosed real estate. Loans are placed on nonaccrual when full payment of principal or interest is in doubt or when they are past due 90 days as to either principal or interest. Foreclosed real estate arises primarily through foreclosure on mortgage loans owned. The following table sets forth the Company's NPAs as of the dates indicated: 27
AS OF DECEMBER 31, --------------------------------------------------------- 1993 1994 1995 1996 ----------- ----------- ----------- ------------ (DOLLARS IN THOUSANDS) Nonaccrual mortgage loans....................... $ 657 $ 3,275 $ 5,523 $ 3,031 Nonaccrual consumer loans....................... 196 39 15 872 ----------- ---------- ----------- ------------ Total nonperforming loans................... 853 3,314 5,538 3,903 Foreclosed real estate.......................... 726 543 835 788 Repossessed automobiles......................... -- -- -- 506 ----------- ----------- ----------- ------------ Total nonperforming assets.................. $ 1,579 $ 3,857 $ 6,373 $ 5,197 =========== =========== =========== ============ Total nonperforming assets to total assets...... 1.65% 3.44 % 3.45 % 1.90 % Total nonperforming loans to total loans........ 1.11% 3.68 % 3.75 % 1.83 % Ratio of allowance for loan and valuation losses to total non-performing loans............... 63.07% 21.97 % 17.03 % 26.62 % Interest income on non-performing loans not included in interest income................... $ 23 $ 140 $ 156 $ 120
As of December 31, 1996, the Company had no accruing loans that were contractually past due 90 days or more. The higher levels of mortgage nonaccrual loans during 1994 and 1995 were primarily attributable to purchases by Matrix Bank of bulk residential loan portfolios in those years. As part of its business strategy, Matrix Bank purchases loans at a discount that have had delinquencies in the past. Due to the past delinquency problems, there is often an increase in delinquencies after the loans are purchased as a result of the servicing being transferred to the Company. The Company's experience has been that it generally takes 90 to 120 days after the servicing transfer to see an improvement in the delinquency statistics. The decrease in the mortgage nonaccrual loans at December 31, 1996 is attributable to the improvement of the loans that had past delinquency problems and the credit quality of the loan portfolios the Company acquired in 1996. In 1996, Matrix Bank acquired loans with less delinquency problems and/or document deficiencies, which also resulted in a decrease in the nonaccrual loans. The increase in the nonaccrual consumer loans pertains to sub-prime auto loans that the Company repurchased pursuant to limited representations and warranties included in loan sale agreements. The Company has a separate reserve of $600,000 included in other liabilities for anticipated losses relating to the repurchased sub-prime auto loans at December 31, 1996. Included in repossessed assets for 1996 is $506,000 of automobiles that the Company was required to repurchase pursuant to the same limited representations and warranties. The balance of the repossessed assets have been written down to the anticipated recoverable amount. The Company sold the fixed assets of Sterling Finance in December 1996 and it is anticipated it will originate no additional sub-prime automobile contracts. The prior delinquency and anticipated future delinquencies are taken into consideration in the pricing of the loans acquired. The Company generally purchases such loans at discounts and, in some instances, receives recourse or credit enhancement from the seller to further reduce the Company's risk of loss associated with the loans' nonaccrual status. At December 31, 1996, $2.8 million, or 72.50%, of the nonaccrual loans were loans that were residential loans purchased in bulk loan portfolios and remain classified as "held for sale." Total loans held for sale at December 31, 1996, were $182.8 million, of which $2.8 million or 1.5% were nonaccrual loans. However, against the $182.8 million of total loans held for sale, the Company has $2.8 million of purchase discounts plus an additional $1.8 million of credit enhancements related to specific segments of the loan portfolio. The percentage of the allowance for loan and valuation losses to nonaccrual loans varies widely due to the nature of the Company's portfolio of mortgage loans, which are collateralized primarily by residential real estate. The Company analyzes the collateral for each nonperforming mortgage loan to determine potential loss exposure. In conjunction with other factors, this loss exposure contributes to the overall assessment of the adequacy of the allowance for loan and valuation losses. See "--Comparison of Results of Operations for the Years Ended December 31, 1996 and 1995." 28 ANALYSIS OF ALLOWANCE FOR LOAN AND VALUATION LOSSES. The following table sets forth information regarding changes in the Company's allowance for loan and valuation losses for the periods indicated. The table includes the allowance for both the loans held for investment and the loans held for sale.
YEAR ENDED DECEMBER 31, ----------------------------------------------- 1993 1994 1995 1996 ----------- -------- ------- -------- (DOLLARS IN THOUSANDS) Balance at beginning of period................................. $ -- $ 538 $ 728 $ 943 Charge-offs: Real estate-mortgage....................................... 33 26 198 64 Real estate-construction................................... -- -- 35 -- Consumer................................................... -- -- 7 6 --------- --------- --------- --------- Total charge-offs...................................... 33 26 240 70 Recoveries: Real estate-mortgage....................................... -- -- 5 8 Consumer................................................... -- -- 49 15 --------- --------- --------- --------- Total recoveries....................................... -- -- 54 23 --------- --------- --------- --------- Net charge-offs................................................ 33 26 186 47 Allowance for loan losses established in connection with the acquisition of Matrix Bank................................. 556 -- -- -- --------- --------- --------- --------- Provision for loan losses charged to operations................ 15 216 401 143 --------- --------- --------- --------- Balance at end of period....................................... $ 538 $ 728 $ 943 $ 1,039 ========= ========= ========= ========= Ratio of net charge-offs to average loans...................... .18 % .03 % .15 % .03 % ========= ========= ========= ========= Average loans outstanding during the period.................... $ 18,608 $ 79,393 $ 121,206 $ 162,648 ========= ========= ========= =========
The allowance for loan and valuation losses is increased by the provision for loan and valuation losses (which is charged to operations) for particular loans where management considers ultimate collection to be questionable. The allowance for loan and valuation losses is calculated, in part, based on historical loss experience. In addition, management takes into consideration other factors such as certain qualitative evaluations of individual classified assets, trends in the portfolio, geographic and portfolio concentrations, new products or markets, evaluations of the changes in the historical loss experience component, and projections of this component into the current and future periods based on current knowledge and conditions. Due to the nature of the Company's loan portfolio, substantially all of the allowance for loan and valuation losses relates to residential loans. The ratio of the allowance for loan and valuation losses to total loans was .81%, .64% and .49% at December 31, 1994, 1995, and 1996, respectively. The allowance for loan and valuation losses is reduced by loans charged off, net of recoveries. RISK SENSITIVE ASSETS AND LIABILITIES. A traditional indicator of interest rate risk is gap analysis. Gap analysis focuses on the difference (or gap) between available repricing opportunities for assets and liabilities within defined time periods. If the dollar amount of interest rate sensitive assets is closely matched with the dollar amount of interest rate sensitive liabilities in a given period, then the changes in interest income and interest expense over this time frame should also be closely matched. The following table sets forth the estimated maturity or repricing, and the resulting interest rate gap, of the Company's interest-earning assets and interest-bearing liabilities as of December 31, 1996. The amounts in the table are derived from internal data of the Company and could be significantly affected by external factors such as changes in prepayment assumptions, early withdrawals of deposits, and competition. Loans held for sale are classified as maturing within one year due to the Company's expectation of selling its loans held for sale within one year. 29
ESTIMATED MATURITY OR REPRICING ---------------------------------------------------------------------------- THREE MONTHS TO LESS THAN THREE LESS THAN ONE TO OVER MONTHS ONE YEAR FIVE YEARS FIVE YEARS TOTAL --------------- --------------- ---------- ----------- ----------- (DOLLARS IN THOUSANDS) Interest-earning assets: Fixed-rate loans............... $ 34,182 $ 48,288 $ 2,950 $ 5,426 $ 90,846 Adjustable-rate loans.......... 27,659 80,709 14,186 -- 122,554 Interest-earning deposits...... 9,499 -- -- -- 9,499 FHLB stock..................... 2,871 -- -- -- 2,871 -------- ------------ ----------- -------- --------- Total interest-earning assets 74,211 128,997 17,136 5,426 225,770 Interest-bearing liabilities: Passbook, NOW and money market accounts..................... 16,944 -- -- -- 16,944 Certificates of deposit over $100,000..................... 1,688 2,689 1,080 -- 5,457 Other certificates of deposit.. 13,458 36,772 17,548 -- 67,778 FHLB borrowings................ 51,250 -- -- -- 51,250 Short term borrowings.......... 31,504 -- -- -- 31,504 Other borrowings............... 101 738 7,460 2,628 10,927 -------- ------------ ----------- -------- --------- Total interest-bearing liabilities............... 114,945 40,199 26,088 2,628 183,860 -------- ------------ ----------- -------- --------- Interest rate gap................ $ (40,734) $ 88,798 $ (8,952) $ 2,798 $ 41,910 ======== ============ =========== ======== ========= Cumulative interest rate gap..... $ (40,734) $ 48,064 $ 39,112 $ 41,910 Gap/assets ratio................. (18.04) % 39.33 % (3.97) % 1.24 % Cumulative gap/assets ratio...... (18.04) % 21.29 % 17.32 % 18.56 %
Gap analysis attempts to capture interest rate risk, which is attributable to the mismatching of interest rate sensitive assets and liabilities. The actual impact of interest rate movements on the Company's net interest income may differ from that implied by any gap measurement, depending on the direction and magnitude of the interest rate movements, the repricing characteristics of various on and off-balance sheet instruments, as well as competitive pressures. These factors are not fully reflected in the foregoing gap analysis and, as a result, the gap report may not provide a complete assessment of the Company's interest rate risk. The generally positive cumulative gap value means that over the periods indicated the assets of the Company will reprice slightly faster than the Company's liabilities. This means generally that, in a rising interest rate environment, net interest income can be expected to increase and that, in a declining interest rate environment, net interest income can be expected to decrease. SHORT-TERM BORROWINGS. A primary function of asset and liability management is to assure adequate liquidity. In addition to cash and cash equivalents, the Company relies heavily on short-term borrowing capabilities for liquidity and as funding vehicle. The primary sources for short-term borrowing are the FHLB for Matrix Bank and unaffiliated financial institutions for Matrix Financial. See "--Liquidity and Capital Resources." 30 The following table sets forth a summary of the short-term borrowings of the Company during 1994, 1995, and 1996 and as of the end of each such period:
AVERAGE WEIGHTED WEIGHTED AMOUNT AMOUNT MAXIMUM AVERAGE AVERAGE OUTSTANDING OUTSTANDING OUTSTANDING INTEREST INTEREST AT DURING THE AT ANY RATE DURING RATE AT YEAR END YEAR(1) MONTH END THE YEAR (%) YEAR END (%) ------------- ------------ ----------- ------------- ------------- At or for the year ended December 31, 1994: (DOLLARS IN THOUSANDS) FHLB borrowings.................. $ 14,600 $ 3,071 $ 15,000 6.94 % 6.50 % Revolving lines of credit........ 9,890 4,917 11,042 9.29 9.21 Repurchase agreements............ 2,529 4,320 6,157 8.03 7.18 At or for the year ended December 31, 1995: FHLB borrowings.................. 19,000 17,662 33,000 6.30 6.30 Revolving lines of credit........ 46,833 22,842 46,833 7.57 7.30 Repurchase agreements............ 570 4,559 14,129 8.97 8.70 At or for the year ended December 31, 1996: FHLB borrowings.................. 51,250 35,838 53,650 5.69 5.84 Revolving lines of credit........ 31,504 35,489 60,804 7.17 6.50 Repurchase agreements............ -- 991 4,962 12.58 -- - ---------
(1) Calculations are based on daily averages where available and monthly averages otherwise. PIPELINE MANAGEMENT. In the ordinary course of business, the Company makes commitments to originate residential mortgage loans and holds originated loans until delivery to an investor. Inherent in this business are risks associated with changes in interest rates and the resulting change in the market value of the pipeline loans. The Company mitigates this risk through the use of mandatory and nonmandatory forward commitments to sell loans. As of December 31, 1996, the Company had $62.6 million in pipeline and funded loans offset with mandatory forward commitments of $49.1 million and nonmandatory forward commitments of $8.1 million. The inherent value of the forward commitments is considered in the determination of the lower of cost or market for such loans. LIQUIDITY AND CAPITAL RESOURCES Liquidity is the ability of the Company to generate funds to support asset growth, satisfy disbursement needs, maintain reserve requirements and otherwise operate on an ongoing basis. To date, Matrix Capital's principal source of funding for its investing activities has been secured senior debt provided by unaffiliated financial institutions, the issuance of the 13% Senior Subordinated Notes in August 1995, a bank stock loan and the Company's initial public offering. As of December 31, 1996, Matrix Capital Corporation had $6.4 million in indebtedness outstanding. The borrowed funds have been used historically as capital injections to Matrix Bank and Matrix Financial, as well as to acquire the office building in Phoenix where Matrix Financial maintains its headquarters. See "Properties." The trend experienced over the reported periods of cash used by the Company's operating activities results primarily from the growth that Matrix Financial has experienced in its origination activities and the growth that Matrix Bank has experienced in its whole loan purchasing activity. The growth in the loan originations experienced by the Company has been due to a conscious effort to increase loan originations and, to a lesser extent, market conditions. The Company does not anticipate significant increases in loan origination activities other than increases directly related to market conditions. Nevertheless, the Company anticipates the trend of a net use of cash from operations to continue for the foreseeable future. This anticipation results from the expected growth at Matrix Bank, which management believes will consist primarily of increased activity in the purchasing of loan portfolios. The Company anticipates such growth will be funded through retail deposits, custodial escrow deposits, directed trust deposits and FHLB borrowings. The Company's principal source of funding for its servicing acquisition activities consists of line of credit facilities provided to Matrix Financial by unaffiliated financial institutions. In prior years, including the year ended December 31, 1996, Matrix Financial relied on various sources for funding its servicing acquisition activities, including servicing acquisition lines, the sale of mortgage servicing rights that were accounted for as financings, and capital contributions from the Company. As of December 31, 1996, Matrix Financial's servicing acquisition facilities aggregated $13.5 million, of which $12.0 million was available to be utilized after deducting drawn amounts. Borrowings under the servicing acquisition lines of credit are secured by mortgage servicing rights owned by Matrix Financial, bear interest at the federal 31 funds rate plus a negotiated margin and are due at the earlier of the maturity of the mortgage servicing rights or amortized over five to six years from the date of borrowing. At December 31, 1996, $1.5 million was outstanding under the servicing acquisition line and the interest rate on funds outstanding under this facility at December 1996 was 8.05%. The Company's principal source of funding for its loan origination business consists of warehouse lines of credit and sale/repurchase facilities provided to Matrix Financial by financial institutions and brokerage firms. As of December 31, 1996, Matrix Financial's warehouse lines of credit aggregated $50.0 million, of which $18.5 million was available to be utilized. Borrowings under the warehouse lines of credit are secured by all of the mortgage loans funded with warehouse loan proceeds and bear interest at the federal funds rate plus a negotiated margin. At December 31, 1996, $31.5 million was outstanding under the warehouse lines of credit at a weighted average interest rate of 6.50%. As of December 31, 1996, Matrix Financial's sale/repurchase facilities aggregated $20.0 million, with no balances outstanding. Borrowings under the sale/repurchase facilities are secured by all of the mortgage loans funded with sale/repurchase facility proceeds and bear interest at either the prime rate or the LIBOR rate plus a negotiated margin (depending on the facility). The Company's principal source of funding for the working capital needs of Matrix Financial consists of working capital facilities provided to Matrix Financial by unaffiliated financial institutions. As of December 31, 1996, Matrix Financial's working capital facilities aggregated $2.5 million, of which $2.5 million was available. The amount of credit available for working capital borrowings is a sublimit of the warehouse lines of credit, and therefore, any amounts borrowed are netted against the amount of credit available from the warehouse lines of credit. Borrowings under the working capital facilities are secured by mortgage servicing rights, eligible servicing advance receivables, and eligible delinquent mortgage loans and bear interest at the federal funds rate plus a negotiated margin. At December 31, 1996, no amounts were outstanding under the working capital facilities. The amounts outstanding as stated above under Matrix Financial's servicing acquisition facility, warehouse lines of credit, sale/repurchase facility, and working capital facility were significantly reduced as a result of the Company's completion of its initial public offering. The net proceeds raised from the public offering were used to reduce balances outstanding on revolving credit facilitities. With the acquisition of additional residential mortgage loan servicing portfolios subsequent to the offering, the Company expects to fully utilize all of its credit facilities. On January 31, 1997, the Company renegotiated its revolving credit facilities for warehouse lending, servicing acquisitions and working capital. With this renegotiation, the aggregate amount of warehouse lines of credit facilities was increased to $60.0 million, the aggregate amount of the servicing acquisition facility was increased to $30.0 million, and the aggregate amount of the working capital facility was increased to $10.0 million. The $10.0 million working capital facility became a separate component to the revolving credit facilities, and is no longer a sublimit to the warehouse line of credit. The new credit facility agreement requires Matrix Financial to maintain (i) total shareholder's equity of at least $10.0 million plus 100% of capital contributed after January 1, 1997, plus 50% of cumulative quarterly net income, (ii) adjusted net worth, as defined, of at least $12.0 million, (iii) a servicing portfolio of at least $2.0 billion and (iv) principal debt of term line borrowings of no more than the lesser of 70% of the appraised value of the mortgage servicing portfolio or 1.25% of the unpaid principal balance of the mortgage servicing portfolio. In March 1997, the Company refinanced its bank stock loan and increased the credit available under the loan by an additional $6.0 million. The new bank stock loan has two components of the loan, a $2.0 million term loan, which was used to refinance the bank stock loan in place at December 31, 1996, and a revolving line of credit of $6.0 million. In March of 1998, the balance of the revolving line of credit will be converted to a term loan. The additional proceeds from the loan will be used as capital at Matrix Bank. The new bank stock loan requires the Company to maintain (i) total stockholders' equity of $27.5 million plus 100% of all future equity contributions, plus 50% of cumulative quarterly net income (ii) dividends less than 50% of the Company's net cash income after adjustments and (iii) total adjusted debt to stockholders' equity less than 4 : 1. In August 1995, the Company issued $2.9 million in aggregate principal amount of 13% Senior Subordinated Notes. Interest on the 13% Senior Subordinated Notes is payable semi-annually on January 15 and July 15, and the 13% Senior Subordinated Notes mature on July 15, 2002, with earlier mandatory redemptions of $727,500, or 25% of the 13% Senior Subordinated Notes, scheduled on July 15, 1999, 2000, and 2001, respectively. The Company is restricted from paying cash dividends under the 13% (which adjusted to 14% in February 1997) Senior Subordinated Notes. However, the Company may pay cash dividends in an amount equal to 50% of the consolidated net income of the Company as long as there has been no default under the terms of the 13% Senior Subordinated 32 Notes and as long as the dividend does not exceed 10% of the consolidated net worth of the Company. The Company may redeem the 13% Senior Subordinated Notes, in whole or in part, at any time on or after July 15, 1998; at a redemption price equal to (i) 102% of par through July 14, 1999 and, thereafter, at par, plus (ii) all accrued but unpaid interest. Matrix Bank's primary source of funds for use in lending, purchasing bulk loan portfolios, investing and other general purposes are retail deposits, custodial escrow balances, FHLB borrowings, sales of loan portfolios and proceeds from principal and interest payments on loans. Contractual loan payments and deposit inflows and outflows are a generally predictable source of funds, while loan prepayments and loan sales are significantly influenced by general market interest rates and economic conditions. Borrowings on a short-term basis are used as a cash management vehicle to compensate for seasonal or other reductions in normal sources of funds. Matrix Bank utilizes advances from the FHLB as its primary source for borrowings. At December 31, 1996, Matrix Bank had overnight borrowings from the FHLB of $51.3 million. The custodial escrow balances held by Matrix Bank fluctuate based upon the mix and size of the related servicing rights portfolios. For a tabular presentation of the Company's short-term borrowings, see "--Short-term Borrowings." Matrix Bank offers a variety of deposit accounts having a range of interest rates and terms. Matrix Bank's deposits principally consist of demand deposits and certificates of deposit. The flow of deposits is influenced significantly by general economic conditions, changes in prevailing interest rates, and competition. Matrix Bank's retail deposits are obtained primarily from areas in which it is located and, therefore, its retail deposits are concentrated primarily in Las Cruces and Sun City. Matrix Bank relies principally on customer service, marketing programs, and its relationships with customers to attract and retain these deposits. Matrix Bank currently does not solicit or accept brokered deposits. In pricing deposit rates, management considers profitability, the matching of term lengths with assets, the attractiveness to customers and rates offered by competitors. Matrix Bank intends to continue its efforts to attract deposits as a primary source of funds to support its lending and investing activities. In January 1996, Matrix Bank opened a retail branch in Sun City, Arizona. The Company has been successful in attracting deposits at the Sun City location and this success has been the primary reason for the increased deposit growth that the Company has experienced for the year ended December 31, 1996. In October 1996, Matrix Bank opened a second retail branch in Las Cruces. The following table sets forth the average balances for each major category of Matrix Bank's deposit accounts and the weighted average interest rates paid for interest-bearing deposits for the periods indicated:
YEAR ENDED DECEMBER 31, --------------------------------------------------------------------------- 1994 1995 1996 ------------------------ ------------------------ ------------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE BALANCE RATE BALANCE RATE BALANCE RATE ---------- --------- ---------- ---------- ---------- ------------ (DOLLARS IN THOUSANDS) Passbook accounts...... $ 2,788 2.58 % $ 2,394 3.55 % $ 2,389 3.45 % NOW accounts........... 2,131 1.69 2,460 2.11 2,813 2.24 Money market accounts.. 7,350 3.20 5,860 4.10 9,151 4.43 Time deposits.......... 29,273 3.89 33,332 5.42 54,824 5.85 -------- ----- ---------- ---- --------- ------ Total deposits..... $ 41,542 3.57 % $ 44,046 4.96 % $ 69,177 5.43 % ========== ===== ========== ==== ========= ======
The following table sets forth the amount of Matrix Bank's certificates of deposit that are greater than $100,000 by time remaining until maturity as of December 31, 1996:
AS OF DECEMBER 31, 1996 ------------------------------- WEIGHTED AMOUNT AVERAGE RATE PAID -------------- --------------- (DOLLARS IN THOUSANDS) Three months or less......................................... $ 1,687 5.63 % Over three months through six months......................... 1,815 5.85 Over six months through twelve months........................ 874 5.94 Over twelve months........................................... 1,081 6.21 --------- --------- Total.................................................... $ 5,457 5.86 % ========= =========
The Company actively monitors Matrix Bank's compliance with regulatory capital requirements. Historically Matrix Bank has increased it core capital through the retention of a portion of its earnings. Matrix Bank's future growth is expected to be achieved through deposit growth, borrowings from the FHLB, and custodial deposits from affiliates which 33 is anticipated to require additional capital. The capital requirements related to the anticipated growth will in part be fulfilled through retaining of earnings, increasing the Company's bank stock loan and the use of a portion of the proceeds raised from the sale of common stock which was completed in the fourth quarter of 1996. See "Regulation and Supervision--Matrix Bank's Capital Ratios." Matrix Bank and Matrix Financial are restricted from paying dividends to Matrix Capital due to restrictions of certain debt agreements and regulatory requirements. At December 31, 1996, the Company was in compliance with all debt covenants. See "Regulation and Supervision." In June 1996, the Company purchased 154 acres of land for $1.3 million in cash for the purpose of developing 750 residential and multi-family lots in Ft. Lupton, Colorado. The purchase was completed with operating funds of the Company and a loan from a third-party financial institution. As part of the acquisition, the Company entered into a Residential Facilities Development Agreement (the "Development Agreement") with the City of Ft. Lupton. The Development Agreement is a residential and planned unit development agreement providing for the orderly planning, engineering and development of a golf course and surrounding residential community. The City of Ft. Lupton is responsible for the development of the golf course and the Company is responsible for the development of the surrounding residential lots. The Development Agreement sets forth a mandatory obligation on the part of the Company to pay the City of Ft. Lupton pledged enhancement assessments of $600,000. These pledged enhancement assessments require the Company to pay the city a $2,000 fee each time the Company sells a developed residential lot. The Company is obligated to pay a minimum of $60,000 in assessment fees per year beginning in the year 1998 through the year 2007. The Company also entered into a development management agreement with a local developer to complete the development of the land. The terms of the agreement specify that the Company is to earn a preferred rate of return on its investment and, once the initial amount of its investment has been returned plus the preferred rate of return, the remaining profits are split equally. The development management agreement obligates the Company to provide up to an additional $500,000 of funds for development. The Company has no other financial obligations to the developer beyond the $500,000. It is anticipated that the Company will obtain a loan from an unaffiliated financial institution for a portion of the future development costs. The Company expects development to begin during the second quarter of 1997. INFLATION AND CHANGING PRICES The Consolidated Financial Statements and related data presented herein have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, substantially all of the assets and liabilities of the Company are monetary in nature. As a result, interest rates have a more significant impact on the Company's performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as prices of goods and services. The Company discloses the estimated fair market value of its financial instruments in accordance with Statement of Financial Accounting Standards No. 107. See Note 14 to the Consolidated Financial Statements included elsewhere herein. RECENT ACCOUNTING PRONOUNCEMENTS In June 1996, the FASB issued Statement of Financial Accounting Standards No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities ("FAS 125"). This statement provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities and is effective for the above that occur after December 31, 1996. Transactions covered by FAS 125 include securitizations, sales of partial interests in financial assets, repurchase agreements, securities lending, pledges of collateral, loan syndications and participations, sales of receivables with recourse, servicing of mortgages and other loans, and in-substance defeasances. The statement uses a "financial components" approach that focuses on control to determine the proper accounting for financial asset transfers. Under that approach, after financial assets are transferred, an entity would recognize on the balance sheet all assets it controls and liabilities it has incurred. It would remove from the balance sheet those assets it no longer controls and liabilities it has satisfied. If the entity has surrendered control over the transferred assets, the transaction would be considered a sale. Control is considered surrendered only if the assets are isolated from the transferor; the 34 transferee has the right to pledge or exchange the assets or is a qualifying special-purpose entity; and the transferor does not maintain effective control over the assets through an agreement to repurchase or redeem them. If those conditions do not exist, the transfer would be accounted for as a secured borrowing. The Company will adopt FAS 125 in the first quarter of 1997 and, based on current circumstances, does not believe the effect of adoption will be material to its consolidated financial statements. FORWARD LOOKING STATEMENTS Certain information contained in this annual report constitutes "Forward-Looking Statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which can be identified by the use of forward-looking terminology such as "may," "will," "expect," "anticipate," "estimate," or "continue" or the negative thereof or other variations thereon or comparable terminology. The statements in "Risk Factors" contained in the Company's current report on Form 8-K, filed with the Securities and Exchange Commission on March 25, 1997, constitute cautionary statements identifying important factors, including certain risks and uncertainties, with respect to such forward-looking statements that could cause actual results to differ materially from those reflected in such forward-looking statements. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See index to financial statements, beginning on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable. 35 PART III ITEMS 10 THROUGH 13. The information for these items has been omitted inasmuch as the registrant will file a definitive proxy statement with the Commission pursuant to the Regulation 14A within 120 days of the close of the fiscal year ended December 31, 1996. 36 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) (1) and (a) (2) Financial statements and financial statement schedules See "Item 8- Financial Statements and Supplementary Information." (b) Reports on Form 8-K See Form 8-K filed by the Company, dated February 20, 1997 and Form 8-K filed by the Company, dated March 25, 1997. (c) Exhibits See Exhibit Index, beginning on page 39. (d) Financial Statement Schedules None. 37 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 25th day of March, 1997. Matrix Capital Corporation By: /s/ ------------------------- Guy A. Gibson President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signatures Title Date ---------- ----- ---- /s/ President, Chief Executive March 25, 1997 - --------------------------------- Officer and a Director Guy A. Gibson (Principal Executive Officer) /s/ Chairman of the Board March 25, 1997 - --------------------------------- Richard V. Schmitz /s/ Vice Chairman of the Board March 25, 1997 - --------------------------------- D. Mark Spencer /s/ Director March 25, 1997 - --------------------------------- Thomas M. Piercy /s/ Senior Vice President and March 25, 1997 - --------------------------------- Chief Financial Officer, David W. Kloos and a Director (Principal Accounting and Financial Officer) /s/ Director March 25, 1997 - --------------------------------- Stephen Skiba /s/ Director March 25, 1997 - --------------------------------- David A. Frank
38 INDEX TO EXHIBITS 3.1 + Amended and Restated Articles of Incorporation of the Registrant (3.1) 3.2 + Bylaws, as amended, of the Registrant (3.2) 4.1 + Specimen certificate for Common Stock of the Registrant (4.1) 4.2 + o Amended and Restated 1996 Stock Option Plan (4.2) 4.3 ++o Employee Stock Purchase Plan, as amended (4.1) 4.4 + Form of Common Stock Purchase Warrant by and between the Registrant and Piper Jaffray, Inc. (4.4) 4.5 + Form of Common Stock Purchase Warrant by and between the Registrant and Keefe, Bruyette & Woods, Inc. (4.5) 10.1 + Note and Agency Agreement, dated as of August 1, 1995, by and between the Registrant and PHS Mortgage, Inc. as agent (10.1) 10.2 + First Amendment to Note and Agency Agreement, dated as of August 2, 1995, by and between the Registrant and PHS Mortgage, Inc., as agent (10.2) 10.3 + Form of 13% Senior Subordinated Note (10.3) 10.4 + o Executive Employment Agreement, dated as of January 1, 1996, by and between the Registrant and David Kloos (10.4) 10.5 + o Employment Agreement, dated as of January 1, 1995, between Matrix Capital Bank and Gary Lenzo and as amended January 1, 1996 (10.5) 10.6 + Loan Agreement, dated as of October 2, 1995, by and between Matrix Diversified, Inc. and the Registrant (10.6) 10.7 + Multiple Advance Term Loan Agreement, dated as of June 27, 1994, by and between Matrix Capital Corporation and CorTrust Bank (10.8) 10.8 + Multiple Advance Fixed Rate Term Loan Promissory Note, dated as of June 30, 1994, from Matrix Capital Corporation, as maker, to CorTrust Bank, as payee (10.9) 10.9 + Mortgage Loan Purchase and Servicing Agreement, dated as of August 1, 1993, by and between Argo Federal Savings Bank, FSB, and Matrix Financial Services Corporation (10.11) 10.10 + Mortgage Loan Repurchase Agreement, dated as of March 30, 1995, by and between PaineWebber Real Estate Securities, Inc. and Matrix Financial Services Corporation (10.27) 10.11 + Multiple Advance Fixed Rate Term Loan Promissory Note, dated as of October 19, 1994, from Matrix Capital Corporation, as maker, to CorTrust, as payee (10.29) 10.12 + Assignment and Assumption Agreement, dated as of June 28, 1996, by and among Mariano C. DeCola, William M. Howdon, R. James Nicholson and Matrix Funding Corp. (10.30) 10.13 + Development Management Agreement, dated as of June 28, 1996, by and among Fort Lupton, L.L.C. and Matrix Funding Corp. (10.31) 10.14 + Assignment and Assumption of PUD Agreement, dated as of June 28, 1996, by and among Fort Lupton, L.L.C. and Matrix Funding Corp. (10.32) 10.15 + Lease, dated as of October 1, 1995, by and between the Registrant and Matrix Financial Services Corporation (10.33) 10.16 + Promissory Note, dated as of December 31, 1995, from D. Mark Spencer, as maker, to the Registrant, as payee (10.35) 10.17 + Fort Lupton Golf course Residential and Planned Unit Development Agreement, dated as of November 28, 1995 (10.36) 10.18 + Loan Agreement, dated as of December 10, 1994, by and between the Registrant and Bankers' Bank of the West (10.37) 10.19 + Continuing Guaranty of D. Mark Spencer, dated as of December 10, 1994 (10.38) 10.20 + Continuing Guaranty of Richard V. Schmitz, dated as of December 10, 1994 (10.39) 10.21 + Continuing Guaranty of Guy A. Gibson, dated as of December 10, 1994 (10.40) 10.22 + Loan Agreement, dated as of June 21, 1996, by and between Matrix Funding Corporation and The First Security Bank (10.41) 10.23 + Loan Agreement, dated as of June 29, 1995, by and between the Registrant and Bank One, Arizona, N.A. (10.42)
39 10.24 + Promissory Note, dated as of June 29, 1995, from the Registrant to Bank One, Arizona, N.A. (10.43) 10.25 + Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing, dated as of June 29, 1995, from the Registrant to Arizona Trust Deed Corporation, as trustee (10.44) 10.26 + Loan Agreement, dated July 10, 1992, by and between American Strategic Income Portfolio Inc. and Matrix Financial Services Corporation (10.45) 10.27 + Promissory Note, dated as of July 10, 1992, by Matrix Financial Services Corporation, as maker, to American Strategic Income Portfolio, Inc., as payee (10.46) 10.28 +++ Agreement and Plan of Merger, dated as of November 22, 1996, by and among the Registrant, The Vintage Group, Inc. and Matrix/Vintage Acquisition, Inc. (10.1) 10.29 +++ Asset Purchase and Exchange Agreement, dated as of February 4, 1997, by and among the Registrant and STC Holdings, Inc. (10.2) 10.30 * Lease, dated as of October 1, 1996, by and between the Registrant and Creative Networks, LLC 10.31 * Revolving Subordinated Loan Agreement, dated as of October 18, 1996, by and between Matrix Financial Services Corporation and the Registrant 10.32 * Amended and Restated Loan Agreement, dated as of January 31, 1997, by and between Matrix Financial Services Corporation, as borrower, and Bank One, Texas, N.A., as agent, and certain lenders, as lenders 10.33 * Amended and Restated Warehouse Note, dated as of January 31, 1997, from Matrix Financial Services Corporation, as borrower, and Bank One, Texas, N.A., as lender 10.34 * Amended and Restated Swing Note, dated as of January 31, 1997, from Matrix Financial Services Corporation, as borrower, and Bank One, Texas, N.A., as lender 10.35 * Amended and Restated Working-Capital Note, dated as of January 31, 1997, from Matrix Financial Services Corporation, as borrower, and Bank One, Texas, N.A., as lender 10.36 * Amended and Restated Term-Line Note, dated as of January 31, 1997, from Matrix Financial Services Corporation, as borrower, and Bank One, Texas, N.A., as lender 10.37 * Amended and Restated Guaranty, dated as of January 31, 1997, from the Registrant to Bank One, Texas, N.A. 10.38 * o Employment Agreement, dated as of February 4, 1997, by and between the Registrant and Paul Skretny 10.39 * Credit Agreement, dated as of March 12, 1997, by and between Matrix Capital Corporation, as borrower, and Bank One, Texas, N.A., as agent, and certain lenders, as lenders 10.40 * Term Note, dated as of March 12, 1997, from Matrix Capital Corporation, as borrower, and Bank One, Texas, N.A., as lender 10.41 * Revolving Note, dated as of March 12, 1997, from Matrix Capital Corporation, as borrower, and Bank One, Texas, N.A., as lender 10.42 * Guaranty Form, dated as of March 12, 1997, from each of the Registrant's significant subsidiaries to Bank One, Texas, N.A.,as agent 11 * Statement regarding computation of per share earnings 21 * Subsidiaries of the Registrant 27 * Financial Data Schedule
- ------------------------ * Filed herewith + Incorporated by reference from the exhibit number shown in parenthesis from the Registrant's registration statement on Form S-1 (No. 333- 10223), filed by the Registrant with the Commission. 40 ++ Incorporated by reference from the exhibit number shown in parenthesis form the Registrant's quarterly report on Form 10-Q for the quarter ended September 30, 1996, filed by the Registrant with the Commission. +++ Incorporated by reference from the exhibit number shown in parenthesis form the Registrant's current report on Form 8-K, filed with the Commission on February 20, 1997. o Management contract or compensatory plan or arrangement 41 INDEX TO FINANCIAL STATEMENTS Consolidated Financial Statements of Matrix Capital Corporation PAGE ---- Report of Independent Auditors.......................................... F-2 Consolidated Balance Sheets - December 31, 1995 and 1996................ F-3 Consolidated Statements of Income - for the years ended December 31, 1994, 1995 and 1996 ................................ F-4 Consolidated Statements of Shareholders' Equity - for the years ended December 31, 1994, 1995 and 1996................................. F-5 Consolidated Statements of Cash Flows - for the years ended December 31, 1994, 1995 and 1996................................. F-6 Notes to Consolidated Financial Statements - December 31, 1996.......... F-7 F-1 Report of Independent Auditors Shareholders and Board of Directors Matrix Capital Corporation We have audited the accompanying consolidated balance sheets of Matrix Capital Corporation (Company) as of December 31, 1995 and 1996, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 1995 and 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. As discussed in Note 2 to the consolidated financial statements, in 1995 the Company changed its method of accounting for mortgage servicing rights as a result of adopting Statement of Financial Accounting Standards No. 122, Accounting for Mortgage Servicing Rights. /s/ Ernst & Young LLP Phoenix, Arizona March 6, 1997 F-2 Matrix Capital Corporation Consolidated Balance Sheets (Dollars In thousands)
DECEMBER 31 1995 1996 --------------------- ASSETS Cash $ 1,381 $ 2,319 Interest earning deposits 5,586 9,499 Loans held for sale, net 127,090 182,801 Loans held for investment, net 19,575 29,560 Mortgage servicing rights, net 13,817 23,680 Other receivables 5,609 9,353 Federal Home Loan Bank of Dallas stock 1,954 2,871 Premises and equipment, net 5,904 7,279 Deferred income tax benefit - 54 Other assets 3,816 5,447 --------------------- Total assets $184,732 $272,863 ===================== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Deposits $ 48,877 $ 90,179 Custodial escrow balances 27,011 37,881 Drafts payable 8,817 5,961 Payable for purchase of mortgage servicing rights 1,312 8,044 Federal Home Loan Bank of Dallas borrowings 19,000 51,250 Borrowed money 65,093 42,431 Other liabilities 4,409 5,292 Income taxes payable 875 1,023 --------------------- Total liabilities 175,394 242,061 Commitments and contingencies Shareholders' equity: Preferred stock, par value $.0001; authorized 5,000,000 shares; no shares outstanding Common stock, par value $.0001; authorized 50,000,000 shares; issued and outstanding 3,888,939 and 5,901,439 shares at December 31, 1995 and 1996, respectively - 1 Additional paid in capital 2,626 20,816 Retained earnings 6,712 9,985 --------------------- Total shareholders' equity 9,338 30,802 --------------------- Total liabilities and shareholders' equity $184,732 $272,863 =====================
See accompanying notes. F-3 Matrix Capital Corporation Consolidated Statements of Income (Dollars In thousands except per share information)
YEAR ENDED DECEMBER 31 1994 1995 1996 ---------------------------------- INTEREST INCOME Loans and mortgage backed securities $ 6,681 $ 10,412 $ 16,084 Interest earning deposits 334 318 408 ---------------------------------- Total interest income 7,015 10,730 16,492 INTEREST EXPENSE Savings and time deposits 1,210 1,892 3,292 Demand and money market deposits 271 292 468 FHLB borrowings 213 1,113 2,039 Borrowed money 1,332 3,897 4,691 ---------------------------------- Total interest expense 3,026 7,194 10,490 ---------------------------------- Net interest income before provision for loan and valuation losses 3,989 3,536 6,002 Provision for loan and valuation losses 216 401 143 ---------------------------------- Net interest income 3,773 3,135 5,859 NONINTEREST INCOME Loan administration 6,926 7,749 8,827 Brokerage 4,017 4,787 4,364 Gain on sale of loans and mortgage backed securities 1,590 3,272 3,369 Gain on sale of mortgage servicing rights 684 1,164 3,232 Loan origination 1,294 2,069 1,561 Other 487 781 1,118 ---------------------------------- Total noninterest income 14,998 19,822 22,471 NONINTEREST EXPENSES Compensation and employee benefits 7,719 8,586 10,604 Amortization of mortgage servicing rights 1,185 1,817 2,432 Occupancy and equipment 1,067 1,124 1,415 Professional fees 485 660 468 Data processing 492 529 604 Losses related to recourse sales - - 787 Federal Deposit Insurance Corporation premiums 176 155 635 Other general and administrative 3,155 4,265 6,006 ---------------------------------- Total noninterest expense 14,279 17,136 22,951 ---------------------------------- Income before income taxes 4,492 5,821 5,379 Provision for income taxes 1,846 2,260 2,106 ---------------------------------- Net income $ 2,646 $ 3,561 $ 3,273 ================================== Net income per common and common equivalent share $.71 $.91 $.76 ================================== Weighted average common and common equivalent shares 3,750,001 3,927,629 4,297,448 ================================== See accompanying notes.
F-4 Matrix Capital Corporation Consolidated Statements of Shareholders' Equity (Dollars In thousands)
COMMON STOCK ADDITIONAL -------------------- PAID IN RETAINED SHARES AMOUNT CAPITAL EARNINGS TOTAL --------------------------------------------------- Balance at December 31, 1993 3,750,001 $ - $ 2,525 $ 505 $ 3,030 Net income - - - 2,646 2,646 --------------------------------------------------- Balance at December 31, 1994 3,750,001 - 2,525 3,151 5,676 Issuance of stock for services 138,938 - 101 - 101 Net income - - - 3,561 3,561 --------------------------------------------------- Balance at December 31, 1995 3,888,939 - 2,626 6,712 9,338 Issuance of stock, net of issuance costs of $1,934 2,012,500 1 18,190 - 18,191 Net income - - - 3,273 3,273 --------------------------------------------------- Balance at December 31, 1996 5,901,439 $ 1 $20,816 $9,985 $30,802 ===================================================
See accompanying notes. F-5 Matrix Capital Corporation Consolidated Statements of Cash Flows (Dollars In thousands)
YEAR ENDED DECEMBER 31 1994 1995 1996 ---------------------------------- OPERATING ACTIVITIES Net income $ 2,646 $ 3,561 $ 3,273 Adjustments to reconcile net income to net cash used by operating activities: Depreciation and amortization 414 743 893 Provision for loan losses 216 401 143 Amortization of mortgage servicing rights 1,185 1,817 2,432 Noncash compensation expense - 101 - Accretion of premium on deposits (68) (28) (7) Deferred income taxes 286 212 (54) Gain on sale of loans and mortgage backed securities (1,590) (3,272) (3,369) Gain on sale of mortgage servicing rights (684) (1,164) (3,232) Losses related to recourse sales - - 787 Loans originated for sale, net of loans sold (4,681) (38,591) 8,099 Loans purchased for sale (80,048) (91,774) (159,015) Proceeds from sale of loans purchased for sale 62,727 70,159 57,395 Gain on sale of premises and equipment - - (78) Originated mortgage servicing rights, net - (885) (441) Increase in other receivables and other assets (2,116) (3,685) (750) Increase in other liabilities and income taxes payable 684 307 (2,315) ---------------------------------- Net cash used by operating activities (21,029) (62,098) (96,239) INVESTING ACTIVITIES Loans originated and purchased for investment (423) (2,919) (15,048) Principal repayments on loans 10,962 17,517 22,982 Purchase of Federal Home Loan Bank of Dallas stock (536) (814) (917) Purchases of premises and equipment (1,804) (1,910) (2,181) Purchase of land under development - - (1,431) Purchase of revenue anticipation warrants - - (818) Purchase of residential homes - - (1,003) Acquisition of mortgage servicing rights (3,920) (9,654) (10,410) Proceeds from sale of mortgage servicing rights 677 1,769 8,410 Proceeds from sale of available for sale securities - - 21,548 ---------------------------------- Net cash provided by investing activities 4,956 3,989 21,132 FINANCING ACTIVITIES Net increase (decrease) in deposits (3,539) 6,995 41,309 Net increase (decrease) in custodial escrow balances (7,107) 2,324 10,870 Increase in revolving lines and repurchase agreements, net 20,409 39,384 17,151 Repayments of notes payable (605) (3,865) (13,923) Proceeds from notes payable 2,893 12,933 6,924 Proceeds from senior subordinated notes - 2,910 - Repayment of financing arrangements (639) (307) (564) Proceeds from issuance of common stock - - 18,191 ---------------------------------- Net cash provided by financing activities 11,412 60,374 79,958 ---------------------------------- Increase (decrease) in cash and cash equivalents (4,661) 2,265 4,851 Cash and cash equivalents at beginning of year 9,363 4,702 6,967 ---------------------------------- Cash and cash equivalents at end of year $ 4,702 $ 6,967 $ 11,818 ================================== SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITY Payable for purchase of mortgage servicing rights $ 1,763 $ 1,312 $ 8,044 ================================== Drafts payable $ - $ 8,817 $ 5,961 ================================== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest expense $ 2,949 $ 6,489 $ 10,598 ================================== Cash paid for income taxes $ 1,702 $ 1,530 $ 2,016 ==================================
See accompanying notes. F-6 Matrix Capital Corporation Notes to Consolidated Financial Statements December 31, 1996 1. ORGANIZATION On June 30, 1993, Matrix Capital Corporation (Company) was formed and exchanged 1,000,000 shares of its common stock for 100 percent of the common stock of United Financial, Inc. (United Financial), Matrix Financial Services Corporation (Matrix Financial) and another company with minimal assets or operations. The merger was accounted for as a pooling of interests and, accordingly, the 1993 consolidated financial statements were restated to include the accounts and operations of the companies prior to the merger. On October 18, 1996, the Company completed its initial public offering by selling 1,750,000 shares of common stock at a price of $10.00 per share. On November 18, 1996, the underwriters exercised their option to purchase an additional 262,500 shares of the Company's common stock (over-allotment) at the initial public offering price of $10.00. The net proceeds received in the offering were approximately $18.2 million. On September 23, 1993 the Company acquired Dona Ana Savings Bank, FSB (changed its name to Matrix Capital Bank, herein referred to as Matrix Bank), a federally chartered savings and loan association. Upon the acquisition of Matrix Bank, the Company became a unitary savings and loan holding company which, through its subsidiaries, is engaged in a single industry segment, the financial services industries. The Company's mortgage banking business is conducted through Matrix Financial, and was established with the primary objective of acquiring, originating and servicing residential mortgage loan servicing rights. Servicing mortgage loans involves the contractual right to receive a fee for processing and administering mortgage loan payments. The Company acquires servicing rights in the secondary market as well as through Matrix FinancialOs wholesale loan origination offices in the Atlanta, Denver, and Phoenix metropolitan areas, and through Matrix Bank with offices in Las Cruces, New Mexico and Sun City, Arizona. In June 1996, Matrix Financial formed an operating subsidiary, Matrix Funding Corp., which purchased 154 acres of land for $1.3 million in cash for the purpose of developing residential and multi-family lots in Ft. Lupton, Colorado. Matrix Bank serves its local community by providing a full range of personal and business depository services, offering residential and consumer loans, and providing, on a limited basis, commercial real estate loans. Matrix Bank's participation in the mortgage banking business includes the purchase of bulk residential loan portfolios, with the intent of reselling the majority of the loans, and extends to acquisitions of servicing portfolios, which are in turn subserviced by Matrix Financial. F-7 Matrix Capital Corporation Notes to Consolidated Financial Statements (continued) 1. ORGANIZATION (CONTINUED) In May 1996, Matrix Bank formed an operating subsidiary, Sterling Finance Co., Inc. (Sterling Finance), which acquired substantially all the assets of an origination and seller of subprime automobile retail installment sales contracts for approximately $47,000 in cash. The assets acquired (fixed assets and prepaid expenses) were purchased at their estimated fair value and no goodwill was recorded. On December 31, 1996, Matrix Bank sold the fixed assets and the name of Sterling Finance to a third party buyer and ceased its subprime auto lending operations. United Financial provides brokerage and consulting services to financial institutions and financial services companies in the mortgage banking industry, primarily related to the brokerage and analysis of residential mortgage loan servicing rights, corporate and mortgage loan servicing portfolio valuations, and, to a lesser extent, consultation and brokerage services in connection with mergers and acquisitions of mortgage banking entities. United Special Services, Inc. (USS), a wholly owned subsidiary of the Company formed in June 1995, provides real estate management and disposition services to financial services companies and financial institutions, including Matrix Financial and Matrix Bank. United Capital Markets (UCM), a wholly owned subsidiary of the Company formed in December 1996, focuses on risk management services for institutional clients. 2. SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies of the Company and its subsidiaries conform to generally accepted accounting principles and to general practices within the financial services industry. The following is a description of the more significant policies which the Company follows in preparing and presenting its consolidated financial statements. Basis of Presentation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Actual results could differ from these estimates. F-8 Matrix Capital Corporation Notes to Consolidated Financial Statements (continued) 2. ACCOUNTING POLICIES (CONTINUED) Loans Held for Sale Loans originated or purchased with the intent for sale in the secondary market are carried at the lower of cost, net of discounts or premiums, or estimated market value in the aggregate. Market value is determined using forward sale commitments to permanent investors or current market rates for loans of similar quality and type. Net unrealized losses, if any, would be recognized in a valuation allowance by charges to income. Discounts or premiums on loans held for sale are not accreted or amortized into income on an interest method, however discounts and premiums related to payments of loan principal are recorded in interest income. The loans are primarily secured by one to four family residential real estate located throughout the United States. Gains and losses on loan sales are recognized at the time of sale. Gains and losses are calculated based upon the total consideration received, after provisions to cover estimated future servicing costs and recourse provisions. Losses related to recourse provisions in excess of the amount originally provided are accrued as a liability at the time such additional losses are determined, and recorded as part of noninterest expense. Loans Held for Investment Loans held for investment are stated at unpaid principal balances (since it is the Company's intention to hold the loans until maturity), less unearned discounts and premiums, deferred loan fees, loans in process, and allowance for loan losses. Premiums, discounts and net origination fees on loans are amortized to interest income over the contractual life of the related loans using the interest method. Allowance for Loan Losses In January 1995, the Company adopted Statement of Financial Accounting Standards No. 114, Accounting by Creditors for Impairment of a Loan, amended in October 1994 by Statement No. 118, Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures, hereinafter collectively referred to as Statement No. 114. Under Statement No. 114, a loan is considered impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan. Statement No. 114 applies to all loans except large groups of smaller- balance homogeneous loans, which are collectively evaluated, loans measured at fair value or at the lower of cost or fair value, leases and debt securities. The statement does not address the overall adequacy of the allowance for loan losses. F-9 Matrix Capital Corporation Notes to Consolidated Financial Statements (continued) 2. ACCOUNTING POLICIES (CONTINUED) Potential impaired loans of the Company, as defined by Statement No. 114, include only commercial, real estate construction and commercial real estate mortgage loans classified as nonperforming loans. Impairment allowances are considered by the Company in determining the overall adequacy of the allowance for loan losses. The adoption of Statement No. 114 resulted in no material change in the allowance for loan losses. When a loan is identified as "impaired," accrual of interest ceases. The Company had no impaired loans, as defined by Statement No. 114, as of or for the years ended December 31, 1995 and 1996, respectively. The Company evaluates its mortgage loans collectively due to their homogeneous nature. The allowance for loan losses is calculated, in part, based on historical loss experience. In addition, management takes into consideration other factors such as any qualitative evaluations of individual classified assets, geographic and portfolio concentrations, new products or markets, evaluations of the changes in the historical loss experience component, and projections of this component into the current and future periods based on current knowledge and conditions. After an allowance has been established for the loan portfolio, management establishes an unallocated portion of the allowance for loan losses, which is attributable to factors that cannot be associated with a specific loan or loan portfolio. These factors include general economic conditions, recognition of specific regional geographic concerns, and trends in portfolio growth. Loan losses are charged against the allowance when the probability of collection is considered remote. In the opinion of management, the allowance, when taken as a whole, is adequate to absorb reasonably foreseeable losses in the current loan portfolio. Loans are placed on nonaccrual status when full payment of principal or interest is in doubt, or generally when they are past due ninety days as to either principal or interest. Previously accrued but unpaid interest is reversed and charged against interest income and future accruals are discontinued. Interest payments received on nonaccrual loans are recorded as interest income unless there is doubt as to the collectibility of the recorded investment. In those cases, cash received is recorded as a reduction in principal. Premises and Equipment Premises and equipment are carried at cost less accumulated depreciation. Depreciation is computed using the straight line method over the estimated lives of the assets, which range from three to seven years for office furniture, equipment and software and 30 years for buildings. F-10 Matrix Capital Corporation Notes to Consolidated Financial Statements (continued) 2. ACCOUNTING POLICIES (CONTINUED) Mortgage Servicing Rights (MSR) On January 1, 1995, the Company adopted Statement No. 122, Accounting for Mortgage Servicing Rights. Since Statement No. 122 prohibits retroactive application, the historical accounting results for 1994 have not been restated, and accordingly, the accounting results for 1995 and 1996 are not directly comparable to the results for prior periods. With the adoption of this statement, the Company recognizes originated mortgage servicing rights (OMSRs) as an asset separate from the underlying originated mortgage loan by allocating the total cost of originating a mortgage loan between the loan and the servicing right based on their respective fair values. Mortgage servicing rights are carried at the lower of cost (allocated cost for OMSRs), less accumulated amortization, or fair value. Mortgage servicing rights are amortized in proportion to and over the period of the estimated future net servicing income. The fair value of mortgage servicing rights is determined based on the discounted future servicing income stratified based on one or more predominant risk characteristics of the underlying loans. The Company stratifies its mortgage servicing rights by product type and investor to reflect the predominant risk characteristics. To determine the fair value of mortgage servicing rights, the Company uses a valuation model that calculates the present value of future cash flows to determine the fair value of the mortgage servicing rights. In using this valuation method, the Company incorporates assumptions that market participants would use in estimating future net servicing income which includes estimates of the cost of servicing per loan, the discount rate, float value, an inflation rate, ancillary income per loan, prepayment speeds and default rates. As of December 31, 1996, no valuation allowance was required and the fair value of the aggregate mortgage servicing rights was approximately $29,900,000. Gain on Sale of Servicing Rights The Company complies with EITF Issue No. 95-5, Determination of What Constitutes a Sale of Mortgage Loan Servicing Rights, such that the gain on sale of servicing rights is recognized when substantially all the risks and rewards inherent in owning the mortgage servicing rights have been transferred to the buyer, and any protection provisions retained by the Company are minor and can be reasonably estimated. Drafts Payable Drafts payable represent the in transit outstanding funding of a new loan by the Company via a negotiable instrument, however, the instrument has not yet been presented to the bank for payment. Presentation to the bank generally occurs within one to three days. F-11 Matrix Capital Corporation Notes to Consolidated Financial Statements (continued) 2. ACCOUNTING POLICIES (CONTINUED) Loan Administration Income Loan administration income represents service fees and other income earned from servicing loans for various investors. Loan administration income includes service fees that are based on a contractual percentage of the outstanding principal balance plus late fees and other ancillary charges. Income is recognized when the related payments are received. Brokerage Income Brokerage income represents fees earned related to brokerage and consulting services. Brokerage income is recognized when earned. Loan Origination Income Loan origination income for loans originated for sale, which includes all mortgage origination fees, secondary marketing activity and servicing-released premiums on mortgage loans sold, net of outside origination costs, is recognized as income at the time the loan is sold. Loan origination income for loans originated for investment, which includes mortgage origination fees and certain direct costs associated with loan originations, is deferred and amortized as a yield adjustment over the contractual life of the related loan using the interest method, adjusted for estimated prepayments. Stock Based Compensation The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. In October 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, which provides an alternative to APB Opinion No. 25, Accounting for Stock Issued to Employees, in accounting for stock-based compensation issued to employees. Statement No. 123 allows for a fair value based method of accounting for employee stock options and similar equity instruments awarded after December 31, 1995. The Company has elected to account for stock-based compensation plans in accordance with APB Opinion No. 25 and to follow the pro forma net income, pro forma earnings per share, and stock-based compensation plan disclosure requirements set forth in Statement No. 123. F-12 Matrix Capital Corporation Notes to Consolidated Financial Statements (continued) 2. ACCOUNTING POLICIES (CONTINUED) Foreclosed Real Estate Real estate acquired through foreclosure, deed in lieu of foreclosure or in judgment is carried at the lower of fair value, minus estimated costs to sell, or the related loan balance at the date of foreclosure. Valuations are periodically performed by management and an allowance for loss is established by a charge to operations if the carrying value of a property exceeds its fair value, minus estimated costs to sell. The net carrying value of foreclosed real estate, which is classified in other assets, was $835,000 and $788,000 at December 31, 1995 and 1996, respectively. Acquired Real Estate Costs directly attributable to the acquisition, development, and construction of land development are capitalized. Such costs include preacquisition costs, direct project costs, and holding costs. The investment in land development is carried at the lower of cost, which includes capitalized costs, or net realizable value. Net unrealized losses, if any, would be recognized in a valuation allowance. As of December 31, 1996 there was no valuation allowance necessary for the land development. Income Taxes The Company and its subsidiaries file consolidated federal and state income tax returns. The subsidiaries are charged for the taxes applicable to their profits calculated on the basis of filing separate income tax returns. Matrix Bank qualifies as a savings and loan association for income tax purposes. The Company follows Statement No. 109, Accounting for Income Taxes, which uses the liability method in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Fair Value of Financial Instruments In 1995, the Company adopted Statement No. 107, Disclosures about Fair Value of Financial Instruments, which requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, where it is practicable to estimate their value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, F-13 Matrix Capital Corporation Notes to Consolidated Financial Statements (continued) 2. ACCOUNTING POLICIES (CONTINUED) the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. Statement No. 107 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. For additional information refer to Note 14 - Financial Instruments. Cash and Cash Equivalents Cash equivalents, for purposes of the statements of cash flows, consist of cash and interest earning deposits with banks with original maturities when purchased of three months or less. Net Income Per Share Net income per common and common equivalent share are computed based on the weighted average number of common shares outstanding during each period and the dilutive effect, if any, of stock options outstanding. Impact of Recently Issued Accounting Standards In June 1996, the FASB issued Statement No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. This statement provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities and is effective for periods beginning after December 31, 1996. Transactions covered by Statement No. 125 include securitizations, sales of partial interests in financial assets, repurchase agreements, securities lending, pledges of collateral, loan syndications and participations, sales of receivables with recourse, servicing of mortgages and other loans, and in-substance defeasances. The statement uses a "financial components" approach that focuses on control to determine the proper accounting for financial asset transfers. Under that approach, after financial assets are transferred, an entity would recognize on the balance sheet all assets it controls and liabilities it has incurred. It would remove from the balance sheet those assets it no longer controls and liabilities it has satisfied. If the entity has surrendered control over the transferred assets, the transaction would be considered a sale. Control is considered surrendered only if the assets are isolated from the transferor; the transferee has the right to pledge or exchange the assets or is a qualifying special-purpose entity; and the transferor does not maintain effective control over the assets through an agreement to repurchase or redeem them. If those conditions do not exist, the transfer would be accounted for as a secured borrowing. F-14 Matrix Capital Corporation Notes to Consolidated Financial Statements (continued) 2. ACCOUNTING POLICIES (CONTINUED) The Company will adopt Statement No. 125 in the first quarter of 1997 and, based on current circumstances, does not believe the effect of adoption will be material to its consolidated financial statements. Reclassifications Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation. 3. LOANS RECEIVABLE Loans Held for Investment Loans held for investment consist of the following:
DECEMBER 31 1995 1996 --------------------- (In thousands) Residential loans $ 9,349 $16,625 Multi-family and commercial real estate 7,544 8,734 Construction loans 577 1,319 Consumer loans and other 3,381 3,704 --------------------- 20,851 30,382 Less: Loans in process 499 254 Purchase discounts, net 414 239 Unearned discounts on consumer loans 14 9 Allowance for loan losses 227 270 Specific valuation allowance on purchased loans 122 50 --------------------- 1,276 822 --------------------- $19,575 $29,560 ===================== Activity in the allowance for loan losses is summarized as follows: YEAR ENDED DECEMBER 31 1994 1995 1996 ------------------------------ (In thousands) Balance at beginning of year $ 196 $ 220 $ 227 Provision for loan losses 24 - 34 Charge-offs - (42) (6) Recoveries - 49 15 ------------------------------ Balance at end of year $ 220 $ 227 $ 270 ==============================
F-15 Matrix Capital Corporation Notes to Consolidated Financial Statements (continued) 3. LOANS RECEIVABLE (CONTINUED) Nonaccrual loans in the loans held for investment portfolio totaled approximately $440,000 and $335,000 or 2.1 percent and 1.1 percent of the total loans held for investment portfolio at December 31, 1995 and 1996, respectively. Matrix Bank at December 31, 1996 had commitments to extend credit on consumer and construction loans of approximately $3,885,000. Loans Held for Sale Loans held for sale consist of the following as of December 31:
1995 1996 --------------------- (In thousands) First mortgage loans $133,622 $185,080 Automobile installment contracts - 1,315 --------------------- 133,622 186,395 Less: Purchase discounts, net 5,816 2,825 Valuation allowance 716 769 --------------------- 6,532 3,594 --------------------- $127,090 $182,801 ===================== Activity in the valuation allowance is summarized as follows: YEAR ENDED DECEMBER 31 1994 1995 1996 ------------------------------- (In thousands) Balance at beginning of year $ 342 $ 508 $ 716 Provision for valuation allowance 192 401 109 Charge-offs (26) (198) (64) Recoveries - 5 8 ------------------------------- Balance at end of year $ 508 $ 716 $ 769 ===============================
F-16 Matrix Capital Corporation Notes to Consolidated Financial Statements (continued) 3. LOANS RECEIVABLE (CONTINUED) Nonaccrual loans related to the loans held for sale portfolio aggregated approximately $5,098,000 and $3,568,000 at December 31, 1995 and 1996, respectively. Approximately $1,123,000 and $722,000 at December 31, 1995 and 1996, respectively, of the nonaccrual loans relate to a 90 percent senior participation interest acquired by the Company in a $22,000,000 passthrough certificate, with an outstanding balance of $5,115,000 at December 31, 1996, secured by single family residential real estate mortgages which are classified as loans held for sale. Losses incurred related to loans underlying the passthrough certificate are first charged to the subordinate participation interest, which was approximately $1.8 million at December 31, 1996. Interest income that would have been recorded for all nonaccrual loans was approximately $140,000, $156,000, and $120,000 during the years ended December 31, 1994, 1995, and 1996, respectively. During 1996, the Bank formed two mortgage backed securities with an unpaid principal balance of approximately $21,000,000 from its loans held for sale portfolio. During the year ended December 31, 1996, the Company recognized a gross gain on the sale of mortgage backed securities of approximately $171,000 and the taxes related to this sale were approximately $68,000. On December 31, 1996, Matrix Bank sold the fixed assets and the right to the name of Sterling Finance to a third party buyer and ceased its subprime auto lending operations. During the time that Matrix Bank owned Sterling Finance, it purchased numerous automobile retail installment contracts and sold approximately $18,500,000 of such contracts, subject to certain recourse provisions. During 1996, Sterling Finance was required to repurchase approximately $2,500,000 of automobile installment contracts and repossessed automobiles pursuant to the recourse provisions. Included in loans held for sale at December 31, 1996 is approximately $1,220,000, net of discount, of these automobile installment contracts. Matrix Bank had a recourse liability recorded of approximately $600,000 at December 31, 1996 for the potential loss exposure related to these automobile installment contracts and repossessed automobiles. Matrix Bank has received a signed letter from the purchaser of the automobile retail installment contracts that no additional repurchases will be required, except with respect to certain terms and conditions in the purchase and sale agreement, which are primarily limited to fraudulent misrepresentations by the borrowers under the contracts. No instances of significant fraudulent misrepresentations have been identified to date and it is the opinion of the Company's management that there are no material repurchase obligations remaining under the purchase and sale agreement. Additionally, in other assets is approximately $500,000 in repossessed automobiles which represents the estimated fair value of the automobiles, less estimated costs to sell. F-17 Matrix Capital Corporation Notes to Consolidated Financial Statements (continued) 4. PREMISES AND EQUIPMENT Premises and equipment consist of the following:
DECEMBER 31 1994 1995 1996 ---------------------- (In thousands) Land $ 417 $ 532 $ 692 Buildings 3,068 3,761 4,257 Leasehold improvements 118 127 248 Office furniture and equipment 1,407 1,721 2,863 Other equipment 186 960 975 ---------------------- 5,196 7,101 9,035 Less: accumulated depreciation and amortization 738 1,197 1,756 ---------------------- $4,458 $5,904 $7,279 ======================
Included in occupancy and equipment expense is depreciation and amortization expense of premises and equipment of approximately $414,000, $467,000, and $659,000 for the years ended December 31, 1994, 1995 and 1996, respectively. 5. MORTGAGE SERVICING RIGHTS The activity in the MSRs is summarized as follows:
YEAR ENDED DECEMBER 31 1994 1995 1996 --------------------------------- (In thousands) Balance at beginning of year $ 1,818 $ 6,183 $13,817 Purchases 5,550 9,203 17,142 Originated, net of OMSRs sold - 885 441 Amortization (1,185) (1,817) (2,432) Transfer of MSR to FHLMC (Note 12) - - (110) Sales - (637) (5,178) --------------------------------- Balance at end of year $ 6,183 $13,817 $23,680 =================================
Accumulated amortization of mortgage servicing rights aggregated approximately $9,495,000 and $11,347,000 at December 31, 1995 and 1996, respectively. F-18 Matrix Capital Corporation Notes to Consolidated Financial Statements (continued) 5. MORTGAGE SERVICING RIGHTS (CONTINUED) The Company's servicing activity is diversified throughout 48 states with concentrations at December 31, 1996 in California, New York and Texas of approximately 27.2 percent, 8.6 percent and 16.4 percent, respectively, based on aggregate outstanding unpaid principal balances of the mortgage loans serviced. As of December 31, 1995 and 1996, the Company subserviced loans for others of approximately $85,000,000 and $140,000,000, respectively. The Company's servicing portfolio (excluding subserviced loans) comprised the following:
DECEMBER 31, 1995 1996 -------------------------------------------------- PRINCIPAL NUMBER BALANCE NUMBER PRINCIPAL BALANCE OF LOANS OUTSTANDING OF LOANS OUTSTANDING -------------------------------------------------- (Dollars In thousands) FHLMC 9,453 $ 671,966 12,107 $ 666,218 FNMA 7,820 483,947 13,426 764,632 GNMA 271 12,883 9,379 278,700 Other VA, FHA, and conventional loans 7,414 427,589 12,870 795,486 ------------------------------------------------ 24,958 $1,596,385 47,782 $2,505,036 ================================================
The Company's custodial escrow balances shown in the accompanying consolidated balance sheets pertain to escrowed payments of taxes and insurance and the float on principal and interest payments on loans serviced on behalf of others and owned by the Company, aggregating approximately $26,769,000 and $27,381,000 at December 31, 1995 and 1996, respectively. The Company also has custodial accounts on deposit from other mortgage companies aggregating approximately $242,000 and $10,500,000 at December 31, 1995 and 1996, respectively. The Companies custodial accounts are maintained at Matrix Bank in noninterest bearing accounts. The balance of the custodial accounts fluctuate from month to month based on the pass-through of the principal and interest payments to the ultimate investors and the timing of the taxes and insurance payments. The mortgage servicing portfolio includes recourse servicing equal to approximately 0.7 and 0.4 percent of the total owned at December 31, 1995 and 1996, respectively. A reserve for losses is recorded, as appropriate, for loans serviced for others, in which the investor has recourse to the Company, which had a balance of approximately $52,000, $49,000 and $61,000 at December 31, 1994 and 1995 and 1996, respectively. Additionally, in certain circumstances the Company is required to make advances for escrow and foreclosure costs for loans which it services. The Company experienced losses for unrecoverable advances of approximately $34,000, $144,000, and $28,000 for the years ended December 31, 1994, 1995 and 1996, respectively. F-19 Matrix Capital Corporation Notes to Consolidated Financial Statements (continued) 6. DEPOSITS Deposit account balances are summarized as follows:
DECEMBER 31 ---------------------------------------------------------- 1995 1996 ---------------------------------------------------------- (Dollars In thousands) WEIGHTED WEIGHTED AVERAGE AVERAGE AMOUNT PERCENT RATE AMOUNT PERCENT RATE ---------------------------------------------------------- Passbook accounts $ 2,358 4.82% 3.40% $ 2,757 3.06% 3.45% NOW accounts 3,832 7.84 1.49 4,732 5.25 1.66 Money market accounts 6,167 12.62 4.38 9,455 10.48 4.43 ------- ------ ---- ------- ------ ---- 12,357 25.28 3.18 16,944 18.79 3.59 Certificate accounts 36,513 74.72 5.97 73,235 81.21 5.85 ------- ------ ---- ------- ------ ---- 48,870 100.00% 90,179 100.00% ====== ====== Purchase premium 7 - ------- ------- $48,877 $90,179 ======= ======= Weighted-average interest rate 5.23% 5.36% ==== ====
Contractual maturities of certificate accounts as of December 31, 1996:
Under 12 12 to 36 36 to 60 months months months ------------------------------------------ (In thousands) 3.00-3.99% $ 104 $ - $ - 4.00-4.99% 807 - - 5.00-5.99% 43,211 5,663 318 6.00-6.99% 8,078 8,737 3,211 7.00-7.99% 2,409 258 395 8.00-10.50% - 41 3 ------------------------------------------ $54,609 $ 14,699 $ 3,927 ==========================================
F-20 Matrix Capital Corporation Notes to Consolidated Financial Statements (continued) 6. DEPOSITS (CONTINUED) Interest expense on deposits is summarized as follows:
YEAR ENDED DECEMBER 31 1994 1995 1996 ------------------------------- (In thousands) Passbook accounts $ 72 $ 85 $ 82 NOW accounts 76 52 63 Money market 195 240 405 Certificates of deposit 1,138 1,807 3,210 ------------------------------- $1,481 $2,184 $3,760 ===============================
The aggregate amount of deposit accounts with a balance greater than $100,000 was approximately $2,066,000 and $5,457,000 at December 31, 1995 and 1996 respectively. F-21 Matrix Capital Corporation Notes to Consolidated Financial Statements (continued) 7. BORROWED MONEY Borrowed money is summarized as follows:
DECEMBER 31 1995 1996 ---------------------- (In thousands) Term Notes Payable Note payable to a third-party financial institution due in annual principal installments of $286,101, plus interest, through 2003, collateralized by the common stock of Matrix Bank; interest at prime plus 1.0 percent. $ 2,289 $2,003 Notes payable to a third-party financial institution due in 28 consecutive quarterly installments, secured by MSRs; interest at prime plus 2.0 percent and fixed at 10 percent. 631 521 Note payable to a bank, secured by a deed of trust on real estate, unpaid principal balance plus interest due June 1998; interest at prime plus 1.0 percent. 921 938 $13,500,000 servicing acquisition loan agreement with a bank, secured by MSRs, due at the earlier of the maturity of the MSRs or amortized over five to six years from the date of the borrowing through June 2002; interest at federal funds rate plus 2.75 percent (8.05 percent at December 31, 1996); $12,000,000 available at December 31, 1996. 8,709 1,500 Senior subordinated notes, interest at 13 percent payable semiannually, unsecured and maturing July 2002, with mandatory redemptions of $727,500 on each of July 15, 1999, 2000 and 2001. 2,910 2,910 Note payable to a third-party financial institution due in monthly installments through 2000, secured by equipment; interest at the one year treasury rate plus 2.4 percent. 786 731 Note payable to a bank, secured by a deed of trust on real estate, interest due monthly at prime plus 1 percent, unpaid principal due July 21, 1998. - 845 Other, interest at prime plus 2.0 percent 201 - ---------------------- Total term notes 16,447 9,448
F-22 Matrix Capital Corporation Notes to Consolidated Financial Statements (continued) 7. BORROWED MONEY (CONTINUED)
DECEMBER 31 1995 1996 ---------------------- (In thousands) Revolving Lines $50,000,000 revolving warehouse loan agreement (with a $2,500,000 working capital sublimit) with banks, secured by mortgage loans held for sale, mortgage servicing rights, eligible servicing advance receivables and eligible delinquent mortgage receivables; interest at federal funds rate plus 1.0 to 2.25 percent (6.50 and 7.55 percent average rate at December 31, 1996 for the warehouse loan and working capital loan, respectively); $18,496,000 available overall and $2,500,000 available under the working capital sublimit at December 31, 1996. $46,833 $31,504 ---------------------- 46,833 31,504 Other Financing agreement with a bank, secured by Ft. Lupton Subordinated Series 1996 A1 revenue anticipation warrants, interest is at 5 percent and is due based on the semi-annual bonds payments, unpaid principal due at bond maturity. - 800 Agreements with a bank and an investment bank to sell mortgage loans originated by the Company under agreements to repurchase. The agreement can be terminated upon 90 days written notice by either party; interest at the higher of the prime rate or note rate on the loans. Total commitment amount of these agreements is $20,000,000, with $20,000,000 available at December 31, 1996. 570 - MSR financing (see below). 1,243 679 ---------------------- 1,813 1,479 ---------------------- $65,093 $42,431 ======================
F-23 Matrix Capital Corporation Notes to Consolidated Financial Statements (continued) 7. BORROWED MONEY (CONTINUED) On January 31, 1997, the Company renegotiated the revolving credit facilities for its $50,000,000 warehouse loan agreement, including the working capital element, and its $13,500,000 servicing acquisition loan agreement. With this renegotiation, the aggregate amount of revolving warehouse lines of credit facilities was increased to $60.0 million, the aggregate amount of the servicing acquisition facility was increased to $30.0 million, and the aggregate amount of the working capital facility was increased to $10.0 million. The $10.0 million working capital facility became a separate component to the revolving credit facilities, and is no longer a sublimit to the warehouse loan agreement. The new credit facility agreement requires Matrix Financial to maintain, among other things, (i) total shareholder's equity of at least $10.0 million plus 100 percent of capital contributed after January 1, 1997, plus 50 percent of cumulative quarterly net income, (ii) adjusted net worth, as defined, of at least $12.0 million, (iii) a servicing portfolio of at least $2.0 billion, (iv) principal debt of term line borrowings of no more than the lesser of 70 percent of the appraised value of the mortgage servicing portfolio or 1.25 percent of the unpaid principal balance of the mortgage servicing portfolio, (v) a ratio of total adjusted debt to adjusted tangible net worth of no more than eight to one, and (vi) a ratio of cash flow to current maturities of long-term debt and any capital leases of at least 1.3 to 1.0. The terms of the senior subordinated notes limit cash dividends to an amount equal to 50 percent of consolidated net income as long as the dividend does not exceed 10 percent of consolidated shareholders' equity. The Company may redeem the senior subordinated notes, in whole or in part, at any time after July 15, 1998 at a redemption price of 102 percent of par through July 14, 1999 and, thereafter, at par, plus accrued and unpaid interest. The Company was obligated to register under the Securities Act of 1933 the senior subordinated notes on or before February 1, 1997. Since such registration statement was not effected by February 1, 1997, the interest rate increased to 14 percent. As of December 31, 1996 the maturities of term notes payable during the next five years and thereafter are as follows:
(In thousands) 1997 $ 648 1998 2,500 1999 1,493 2000 1,499 2001 1,479 Thereafter 1,829 -------------- $9,448 ==============
F-24 Matrix Capital Corporation Notes to Consolidated Financial Statements (continued) 7. BORROWED MONEY (CONTINUED) The Company must comply with certain financial and other covenants related to the foregoing debt agreements including the maintenance of specific ratios, net worth and other amounts as defined in the credit agreements. At December 31, 1996, the Company was in compliance with these covenants. MSR Financing In 1992 and 1994 the Company entered into two unrelated transactions with portions of its owned servicing portfolio which were accounted for as financings due to various terms of the agreements regarding continuing involvement. Amounts due to the other parties under the financings had balances of approximately $1,243,000 and $679,000 at December 31, 1995 and 1996, respectively. The MSRs pledged as collateral for the loans relate to mortgage loans with unpaid principal balances of approximately $125,000,000 and $74,000,000 at December 31, 1995 and 1996, respectively. One of these financing arrangements was completely paid off in 1996. In the remaining financing arrangement, the Company retains a portion of the servicing income associated with the pledged or related MSRs, with the balance of the servicing income paid to the other parties as a reduction of the debt and interest. The implicit interest rate of the financing varies depending on the servicing income derived from the MSRs. A portion of the payment made under this arrangement is recorded as interest expense on the level yield method. The amounts due the other parties are payable solely from the servicing income derived from the MSRs, and there is no implicit or explicit guarantee as to repayment. The total amounts paid to the other parties aggregated approximately $717,000, $620,000 and $785,000 during the years ended December 31, 1994, 1995 and 1996, respectively. 8. FEDERAL HOME LOAN BANK OF DALLAS BORROWINGS Federal Home Loan Bank of Dallas borrowings aggregated $19,000,000 and $51,250,000 at December 31, 1995 and 1996, respectively. The advances bear interest at rates which adjust daily and are based on the mortgage repo rate. All advances are secured by first mortgage loans of Matrix Bank and all Federal Home Loan Bank of Dallas stock. Matrix Bank has a commitment from the Federal Home Loan Bank of Dallas for advances of approximately $55,000,000 at December 31, 1996. Matrix Bank adopted a collateral pledge agreement whereby it has agreed to keep on hand, at all times, first mortgages free of all other pledges, liens, and encumbrances with unpaid principal balances aggregating no less than 170 percent of the outstanding secured advances from the Federal Home Loan Bank of Dallas. All stock in the Federal Home Loan Bank of Dallas is pledged as additional collateral for these advances. F-25 Matrix Capital Corporation Notes to Consolidated Financial Statements (continued) 9. INCOME TAXES The income tax provision consists of the following:
YEAR ENDED DECEMBER 31 1994 1995 1996 ------------------------- (In thousands) Current Federal $1,350 $1,630 $1,720 State 210 418 440 Deferred Federal 236 169 (42) State 50 43 (12) ------------------------- $1,846 $2,260 $2,106 =========================
A reconciliation of the provision for income taxes with the expected income taxes based on the statutory federal income tax rate follows:
YEAR ENDED DECEMBER 31 1994 1995 1996 ------------------------- (In thousands) Expected income tax provision $1,530 $1,979 $1,829 State income taxes 270 293 282 Other 46 (12) (5) ------------------------- $1,846 $2,260 $2,106 =========================
F-26 Matrix Capital Corporation Notes to Consolidated Financial Statements (continued) 9. INCOME TAXES (CONTINUED)) Deferred tax assets and liabilities result from the tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes shown below.
DECEMBER 31 1995 1996 --------------------- (In thousands) Deferred tax assets: Allowance for losses $ 190 $ 551 Discounts and premiums 177 108 Amortization of servicing rights 160 - Other 51 82 --------------------- Total deferred tax assets 578 741 Deferred tax liabilities: Gain on sale of loans (275) (279) Amortization of servicing rights - (106) Depreciation (241) (302) Other (62) - ---------------------- Total deferred tax liabilities (578) (687) ---------------------- Net deferred tax asset $ - $ 54 ======================
10. REGULATORY The Company is a unitary thrift holding company and, as such, is subject to the regulation, examination and supervision of the Office of Thrift Supervision (OTS). Matrix Bank is also subject to various regulatory capital requirements administered by the OTS. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions, actions by regulators that, if undertaken, could have a direct material effect on Matrix Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Matrix Bank must meet specific capital guidelines that involve quantitative measures of the Matrix Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. Matrix Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. F-27 Matrix Capital Corporation Notes to Consolidated Financial Statements (continued) 10. REGULATORY (CONTINUED) Quantitative measures established by regulation to ensure capital adequacy require Matrix Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to total assets (as defined). Management believes, as of December 31, 1996, that Matrix Bank meets all capital adequacy requirements to which it is subject. As of December 31, 1996, the most recent notification from the OTS categorized Matrix Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized Matrix Bank must maintain minimum total risk-based, Tier I risk based and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the institution's category.
To Be Well Capitalized For Capital Under Prompt Corrective Actual Adequacy Purposes Action Provisions -------------- ----------------- ----------------------- Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- --------- ----------- (In thousands) As of December 31, 1996 Total Capital (to Risk Weighted Assets) $12,406 11.1% $8,979 8.0% $11,224 10.0% Tier I Capital (to Risk Weighted Assets) 11,367 10.1 4,489 4.0 6,734 6.0 Tier I Capital (to Average Assets) 11,367 7.8 5,803 4.0 7,254 5.0 As of December 31, 1995 Total Capital (to Risk Weighted Assets) 8,321 13.3% 4,997 8.0% 6,246 10.0% Tier I Capital (to Risk Weighted Assets) 7,540 12.1 2,499 4.0 3,748 6.0 Tier I Capital (to Average Assets) 7,540 7.2 4,195 4.0 5,243 5.0
The various federal banking statutes to which Matrix Bank is subject also include other limitations regarding the nature of the transactions in which it can engage or assets it may hold or liabilities it may incur. Matrix Bank is required to maintain balances with the Federal Reserve Bank of Dallas in a noninterest earning account based on a percentage of deposit liabilities. Such balances averaged $888,0000 and $659,000 in 1995 and 1996, respectively. F-28 Matrix Capital Corporation Notes to Consolidated Financial Statements (continued) 10. REGULATORY (CONTINUED) Matrix Bank is required by Federal regulations to maintain a minimum level of liquid assets of five percent. Matrix Bank exceeded the Federal requirement at December 31, 1995 and 1996, respectively. Matrix Financial is subject to examination by various regulatory agencies involved in the mortgage banking industry. Each regulatory agency requires the maintenance of a certain amount of net worth, the most restrictive of which required $1,224,000 at December 31, 1995 and $1,709,000 at December 31, 1996. 11. SHAREHOLDERS' EQUITY Common Stock The authorized common stock of the Company consists of 50,000,000 shares with a par value of $.0001 per share. There were 3,888,939 and 5,901,439 shares of common stock outstanding at December 31, 1995 and 1996, respectively. Holders of common stock are entitled to receive dividends when, and if, declared by the board of directors. Each share of common stock entitles the holders thereof to one vote, and cumulative voting is not permitted. Preferred Stock The authorized preferred stock of the Company consists of 5,000,000 shares with a par value of $.0001 per share. The board of directors is authorized, without further action of the shareholders of the Company, to issue from time to time shares of preferred stock in one or more series and with such relative rights, powers, preferences, and limitations as the board of directors may determine at the time of issuance. Such shares may be convertible into common stock and may be superior to the common stock in the payment of dividends, liquidation, voting and other rights, preferences and privileges. Stock Option Plan The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related Interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under FASB Statement No. 123, Accounting for Stock-Based Compensation, requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. F-29 Matrix Capital Corporation Notes to Consolidated Financial Statements (continued) 11. SHAREHOLDERS' EQUITY (CONTINUED) In September 1996, the board of directors and shareholders adopted the 1996 Stock Option Plan, which amended and restated the Company's stock option plan adopted in 1995. The Company's 1996 Stock Option Plan has authorized the grant of options to substantially all of the Company's full-time employees and directors for up to 525,000 shares of the Company's common stock. All options granted have ten year terms and vest based on the determination by the Company's compensation committee. The 1996 Stock Option Plan authorized the granting of incentive stock options ("Incentive Options") and nonqualified stock options ("Nonqualified Options") to purchase common stock to eligible persons. The 1996 Stock Option Plan is currently administered by the compensation committee (administrator) of the board of directors. The 1996 Stock Option Plan provides for adjustments to the number of shares and to the exercise price of outstanding options in the event of a declaration of stock dividend or any recapitalization resulting in a stock split-up, combination or exchange of shares of common stock. No Incentive Option may be granted with an exercise price per share less than the fair market value of the common stock at the date of grant. The Nonqualified Options may be granted with any exercise price determined by the administrator of the 1996 Stock Option Plan. The expiration date of an option is determined by the administrator at the time of the grant, but in no event may an option be exercisable after the expiration of ten years from the date of grant of the option. The 1996 Stock Option Plan further provides that in most instances an option must be exercised by the optionee within 30 days after the termination of the consulting contract between such consultant and the Company or termination of the optionee's employment with the Company, as the case may be, if and to the extent such option was exercisable on the date of such termination. Pro forma information regarding net income and earnings per share is required by Statement 123, which also requires that the information be determined as if the Company had accounted for its employee stock options granted subsequent to December 31, 1994 under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1995 and 1996, respectively: risk-free interest rates of 5.4 percent and 6.0 percent; a dividend yield of zero percent; volatility factors of the expected market price of the Company's common stock of .39 and .39; and a weighted- average expected life of the option of four years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. F-30 Matrix Capital Corporation Notes to Consolidated Financial Statements (continued) 11. SHAREHOLDERS' EQUITY (CONTINUED) For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows (in thousands except for earnings per share information):
YEAR ENDED DECEMBER 31 1995 1996 --------------------- Pro forma net income $3,446 $3,237 Pro forma earnings per share: Primary 0.88 0.75 Fully diluted 0.88 0.75
Because Statement 123 is applicable only to options granted subsequent to December 31, 1994, its pro forma effect will not be fully reflected until 1997. A summary of the Company's stock option activity, and related information for the years ended December 31 follows:
1995 1996 --------------------------------------- WEIGHTED WEIGHTED AVERAGE AVERAGE EXERCISE XERCISE OPTIONS PRICE OPTIONS PRICE ---------------------------------------- Outstanding, beginning of year - $ - 79,500 $ 5.13 Granted 79,500 5.13 129,600 10.00 Exercised - - - - Forfeited - - - - ------ ------- Outstanding, end of year 79,500 $ 5.13 209,100 $ 8.15 ====== ======= Exercisable at end of year 39,750 $ 5.13 87,000 $ 5.55 Weighted average fair value of options granted during the year $ 2.19 $ 4.06
Exercise prices for options outstanding as of December 31, 1996 ranged from $5.13 to $10.00. The weighted average remaining contractual life of those options is 9.1 years. Restricted Net Assets As a result of the regulatory requirements and debt covenants, substantially all of the net assets of the Company are restricted at December 31, 1995 and 1996. F-31 Matrix Capital Corporation Notes to Consolidated Financial Statements (continued) 11. SHAREHOLDERS' EQUITY (CONTINUED) Warrants The Company issued warrants exercisable for an aggregate of 75,000 shares of its common stock to its primary underwriters upon the closing of the Company's initial public offering. The warrants are exercisable from time to time during the four years after the one year anniversary of their date of grant, and are not transferable during the first year after their grant. The exercise price for the shares of common stock underlying such warrants is $12 per share. The shares of common stock underlying such warrants are entitled to certain demand and incidental registration rights. 12. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS Employee Stock Purchase Plan In September 1996, the board of directors and shareholders adopted the Matrix Capital Corporation Employee Stock Purchase Plan ("Purchase Plan") and reserved 125,000 shares of common stock ("ESPP Shares") for issuance thereunder. The Purchase Plan became effective upon consummation of the initial public offering. The price at which ESPP shares are sold under the Purchase Plan is 85 percent of the lower of the fair market value per share of common stock on the enrollment or the purchase date. Leases The Company leases office space and certain equipment under noncancelable operating leases. Annual amounts due under the office and equipment leases as of December 31, 1996 are approximately as follows:
(In thousands) 1997 $370 1998 267 1999 54 2000 21 2001 1 ------------- $713 =============
Total rent expense aggregated approximately $481,000, $437,000 and $349,000, for the years ended December 31, 1994, 1995 and 1996, respectively. F-32 Matrix Capital Corporation Notes to Consolidated Financial Statements (continued) 12. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS (CONTINUED) Loan Commitments and Hedging In the ordinary course of business, the Company makes commitments to originate residential mortgage loans (Pipeline) and holds originated loans until delivery to an investor. Inherent in this business is a risk associated with changes in interest rates and the resulting change in the market value of the Pipeline and funded loans. The Company mitigates this risk through the use of mandatory and nonmandatory forward commitments to sell loans. At December 31, 1995, the Company had $93,133,000 in Pipeline and funded loans offset with mandatory forward commitments of $64,743,000 and nonmandatory forward commitments of $15,267,000. At December 31, 1996, the Company had $62,578,000 in Pipeline and funded loans offset with mandatory forward commitments of $49,150,000 and nonmandatory forward commitments of $8,144,000. The inherent value of the forward commitments is considered in the determination of the lower of cost or market for the Pipeline and funded loans. The Company does not hold any other derivatives at December 31, 1995 or 1996. Land Development Commitment In June 1996, the Company purchased 154 acres of land for $1.3 million in cash for the purpose of developing residential and multi-family lots in Ft. Lupton, Colorado. As part of the acquisition, the Company entered into a Residential Facilities Development Agreement (Development Agreement) with the City of Ft. Lupton. The Development Agreement is a residential and planned unit development agreement providing for the orderly planning, engineering and development of a golf course and surrounding residential community. The City of Ft. Lupton is responsible for the development of the golf course and the Company is responsible for the development of the surrounding residential lots. The Development Agreement sets forth a mandatory obligation on the part of the Company to pay the City of Ft. Lupton pledged enhancement assessments of $600,000. These pledged enhancement assessments require the Company to pay the city a $2,000 fee each time the Company sells a developed residential lot. The Company is obligated to pay a minimum of $60,000 in assessment fees per year beginning in 1998 through 2007. The Company also entered into a development management agreement with a local developer to complete the development of the land. The terms of the agreement specify that the Company is to earn a preferred rate of return on its investment and, once the initial amount of its investment has been returned, the remaining profits are split equally. The development management agreement obligates the Company to provide up to an additional $500,000 of funds for development. The Company has no other financial obligations to the developer beyond the $500,000. As of December 31, 1996, the Company has included in its basis in the development $38,000 in capitalized interest costs. At December 31, 1996, the total basis of the land development is $1,431,000 and is classified in other assets in the accompanying consolidated balance sheets. F-33 Matrix Capital Corporation Notes to Consolidated Financial Statements (continued) 12. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS (CONTINUED) Financing Agreement In 1996, the Company purchased $800,000 of City of Fort Lupton Subordinated Series 1996 A1 revenue anticipation warrants, with interest at 9.75 percent and due December 15, 2015. The warrants are classified as other receivables in the accompanying consolidated balance sheets. The Company entered into an agreement with a bank to sell the warrants, subject to certain repurchase obligations resulting from the bank's annual remarketing of the bonds, with interest at five percent. The Company entered into a letter of credit agreement of $825,000 to guarantee its repurchase obligation. Contingencies Matrix Bank has received demands from an investor for repurchase of loans related to a servicing portfolio purchased by Matrix Bank from an unrelated third-party mortgage banker (Seller). The repurchase demand is pursuant to a claim of breach of covenants and warranties by the Seller related to documentation deficiencies in connection with the origination and sale of the loans. In January 1996, Matrix Bank commenced suit against the Seller to recover, among other things, the purchase price paid for certain residential mortgage loans. In connection with the lawsuit and the servicing portfolio at issue, Matrix Bank has full representations and warranties from the Seller. Since the representations and warranties have not been honored by the Seller, Matrix Bank included a cause of action in the lawsuit seeking to compel the Seller to repurchase the portfolio. During 1996, the servicing relating to FHLMC was transferred to FHLMC for no consideration. Matrix Bank accrued a liability of approximately $500,000 at December 31, 1995 and $420,000 at December 31, 1996 for the potential loss exposure related to the pending repurchase requests which, in the opinion of management, is adequate for estimated future losses. The Company is a defendant in two lawsuits filed in 1996 that seek class action status, which allege that the Company breached the terms of plaintiffs' promissory notes and mortgages by imposing certain changes at the time the plaintiffs prepaid their mortgage loans. The Company has entered into an agreement, which is subject to court approval, to settle one lawsuit and dismiss the other lawsuit. A settlement order of dismissal was entered into for the dismissed lawsuit on November 13, 1996. In January 1997, a preliminary approval of the settlement was granted by the Court. Notice to class members was mailed in January 1997 and published in February 1997. The settlement agreement requires the Company to establish a settlement fund of $640,000 which covers the costs of notice and class administration, attorneys' fees, and recovery to class members. As of December 31, 1996, the Company accrued a liability of approximately $600,000 related to the settlement. In the opinion of management, the accrued liability at December 31, 1996 is adequate as the actual payments made from the settlement fund is dependent on the response rate from the plaintiff class members. The final approval hearing for the settlement is scheduled for April 1997. F-34 Matrix Capital Corporation Notes to Consolidated Financial Statements (continued) 12. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS (CONTINUED) The Company and its subsidiaries are parties to various other litigation matters, in most cases involving ordinary and routine claims incidental to the business of the Company. The ultimate legal and financial liability of the Company, if any, with respect to such pending litigation cannot be estimated with certainty, but the Company believes, based on its examination of such matters, that such ultimate liability will not have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company. Related Party Transactions The Company has a note receivable from an affiliate of $750,000 at December 31, 1995 and 1996, which bears interest at 13 percent and is due October 1, 2000. The note is secured by a secondary lien on the assets of the affiliate. The Company leases office space to the affiliate for approximately $8,500 per month. The lease expires in September 1997, but the Company anticipates that it will be renewed. At December 31, 1995 and December 31, 1996, the Company had an unsecured loan receivable from a shareholder of approximately $80,000, which bears interest at the prime rate and is due December 31, 1997. 13. DEFINED CONTRIBUTION PLAN The Company has a 401(k) defined contribution plan (Plan) covering all employees who have elected to participate in the Plan. Each participant may make pretax contributions to the Plan up to 15 percent of such participant's earnings with a maximum of $9,500 in 1996. The Company makes a matching contribution of 25 percent of the participant's total contribution. Matching contributions made by the Company vest over six years. The cost of the plan approximated $46,000, $61,000 and $83,000 during the years ended December 31, 1994, 1995 and 1996, respectively. 14. FINANCIAL INSTRUMENTS Off-Balance Sheet Risk and Concentration of Commitments The Company is a party to financial instruments with off-balance sheet risk in the normal course of its business. These instruments are commitments to originate or purchase first mortgage loans and forward loan sale commitments (see Note 12) and involve credit and interest rate risk in excess of the amount recognized in the consolidated balance sheet. Commitments to originate or purchase mortgage loans amounted to approximately $18,900,000 at DecemberE31, 1996. Additionally, the Company has a $400,000 commitment to lend funds on a secured basis. The Company plans to fund the commitments in its normal commitment period. The Company evaluates each customer's creditworthiness on a case-by-case basis. F-35 Matrix Capital Corporation Notes to Consolidated Financial Statements (continued) 14. FINANCIAL INSTRUMENTS (CONTINUED) The Company's credit risks comprised the outstanding loans held for sale and loans held for investment as shown in the consolidated balance sheets, and loans sold with recourse aggregating approximately $354,000 and $16,214,000 at December 31, 1995 and 1996, respectively. The loans are located throughout the United States and are collateralized primarily by a first mortgage on the property. Fair Value of Financial Instruments The carrying amounts and estimated fair value of financial instruments are as follows:
DECEMBER 31 1995 1996 ------------------ ------------------ CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------------------------------------- (In thousands) Financial assets: Cash $ 1,381 $ 1,381 $ 2,319 $ 2,319 Interest earnings deposits 5,586 5,586 9,499 9,499 Loans held for sale, net 127,090 130,638 182,801 183,741 Loans held for investment, net 19,575 19,829 29,560 29,824 Federal Home Loan Bank of Dallas stock 1,954 1,954 2,871 2,871 Financial liabilities: Deposits 48,877 49,283 90,179 90,401 Custodial escrow balances 27,011 27,011 37,881 37,881 Drafts payable 8,817 8,817 5,961 5,961 Payable for purchase of MSRs 1,312 1,312 8,044 8,044 Federal Home Loan Bank of Dallas borrowings 19,000 19,000 51,250 51,250 Borrowed money 65,093 65,093 42,431 42,431
The following methods and assumptions were used by the Company in estimating the fair value of the financial instruments: The carrying amounts reported in the balance sheet for cash, interest earnings deposits, Federal Home Loan Bank of Dallas stock, drafts payable, payable for purchase of MSRs, Federal Home Loan Bank of Dallas borrowings, and borrowed money approximate those assets and liabilities' fair values. F-36 Matrix Capital Corporation Notes to Consolidated Financial Statements (continued) 14. FINANCIAL INSTRUMENTS (CONTINUED) The fair values of loans are based on quoted market prices where available or outstanding commitments from investors. If quoted market prices are not available, fair values are based on quoted market prices of similar loans sold in securitization transactions, adjusted for differences in loan characteristics. The fair value of forward sale commitments are included in the determination of the fair value of loans held for sale. The fair value disclosed for demand deposits (e.g., interest and noninterest checking, savings, and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected periodic maturities on time deposits. The component commonly referred to as deposit base intangible, was not estimated at December 31, 1995 and 1996 and is not considered in the fair value amount. The fair value disclosed for custodial escrow balances liabilities (noninterest checking) is, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). F-37 Matrix Capital Corporation Notes to Consolidated Financial Statements (continued) 15. PARENT COMPANY CONDENSED FINANCIAL INFORMATION Condensed financial information of Matrix Capital Corporation (Parent Company) is as follows:
December 31 1994 1995 1996 -------------------------- CONDENSED BALANCE SHEETS (In thousands) Assets: Cash $ 180 $ 11 $ 45 Other receivables - 804 872 Premises and equipment, net 1,154 1,371 1,405 Other assets 303 515 507 Investment in and advances to subsidiaries 8,924 13,853 34,731 -------------------------- Total assets $10,561 $16,554 $37,560 ========================== Liabilities and shareholders' equity: Borrowed money (a) $ 4,052 $ 6,751 $ 6,372 Other liabilities 833 465 386 -------------------------- Total liabilities 4,885 7,216 6,758 Shareholders' equity: Common stock - - 1 Additional paid in capital 2,525 2,626 20,816 Retained earnings 3,151 6,712 9,985 -------------------------- Total shareholders' equity 5,676 9,338 30,802 -------------------------- Total liabilities and shareholders' equity $10,561 $16,554 $37,560 ==========================
(a) The Parent's debt consists of a note payable to a third party financial institution secured by common stock at Matrix Bank, note payable to a bank secured by a deed of trust on real estate, senior subordinated notes and a note payable to a third party financial institution secured by MSRs. The Parent also guarantees the revolving warehouse and servicing acquisition loan agreements. See Note 7 for additional information regarding the debt. F-38 Matrix Capital Corporation Notes to Consolidated Financial Statements (continued) 15. PARENT COMPANY CONDENSED FINANCIAL INFORMATION (CONTINUED) As of December 31, 1995, the maturities of term notes payable during the next five years and thereafter are as follows:
(In thousands) 1997 $ 439 1998 1,291 1999 1,123 2000 1,123 2001 1,096 Thereafter 1,300 ------ $6,372 ====== Year Ended December 31 1994 1995 1996 ---------------------------------- (In thousands) CONDENSED STATEMENTS OF INCOME Income: Interest income on loans $ - $ 44 $ 142 Other 472 374 130 ---------------------------------- Total income 472 418 272 Expenses: Compensation and employee benefits 767 1,042 1,344 Occupancy and equipment 18 92 299 Interest on borrowed money 170 592 805 Professional fees 82 112 138 Other general and administrative 81 704 328 ---------------------------------- Total expenses 1,118 2,542 2,914 ---------------------------------- Loss before income taxes and equity in income of subsidiaries (646) (2,124) (2,642) Income taxes (b) - - - ---------------------------------- Loss before equity in income of subsidiaries (646) (2,124) (2,642) Equity in income of subsidiaries 3,292 5,685 5,915 ---------------------------------- Net income $2,646 $ 3,561 $ 3,273 ==================================
(b) The Company's tax sharing agreement with its subsidiaries provides that the subsidiaries will pay the Parent an amount equal to its individual current income tax provision calculated on the basis of the subsidiary filing a separate return. In the event a subsidiary incurs a net operating loss in future periods, the subsidiary will be paid an amount equal to the current income tax refund the subsidiary would be due as a result of carryback of such loss, calculated on the basis of the subsidiary filing a separate return. Accordingly, the parent's condensed statements of income do not include any income tax benefit for the current losses. F-39 Matrix Capital Corporation Notes to Consolidated Financial Statements (continued) 15. PARENT COMPANY CONDENSED FINANCIAL INFORMATION (CONTINUED)
Year Ended December 31 1994 1995 1996 --------------------------------- (In thousands) CONDENSED STATEMENTS OF CASH FLOWS Cash flows from operating activities: Net income $ 2,646 $ 3,561 $ 3,273 Adjustments to reconcile net income to net cash provided (used) by operating activities: Equity in income of subsidiaries (3,292) (5,685) (5,915) Dividend from subsidiaries 1,368 2,207 1,642 Depreciation and amortization 5 34 127 Increase (decrease) in other liabilities 410 (368) (78) Increase in other receivables and other (202) (1,016) (133) assets Noncash compensation expense - 101 - --------------------------------- Net cash provided (used) by operating 935 (1,166) (1,084) activities Investing activities: Purchases of premises and equipment (1,159) (251) (88) Investment in and advances to (1,904) (1,451) (16,606) subsidiaries --------------------------------- Net cash used by investing activities (3,063) (1,702) (16,694) Financing activities: Repayments of notes payable (185) (1,133) (438) Proceeds from notes payable 2,487 922 59 Proceeds from senior subordinated notes - 2,910 - Proceeds from the sale of common stock - - 18,191 --------------------------------- Net cash provided by financing activities 2,302 2,699 17,812 --------------------------------- Increase (decrease) in cash and cash 174 (169) 34 equivalents Cash and cash equivalents at beginning of year 6 180 11 --------------------------------- Cash and cash equivalents at end of year $ 180 $ 11 $ 45 =================================
16. SUBSEQUENT EVENT On February 5, 1997, the Company acquired The Vintage Group Inc. ("Vintage") with the issuance of 779,592 shares of the Company's common stock. The transaction will be accounted for as a pooling of interests. Vintage's subsidiaries, Sterling Trust Company ("Sterling Trust") and Vintage Financial Services Corporation ("VFSC") are located in Waco, and Arlington, Texas, respectively. Sterling Trust is a nonbank trust company specializing in self- directed qualified retirement plans, individual retirement accounts, custodial, and directed trust accounts. As of December 31, 1996, Sterling Trust had in excess of 23,000 accounts with assets under administration of over $1.1 billion. VFSC, whose name has been changed to First Matrix Investment Services Corp., is a NASD broker/dealer that provides services to individuals and deferred contribution plans. F-40 EX-10.30 2 LEASE DATED OCTOBER 1, 1996 Exhibit 10.30 LEASE DATE: OCTOBER 1, 1996 LANDLORD: MATRIX CAPITAL CORPORATION TENANT: CREATIVE NETWORKS, LLC 1. LEASED PREMISES The leased premises (the "Leased Premises") are as shown on Exhibit "A" attached hereto and are further defined as: 7360 Rentable Square Feet at 201 West Coolidge Street, Phoenix, Arizona 85013. The Rentable Square Feet includes a common area factor of 12% for computation of the area of the Leased Premises II. LEASE The Landlord hereby leases to the Tenant, and the Tenant hereby leases from the Landlord, the Leased Premises, upon the terms and conditions set forth in this Lease (the "Lease"). III. TERM The Lease is for a term of twelve (12) months commencing October 1, 1996, (the "Commencement Date") and terminating September 30, 1997, (the "Termination Date"). IV. SECURITY DEPOSIT Tenant has paid Landlord at the execution hereof, the amount of zero dollars ($0.00) as security for the performance by Tenant of the terms hereof, which amount shall be returned to Tenant at the Termination Date if Tenant has discharged its obligations to Landlord in full pursuant to this Lease and all amendments thereto. V. RENTAL, DEFINITIONS Tenant agrees to pay as base rental one hundred eight thousand four hundred thirty three and thirty three one hundredths dollars ($8,433.33) per month (the "Base Rent") for each and every month of the Lease (plus any excise, privilege or sales taxes levied on the rentals or the receipt thereof, except Landlord's income tax), payable in advance, without offset or deduction, on the first day of each month commencing with the Commencement Date of the Lease. Each year of this Lease, Landlord may elect to require that the rental be adjusted for that year on the basis of Landlord's incurred Operating Costs, which adjusted rental Tenant agrees to pay in accordance with the statements rendered. Operating Costs shall be assessed at Tenant's Proportionate Share of the Building. "Operating Costs" shall be determined on the basis for each year of this Lease by taking into account, on a consistent basis, all costs of management, maintenance, and operation of the Building, including but not limited to the costs of Real and Personal Property taxes, cleaning, utilities, air conditioning and heating, plumbing, elevator, insurance, ground rent, landscaping costs and the cost of improvements installed to reduce the above-listed operating costs together with interest at the Prime Rate (as hereinafter defined) on the unamortized portion of such cost, amortized over such reasonable period as Landlord shall determine, and all other costs which can properly be considered operating expenses incurred in the management, maintenance and operation of the Building. For the purposes of this Paragraph V. Rental, Definitions, the following terms shall have the following meanings: 1. "Real and Personal Property taxes" shall mean and include a) all real property taxes and personal property taxes, charges and general and special assessments which are levied or assessed upon or with respect to the Building and any improvements, fixtures, and equipment and all other personal property of Landlord located on, in or about the Building and/or used in connection with the operation thereof and b) all taxes which shall be levied or assessed in addition to or in lieu of such real or personal property taxes, but shall not include any net income, franchise, capital stock, estate or inheritance taxes. 2. Tenant's "Proportionate Share" shall mean the ratio, expressed as a percentage, of the rentable area of the Leased Premises to the rentable area of the Building, which the parties hereby stipulate to be twenty-five percent (25%). 3. As used in this Lease, the term "Building" includes the building and/or buildings and adjoining parking areas, if any, and the land and/or air space which is the site and grounds for such buildings and parking areas, regardless of the name under which such buildings may be known. 4. As used in this Lease, the term "Prime Rate" shall mean the sum of (a) that rate of interest, charged by Bank One, Arizona, N.A. a national banking association (or any successor to the business of such bank), and announced by such bank, from time to time, as its "prime rate", and (b) two (2) percentage points above the annual rate of interest specified in clause (a) immediately hereinabove. VI. INITIAL CONSTRUCTION Construction, if any, to be completed by Landlord will be in accordance with the plans, specifications and agreements approved by both parties, which are attached hereto, as Exhibit "A" (the "Plans and Specifications") and made part of this Lease. Landlord will not be obligated to construct or install any improvements or facilities of any kind other than those called for on the Plans and Specifications. Landlord agrees to commence and complete such Construction with reasonable diligence. All such improvements are to be the property of Landlord, and upon termination of this Lease, Tenant shall deliver the Leased premises to Landlord in good condition and repair, broom clean, normal wear and tear excepted. VII. REPAIRS AND ALTERATIONS Landlord agrees to make all necessary repairs to the exterior walls, exterior doors, windows and corridors of the Building. Landlord agrees to keep the Building in a clean, neat and attractive condition. Landlord agrees to keep all building standard equipment such as elevators, plumbing, heating, air conditioning and similar equipment in good repair, but Landlord shall not be liable or responsible for breakdowns or temporary interruptions in service when reasonable efforts are used to restore service. Tenant agrees that it will pay for the cost of all repairs to the Leased Premises not required above to be made by Landlord and be responsible for all redecorating, remodeling, alteration and painting required by it during the term of this Lease. Tenant shall pay for any repairs to the Leased Premises, or the Building, made necessary by any negligence or carelessness of Tenant, its employees or invitees. Tenant agree to maintain the Leased Premises in a clean, neat and sanitary condition. Tenant may place partitions and fixtures and make improvements and other alternations to the interior of the Leased Premises at Tenant's expense, provided however, that prior to commencing any such work Tenant shall first obtain the written consent of Landlord to the proposed work and Landlord shall have right to review and approve all plans. Landlord may require that said work be done by Landlord's own employees or under Landlord's direction but at the expense of Tenant, and Landlord may, as a condition to consenting to such work, require that Tenant give security that the Leased Premises will be completed free and clear of liens and in a manner satisfactory to Landlord. Notwithstanding the foregoing, any such improvements or alterations by Tenant shall conform to and be in substantial accordance in quality and appearance with the quality and appearance of the improvements in the remainder of the Building. Any such improvements shall become the property of Landlord upon expiration of this Lease. Tenant shall remove any movable furniture and equipment upon termination of this Lease and shall deliver the Leased Premises to Landlord in as good condition as received, broom clean, normal wear and tear excepted. In the event Tenant receives consent of the Landlord and uses Tenant's own contractor for any such improvements then Tenant must provide Landlord with contractor's evidence of workmen's compensation and liability insurance in amounts sufficient to Landlord and have acquired the necessary building permits prior to commencing any such construction. VII. FIRE OR CASUALTY INSURANCE In the event that the Leased Premises are wholly or partially destroyed by fire or other casualty covered by the usual form of fire and extended coverage insurance rendering them untenantable, Landlord shall, to the extent of insurance proceeds actually received by Landlord, rebuild, repair or restore the Leased Premises to substantially the same condition as when the same were furnished to Tenant and this Lease shall remain in effect during such period. In the event of total destruction, rent shall abate during the period of reconstruction, and in the event of partial destruction, rent shall abate prorata during the period of reconstruction. In the event, however, that the building containing the Leased Premises is damaged or destroyed to the extent of more than one-third (1/3) of its replacement cost, Landlord may elect to terminate this Lease. Tenant shall be responsible for and shall provide Tenant's own insurance coverage, and supply Landlord with evidence of such coverage with respect to any furniture, fixtures, improvements, betterments, equipment and personal property belonging to Tenant and placed by Tenant in or upon the Leased Premises. Tenant agrees and warrants to Landlord that any fire insurance policy, extended coverage policy, casualty and loss policy, or other policy or policies carried by Tenant in connection with this Lease or the Leased Premises and/or insuring Tenant's property or effects located in or upon the Leased Premises shall each contain a provision whereby the insurance carrier waives any right of subrogation against the Landlord. Provided Landlord can obtain such waiver of subrogation rights with regard to policies of fire or casualty insurance obtained by Landlord with regard to the Building, Landlord hereby releases and waives any and all rights of subrogation against Tenant which, in the absence of this release and waiver, would arise in favor of any insurance company insuring Landlord against loss of fire, extended coverage casualty and loss of any other type, resulting from damage to or destruction of the building of which the Leased Premises form a part or any portion thereof in damage to or destruction of the property of Landlord in the Building. Landlord shall not be required to obtain such insurance policies except through insurance companies satisfactory to the Landlord and the holder of any mortgage covering the Leased Premises. IX. USE OF LEASED PREMISES The Leased Premises are leased to Tenant for the sole purpose of professional administration and for no other purpose whatsoever. Tenant agrees that it will use the Leased Premises in such manner as to not interfere with or infringe upon the rights of other tenants in the Building. Tenants agrees to comply with all applicable laws, ordinances and regulations in connection with its use of and/or transfer of any interest in the Leased Premises and in performing all repairs, remodeling and alterations to the Leased Premises, including all Environmental Laws and obtaining all necessary permits, licenses or other authorizations required pursuant to such laws. Tenant shall supply all documentation regarding compliance with the law, including written documentation by the appropriate governmental authority that all such laws have been complied with. X. SIGNS Landlord shall retain absolute control over the exterior appearance of the Building and the exterior appearance of the Leased Premises as viewed from the public halls. Tenant will not install, or permit to be installed, any drapes, shutters, lettering, advertising or any items that will in any way alter the exterior appearance of the Building or the exterior appearance of the Leased Premises as viewed from the public halls or exterior. XI. CONFIDENCE REPOSED IN TENANT AND TENANT'S REPRESENTATIONS AND WARRANTIES It is agreed that one of the conditions moving Landlord to make this Lease is the personal confidence reposed by it in Tenant, combined with the belief that Tenant will be a tenant and occupant satisfactory to Landlord and the other occupants of the Building. Should Tenant vacate or abandon the Leased Premises during the term hereof, Landlord, at Landlord's discretion, shall have the right to cancel this Lease without obligation to Tenant. Tenant represents and warrants as follows: A. Tenant has never been in violation of or investigated for violation of any Environmental Laws. B. Tenant will not engage in any activity involving Hazardous Substances or which could cause an Environmental Condition on the Leased Premises or permit any third party to do so, without Landlord's written consent. C. Tenant will immediately notify Landlord of (i) any investigation, proceeding, notice or claim regarding a violation of any Environmental Law relating to the Leased Premises or other premises which Tenant occupies, an Environmental Condition on the Leased Premises, or a Release of Hazardous Substances on the Leased Premises, (ii) any submissions or notifications made by Tenant to governmental authorities or others concerning Environmental Conditions or Hazardous Substances on the Leased Premises, and (iii) the existence of any Hazardous Substances or Environmental Conditions on or about the Leased Premises or on property adjoining or in the vicinity of the Leased Premises that may be in violation of an Environmental Law (regardless of whether Tenant is responsible for its existence). Tenant will take all appropriate response actions in the event of an occurrence of an Environmental Condition on the Leased Premises and shall resolve all environmental problems to the satisfaction of Landlord. In the event of any investigation, notice of violation or other action taken by a governmental agency or private person relating in any way to Tenant's operation on the Leased Premises. Tenant shall be solely responsible for complying with all legal requirements, including cleanup of the Leased Premises, and requirements imposed by the governmental authority. Tenant shall not, however take any remedial action in response to the presence of any Hazardous Substance or Environment Condition, nor enter into any settlement agreement, consent decree or other compromise without first notifying Landlord and affording Landlord ample opportunity to appear, intervene, or otherwise appropriately assert and protect Landlord's interest. As used in this Lease, the following terms shall have the meanings specified below: A. "Environmental Law(s) shall mean any federal, state or local law, including statutes, ordinances, rules, common law and guidelines, now in effect or hereinafter enacted, pertaining to health, industrial hygiene, or the environment, including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act, the Resource Conservation and Recovery Act, the Toxic Substances Control Act, the Superfund Amendments and Reauthorization Act, the Clean Air Act, the Federal Water Pollution Control Act, the Safe Drinking Water Act, and the Solid Waste Disposal Act. B. "Hazardous Substances" shall mean any material or sublease which may or could pose risk of injury or threat to health or the environment and any substance that is or becomes regulated by any federal, state or local law. C. "Environmental Condition" shall mean any condition with respect to soil, air, surface or groundwater which could require remedial action and/or may result in claims, demands, and/or liabilities by or to third parties, including without limitation, governmental entities. D. "Release" shall mean any releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, disposing or dumping. Tenant's failure to perform or observe any of the above representations and warranties shall constitute a substantial breach of the Lease and shall entitle Landlord to pursue any and all remedies allowed by law or at equity, including without limitation cancelling and terminating the Lease and imposing a rent surcharge. XII. ASSIGNMENT AND SUBLETTING (a) Tenant for itself, its heirs, distributees, successors and assigns, expressly covenants that it shall not, by operation of law or otherwise, assign, sublet, mortgage or encumber all or any part of this Lease or the Leased Premises, including environment liens in favor of a governmental entity, or permit the Leased Premises to be used by others without the prior written consent of Landlord in each instance. Any attempt to do so by the Tenant shall be void. The consent by Landlord to any assignment, sublet, mortgage or encumbrance or use of all or any part of the Leased Premises by others, shall not constitute a waiver of Landlord's right to withhold its consent to any other assignment, sublet, mortgage, or encumbrance or use of all or any part of the Leased Premises by others. Without the prior written consent of Landlord, this Lease and the interest of Tenant therein or any assignee of Tenant therein, shall not pass by operation of law, and shall not be subject to garnishment or sale under execution in any lawsuit or proceeding which may be brought against or by Tenant or any sublessee or assignee of Tenant. (b) If Tenant requests Landlord's consent to an assignment of this Lease or subletting of all or any part of the Leased Premises, Tenant shall submit to Landlord: (1) the name of the proposed assignee or subtenant, (2) the terms of the proposed assignment or subletting, (3) the nature of the proposed subtenant's or assignee's business: and (4) such information as to such subtenant's or assignee's financial responsibility and general reputation as Landlord may require. (c) Upon the receipt of the request pursuant to paragraph XII (b) hereinabove and information from Tenant, Landlord shall have the option, at Landlord's discretion, to be exercised in writing within thirty (30) days after such receipt, to either (1) cancel and terminate the Lease, if the request is to assign or sublet all of the Lease and/or the Leased Premises or, if the request is to sublet or assign a portion of the Lease and/or the Leased Premises, to cancel and terminate this Lease with respect to such portion, in each case as of the date set forth in Landlord's notice of exercise of such option: (2) to grant said request, or (3) deny said request if Landlord finds such subtenant or assignee unacceptable. (d) In the event Landlord shall cancel this Lease, Tenant shall surrender possession of the Leased Premises, or the portion of the Leased Premises which is the subject of the request, as the case may be, on the date set forth in such notice in accordance with the provisions of this Lease relating to surrender of the Leased Premises. If the lease shall be cancelled as to a portion of the Leased Premises only, the rent and other charges payable by Tenant hereunder shall be reduced proportionately according to the ratio that the number of square feet in the portion of space surrendered bears to the square feet of space at the initial Leased Premises. (e) In the event that Landlord shall consent to a sublease or assignment pursuant to the request from Tenant, Tenant shall cause to be executed by its assignee or subtenant an agreement satisfactory to Landlord, whereby such assignee or subtenant agrees to perform faithfully and to assume and be bound by all of the terms, covenants, provisions and agreements of this Lease for the period covered by the assignment or sublease and to the extent of the space sublet or assigned. In addition, Tenant agrees that with regard to each such sublease or assignment so consented to by Landlord, Tenant: (1) will not collect more than one month's rent in advance, (2) will not terminate or cancel such sublease or assignment without Landlord's prior written consent, (3) will be responsible for all the acts and omissions of said sublessees or assignees, (4) will only sublease at the rental which Tenant is then paying to Landlord, (5) shall pay to Landlord promptly, following receipt of the amount of the value of any consideration received by Tenant from any assignment of this lease, (6) shall not assign or sublet the premises to another existing tenant in the building housing the Leased Premises, and (7) an executed copy of each sublease or assignment and assumption of performance by the sublessee or assignee, on Landlord's standard form, shall be delivered to Landlord within five (5) days prior to the commencement of occupancy set forth in such assignment of sublease. No such assignment or sublease shall be binding on Landlord until Landlord shall have actually received such copies as required herein. (f) In no event shall any assignment or subletting to which Landlord may consent, release or relieve Tenant from its obligations to fully perform all of the terms, covenants and conditions of this Lease on its part to be performed. (g) In the event this Lease is cancelled at Landlord's option as provided hereinabove, neither of the parties shall have any further obligations hereunder, except as may be expressly provided herein and except Tenant shall pay all rents, charges and all other amounts due, as set out in the Lease, to the date Tenant is notified of such cancellation. XIII. EMINENT - DOMAIN In the event any portion of the Leased Premises is taken from Tenant under eminent domain proceedings, Tenant shall have no right, title or interest in any award made for such taking. XIV. WAIVER AND SEVERABILITY The consent of the Landlord in any instance to any variation of the terms of the Lease, or the receipt of rent with knowledge of any breach, shall not be deemed to be a waiver as to any breach of any covenant or condition herein contained, nor shall any waiver be claimed as to any provisions of this Lease unless the same be in writing, signed by Landlord. This Lease and any written amendment, exhibits or addenda hereto contain the entire agreement between the parties. If any term or provision of this Lease or any application thereof shall be invalid or unenforceable, then the remaining terms and provisions of this Lease and any other application of such term or provision shall not be affected thereby. XV. USE OF COMMON FACILITIES All elevators stairways, halls and areas for the common use of all tenants at the Building shall be open to reasonable use by Tenant, its customers, clients and employees. Tenant and its officers, agents and employees agree to park their motor vehicles only in areas designated from time to time for that purpose or otherwise as permitted in writing by Landlord. XVI. SERVICES (a) Landlord agrees to provide air conditioning, heat, water and electricity for lighting and normal office usage during the customary business hours of the Building as established by Landlord, and to provide janitor services of the type customarily furnished by comparable buildings, which shall consist essentially of a nightly clean-up five (5) days per week, the cost of which shall be included in Operating Costs hereunder. (b) Tenant agrees to pay for all utilities and other services and expenses used or incurred by Landlord on Tenant's behalf not specifically provided for above. XVII. ENTRY OF LANDLORD Landlord reserves the right, without abatement of rent and other charges due hereunder from Tenant to enter upon or have its agent enter the Leased Premises at reasonable times for the inspection of the same, including environmental assessments and audits, to make necessary repairs, including any actions necessary to remediate, abate or cleanup any Hazardous Substances or Environmental Conditions on the Leased Premises, the cost of which Tenant will be responsible pursuant to paragraph XXV below, to post notices of non- responsibility and Landlord reserves the right, during the last six (6) months of the term of this Lease to show the Leased Premises, at reasonable times, to prospective purchasers or tenants. Tenant hereby waives any claim for damages for any injury or inconvenience to or interference with Tenant's business, any loss of occupancy or quiet enforcement of the Leased Premises, and any other loss occasioned by Landlord's entry. Landlord shall at all times have and retain a key with which to unlock all of the doors in, upon and about the Leased Premises, excluding Tenant's vaults and safes (as the same are permitted by Landlord to be upon the Leased Premises), and Landlord shall have the right to use any and all means which Landlord may deem proper to open said doors in an emergency in order to obtain entry to the Leased Premises and any entry into the Leased Premises obtained by Landlord by any of said means, or otherwise, shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into, or a detainer of, the Leased Premises or an eviction of Tenant from the Leased Premises or any portion thereof. XIII. SUBSTITUTED PREMISES Landlord reserves the right upon thirty (30) days' written notice to Tenant to substitute other premises within the Building for the Leased Premises for all uses and purposes as though originally leased to Tenant pursuant to this Lease. The substituted premises shall contain approximately the same number of square feet as the Leased Premises without increase of Base Rent. Landlord shall pay all reasonable moving expenses of Tenant incidental to such substitution of premises. XIX. SUBORDINATION AND ATTORNMENT Landlord reserves the right to place liens and encumbrances on the Leased Premises superior in lien and effect to this Lease. This Lease and any and all renewals, modifications, replacements or extensions thereof, at the option of the Landlord, shall be subject and subordinate to any liens and encumbrances now or hereinafter imposed by Landlord upon the Leased Premises or the Building and Tenant agrees to execute and deliver upon demand (and to cause all sublessees and assignees under Tenant to execute and deliver upon demand) such instruments subordinating this Lease (and all subleases and assignments pursuant to this Lease) to any such lien or encumbrance as shall be required by Landlord. In the event Landlord's interest in the Leased Premises is derived from a lease from another party and said Lease should be terminated by the other party. Tenant agrees to attorn (and to cause all sublessees and assignees under Tenant to so attorn) to the other party, its successors and assigns as Landlord on this Lease. In the event any proceedings are brought for the foreclosure of any mortgage on the Leased Premises, Tenant will attorn (and Tenant will cause all sublessees and assignees under Tenant to so attorn) to the purchaser at foreclosure sale and recognize the purchaser as the Landlord under this Lease. The purchaser by virtue of such foreclosure shall be deemed to have assumed, as substitute Landlord, the terms and conditions of this Lease until the resale or other disposition of its interest by such purchaser. Such assumption, however, shall not be deemed of itself an acknowledgment by the purchaser of the validity of any then existing claims of Tenant (or the claims of any sublessees or assignees under Tenant) against the prior Landlord. Tenant agrees to execute and deliver (and to cause all sublessees and assignees under Tenant to execute and deliver) such further assurance and other documents (including but not limited to a new lease upon the same terms and conditions as this lease) confirming the foregoing as such purchaser may reasonably request. Tenant on behalf of itself and on behalf of all sublessees and assignees under Tenant waives any right of election to terminate this Lease because of any such foreclosure proceedings. Tenant hereby irrevocably constitutes and appoints Landlord as Tenant's attorney-in-fact to execute (and to deliver to any third party) any documents hereinabove required to be executed by Tenant, for and on behalf of Tenant, if Tenant shall have failed to do so within ten (10) days after the request therefor by Landlord. XX. NOTICES Any notices or demands to be given hereunder shall be in writing and shall be given to Landlord and to Landlord's managing agent with regard to the Building, at their respective offices and to Tenant at the Leased Premises, or at such other address as either party shall designate, and shall be by registered or certified United States mail, postage prepaid or, at the election of Landlord, hand delivered. XXI. DEFAULT In the event Tenant fails to pay any rental due hereunder or fails to keep and perform any of the other terms or conditions hereof, time being of the essence, then five (5) days after written notice of default from Landlord, the Landlord may, if such default has not been corrected, resort to any and all legal remedies or combination of remedies which Landlord may desire to assert including but not limited to one or more of the following: (1) lock the doors to the Leased Premises and exclude Tenant therefrom, (2) retain or take possession of any property on the Leased Premises pursuant to Landlord's statutory lien, (3) enter the Leased Premises and remove all persons and property therefrom, (4) declare this Lease at an end and terminated, (5) sue for the rent due and to become due under this Lease, and for any damages sustained by Landlord, (6) collect, directly from any sublease or assignee under Tenant all subrents and other charges payable by such sublessees or assignees, Tenant hereby assigning to Landlord such subrents and other charges in the event of a default by Tenant under this lease, and (7) continue this Lease in effect and relet the Leased Premises on such terms and conditions as Landlord may deem advisable with Tenant remaining liable for the monthly rent plus the reasonable cost of obtaining possession of the Leased Premises and of any repairs and alterations necessary to prepare the Leased Premises for reletting, less the rentals received from such reletting, if any. No action of Landlord shall be construed as an election to terminate this Lease unless written notice of such intention be given to Tenant. Tenant agrees to pay as additional rental all attorney's fees and other costs and expenses incurred by Landlord in enforcing any of Tenant's obligations under this Lease. Any amount due from Tenant to Landlord under this Lease which is not paid when due shall bear interest at the "Prime Rate" that is in effect on the date such amount is due, accruing from such date until paid. Furthermore, that rate of interest paid by Tenant on any such amount shall be adjusted as the "Prime Rate" is adjusted. XXII. LATE PAYMENTS Tenant hereby acknowledges that the late payment by Tenant to Landlord of rent or any additional rent or other sums due hereunder will cause Landlord to incur costs not contemplated in this Lease, the exact amount which will be extremely difficult and impracticable to ascertain. Such costs include but are not limited to processing, administrative and accounting costs. Accordingly, if any installment of rent or any additional rent or any other sum due from Tenant shall not be received by Landlord within five (5) days after such amount shall be due, Tenant shall pay to Landlord a late charge equal to five percent (5%) of such overdue amount. If any installment of rent or any additional rent or any other sum due from Tenant shall not be received within thirty (30) days after such amount shall be due, Landlord shall incur additional processing, administrative and accounting costs. In order to compensate Landlord therefor, Tenant shall pay to Landlord an additional late charge equal to five percent (5%) of such overdue amount, including previous penalties. The parties hereby agree that such late charges represent a fair and reasonable estimate of the costs Landlord will incur by reason of late payment by Tenant. Neither assessment nor acceptance of such late charge by Landlord shall constitute a waiver of Tenant's default with respect to such overdue amount, nor prevent Landlord from exercising any of the other rights and remedies granted under the Lease. Nothing contained in this paragraph shall be deemed to condone, authorize, sanction or grant to Tenant an option for the late payment of rent, and Tenant shall be deemed in default in the payment of its rent should the same not be paid by the date on which it is due. XXIII. BUILDING RULES AND REGULATIONS Tenant agrees to abide by all rules and regulations of the Building imposed by Landlord. Such rules and regulations are imposed for the cleanliness, good appearance, proper maintenance, good order and reasonable use of the Leased Premises and the Building, and as may be necessary for the proper enjoyment of the Building by all Tenants and their clients, customers and employees. The rules and regulations may be changed from time to time upon ten (10) days notice to Tenant. Breach of the rules and regulations of the Building shall not be ground for termination of the Lease unless Tenant continues to breach the same after ten (10) days written notice by Landlord. Landlord shall not be responsible to Tenant for nonperformance by any tenant or occupant of the Building of any rules or regulations. XXIV. LIENS Tenant shall keep the Landlord, Leased Premises and building harmless from and against any liens or claims arising out of any work performed, materials furnished or obligations incurred by Tenant, and shall indemnify and hold Landlord harmless against the same, together with all costs of suit and attorney's fees incurred by Landlord in connection therewith. XXV. INDEMNIFICATION OF LANDLORD Landlord shall not be liable to Tenant and Tenant hereby waives all claims against Landlord for any injury (including death) or damage to any person or property in or about the Leased Premises by or from any cause whatsoever and Tenant shall indemnify and hold Landlord, its successors, officers and employees harmless from any and all claims, costs, expenses or liability of any kind (including without limitation a decrease in the value of the Leased Premises and reasonable consultants' and attorneys' fees) arising directly or indirectly from: (i) injury (including death) or damage to any person or property whatsoever occurring on or about the Leased Premises, (ii) Hazardous Substances or an Environmental Condition on or about the Leased Premises, or (iii) violations or claims of violations by Tenant of an Environmental Law. This indemnification obligation shall be in addition to any other obligations and liabilities Tenant may have to Landlord at law or equity, and shall survive the term of this Lease and shall not be subject to any other provisions of this Lease that operate to limit Tenant's liability. Tenant shall obtain and keep in effect during the term of this Lease a policy of comprehensive liability insurance, including public liability and property damage, with a minimum combined single limit of liability of One Million Dollars ($1,000,000.00). Said policy or policies shall name Landlord and its agents as additional insureds and shall be issued by an insurance company, licensed to do business in the State of Arizona, and acceptable to Landlord. Said policy or policies shall additionally provide that the insurance shall not be cancelled or modified unless thirty (30) days prior written notice has been given to Landlord. Tenant shall supply Landlord with a certificate of the insurance which it has obtained prior to its occupation of the Leased Premises. Landlord shall have the right to request Tenant to provide additional or other form of security satisfactory to Lender in the event that Tenant's activities on the Leased Premises involve Hazardous Substances. XXVI. TAXES Tenant agrees to pay or cause to be paid, before delinquency, any and all taxes levied or assessed and which become payable during the term hereof upon all of Tenant's equipment, furniture, fixtures and other personal property located in the Leased Premises. XXVII. HOLDING OVER Upon the expiration of this Lease, Tenant shall immediately surrender the Leased Premises to Landlord, such Leased Premises to be broom clean, in good condition and repair, ordinary wear and tear excepted. If the Tenant or any sublessee or assignee under Tenant holds over the expiration or earlier termination of this Lease without Landlord's express written consent, Tenant shall be in default hereunder and in addition to all of the rights or remedies available to Landlord, Tenant shall be obligated to pay to Landlord rent at a rate established by Landlord with regard to the Leased Premises for the time during which Tenant retains possession, which payment shall not constitute a waiver of any of Landlord's other rights or remedies provided herein. XXVIII. INSOLVENCY OR BANKRUPTCY Either (a) the appointment of a receiver to take possession of all or substantially all of the assets of Tenant; or (b) an assignment by Tenant for the benefit of creditors; or (c) any action taken or suffered by Tenant under any insolvency, bankruptcy or reorganization act, shall constitute a default and breach of this Lease by Tenant. Upon the happening of any such event, Landlord shall have all the rights herein provided in the event of any such default or breach, including without limitation the right, at Landlord's option, to terminate this Lease and enter the Leased Premises and remove all persons and property therefrom. In no event shall this Lease be assigned or assignable by operation of law or by voluntary or involuntary bankruptcy proceedings or otherwise and in no event shall this Lease or any rights or privileges hereunder be an asset of Tenant under any bankruptcy, insolvency or reorganization proceedings. XXIX. SALE BY LANDLORD In the event of a sale or conveyance by Landlord of the Leased Premises, the same shall operate to release Landlord from any further liability upon any of the covenants or conditions, express or implied, herein contained in favor of Tenant and in such event Tenant agrees to look solely to the responsibility of the successor in interest of Landlord in and to this Lease. This Lease shall not be affected by any such sale, and Tenant agrees to attorn to the purchaser of assignee upon Landlord's request. Tenant shall deliver to such purchaser an offset statement and an estoppel certificate in such form as Landlord may request, and, in the event Tenant fails to deliver said statement and certificate within ten (10) days after demand by Landlord, Tenant hereby constitutes and appoints Landlord as Tenant's attorney-in-fact to execute said statement and certificate. XXX. ATTORNEY'S FEES In the event of any action or proceeding brought by either party against the other under this Lease, the prevailing party shall be entitled to recover its attorney's fees and costs in such action or proceeding. In the event Landlord intervenes in or becomes a party or is made a party to any action or proceeding arising in connection with this Lease in order to protect its rights, then Tenant shall pay to Landlord the fees of Landlord's attorneys therein as fixed by the court. XXXI. SURRENDER OF PREMISES The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation thereof, shall not work a merger, and shall, at the option of Landlord, terminate all or any existing subleases or subtenancies, or may, at the option of Landlord, operate as an assignment to Landlord of any or all such subleases or subtenancies. Tenant agrees that there shall be no value to the leasehold upon termination or cancellation of the Lease under its terms. XXXII. LIMITATION OF LANDLORD'S LIABILITY Tenant covenants and agrees that any claims that Tenant may have now or hereafter against Landlord shall be asserted solely against and satisfied only out of Landlord's right, title and interest in the Building and not from any other thing or asset of Landlord. XXXIII. TIME OF THE ESSENCE Time is of the essence of this Lease and all of its provisions. XXXIV. BINDING EFFECT The covenants and conditions herein contained shall, subject to the provisions restricting Tenant's assignment and subletting, apply to and bind the heirs, executors, administrators, personal representatives, successors and assigns of the parties hereto. XXXV. RECORDATION Tenant shall not record this Lease or any short form memorandum thereof, without the prior written consent of Landlord. XXXXVI. NAME OF BUILDING Tenant shall not use the name of the Building for any purpose other than as an address of the business to be conducted by Tenant in the Leased Premises. XXXVII. GOVERNING LAW This Lease and all the terms and conditions thereof shall be governed by the laws of the State of Arizona. XXXVIII. DEFINED TERMS AN PARAGRAPH HEADINGS The words "Landlord" and "Tenant" as used herein shall include the plural as well as the singular. Words used in masculine gender include the feminine and neuter. If there is more than one Tenant, the obligations hereunder imposed upon Tenant shall be joint and several. The paragraph headings and titles to the paragraphs of this Lease are not a part of this Lease and shall have no effect upon the construction or interpretation of any party thereof. CREATIVE NETWORKS, LLC MATRIX CAPITAL CORPORATION - --------------------------- ------------------------------------ Name of Tenant Name of Landlord ___________________________ ______________________________ By xxxxxxxxxx By xxxxxxxx - --------------------------- ------------------------------ (Authorized Signature) Date September 26, 1996 ___________________________ ------------------------------ Date September 26, 1996 - --------------------------- EX-10.31 3 REVOLVING SUBORDINATED AGREEMENT Exhibit 10.31 REVOLVING SUBORDINATED LOAN AGREEMENT THIS AGREEMENT is entered into as of October 18, 1996, between MATRIX FINANCIAL SERVICES CORPORATION, an Arizona corporation ("Borrower") and MATRIX CAPITAL CORPORATION, a Colorado corporation ("Lender"). ARTICLE 1 RECITALS -------- Section 1.1. BORROWER. Borrower originates, acquires, markets, sells, -------- and services mortgage loans and servicing rights. Section 1.2. BANK ONE, TEXAS, N.A. Borrower is party to and Lender is -------------------- guarantor for that certain Conformed and Amended Loan Agreement, dated July 12, 1995 and amended through July 10, 1996, with Bank One, Texas, N.A., which requires Lender to lend funds to Borrower on a subordinated basis in such amounts as set forth in this Agreement. Section 1.3. BORROWER REQUESTS. Borrower has requested Lender to provide ----------------- Advances up to an amount not to exceed $20,000,000.00 for the purpose of maintaining certain financial covenants as set forth in its Loan Agreement with Bank One, Texas, N.A. Section 1.4. LENDER GRANTS. Lender has agreed to provide Advances, in ------------- amounts as described in Section 1.3 above, but subject to the conditions set forth below. ACCORDINGLY, for adequate and sufficient consideration, Borrower and Lender agree as follows: ARTICLE 2 DEFINITIONS ----------- Section 2.1. DEFINITIONS. In addition to the terms defined elsewhere in ----------- this Agreement, the terms defined in this Article 2 shall, for all purposes of this Agreement, have the respective meanings herein specified unless the context expressly or by necessary implication otherwise requires: (a) ADVANCE. Each disbursement of funds by the Lender to or for the ------- account of the Borrower under this Agreement. (b) ADVANCE REQUEST FORM. The certificate in the form attached -------------------- hereto as Exhibit A, to be delivered by the Borrower to the Lender as a condition of each Advance pursuant to Section 3.2 hereof. (c) AGREEMENT. This Revolving Subordinated Loan October 18, 1996, --------- between the Borrower and the Agreement, dated as of Lender, as each may be amended from time to time. (d) BUSINESS DAY. Any day other than Saturday or Sunday or a ------------ recognized national holiday. (e) INDEBTEDNESS. Without duplication, with respect to any Person, ------------ (i) all obligations of such Person (A) in respect to borrowed money (B) evidenced by bonds, notes, debentures or similar instruments, (C) representing the balance deferred and unpaid. of the purchase price of any property or services (other than accounts payable or other obligations arising in the ordinary course of business), (D) evidenced by bankers' acceptances or similar instruments issued or accepted by banks, or (E) evidenced by a letter of credit or a reimbursement obligation of such Person with respect to any letter of credit; (ii) all liabilities of others of the kind described in the preceding clause (i) that such Person has guaranteed or that are otherwise its legal liability; and (iii) any and all deferrals, renewals, extensions, refinancings and refundings (whether direct or indirect) of, or amendments, modifications or supplements to, any liability of the kind described in any of the preceding clauses (i), (ii), or this clause (iii), whether or not between or among the same parties. (f) LOAN. The outstanding principal 3 of this Agreement, together ---- balance of Advances made under with interest, if any, accrued Article thereon. (g) LOAN DOCUMENTS. Collectively, this Agreement, the Note, and all -------------- amendments to those documents, and such additional documents and instruments that are executed by or otherwise transferred or delivered by or for the benefit of the Borrower pursuant to or in connection with this Agreement. (h) NOTE. The promissory note of the Borrower, in the form of ---- Exhibit B attached hereto and delivered pursuant to Section 3.3 of this Agreement, evidencing the Loan, and all amendments, extensions, renewals and replacements thereof. (i) PERSON. Any individual, corporation, limited liability company, ------ partnership, joint venture, trust, estate, unincorporated organization, or governmental or any agency or political subdivision thereof. (j) SENIOR INDEBTEDNESS. Any indebtedness of a Person (whether ------------------- outstanding on the date hereof or hereafter incurred), unless such indebtedness is Subordinated Indebtedness. (k) SUBORDINATED INDEBTEDNESS. Means any indebtedness of a Person -------------------------- (whether outstanding on the date hereof or hereafter incurred), which is pari passu with or contractually subordinate or junior in right of payment to the Advances. ARTICLE 3 THE REVOLVING SUBORDINATED LOAN ------------------------------- Section 3.1. AMOUNT. From time to time, subject to the other terms and ------ conditions of this Agreement, the Lender shall make Advances to the Borrower up to an aggregate principal amount not to exceed at any time $20,000,000.00. Within such limits and pursuant to the other terms of this Agreement, the Borrower may, at any time or from time to time, borrow, repay and reborrow. Section 3.2. BORROWING PROCEDURE. Borrower shall give the Lender prior ------------------- written notice specifying the amount and date of each Advance requested under this Agreement. Such notice shall be in the form of the Advance Request Form attached hereto as Exhibit A. Section 3.3. NOTE. The obligations of the Borrower to the Lender under ---- the Loan shall be evidenced by a promissory note, made payable to the order of the Lender by the Borrower, in the form of Exhibit B attached hereto. The original principal amount of the Note will be $20,000,000.00. All Advances made by the Lender under the Note and all payments to be credited against the principal thereunder shall be recorded by the Lender on a schedule attached to the Note (provided that any failure by the Lender to record any such Advance or repayment shall not affect the obligations of the Borrower hereunder, under the Note or with respect to the Loan). Section 3.4. INTEREST. Borrower and Lender agree that Advances made -------- pursuant to this Agreement and the Note shall not bear a stated rate of interest. Any interest paid by Borrower to Lender shall be at such rate as mutually agreed to by Borrower and Lender. Section 3.5. REPAYMENTS. Lender may call due Advances made to Borrower ---------- pursuant to this Agreement and the Note only at such time as Borrower has repaid all amounts borrowed from Bank One, Texas, N.A. under that Conformed and Amended Loan Agreement, dated July 12, 1995, and amended through July 10, 1996, and said Conformed and AmendedLoan Agreement and all commitments as provided therein have been terminated. Section 3.6. PAYMENTS. All payments of principal, interest, and other -------- amounts payable by the Borrower hereunder and under the Note shall be made in U.S. dollars in immediately available funds, or the date such payment is due to the Lender at its office at 1380 Lawrence Street, Suite 1410, Denver, Colorado 80204, or at such other place as the Lender may designate from time to time in writing. If the due date of any payment hereunder would otherwise fall on a day which is not a Business Day, such date shall be extended to the next succeeding Business Day. ARTICLE 4 SUBORDINATION OF ADVANCES ------------------------- Section 4.1. ADVANCES SUBORDINATED TO SENIOR INDEBTEDNESS. The Lender --------------------------------------------- agrees that the payment of the principal and interest, if any, on the Advances is subordinated, to the extent and in the manner provided in this Article 4, to the prior payment in full of all Senior Indebtedness of the Borrower. The provisions of this Article 4 are made for the benefit of the holders of Senior Indebtedness, and such holders are made obligees under this Agreement and any one or more of them may enforce such provisions. Section 4.2. NO PAYMENT ON ADVANCES IN CERTAIN CIRCUMSTANCES. ------------------------------------------------ (a) Upon the maturity of any Senior Indebtedness by lapse of time, acceleration or otherwise, unless and until all principal thereof, premium, if any, interest thereon and other amounts due thereon shall first be paid in full, no payment shall be made by or on behalf of the Borrower with respect to the principal of or interest, if any, on the Advances. (b) Upon the happening of any default in the payment of any principal of or interest on or other amounts due on any Senior Indebtedness, then, unless and until such default shall have been cured or waived or shall have ceased to exist, no payment shall be made by or on behalf of the Borrower with respect to the principal of or interest, if any, on the Advances. Section 4.3. ADVANCES SUBORDINATED TO PRIOR PAYMENT OF ALL SENIOR ---------------------------------------------------- INDEBTEDNESS ON DISSOLUTION, LIQUIDATION OR REORGANIZATION OF THE ------------------------------------------------------------------ BORROWER. In the event of any insolvency or liquidation proceeding with --------- respect to the Borrower, all amounts payable in respect of any Senior Indebtedness shall first be paid in full before the Lender is entitled to receive any direct or indirect payment or distribution of any cash, property or securities on account of principal of or interest on the Advances. Section 4.4. OBLIGATIONS OF THE BORROWER UNCONDITIONAL. Nothing contained ------------------------------------------ in this Article 4 or elsewhere in this Agreement is intended to or shall impair, as between the Borrower and the Lender, the obligations of the Borrower , which are absolute and unconditional, to pay to the Lender the principal of and interest, if any, on the Advances as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Lender and creditors of the Borrower, other than the holders of the Senior Indebtedness, nor shall anything herein or therein prevent the Lender from exercising all remedies otherwise permitted by applicable law upon default under this Agreement, subject to the rights, if any, under this Article 4, of the holders of Senior Indebtedness in respect of cash, property or securities of the Borrower received upon the exercise of any such remedy. ARTICLE 5 GENERAL REPRESENTATIONS AND WARRANTIES -------------------------------------- The Borrower represents and warrants to the Lender that: Section 5.1. FORMATION AND AUTHORITY OF THE BORROWER; VALIDITY OF THE -------------------------------------------------------- LOAN DOCUMENTS. - --------------- (a) The Borrower (i) is a corporation duly formed, validly existing and in good standing under the laws of the State of Arizona, (ii) has the power and authority to carry on its business as now conducted, and (iii) is duly qualified to do business in all jurisdictions where the failure to be so qualified would have a material adverse effect. (b) The execution and delivery of the Loan Documents and the performance and observance by the Borrower of all of its obligations thereunder have been authorized by all necessary corporate and shareholder approval and are authorized by the Borrower's Articles of Incorporation and Bylaws. ARTICLE 6 MISCELLANEOUS PROVISIONS ------------------------ Section 6.1. NOTICES. All written notices required hereunder shall be -------- sent via certified or registered mail, postage prepaid, or delivered in person or sent via reliable overnight courier, addressed to the party for whom intended at the address specified on the signature pages hereto. Section 6.2. TERM OF AGREEMENT. This Agreement shall continue in force ------------------ and effect until such time as Borrower has repaid all amounts borrowed from Bank One, Texas, N.A. under that Conformed and Amended Loan Agreement, dated July 12, 1995, and amended through July 10, 1996, and said Conformed and Amended Loan Agreement and all commitments as provided therein have been terminated. Section 6.3. JURISDICTION. This Agreement, the Note and the other Loan ------------- Documents shall be construed in accordance with and governed by the laws of the State of Colorado. Section 6.4. BINDING EFFECT OF AGREEMENT. This Agreement shall be binding ---------------------------- upon and inure to the benefit of the Borrower, the Lender, and their respective successors and assigns, provided that the Borrower may not assign or transfer its rights or obligations hereunder without the prior written consent of the Lender. Section 6.5. HEADINGS. Headings or captions have been inserted for --------- convenience only and shall not be construed as limiting or affecting in any way the meaning or provisions of this Agreement. Section 6.6. SEVERABILITY. If any provision of this Agreement or the ------------- application thereof to any person or circumstance shall be invalid or unenforceable to any extent, the remainder of this Agreement and the application of such provisions to other persons or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law. Section 6.7. COUNTERPARTS. This Agreement may be signed in any number of ------------- counterparts with the same effect as if the signatures hereto and thereto were upon the same instrument. Section 6.8. ENTIRE AGREEMENT. This Agreement constitutes the entire ----------------- understanding and agreement between the parties hereto concerning the subject matter hereof and supersedes any prior written or oral communications between the parties hereto. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered by their respective duly authorized officers as of the day and year first above written. ADDRESS LENDER: ------- 1380 Lawrence MATRIX CAPITAL CORPORATION Suite 1410 Denver, CO 80204 By: /s/ David W. Klen ------------------------------------- Telephone: 303-595-9898 Name: David W. Klen Facsimile: 303-595-9906 Title: S.V.P ADDRESS: BORROWER: - 201 West Coolidge Street Suite 100 MATRIX FINANCIAL SERVICES CORPORATION Phoenix, AZ 85013 Telephone: 602-631-4357 By: /s/ Thomas J. Osselaer ------------------------------------- Facsimile: 602-631-4370 Name: Thomas J. Osselaer Title: EVP EXHIBIT A ADVANCE REQUEST FORM -------------------- In accordance with Section 3.2 of the Revolving Subordinated Loan Agreement as amended from time to time, the ("Agreement") dated October 18, 1996, by and among Matrix Capital Corporation ("Lender"), and Matrix Financial Services Corporation ("Borrower"), Borrower hereby requests an Advance under the Agreement. The undersigned hereby requests, represents and certifies that as of the date hereof and the date of the requested Advance (receipt of such Advance being deemed an affirmation of paragraphs (a) through (d) below: (a) The aggregate amount of the requested Advance is $______________, (b) The date on which the requested Advance is to be made is _________________, 199___; (c) New loan balance outstanding after such Advance is made will be $____________, which amount does not exceed $20,000,000.00; and (d) The representations and warranties set forth in Article 5 of the Agreement are true and correct on and as of the date hereof and as of the date of the requested Advance, after giving effect to such Advance and the application of proceeds therefrom. Capitalized terms used herein which are not defined herein shall have the respective meanings set forth in the Agreement. IN WITNESS WHEREOF, the undersigned has executed this Advance Request Form this __ day of ________________, 199___. MATRIX FINANCIAL SERVICES CORPORATION By:_______________________________________ Name: Title: EXHIBIT B PROMISSORY NOTE --------------- U.S. $20,000,000.00 OCTOBER 18, 1996 FOR VALUE RECEIVED, MATRIX FINANCIAL SERVICES CORPORATION, an Arizona corporation (the "Borrower"), hereby promises to pay to the order of Matrix Capital Corporation, a Colorado corporation (the "Lender"), at its office at 1380 Lawrence , Suite 1410, Denver, Colorado 80204, or such other location as the holder hereof may designate in writing, the principal sum of $20,000,000.00 (or such lesser amount as shall equal the aggregate unpaid principal amount extended to the Borrower by the Lender and reflected on the schedule attached hereto, which schedule shall be considered a part hereof), in lawful money of the United States of America in immediately available funds. No interest shall accrue on the unpaid principal balance owed hereunder except at the applicable rates agreed to by Borrower and Lender. The obligation of this Note shall be subordinated to any and all obligations of Borrower to Bank One, Texas, N.A. with said subordination subject to the terms and conditions of the Conformed and Amended Loan Agreement dated July 15, 1995 and, amended through July 10, 1996 (the "Loan Agreement"). The outstanding principal balance owed hereunder shall be due and payable only at such time as Borrower has repaid all amounts borrowed from Bank One, Texas, N.A. under that Conformed and Amended Loan Agreement and said Conformed and Amended Loan Agreement and all commitments as provided therein have been terminated. If the due date of any payment owed hereunder falls on a day which is not a weekday, such date shall be extended to the next succeeding weekday and interest, if any, shall be payable on any such amounts extended for the period of such extension. The Lender is hereby authorized by the Borrower to record on the schedule attached to this Note the amount of each advance of principal made to the Borrower by the Lender, the date each such advance is made, and the amount of each payment or prepayment of principal received by the Lender. This Note is the promissory note referred to in the Agreement dated as of October 18, 1996 among the Borrower and the Lender (as amended from time to time, the "Agreement"). Capitalized terms used but not otherwise defined in this Note shall have the meanings given to them in the Agreement. The Borrower hereby waives presentment, demand, notice of dishonor, protest, and all other demands and notices in connection with the delivery, acceptance, performance, and enforcement of this Note, and the Borrower shall pay all expenses incurred in the collection of this Note, including, without limitation, reasonable attorneys' fees. This Note shall be binding upon the Borrower and its successors and assigns and shall inure to the benefit of the Lender and its successors and assigns. This Note shall be governed as to validity, interpretation and effect by the laws of the State of Colorado. IN WITNESS WHEREOF, the Borrower has executed this Note as of the day and year first above written. MATRIX FINANCIAL SERVICES CORPORATION By: /s/ Thomas J. Osselaer ------------------------------------------ Name: Thomas J. Osselaer Title: EVP EX-10.32 4 AMENDED AND RESTATED LOAN AGREEMENT EXHIBIT 10.32 AMENDED AND RESTATED LOAN AGREEMENT between MATRIX FINANCIAL SERVICES CORPORATION, as Borrower BANK ONE, TEXAS, N.A., as Agent, and CERTAIN LENDERS, as Lenders $100,000,000 DATED AS OF JANUARY 31, 1997 [LOGO OF MATRIX FINANCIAL SERVICES CORPORATION] -------------------------------------- PREPARED BY HAYNES AND BOONE, L.L.P. -------------------------------------- TABLE OF CONTENTS
SECTION 1. DEFINITIONS AND REFERENCES........................................... 1 1.1 Definitions.......................................................... 1 1.2 Time References...................................................... 19 1.3 Other References..................................................... 19 1.4 Accounting Principles................................................ 19 SECTION 2. BORROWING PROVISIONS................................................. 20 2.1 Commitments.......................................................... 20 2.2 Borrowing Request.................................................... 22 2.3 Fundings............................................................. 22 2.4 Wet-Borrowing Procedures............................................. 23 2.5 Swing-Borrowing Procedures........................................... 24 2.6 Letters of Credit.................................................... 24 2.7 Borrowing Requests and LC Requests................................... 26 2.8 Terminations......................................................... 26 SECTION 3. PAYMENT TERMS........................................................ 27 3.1 Notes................................................................ 27 3.2 Payment Procedures................................................... 27 3.3 Scheduled Payments................................................... 27 3.4 Prepayments.......................................................... 28 3.5 Order of Application................................................. 29 3.6 Sharing.............................................................. 31 3.7 Interest Rates....................................................... 31 3.8 Interest Periods..................................................... 32 3.9 Basis Unavailable or Inadequate for LIBOR Rate....................... 33 3.10 Additional Costs..................................................... 33 3.11 Change in Laws....................................................... 34 3.12 Funding Loss......................................................... 34 3.13 Foreign Lenders, Participants, and Purchasers........................ 34 3.14 Fees................................................................. 34 SECTION 4. COLLATERAL PROCEDURES................................................ 35 4.1 Eligible Collateral.................................................. 35 4.2 Borrowing Base....................................................... 35 4.3 Collateral Delivery.................................................. 35 4.4 Bailee and Agent..................................................... 36 4.5 Shipment for Sale.................................................... 36 4.6 Shipment for Correction.............................................. 37 4.7 Release of Collateral................................................ 37 SECTION 5. CONDITIONS PRECEDENT................................................. 37 SECTION 6. REPRESENTATIONS AND WARRANTIES....................................... 38 6.1 Purpose of Credit.................................................... 38 6.2 About the Companies.................................................. 38 6.3 Authorization and Contravention...................................... 38
(i) AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- 6.4 Binding Effect....................................................... 39 6.5 Fiscal Year.......................................................... 39 6.6 Current Financials................................................... 39 6.7 Debt................................................................. 39 6.8 Solvency............................................................. 39 6.9 Litigation........................................................... 39 6.10 Transactions with Affiliates......................................... 39 6.11 Taxes................................................................ 39 6.12 Employee Plans....................................................... 39 6.13 Property and Liens................................................... 40 6.14 Intellectual Property................................................ 40 6.15 Environmental Matters................................................ 40 6.16 Government Regulations............................................... 40 6.17 Insurance............................................................ 40 6.18 Appraisals........................................................... 40 6.19 Full Disclosure...................................................... 41 SECTION 7. AFFIRMATIVE COVENANTS................................................ 41 7.1 Reporting Requirements............................................... 41 7.2 Use of Proceeds...................................................... 42 7.3 Books and Records.................................................... 42 7.4 Inspections.......................................................... 42 7.5 Taxes................................................................ 42 7.6 Expenses............................................................. 42 7.7 Maintenance of Existence, Assets, and Business....................... 43 7.8 Insurance............................................................ 43 7.9 Take-Out Commitments................................................. 43 7.10 Appraisals........................................................... 43 7.11 Indemnification...................................................... 43 SECTION 8. NEGATIVE COVENANTS................................................... 44 8.1 Debt................................................................. 44 8.2 Liens................................................................ 45 8.3 Loans, Advances, and Investments..................................... 46 8.4 Distributions........................................................ 47 8.5 Merger or Consolidation.............................................. 47 8.6 Liquidations and Dispositions of Assets.............................. 47 8.7 Use of Proceeds...................................................... 47 8.8 Transactions with Affiliates......................................... 47 8.9 Employee Plans....................................................... 47 8.10 Compliance with Laws and Documents................................... 47 8.11 Government Regulations............................................... 48 8.12 Fiscal Year Accounting............................................... 48 8.13 New Businesses....................................................... 48 8.14 Assignment........................................................... 48 8.15 Other Facilities..................................................... 48 SECTION 9. FINANCIAL COVENANTS.................................................. 48 9.1 Net Worth............................................................ 48 9.2 Leverage............................................................. 49
(ii) AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- 9.3 Cash Flow............................................................ 49 9.4 Servicing Portfolio.................................................. 49 9.5 Debt to Servicing Portfolio.......................................... 49 SECTION 10. DEFAULTS AND REMEDIES................................................ 49 10.1 Default.............................................................. 49 10.2 Remedies............................................................. 51 10.3 Right of Offset...................................................... 51 10.4 Waivers.............................................................. 51 10.5 Performance by Agent................................................. 52 10.6 No Responsibility.................................................... 52 10.7 No Waiver............................................................ 52 10.8 Cumulative Rights.................................................... 52 10.9 Rights of Individual Lenders......................................... 52 10.10 Notice to Agent...................................................... 53 10.11 Costs................................................................ 53 SECTION 11 AGENT................................................................. 53 11.1 Authorization and Action............................................. 53 11.2 Agent's Reliance, Etc................................................ 53 11.3 Agent and Affiliates................................................. 53 11.4 Credit Decision...................................................... 54 11.5 Indemnification...................................................... 54 11.6 Successor Agent...................................................... 54 11.7 Inspection........................................................... 55 SECTION 12. MISCELLANEOUS........................................................ 55 12.1 Nonbusiness Days..................................................... 55 12.2 Communications....................................................... 55 12.3 Form and Number of Documents......................................... 55 12.4 Exceptions to Covenants.............................................. 55 12.5 Survival............................................................. 55 12.6 Governing Law........................................................ 55 12.7 Invalid Provisions................................................... 55 12.8 Conflicts Between Loan Documents..................................... 56 12.9 Discharge and Certain Reinstatement.................................. 56 12.10 Amendments, Consents, Conflicts, and Waivers......................... 56 12.11 Multiple Counterparts................................................ 56 12.12 Parties.............................................................. 57 12.13 Participations....................................................... 57 12.14 Transfers............................................................ 58 12.15 Jurisdiction; Venue; Service of Process; and Jury Trial.............. 58 12.16 Limitation of Liability.............................................. 59 12.17 Entire Agreement..................................................... 59 12.18 Restatement of Existing Loan Agreement, Repayment of Non-Participating Existing Lenders, and Settlement of Funds............................ 59
(iii) AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- SCHEDULES AND EXHIBITS Schedule 2 - Lenders and Commitments Schedule 4.1 - Eligibility Conditions Schedule 4.2 - Borrowing-Base Calculations Schedule 4.3 - Collateral Procedures Schedule 5 - Closing Conditions Schedule 6.2 - Companies Schedule 6.9 - Litigation and Judgments Schedule 6.10 - Affiliate Transactions Exhibit A-1 - Amended and Restated Warehouse Note Exhibit A-2 - Amended and Restated Swing Note Exhibit A-3 - Amended and Restated Working- Capital Note Exhibit A-4 - Amended and Restated Term-Line Note Exhibit B - Amended and Restated Guaranty Exhibit C-1 - Amended and Restated Security Agreement Exhibit C-2 - Financing Statement Exhibit C-3 - Shipping Request Exhibit C-4 - Bailee Letter for Investors Exhibit C-5 - Bailee Letter for Pool Custodian Exhibit C-6 - Trust Receipt and Agreement Exhibit C-7 - Release Request Exhibit D-1 - Borrowing Request Exhibit D-2 - Collateral-Delivery Notice Exhibit D-3 - Borrowing-Base Report Exhibit D-4 - Take-Out Report Exhibit D-5 - Management Report Exhibit D-6 - Compliance Certificate Exhibit D-7 - Collateral-Conversion Notice Exhibit E - Opinion of Counsel Exhibit F-1 - Amendment Exhibit F-2 - Assignment and Assumption Agreement
(iv) AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- THIS AMENDED AND RESTATED LOAN AGREEMENT is entered into as of January 31, 1997, between MATRIX FINANCIAL SERVICES CORPORATION, an Arizona corporation ("BORROWER"), the Lenders described below, and BANK ONE, TEXAS, N.A., as Agent for Lenders. (See SECTION 1.1 for defined terms.) A. Borrower, certain lenders, and Agent are parties to the Loan Agreement (as renewed, extended, or amended, the "EXISTING LOAN AGREEMENT") dated as of July 12, 1995, providing for, among other things, (i) a revolving line of credit to finance Borrower's Mortgage Loan origination and acquisition until those Mortgage Loans are sold in the secondary market, (ii) a sublimit of that revolving line of credit to pay certain Servicing Payments, and (iii) a line of credit with a term conversion feature to repay certain of Borrower's then- existing-term Debt and to finance Borrower's Servicing Portfolio origination and acquisition. B. Borrower has requested that the lenders under the Existing Loan Agreement (collectively, the "EXISTING LENDERS") entirely amend, modify, and restate the Existing Loan Agreement in the form of this agreement in order to, among other things, (i) renew, increase, and extend the indebtedness under the Existing Loan Agreement, (ii) increase the aggregate Warehouse and Term-Line Commitments, (iii) eliminate the receivables sublimit under the Warehouse Commitment and add a new Working-Capital Commitment, (iv) amend certain existing sublimits, (v) add new Second-Lien and Repurchase Sublimits under the Warehouse Commitment, and (vi) modify certain financial covenants. C. Upon and subject to the terms and conditions of this agreement, Lenders are willing to entirely amend and restate the Existing Loan Agreement. ACCORDINGLY, for adequate and sufficient consideration, Borrower, Lenders, and Agent agree that the Existing Loan Agreement shall be amended and restated in its entirety, as follows: SECTION 1. DEFINITIONS AND REFERENCES. Unless stated otherwise, the following provisions apply to each Loan Document, and annexes, exhibits, and schedules to -- and certificates, reports, and other writings delivered under -- the Loan Documents. 1.1 DEFINITIONS. "ACKNOWLEDGMENT AGREEMENT" means, at any time and as applicable, the form of Acknowledgment Agreement then required by (a) FHLMC to be executed as a condition to the creation of a security interest in Servicing Rights for Mortgage Pools serviced for FHLMC, completed and executed by Borrower, Agent, (if necessary) each Lender, and FHLMC, and otherwise in form acceptable to Agent, together with every supplement to and replacement for that agreement in accordance with the FHLMC Guide, (b) FNMA to be executed as a condition to the creation of a security interest in Servicing Rights for Mortgage Pools serviced for FNMA, completed and executed by Borrower, Agent, (if necessary) each Lender, and FNMA, and otherwise in form acceptable to Agent, together with every supplement to and replacement for that agreement in accordance with the FNMA Guide, and (c) GNMA to be executed as a condition to the creation of a security interest in Servicing Rights for Mortgage Pools guaranteed by GNMA, completed and executed by Borrower, Agent, (if necessary) each Lender, and GNMA, and otherwise in form acceptable to Agent, together with every supplement to and replacement for that agreement in accordance with the GNMA Guide. AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- "ADJUSTED-NET WORTH" means, at any time, the sum (without duplication) of (a) the Companies' consolidated stockholders' equity plus (b) any Permitted Debt outstanding under the Revolving Subordinated Loan Agreement between Borrower and Guarantor referred to in SECTION 8.1(C). "ADJUSTED-TANGIBLE-NET WORTH" means, at any time, the sum (without duplication) of (a) the Companies' consolidated stockholders' equity, plus (b) the lesser of either (i) 1.25% of the Servicing Portfolio or (ii) the Appraised Value of the Servicing Portfolio, minus (c) purchased servicing, originated mortgage servicing rights (sometimes known in the industry as "OMSRs"), deferred excess servicing, rights with respect to the foregoing, and unamortized debt discount and expense, minus (d) treasury stock, minus (e) any surplus resulting from the write-up of assets, minus (f) goodwill, including, without limitation, any amounts representing the excess of the purchase price paid for acquired assets, stock, or interests over the book value assigned to them, minus (g) patents, trademarks, service marks, trade names, and copyrights, minus (h) Borrower's direct and indirect guaranties of Debt of any other Person, minus (i) Borrower's obligation with respect to letters of credit, acceptances, and similar obligations, minus (j) other intangible assets, plus (k) any Permitted Debt expressly subordinated to the Obligation. "AFFILIATE" of a Person means any other individual or entity who directly or indirectly controls, is controlled by, or is under common control with that Person. For purposes of this definition (a) "control," "controlled by," and "under common control with" mean possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of voting securities or other interests, by contract, or otherwise), and (b) the Companies are "Affiliates" of each other. "AGENT" means, at any time, Bank One, Texas, N.A. (or its successor appointed under SECTION 11.6), acting as administrative, collateral, managing, and syndication agent for Lenders under the Loan Documents. "AGENT'S REQUEST" is defined in SECTION 2.3(F). "APPLICABLE-COVERED RATE" means -- for each Borrowing-Purpose Category in the table below --the annual interest rate stated beside that category:
==================================================================== Borrowing-Purpose Category Applicable-Covered Rate ==================================================================== Gestation Borrowings 0.850% -------------------------------------------------------------------- Repurchase Borrowings 1.375% -------------------------------------------------------------------- Uncommitted-B/C-Paper Borrowings 2.000% -------------------------------------------------------------------- Other Warehouse Borrowings 1.250% -------------------------------------------------------------------- Working-Capital Borrowings 1.500% -------------------------------------------------------------------- Term-Line Borrowings 2.000% ====================================================================
2 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- "APPLICABLE MARGIN" means -- for each Borrowing-Purpose Category and relevant Borrowing-Price Category in the table below -- the positive or negative interest margin beside those categories:
Borrowing-Purpose Category Borrowing-Price Category Applicable Margin ============================================================================== Gestation Borrowings Base Rate 0.000% ------------------------------------------------------------------------------ Fed-Funds Rate or LIBOR 0.850% ------------------------------------------------------------------------------ Swing Borrowings Base Rate 0.000% ------------------------------------------------------------------------------ Fed-Funds Rate 1.250% ------------------------------------------------------------------------------ Uncommitted-B/C-Paper Base Rate 1.000% Borrowings ------------------------------------------------------------------------------ Fed-Funds Rate or LIBOR 2.000% ------------------------------------------------------------------------------ Repurchase Borrowings Base Rate 0.000% ------------------------------------------------------------------------------ Fed-Funds Rate or LIBOR 1.375% ------------------------------------------------------------------------------ Other Warehouse Borrowings Base Rate 0.000% ------------------------------------------------------------------------------ Fed-Funds Rate or LIBOR 1.250% ------------------------------------------------------------------------------ Working-Capital Borrowings Base Rate 0.500% ------------------------------------------------------------------------------ Fed-Funds Rate or LIBOR 1.500% ------------------------------------------------------------------------------ Term-Line Borrowings Base Rate 1.000% Fed-Funds Rate or LIBOR 2.000% ==============================================================================
"APPRAISAL" means, for any Mortgage Loan, a written statement of the market value of the real property securing it. "APPRAISAL LAW" means any Law that is applicable to appraisals of mortgaged-residential property in connection with transactions involving that property, including, without limitation, Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, the Federal Deposit Insurance Corporation Improvement Act of 1991, 12 C.F.R. Chapter I, Part 34, Subpart C, 12 C.F.R. Chapter II, Subchapter A, Part 225, Subpart G, and 12 C.F.R. Chapter III, Subchapter B, Part 323. "APPRAISED VALUE" means -- at any time -- the appraised value of the Servicing Portfolio determined in the appraisal most recently delivered to Agent by an appraiser and in a manner and form satisfactory to Agent. "APPROVED INVESTOR" means (a) FHLMC, FNMA, and GNMA and (b) any other Person from time to time named on lists (separate lists will be maintained for Committed-B/C-Paper Borrowings, Second-Lien Borrowings, and for all other Warehouse Borrowings) agreed to by Agent and Borrower -- which lists Agent shall furnish to any Lender upon request -- as those lists may be amended from time to time (i) by Borrower and Agent to remove or add other names as Agent and Borrower may agree, (ii) by either Agent or Determining Lenders to remove any such other Person after Agent has or Determining Lenders have given to Borrower notice of -- and an opportunity to discuss -- the proposed removal of that Person, or (iii) automatically -- without signing by any party -- to remove any such Person who then (A) is not Solvent, (B) fails to pay its debts generally as they become due, (C) voluntarily seeks, consents to, or acquiesces in the benefit of any Debtor Law, or (D) becomes a party to or is made the subject of any proceeding provided for by any Debtor Law -- other than as a creditor or claimant -- that could suspend or otherwise adversely affect 3 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- the Rights of any Company, Agent, or any Lender in connection with the transactions contemplated in the Loan Documents. With respect to Jumbo Loans, the term "Approved Investor" will be deemed to refer to an Approved-Jumbo Investor. "APPROVED-JUMBO INVESTOR" means (a) FHLMC, FNMA, and GNMA and (b) any other Person from time to time named on a list agreed to by Agent and Borrower -- which Agent shall furnish to any Lender upon request -- as that list may be amended from time to time (i) by Borrower and Agent to remove or add other names as Agent and Borrower may agree, (ii) by either Agent or Determining Lenders to remove any such other Person after Agent has or Determining Lenders have given to Borrower notice of -- and an opportunity to discuss -- the proposed removal of that Person, or (iii) automatically -- without signing by any party -- to remove any such Person who then (A) is not Solvent, (B) fails to pay its debts generally as they become due, (C) voluntarily seeks, consents to, or acquiesces in the benefit of any Debtor Law, or (D) becomes a party to or is made the subject of any proceeding provided for by any Debtor Law -- other than as a creditor or claimant -- that could suspend or otherwise adversely affect the Rights of either Borrower, Agent, or any Lender in connection with the transactions contemplated in the Loan Documents. "APPROVED PMI" means any private-mortgage insurance company from time to time named on a list agreed to by Agent and Borrower -- which Agent shall furnish to any Lender upon request -- as that list may be amended from time to time (a) by Borrower and Agent to remove or add other names as Agent and Borrower may agree, (b) by either Agent or Determining Lenders to remove any Person on the list after Agent has or Determining Lenders have given to Borrower notice of -- and an opportunity to discuss -- the proposed removal of that Person, or (c) automatically -- without signing by any party --to remove any such Person who then (i) is not Solvent, (ii) fails to pay its debts generally as they become due, (iii) voluntarily seeks, consents to, or acquiesces in the benefit of any Debtor Law, or (iv) becomes a party to or is made the subject of any proceeding provided for by any Debtor Law -- other than as a creditor or claimant -- that could suspend or otherwise adversely affect the Rights of Borrower, Agent, or any Lender in connection with the transactions contemplated in the Loan Documents. "ASSIGNMENT" means an Assignment and Assumption Agreement executed by a selling Lender and a Purchaser under SECTION 12.12 and SECTION 12.14 and delivered to Agent in substantially the form of EXHIBIT F-2. "AVERAGE-ADJUSTED-BASE RATE" means, for any period, an annual interest rate equal to the quotient of (a) the sum of the Base Rate plus the Applicable Margin for each calendar day during that period divided by (b) the number of days during that period. "AVERAGE-ADJUSTED-FED-FUNDS RATE" means, for any period, an annual interest rate equal to the quotient of (a) the sum of the Fed-Funds Rate plus the Applicable Margin for each calendar day during that period divided by (b) the number of days during that period. "AVERAGE-ADJUSTED-LIBOR RATE" means, for any period, an annual interest rate equal to the quotient of (a) the sum of LIBOR plus the Applicable Margin for each calendar day during that period divided by (b) the number of days during that period. "AVERAGE-DEPOSITARY BALANCES" means, for any period and for any Depositary, (a) the quotient of (i) the sum of that Depository's Eligible Balances as of the close of business for each calendar day (which for any day that is not a Business Day are deemed for this definition to be those balances for the preceding Business Day) during that period divided by (ii) the number of calendar days during that period minus (b) amounts necessary to satisfy any deposit insurance, reserve, special deposit, Tax (other than that Depository's general corporate income or franchise Taxes), duty, or other imposition (in each case at the applicable rates) 4 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- requirements applicable to that Depository for those accounts, minus (c) amounts required to compensate that Depository for direct processing and transaction costs and other services rendered in connection with those accounts in accordance with that Depository's system of charges for similar accounts, minus (d) unless otherwise paid directly to that Depository, any amounts in those accounts utilized as of that day in the calculation of interest on any other Debt payable by any Company to that Depository or any other Person. "AVERAGE-PRINCIPAL DEBT" means, for any period and any Lender, the quotient of (a) the sum of the Principal Debt owed to that Lender as of the close of business for each calendar day (which for any day that is not a Business Day is deemed for this definition to be the Principal Debt as of the close of business for the preceding Business Day) divided by (b) the number of days during that period. "BAILEE LETTER" means, as applicable under the circumstances, one of the letters executed and delivered by Agent in substantially the form of EXHIBIT C-4 or EXHIBIT C-5. "BASE RATE" means an annual interest rate equal from day to day to the floating annual interest rate established by Agent from time to time as its base-rate of interest, which may not be the lowest interest rate charged by Agent on loans similar to Borrowings. "BASE-RATE BORROWING" means any Borrowing bearing interest at the Average- Adjusted-Base Rate. "B/C-PAPER SUBLIMIT" means $35,000,000. "BORROWER" is defined in the preamble to this agreement. "BORROWING" means any amount disbursed (a) by any Lender to Borrower under the Loan Documents as an original disbursement of funds, a renewal, extension, or continuation of an amount outstanding, or a payment under an LC, or (b) by Agent or any Lender in accordance with, and to satisfy a Company's obligations under, any Loan Document. "BORROWING BASE" means, at any time, the sum of the various borrowing bases set forth on SCHEDULE 4.2. "BORROWING-BASE REPORT" means a report executed by Agent and delivered to Borrower and Lenders in substantially the form of EXHIBIT D-3. "BORROWING DATE" means, for any Borrowing, the date it is disbursed. "BORROWING EXCESS" means, at any time, the amount by which any of the limitations of SECTION 2.1 are exceeded. "BORROWING-PRICE CATEGORY" means any category of Borrowing determined with respect to the applicable interest option, e.g., a Base-Rate Borrowing, Fed- Funds Borrowing, or LIBOR Borrowing. "BORROWING-PURPOSE CATEGORY" means any category of Borrowing determined with respect to its purpose, e.g., a (a) Warehouse Borrowing, which may be a Dry Borrowing, Wet Borrowing, Gestation Borrowing, Swing Borrowing, Committed-B/C- Paper Borrowing, Uncommitted-B/C-Paper Borrowing, Second-Lien Borrowing, or Repurchase Borrowing, (b) Working-Capital Borrowing, which may be a P&I Borrowing, T&I Borrowing, or Foreclosure Borrowing, or (c) Term-Line Borrowing. 5 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- "BORROWING REQUEST" means a request executed by a Responsible Officer of Borrower requesting a Borrowing and delivered to Agent in substantially the form of EXHIBIT D-1. "BUSINESS DAY" means (a) for purposes of any LIBOR Borrowing, a day when commercial banks are open for international business in London, England, and (b) for all other purposes, any day other than Saturday, Sunday, and any other day that commercial banks are authorized by applicable Laws to be closed in Texas. "CALENDAR MONTH" means that portion of a calendar month that occurs at any time from the date of this agreement to the date that the Obligation is paid in full and all commitments to lend under this agreement have terminated or been canceled. "CALENDAR QUARTER" means that portion of any calendar quarter that occurs at any time from the date of this agreement to the date that the Obligation is paid in full and all commitments to lend under this agreement have terminated or been canceled. "CMLTD" means current maturities of long-term debt (inclusive of the term debt extended under this agreement), plus current maturities of capital leases. "CASH FLOW" means -- for any period on a consolidated basis for Borrower and in accordance with GAAP, consistently applied -- the sum of (a) net income (calculated as profit or loss after deducting tax expense and after recognizing extraordinary losses and extraordinary gains but not non-cash income tax recoveries) plus (b) to the extent actually deducted in calculating net income, depreciation, and amortization minus (c) to the extent actually included in calculating net income, any non-cash revenue minus (d) any Distributions paid to Guarantor. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. (S)(S)9601 et seq. "CLOSING DATE" means January 31, 1997. "COLLATERAL" means all Collateral as defined in the Security Agreement or as otherwise delivered by any Person as security for the Obligation. "COLLATERAL-CONVERSION NOTICE" means a notice executed by Borrower and delivered to Agent in substantially the form of EXHIBIT D-7. "COLLATERAL-DELIVERY NOTICE" means a notice executed by Borrower and delivered to Agent in substantially the form of EXHIBIT D-2. "COLLATERAL DOCUMENTS" means the documents and other items described on SCHEDULE 4.3 and required to be delivered to Agent under SECTION 4.3. "COMBINED COMMITMENT" means, at any time and for any Lender, the sum of that Lender's (a) Warehouse Commitment, (b) Working-Capital Commitment, and (c) Term-Line Commitment. "COMMITMENT PERCENTAGE" means, at any time for any Lender, (a) in relation to the Warehouse Commitment, the proportion (stated as a percentage) that its Warehouse Commitment bears to the total Warehouse Commitments of all Lenders, (b) in relation to the Working-Capital Commitment, the proportion (stated as a percentage) that its Working-Capital Commitment bears to the total Working- Capital Commitments 6 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- of all Lenders, (c) in relation to the Term-Line Commitment, the proportion (stated as a percentage) that its Term-Line Commitment bears to the total Term- Line Commitments of all Lenders, and (d) in relation to the determination of Determining Lenders, the proportion (stated as a percentage) that its Combined Commitment bears to the total Combined Commitments of all Lenders. "COMMITTED-B/C-PAPER BORROWING" means a Warehouse Borrowing that is (a) a Ratable Borrowing or Swing Borrowing, (b) subject to the B/C-Paper Sublimit and (c) supported by the Borrowing Base for Eligible-Committed-B/C-Paper Loans. "COMPANIES" means (a) at any time, Borrower and each of its Subsidiaries, and (b) where appropriate in respect of any period unless otherwise provided, includes all of their operations during that period whether discontinued or not. "COMPLIANCE CERTIFICATE" means a certificate executed by a Responsible Officer of Borrower and delivered to Agent in substantially the form of EXHIBIT D-6. "CONVENTIONAL LOAN" means a Mortgage Loan that (a) is not a FHA Loan or VA Loan but (b) complies with all applicable requirements for purchase under the FNMA or FHLMC standard form of conventional-mortgage-purchase contract. "CORRECTION PERIOD" means 14 calendar days for any Collateral Documents shipped under SECTION 4.6 for correction. "CURRENT FINANCIALS" means either (a) the Companies' Financials for the year ended December 31, 1995, and for the 11 months ended November 30, 1996, or (b) at any time after the Companies' annual Financials are first delivered under SECTION 7.1, the Companies' annual Financials then most recently delivered to Agent and subsequent monthly Financials then most recently delivered to Agent. "DEBT", for any Person and without duplication, means (a) all obligations required by GAAP to be classified upon that Person's balance sheet as liabilities, (b) liabilities secured (or for which the holder of the liabilities has an existing Right, contingent or otherwise, to be so secured) by any Lien existing on property owned or acquired by that Person, (c) obligations that under GAAP should be capitalized for financial reporting purposes, and (d) all guaranties, endorsements, and other contingent obligations with respect to Debt of others or in respect of any Employee Plan. "DEBTOR LAWS" means the Bankruptcy Code of the United States of America and all other applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement, receivership, insolvency, reorganization, suspension of payments, or similar Laws affecting creditors' Rights. "DEFAULT" is defined in SECTION 10.1. "DEFAULT RATE" means, for any day, an annual interest rate equal to the lesser of either (a) the Fed-Funds Rate plus 5% or (b) the Maximum Rate. "DEPOSITARY" means any Lender with whom Borrower maintains non-interest bearing demand deposit accounts in its name. "DETERMINING LENDERS" means, at any time, any combination of Lenders whose (a) Termination Percentages total at least 66 2/3% at any time on or after the Warehouse-Actual-Termination Date, or (b) Commitment Percentages total at least 66 2/3% at all other times. 7 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- "DISTRIBUTION" means, at any time and with respect to any shares of any capital stock or other equity securities issued by a Person, (a) the retirement, redemption, purchase, or other acquisition for value of those securities, (b) the declaration or payment of any dividend with respect to those securities, (c) any loan or advance by that Person to, or other investment by that Person in, the holder of any of those securities, and (d) any other payment by that Person with respect to those securities. "DRY BORROWING" means a Warehouse Borrowing for which all of the Collateral Documents have been delivered to Agent in accordance with SECTION 4.3. "ELIGIBLE BALANCES" means, for any calendar day and any Depositary, the sum (which for any day that is not a Business Day is deemed for this definition to be that sum as determined as of the close of business on the preceding Business Day) of collected balances as of the close of business on that day in all identified non-interest bearing demand deposit accounts or money market zero reserve accounts of or maintained by Borrower with that Depositary. "ELIGIBLE-COMMITTED-B/C-PAPER LOAN" is defined in SCHEDULE 4.1. "ELIGIBLE-FORECLOSURE RECEIVABLE" is defined in SCHEDULE 4.1. "ELIGIBLE-GESTATION COLLATERAL" is defined in SCHEDULE 4.1. "ELIGIBLE-MORTGAGE COLLATERAL" means, at any time, all Eligible-Mortgage Loans and all Eligible-Mortgage Securities. "ELIGIBLE-MORTGAGE LOAN" is defined in SCHEDULE 4.1. "ELIGIBLE-MORTGAGE SECURITY" is defined in SCHEDULE 4.1. "ELIGIBLE-P&I RECEIVABLE" is defined in SCHEDULE 4.1. "ELIGIBLE-REPURCHASED LOAN" is defined in SCHEDULE 4.1. "ELIGIBLE-SECOND-LIEN LOAN" is defined in SCHEDULE 4.1. "ELIGIBLE-SERVICING PORTFOLIO" is defined in SCHEDULE 4.1. "ELIGIBLE-T&I RECEIVABLE" is defined in SCHEDULE 4.1. "ELIGIBLE-UNCOMMITTED-B/C-PAPER LOAN" is defined in SCHEDULE 4.1. "EMPLOYEE PLAN" means any employee-pension-benefit plan (a) covered by Title IV of ERISA and established or maintained by Borrower or any ERISA Affiliate (other than a Multiemployer Plan) or (b) established or maintained by Borrower or any ERISA Affiliate, or to which Borrower or any ERISA Affiliate contributes, under the Laws of any foreign country. "ENVIRONMENTAL LAW" means any applicable Law that relates to protection of the environment or to the regulation of any Hazardous Substances, including, without limitation, CERCLA, the Hazardous Materials Transportation Act (49 U.S.C. (S) 1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. (S) 6901 et seq.), the Clean Water Act (33 U.S.C. (S) 1251 et seq.), the Clean Air Act (42 U.S.C. (S) 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. (S) 2601 et seq.), the Federal Insecticide, Fungicide, and 8 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- Rodenticide Act (7 U.S.C. (S) 136 et seq.), the Emergency Planning and Community Right-to-Know Act (42 U.S.C. (S) 11001 et seq.), the Safe Drinking Water Act (42 U.S.C. (S) 201 and (S) 300f et seq.), the Rivers and Harbors Act (33 U.S.C. (S) 401 et seq.), the Oil Pollution Act (33 U.S.C. (S) 2701 et seq.), analogous state and local Laws, and any analogous future enacted or adopted Laws. "ERISA" means the Employee Retirement Income Security Act of 1974. "ERISA AFFILIATE" means any Person that, for purposes of Title IV of ERISA, is a member of Borrower's controlled group or is under common control with Borrower within the meaning of Section 414 of the IRC. "EXISTING LENDERS" is defined in the recitals of this agreement. "EXISTING LOAN AGREEMENT" is defined in the recitals of this agreement. "FED-FUNDS BORROWING" means any Borrowing bearing interest at the Average- Adjusted-Fed-Funds Rate. "FED-FUNDS RATE" means, for any day, the annual interest rate -- rounded upwards, if necessary, to the nearest 0.01% -- determined by Agent to be either (a) the weighted average of the rates on overnight-federal-funds transactions with member banks of the Federal Reserve System arranged by federal-funds brokers for that day (or, if not a Business Day on the preceding Business Day) as published by the Federal Reserve Bank of New York (as published by Knight- Ridder, page 73, utilizing the Fed-Effective Rate), or (b) if not so published for any day, the average of the quotations for that day on those transactions received by Agent from three federal-funds brokers of recognized standing it may select. "FHA" means the Federal Housing Administration within the United States Department of Housing and Urban Development. "FHA LOAN" means a Mortgage Loan which is either (a) fully or partially insured by FHA under the National Housing Act or Title V of the Housing Act of 1949, (b) subject to a current, binding, and enforceable commitment issued by FHA for that insurance, or (c) eligible for direct endorsement under the FHA Direct Endorsement Program. "FHLMC" means the Federal Home Loan Mortgage Corporation. "FINANCIALS" of a Person means balance sheets, profit and loss statements, reconciliations of capital and surplus, and statements of cash flow prepared (a) according to GAAP (subject to year end audit adjustments with respect to interim Financials) and (b) except as stated in SECTION 1.4, in comparative form to prior year-end figures or corresponding periods of the preceding fiscal year or other relevant period, as applicable. "FNMA" means the Federal National Mortgage Association. "FORECLOSURE BORROWING" means a Working-Capital Borrowing that is (a) a Ratable Borrowing, (b) supported by the Borrowing Base for Receivables, and (c) to be used by Borrower to reimburse itself for a Foreclosure Payment it has made. 9 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- "FORECLOSURE PAYMENT" means the unreimbursed purchase price paid by Borrower to repurchase a defaulted Mortgage Loan out of a Mortgage Pool in accordance with Borrower's obligations under the applicable Servicing Contract. "FUNDING LOSS" means any reasonable, out-of-pocket loss or expense that any Lender incurs because Borrower (a) fails or refuses, for any reason other than a default by the Lender claiming that loss or expense, to take any LIBOR Borrowing that it has requested under this agreement, or (b) prepays or pays any LIBOR Borrowing at any time other than the last day of the applicable Interest Period. "GAAP" means generally accepted accounting principles of the Accounting Principles Board of the American Institute of Certified Public Accountants and the Financial Accounting Standards Board that are applicable from time to time. "GESTATION BORROWING" means a Warehouse Borrowing that is (a) a Ratable Borrowing, (b) subject to the Gestation Sublimit, and (c) supported by the Borrowing Base for Gestation Collateral. "GESTATION SUBLIMIT" means, at any time, 50% of the total Warehouse Commitments. "GNMA" means the Government National Mortgage Association. "GUARANTOR" means Matrix Capital Corporation, a Colorado corporation. "GUARANTY" means an Amended and Restated Guaranty in substantially the form of EXHIBIT B. "GUIDE" means the following, as applicable under the circumstances, for (a) FHLMC, the Freddie Mac Sellers' & Servicers' Guide, (b) FNMA, the Fannie Mae Servicing Guide, and (c) GNMA, as applicable, either (i) the GNMA I Mortgage Securities Guide, Handbook GNMA 5500.1REV-6, or (ii) the GNMA II Mortgage Securities Guide, Handbook GNMA 5500.2. "HAZARDOUS SUBSTANCE" means any substance that is designated, defined, classified, or regulated as a hazardous waste, hazardous material, pollutant, contaminant, explosive, corrosive, flammable, infectious, carcinogenic, mutagenic, radioactive, or toxic or hazardous substance under any Environmental Law, including, without limitation, any hazardous substance within the meaning of (S) 101(14) of CERCLA. "HEDGE CONTRACT" means, for any Person, any present or future, whether master or single, agreement, document or instrument providing for -- or constituting an agreement to enter into (a) commodity hedges in the normal course of business in accordance with prior practices of that Person before the date of this agreement for purposes of hedging material purchases, (b) foreign- currency purchases and swaps, (c) interest-rate swaps, and (d) interest-rate- hedging products. "INTEREST PERIOD" is determined in accordance with SECTION 3.8. "IRC" means the Internal Revenue Code of 1986. "JUMBO LOAN" means a Mortgage Loan (other than a FHA Loan or VA Loan) that complies with all applicable requirements for purchase under the FNMA or FHLMC standard form of conventional mortgage purchase contract then in effect except that the amount of it exceeds the maximum loan amount under those requirements. 10 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- "JUMBO SUBLIMIT", at any time, means, except as otherwise approved by Agent in writing, (a) for all Jumbo Loans, 35% of the total Warehouse Commitments, and (b) for any Jumbo Loan in excess of $750,000, only the first $750,000. "LAWS" means all applicable statutes, laws, treaties, ordinances, rules, regulations, orders, writs, injunctions, decrees, judgments, opinions, and interpretations of any Tribunal. "LC" means a standby letter of credit issued by Agent or any of its Affiliates under this agreement and under an LC Agreement. "LC AGREEMENT" means a letter of credit application and agreement (in form and substance satisfactory to Agent) submitted and executed by Borrower to Agent or any of its Affiliates for an LC for the account of any Company. "LC EXPOSURE" means, without duplication, the sum of (a) the total face amount of all undrawn and uncancelled LCs plus (b) the total unpaid reimbursement obligations of Borrower under drawings or drafts under any LC. "LC REQUEST" means a request by Borrower to Agent by electronic device or in writing (in form acceptable to Agent) for an LC. "LENDER LIEN" means any present or future first-priority (except as otherwise specifically provided in the Loan Documents) Lien securing the Obligation and assigned, conveyed, and granted to or created in favor of Agent for the benefit of Lenders under the Loan Documents. "LENDERS" means the financial institutions -- including, without limitation, Agent in respect of its share of Borrowings -- named on SCHEDULE 2 or on the most-recently-amended SCHEDULE 2, if any, delivered by Agent under this agreement, and, subject to this agreement, their respective successors and permitted assigns (but not any Participant who is not otherwise a party to this agreement). "LIBOR" means, for a LIBOR Borrowing, the annual interest rate -- rounded upwards, if necessary, to the nearest 0.01% -- equal to the annual interest rate - -- rounded upwards, if necessary to the nearest 0.01% -- that is (a) the rate determined by Agent -- at approximately 10:00 a.m. on the second Business Day before the applicable Interest Period -- as the rate reported by Telerate Mortgage Services or Knight-Ridder for deposits in United States dollars in the London interbank market that are comparable in amount and maturity of that Borrowing, or (b) if Agent cannot determine that rate, then the rate that deposits in United States dollars are offered to Agent in the amount of that LIBOR Borrowing in the London interbank market -- at approximately 11:00 a.m., London, England, time on the third Business Day before the applicable Interest Period -- for deposits comparable in amount and maturity of that Borrowing. "LIBOR BORROWING" means any Borrowing (other than a Swing Borrowing) that bears interest at the Average-Adjusted-LIBOR Rate. "LIEN" means any lien, mortgage, security interest, pledge, assignment, charge, title retention agreement, or encumbrance of any kind and any other arrangement for a creditor's claim to be satisfied from assets or proceeds prior to the claims of other creditors or the owners. "LITIGATION" means any action by or before any Tribunal. 11 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- "LOAN DOCUMENTS" means (a) this agreement, certificates and reports delivered under this agreement, and exhibits and schedules to this agreement, (b) all agreements, documents, and instruments in favor of Agent or Lenders (or Agent on behalf of Lenders) ever delivered under this agreement or otherwise delivered in connection with any of the Obligation, (c) all LCs and LC Agreements, and (d) all renewals, extensions, and restatements of, and amendments and supplements to, any of the foregoing. "MANAGEMENT REPORT" means a report delivered by a Responsible Officer of Borrower to Agent in substantially the form of EXHIBIT D-5. "MARKET VALUE" means, at any time (a) for Mortgage Loans -- except as provided in CLAUSE (B) below -- a market value based upon the then-most recent posted net yield for 30-day mandatory future delivery furnished by FNMA and published and distributed by Telerate Mortgage Services or Knight-Ridder or (if that posted net yield is not available from these services) obtained by Agent from FNMA, (b) for Jumbo Loans or any other Mortgage Loan when the posted rate is not available from FNMA, the value determined in good faith by Agent, and (c) for Mortgage Securities, the applicable Take-Out Prices, as detailed in the then most-recent Take-Out Report delivered by Borrower under this agreement of all Take-Out Commitments relating to Mortgage Securities. "MATERIAL-ADVERSE EVENT" means any circumstance or event that, individually or collectively, is reasonably expected to result (at any time before the commitments under this agreement are fully canceled or terminated and the Obligation is fully paid and performed) in any (a) impairment of Borrower's or Guarantor's ability to perform any of its payment or other material obligations under any Loan Document or (ii) the ability of Agent or any Lender to enforce any of those obligations or any of their respective Rights under the Loan Documents, (b) material and adverse effect on Borrower's individual financial condition or the Companies' consolidated financial condition as represented to Lenders in the Current Financials most recently delivered before the date of this agreement, (c) material and adverse effect on any Collateral, or (d) Default or Potential Default. "MATERIAL AGREEMENT" means, for any Person, any agreement to which that Person is a party, by which that Person is bound, or to which any assets of that Person may be subject, and that is not cancelable by that Person upon less than 30-days notice without liability for further payment other than nominal penalty, and the default under which or cancellation or forfeiture of which would be a Material-Adverse Event. "MAXIMUM AMOUNT" and "MAXIMUM RATE" respectively mean, for any day and for any Lender, the maximum non-usurious amount and the maximum non-usurious rate of interest that, under applicable Law, the Lender is permitted to contract for, charge, take, reserve, or receive on its portion of the Obligation. "MORTGAGE COLLATERAL" means all Mortgage Loans, Mortgage Securities, and related Collateral Documents offered as Collateral under the Loan Documents. "MORTGAGE-COLLATERAL GROUP" is defined on SCHEDULE 4.2. "MORTGAGE LOAN" means a loan that is not a construction or non-residential commercial loan, is evidenced by a valid promissory note, and is secured by a mortgage, deed of trust, or trust deed that grants a perfected first-priority Lien (except as otherwise specifically provided in the Loan Documents) on residential-real property. "MORTGAGE POOL" means a (a) "group" or "grouping" of Mortgage Loans assembled in accordance with -- and as that term is used in -- the FHLMC Guide, (b) "pool" of Mortgage Loans assembled in accordance with -- and as that term is used in -- the FNMA Guide or the GNMA I Guide, (c) "pool" of 12 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- Mortgage Loans or a "loan package" consisting of Mortgage Loans assembled in accordance with -- and as those terms are used in -- the GNMA II Guide, or (d) any other pool of Mortgage Loans assembled by an Approved Investor securing -- and providing for pass-through payments of principal and interest on -- its Mortgage Securities. "MORTGAGE SECURITY" means a security -- in respect of an underlying pool of related Mortgage Loans -- that provides for payment by the issuer to the holder of specified principal installments and a fixed-interest rate on the unpaid balance, with all prepayments being passed through to the holder, and is issued in certificate or book-entry form. "MULTIEMPLOYER PLAN" means a multiemployer plan as defined in Sections 3(37) or 4001(a)(3) of ERISA or Section 414(f) of the IRC (or any similar type of plan established or regulated under the Laws of any foreign country) to which Borrower or any ERISA Affiliate is making, or has made, or is accruing, or has accrued, an obligation to make contributions. "NET INCOME" means, for any period and any Person, the amount that should, in accordance with GAAP, be reflected on that Person's income statement as net income (reflecting that Person's profit or loss after deducting its Tax expense) for that period after deduction of any minority interests. "NET WORTH" means, for any period and any Person, that Person's stockholder's equity as determined under GAAP. "NOTES" means the Warehouse Notes, Swing Note, Working-Capital Notes, and Term-Line Notes. "OBLIGATION" means all (a) present and future indebtedness, obligations, and liabilities of Borrower to Agent or any Lender and related to any Loan Document, whether principal, interest, fees, costs, attorneys' fees, or otherwise, (b) all present and future indebtedness, obligations, and liabilities of Borrower to Agent or any Lender in respect of any Hedge Contract, (c) amounts that would become due but for operation of 11 U.S.C. (S)(S) 502 and 503 or any other provision of Title 11 of the United States Code, and all renewals, extensions, and modifications of any of the foregoing, and (d) pre- and post- maturity interest on any of the foregoing, including, without limitation, all post-petition interest if any Company voluntarily or involuntarily files for protection under any Debtor Law. "PARTICIPANT" is defined in SECTION 12.13. "PBGC" means the Pension Benefit Guaranty Corporation. "PERMITTED DEBT" is defined in SECTION 8.1. "PERMITTED LIENS" is defined in SECTION 8.2. "PERMITTED LOANS/INVESTMENTS" is defined in SECTION 8.3. "PERSON" means any individual, entity, or Tribunal. "P&I BORROWING" means a Working-Capital Borrowing that is (a) a Ratable Borrowing, (b) supported by the Borrowing Base for Receivables, and (c) to be used by Borrower to make a P&I Payment. "P&I PAYMENT" means an unreimbursed advance or payment by Borrower to effect the timely payment of scheduled principal and interest on Mortgage Securities that are backed by a Mortgage Pool serviced by 13 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- Borrower in accordance with Borrower's obligations under the applicable Servicing Contract to cover a short-fall between the principal and interest collected from mortgagors in respect of that Mortgage Pool and the principal and interest due on those Mortgage Securities. "POTENTIAL DEFAULT" means any event's occurrence or any circumstance's existence that would --upon any required notice, time lapse, or both -- become a Default. "PRINCIPAL DEBT" means, at any time, the outstanding principal balance of all Borrowings. "PURCHASER" is defined in SECTION 12.14. "RATABLE BORROWING" means a Borrowing that is advanced by Lenders to Borrower in accordance with their Commitment Percentages. "REGULATION Q" means Regulation Q promulgated by the Board of Governors of the Federal Reserve System, 12 C.F.R. Part 17. "REGULATION U" means Regulation U promulgated by the Board of Governors of the Federal Reserve System, 12 C.F.R. Part 221. "REGULATION X" means Regulation X promulgated by the Board of Governors of the Federal Reserve System, 12 C.F.R. Part 224. "RELEASE REQUEST" means a Release Request executed and delivered by Borrower to Agent in substantially in the form of EXHIBIT C-7. "REPRESENTATIVES" means representatives, officers, directors, employees, attorneys, and agents. "REPURCHASE BORROWING" means a Warehouse Borrowing that is (a) a Ratable Borrowing or Swing Borrowing, (b) subject to the Repurchase Sublimit and (c) supported by the Borrowing Base for Eligible-Repurchased Loans. "REPURCHASE SUBLIMIT" means $10,000,000. "RESPONSIBLE OFFICER" means (a) the chairman, president, chief executive officer, any vice president, or chief financial officer of Borrower to the extent that such officer's name, title, and signature have been certified to Agent by the secretary or an assistant secretary of Borrower or (b) any other officer designated as a "Responsible Officer" in writing to Administrative Agent by any officer in CLAUSE (A) preceding. "RIGHTS" means rights, remedies, powers, privileges, and benefits. "SECOND-LIEN BORROWING" means a Warehouse Borrowing which is (a) a Ratable Borrowing or Swing Borrowing, (b) subject to the Second-Lien Sublimit, and (c) supported by the Borrowing Base for Eligible-Second-Lien Loans. "SECOND-LIEN SUBLIMIT" means $15,000,000. "SECURITY AGREEMENT" means the Security Agreement executed by Borrower and Agent in substantially the form of EXHIBIT C-1. 14 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- A "SERVICER" means variously a "seller," "servicer," "issuer," or "lender," as defined or used in the applicable Guide in respect of a Person having Servicing Rights. "SERVICING ACCOUNT" means a non-interest bearing deposit account established by Borrower with Agent -- styled and numbered "Matrix Servicing Account," Account No. 1886479342 -- for deposit of P&I Borrowings, T&I Borrowings, Foreclosure Borrowings, and payments on the Obligation related to P&I Borrowings, T&I Borrowings, and Foreclosure Borrowings. "SERVICING CONTRACT" means, at any time, a Guide or any other present or future written agreement between an investor and Borrower acting as a servicer - - - or master servicer in the case of a sub-servicing arrangement -- providing for Borrower to service mortgage loans or mortgage pools, as that Guide or agreement may be supplemented by applicable manuals, guides, and Laws. "SERVICING PAYMENTS" means P&I Payments, T&I Payments, and Foreclosure Payments. "SERVICING PORTFOLIO" means, at any time, the total unpaid principal amount of Mortgage Loans serviced by Borrower for a fee other than any Mortgage Loans serviced by Borrower under a subservicing agreement or a master servicing agreement. "SERVICING RECEIVABLES" means, at any time, all Eligible-Foreclosure Receivables, Eligible-P&I Receivables, and Eligible-T&I Receivables. "SERVICING RIGHTS" means -- for Borrower and at any time -- all present and future Rights as servicer or master servicer under Servicing Contracts, including, but not limited to, all Rights to receive Servicing Receivables and all other compensation, payments, reimbursements, termination and other fees, and proceeds of any disposition of those Rights. "SETTLEMENT ACCOUNT" means a non-interest bearing deposit account established by Borrower with Agent -- styled and numbered "Matrix Settlement Account," Account No. 1886479318 -- for deposit of payments from investors, the settlement of collections from Mortgage Securities in connection with Mortgage Collateral, and deposit of payments on the Obligation. "SHIPPING PERIOD" means 45 calendar days (60 calendar days for bond programs) for the Collateral Documents for any Mortgage Loan shipped to or for an investor under SECTION 4.5. "SHIPPING REQUEST" means a Shipping Request executed and delivered by Borrower to Agent in substantially the form of EXHIBIT C-3. "SOLVENT" means, for any Person, that (a) the aggregate fair market value of its assets exceeds its liabilities, (b) it has sufficient cash flow to enable it to pay its Debts as they mature, and (c) it does not have unreasonably small capital to conduct its businesses. "SUBSIDIARY" of any Person means any entity of which at least 50% (in number of votes) of the stock (or equivalent interests) is owned of record or beneficially, directly or indirectly, by that Person. "SWING BORROWING" means a Warehouse Borrowing that is (a) either a Dry Borrowing or Wet Borrowing but not a Gestation Borrowing or a LIBOR Borrowing, (b) advanced by Agent to Borrower under the Swing Sublimit, and (c) supported by the Borrowing Base for Mortgage Collateral. 15 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- "SWING NOTE" means a promissory note executed and delivered by Borrower, payable to Agent's order, in the stated principal amount of the Swing Sublimit, and substantially in the form of EXHIBIT A-2, as renewed, extended, amended, or replaced. "SWING SUBLIMIT" means $15,000,000. "TAKE-OUT COMMITMENT" means a binding commitment from an Approved Investor to purchase Mortgage Collateral, acceptable in form and substance to Agent, in favor of Borrower, with respect to which there is be no condition which cannot be reasonably anticipated to be satisfied or complied with before its expiration. "TAKE-OUT PRICE" means, at any time, the amount described and calculated as provided on SCHEDULE 4.2. "TAKE-OUT REPORT" means a report delivered by Borrower to Agent substantially in the form of EXHIBIT D-4. "TAXES" means, for any Person, taxes, assessments, or other governmental charges or levies imposed upon it, its income, or any of its properties, franchises, or assets. "TERM-LINE BORROWING" means a Ratable Borrowing that is (a) advanced to Borrower under the Term-Line Commitment and (b) supported by the Borrowing Base for Term-Line. "TERM-LINE COMMITMENT" means -- at any time and for any Lender -- the amount stated beside its name and so designated on SCHEDULE 2, as that schedule may be amended and as that amount may be canceled or terminated under this agreement. "TERM-LINE NOTE" means a promissory note executed and delivered by Borrower, payable to a Lender's order, in the stated principal amount of its Term-Line Commitment, and substantially in the form of EXHIBIT A-4, as renewed, extended, or replaced. "TERMINATION PERCENTAGE" means -- at any time for any Lender -- the proportion (stated as a percentage) that its Principal Debt bears to the total Principal Debt. "T&I BORROWING" means a Working-Capital Borrowing that is (a) a Ratable Borrowing, (b) supported by the Borrowing Base for Receivables, and (c) to be used by Borrower to make a T&I Payment. "T&I PAYMENT" means an unreimbursed advance or payment by Borrower to cover tax- and insurance-escrow payments not paid when required by a mortgagor under a Mortgage Loan in accordance with Borrower's obligations under the applicable Servicing Contract. "TOTAL-ADJUSTED DEBT" means -- for the Companies, on a consolidated basis, and at any time --the sum of (a) total Debt, minus (b) obligations under repurchase agreements, minus (c) obligations under escrow-arbitrage-type facilities. "TRANCHE A" means that portion of Term-Line Borrowings that (a) is advanced for the purpose of leveraging certain portions of Borrower's existing Servicing Portfolio, (b) may not be reborrowed under this agreement on or after the Tranche A-Actual-Termination Date, and (c) may not exceed an amount (as that amount is permanently reduced by payments or prepayments on Tranche A under SECTION 3 on and after the 16 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- Tranche A-Actual-Termination Date) equal at any time to the lesser of either (i) the total Term-Line Commitments minus Tranche B or (ii) $10,000,000. "TRANCHE A-ACTUAL-TERMINATION DATE" means the earlier of either (a) the Tranche A-Stated-Termination Date or (b) the date on which all of the Term-Line Commitments have otherwise terminated or been canceled. "TRANCHE A-STATED-TERMINATION DATE" means the earlier of either (a) July 1, 1997, or (b) the 30th calendar day after the calendar day that $10,000,000 of Tranche A has been disbursed (whether or not prepaid) under this agreement. "TRANCHE B" means that portion of Term-Line Borrowings that (a) is advanced for the purpose of financing certain Servicing Portfolio acquisitions, (b) may not be reborrowed under this agreement on or after the Tranche B-Actual- Termination Date, and (c) may not exceed an amount (as that amount is permanently reduced by payments or prepayments on Tranche B under SECTION 3 on and after the Tranche B-Actual-Termination Date) equal at any time to the lesser of either (i) the total Term-Line Commitments minus Tranche A or (ii) $20,000,000. "TRANCHE B-ACTUAL-TERMINATION DATE" means the earlier of either (a) the Tranche B-Stated-Termination Date or (b) the date on which all of the Term-Line Commitments have otherwise terminated or been canceled. "TRANCHE B-STATED-TERMINATION DATE" means the earlier of either (a) July 31, 1998, or (b) the 30th calendar day after the calendar day that at least $18,000,000 of Tranche B has been disbursed (whether or not prepaid) under this agreement. "TRIBUNAL" means any (a) local, state, or federal judicial, executive, or legislative instrumentality, (b) private arbitration board or panel, or (c) central bank. "TRUST RECEIPT" means a Trust Receipt and Agreement executed and delivered by Borrower to Agent in substantially the form of EXHIBIT C-6. "UCC" means the Uniform Commercial Code as enacted in Texas or other applicable jurisdictions. "UNCOMMITTED-B/C-PAPER BORROWING" means a Warehouse Borrowing that is (a) a Ratable Borrowing or Swing Borrowing, (b) subject to the Uncommitted-B/C-Paper Sublimit, and (c) supported by the Borrowing Base for Eligible-Uncommitted-B/C- Paper Loans. "UNCOMMITTED-B/C-PAPER SUBLIMIT" means $25,000,000. "VA" means the Department of Veteran's Affairs. "VA LOAN" means a Mortgage Loan (a) the full or partial payment of which is guaranteed by the VA under the Servicemen's Readjustment Act of 1944 or Chapter 37 of Title 38 of the United States Code, (b) for which the VA has issued a current binding and enforceable commitment for such a guaranty, or (c) that is subject to automatic guarantee by the VA. In each case, the applicable guaranty, commitment to guarantee, or automatic guaranty is for the maximum amount permitted by Law. 17 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- "WAREHOUSE ACCOUNT" means a non-interest bearing deposit account established by Borrower with Agent -- styled and numbered "Matrix Funding Account," Account No. 1886479326 -- for deposit of Warehouse Borrowings. "WAREHOUSE-ACTUAL-TERMINATION DATE" means the earlier of either (a) the Warehouse-Stated-Termination Date or (b) the date on which all of the Warehouse Commitments have otherwise terminated or been canceled. "WAREHOUSE BORROWING" means a Ratable Borrowing or Swing Borrowing that is (a) advanced to Borrower under the Warehouse Commitment, (b) either a Dry Borrowing, Wet Borrowing, Gestation Borrowing (which may not be a Swing Borrowing), Committed-B/C-Paper Borrowing, Uncommitted-B/C-Paper Borrowing, Second-Lien Borrowing, or Repurchase Borrowing, and (c) supported by the Borrowing Base for Mortgage Collateral. "WAREHOUSE COMMITMENT" means -- at any time and for any Lender -- the amount stated beside its name and so designated on SCHEDULE 2, as that schedule may be amended and as that amount may be canceled or terminated under this agreement. "WAREHOUSE NOTE" means a promissory note executed and delivered by Borrower, payable to a Lender's order, in the stated principal amount of its Warehouse Commitment, and substantially in the form of EXHIBIT A-1, as renewed, extended, amended, or replaced. "WAREHOUSE-STATED-TERMINATION DATE" means January 31, 1999. "WET BORROWING" means a Borrowing for which all of the Collateral Documents have not been delivered to Agent in accordance with SECTION 4.3. "WET PERIOD" means seven Business Days for the Collateral Documents for any Mortgage Loan that supports a Wet Borrowing. "WET SUBLIMIT" means, at any time, a percentage of the total Warehouse Commitments, which percentage is (a) 35% for the first five and last five Business Days of each Calendar Month, and (b) 20% at all other times. "WIRE INSTRUCTIONS" mean, for any Person, the information for wire transfers of funds to that Person, which (until changed by written notice to all other parties to this agreement) are stated for (a) Borrower and Agent, beside their names on the signature pages below, and (b) each Lender, beside its name on SCHEDULE 2. "WORKING-CAPITAL BORROWING" means a Borrowing that is (a) a Ratable Borrowing, (b) either a P&I Borrowing, T&I Borrowing, or Foreclosure Borrowing, (c) subject to the Working-Capital Commitment, and (d) supported by the Borrowing Base for Receivables. "WORKING-CAPITAL COMMITMENT" means -- at any time and for any Lender -- the amount stated beside its name and so designated on SCHEDULE 2, as that schedule may be amended and as that amount may be canceled or terminated under this agreement. "WORKING-CAPITAL NOTE" means a promissory note executed and delivered by Borrower, payable to a Lender's order, in the stated principal amount of its Working-Capital Commitment, and substantially in the form of EXHIBIT A-3, as renewed, extended, or replaced. 18 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- 1.2 TIME REFERENCES. Unless otherwise specified, in the Loan Documents (a) time references (e.g., 10:00 a.m.) are to time in Dallas, Texas, and (b) in calculating a period from one date to another, the word "from" means "from and including" and the word "to" or "until" means "to but excluding." 1.3 OTHER REFERENCES. Unless otherwise specified, in the Loan Documents (a) where appropriate, the singular includes the plural and vice versa, and words of any gender include each other gender, (b) heading and caption references may not be construed in interpreting provisions, (c) monetary references are to currency of the United States of America, (d) section, paragraph, annex, schedule, exhibit, and similar references are to the particular Loan Document in which they are used, (e) references to "telefax," "telecopy," "facsimile," "fax," or similar terms are to facsimile or telecopy transmissions, (f) references to "including" mean including without limiting the generality of any description preceding that word, (g) the rule of construction that references to general items that follow references to specific items as being limited to the same type or character of those specific items is not applicable in the Loan Documents, (h) references to any Person include that Person's heirs, personal representatives, successors, trustees, receivers, and permitted assigns, (i) references to any Law include every amendment or supplement to it, rule and regulation adopted under it, and successor or replacement for it, and (j) references to any Loan Document or other document include every renewal and extension of it, amendment and supplement to it, and replacement or substitution for it. 1.4 ACCOUNTING PRINCIPLES. Unless otherwise specified, in the Loan Documents (a) GAAP in effect on the date of this agreement determines all accounting and financial terms and compliance with all financial covenants, (b) otherwise, all accounting principles applied in a current period must be comparable in all material respects to those applied during the preceding comparable period, and (c) while Borrower has any consolidated Subsidiaries (i) all accounting and financial terms and compliance with reporting covenants must be on a consolidating and consolidated basis, as applicable, and (ii) compliance with financial covenants must be on a consolidated basis. SECTION 2.BORROWING PROVISIONS. Subject to the provisions in the Loan Documents, each Lender severally and not jointly agrees to extend credit to Borrower under the Warehouse Commitments. the Working-Capital Commitments, and the Term-Line Commitments in accordance with the following provisions. 2.1 COMMITMENTS. (A) WAREHOUSE COMMITMENTS. Subject to the limitations below and other provisions of the Loan Documents, on a revolving basis, and on Business Days before the Warehouse-Actual-Termination Date, each Lender severally agrees to provide its Commitment Percentage (except for Agent in respect of Swing Borrowings) of Warehouse Borrowings so long as, in each case, no Warehouse Borrowing may be disbursed that would cause any of the following applicable limitations to be exceeded, which limitations must be read together and are not mutually exclusive: . The sum (without duplication) of the total Principal Debt plus the total LC Exposure may never exceed the lesser of either (a) the total Combined Commitments, or (b) the total Borrowing Base. . The total Principal Debt of all Warehouse Borrowings may never exceed the lesser of either (i) the total Warehouse Commitments or (ii) the sum of the Borrowing Base for Mortgage Collateral plus the Borrowing Base for Gestation Collateral. . The total Principal Debt of all Swing Borrowings may never exceed the Swing Sublimit. 19 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- . The total Principal Debt of all Wet Borrowings may never exceed the Wet Sublimit. . The total Principal Debt of all Gestation Borrowings may never exceed the lesser of either (i) the Gestation Sublimit or (ii) the Borrowing Base for Gestation Collateral. . The total Principal Debt of all Committed-B/C-Paper Borrowings and all Uncommitted-B/C-Paper Borrowings may never exceed the lesser of either (i) the B/C-Paper Sublimit or (ii) the sum of the Borrowing Base for Eligible-Committed-B/C-Paper Loans plus the Borrowing Base for Eligible-Uncommitted-B/C-Paper Loans. . The total Principal Debt of all Committed-B/C-Paper Borrowings may never exceed the Borrowing Base for Eligible-Committed-B/C-Paper Loans. . The total Principal Debt of all Uncommitted-B/C-Paper Borrowings may never exceed the lesser of either (i) the Uncommitted-B/C-Paper Sublimit or (ii) the Borrowing Base for Eligible-Uncommitted-B/C-Paper Loans. . The total Principal Debt of all Second-Lien Borrowings may never exceed the lesser of either (i) the Second-Lien Sublimit or (ii) the Borrowing Base for Eligible-Second-Lien Loans. . The total Principal Debt of all Repurchase Borrowings may never exceed the lesser of either (i) the Repurchase Sublimit or (ii) the Borrowing Base for Eligible-Repurchased Loans. . Except for Agent in respect of Swing Borrowings, no Lender's direct or indirect portion of the Principal Debt under this CLAUSE (A) may ever exceed either its Warehouse Commitment or its Commitment Percentage for Warehouse Borrowings. . No Warehouse Borrowing may be made on a day that is not a Business Day, or on or after the Warehouse-Actual-Termination Date. . Each disbursement of a Warehouse Borrowing must be at least $25,000. (B) WORKING-CAPITAL COMMITMENTS. Subject to the limitations below and other provisions of the Loan Documents, on a revolving basis, and on Business Days before the Warehouse-Actual-Termination Date, each Lender severally agrees to provide its Commitment Percentage of Working-Capital Borrowings so long as, in each case, no Working-Capital Borrowing may be disbursed that would cause any of the following applicable limitations to be exceeded, which limitations must be read together and are not mutually exclusive: . The sum (without duplication) of the total Principal Debt plus the total LC Exposure may never exceed the lesser of either (a) the total Combined Commitments, or (b) the total Borrowing Base. . The sum (without duplication) of the total Principal Debt of all Working-Capital Borrowings plus the total LC Exposure may never exceed the lesser of either (i) the total Working-Capital Commitments or (ii) the Borrowing Base for Receivables. . No Working-Capital Borrowing may be made on a day that is not a Business Day, or on or after the Warehouse-Actual-Termination Date. 20 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- . Each disbursement of a Working-Capital Borrowing must be at least $25,000. (C) TERM-LINE COMMITMENTS. Subject to the limitations below and other provisions of the Loan Documents, on a revolving basis, and on Business Days before the Tranche A-Actual-Termination Date or the Tranche B-Actual-Termination Date (as applicable), each Lender severally agrees to provide its Commitment Percentage of Term-Line Borrowings so long as, in each case, no Term-line Borrowing may be disbursed that would cause any of the following applicable limitations to be exceeded, which limitations must be read together and are not mutually exclusive: . The sum (without duplication) of the total Principal Debt plus the total LC Exposure may never exceed the lesser of either (a) the total Combined Commitments, or (b) the total Borrowing Base. . The total Principal Debt of all Term-Line Borrowings may never exceed the lesser of either (i) the total Term-Line Commitments or (ii) the Borrowing Base for Term-Line. . Term-Line Borrowings in respect of Tranche A and Tranche B may never exceed the limitations for those Term-Line Borrowings in the definitions of those terms in this agreement. . No Term-Line Borrowings in respect of Tranche B may ever be made unless the amount of Term-Line Borrowings in respect of Tranche A that are converted from a revolving basis to a term-repayment basis on the Tranche A-Actual-Termination Date equal $10,000,000. . No Term-Line Borrowing may be made on a day that is not a Business Day, or on or after the Tranche A-Actual-Termination Date or Tranche B-Actual-Termination Date (as applicable) . . Each disbursement of a Term-Line Borrowing must be at least $100,000. Borrower may request that Term-Line Borrowings be made after the Tranche A- Actual-Termination Date or Tranche B-Actual-Termination Date (as applicable). Subject to all of the limitations of this SECTION 2.1(C) and all other provisions of the Loan Documents, Lenders may in their sole and absolute discretion provide such additional Term-Line Borrowings. If any such additional Term-Line Borrowings are ever made, the payment schedule for Tranche A and Tranche B (as applicable) shall be adjusted so that the Principal Debt of such Term-Line Borrowings is repaid according to the same repayment schedule (other than the adjustment to the amount of the monthly payment) as set forth in SECTION 3.3. Borrower acknowledges that (i) neither Agent nor any Lender has made any representations to Borrower regarding its intent to agree to any such additional Term-Line Borrowings, (ii) no Lender shall have any obligation to extend such additional Term- Line Borrowings, and (iii) any extension of such additional Term-Line Borrowings shall not commit Lenders to any further such extensions. 2.2 BORROWING REQUEST. Borrower may only request a Borrowing by timely delivering to Agent a Collateral-Delivery Notice and required Collateral Documents under SECTION 4.3 and by delivering to Agent a Borrowing Request for the Borrowing before 11:00 a.m. on the Borrowing Date for it for a Fed-Funds Borrowing or Base-Rate Borrowing or the third Business Day before the Borrowing Date for a LIBOR Borrowing. A Borrowing Request is irrevocable and binding on Borrower when delivered. Agent shall use its best efforts to promptly -- but at least by 1:00 p.m. on the day it timely receives a Borrowing Request for a Ratable Borrowing -- send a copy of it to each Lender by fax and confirm it by telephone. 21 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- 2.3 FUNDINGS. (A) REMITTANCE BY LENDERS. Each Lender shall remit its Commitment Percentage of any Ratable Borrowing requested in a Borrowing Request to Agent's principal office in Dallas, Texas, by wire transfer according to Agent's Wire Instructions, in funds that are available for immediate use by Agent by 2:00 p.m. on the Borrowing Date. (B) FUNDING BY AGENT. Subject to receipt of those funds, Agent shall (i) for a Borrowing under an Agent's Request, treat those funds as a payment by Borrower on the Principal Debt of Swing Borrowings, and (ii) for any other Borrowing on the Borrowing Date -- unless to its actual knowledge any of the applicable conditions precedent have not been satisfied by Borrower or waived by the requisite Lenders -- either (A) deposit those funds into the Warehouse Account for a Dry Borrowing, (B) wire transfer those funds in accordance with the Borrowing Request for a Wet Borrowing, (C) deposit those funds into the Servicing Account for a Working-Capital Borrowing, or (D) wire transfer those funds in accordance with the Borrowing Request for a Term-Line Borrowing. (C) NON-REMITTANCE UNDER BORROWING REQUEST. Absent contrary written notice from a Lender received by Agent by 2:00 p.m. on the Borrowing Date, Agent may assume that each Lender has made its Commitment Percentage of a Ratable Borrowing under a Borrowing Request available to Agent on the Borrowing Date and may -- but is not obligated to -- make available to Borrower a corresponding amount. If a Lender fails to make its Commitment Percentage of that Borrowing available to Agent on the Borrowing Date -- whether because of that Lender's default, because that Lender is not open for business on that Business Day, or otherwise -- then Agent may recover that amount on demand (i) from that Lender, together with interest at the Fed-Funds Rate, during the period from the Borrowing Date to the date Agent recovers that amount from that Lender -- which payment is then deemed to be that Lender's Commitment Percentage of that Borrowing -- or (ii) if that Lender fails to pay that amount upon demand, then from Borrower together with interest at an annual interest rate equal to the rate applicable to the requested Borrowing during the period from the Borrowing Date to the date Agent recovers that amount from Borrower. Notwithstanding these provisions, each Lender remains obligated to lend its Commitment Percentage of that Borrowing, assumes the credit risk for that amount when the Borrowing is made available to or for Borrower, and -- after Agent has recovered the amount of interest provided for in CLAUSE (I) above -- is entitled to interest on that amount from the Borrowing Date. (D) NON-REMITTANCE UNDER AGENT'S REQUEST. If a Lender fails to make its Commitment Percentage of a Ratable Borrowing under an Agent's Request available to Agent on its Borrowing Date, then -- without acquiescing in that Lender's default or waiving any Rights Agent has against that Lender - - by 10:00 a.m. on the next Business Day, then Agent shall notify Borrower of the amount of Principal Debt of Swing Borrowings that remains. (E) OTHER LENDERS. Although no Lender is responsible for the failure of any other Lender to make its Commitment Percentage of any Ratable Borrowing, that failure does not excuse any other Lender from making its Commitment Percentage of that Borrowing. (F) AGENT'S REQUEST. On any Business Day on which there is any Principal Debt for Swing Borrowings, Agent may -- but at least once per calendar week when those circumstances exist, Agent shall (without any liability for failing to) -- unilaterally request a Ratable Borrowing under this SECTION 2.3, to be made in the amount of that Principal Debt on the next Business Day, as a Fed-Funds Borrowing. That Ratable Borrowing is for the account of Borrower, but does not require Borrower's joinder or other action. Agent shall fax that request (an "AGENT'S REQUEST") to each 22 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- Lender and Borrower and confirm it by telephone by 2:00 p.m. on the Borrowing Date for the requested Ratable Borrowing. When so made, an Agent's Request irrevocably binds Borrower. 2.4 WET-BORROWING PROCEDURES. The conditions and procedures of SECTION 2.2 and SECTION 2.3 apply to Wet Borrowings except as follows: (A) COLLATERAL DOCUMENTS. A Wet Borrowing may be funded before delivery to Agent of all of the required Collateral Documents for the Eligible-Mortgage Loans supporting that Wet Borrowing. The Collateral- Delivery Notice delivered to Agent for a Wet Borrowing may be sent to Agent by fax but must identify and describe each Mortgage Loan that supports that Wet Borrowing and the amount of the Borrowing Base for Mortgage Collateral applicable to it. By delivering the Collateral-Delivery Notice, Borrower confirms its grant under this agreement of Lender Liens -- from the Borrowing Date for each Wet Borrowing -- on each Collateral Document offered as Collateral in that Collateral-Delivery Notice that is perfected subject to the delivery of the related promissory notes for those Mortgage Loans to Agent or its bailee. (B) FUNDING BY AGENT. Agent shall make the funds available to Borrower by 4:00 p.m. on the Borrowing Date by depositing these funds into the Warehouse Account or by wire transfer in accordance with the Borrowing Request. 2.5 SWING-BORROWING PROCEDURES. The conditions and procedures of SECTION 2.2, SECTION 2.3, and SECTION 2.4 apply to Swing Borrowings except as follows: (A) BORROWING REQUEST. The Borrowing Request for a Swing Borrowing must be delivered to Agent by 3:00 p.m. on the Borrowing Date and may not request a LIBOR Borrowing. (B) ELECTION BY AGENT. Agent shall then elect in its sole discretion whether to loan that Swing Borrowing. If Agent elects to loan that Swing Borrowing, then it shall follow the funding procedures that are applicable under SECTIONS 2.2, 2.3, and 2.4. (C) PARTICIPATIONS. Immediately upon Agent's funding a Swing Borrowing, Agent is deemed to have sold and transferred to each other Lender -- and each other Lender is deemed irrevocably and unconditionally to have purchased and received from Agent -- without recourse or warranty, an undivided interest and participation in that Swing Borrowing to the extent of that Lender's Commitment Percentage of the amount of it, which participation must be paid for on demand by Agent. 2.6 LETTERS OF CREDIT. (A) CONDITIONS. Subject to the terms and conditions of this agreement and applicable Laws, Agent (itself or through one of its Affiliates, and references in this SECTION 2.6 to Agent include those Affiliates) agrees to issue LCs upon Borrower's making or delivering an LC Request and delivering an LC Agreement, both of which must be received by Agent no later than on the Business Day before the requested LC is to be issued, so long as (i) no LC may expire after three Business Days before the Warehouse-Actual- Termination Date, and (ii) the LC Exposure does not exceed $2,000,000. (B) PARTICIPATION. Immediately upon Agent's issuance of any LC, Agent shall be deemed to have sold and transferred to each other Lender, and each other Lender shall be deemed irrevocably and unconditionally to have purchased and received from Agent, without recourse or warranty, an 23 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- undivided interest and participation to the extent of such Lender's Commitment Percentage under the Working-Capital Commitment in the LC and all applicable Rights of Agent in the LC -- other than Rights to receive certain fees provided in SECTION 3.14(F) to be for Agent's sole account. (C) REIMBURSEMENT OBLIGATIONS. To induce Agent to issue and maintain LCs, and to induce Lenders to participate in issued LCs, Borrower agrees to pay or reimburse Agent (i) on the date when any draft or draw request is presented under any LC, the amount paid or to be paid by Agent and (ii) promptly, upon demand, the amount of any additional fees Agent customarily charges for the application and issuance of an LC, for amending LC Agreements, for honoring drafts and draw requests, and for taking similar action in connection with letters of credit. If Borrower has not reimbursed Agent for any drafts or draws paid or to be paid on the date of Agent's demand for reimbursement, Agent is irrevocably authorized to fund Borrower's reimbursement obligations as a Base-Rate Borrowing under the Working-Capital Commitment if proceeds are available under the Working- Capital Commitment and if the conditions in this agreement for such a Borrowing (other than any notice requirements or minimum funding amounts) have, to Agent's knowledge, been satisfied. The proceeds of that Borrowing shall be advanced directly to Agent to pay Borrower's unpaid reimbursement obligations. If funds cannot be advanced under the Working-Capital Commitment, then Borrower's reimbursement obligation shall constitute a demand obligation. Borrower's obligations under this section are absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim, or defense to payment that Borrower may have at any time against Agent or any other Person. From Agent's demand for reimbursement to the date paid (including any payment from proceeds of a Base-Rate Borrowing), unpaid reimbursement amounts accrue interest that is payable on demand at the Default Rate thereafter. (D) GENERAL. Agent shall promptly notify Borrower of the date and amount of any draft or draw request presented for honor under any LC (but failure to give notice will not affect Borrower's obligations under this agreement). Agent shall pay the requested amount upon presentment of a draft or draw request unless presentment on its face does not comply with the terms of the applicable LC. When making payment, Agent may disregard (i) any default or potential default that exists under any other agreement and (ii) obligations under any other agreement that have or have not been performed by the beneficiary or any other Person (and Agent is not liable for any of those obligations). Borrower's reimbursement obligations to Agent and Lenders, and each Lender's obligations to Agent, under this section are absolute and unconditional irrespective of, and Agent is not responsible for, (i) the validity, enforceability, sufficiency, accuracy, or genuineness of documents or endorsements (even if they are in any respect invalid, unenforceable, insufficient, inaccurate, fraudulent, or forged), (ii) any dispute by any Company with or any Company's claims, setoffs, defenses, counterclaims, or other Rights against Agent, any Lender, or any other Person, or (iii) the occurrence of any Potential Default or Default. However, nothing in this agreement constitutes a waiver of Borrower's Rights to assert any claim or defense based upon the gross negligence or willful misconduct of Agent or any Lender. Agent shall promptly distribute reimbursement payments received from Borrower to all Lenders according to their Commitment Percentages of the total Working- Capital Commitment. (E) OBLIGATIONS OF LENDERS. If Borrower fails to reimburse Agent as provided in SECTION 2.6(C) and SECTION 2.6(D) within 24 hours after Agent's demand for reimbursement, and funds cannot be advanced under the Working- Capital Commitment to satisfy the reimbursement obligations, Agent shall promptly notify each Lender of Borrower's failure, of the date and amount paid, and of each Lender's Commitment Percentage of the unreimbursed amount. Each Lender shall promptly and unconditionally make available to Agent in immediately available funds its Commitment Percentage of the unpaid reimbursement obligation, subject to the limitations of SECTION 2.1. Funds are due and 24 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- payable to Agent before the close of business on the Business Day when Agent gives notice to each Lender of Borrower's reimbursement failure (if notice is given before 1:00 p.m.) or on the next succeeding Business Day (if notice is given after 1:00 p.m.). All amounts payable by any Lender accrue interest after the due date at the Federal-Funds Rate from the day the applicable draft or draw is paid by Agent to (but not including) the date the amount is paid by the Lender to Agent. (F) DUTIES OF AGENT. Agent agrees with each Lender that it will exercise and give the same care and attention to each LC as it gives to its other letters of credit. Each Lender and Borrower agree that, in paying any draft or draw under any LC, Agent has no responsibility to obtain any document (other than any documents expressly required by the respective LC) or to ascertain or inquire as to any document's validity, enforceability, sufficiency, accuracy, or genuineness or the authority of any Person delivering it. Neither Agent nor its Representatives will be liable to any Lender or any Company for any LC's use or for any beneficiary's acts or omissions. Any action, inaction, error, delay, or omission taken or suffered by Agent or any of its Representatives in connection with any LC, applicable draws, drafts, or documents, or the transmission, dispatch, or delivery of any related message or advice, if in good faith and in conformity with applicable Laws and in accordance with the standards of care specified in the Uniform Customs and Practices for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500 (as amended or modified), is binding upon the Companies and Lenders and does not place Agent or any of its Representatives under any resulting liability to any Company or any Lender. Agent is not liable to any Company or any Lender for any action taken or omitted, in the absence of gross negligence or willful misconduct, by Agent or its Representative in connection with any LC. (G) CASH COLLATERAL. On the Warehouse-Actual-Termination Date and if requested by Determining Lenders while a Default exists, Borrower shall provide Agent, for the benefit of Lenders, cash collateral in an amount equal to the then-existing LC Exposure. (H) INDEMNIFICATION. BORROWER SHALL PROTECT, INDEMNIFY, PAY, AND SAVE AGENT, EACH LENDER, AND THEIR RESPECTIVE REPRESENTATIVES HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS, LIABILITIES, DAMAGES, LOSSES, COSTS, CHARGES, AND EXPENSES (INCLUDING REASONABLE ATTORNEYS' FEES) WHICH ANY OF THEM MAY INCUR OR BE SUBJECT TO AS A CONSEQUENCE OF THE ISSUANCE OF ANY LC, ANY DISPUTE ABOUT IT, OR THE FAILURE OF AGENT TO HONOR A DRAFT OR DRAW REQUEST UNDER ANY LC AS A RESULT OF ANY ACT OR OMISSION (WHETHER RIGHT OR WRONG) OF ANY PRESENT OR FUTURE TRIBUNAL. HOWEVER, NO PERSON IS ENTITLED TO INDEMNITY UNDER THE FOREGOING FOR ITS OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. (I) LC AGREEMENTS. Although referenced in any LC, terms of any particular agreement or other obligation to the beneficiary are not incorporated into this agreement in any manner. The fees and other amounts payable with respect to each LC are as provided in this agreement, drafts and draws under each LC are part of the Obligation, only the events specified in this agreement as a Default shall constitute a default under any LC, and the terms of this agreement control any conflict between the terms of this agreement and any LC Agreement. 2.7 BORROWING REQUESTS AND LC REQUESTS. Each Borrowing Request and LC Request constitutes a representation and warranty by Borrower that as of the Borrowing Date or the date of issuance of the requested LC, as the case may be, that all of the conditions precedent in SECTION 5 have been satisfied. 25 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- 2.8 TERMINATIONS. All Warehouse Commitments and Working-Capital Commitments automatically terminate in full on the Warehouse-Actual-Termination Date, and all Term-Line Commitments automatically terminate in full on the Tranche A-Actual-Termination Date or Tranche B-Actual-Termination Date (as applicable). After giving written and irrevocable notice to Agent and each Lender at least five Business Days before the effective date of any termination, Borrower may fully or partially terminate the Warehouse Commitments, the Working-Capital Commitments, or the Term-Line Commitments, or any combination of them before those respective dates, and any partial termination must be ratable in accordance with each Lender's Commitment Percentage. Once terminated, no part of the Warehouse Commitment, the Working-Capital Commitment, or Term-Line Commitment (as applicable) may be reinstated except by an amendment to this agreement. SECTION 3. PAYMENT TERMS. 3.1 NOTES. The Principal Debt (and related interest) of Warehouse Borrowings that are Ratable Borrowings, Warehouse Borrowings that are Swing Borrowings, Working-Capital Borrowings, and Term-Line Borrowings is respectively evidenced by the Warehouse Notes, Swing Note, Working-Capital Notes, and Term- Line Notes. Notwithstanding any sale of participating interests under SECTION 12.13 or any contrary notice, Borrower and Agent may deem and treat each Lender as the absolute owner of its respective one or more Notes for all purposes. 3.2 PAYMENT PROCEDURES. (A) PAYMENTS. Borrower shall make each payment and prepayment on the Obligation to Agent, on behalf of Lenders, in accordance with Agent's Wire Instructions in funds that are available for immediate use by Agent. Payments that are received by 3:00 p.m. on a Business Day are deemed received on that Business Day. Payments that are received after 3:00 pm on a Business Day are deemed received on the next Business Day. Subject to SECTION 3.7(F), applicable interest continues to accrue through the calendar day immediately before the Business Day on which the payment is deemed received. No Lender directly invoices Borrower for -- and only Agent invoices Borrower for -- interest under the Loan Documents. (B) DISTRIBUTIONS. When received under CLAUSE (A) above, Agent shall distribute each payment to each Lender -- in accordance with SECTION 3.5 and each Lender's Wire Instructions --reasonably promptly after receipt but by no later than 4:00 p.m. on the Business Day the payment is deemed to be received by Agent under CLAUSE (A) above. If Agent fails to distribute any payment to any Lender as required by this clause, then Agent shall pay to that Lender on demand interest on that payment, from the date due under this clause until paid, at an annual interest rate equal from day to day to the Fed-Funds Rate. 3.3 SCHEDULED PAYMENTS. Unless otherwise provided in this agreement, Borrower shall pay the Obligation in accordance with the following table:
================================================================================================================== Obligation Payable ================================================================================================================== Interest on each LIBOR Borrowing except at the As it accrues on (a) the last day of that Borrowing's Default Rate Interest Period and -- if that Interest Period is longer than three months -- 90 days after its first day and each 90 days after that and (b) on the Warehouse-Actual-Termination Date (for Warehouse and Working-Capital Borrowings) or the final maturity date of the applicable tranche for Term- Line Borrowings, as the case may be -------------------------------------------------------------------------------------------------------------------
26 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- ==================================================================================================================== Interest on each other Borrowing except at the On (a) the 15th day of each Calendar Month as it accrued Default Rate on the last day of the preceding Calendar Month and (b) on the Warehouse-Actual-Termination Date or the final maturity date of the applicable tranche for Term-Line Borrowings, as the case may be -------------------------------------------------------------------------------------------------------------------- Interest at the Default Rate regardless of On demand as it accrues Borrowing-Price Category -------------------------------------------------------------------------------------------------------------------- Principal Debt of Swing Borrowings On demand -------------------------------------------------------------------------------------------------------------------- Other Principal Debt of, and other Obligation On the Warehouse-Actual-Termination Date related to, Warehouse Borrowings and Working- Capital Borrowings -------------------------------------------------------------------------------------------------------------------- Principal Debt of Tranche A outstanding on the In consecutive, equal, monthly installments commencing on Tranche A-Actual-Termination Date the Tranche A-Actual-Termination Date and continuing on the same day of each ensuing Calendar Month, with the last installment being made on January 31, 2002, accompanied by the balance of all related Obligation then remaining unpaid -------------------------------------------------------------------------------------------------------------------- Principal Debt of Tranche B outstanding on the In consecutive, equal, monthly installments commencing on Tranche B-Actual-Termination Date the Tranche B-Actual Termination Date and continuing on the same day of each ensuing Calendar Month, with the last installment being made on January 31, 2003, accompanied by the balance of all Obligation then remaining unpaid ====================================================================================================================
3.4 PREPAYMENTS. (A) P&I BORROWINGS. For at least 7-consecutive days during each 30- consecutive-day period, Borrower shall pay all -- and not owe any -- Principal Debt for P&I Borrowings. (B) T&I BORROWING. Borrower shall pay the Principal Debt of each T&I Borrowing on or before the earlier of either 270 days after its Borrowing Date or the Warehouse-Actual-Termination Date. (C) FORECLOSURE BORROWING. Borrower shall pay the Principal Debt of each Foreclosure Borrowing on or before the earlier of either 180 days after its Borrowing Date or the Warehouse-Actual-Termination Date. (D) COMMITMENT TERMINATION. Borrower shall -- on the date that full or partial termination of a Lender's Warehouse Commitment, Working-Capital Commitment, or Term-Line Commitment, as the case may be, becomes effective under SECTION 2.8 -- pay to that Lender the full Obligation owed to it in respect of that commitment in the case of a full termination or the Principal Debt owed to it for the relevant Borrowings that exceed its reduced commitment, as the case may be. (E) BORROWING EXCESS. If at any time a Borrowing Excess exists, then--on demand -- Borrower shall take the following applicable action that eliminates that Borrowing Excess: (i) For a Borrowing Excess that is not capable of elimination by delivery of additional Collateral or an increase in the total or any applicable Borrowing Base -- e.g., if the total Principal Debt were to exceed the total Combined Commitments -- or when a Default exists, prepay to Agent for distribution to the appropriate one or more Lenders Principal Debt of the appropriate one or more Borrowing- Purpose Categories (together with any related Funding Loss). 27 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- (ii) For any other Borrowing Excess and only when no Default exists, either (A) deliver to Agent, in accordance with this agreement, additional Collateral that causes the total or the applicable Borrowing Base, as the case may be, to increase, (B) prepay to Agent for distribution to the appropriate one or more Lenders Principal Debt of the appropriate one or more Borrowing-Purpose Categories (together with any related Funding Loss), or (C) any combination of the actions under CLAUSES (A) or (B) above. (F) VOLUNTARY PREPAYMENTS. Borrower may voluntarily prepay all or any of the Obligation at any time without premium or penalty, but with any applicable Funding Loss. 3.5 ORDER OF APPLICATION. All payments and proceeds -- whether voluntary, involuntary, through the exercise of any Right of set-off or other Right, realization against any Collateral, or otherwise -- shall be applied in the following order: (A) NO DEFAULT. While no Default exists, in the order and manner as Borrower directs, except that principal payments must always be applied in the following order and manner: (i) Principal Debt of Swing Borrowings -- in each case payable solely to Agent, which Agent shall distribute in accordance with the participation interests in that Principal Debt that any one or more Lenders may have purchased and paid for under SECTION 2.5(C). (ii) Principal Debt of all non-Swing Borrowings in the order below -- payable ratably to each Lender in accordance with its Commitment Percentage -- except as the order may be rearranged by Agent to the extent possible to avoid the application of any Funding Loss for LIBOR Borrowings. Principal Debt shall be applied (A) to the Borrowing-Purpose Category to the extent the collections or proceeds are from or arose in respect of the Collateral in its Borrowing Base and (B) then in the following order: . Term-Line Borrowings . P&I Borrowings . T&I Borrowings . Foreclosure Borrowings . Uncommitted-B/C-Paper Borrowings (Wet Borrowings first) . Committed-B/C-Paper Borrowings (Wet Borrowings first) . Repurchase Borrowings (Wet Borrowings first) . Second-Lien Borrowings (Wet Borrowings first) . Other Wet Borrowings . Other Dry Borrowings (other than Gestation Borrowings) . Gestation Borrowings (B) DEFAULT OR NO DIRECTION. While a Default exists or if Borrower fails to give any direction, in the following order and manner: (i) All costs and expenses incurred by Agent in connection with its duties under the Loan Documents -- including, without limitation, fees and expenses paid by Agent to any servicing companies retained by Agent to assist it in servicing any Collateral required to be serviced, to any attorneys, or to any agents -- that have not been reimbursed by Lenders, together with interest at the Default Rate, payable solely to Agent. 28 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- (ii) All costs and expenses incurred by any Lender in connection with the Loan Documents that are reimbursable to it under the Loan Documents and all amounts paid by that Lender to Agent as a reimbursement to it of costs and expenses incurred by Agent in connection with its duties under the Loan Documents, together with interest at the Default Rate -- payable ratably to Lenders in the proportion that each Lender's share of those costs and expenses bears to the total of those costs and expenses for all Lenders. (iii) Accrued and unpaid interest on the Obligation -- payable ratably to Lenders in the proportion that the amount of interest owed to each Lender bears to the total of all interest owed to all Lenders. (iv) Except with respect to payments and proceeds identifiable as relating solely to Working-Capital Borrowings or Term-Line Borrowings, Principal Debt of Swing Borrowings -- in each case payable solely to Agent, which Agent shall distribute in accordance with the participation interests in that Principal Debt that any one or more Lenders may have purchased and paid for under SECTION 2.5(C). (v) Any LC reimbursement obligations that are due and payable and that remain unfunded by any Borrowing under the Working-Capital Commitment. (vi) Principal Debt in the order below -- payable ratably to each Lender in accordance with its Termination Percentage -- except as the order may be rearranged by Agent to the extent possible to avoid the application of any Funding Loss for LIBOR Borrowings. Principal Debt shall be applied (A) to the Borrowing-Purpose Category to the extent the collections or proceeds are from or arose in respect of the Collateral in its Borrowing Base and (B) then in the following order: . Term-Line Borrowings . P&I Borrowings . T&I Borrowings . Foreclosure Borrowings . Uncommitted-B/C-Paper Borrowings (Wet Borrowings first) . Committed-B/C-Paper Borrowings (Wet Borrowings first) . Repurchase Borrowings (Wet Borrowings first) . Second-Lien Borrowings (Wet Borrowings first) . Other Wet Borrowings . Other Dry Borrowings (other than Gestation Borrowings) . Gestation Borrowings (vii) All other portions of the Obligation -- payable ratably to Lenders in the proportion that each Lender's share of those amounts bears to the total of those amounts for all Lenders. (viii) As a deposit with Agent, for the benefit of Lenders, as security for and payment of any subsequent LC reimbursement obligations. (ix) Either to Borrower or to its successors or assigns on behalf of Borrower, to be divided between them as they may agree or as a court of competent jurisdiction may direct. 29 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- 3.6 SHARING. If any Lender obtains any amount -- whether voluntary, involuntary, or otherwise, including, without limitation, as a result of exercising its Rights under SECTION 10.3 -- that exceeds the portion of that amount it is otherwise entitled under the Loan Documents to receive, then that Lender shall purchase from the other Lenders participations that result in the purchasing Lender's sharing the excess amount ratably with each Lender in accordance with the portion it is entitled to receive under the Loan Documents. If all or any of that excess amount is subsequently recovered from that purchasing Lender, then the purchase of participations in it is automatically rescinded and the purchase price restored to that purchasing Lender to the extent of the recovery. Any Lender purchasing a participation from another Lender under this section may, to the extent lawful, exercise all of its Rights of payment (including the Right of offset) with respect to that participation as fully as if that Lender were the direct creditor of Borrower in the amount of that participation. 3.7 INTEREST RATES. (A) NON-DEFAULT RATE. Subject to CLAUSE (B) below, all Principal Debt bears an annual interest rate equal to the lesser of either the Maximum Rate or the rate applicable in the following table:
==================================================================================================== PRINCIPAL DEBT RATE ==================================================================================================== Principal Debt of each LIBOR Borrowing LIBOR applicable to its Interest Period ---------------------------------------------------------------------------------------------------- Average-Principal Debt of all other Borrowings Applicable-Covered Rate owed to a Depositary during any Calendar Month that does not exceed its Average-Depositary Balances for that Calendar Month ---------------------------------------------------------------------------------------------------- Average-Principal Debt of all Borrowings owed to Average-Adjusted-Base Rate or Average- any Lender and not bearing interest under the above Adjusted-Fed-Funds Rate for that sections of this table for any Calendar Month Calendar Month, whichever is applicable ====================================================================================================
(B) DEFAULT RATE. For all past-due Principal Debt and past-due interest on the Principal Debt from the date due (stated or by acceleration) until paid, whether or not payment is before or after entry of a judgment, the rate applicable in the following table:
==================================================================================================== PRINCIPAL DEBT AND PAST-DUE INTEREST RATE ==================================================================================================== Average-Principal Debt owed to a Depositary during 5.0% a Calendar Month and all past-due accrued interest on that Principal Debt that does not exceed its Average-Depositary Balances for that Calendar Month ---------------------------------------------------------------------------------------------------- Average-Principal Debt owed to any Lender and not Default Rate bearing interest under the above section of this table, and all past-due interest on that Principal Debt, for any Calendar Month ====================================================================================================
(C) RATE CHANGES. Each change in LIBOR, the Fed-Funds Rate, the Base Rate, and the Maximum Rate is effective upon the effective date of change without notice to Borrower or any other Person. (D) CALCULATIONS. Interest is calculated on the basis of actual days (including the first but excluding the last) over a 360-day year -- unless the calculation would result in an interest rate greater than the Maximum Rate, in which event interest is calculated on the basis of the actual days in that 30 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- year. All interest rate determinations and calculations by Agent are conclusive and binding absent manifest error. (E) RECAPTURE. If the designated interest rate applicable to any Borrowing exceeds the Maximum Rate, the interest rate on that Borrowing is limited to the Maximum Rate. However, any subsequent reductions in the designated rate shall not become effective until the total amount of accrued interest equals the amount of interest that would have accrued if that designated rate had always been in effect. If at maturity (stated or by acceleration), or at final payment of the Notes, the total interest paid or accrued is less than the interest that would have accrued if the designated rates had always been in effect, then, at that time and to the extent permitted by Law, Borrower shall pay an amount equal to the difference of (i) the lesser of either the amount of interest that would have accrued if the designated rates had always been in effect or the amount of interest that would have accrued if the Maximum Rate had always been in effect, minus (ii) the amount of interest actually paid or accrued on the Notes. (F) MAXIMUM RATE. Regardless of any Loan Document provision, no Lender is entitled to contract for, charge, take, reserve, receive, or apply, as interest on all or any of the Obligation any amount in excess of the Maximum Rate. If a Lender ever does so, then any excess is treated as a partial prepayment of principal, and any remaining excess shall be refunded to Borrower, as the case may be. In determining if the interest paid or payable exceeds the Maximum Rate, Borrower and Lenders shall, to the extent lawful (i) treat all Borrowings as but a single extension of credit, (ii) characterize any nonprincipal payment as an expense, fee, or premium rather than as interest, (iii) exclude voluntary prepayments and their effects, and (iv) amortize, prorate, allocate, and spread the total amount of interest throughout the full-contemplated term of the Obligation. However, if the Obligation is paid in full before the end of that full- contemplated term and the interest received for the Obligation's actual period of existence exceeds the Maximum Amount, then Lenders shall refund any excess without being subject to any penalties provided by any Laws. If Texas Laws are applicable for purposes of determining the "Maximum Rate" or the "Maximum Amount," then those terms mean the "indicated rate ceiling" from time to time in effect under Article 1.04, Title 79, Texas Revised Civil Statutes, as amended. Chapter 15, Subtitle 79, Texas Revised Civil Statutes, 1925 (which regulates certain revolving credit loan accounts and revolving triparty accounts), does not apply to the Obligation. 3.8 INTEREST PERIODS. When Borrower requests any LIBOR Borrowing, it may elect the applicable interest period (each an "INTEREST PERIOD") -- which may be either one, two or three months at its option or such other period as it and Agent may agree (after first obtaining Determining Lender approval if for more than six months) -- subject to the following conditions: (a) The initial Interest Period commences on the applicable Borrowing Date and each subsequent applicable Interest Period commences on the day when the next preceding applicable Interest Period expires; (b) if any Interest Period begins on a day for which no numerically corresponding Business Day in the Calendar Month at the end of the Interest Period exists, then the Interest Period ends on the last Business Day of that Calendar Month; (c) if an Interest Period would otherwise not end on a Business Day, it shall end on the immediately preceding Business Day; (d) no Interest Period for any portion of the Obligation may extend beyond the scheduled repayment date for that portion of the Obligation; and (e) no more than three Interest Periods may be in effect at any time. 3.9 BASIS UNAVAILABLE OR INADEQUATE FOR LIBOR RATE. If, on or before any date when a LIBOR Rate is to be determined for a Borrowing, Agent or any Lender (upon notice to Agent) determines that the basis for determining the applicable rate is not available or that the resulting rate does not accurately reflect the cost to Lenders of making or converting Borrowings at that rate for the applicable Interest Period, then Agent shall promptly notify Borrower of that determination (which is conclusive and binding on Borrower, 31 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- absent manifest error) and that Borrowing shall be a Fed-Funds Borrowing. Until Agent notifies Borrower that it or the notifying Lender (upon notice to Agent) has determined that those circumstances no longer exist -- which it shall promptly do --Lenders' commitments under this agreement to make LIBOR Borrowings are suspended. 3.10 ADDITIONAL COSTS. This section survives the full satisfaction of the Obligation and termination of the Loan Documents, and release of Lender Liens. (a) For any LIBOR Borrowing, if (i) (A) any change after the date of this agreement in any present Law -- and for purposes of this SECTION 3.10, Law includes interpretations and guidelines of any Tribunal whether or not having the force of Law -- or any future Law imposes, modifies, or deems applicable (or if compliance by any Lender with any requirement of any Tribunal results in) any requirement that any reserves (including, without limitation, any marginal, emergency, supplemental, or special reserves) be maintained, (B) those reserves reduce any sums receivable by that Lender under this agreement or increase the costs incurred by that Lender in advancing or maintaining any portion of any LIBOR Borrowing, and (C) that Lender determines that the reduction or increase is material (and it may, in determining the material nature of the reduction or increase, utilize reasonable assumptions and allocations of costs and expenses and use any reasonable averaging or attribution method), then (ii) that Lender (through Agent) shall deliver to Borrower a certificate stating in reasonable detail the calculation of the amount necessary to compensate it for its reduction or increase (which certificate is conclusive and binding absent manifest error), and Borrower, shall pay that amount to that Lender within ten days after demand. (b) For any Borrowing, if (i) (A) any change after the date of this agreement in any present Law or any future Law regarding capital adequacy or compliance by any Lender with any request, directive, or requirement now or in the future imposed by any Tribunal regarding capital adequacy or any change in the risk category of this transaction reduces the rate of return on its capital as a consequence of its obligations under this agreement to a level below that which it otherwise could have achieved (taking into consideration its policies with respect to capital adequacy) by an amount deemed by it to be material (and it may, in determining the amount, utilize reasonable assumptions and allocations of costs and expenses and use any reasonable averaging or attribution method), then (ii) that Lender (through Agent) shall notify Borrower and deliver to Borrower a certificate stating in reasonable detail the calculation of the amount necessary to compensate it (which certificate is presumed correct), and Borrower, shall pay that amount to Lender within ten days after demand. (c) Any Taxes payable by Agent or any Lender or ruled (by a Tribunal) payable by Agent or any Lender in respect of any Loan Document shall -- if permitted by Law and if deemed material by Agent or that Lender (who may, in determining the material nature of the amount payable, utilize reasonable assumptions and allocations of costs and expenses and use any reasonable averaging or attribution method) -- be paid by Borrower, together with interest and penalties, if any (except for Taxes payable on the overall net income of Agent or that Lender and except for interest and penalties incurred as a result of the gross negligence or willful misconduct of Agent or any Lender). Agent or that Lender (through Agent) shall notify Borrower and deliver to Borrower a certificate stating in reasonable detail the calculation of the amount of payable Taxes, which certificate is conclusive and binding (absent manifest error), and Borrower shall pay that amount to Agent for the account of Agent or that Lender, as the case may be, within ten days after demand. If Agent or that Lender subsequently receives a refund of the Taxes paid to it by Borrower, then the recipient shall promptly pay the refund to Borrower. 32 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- 3.11 CHANGE IN LAWS. If any change, after the date of this agreement, in any present Law or any future Law makes it unlawful for any Lender to make or maintain LIBOR Borrowings, then that Lender shall promptly notify Agent, who shall promptly notify Borrower and (a) as to undisbursed funds, any requested Borrowing shall be made as a Fed-Funds Borrowing, (b) as to any outstanding Borrowing (i) if maintaining the Borrowing until the last day of the applicable Interest Period is unlawful, the Borrowing shall be converted to a Fed-Funds Borrowing as of the date of notice, but Borrower is not obligated to pay any related Funding Loss, or (ii) if not prohibited by Law, the Borrowing shall be converted to an Fed-Funds Borrowing as of the last day of the applicable Interest Period, or (iii) if any conversion will not resolve the unlawfulness, Borrower shall promptly prepay the Borrowing, without penalty, and without payment of any related Funding Loss. 3.12 FUNDING LOSS. Subject to SECTION 3.11, BORROWER AGREES TO INDEMNIFY EACH LENDER AGAINST -- AND PAY TO IT UPON DEMAND -- ANY FUNDING LOSS OF THAT LENDER. When any Lender demands that Borrower pay any Funding Loss, that Lender shall deliver to Agent who shall promptly deliver to Borrower a certificate stating in reasonable detail the basis for imposing Funding Loss and the calculation of the amount, which calculation shall be presumed correct. This SECTION 3.12 survives the satisfaction and payment of the Obligation and termination of the Loan Documents. 3.13 FOREIGN LENDERS, PARTICIPANTS, AND PURCHASERS. Each Lender, Participant (by accepting a participation interest under this agreement), and Purchaser (by executing an Assignment) that is not organized under the Laws of the United States of America or one of its states (a) represents to Agent and Borrower that (i) no Taxes are required to be withheld by Agent or Borrower with respect to any payments to be made to it in respect of the Obligation and (ii) it has furnished to Agent and Borrower two duly completed copies of either U.S. Internal Revenue Service Form 4224, Form 1001, Form W-8, or any other form acceptable to Agent that entitles it to exemption from U.S. federal withholding Tax on all interest payments under the Loan Documents, and (b) covenants to (i) provide Agent and Borrower a new Form 4224, Form 1001, Form W-8, or other form acceptable to Agent upon the expiration or obsolescence of any previously delivered form according to Law, duly executed and completed by it, and (ii) comply from time to time with all Laws with regard to the withholding Tax exemption. If any of the foregoing is not true or the applicable forms are not provided, then Borrower and Agent (without duplication) may deduct and withhold from interest payments under the Loan Documents United States federal income Tax at the full rate applicable under the IRC. 3.14 FEES. The following are not compensation for the use, detention, or forbearance of money, are in addition to and not in lieu of interest and expenses otherwise described in the Loan Documents, are non-refundable, bear interest if not paid when due at the Default Rate, and are calculated on the basis of actual days (including the first but excluding the last) elapsed over a year of 360 days (or actual days during that year, if the calculation would otherwise result in exceeding the Maximum Amount and the payment were deemed to be interest notwithstanding the above provisions to the contrary): (A) AGENT'S FEES. Borrower shall pay to Agent -- for its sole account--administrative, syndication, and custodial fees in amounts and upon such payment terms as may be separately agreed upon by Borrower and Agent in writing. (B) WAREHOUSE UNUSED FACILITY FEE. Borrower shall pay to Agent an unused facility fee for Lenders payable in arrears on the 15th day of each Calendar Month for the preceding Calendar Month and on the Warehouse- Actual-Termination Date. Each payment of the unused facility fee is a percentage per annum calculated for the period in which it accrued as the product of 0.125% multiplied by the amount by which (i) the average-daily total Warehouse Commitment (excluding the amount of the Gestation Sublimit) exceeds (ii) the average daily Principal Debt relating to Warehouse Borrowings (excluding the average daily Principal Debt relating to Gestation Borrowings). 33 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- (C) GESTATION UNUSED FACILITY FEE. Borrower shall pay to Agent an unused facility fee for Lenders payable in arrears on the 15th day of each Calendar Month for the preceding Calendar Month and on the Warehouse- Actual-Termination Date. Each payment of the unused facility fee is a percentage per annum calculated for the period in which it accrued as the product of 0.100% multiplied by the amount by which (i) the average-daily total Gestation Sublimit exceeds (ii) the average daily Principal Debt relating to Gestation Borrowings. (D) WORKING-CAPITAL COMMITMENT FEE. On the Closing Date, Borrower shall pay to Agent a $10,000 commitment fee for the Working-Capital Commitments to be distributed to Lenders in shares to be determined by Agent in its sole discretion. (E) TERM-LINE-COMMITMENT FEE. On the Closing Date, Borrower shall pay to Agent a $75,000 commitment fee for the Term-Line Commitments to be distributed to Lenders in shares to be determined by Agent in its sole discretion. (F) LC ISSUANCE FEES. On the date that any LC is issued under this agreement, Borrower shall pay to Agent -- for its sole account -- an LC issuance fee of 1.25% multiplied by the face amount of the LC being issued. SECTION 4. COLLATERAL PROCEDURES. 4.1 ELIGIBLE COLLATERAL. The eligibility requirements for Collateral to be included in the Borrowing Base are listed on SCHEDULE 4.1. If at any time any item of Collateral ceases to meet those requirements, then that item is automatically excluded from all calculations of the applicable Borrowing Base. 4.2 BORROWING BASE. The elements for calculating the Borrowing Base are listed on SCHEDULE 4.2. By 2:00 p.m. on the date of any Borrowing, any payment of Principal Debt, or removal of any Collateral, Agent shall deliver to Borrower and Lenders a Borrowing-Base Report prepared on the basis of the information provided by Borrower in the most recent Take-Out Report and other information then available to Agent as provided in this agreement. 4.3 COLLATERAL DELIVERY. Borrower must comply with all the required procedures in SCHEDULE 4.3 for Mortgage Collateral offered in connection with this agreement by no later than 11:00 a.m. on (i) the Borrowing Date for Collateral supporting any Borrowing other than a Wet Borrowing and (ii) the seventh Business Day after the Borrowing Date of any Wet Borrowing for Collateral supporting that Borrowing. By 11:00 a.m. on the Business Day that Borrower is converting any Dry Borrowing to a Gestation Borrowing, Borrower shall execute and deliver to Agent a Collateral-Conversion Notice. 4.4 BAILEE AND AGENT. Agent and Lenders appoint Borrower -- and Borrower shall act -- as their (a) special agent for the sole and limited purpose of obtaining and maintaining Appraisals for Mortgage Loans as required by the Loan Documents and (b) bailee to (i) hold in trust for Agent (A) the original recorded copy of the mortgage, deed of trust, or trust deed securing each Mortgage Loan, (B) a mortgagee policy of title insurance (or binding unexpired and unconditional commitment to issue such insurance if the policy has not yet been delivered to Borrower) insuring Borrower's perfected, first priority Lien (or second-priority Lien with respect to Second-Lien Borrowings) created by that mortgage, deed of trust, or trust deed, (C) the original insurance policies referred to in PART A.6(C) on SCHEDULE 4.1, and (D) all other original documents, including any undelivered Take-Out Commitments, promissory notes, and Mortgage Securities, (ii) specifically identify those items in the appropriate Collateral-Delivery Notice, and (iii) deliver to Agent any of the foregoing items as soon as reasonably practicable upon Agent's request. 34 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- 4.5 SHIPMENT FOR SALE. (A) SHIPMENT OF COLLATERAL. If no Default, Potential Default, or Borrowing Excess exists and if shipment would not result in any Approved Investor (other than FNMA, FHLMC, and GNMA, or any other investor that Agent has approved in writing) or its servicers and custodians holding Collateral Documents for Mortgage Loans with more than a total $5,000,000 face amount, then Borrower may -- by a Shipping Request delivered to Agent by 11:00 a.m. on the Business Day of shipment -- request Agent to ship Collateral Documents to an Approved Investor or its servicer or custodian for purchase or pooling of the related Mortgage Loans. If Agent has no actual knowledge that any of the above conditions have not been satisfied, then Agent shall ship the Collateral Documents it holds for those Mortgage Loans to that Approved Investor or its servicer or custodian under the appropriate Bailee Letter. (B) INELIGIBLE COLLATERAL. Collateral shipped under CLAUSE (A) above, unless returned to Agent, ceases to be Eligible-Mortgage Collateral (i) to the extent that Collateral Documents for Mortgage Loans with more than a total face amount of $5,000,000 are held by or for any Approved Investor (other than FNMA, FHLMC, and GNMA, or any other investor that Agent has approved in writing) and (ii) upon the earlier of either the release of the Lender Liens in that Collateral under CLAUSE (C) below or the expiration of the Shipping Period for that Collateral. (C) RELEASE OF LIENS. The Lender Liens on any Collateral shipped under CLAUSE (A) above continue on that Collateral until either (i) Agent receives payment in the Settlement Account in an amount at least equal to the price paid by the purchaser for each Eligible-Mortgage Loan so sold or (ii) in the case of Mortgage Loans being sold or exchanged for Mortgage Securities, Eligible-Mortgage Securities are delivered to or for Agent in accordance with SCHEDULE 4.3 and other applicable provisions of the Loan Documents and become Collateral under this agreement for all purposes. (D) CERTAIN CREDITS. Neither Agent nor any Lender is obligated at any time to credit Borrower for any amounts due from any purchase of any Mortgage Collateral contemplated under this agreement until Agent has actually received immediately available funds for that Mortgage Collateral in the amount required under this agreement. Neither Agent nor any Lender is obligated at any time to collect any amounts or otherwise enforce any obligations due from any purchaser in respect of any such purchase. 4.6 SHIPMENT FOR CORRECTION. If no Default, Potential Default, or Borrowing Excess exists or occurs as a result of the shipment and if shipment would not result in any Collateral Documents for Mortgage Loans with more than a total face amount of $1,000,000 being outstanding for correction, then Borrower may -- by a Trust Receipt delivered to Agent -- request that Agent ship to Borrower the entire mortgage loan file of Collateral Documents for any Mortgage Loan so that certain of those Collateral Documents may be corrected or replaced for clerical or other non-substantive mistakes. If Agent has no actual knowledge that any of the above conditions have not been satisfied, then and subject to the limitations below, then Agent shall ship to Borrower the entire mortgage loan file of Collateral Documents to be corrected or replaced. Borrower shall re-deliver to Agent the corrected Collateral Documents (meeting the requirements of SCHEDULE 4.3) before the expiration of the Correction Period for that Collateral. Collateral shipped under this section, unless returned to Agent, ceases to be Eligible-Mortgage Collateral (a) to the extent that Collateral Documents for Mortgage Loans with more than a total face amount of $1,000,000 are outstanding for correction at any time and (b) upon the expiration of the Correction Period for that Collateral. The Lender Liens on any Collateral shipped under this section continue in full force and effect. 35 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- 4.7 RELEASE OF COLLATERAL. (A) EXCESS COLLATERAL. If no Default or Potential Default exists and no Borrowing Excess exists or would occur (after taking into account any corresponding payment on the Obligation) as a result of the release, Borrower may -- by a Release Request delivered to Agent by 11:00 a.m. on the Business Day of the release -- request that Agent release the Lender Liens on any Collateral. (B) SATISFACTION OF OBLIGATION. If the Obligation is fully paid and performed and all commitments by each Lender to extend credit under the Loan Documents are terminated or canceled, Borrower may -- by written request to Agent -- request that Agent release the Lender Liens on all of the Collateral, return to Borrower or its designee all Collateral Documents then held by Agent, and execute a release of any financing statements or other documents filed or recorded to perfect the Lender Liens. (C) RELEASES. If Agent has no actual knowledge that any of the above conditions for a release have not been satisfied, then Agent shall effect those releases. SECTION 5. CONDITIONS PRECEDENT. No Lender is obligated to fund its part of any Borrowing and Agent is not obligated to issue any LC unless Agent has received all of the documents and items described on SCHEDULE 5. In addition, no Lender is obligated to fund its part of any Borrowing and Agent is not obligated to issue any LC unless on the applicable Borrowing Date (and after giving effect to the requested Borrowing or LC): (a) Agent has timely received a Borrowing Request or LC Request (together with the applicable LC Agreement); (b) Agent receives any applicable LC fees; (c) all of the representations and warranties of Borrower in the Loan Documents are true and correct in all material respects (unless they speak to a specific date or are based on facts which have changed by transactions contemplated or permitted by this agreement); (d) no Default or Potential Default exists; (e) the funding of the Borrowing or the issuance of the LC is permitted by Law and does not cause a Borrowing Excess; and (f) if reasonably requested by Agent, it has received evidence substantiating any of the matters in the Loan Documents that are necessary to enable Borrower to qualify for the Borrowing or the issuance of the LC, as the case may be. Each condition precedent in this agreement (including, without limitation, those on SCHEDULE 5) is material to the transactions contemplated by this agreement, and time is of the essence with respect to each. Subject to first obtaining the approval of all Lenders, Agent or any Lender may fund any Borrowing or issue any LC without all conditions being satisfied. However, to the extent lawful, that funding is not a waiver of the requirement that each condition precedent be satisfied as a prerequisite for any subsequent funding or issuance, unless all Lenders specifically waive an item in writing. SECTION 6. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Agent and Lenders as follows: 6.1 PURPOSE OF CREDIT. Borrower will use all proceeds of Borrowings for one or more of the following: (a) Warehouse Borrowings will be used to finance Borrower's Mortgage Loan origination and acquisition until those Mortgage Loans are sold in the secondary market, (b) Working-Capital Borrowings will be used either (i) to pay certain Servicing Payments until those payments are reimbursed by either obligors under Mortgage Loans being serviced by Borrower or by the appropriate governmental agencies or (ii) to issue letters of credit to support sales of Servicing Rights, and (c) Term-Line Borrowings will be used to finance the acquisition of various servicing portfolios and to provide funding for Borrower's internally-generated Servicing Rights. In addition, the initial Borrowing on the Closing Date will be used to repay the outstanding indebtedness under the Existing Loan Agreement owed to any Existing Lender that is not a Lender under this agreement. Borrower is not engaged principally (or as one of its important activities) in the business of extending credit for the purpose of purchasing or carrying any "margin stock" within the meaning of Regulation 36 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- U. No part of the proceeds of any LC draft or drawing or any Borrowing is to be used, directly or indirectly, for a purpose that violates any Law, including, without limitation, the provisions of Regulation U. 6.2 ABOUT THE COMPANIES. (A) SUBSIDIARIES AND TRADE NAMES. Except as described on SCHEDULE 6.2 (i) Borrower has no Subsidiaries and (ii) no Company has used or transacted business under any other corporate or trade name in the six-month period preceding the date of this agreement. (B) EXISTENCE, QUALIFICATION, AND COMPLIANCE. Each Company is duly organized, validly existing, and in good standing under the Laws of the jurisdiction in which it is incorporated as stated on SCHEDULE 6.2. Except where failure is not a Material-Adverse Event, each Company (i) is duly qualified to transact business and is in good standing as a foreign corporation or other entity in each jurisdiction where the nature and extent of its business and properties require due qualification and good standing (as described on SCHEDULE 6.2), (ii) possesses all requisite authority, permits, and power to conduct its business as is now being -- or is contemplated by this agreement to be -- conducted, and (iii) is in compliance with all applicable Laws. (C) OFFICES. Each Company's chief executive office and other principal offices are described on SCHEDULE 6.2. The present and foreseeable location of each Company's books and records concerning accounts and accounts receivable is at its chief executive office, and all of its books, and records are in its possession. 6.3 AUTHORIZATION AND CONTRAVENTION. The execution and delivery by each Company of each Loan Document to which it is a party and the performance by it of its related obligations (a) are within its corporate power, (b) have been duly authorized by all necessary corporate action, (c) except for any action or filing that has been taken or made on or before the date of this agreement, require no action by or filing with any Tribunal, (d) do not violate any provision of its charter or bylaws, (e) except where not a Material-Adverse Event, do not violate any provision of Law applicable to it or any material agreements to which it is a party, and (f) except for Lender Liens, do not result in the creation or imposition of any Lien on any asset of any Company. 6.4 BINDING EFFECT. Upon execution and delivery by all parties to it, each Loan Document will constitute a legal and binding obligation of each Company party to it, enforceable against it in accordance with its terms, except as enforceability may be limited by applicable Debtor Laws and general principles of equity. 6.5 FISCAL YEAR. The Companies' fiscal year ends each December 31. 6.6 CURRENT FINANCIALS. The Current Financials were prepared in accordance with GAAP and present fairly, in all material respects, the financial condition, results of operations, and cash flows of the Companies as of, and for the portion of the fiscal year ending on their date or dates (subject only to normal year-end adjustments). All material liabilities of the Companies as of the date or dates of the Current Financials are reflected in them or notes to them. Except for transactions directly related to, or specifically contemplated by, the Loan Documents, no subsequent material adverse changes have occurred in the financial condition of the Companies from that shown in the Current Financials, nor has any Company incurred any subsequent material liability. 6.7 DEBT. No Company has any Debt except Permitted Debt. 37 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- 6.8 SOLVENCY. On the date of each Borrowing or the issuance of any LC, each Company is, and after giving effect to the requested Borrowing or LC will be, Solvent. 6.9 LITIGATION. Except as disclosed on SCHEDULE 6.9 (a) no Company is subject to, or aware of the threat of, any Litigation that is reasonably likely to be determined adversely to it or, if so adversely determined, would be a Material-Adverse Event, and (b) no outstanding or unpaid judgments against any Company exists. 6.10 TRANSACTIONS WITH AFFILIATES. No Company is a party to a material transaction with any of its Affiliates except (a) transactions in the ordinary course of business and upon fair and reasonable terms not materially less favorable than it could obtain or could become entitled to in an arm's-length transaction with a Person that was not its Affiliate, and (b) transactions described on SCHEDULE 6.10. 6.11 TAXES. All Tax returns of each Company required to be filed have been filed (or extensions have been granted) before delinquency, except for returns for which the failure to file is not a Material-Adverse Event, and all Taxes imposed upon each Company that are due and payable have been paid before delinquency. 6.12 EMPLOYEE PLANS. Except where occurrence or existence is not a Material-Adverse Event, (a) no Employee Plan has incurred an "accumulated funding deficiency" (as defined in (S) 302 of ERISA or (S) 412 of the IRC), (b) no Company has incurred liability under ERISA to the PBGC in connection with any Employee Plan, (c) no Company has withdrawn in whole or in part from participation in a Multiemployer Plan, (d) no Company has engaged in any "prohibited transaction" (as defined in (S) 406 of ERISA or (S) 4975 of the IRC), and (e) no "reportable event" (as defined in (S) 4043 of ERISA) has occurred in respect of any Employee Plan, excluding events for which the notice requirement is waived under applicable PBGC regulations. 6.13 PROPERTY AND LIENS. Each Company has good and marketable title to all its property reflected on the Current Financials except for property that is obsolete or that has been disposed of in the ordinary course of business or, after the date of this agreement, as otherwise permitted by this agreement. All Collateral is free and clear of any Liens and adverse claims of any nature except Permitted Liens. 6.14 INTELLECTUAL PROPERTY. Borrower owns all material licenses, patents, patent applications, copyrights, service marks, trademarks, trademark applications, and trade names necessary to continue to conduct its businesses as presently conducted by it and proposed to be conducted by it immediately after the date of this agreement. Borrower is conducting its business without infringement or claim of infringement of any license, patent, copyright, service mark, trademark, trade name, trade secret, or other intellectual property right of others, other than any infringements or claims that, if successfully asserted against or determined adversely to Borrower, are not a Material-Adverse Event. To Borrower's knowledge, no infringement or claim of infringement by others of any material license, patent, copyright, service mark, trademark, trade name, trade secret, or other intellectual property of Borrower exists. 6.15 ENVIRONMENTAL MATTERS. Except where not a Material-Adverse Event, no Company (a) knows of any environmental condition or circumstance adversely affecting any Company's properties or operations or any material portion of the properties subject to Mortgage Loans, (b) has received any report of any Company's violation of any Environmental Law, or (c) knows that any Company is under any obligation to remedy any violation of any Environmental Law. Each Company has taken prudent steps to determine that its properties and operations and that substantially all of the properties subject to Mortgage Loans do not violate any Environmental Law except violations that are not a Material-Adverse Event. 38 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- 6.16 GOVERNMENT REGULATIONS. (A) INAPPLICABLE REGULATIONS. No Company is subject to regulation under the Investment Company Act of 1940, as amended, or the Public Utility Holding Company Act of 1935, as amended. (B) BORROWER'S ELIGIBILITY. Borrower is approved and qualified and in good standing as an issuer, mortgagee, or seller/servicer, as described below, and meets all requirements applicable to its status as such: (i) GNMA approved issuer of Mortgage-Backed Securities guaranteed by GNMA; (ii) FNMA approved seller/servicer of Mortgage Loans, eligible to originate, purchase, hold, sell, and service Mortgage Loans to be sold to FNMA; (iii) FHLMC approved seller/servicer of Mortgage Loans, eligible to originate purchase, hold, sell and service Mortgage Loans to be sold to FHLMC; (iv) FHA approved mortgagee, eligible to originate, purchase, hold, sell and service FHA Loans; and (v) VA approved mortgagee, eligible to originate, purchase, hold, sell and service VA Loans. 6.17 INSURANCE. Each Company maintains with financially sound, responsible, and reputable insurance companies or associations (or, as to workers' compensation or similar insurance, with an insurance fund or by self- insurance authorized by the jurisdictions in which it operates) insurance concerning its properties and businesses against casualties and contingencies and of types and in amounts (and with co-insurance and deductibles) as is customary in the case of similar businesses. 6.18 APPRAISALS. With respect to the property the subject of any Mortgage Loan, Borrower has obtained Appraisals in material compliance with all Appraisal Laws. 6.19 FULL DISCLOSURE. Each material fact or condition relating to the Loan Documents or the financial condition, business, or property of the Companies that is a Material-Adverse Event has been disclosed in writing to Agent and Lenders. All information previously furnished by any Company to Agent or any Lender in connection with the Loan Documents was -- and all information furnished in the future by any Company to Agent or any Lender will be -- true and accurate in all material respects or based on reasonable estimates on the date the information is stated or certified. SECTION 7. AFFIRMATIVE COVENANTS. Until all commitments by Lenders to extend credit under this agreement have been canceled or terminated and the Obligation is fully paid and performed, Borrower jointly and severally covenants and agrees with Agent and Lenders as follows: 7.1 REPORTING REQUIREMENTS. Borrower shall cause to be furnished to Agent the following, all in form and detail reasonably satisfactory to Agent: (A) ANNUAL FINANCIALS. Promptly when available but at least within 90 days after each fiscal-year end of Borrower, audited Financials of the Companies as of that year end, each reflecting the corresponding figures for the preceding fiscal year in comparative form, accompanied by (i) an unqualified opinion of a firm of independent certified public accountants acceptable to Agent stating that those Financials were prepared in accordance with GAAP applied on a basis consistent with prior periods except for such changes in GAAP concurred in by Borrower's independent public accountants, and that the consolidated portion of those Financials present fairly the consolidated and consolidating financial condition and results of operations of the Companies as of (and for the fiscal year ending on) that last day, and (ii) a Compliance Certificate. (B) GUARANTOR FINANCIAL STATEMENTS. Promptly when available but at least within 90 days after each fiscal year end of Guarantor, audited financial statements and statements of cash flow 39 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- for any Guarantor prepared as of the end of the previous calendar year in form and detail reasonably acceptable to Agent. (C) MONTHLY FINANCIALS. Promptly when available but at least within 45 days after each Calendar Month, Financials of the Companies as of the end of that month, accompanied by (i) a Management Report and (ii) a Compliance Certificate. (D) TAKE-OUT REPORT. By 5:00 p.m. on each Monday (or, if any Monday is not a Business Day, then by that time on the next Business Day) but only to the extent that Borrower has elected not to deliver specifically- designated Take-Out Commitments to Agent under SCHEDULES 4.2 and 4.3, a Take-Out Report that is prepared as of the close of business on the preceding Business Day and reports the Take-Out Prices of the Mortgage- Collateral Groups comprising the Mortgage Collateral for which specifically-designated Take-Out Commitments have not been delivered. (E) INVESTOR INFORMATION. Promptly after the request by Agent or Determining Lenders, financial information about any investor (other than FNMA, FHLMC, and GNMA) for purposes of determining whether that investor should become or remain an Approved Investor. (F) APPRAISED VALUE REPORT. Promptly when available but at least within 60 days after each Calendar Quarter, an appraisal of the Appraised Value. Such appraisals shall be delivered at least once every Calendar Quarter with respect to the Servicing Portfolio (Borrower's internally- prepared appraisals are acceptable except that the appraisal due on the Calendar Quarter ending each March 31 must be prepared by an independent third-party appraiser acceptable to Agent in its sole discretion). (G) NOTICES. Notice, promptly after any Company knows or has reason to know, of (i) the existence and status of any Litigation that, if determined adversely to any Company, would be a Material-Adverse Event, (ii) any change in any material fact or circumstance represented or warranted by any Company in any Loan Document that constitutes a Material- Adverse Event, (iii) the receipt by any Company of notice of any violation or alleged violation of ERISA or any Environmental Law or other Law if that violation is a Material-Adverse Event, or (iv) a Default or Potential Default specifying the nature thereof and what action Borrower have taken, are taking, or propose to take with respect to it. (H) OTHER INFORMATION. Promptly upon reasonable request by Agent or Determining Lenders (through Agent), information (not otherwise required to be furnished under the Loan Documents) respecting the business affairs, assets, and liabilities of any Company and opinions, certifications, and documents in addition to those mentioned in this agreement. 7.2 USE OF PROCEEDS. Borrower shall use the proceeds of Borrowings only for the purposes represented in this agreement. 7.3 BOOKS AND RECORDS. Each Company shall maintain books, records, and accounts necessary to prepare Financials in accordance with GAAP. 7.4 INSPECTIONS. Upon reasonable request, each Company shall allow Agent, any Lender, or their respective Representatives to inspect any of its properties, to review reports, files, and other records and to make and take away copies, to conduct tests or investigations, and to discuss any of its affairs, conditions, and finances with its directors, officers, employees, or representatives from time to time during reasonable business hours. 40 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- 7.5 TAXES. Each Company shall promptly pay when due any and all Taxes other than Taxes of which the failure to pay is not a Material-Adverse Event or which are being contested in good faith by lawful proceedings diligently conducted, against which reserve or other provision required by GAAP has been made, and in respect of which levy and execution of any Lien have been and continue to be stayed. 7.6 EXPENSES. Borrower shall pay (a) all reasonable legal fees and expenses incurred by Agent in connection with the preparation, negotiation, and execution of the Loan Documents, (b) all reasonable legal fees and expenses incurred by Agent in connection with each separate future amendment, consent, waiver, or approval executed in connection with any Loan Document, (c) all fees, charges, or Taxes for the recording or filing of any Loan Document to create or perfect Lender Liens, (d) all other reasonable out-of-pocket expenses of Agent or any Lender in connection with the preparation, negotiation, execution, or administration of the Loan Documents -- including, without limitation, courier expenses incurred in connection with the Mortgage Collateral, (e) all amounts expended, advanced, or incurred by Agent or any Lender to satisfy any obligation of any Company under any Loan Document, to collect the Obligation, or to enforce the Rights of Agent or any Lender under any Loan Document -- including, without limitation, all court costs, attorneys' fees (whether for trial, appeal, other proceedings, or otherwise), fees of auditors and accountants, and investigation expenses reasonably incurred by Agent or any Lender in connection with any such matters, (f) interest at an annual interest rate equal to the Default Rate on each item specified in CLAUSES (A) through (E) above from 30 days after the date of written demand or request for reimbursement to the date of reimbursement, and (g) any and all stamp and other Taxes payable or determined to be payable in connection with the execution, delivery, or recordation of any Loan Document -- IN CONNECTION WITH WHICH BORROWER SHALL INDEMNIFY AND SAVE AGENT AND EACH LENDER HARMLESS FROM AND AGAINST ANY AND ALL LIABILITIES WITH RESPECT TO OR RESULTING FROM ANY DELAY IN PAYING OR OMISSION TO PAY THOSE TAXES TO THE EXTENT THOSE LIABILITIES ARISE SOLELY BECAUSE BORROWER FAILED TO PAY THE TAXES UPON DEMAND BY AGENT OR ANY LENDER, WHICH INDEMNITY SURVIVES THE PAYMENT AND PERFORMANCE OF THE OBLIGATION AND TERMINATION OF THE LOAN DOCUMENTS. 7.7 MAINTENANCE OF EXISTENCE, ASSETS, AND BUSINESS. Each Company shall (a) except as permitted by SECTION 8.5, maintain its corporate existence and good standing in its state of incorporation and its authority to transact business in all other states where failure to maintain its authority to transact business is a Material-Adverse Event, and (b) maintain all licenses, permits, and franchises necessary for its business where failure to do so is a Material- Adverse Event -- including, without limitation, Borrower's eligibility as lender, seller/servicer, and issuer as described in SECTION 6.16(B). 7.8 INSURANCE. Borrower shall (a) maintain with financially sound and reputable insurers, insurance with respect to its assets and business against such liabilities, casualties, risks, and contingencies and in such types and amounts -- including, without limitation, a fidelity bond or bonds in form and with coverage, with a company, and with respect to such individuals or groups of individuals -- as satisfy prevailing FNMA, FHLMC, and GNMA requirements applicable to a qualified mortgage institution and otherwise as is customary in the case of Persons engaged in the same or similar businesses and similarly situated, and (b) upon Agent's request, furnish to Agent from time to time (i) a summary of its insurance coverage, in form and substance satisfactory to Agent, and (ii) originals or copies of the applicable policies. 7.9 TAKE-OUT COMMITMENTS. Borrower shall perform and observe in all material respects each of the provisions of each Take-Out Commitment on its part to be performed or observed and cause all things to be done that are necessary to have each item of Mortgage Collateral and the Collateral Documents covered by a Take-Out Commitment to comply with its requirements. 7.10 APPRAISALS. Borrower shall promptly (a) permit Agent's and any Lender's authorized Representatives to discuss with Borrower's officers or with the appraisers furnishing Appraisals the procedures 41 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- for preparation, review, and retention of -- and to review and obtain copies of --all Appraisals pertaining to any Mortgage Collateral, and (b) upon Agent's or any Lender's request, cooperate with it to ascertain that the Appraisals comply with all Appraisal Laws. 7.11 INDEMNIFICATION. IN CONSIDERATION OF THE COMMITMENTS BY AGENT AND LENDERS UNDER THE LOAN DOCUMENTS, BORROWER SHALL INDEMNIFY AND DEFEND EACH AGENT, LENDER, AND THEIR RESPECTIVE AFFILIATES AND REPRESENTATIVES (COLLECTIVELY, THE "INDEMNIFIED PARTIES") -- AND DEFEND THEM AND HOLD EACH OF THEM HARMLESS -- AGAINST ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES, DEFICIENCIES, INTEREST, JUDGMENTS, COSTS, OR EXPENSES -- INCLUDING, WITHOUT LIMITATION, REASONABLE ATTORNEYS' FEES -- INCURRED BY ANY OF THEM ARISING FROM OR BECAUSE OF (A) ANY INVESTIGATION, LITIGATION, OR OTHER PROCEEDING BROUGHT OR THREATENED IN CONNECTION WITH ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS, INCLUDING, WITHOUT LIMITATION, ANY USE BY EITHER COMPANY OF THE PROCEEDS OF BORROWINGS, (B) ANY IMPOUNDMENT, ATTACHMENT, OR RETENTION OF ANY MORTGAGE COLLATERAL OR ANY FAILURE OF ANY INVESTOR TO PAY THE ENTIRE PURCHASE PRICE OF ANY MORTGAGE COLLATERAL UNDER ANY TAKE-OUT COMMITMENT, (C) ANY ALLEGED VIOLATION OF ANY FEDERAL OR STATE LAW RELATING TO USURY IN CONNECTION WITH ANY MORTGAGE COLLATERAL, AND (D) ANY REPRESENTATION MADE BY ANY COMPANY UNDER ANY LOAN DOCUMENT. ALTHOUGH EACH INDEMNIFIED PARTY IS ENTITLED TO INDEMNIFICATION FOR ANY INDEMNIFIED PARTY'S ORDINARY NEGLIGENCE, NO INDEMNIFIED PARTY IS ENTITLED TO INDEMNIFICATION FOR ITS OWN GROSS NEGLIGENCE, WILLFUL MISCONDUCT, OR FRAUD. THIS INDEMNITY SURVIVES THE PAYMENT AND PERFORMANCE OF THE OBLIGATION AND TERMINATION OF THE LOAN DOCUMENTS. SECTION 8. NEGATIVE COVENANTS. Until all commitments by Lenders to extend credit under this agreement have been canceled or terminated and the Obligation is fully paid and performed, Borrower covenants and agrees with Agent and Lenders as follows: 8.1 DEBT. No Company may directly or indirectly create, incur, permit to exist, or commit to create or incur (a) any Wet Borrowings except in connection with this agreement or in connection with any Permitted Debt whose description specifically allows for Wet Borrowings, (b) any mortgage loan repurchase agreements (except in connection with any Permitted Debt whose description specifically allows for mortgage loan repurchase agreements or as otherwise permitted by Agent in writing), or (c) any other Debt except the following (collectively, the "PERMITTED DEBT"): (i) Obligations to pay Taxes. (ii) Liabilities for accounts payable, non-capitalized equipment or operating leases, and similar liabilities if in each case incurred in the ordinary course of business. (iii) Accrued expenses, deferred credits, and loss contingencies that are properly classified as liabilities under GAAP. (iv) The Obligation. (v) Up to $825,000 in Debt (including related letters of credit and reimbursement agreements) under a municipal bond financing facility with Colorado National Bank. (vi) Up to $1,235,000 in Debt under a land acquisition loan from First Security Bank. 42 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- (vii) Up to $1,600,000 in Debt under a model-home financing facility with Argo Federal Savings Bank. (viii) Up to $679,495 in Debt (but not warehouse-type Debt) under a facility with Piper-Jaffray (American Strategic Income Portfolio, Inc.) as that amount may be reduced but not increased at any time on or after the Closing Date. (ix) Debt under a Revolving Subordinated Loan Agreement between Borrower and Guarantor, providing (in terms acceptable to lender) that any liabilities arising under the Revolving Subordinated Loan Agreement are expressly subordinated to the Obligation. (x) Debt (other than the above) incurred after the date of this agreement, never to exceed $250,000 unless approved by Agent in writing. 8.2 LIENS. No Company may (a) create, incur, permit to exist, enter into, or commit to enter into any arrangement or agreement (except the Loan Documents) that directly or indirectly prohibits any Company from creating or incurring any Lien on any of its assets, or (b) create, incur, permit to exist, or commit to create or incur any Lien on any of its assets except the following (collectively, the "PERMITTED LIENS"): (i) Any interest or title of a lessor in assets being leased under any non-capitalized equipment or operating lease. (ii) Pledges or deposits that (a) do not encumber any Collateral and (b) are made to secure payment of workers' compensation, unemployment insurance, or other forms of governmental insurance or benefits or to participate in any fund in connection with workers' compensation, unemployment insurance, pensions, or other social security programs. (iii) Good-faith pledges or deposits that (a) do not cover any Collateral and (b) are either (i) not in excess of 10% (excluding deposits put down for servicing portfolio purchases in the ordinary course of business) of the amounts due under, and made to secure, either Company's performance of bids, tenders, contracts (other than for the repayment of borrowed money), or leases, or (ii) made to secure statutory obligations, surety or appeal bonds, or indemnity, performance, or other similar bonds benefitting any Company in the ordinary course of its business. (iv) Zoning and similar restrictions on the use of real property that do not materially impair the use of the real property and that are not violated by existing or proposed structures or land use. (v) The following if no Lien has been filed in any jurisdiction or agreed to: (a) Liens for Taxes not yet due and payable and (b) if, to the extent they cover any Collateral, they are subordinate to the Lender Liens in form and substance reasonably acceptable to Agent (c) mechanic's Liens and materialman's Liens for services or materials for which payment is not yet due and payable and (d) landlord's Liens for rent not yet due and payable. (vi) The following if the validity or amount thereof is being contested in good faith and by appropriate and lawful proceedings diligently conducted, reserve or other appropriate provision (if any) required by GAAP has been made, levy and execution continue to be stayed, any of which covering any Collateral must be subordinate to the Lender Liens 43 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- in form and substance reasonably acceptable to Agent, and any of which do not in the aggregate materially detract from the value of the property of the Company in question, or materially impair the use of that property in the operation of its business: (a) claims and Liens for Taxes due and payable; (b) claims and Liens upon, and defects of title to, real or personal property (other than any Collateral), including any attachment of personal or real property or other legal process before adjudication of a dispute on the merits; (c) claims and Liens of mechanics, materialmen, warehousemen, carriers, landlords, or other like Liens; and (d) adverse judgments or orders on appeal for the payment of money. (vii) Lender Liens. (viii) Liens (a) evidenced by any financing statements reflected in any UCC Search Reports described on SCHEDULE 5 to the extent that they are not required to be terminated, partially released, amended, or subordinated as reflected in the conditions in SCHEDULE 5 or (b) securing Permitted Debt. 8.3 LOANS, ADVANCES, AND INVESTMENTS. No Company may make or commit to make any loan, advance, extension of credit, or capital contribution to, make or commit to make any investment in, or purchase or commit to purchase any stock or other securities or evidences of Debt of, or interests in, any other Person except the following (collectively, "PERMITTED LOANS/INVESTMENTS"): (i) Extensions of trade credit and other payables in the ordinary course of business. (ii) Loans and advances to officers or employees of any Company that are (a) in the ordinary course of business for travel, entertainment, or relocation or (b) not in the ordinary course and are never more than a total outstanding of (i) $50,000 for any one officer, director, or employee or (ii) $50,000 for all of the Companies. (iii) Mortgage Loans and Mortgaged Securities originated or acquired by Borrower in the ordinary course of its business. (iv) Acquisition of securities or evidences of Debt of others when acquired by Borrower in settlement of accounts receivable or other Debts arising in the ordinary course of business so long as the total of all of those securities or evidences of Debt is not material to Borrower's financial condition. (v) Investments in obligations, with maturities of one year or less, issued or unconditionally guaranteed by -- or issued by any of its agencies and backed by the full faith and credit of -- the United States of America. (vi) Demand deposit accounts maintained in the ordinary course of business. (vii) Certificates of deposit issued by (a) any Lender or (b) any other commercial bank organized under the Laws of the United States of America or one of its states that has combined capital, surplus, and undivided profits of at least $250,000,000 and a rating of C or better by Thompson Bank Watch, Inc. (viii) Eurodollar investments with (a) any Lender or (b) any other financial institution that has (i) combined capital, surplus, and undivided profits of at least 44 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- $100,000,000 and (ii) a commercial-paper rating of at least P-1 or A-1 or (if it does not have a commercial-paper rating) a bond rating of at least A-1 or A- by Moody's Investors Service, Inc., or Standard & Poor's Corporation, respectively. (ix) Investments in commercial paper (a) having a maturity of one year or less and (b) given the highest rating by a nationally- recognized-credit-rating agency. (x) Investments in municipal bonds acquired on or before the Closing Date. (xi) An investment in real property in Ft. Lupton, Colorado, valued at approximately $1,431,306. (xii) Investments in Pulte Corporation model homes, valued at no more than $2,000,000. (xiii) Other loans, advances, or investments, so long as the aggregate amount outstanding (defined as the amount of any such loans or advances plus the cost of any such investments) is never more than $100,000 at any one time. At no time may the aggregate market value of all Permitted Loans/Investments (other than Mortgage Loans and Mortgage Securities described in SECTION 8.3(III) above) exceed an aggregate value of more than $6,000,000). 8.4 DISTRIBUTIONS. Borrower may not directly or indirectly pay or declare any Distribution during any fiscal year except (a) dividends payable solely in the form of capital stock, (b) cash distributions to Borrower's shareholders in an amount not to exceed 50% of Borrower's net cash income (after adjustments for non-cash income and cash taxes) so long as no Default or Potential Default exists or would be created by the Distribution or (c) Distributions otherwise approved in writing by Agent. 8.5 MERGER OR CONSOLIDATION. No Company may directly or indirectly merge or consolidate with or into any other Person except that any Company may merge into or be consolidated with any other Company so long as Borrower is the surviving corporation if it is involved. 8.6 LIQUIDATIONS AND DISPOSITIONS OF ASSETS. No Company may directly or indirectly dissolve or liquidate or sell, transfer, lease, or otherwise dispose of any material portion of its assets or business except for sales or other dispositions by Borrower, in the ordinary course of business, of (a) subject to SECTION 9, part of its Servicing Portfolio, or (b) subject to SECTION 4, Mortgage Loans, Mortgage Securities, or Servicing Receivables that are Collateral, or (c) Mortgage Loans, Mortgage Securities, or Servicing Receivables that are not Collateral. 8.7 USE OF PROCEEDS. Borrower may not directly or indirectly use the proceeds of Borrowings (a) for any purpose other than as represented in this agreement, (b) for the funding or acquisition of construction or commercial loans, (c) for wages of employees, unless a timely payment to or deposit with the United States of America of all amounts of Tax required to be deducted and withheld with respect to such wages is also made, or (d) in violation of Regulation U or (S) 7 of the Securities Exchange Act of 1934. 8.8 TRANSACTIONS WITH AFFILIATES. No Company may directly or indirectly enter into any transaction with any of its Affiliates other than transactions in the ordinary course of business or upon fair and reasonable terms not materially less favorable than it could obtain or could become entitled to in an arm's- length transaction with a Person that was not its Affiliate. 45 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- 8.9 EMPLOYEE PLANS. Except where a Material-Adverse Event would not result, no Company may directly or indirectly permit any of the events or circumstances described in SECTION 6.12 to exist or occur. 8.10 COMPLIANCE WITH LAWS AND DOCUMENTS. No Company may directly or indirectly (a) violate the provisions of any Laws applicable to it or of any Material Agreement to which it is a party if that violation alone or with all other violations is a Material-Adverse Event or (b) violate the provisions of its charter or bylaws or repeal, replace or amend any provision of its charter or bylaws if any such action is a Material-Adverse Event. 8.11 GOVERNMENT REGULATIONS. No Company may directly or indirectly conduct its business in a way that it becomes regulated under the Investment Company Act of 1940. 8.12 FISCAL YEAR ACCOUNTING. No Company may directly or indirectly change its fiscal year nor use any accounting method other than GAAP. 8.13 NEW BUSINESSES. No Company may directly or indirectly engage in any business except the businesses in which it or any of its Affiliates is presently engaged and any other reasonably-related business. 8.14 ASSIGNMENT. No Company may directly or indirectly assign or transfer any of its Rights, duties, or obligations under any of the Loan Documents. 8.15 OTHER FACILITIES. No Company may directly or indirectly receive advances under any other warehouse- or servicing-type facility except as provided in this agreement or as approved in writing by Agent. SECTION 9. FINANCIAL COVENANTS. Until all commitments by Lenders to extend credit under this agreement have been canceled or terminated and the Obligation is fully paid and performed, Borrower covenants and agrees with Agent and Lenders as follows: 9.1 NET WORTH. (a) The Companies' Net Worth may never be less than the sum of (i) $10,000,000 plus (ii) 100% of all contributions to any Company's stockholders' equity made on or after December 31, 1996, plus (iii) 50% of the Companies' Net Income for each fiscal quarter ending after December 31, 1996, and added to the Companies' required Net Worth on the last day of each successive fiscal quarter (provided that if the Companies' Net Income for any fiscal quarter is less than $0, then the incremental amount added to the Companies' required Net Worth for that fiscal quarter shall be $0). (b) The Companies' Adjusted-Net Worth may never be less than the sum of (i) $12,000,000, plus (ii) 100% of all contributions to any Company's stockholders' equity made on or after December 31, 1996, plus (iii) 50% of the Companies' Net Income for each fiscal quarter ending after December 31, 1996, and added to the Companies' required Adjusted-Net Worth on the last day of each successive fiscal quarter (provided that if the Companies' Net Income for any fiscal quarter is less than $0, then the incremental amount added to the Companies' required Adjusted-Net Worth for that fiscal quarter shall be $0). (c) The Companies' Adjusted-Tangible-Net Worth may never be less than the sum of (i) $10,000,000, plus (ii) 100% of all contributions to any Company's stockholders' equity made on or after December 31, 1996, plus (iii) 50% of the Companies' Net Income for each fiscal quarter ending after December 31, 1996, and added to the Companies' required Adjusted-Tangible- Net Worth on the 46 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- last day of each successive fiscal quarter (provided that if the Companies' Net Income for any fiscal quarter is less than $0, then the incremental amount added to the Companies' required Adjusted-Tangible-Net Worth for that fiscal quarter shall be $0). 9.2 LEVERAGE. The ratio of the Companies' Total-Adjusted Debt to Adjusted-Tangible-Net Worth may never exceed 8.0 to 1.0. 9.3 CASH FLOW. The ratio of the Companies' historical Cash Flow to historical CMLTD may never be less than 1.3 to 1.0 at the end of any 4-quarter period, calculated as of the last day of each Calendar Quarter. 9.4 SERVICING PORTFOLIO. The Servicing Portfolio may never be less than (a) $2,000,000,000 on or after June 30, 1997, so long as the "Vanderford" acquisition has occurred and (b) $1,500,000,000 at all other times. Agency servicing must represent a minimum of 65% of the total Servicing Portfolio. 9.5 DEBT TO SERVICING PORTFOLIO. (a) The Principal Debt of Term-Line Borrowings may never exceed the lesser of either (i) 1.25% of the unpaid principal balance of the Servicing Portfolio, or (ii) 70% of the Appraised Value of the Servicing Portfolio. (b) The Principal Debt of Working-Capital Borrowings and Term- Line Borrowings may never exceed the lesser of either (i) 1.25% of the unpaid principal balance of the Servicing Portfolio, or (ii) 95% of the Appraised Value of the Servicing Portfolio. SECTION 10. DEFAULTS AND REMEDIES. 10.1 DEFAULT. The term "DEFAULT" means the existence or occurrence of any one or more of the following: (A) OBLIGATION. Borrower fails to pay (i) any interest on the Obligation when due under the Loan Documents and that failure continues for five days or (ii) any other part of the Obligation when due under the Loan Documents. (B) COVENANTS. Any Company fails to punctually and properly perform, observe, and comply with any (i) any covenant, agreement, or condition under SECTIONS 8 or 9 or (ii) any covenant, agreement, or condition contained in any of the Loan Documents -- other than covenants to pay the Obligation and the covenants listed in CLAUSE (I) above and that failure continues for a period of 15 calendar days after any Company has, or, with the exercise of reasonable investigation, should have, notice of it. (C) MISREPRESENTATION. Any material statement, warranty, or representation by or on behalf of any Company or Guarantor in any Loan Document or other writing authored by any Company or Guarantor and furnished in connection with the Loan Documents, proves to have been incorrect or misleading in any material respect as of the date made or deemed made. (D) DEBTOR LAW. Any Company or Guarantor (i) is not Solvent, (ii) fails to pay its Debts generally as they become due, (iii) voluntarily seeks, consents to, or acquiesces in the benefit of any Debtor Law, or (iv) becomes a party to or is made the subject of any proceeding provided for by any Debtor Law -- other than as a creditor or claimant -- that could suspend or otherwise adversely affect 47 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- the Rights of Agent or any Lender granted in the Loan Documents unless, if the proceeding is involuntary, the applicable petition is dismissed within 60 days after its filing. (E) OTHER DEBT. Any Company or Guarantor fails to make any payment due on any Debt or security (with respect to which any Company or Guarantor has redemption, sinking fund, or other purchase obligations) or any event occurs or any condition exists in respect of any Debt or security of any Company or Guarantor, the effect of which is (i) to cause or to permit any holder of that Debt or security or a trustee to cause (whether or not it elects to cause) any of that Debt or security to become due before its stated maturity or its regularly scheduled payment dates, or (ii) to permit a trustee or the holder of any security (other than common stock of any Company or Guarantor) to elect (whether or not it does elect) a majority of the directors on the board of directors of that Company or Guarantor. (F) JUDGMENTS. Any Company or Guarantor fails to pay any money judgment against it at least ten days prior to the date on which any of the assets of that Company or Guarantor may be lawfully sold to satisfy that judgment. (G) ATTACHMENTS. The failure to have discharged within a period of 30 days after the commencement of any attachment, sequestration, or similar proceeding against any of the assets of any Company or Guarantor. (H) UNENFORCEABILITY. Any material provision of any Loan Document for any reason ceases to be in full force and effect or is fully or partially declared null and void or unenforceable or the validity or enforceability of any Loan Document is challenged or denied by any Company. (I) CHANGE OF CONTROL. Any (i) material change in the ownership or management of Borrower or any Guarantor from that ownership and management as it exists on the date of this agreement or (ii) failure to provide advance notice of any change in ownership or management. (J) AGENCY QUALIFICATIONS. (i) Borrower fails to meet any GNMA seller or servicing standard or requirement that is a Material-Adverse Event, (ii) GNMA revokes or terminates Borrower's Right to service for GNMA, (iii) GNMA issues a letter of extinguishment under any GNMA guaranty agreement, (iv) Borrower ceases to be an eligible issuer or servicer for either FNMA or FHLMC, (v) FNMA or FHLMC impose any sanctions upon Borrower resulting in a Material-Adverse Event, (vi) FNMA or FHLMC terminate or revoke Borrower's Right to service for FNMA or FHLMC, or (vii) FNMA or FHLMC initiate any transfer of servicing from Borrower. (K) LCS. Agent is served with, or becomes subject to, a court order, injunction, or other process or decree restraining or seeking to restrain it from paying any amount under any LC and either (a) a drawing has occurred under the LC, and Borrower has refused to reimburse Agent for payment, or (b) the expiration date of the LC has occurred, but the Right of the beneficiary to draw under the LC has been extended past the expiration date in connection with the pendency of the related court action or proceeding, and Borrower has failed to deposit with Agent cash collateral in an amount equal to Agent's maximum exposure under the LC. 10.2 REMEDIES. (A) DEBTOR LAW. Upon the occurrence of a Default under SECTION 10.1(D), the commitments of Lenders to extend credit under this agreement automatically terminate and the full Obligation is automatically due and payable, without presentment, demand, notice of default, notice 48 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- of the intent to accelerate, notice of acceleration, or other requirements of any kind, all of which are expressly waived by Borrower. (B) OTHER DEFAULTS. While a Default exists -- other than those described in CLAUSE (A) above -- Agent may and, upon the direction of Determining Lenders, shall declare the Obligation to be immediately due and payable, whereupon it shall be due and payable, whereupon the commitments of Lenders to extend credit under this agreement are then automatically terminated. (C) OTHER REMEDIES. Following the termination of the commitments of Lenders to extend credit under this agreement and the acceleration of the Obligation, Agent may (and, at the direction of Determining Lenders, shall) do any one or more of the following: (i) Reduce any claim to judgment; (ii) foreclose upon or otherwise enforce any Lender Liens; (iii) demand payment of an amount equal to the LC Exposure then existing and retain as collateral for the LC Exposure any amounts received from any Company or from any property of any Company, through offset, or otherwise; and (iv) exercise any other Rights in the Loan Documents, at Law, in equity, or otherwise that Determining Lenders may direct. Should any Default continue that, in Agent's opinion, materially and adversely affects the Collateral or the interests of the Lenders under this agreement, Agent may, in a notice to the Lenders of that Default set forth one or more actions that Agent, in its opinion, believes should be taken. Unless otherwise directed by Determining Lenders (excluding the Lender serving as Agent) within ten days following the date of the notice setting forth the proposed action or actions, Agent may, but shall not be obligated to, take the action or actions set forth in that notice. 10.3 RIGHT OF OFFSET. Borrower hereby grants to Agent and to each Lender a right of offset, to secure the repayment of the Obligation, upon any and all monies, securities, or other property of Borrower, and the proceeds therefrom now or hereafter held or received by or in transit to Agent or such Lender from or for the account of Borrower, whether for safekeeping, custody, pledge, transmission, collection, or otherwise, and also upon any and all deposits (general or special, time or demand, provisional or final) and credits of Borrower, and any and all claims of Borrower against Agent or such Lender, at any time existing. Upon the occurrence of any Default, Agent and each Lender are authorized at any time and from time to time, without notice to either Company, to offset, appropriate, and apply any and all of those items against the Obligation, subject to SECTION 3.6. Notwithstanding anything in this section or elsewhere in this agreement to the contrary, neither Agent nor any other Lender shall have any right to offset, appropriate, or apply any accounts of Borrower which consist of escrowed funds (except and to the extent of any beneficial interest which Borrower have in such escrowed funds) which have been so identified by any Company in writing at the time of deposit thereof. 10.4 WAIVERS. Borrower waives any right to require Agent to (a) proceed against any Person, (b) proceed against or exhaust any of the Collateral or pursue its Rights and remedies as against the Collateral in any particular order, or (c) pursue any other remedy in its power. Agent shall not be required to take any steps necessary to preserve any Rights of any Company against any Person from which any Company purchased any Mortgage Loans or to preserve Rights against prior parties. Borrower and each surety, endorser, guarantor, pledgor, and other party ever liable or whose property is ever liable for payment of any of the Obligation jointly and severally waive presentment and demand for payment, protest, notice of intention to accelerate, notice of acceleration, and notice of protest and nonpayment, and agree that their or their property's liability with respect to the Obligation, or any part thereof, shall not be affected by any renewal or extension in the time of payment of the Obligation, by any indulgence, or by any release or change in any security for the payment of the Obligation, and hereby consent to any and all renewals, extensions, indulgences, releases, or changes, regardless of the number thereof. 49 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- 10.5 PERFORMANCE BY AGENT. Should any covenant, duty, or agreement of any Company fail to be performed in accordance with the terms of this agreement or of any document delivered under this agreement, Agent may, at its option, after notice to Borrower, as the case may be, perform, or attempt to perform, such covenant, duty, or agreement on behalf of that Company and shall notify each Lender that it has done so. In such event, Borrower shall jointly and severally, at the request of Agent, promptly pay any amount expended by Agent in such performance or attempted performance to Agent at its principal place of business, together with interest thereon at the Maximum Rate from the date of such expenditure by Agent until paid. Notwithstanding the foregoing, it is expressly understood that Agent does not assume and shall never have, except by express written consent of Agent, any liability or responsibility for the performance of any duties of any Company under this agreement or under any other document delivered under this agreement. 10.6 NO RESPONSIBILITY. Except in the case of fraud, gross negligence, or willful misconduct, neither Agent nor any of its officers, directors, employees, or attorneys shall assume -- or ever have any liability or responsibility for --any diminution in the value of the Collateral or any part of the Collateral. 10.7 NO WAIVER. The acceptance by Agent or any Lender at any time and from time to time of partial payment or performance by any Company of any of their respective obligations under this agreement or under any Loan Document shall not be deemed to be a waiver of any Default then existing. No waiver by Agent or any Lender shall be deemed to be a waiver of any other then existing or subsequent Default. No delay or omission by Agent or any Lender in exercising any right under this agreement or under any other document required to be executed under or in connection with this agreement shall impair such right or be construed as a waiver thereof or any acquiescence therein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof, or the exercise of any other right under this agreement or otherwise. 10.8 CUMULATIVE RIGHTS. All Rights available to Agent and the Lenders under this agreement or under any other document delivered under this agreement shall be cumulative of and in addition to all other Rights granted to Agent and the Lenders at Law or in equity, whether or not the Notes be due and payable and whether or not Agent shall have instituted any suit for collection, foreclosure, or other action in connection with this agreement or any other document delivered under this agreement. 10.9 RIGHTS OF INDIVIDUAL LENDERS. No Lender shall have any right by virtue of, or by availing itself of, any provision of this agreement to institute any actions or proceedings at Law, in equity, or otherwise (excluding any actions in bankruptcy), upon or under or with respect to this agreement, or for the appointment of a receiver, or for any other remedy under this agreement, unless (a) the Determining Lenders previously shall have given to Agent written notice of a Default and the continuance thereof, including a written request upon Agent to institute such action or proceedings in its own name and offering to indemnify Agent against the costs, expenses and liabilities to be incurred therein or thereby, (b) Agent, for ten Business Days after its receipt of such notice, shall have failed to institute any such action or proceeding, and (c) no direction inconsistent with such written request shall have been given to Agent by Determining Lenders. It is understood and intended, and expressly covenanted by the taker and holder of every Note with every other taker and holder and Agent, that no one or more holders of Notes shall have any right in any manner whatever by virtue, or by availing itself, of any provision of this agreement to affect, disturb or prejudice the Rights of any other Lenders, or to obtain or seek to obtain priority over or preference to any other such Lender, or to enforce any right under this agreement, except in the manner herein provided and for the equal, ratable and common benefit of all Lenders. For the protection and enforcement of the provisions of this SECTION 10.9, each and every Lender and Agent shall be entitled to such relief as can be given either at law or in equity. 50 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- 10.10 NOTICE TO AGENT. Should any Default or Potential Default occur and be continuing, any Lender having actual knowledge thereof shall notify Agent and Borrower of the existence thereof, but the failure of any Lender to provide that notice shall not prejudice that Lender's Rights under this agreement. 10.11 COSTS. All court costs, reasonable attorneys' fees, other costs of collection, and other sums spent by Agent or any Lender in the exercise of any Right provided in any Loan Document is payable to Agent or that Lender, as the case may be, on demand, is part of the Obligation, and bears interest at the Default Rate from the date paid by Agent or any Lender to the date repaid by Borrower. SECTION 11 AGENT. 11.1 AUTHORIZATION AND ACTION. Each Lender hereby appoints Agent as Agent under the Loan Documents and authorizes Agent to take such action on its behalf and to exercise such powers and perform such duties as are expressly delegated to Agent by the terms of the Loan Documents, together with such powers as are reasonably incidental thereto. As to any matter not expressly provided for by this agreement (including, without limitation, enforcement or collection of the Notes), Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of Lenders, and those instructions shall be binding upon all Lenders and all holders of the Notes. However, that Agent shall not be required to take any action that exposes Agent to personal liability or that is contrary to this agreement or applicable Laws. Agent agrees to give to each Lender prompt notice of each notice given to it by Borrower pursuant to the terms of the Loan Documents. 11.2 AGENT'S RELIANCE, ETC. Notwithstanding anything to the contrary in any Loan Document, neither Agent nor any of its Representatives shall be liable for any action taken or omitted to be taken by it or them under or in connection with the Loan Documents, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, Agent: (a) May treat the payee of any Note as the holder thereof; (b) may consult with legal counsel (including counsel for Borrower), independent public accountants and other experts selected by it or Borrower and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (c) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties, or representations made in or in connection with the Loan Documents; (d) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this agreement on the part of Borrower or to inspect the property (including the books and records) of Borrower, except receipt of delivery of the items required under SECTIONS 3.2, 4.1, 4.3, and 7.1; (e) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this agreement or any other instrument or document furnished pursuant hereto; and (f) shall incur no liability under or in respect of this agreement by acting upon any notice, consent, certificate or other instrument or writing (which may be by telecopy) believed by it to be genuine and signed or sent by the proper party or parties. 11.3 AGENT AND AFFILIATES. With respect to Borrowings made by it, and the one or more Notes issued to it, Agent shall have the same rights and powers under this agreement and the other Loan Documents as any other Lender and may exercise the same as though it were not the Agent; and the term "Lender" or "Lenders" shall, unless otherwise expressly indicated, include Agent in its individual capacity. Agent and the Affiliates of Agent may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, Borrower, any of its Affiliates and any Person who may do business with or own securities of Borrower or any of its Affiliates, all as if Agent was not Agent and without any duty to account therefor to Lenders. 51 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- 11.4 CREDIT DECISION. Each Lender acknowledges that it has, independently and without reliance upon Agent or any other Lender, and based on the financial statements referred to in SECTIONS 6.6 and 7.1 of this agreement and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter this agreement. Each Lender also acknowledges that it will, independently and without reliance upon Agent or any Lender, and based on such documents and information as it shall deem appropriate at the time, make its own credit decisions in taking or not taking action under this agreement. 11.5 INDEMNIFICATION. LENDERS SHALL INDEMNIFY AGENT (TO THE EXTENT NOT REIMBURSED BY BORROWER), RATABLY ACCORDING TO THEIR RESPECTIVE COMMITMENT PERCENTAGES, FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, JUDGMENTS, SUITS, COSTS, EXPENSES, OR DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST AGENT IN ANY WAY RELATING TO OR ARISING OUT OF THIS AGREEMENT OR ANY ACTION TAKEN OR OMITTED BY AGENT UNDER THIS AGREEMENT (INCLUDING ANY OF SAME WHICH MAY RESULT FROM THE NEGLIGENCE, BUT NOT GROSS NEGLIGENCE, OF AGENT). HOWEVER, NO LENDER SHALL BE LIABLE FOR ANY PORTION OF THOSE LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES, OR DISBURSEMENTS RESULTING FROM AGENT'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. WITHOUT LIMITATION OF THE FOREGOING, EACH LENDER SHALL REIMBURSE AGENT PROMPTLY UPON DEMAND FOR ITS RATABLE SHARE OF ANY OUT-OF-POCKET EXPENSES (INCLUDING COUNSEL FEES) INCURRED BY AGENT IN CONNECTION WITH THE PREPARATION, EXECUTION, DELIVERY, ADMINISTRATION, MODIFICATION, AMENDMENT, OR ENFORCEMENT (WHETHER THROUGH NEGOTIATIONS, LEGAL PROCEEDINGS, OR OTHERWISE) OF, OR LEGAL ADVICE IN RESPECT OF RIGHTS OR RESPONSIBILITIES UNDER, THIS AGREEMENT, TO THE EXTENT THAT AGENT IS NOT REIMBURSED FOR SUCH EXPENSES BY BORROWER. 11.6 SUCCESSOR AGENT. Agent may resign at any time by giving written notice thereof to Lenders and Borrower and may be removed at any time with or without cause by 100% of Lenders. Upon any such resignation or removal, 100% of Lenders shall have the right to appoint a successor Agent in the capacity of Agent. If no successor Agent shall have been so appointed by 100% of Lenders, and shall have accepted such appointment, within 30 days after the retiring Agent's giving of notice of resignation or the Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf of Lenders, appoint a successor Agent, which shall be a commercial bank or savings bank organized under the laws of the United States of America or of any state thereof which has a combined capital and surplus of at least $200,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges, and duties of the retiring Agent, and the retiring Agent shall be discharged from any further duties, and obligations under this agreement. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this article shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this agreement. The appointment of a successor Agent shall not release the retiring Agent from any liability it may have for any actions taken or omitted to be taken by it while it was Agent under this agreement. 11.7 INSPECTION. Agent shall permit any officer, employee, agent of Borrower or any Lender which may so request to visit and inspect the premises on which the custodial duties of Agent hereunder are performed, examine the books and records of Agent which pertain to such custodial duties, take copies and extracts therefrom, and discuss the performance of such custodial duties with the officers, accountants and auditors of Agent that are responsible therefor, all at such reasonable times and as often as Borrower or any Lender may desire. 52 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- SECTION 12. MISCELLANEOUS. 12.1 NONBUSINESS DAYS. Any action that is due under any Loan Document on a non-Business Day may be delayed until the next Business Day. However, interest accrues on any payment until it is made. 12.2 COMMUNICATIONS. Unless otherwise stated, a communication under any Loan Document to a party to this agreement must be written to be effective and is deemed given: . For Borrowing Requests, Collateral Delivery-Notices, Shipping Requests, and Release Requests, only when actually received by Agent. . Otherwise, if by fax, when transmitted to the appropriate fax number -- but, without affecting the date deemed given, the fax must be promptly confirmed by telephone. . Otherwise, if by mail, on the third Business Day after enclosed in a properly addressed, stamped, and sealed envelope deposited in the appropriate official postal service. . Otherwise, when actually delivered. Until changed by written notice to each other party to this agreement, the address and fax number are stated for (a) Borrower and Agent, beside their names on the signature pages below, and (b) each Lender, beside its name on SCHEDULE 2. 12.3 FORM AND NUMBER OF DOCUMENTS. The form, substance, and number of counterparts of each writing to be furnished under the Loan Documents must be satisfactory to Agent and its counsel. 12.4 EXCEPTIONS TO COVENANTS. An exception to any Loan Document covenant does not permit violation of any other Loan Document covenant. 12.5 SURVIVAL. All Loan Document provisions survive all closings and are not affected by any investigation made by any party. 12.6 GOVERNING LAW. Unless otherwise stated, each Loan Document must be construed -- and its performance enforced -- under the Laws of the State of Texas and the United States of America. 12.7 INVALID PROVISIONS. If any provision of a Loan Document is judicially determined to be unenforceable, all other provisions of it remain enforceable. If the provision determined to be unenforceable is a material part of that Loan Document, then, to the extent lawful, it shall be replaced by a judicially-construed provision that is enforceable but otherwise as similar in substance and content to the original provision as the context of it reasonably allows. 12.8 CONFLICTS BETWEEN LOAN DOCUMENTS. The provisions of this agreement control if in conflict (i.e., the provisions contradict each other as opposed to a Loan Document containing additional provisions not in conflict) with the provisions of any other Loan Document. 12.9 DISCHARGE AND CERTAIN REINSTATEMENT. Borrower's obligations under the Loan Documents remain in full force and effect until no Lender has any commitment to extend credit under the Loan Documents and the Obligation is fully paid (except for provisions under the Loan Documents which by their terms expressly survive payment of the Obligation and termination of the Loan Documents). If any payment under 53 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- any Loan Document is ever rescinded or must be restored or returned for any reason, then all Rights and obligations under the Loan Documents in respect of that payment are automatically reinstated as though the payment had not been made when due. 12.10 AMENDMENTS, CONSENTS, CONFLICTS, AND WAIVERS. An amendment of -- or an approval, consent, or waiver by Agent or by one or more Lenders under -- any Loan Document must be in writing and must be: (A) BORROWER AND AGENT. Executed by Borrower and Agent if it purports to reduce or increase any fees payable to Agent by Borrower. (B) BORROWER, AGENT, AND ALL LENDERS. Executed by Borrower and Agent and executed or approved in writing by all Lenders if action of all Lenders is specifically provided in any Loan Document or if it purports to (i) except as otherwise stated in this SECTION 12.10, extend the due date or decrease the scheduled amount of any payment under -- or reduce the rate or amount of interest, fees, or other amounts payable to Agent or any Lender under -- any Loan Document, (ii) change the definition of Borrowing Base (or any component of it), Commitment Percentage, Determining Lenders, Market Value, Termination Percentage, Tranche A-Stated-Termination Date, Tranche B-Stated-Termination Date or Warehouse-Stated-Termination Date, or (iii) partially or fully release any Guaranty or any Collateral except releases of Collateral contemplated in this agreement. (C) BORROWER, AGENT, AND DETERMINING LENDERS. Otherwise (i) for this agreement, executed by Borrower, Agent, and Determining Lenders, or (ii) for other Loan Documents, approved in writing by Determining Lenders and executed by Borrower, Agent, and any other party to that Loan Document. No course of dealing or any failure or delay by Agent, any Lender, or any of their respective Representatives with respect to exercising any Right of Agent or any Lender under the Loan Documents operates as a waiver of that Right. An approval, consent, or waiver is only effective for the specific instance and purpose for which it is given. The Loan Documents may only be supplemented by agreements, documents, and instruments delivered according to their respective express terms. 12.11 MULTIPLE COUNTERPARTS. Any Loan Document may be executed in any number of counterparts with the same effect as if all signatories had signed the same document, and all of those counterparts must be construed together to constitute the same document. This agreement is effective when counterparts of it have been executed and delivered to Agent by each Lender, Agent, and Borrower, or, in the case only of those Lenders, when Agent has received faxed or other evidence satisfactory to it that each Lender has executed and is delivering to Agent a counterpart of it. 12.12 PARTIES. This agreement binds and inures to Borrower, each Lender, Agent, and their respective successors and permitted assigns. Only those Persons may rely upon or raise any defense about this agreement. (A) ASSIGNMENT BY COMPANIES. No Company may assign any Rights or obligations under any Loan Document without first obtaining the written consent of Agent and all Lenders. (B) ASSIGNMENT BY LENDER. Any Lender may assign, pledge, and otherwise transfer all or any of its Rights and obligations under the Loan Documents either (i) to a Federal Reserve Bank without the consent of any party to this agreement so long as that Lender is not released from its obligations under the Loan Documents, or (ii) otherwise in the ordinary course of its lending business 54 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- and in accordance with all Laws, and with SECTION 12.13 or 12.14 so long as (A) except for assignments, pledges, and other transfers by a Lender to its Affiliates, the written consent of Borrower and Agent, which may not be unreasonably withheld, must be first obtained, (B) the assignment or transfer (other than a pledge) does not involve a purchase price that directly or indirectly reflects a discount from face value unless that Lender first offered that assignment or transfer to the other Lenders on ratable basis according to their Commitment Percentages, (C) neither Borrower nor Agent are required to incur any cost or expense incident to any assignment, pledge, or other transfer by any Lender, all of which are for the account of the assigning, pledging, or transferring Lender and its assignee, pledgee, or transferee as they may agree, and (D) if the Participant or Purchaser is organized under the Laws of any jurisdiction other than the United States of America or any of its states, it complies with SECTION 3.13. (C) OTHERWISE VOID. Any purported assignment, pledge, or other transfer in violation of this section is void from beginning and not effective. 12.13 PARTICIPATIONS. Subject to SECTION 12.12(B) and this section and only if no Default exists, a Lender may at any time sell to one or more Persons (each a "PARTICIPANT") participating interests in its Commitment and its share of the Obligation. (A) ADDITIONAL CONDITIONS. For each participation (i) the selling Lender must remain -- and the Participant may not become -- a "Lender" under this agreement, (ii) the selling Lender's obligations under the Loan Documents must remain unchanged, (iii) the selling Lender must remain solely responsible for the performance of those obligations, (iv) the selling Lender must remain the holder of its one or more Notes and its share of the Obligation for all purposes under the Loan Documents, and (v) Borrower and Agent may continue to deal solely and directly with the selling Lender in connection with those Rights and obligations. (B) PARTICIPANT RIGHTS. The selling Lender may obtain for each of its Participants the benefits of the Loan Documents related to participations in its share of the Obligation, but Borrower is never obligated to pay any greater amount that would be due to the selling Lender under the Loan Documents calculated as though no participation had been made. Otherwise, Participants have no Rights under the Loan Documents except certain permitted voting Rights described below. (C) PARTICIPATION AGREEMENTS. An agreement for a participating interest (i) may only provide to a Participant voting Rights in respect of any amendment of or approval, consent, or waiver under any Loan Document related to the matters in SECTION 12.10(B) if it also provides for a voting mechanism that a majority of that selling Lender's Commitment Percentage or Termination Percentage, as the case may be (whether directly held by that selling Lender or participated) controls the vote for that selling Lender, and (ii) may not permit a Participant to assign, pledge, or otherwise transfer its participating interest in the Obligation to any Person except any Lender or its Affiliates. 12.14 TRANSFERS. Subject to SECTION 12.12(B) and this section and only if no Default exists, a Lender may at any time sell to one or more financial institutions (each a "PURCHASER") all or part of its Rights and obligations under the Loan Documents. (A) ADDITIONAL CONDITIONS. The sale (i) must be accomplished by the selling Lender and Purchaser executing and delivering to Agent and Borrower an Assignment and (ii) may not occur until the selling Lender pays to Agent an administrative-transfer fee of $2,500. 55 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- (B) PROCEDURES. Upon satisfaction of the foregoing conditions and as of the Effective Date in the assignment and assumption agreement, which may not be before delivery of that document to Agent and Borrower, then (i) a Purchaser is for all purposes a Lender party to -- with all the Rights and obligations of a Lender under -- this agreement, with a Commitment as stated in the assumption agreement, (ii) the selling Lender is released from its obligations under the Loan Documents to a corresponding extent, (iii) SCHEDULE 2 is automatically deemed to reflect the name, address, and Commitment of the Purchaser and the reduced Commitment of the selling Lender, and Agent shall deliver to Borrower and Lenders an amended SCHEDULE 2 reflecting those changes, (iv) Borrower shall execute and deliver to each of the selling Lender and the Purchaser a Note, each based upon their respective Commitments following the transfer, (v) upon delivery of the one or more Notes under CLAUSE (IV) above, the selling Lender shall return to the appropriate Company all Notes previously delivered to it under this agreement, and (vi) the Purchaser is subject to all the provisions in the Loan Documents, the same as if it were a Lender that executed this agreement on its original date. 12.15 JURISDICTION; VENUE; SERVICE OF PROCESS; AND JURY TRIAL. EACH PARTY, IN EACH CASE FOR ITSELF, ITS SUCCESSORS AND ASSIGNS (AND IN THE CASE OF BORROWER, FOR EACH OF ITS SUBSIDIARIES), (A) IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN TEXAS, AND AGREES AND CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON IT IN ANY LEGAL PROCEEDING ARISING OUT OF OR IN CONNECTION WITH THE LOAN DOCUMENTS AND THE OBLIGATION BY SERVICE OF PROCESS AS PROVIDED BY TEXAS LAW, (B) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY LITIGATION ARISING OUT OF OR IN CONNECTION WITH THE LOAN DOCUMENTS AND THE OBLIGATION BROUGHT IN ANY SUCH COURT, (C) IRREVOCABLY WAIVES ANY CLAIMS THAT ANY LITIGATION BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM, (D) AGREES TO DESIGNATE AND MAINTAIN AN AGENT FOR SERVICE OF PROCESS IN DALLAS, TEXAS, IN CONNECTION WITH ANY SUCH LITIGATION AND TO DELIVER TO AGENT EVIDENCE THEREOF, IF REQUESTED, (E) IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH LITIGATION BY THE MAILING OF COPIES THEREOF BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, POSTAGE PREPAID, AT ITS ADDRESS SET FORTH HEREIN, (F) IRREVOCABLY AGREES THAT ANY LEGAL PROCEEDING AGAINST ANY PARTY ARISING OUT OF OR IN CONNECTION WITH THE LOAN DOCUMENTS OR THE OBLIGATION SHALL BE BROUGHT IN ONE OF THE AFOREMENTIONED COURTS, AND (G) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY. The scope of each of the foregoing waivers is intended to be all-encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including, without limitation, contract claims, tort claims, breach of duty claims, and all other common law and statutory claims. Borrower (for itself and on behalf of each of its Subsidiaries) and each other party to this agreement acknowledge that this waiver is a material inducement to the agreement of each party hereto to enter into a business relationship, that each has already relied on this waiver in entering into this agreement, and each will continue to rely on each of such waivers in related future dealings. Borrower (for itself and on behalf of each of its Subsidiaries) and each other party to this agreement warrant and represent that they have reviewed these waivers with their legal counsel, and that they knowingly and voluntarily agree to each such waiver following consultation with legal Counsel. THE WAIVERS IN THIS SECTION 12.15 ARE IRREVOCABLE, MEANING THAT THEY MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THESE WAIVERS SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, SUPPLEMENTS, AND REPLACEMENTS TO OR OF THIS OR ANY OTHER LOAN DOCUMENT. In the event of Litigation, this agreement may be filed as a written consent to a trial by the court. 57 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- 12.16 LIMITATION OF LIABILITY. Neither Agent nor any Lender shall be liable to any Company for any amounts representing indirect, special, or consequential damages suffered by any Company, except where such amounts are based substantially on willful misconduct by Agent or any Lender, but then only to the extent any damages resulting from such wilful misconduct are covered by Agent's and the other Lenders' fidelity bond or other insurance. 12.17 ENTIRE AGREEMENT. THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. 12.18 RESTATEMENT OF EXISTING LOAN AGREEMENT, REPAYMENT OF NON- PARTICIPATING EXISTING LENDERS, AND SETTLEMENT OF FUNDS. The parties hereto agree that, on the Closing Date, after all conditions precedent set forth in SECTION 5 have been satisfied or waived: (a) the Obligation (as defined in this agreement) represents, among other things, the amendment, extension, consolidation, and modification of the "Obligation" (as defined in the Existing Loan Agreement); (b) this agreement is intended to, and does hereby, restate, renew, extend, amend, modify, supersede, and replace the Existing Loan Agreement; (c) the Amended and Restated Guaranty executed pursuant to this agreement as of the Closing Date is intended to, and does hereby, restate, renew, extend, amend, modify, supersede, and replace the Guaranty executed and delivered pursuant to the Existing Loan Agreement; (d) the Notes executed pursuant to this agreement amend, renew, extend, modify, replace, substitute for and supersede in their entirety (but do not extinguish, the Debt arising under) the promissory notes issued pursuant to the Existing Loan Agreement (other than Debt owed to Existing Lenders who are not continuing as a Lender under this agreement, which Debt is being repaid); and (e) the entering into and performance of their respective obligations under this agreement and the transactions evidenced hereby do not constitute a novation. Additionally, the following allocations and payments by the parties indicated will be made in order to reflect the amended and restated commitments and the Lenders' Commitment Percentages thereof: (a) On the Closing Date, after all conditions precedent set forth in SECTION 5 have been satisfied or waived, all outstanding indebtedness under the Existing Loan Agreement owed to any Existing Lender that has not continued to be a Lender under this Agreement shall be repaid in full by Borrower and such Existing Lender's commitments under the Existing Loan Agreement shall be terminated. (b) Each Lender which was an Existing Lender will fund, if positive, an amount equal to the difference between (i) its Commitment Percentage of the Principal Debt outstanding under this agreement, including, without limitation, its Commitment Percentage of any Borrowings made, and (ii) its ratable portion of the aggregate unpaid principal balance of all borrowings under the Existing Loan Agreement. REMAINDER OF PAGE INTENTIONALLY BLANK SIGNATURE PAGE FOLLOWS 57 AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- EXECUTED as of the date first stated in this agreement. (address) MATRIX FINANCIAL SERVICES CORPORATION, as Borrower Matrix Financial Services Corporation 201 West Coolidge Street Phoenix, AZ 85013-2710 By_________________________________ Attn: Thomas J. Osselaer, Executive Vice Thomas J. Osselaer, Executive President Vice President Tel (602) 631-4357 Fax (602) 631-4370 (address) BANK ONE, TEXAS, N.A., as Agent and a Lender Bank One, Texas, N.A., Agent 1717 Main Street, 4th Floor Dallas, TX 75201 By_________________________________ Attn: Mark L. Freeman, Vice President Mark L. Freeman, Vice President Tel (214) 290-2780 Fax (214) 290-2054 (wire transfer) Account # (see account #'s in Loan Agreement) Bank: Bank One, Dallas ABA # 111000614 Attn: Gloria Sadler, (214) 290-6069 Ref: (see account names in Loan Agreement) SIGNATURE AMENDED AND RESTATED LOAN AGREEMENT ----------------------------------- SCHEDULE 2 ---------- LENDERS AND COMMITMENTS -----------------------
==================================================================================== WAREHOUSE WORKING TERM-LINE COMBINED NAME OF LENDER COMMIT- CAPITAL COMMITMENT COMMITMENT MENT COMMIT- (BY LENDER) MENT ==================================================================================== BANK ONE, TEXAS, N.A. $60,000,000 $10,000,000 $30,000,000 $100,000,000 1717 Main Street, 4th Floor Dallas, TX 75201 Attention: Mark L. Freeman, Vice President Fed Tax ID No. 75-2270994 Tel (214) 290-2780 Fax (214) 290-2275 Account # (see account #'s in Loan Agreement) Bank: Bank One, Dallas ABA # 111000614 Attn: Gloria Sadler, (214) 290-6069 Ref: (see account names in Loan Agreement) ==================================================================================== TOTAL $60,000,000 $10,000,000 $30,000,000 $100,000,000 ====================================================================================
SCHEDULE 2 ---------- SCHEDULE 4.1 ------------ ELIGIBILITY CONDITIONS ---------------------- A. ELIGIBLE-MORTGAGE LOAN. A Mortgage Loan: 1. For which, if it supports a Wet Borrowing, the applicable Wet Period has not expired. 2. Which is a Conventional Loan, FHA Loan, VA Loan, or Jumbo Loan. 3. The promissory note evidencing which (a) is the standard form approved by VA, FHA, FNMA, or FHLMC or a form otherwise acceptable to Agent, (b) has a maturity within 30 years of its origination (or 40 years for loans being sold to Astoria Federal Savings Bank), (c) is payable or endorsed (without restriction or limitation) to Borrower's order, (d) is endorsed in blank by Borrower, (e) is fully funded, and (f) is valid and enforceable without offset, counterclaim, defense, or right of recision or avoidance of any kind other than for valid payments made on it and any exceptions to enforceability under Debtor Laws. 4. For which no default in the payment of principal or interest or any other default has continued uncured for 90 calendar days, no foreclosure or other similar proceedings have commenced, and no claim for any credit, allowance, or adjustment exists. 5. Which is secured by a mortgage, deed of trust, or trust deed that (a) is the standard form approved by VA, FHA, FNMA, or FHLMC or a form otherwise acceptable to Agent and (b) grants a first-priority Lien on residential-real property described below that will be perfected upon recording. 6. For which the underlying residential-real property (a) consists of land and (i) a one- to four-family dwelling, or (ii) a condominium unit that is ready for occupancy, (iii) a manufactured home unit, but not (iv) a mobile home, a co-op, or a multi-family dwelling for more than four families, (b) is, if required by Appraisal Laws, covered by an Appraisal, and (c) is insured against loss or damage by fire and all other hazards normally included in standard-extended-coverage insurance (including, without limitation, flood insurance if the property is in a federally-designated-flood plain) in accordance with the Collateral Documents for it and Borrower is named as a loss-payee for that insurance. 7. Which conforms in all material respects with all of the requirements of a valid and enforceable Take-Out Commitment held by Borrower. 8. The Collateral Documents for which (a) are delivered to Agent within 90 calendar days after the date of the related promissory note, (b) are in compliance with all Laws, (c) are otherwise in compliance with the requirements of the Loan Documents and otherwise in form and substance acceptable to Agent, and (d) are subject to no Liens other than Lender Liens and other Permitted Liens. 9. Which has been held by Agent for Lenders as an Eligible-Mortgage Loan for 120 calendar days or less. SCHEDULE 4.1 ------------ 10. Which has not -- and no Collateral Document for which has -- been (a) sold to an investor and repurchased by Borrower, (b) rejected by an investor, (c) delivered to an investor or any Person for it for more than the Shipping Period, or (d) delivered to Borrower for correction for more than the Correction Period. 11. Which does not otherwise have the characteristics of any other sublimit under this agreement, other than the Wet Sublimit, Jumbo Sublimit, or Swing Sublimit, as applicable. B. ELIGIBLE-GESTATION COLLATERAL. An Eligible-Mortgage Loan: 1. For which Agent has issued its initial certification for inclusion of that Mortgage Loan in a Mortgage Pool or Borrower has obtained a specific Take-Out Commitment for an individual Mortgage Loan evidencing a Dry Borrowing. 2. For which Borrower has delivered to Agent a valid and enforceable Take-Out Commitment for that Mortgage Loan that is issued by a Person -- and is in form and substance -- acceptable to Agent. 3. Which has been held by Agent as Eligible-Gestation Collateral for less than 45 calendar days. C. ELIGIBLE-COMMITTED-B/C-PAPER LOAN. An otherwise Eligible-Mortgage Loan, except that: 1. It does not comply with all applicable requirements for purchase under either the FHLMC Guide, the FNMA Guide, or the GNMA Guide and is therefore saleable only to investors other than FHLMC, FNMA, or GNMA; but it otherwise meets the requirements of the traditional secondary market for B/C-rated Mortgage Loans, rating agencies, and pool insurers. 2. No default in the payment of principal or interest or any other default has continued uncured for more than 59 calendar days. 3. The Collateral Documents for which are delivered to Agent within 45 calendar days after the date of the related promissory note. 4. The outstanding principal balance of the Mortgage Loan does not exceed $300,000. 5. Neither this nor any other any other Mortgage Loan funded under this agreement is a revolving credit loan. 6. No real property taxes or insurance payments due and payable with respect to the underlying real property (or escrow installments therefor) covered by the Mortgage Loan are past due the payment due date thereof. D. ELIGIBLE-UNCOMMITTED-B/C-PAPER LOAN. An otherwise Eligible-Committed-B/C- Paper Loan, except that: 1. It does not conform in all respects with all of the requirements of a valid and enforceable Take-Out Commitment held by Borrower, but it otherwise meets the requirements of the traditional secondary market for B/C-rated Mortgage Loans, rating agencies, and pool insurers. 2 SCHEDULE 4.1 ------------ 2. That has been held by Agent for Lenders as an Eligible-Uncommitted- B/C-Paper Loan for 365 calendar days or less. E. ELIGIBLE-SECOND-LIEN LOAN. An otherwise Eligible-Mortgage Loan, other than the fact that it is secured by a mortgage, deed of trust, or trust deed that grants a second-priority Lien on residential-real property that will be perfected upon recording. F. ELIGIBLE-REPURCHASED LOAN. An otherwise Eligible-Mortgage Loan, except that: 1. It has been purchased by Borrower from a certified GNMA Mortgage Pool for which Borrower is the issuer/servicer. 2. It is a FHA Loan or VA Loan, but is not a Conventional Loan or Jumbo Loan. 3. A default in the payment of principal or interest or some other default may have continued uncured for 90 days or more, but no foreclosure or similar proceedings have commenced. 4. It is in the process of being modified (or has been modified) in accordance with GNMA loss mitigation and mortgage modification procedures and guidelines and Borrower reasonably expects to be capable of re-conveying such Eligible-Repurchased Loan into a GNMA II Mortgage Pool. Any such modification must be approved by HUD, if required. 5. It may or may not be subject to (and conform to) a valid and enforceable Take-Out Commitment held by Borrower. 6. The Collateral Documents for the Eligible-Repurchased Loan may be delivered to Agent in excess of 90 days after the date of the related promissory note. 7. It is eligible in all respects for re-conveyance into a GNMA II Mortgage Pool, including, without limitation, that (a) not more than 24 months have elapsed since the first installment was due under any modified mortgage arrangement (see item 4 above), and (b) the term of the modified mortgage arrangement (see item 4 above) may not exceed 360 months from the due date of the first installment required under the modified mortgage arrangement (see item 4 above). G. ELIGIBLE-MORTGAGE SECURITY. A Mortgage Security: 1. Which is valid and enforceable without offset, counterclaim, defense, or right of recision or avoidance of any kind. 2. Which is guaranteed or issued by either (a) FNMA, FHLMC, or GNMA or (b) any other Person if (i) Borrower first obtains Determining Lenders' written approval in their sole discretion and (ii) that other Person has not been rejected as an issuer or guarantor by notice to Borrower from Agent or Determining Lenders in their sole discretion. 3. Under which no default exists. 4. Which conforms in all respects with all of the requirements of a valid and enforceable Take-Out Commitment held by Borrower. 3 SCHEDULE 4.1 ------------ 5. The mortgage pool for which consists of Mortgage Loans that were -- before the issuance of that Mortgage Security -- Eligible-Mortgage Loans constituting part of the Collateral. 6. The Collateral Documents for which (a) have been delivered to or for Agent, (b) are in compliance with all Laws, (c) are otherwise in form and substance acceptable to Agent, and (d) are subject to no Liens other than Lender Liens and other Permitted Liens. 7. Which has been held by Agent for Lenders as an Eligible-Mortgage Security for a time period that -- when added to the longest-time period any Mortgage Loan to which it relates was included in the Collateral as an Eligible-Mortgage Loan -- is 120 calendar days or less. H. ELIGIBLE-P&I RECEIVABLES. Every claim by Borrower in respect of a P&I Payment: 1. Which P&I Payment has been -- or, with the proceeds of a related P&I Borrowing is to be -- made under a Servicing Contract with FHLMC, FNMA, GNMA, or an investor approved (and not subsequently disapproved) from time to time by Agent in writing for such purposes (an "APPROVED- RECEIVABLES INVESTOR") (a) under which FHLMC, FNMA, GNMA, or that Approved-Receivables Investor has agreed to reimburse Borrower for all or part of that P&I Payment (to the extent not reimbursed by the mortgagor under the related Mortgage Loan) and (b) for which -- at any time more than 45 days after the Closing Date -- there is in effect, if applicable, an Acknowledgment Agreement with FHLMC, FNMA, or GNMA consenting to the Lender Lien in that Servicing Contract and all Servicing Rights under it. 2. Which claim does not exceed the amount so agreed to be reimbursed. 3. Which claim has not been included in the Borrowing Base for Receivables for more than 30 calendar days if the claim is not pending under the Servicing Contract. 4. Which claim (a) is -- or promptly upon payment will be -- valid, enforceable, liquidated, currently due, and properly filed with FHLMC, FNMA, GNMA, or an Approved Investor, as the case may be, (b) is not subject to any reduction or deduction for any setoff, counterclaim, recoupment, or otherwise, and (c) Borrower expects in good faith full cash reimbursement from the sources identified in the related Collateral Documents. 5. For which all of the Collateral Documents have been timely delivered to Agent under this agreement. 6. Which claim and all related Eligible-P&I Receivables and other Servicing Rights are subject to a Lender Lien but no other Liens. I. ELIGIBLE-T&I RECEIVABLES. Every claim by Borrower in respect of a T&I Payment: 1. Which T&I Payment has been -- or, with the proceeds of a related T&I Borrowing is to be -- made under a Servicing Contract with FHLMC, FNMA, GNMA, or an Approved-Receivables Investor (a) under which FHLMC, FNMA, GNMA, or that Approved-Receivables Investor has agreed to reimburse Borrower for all or part of that T&I Payment (to the extent not reimbursed by the mortgagor under the related Mortgage Loan) and (b) for which -- at any time more than 45 days after the Closing Date -- there is in effect, if applicable, an Acknowledgment Agreement with FHLMC, FNMA, or GNMA consenting to the Lender Lien in that Servicing Contract and all Servicing Rights under it. 4 SCHEDULE 4.1 ------------ 2. Which claim does not exceed the amount so agreed to be reimbursed. 3. Which T&I Payment was made -- or is to be -- for a Mortgage Loan that is current except for the payment of taxes and insurance due in the year during and for which the T&I Payment was made or payment of principal and interest and is not otherwise in default or in foreclosure. 4. Which claim has (a) never been included in the Borrowing Base for Receivables supporting any previous T&I Borrowing and (b) been included in the Borrowing Base for Receivables for no more than 270 calendar days. 5. Which claim (a) is -- or promptly upon payment will be -- valid, enforceable, liquidated, currently due, and properly filed with FHLMC, FNMA, GNMA, or that Approved-Receivables Investor, as the case may be, (b) is not subject to any reduction or deduction for any setoff, counterclaim, recoupment, or otherwise, and (c) Borrower expects in good faith full cash reimbursement from the sources identified in the related Collateral Documents. 6. For which all of the Collateral Documents have been timely delivered to Agent under this agreement. 7. Which claim and all related Eligible-T&I Receivables and other Servicing Rights are subject to a Lender Lien but no other Liens. J. ELIGIBLE-FORECLOSURE RECEIVABLES. Every claim by Borrower in respect of a Foreclosure Payment: 1. Which claim is against VA under a VA Guaranty or FHA or an Approved PMI under a FHA or Approved PMI insurance policy (or is a claim for reimbursement from FNMA, FHLMC, or any other Approved Investor) that (a) guarantees or insures payment of all or part of a Mortgage Loan repurchased with the Foreclosure Payment, (b) is in full force and effect, and (c) in the case of an Approved PMI insurance policy, has been approved by Agent. 2. Which claim does not exceed the amount so guaranteed or insured. 3. Which claim is related to a Mortgage Loan that (a) has been foreclosed, (b) is not held by Borrower as "other real estate owned," and (c) if the claim is against VA, is in a "bid" status. 4. Which claim has (a) never been included in the Borrowing Base for Receivables supporting any previous Foreclosure Borrowing and (b) been included in the Borrowing Base for Receivables only for no more than 180 calendar days. 5. Which claim (a) is valid, enforceable, liquidated, currently due, and properly filed with FHA, VA, or an Approved PMI, as the case may be, (b) is not subject to any reduction or deduction for any setoff, counterclaim, recoupment, or otherwise, and (c) Borrower expects in good faith full cash payment from the sources identified in the related Collateral Documents. 6. For which all of the Collateral Documents have been timely delivered to Agent under this agreement. 7. Which claim and all related Eligible-Foreclosure Receivables are subject to a Lender Lien but no other Liens. 5 SCHEDULE 4.1 ------------ K. ELIGIBLE-SERVICING PORTFOLIO. All of the Servicing Portfolio for which Borrower owns the Servicing Rights, which are not under any sub-servicing or master-servicing arrangements and which arise only under Servicing Contracts with FHLMC, FNMA, or GNMA (advances against non-agency Servicing Rights will be approved by Determining Lenders on a case-by-case basis), and which are not currently pledged to another Person. 6 SCHEDULE 4.1 ------------ SCHEDULE 4.2 ------------ BORROWING-BASE CALCULATIONS --------------------------- A. BORROWING BASE FOR MORTGAGE COLLATERAL. The amount equal to: 1. The total collateral value of each item of Eligible-Mortgage Collateral, which is equal to 98% (except (i) 95% for Eligible- Committed-B/C-Paper Loans which have been held by Agent for Lenders as Eligible-Committed-B/C-Paper Loans for more than 60 calendar days, (ii) 97% for Eligible-Uncommitted-B/C-Paper Loans, (iii) 95% for Eligible-Second-Lien Loans which have been held by Agent for Lenders as Eligible-Second-Lien Loans for more than 60 calendar days, and (iv) 97% for Eligible-Repurchased Loans) of the least of its: (a) unpaid principal balance; (b) Only in respect of Eligible-Mortgage Loans, face amount less discounts; (c) Take-Out Price (or in the case of Eligible-Repurchased Loans, the amount due from FHA or VA upon re-conveyance of the Eligible- Repurchased Loan into a GNMA II Mortgage Pool); or (d) At the election of Agent or Determining Lenders' at any time, Market Value; as reduced by the following matters: 2. No more than the Wet Sublimit may be included for Mortgage Loans supporting Wet Borrowings, and nothing may be included for any Mortgage Loan supporting a Wet Borrowing upon the expiration of its applicable Wet Period; and 3. No more than the applicable Jumbo Sublimit may be included for any Jumbo Loan or for all Jumbo Loans. B. BORROWING BASE FOR GESTATION COLLATERAL means, at any time, 99% of the Take-Out Price for Eligible-Gestation Collateral matched to a security settlement, and 98% of the Take-Out Price for Eligible-Gestation Collateral matched to a whole loan settlement. C. BORROWING BASE FOR RECEIVABLES means, at any time, the sum of 95% of all Eligible-P&I Receivables plus 85% of all Eligible-T&I Receivables plus 80% of all Eligible-Foreclosure Receivables. D. BORROWING BASE FOR TERM-LINE means, at any time, 70% of the lesser of (a) the cost of that portion of the Servicing Portfolio pledged to support each advance of Term-Line Borrowings, (b) the Appraised Value of that portion of the Servicing Portfolio pledged to support each advance of Term-Line Borrowings, and (c) 350% of the average servicing fee for that portion of the Servicing Portfolio pledged to support each advance of Term-Line Borrowings. SCHEDULE 4.2 ------------ E. TAKE-OUT PRICE. For the Mortgage Collateral for which Borrower elects: 1. Designated. To deliver to Agent a Take-Out Commitment designating a ---------- specific Eligible-Mortgage Loan or Eligible-Mortgage Security for purchase, the amount which the Approved Investor has committed to pay for that Eligible-Mortgage Loan or Eligible-Mortgage Security. 2. Not Designated. Not to deliver to Agent a Take-Out Commitment -------------- designating a specific Eligible-Mortgage Loan or Eligible-Mortgage Security for purchase, an amount determined by Mortgage-Collateral Group as follows: (a) As used in this SCHEDULE 4.2, the term "MORTGAGE-COLLATERAL GROUP" means all Mortgage Collateral bearing the same interest rate without regard to whether that Mortgage Collateral consists of Mortgage Loans or Mortgage Securities. In determining any such grouping, Mortgage Securities are grouped with other Mortgage Collateral in accordance with the interest rates of the underlying and related pools of eligible Mortgage Loans and not by the interest rates appearing on the face of any of the Mortgage Securities. (b) The Take-Out Price for each Mortgage-Collateral Group is the corresponding weighted average Take-Out Commitment price, expressed as a percentage, determined from all of the respective Take-Out Commitments for the sale of the items comprising that Mortgage-Collateral Group held by Borrower at that time --and not designated for specific Mortgage Collateral under PART E.1. above -- calculated as follows: . All Take-Out Commitments are first grouped to correspond to each related Mortgage-Collateral Group, with the result that for each Mortgage-Collateral Group there will be a corresponding group of Take-Out Commitments; . The aggregate principal balance of Take-Out Commitments in each group is then determined; and . The principal balance of each Take-Out Commitment in each group is then multiplied by the related commitment price and the sum of the products thereof is divided by the aggregate principal balance of Take-Out Commitments in each group to determine the weighted average Take-Out Commitment price. (c) For all Mortgage Collateral, the corresponding weighted average Take-Out Commitment price, expressed as a percentage, determined by DIVIDING (i) the total Take-Out Price for all Mortgage- Collateral Groups determined above BY (ii) the total principal amount of all Take-Out Commitments determined above. If the price in a Take-Out Commitment is stated as a yield and not as a percentage of par, a yield so stated is converted to a percentage price by the use of the "Net Yield Tables for GNMA Mortgage Securities" published by Financial Publishing Company or the "Mortgage Yield Conversion Tables" published by FNMA, as applicable and acceptable to Agent. 2 SCHEDULE 4.2 ------------ 3 SCHEDULE 4.2 ------------ SCHEDULE 4.3 ------------ COLLATERAL PROCEDURES --------------------- A. MORTGAGE LOAN FOR DRY BORROWING. Delivery of a Mortgage Loan to support a Dry Borrowing requires delivery to Agent of the following Collateral Documents -- each of which must be in form and substance satisfactory to Agent -- in the following manner: 1. A Collateral-Delivery Notice that, among other things, identifies the documents being delivered to Lender for that Dry Borrowing. 2. The original promissory note evidencing the Mortgage Loan, properly payable or endorsed to Borrower, and endorsed in blank by Borrower. 3. Assignment from Borrower of the mortgage, deed of trust, or trust deed securing the Mortgage Loan, executed in blank by Borrower, and in recordable form. 4. Certified copy of each intervening assignment to Borrower of that mortgage, deed of trust, or trust deed sent for recording and copies of all previous-intervening assignments. 5. Certified copy of that original mortgage, deed of trust, or trust deed sent for recording in the jurisdiction where the property is located. 6. Unless a Take-Out Commitment is specifically not required for the Borrowing-Purpose Category in question, either (a) a Take-Out Commitment specifically designating that Mortgage Loan for purchase or (b) Take-Out Commitments with the take-out prices indicated (unless a master Take-Out Commitment has already been delivered to, and is on file with, Agent). 7. Unless Agent has initiated the wire transfer for originating the Mortgage Loan, a copy of the check evidencing that origination. 8. A data-processing print-out reflecting that Mortgage Loan's loan number, mortgagor, origination date, original amount, outstanding- principal balance, interest rate, type of loan, requested advance amount, and indicating what sublimit, if any, under this agreement the Mortgage Loan falls under. 9. Any and all other files, documents, instruments, certificates, correspondence, or other records that are (a) requested by Agent and (b) deemed by Agent in its sole judgment to be necessary, appropriate, or desirable. B. MORTGAGE LOAN FOR WET BORROWING. Delivery of a Mortgage Loan to support a Wet Borrowing requires delivery to Agent of the following Collateral Documents -- each of which must be in form and substance satisfactory to Agent -- in the following manner: 1. A Collateral-Delivery Notice that, among other things, identifies the documents that must be delivered to Agent before the expiration of the Wet Period for that Wet Borrowing. SCHEDULE 4.3 ------------ 2. Unless Agent has approved a wire transfer initiated by Borrower for originating the Mortgage Loan, either (a) a copy of the check evidencing that origination or (b) evidence that the check for that origination is held by a title company pending disbursement. 3. A data-processing print-out reflecting that Mortgage Loan's loan number, mortgagor, origination date, original amount, outstanding- principal balance, interest rate, type of loan, requested advance amount, and indicating what sublimit, if any, under this agreement the Mortgage Loan falls under. C. MORTGAGE SECURITY. Delivery of a Mortgage Security to support a Dry Borrowing requires delivery to Agent of the following Collateral Documents -- each of which must be in form and substance satisfactory to Agent -- in the following manner: 1. A Collateral-Delivery Notice that, among other things, identifies the documents being delivered to Lender for that Dry Borrowing. 2. For a Mortgage Security that is not in book-entry form: (a) The original Mortgage Security. (b) A bond power endorsed -- or another appropriate instrument of assignment executed -- by Borrower in blank. 3. For a Mortgage Security that is in book-entry form, confirmation of either: (a) The appropriate entry (i) in records of a Federal Reserve Bank of the nominal ownership by Agent (on behalf of Lenders) of any FNMA Mortgage Security that constitutes a "FNMA BOOKENTRY SECURITY," as defined in the Book-Entry Procedures for FNMA Securities, 24 C.F.R (S)(S) 81.41-81.49 (the "FNMA BOOK-ENTRY PROCEDURES"), or a FHLMC Mortgage Security that constitutes a "FHLMC BOOKENTRY SECURITY," as defined in the Federal Home Loan Mortgage Corporation Book-Entry Regulations, 1 C.F.R. (S)(S) 462.1-462.8 (the "FHLMC BOOK-ENTRY REGULATIONS"), and (ii) by Agent in its records of Borrower's ownership of that book-entry Mortgage Security subject to a Lender Lien; or (b) The (i) appropriate entry by Chemical Bank -- in its capacity as custodian for Participants Trust Company ("PTC"), GNMA's central depository -- in its records of the nominal ownership by Agent (on behalf of Lenders) of any GNMA-guaranteed Mortgage Security, (ii) the appropriate entry by Agent in its records of Borrower's ownership of that book-entry Mortgage Security subject to a Lender Lien, and (iii) receipt by Agent of a confirmation of transaction in the form of a written advice specifying the amount and description of that book-entry Mortgage Security subject to that Lien. 4. Either (a) a Take-Out Commitment specifically designating that Mortgage Security for purchase or (b) Take-Out Commitments with the take-out prices indicated (unless a master Take-Out Commitment has already been delivered to, and is on file with, Agent). 2 SCHEDULE 4.3 ------------ SCHEDULE 5 ---------- CLOSING CONDITIONS ------------------ Unless otherwise specified, all dated as of the Closing Date or a date (a "CURRENT DATE") within 30 days before the Closing Date. H&B [1.] AMENDED AND RESTATED LOAN AGREEMENT (the "LOAN AGREEMENT") between MATRIX FINANCIAL SERVICES CORPORATION, an Arizona corporation ("BORROWER"), certain lenders ("LENDERS"), and BANK ONE, TEXAS, N.A., as Agent for Lenders ("AGENT") -- all the terms in which have the same meanings when used in this schedule --accompanied by: Schedule 2 - Lenders and Commitments Schedule 4.1 - Eligibility Conditions Schedule 4.2 - Borrowing-Base Calculations Schedule 4.3 - Collateral Procedures Schedule 5 - Closing Conditions Schedule 6.2 - Companies Schedule 6.9 - Litigation and Judgments Schedule 6.10 - Affiliate Transactions Exhibit A-1 - Amended and Restated Warehouse Note Exhibit A-2 - Amended and Restated Swing Note Exhibit A-3 - Amended and Restated Working-Capital Note Exhibit A-4 - Amended and Restated Term-Line Note Exhibit B - Amended and Restated Guaranty Exhibit C-1 - Amended and Restated Security Agreement Exhibit C-2 - Financing Statement Exhibit C-3 - Shipping Request Exhibit C-4 - Bailee Letter for Investors Exhibit C-5 - Bailee Letter for Pool Custodian Exhibit C-6 - Trust Receipt and Agreement Exhibit C-7 - Release Request Exhibit D-1 - Borrowing Request Exhibit D-2 - Collateral-Delivery Notice Exhibit D-3 - Borrowing-Base Report Exhibit D-4 - Take-Out Report Exhibit D-5 - Management Report Exhibit D-6 - Compliance Certificate Exhibit D-7 - Collateral-Conversion Notice Exhibit E - Opinion of Counsel Exhibit F-1 - Amendment Exhibit F-2 - Assignment and Assumption Agreement _______________________ [ ] indicates items not complete at time of this draft of this schedule, together with names of parties or counsel with responsibility for each. SCHEDULE 5 ---------- H&B [2.] AMENDED AND RESTATED WAREHOUSE NOTE in the stated principal amount of $60,000,000, executed by Borrower, payable to the order of Bank One, Texas, N.A., as the sole initial Lender, and in substantially the form of EXHIBIT A-1 to the Loan Agreement. H&B [3.] AMENDED AND RESTATED SWING NOTE in the stated principal amount of $15,000,000, executed by Borrower, payable to the order of Bank One, Texas, N.A., in substantially the form of EXHIBIT A-2 to the Loan Agreement. H&B [4.] AMENDED AND RESTATED WORKING-CAPITAL NOTE in the stated principal amount of $10,000,000, executed by Borrower, payable to the order of Bank One, Texas, N.A., as the sole initial Lender, and in substantially the form of EXHIBIT A-3 to the Loan Agreement. H&B [5.] AMENDED AND RESTATED TERM-LINE NOTE in the stated principal amount of $30,000,000, executed by Borrower, payable to the order of Bank One, Texas, N.A., as the sole initial Lender, and in substantially the form of EXHIBIT A-4 to the Loan Agreement. H&B [6.] AMENDED AND RESTATED GUARANTY executed by MATRIX CAPITAL CORPORATION as Guarantor, accepted by Agent, and in substantially the form of EXHIBIT B to the Loan Agreement. H&B [7.] AMENDED AND RESTATED SECURITY AGREEMENT executed by Borrower as Debtor and Agent as Secured Party, and in substantially the form of EXHIBIT C-1 to the Loan Agreement. H&B [8.] FINANCING STATEMENTS executed Borrower as Debtor and Agent as Secured Party, for filing with the following UCC filing offices, and in substantially the form of EXHIBIT C-2 to the Loan Agreement:
============================================================= NAME JURISDICTION NUMBER DATE ============================================================= Borrower Sec. of State, AZ ------------------------------------------------------------- Sec. of State, TX ------------------------------------------------------------- Sec. of State, CO =============================================================
2 SCHEDULE 5 ---------- 9. UCC SEARCH REPORTS for financing statements filed against Borrower as Debtor with the following UCC filing offices:
========================================================================================================== Debtor Jurisdiction Search File Number File Description Date Date ========================================================================================================== Matrix Financial Sec. of 12/31/96 840955 08/01/95 Mortgage loans and notes and Services State AZ (Bank One, related collateral, servicing Corporation Texas, N.A.) rights, servicing receivables - ---------------------------------------------------------------------------------------------------------- 846583 09/15/95 Leased computer equipment (Sun Financial Group, Inc.) - ---------------------------------------------------------------------------------------------------------- 860986 01/03/96 Leased computer equipment (Sun Financial Group, Inc.) - ---------------------------------------------------------------------------------------------------------- 941027 10/25/96 Inventory, chattel paper, (Argo Federal accounts, equipment and general Savings Bank) intangibles, together with all accessions, records and proceeds relating to the foregoing. - ----------------------------------------------------------------------------------------------------------- 926695 07/19/96 Specified servicing rights (Colorado National Bank) - ---------------------------------------------------------------------------------------------------------- Sec. of 01/14/97 962080939 10/28/96 Accounts receivables, proceeds State, CO (Argo Federal of collateral; equipment, contract Savings Bank) rights, inventory, and products of collateral. - ---------------------------------------------------------------------------------------------------------- 19962054695 07/18/96 Specified servicing rights (Colorado National Bank) - ---------------------------------------------------------------------------------------------------------- 952052586 07/14/95 Mortgage loans and notes and (Bank One, related collateral, servicing Texas, N.A.) rights, servicing receivables - ---------------------------------------------------------------------------------------------------------- 952057164 08/01/95 Mortgage loans and notes and (Bank One, related collateral, servicing Texas, N.A.) rights, servicing receivables - ----------------------------------------------------------------------------------------------------------- Sec. of 01/14/97 95-138581 07/14/95 Mortgage loans and notes and State, TX (Bank One, related collateral, servicing Texas, N.A. rights, servicing receivables - ----------------------------------------------------------------------------------------------------------
3 SCHEDULE 5 ----------
========================================================================================================== Debtor Jurisdiction Search File Number File Description Date Date ========================================================================================================== 95-146605 08/01/95 Mortgage loans and notes and (Bank One, related collateral, servicing Texas, N.A. rights, servicing receivables - ----------------------------------------------------------------------------------------------------------
MFSC [10.] TERMINATIONS OR AMENDMENTS OF FINANCING STATEMENTS reflected in the UCC Search Reports described above that, in the judgment of Agent and its special counsel, conflict with the priority of the Lender Liens contemplated by the Loan Documents, each executed by the appropriate secured party and (if necessary) debtor, and in form acceptable to Agent for filing with the applicable UCC filing offices:
==================================================================================================================================== DEBTOR JURISDICTION FILE NO. FILE DATE COMMENTS ==================================================================================================================================== Borrower Sec. of 941027 Amend within 45 days State AZ (Argo Federal Savings Bank of the Closing Date - ------------------------------------------------------------------------------------------------------------------------------------ Sec. of 962080939 Amend within 45 days State CO (Argo Federal Savings Bank) of the Closing Date ====================================================================================================================================
H&B [11.] CORPORATE CHARTER for Borrower, certified as of January 24, 1997, by the Arizona Corporation Commission H&B [12.] CORPORATE CHARTER for Guarantor, certified as of January 17, 1997, by the Colorado Secretary of State. H&B [13.] OFFICERS' CERTIFICATE for Borrower, executed by the President and Secretary of Borrower as to (a) the due incumbency of its officers authorized to execute or attest to the Loan Documents, (b) resolutions duly adopted by its directors approving and authorizing the execution of the Loan Documents, (c) its corporate charter, (d) bylaws, to which must be attached Exhibit A - Resolutions Exhibit B - Bylaws Exhibit C - Charter H&B [14.] OFFICERS' CERTIFICATE for Guarantor, executed by the President and Secretary of Guarantor as to (a) the due incumbency of its officers authorized to execute or attest to the Loan Documents, (b) resolutions duly adopted by its directors approving and authorizing the execution of the Loan Documents, (c) its corporate charter, (d) bylaws, to which must be attached Exhibit A - Resolutions Exhibit B - Bylaws Exhibit C - Charter 4 SCHEDULE 5 ---------- H&B [15.] CERTIFICATES OF QUALIFICATION, GOOD STANDING, AND AUTHORITY for Borrower, issued as of Current Dates by the appropriate Tribunals for the following jurisdictions:
==================================================================================================================================== COMPANY JURISDICTION CERTIFICATE DATE ==================================================================================================================================== Matrix Financial Services Arizona Good Standing 01/24/97 Corporation - ------------------------------------------------------------------------------------------------------------------------------------ California Certificate of Foreign Status 01/24/97 - ------------------------------------------------------------------------------------------------------------------------------------ Colorado Authorization/Good Standing 01/17/97 - ------------------------------------------------------------------------------------------------------------------------------------ Florida Existence/Good Standing 01/24/97 - ------------------------------------------------------------------------------------------------------------------------------------ Georgia Existence 01/24/97 - ------------------------------------------------------------------------------------------------------------------------------------ Iowa Authorization 01/27/97 - ------------------------------------------------------------------------------------------------------------------------------------ Michigan Existence/Good Standing 01/24/97 - ------------------------------------------------------------------------------------------------------------------------------------ Missouri Existence/Good Standing 01/24/97 - ------------------------------------------------------------------------------------------------------------------------------------ North Carolina Authorization 01/24/97 - ------------------------------------------------------------------------------------------------------------------------------------ Ohio Qualification 01/24/97 (Surrendered 07/18/96) - ------------------------------------------------------------------------------------------------------------------------------------ Texas Existence Forfeited 08/27/96 - ------------------------------------------------------------------------------------------------------------------------------------ Utah Qualification 01/30/97 (Not Registered in State) - ------------------------------------------------------------------------------------------------------------------------------------ Matrix Capital Corporation Colorado Authorization/Good Standing 01/17/97 ====================================================================================================================================
MFSC [16.] FNMA ACKNOWLEDGMENT AGREEMENT to be executed by Borrower, Agent, and FNMA, and returned to Agent within 45 days after the Closing Date. MFSC [17.] FHLMC ACKNOWLEDGMENT AGREEMENT to be executed by Borrower, Agent, and FHLMC, and returned to Agent, within 45 days after the Closing Date. MFSC [18.] GNMA ACKNOWLEDGMENT AGREEMENT to be executed by Borrower, Agent, and GNMA,, and returned to Agent, within 45 days after the Closing Date. MFSC [19.] OPINION of counsel to Borrower, addressed to Lender, and addressing the matters described on EXHIBIT E. 20. Any other documents and items as Agent or any Lender may reasonably request. 5 SCHEDULE 5 ---------- SCHEDULE 6.2 ------------
==================================================================================================================================== COMPANIES ==================================================================================================================================== TRADE NAMES STILL STATE OF STATES QUALIFIED USED IN LAST USING CHIEF EXECUTIVE OTHER PRINCIPAL NAME INCORPORATION AS FOREIGN CORP. FOUR MONTHS NAME? Y/N OFFICE OFFICES ==================================================================================================================================== Matrix Financial Services Arizona California Matrix Capital Y 201 West Corporation Mortgage Corp. Coolidge Street Phoenix, AZ 85013 - ------------------------------------------------------------------------------------------------------------------------------------ Colorado 5500 E. Yale Ave., Suite 100 Denver, CO 80222 - ------------------------------------------------------------------------------------------------------------------------------------ Florida - ------------------------------------------------------------------------------------------------------------------------------------ Georgia 5775 Peachtree Dunwoody Suite C120 Atlanta, GA 30342 - ------------------------------------------------------------------------------------------------------------------------------------ Iowa - ------------------------------------------------------------------------------------------------------------------------------------ Michigan - ------------------------------------------------------------------------------------------------------------------------------------ Missouri - ------------------------------------------------------------------------------------------------------------------------------------ North Carolina - ------------------------------------------------------------------------------------------------------------------------------------ Matrix Funding Corporation Colorado None None NA 201 West Coolidge Street Phoenix, AZ 85013 ====================================================================================================================================
SCHEDULE 6.9 ------------ LITIGATION AND JUDGMENTS ------------------------ NONE SCHEDULE 6.9 ------------ SCHEDULE 6.10 ------------- AFFILIATE TRANSACTIONS ---------------------- 1. Borrower subservices loans and servicing portfolios for Matrix Capital Bank ("MCB") and Matrix Capital Corporation ("MCC"), for which Borrower may receive a fee. 2. Borrower maintains escrow and custodial balances at MCB, for which Borrower may receive a fee. 3. Borrower retains United Financial, Inc. ("UFI") to act as broker for purchasing and selling servicing portfolios, for which Borrower may pay a fee. 4. Borrower creates operating payables and receivables with all Affiliates, which are extinguished under normal terms and conditions. SCHEDULE 6.10 ------------- EXHIBIT C-1 ----------- AMENDED AND RESTATED SECURITY AGREEMENT --------------------------------------- THIS AGREEMENT is entered into as of January 31, 1997, between MATRIX FINANCIAL SERVICES CORPORATION, an Arizona corporation ("DEBTOR"), certain Lenders, and BANK ONE, TEXAS, N.A., as Agent (in that capacity, "SECURED PARTY") for Lenders. Debtor, Lenders, and Agent have entered into the Amended and Restated Loan Agreement (as renewed, extended, amended, or restated, the "LOAN AGREEMENT") dated as of January 31, 1997. As a continuing inducement to the Lenders to extend credit to Debtor under the Loan Agreement -- and as a condition precedent to that credit -- Debtor is executing and delivering this agreement for the benefit of Lenders and Secured Party. ACCORDINGLY, for adequate and sufficient consideration, Debtor and Secured Party agree as follows: SECTION 1. DEFINITIONS AND REFERENCES. Unless stated otherwise, (a) terms defined in the Loan Agreement or the UCC have the same meanings when used in this agreement, and (b) to the extent permitted by Law, if in conflict (i) the definition of a term in the Loan Agreement controls over the definition of that term in the UCC, and (ii) the definition of a term in Article 9 of the UCC controls over the definition of that term elsewhere in the UCC. "COLLATERAL" is defined in SECTION 2.2 of this agreement. "DEBTOR" is defined in the preamble to this agreement and includes, without limitation, Debtor, Debtor as a debtor-in-possession, and any receiver, trustee, liquidator, conservator, custodian, or similar party appointed for Debtor or for substantially all of Debtor's assets under any Debtor Law. "OBLIGOR" means any Person obligated with respect to any Collateral (whether as an account debtor, obligor on an instrument, issuer of securities, or otherwise). "SECURED PARTY" is defined in the preamble to this agreement and includes its successor appointed and acting as Agent for Lenders under the Loan Documents. "SECURITY INTEREST" means the security interest granted and the pledge and assignment made under SECTION 2.1 of this agreement, which is a Lender Lien under the Loan Agreement. SECTION 2. SECURITY INTEREST AND COLLATERAL. 2.1 SECURITY INTEREST. To secure the full payment and performance of the Obligation, Debtor grants to Secured Party for Lenders a security interest in the Collateral and pledges and assigns the Collateral to the Secured Party, all upon and subject to the terms and conditions of this agreement. The grant of the Security Interest does not subject the Secured Party or any Lender to the terms of any Collateral Document or in any way transfer, modify, or otherwise affect (a) any of Debtor's obligations with respect to any Collateral or (b) the Lender Liens under the Loan Agreement. 2.2 COLLATERAL. As used in this agreement, the term "COLLATERAL" means the present and future items and types of property described below, whether now owned or acquired in the future by Debtor. This description of Collateral does not permit any action prohibited by any Loan Document. EXHIBIT C-1 ----------- (a) In respect of the Mortgage Collateral all present and future: . Mortgage Loans from time to time identified to Secured Party as Collateral. . All Collateral Documents in any way related to any Mortgage Loans identified as Collateral -- including, without limitation, all promissory notes evidencing and all mortgages, deeds of trust, or trust deeds securing those Mortgage Loans -- whether deposited with or held by or for Secured Party under this agreement, identified by Debtor as Collateral for a Wet Borrowing, or otherwise. . Private-mortgage insurance (including, without limitation, all commitments to issue any such insurance) covering -- and all commitments issued by FHA to insure or issued by VA to guarantee --any Mortgage Loans identified as Collateral. . Security of any kind pledged by a mortgagor for any Mortgage Loan identified as Collateral. . Casualty insurance assigned to Debtor in connection with any Mortgage Loan identified as Collateral. . Mortgage Securities deposited with or held by or for Secured Party under the Loan Documents or registered by book-entry in Secured Party's name under the Loan Documents. . Guaranties related to Mortgage Securities identified as Collateral. . Take-Out Commitments held by Debtor for any Mortgage Loans or Mortgage Securities identified as Collateral, Rights to deliver those Mortgage Loans or Mortgage Securities, as the case may be, to the investors or other purchasers under those Take-Out Commitments, and all proceeds resulting from the sale of any of those Mortgage Loans or Mortgage Securities under those Take-Out Commitments. . Any Collateral otherwise described in this agreement that may from time to time be delivered (a) to an investor under SECTION 4.5 of the Loan Agreement until purchased and paid for by that investor or (b) for correction under SECTION 4.6 of the Loan Agreement. (b) In respect of the Servicing Portfolio, all present and future: . Servicing Rights pertaining in any way to Debtor's Servicing Contracts with FHLMC, FNMA, or GNMA, or other private investor together with all present and future sums paid or payable to Debtor on account of, or as a result of the performance of, those Servicing Rights, whether as compensation for the performance by Debtor, damages related to any of the foregoing, amounts payable upon cancellation or termination hereof, or otherwise. 2 EXHIBIT C-1 ----------- . Servicing Receivables. (c) The Warehouse Account, Settlement Account, and Servicing Account and all amounts deposited in them or represented by them. (d) In respect of all of the Collateral otherwise described in SECTIONS 2(A), 2(B), and 2(C), all present and future. . Personal property, contract rights, accounts, and general intangibles of any kind whatsoever relating to any Collateral. . All receivables arising due to a P&I Payment, T&I Payment, or a Foreclosure Payment. . All files, surveys, certificates, correspondence, appraisals, tapes, discs, cards, accounting records, and other information and data of Debtor relating to any other Collateral -- including, without limitation, all information, data, tapes, discs, and cards necessary to administer and service any Mortgage Loan identified as Collateral. . Cash and noncash proceeds of any Collateral. SECTION 3. REPRESENTATIONS AND WARRANTIES. By entering into this agreement, and by each subsequent delivery of additional Collateral under this agreement, Debtor reaffirms the representations and warranties contained in the Loan Agreement. Debtor further represents and warrants to Secured Party for Lenders as follows: 3.1 CONCERNING THE COLLATERAL. All Collateral (a) is genuine and in all respects what it purports to be, (b) is the legal, valid, and binding obligation of each Obligor (except as enforceability may be limited by Debtor Laws), (c) is free from any claim for credit, deduction, or allowance of any Obligor and free from any defense, dispute, setoff, or counterclaim (other than for payments made in respect of it), (d) if a Mortgage Loan, was originated and is in compliance with all Laws (including, without limitation, all usury Laws, the Real Estate Settlement Procedures Act of 1974, the Equal Credit Opportunity Act, the Federal Truth in Lending Act, Regulation Z promulgated by the Board of Governors of the Federal Reserve System, and all applicable federal and state consumer protection Laws, (e) if a Mortgage Security, is duly authorized and validly issued, the transfer of which is not subject to any restrictions other than under the Loan Documents, (f) if a Take-Out Commitment or other contract, is in full force and effect without any material default having occurred by any party to it, and (g) conforms to the applicable requirements of eligibility under SCHEDULE 4.1 to the Loan Agreement. 3.2 OWNERSHIP AND PRIORITY. Debtor has full legal and beneficial ownership of all Collateral, free and clear of all Liens except Permitted Liens. 3.3 CREATION AND PERFECTION. The Security Interest is created and perfected on (a) each promissory note that evidences a Mortgage Loan identified as Collateral and that is delivered to Secured Party, (b) each promissory note that evidences a Mortgage Loan identified by Debtor to Secured Party as supporting a Wet Borrowing for 21 days after the Borrowing Date for that Borrowing, (c) each Mortgage Security in certificated form that is delivered to Secured Party, (d) each Mortgage Security in book-entry form when notice of the Security Interest is given to the financial institution in whose favor that security has been issued and that institution confirms that notice, (e) all Mortgage Collateral shipped to any Approved Investor under 3 EXHIBIT C-1 ----------- SECTION 4.5 of the Loan Agreement (and the Security Interest continues to be perfected until Secured Party receives either payment or Mortgage Securities under that section), (f) all Mortgage Collateral shipped to Debtor for correction under SECTION 4.6 of the Loan Agreement (and the Security Interest continues to be perfected for 21 days after that shipment), and (g) all other Collateral upon possession or the filing of the Financing Statements. SECTION 4. COVENANTS. Until all commitments by Secured Party and Lenders to extend credit under the Loan Agreement have been canceled or terminated and the Obligation is fully paid and performed, Debtor covenants and agrees with Secured Party for Lenders as follows: 4.1 CONCERNING THE COLLATERAL. Debtor (a) shall fully perform all of its duties under and in connection with each transaction to which any Collateral relates, (b) shall promptly notify Secured Party about any change in any fact or circumstances represented or warranted by Debtor about any Collateral, (c) shall promptly notify Secured Party of any claim, action, or proceeding affecting title to any Collateral or the Security Interest and, at Secured Party's request and Debtor's expense, appear in and defend that action or proceeding, (d) shall hold in trust for Secured Party all Collateral not delivered to Secured Party (without excusing any failure to deliver Collateral Documents to Secured Party as required by this agreement) and mark that Collateral on Debtor's records that it is subject to the Security Interest (but the failure to do so does not impair the Security Interest or its priority), (e) other than collections under SECTION 4.3 below, Debtor shall pay and deliver to Secured Party all items and types of property into which any Collateral may be converted (all of which is subject to the Security Interest) and properly endorse, assign, or take such other action as Secured Party may request in order to maintain and continue the Security Interest in that property, (f) may not compromise, extend, release, or adjust payments on any Mortgage Collateral, accept a conveyance of mortgaged property in full or partial satisfaction of any Mortgage Loan, or release any mortgage, deed of trust, or trust deed securing or underlying any Mortgage Collateral, and (g) may not agree to the amendment, termination, or substitution of any Take-Out Commitment covered by the Security Interest if that amendment, termination, or substitution would be a Material-Adverse Event. 4.2 INSURANCE. Debtor shall keep the Collateral fully insured in the amounts, against the risks, and with insurers as may be approved by Secured Party, with loss payable to Secured Party as its interest (on behalf of Lenders) may appear. 4.3 COLLECTIONS. Debtor shall, at its sole cost and expense, whether requested to by Secured Party or in the absence of such a request, take all actions reasonably necessary, to obtain payment, when due and payable, of all amounts due or to become due from Obligors with respect to any Collateral. Debtor may not agree to any rebate, refund, compromise, or extension with respect to any Collateral or accept any prepayment on account of any Collateral other than in a manner and to the extent consistent with or as may otherwise be provided in various servicing agreements to which it is a party or subject. (A) NO DEFAULT. While no Default exists, Debtor shall make all of those collections, shall maintain such escrow accounts and otherwise comply with the servicing agreements to which it is a party or subject, and may otherwise retain and use the proceeds of those collections in the ordinary course of its business. (B) DEFAULT. While a Default exists, and upon the request of Secured Party, Debtor shall (i) notify and direct each Obligor to make payments on the Collateral to Secured Party for deposit into such accounts as it may designate so as to be held as Collateral under this agreement and (ii) otherwise turn over to Secured Party, in the form received and with any necessary endorsements, all payments it receives in respect of any Collateral for deposit into such accounts as Secured Party may designate to be held as Collateral under this agreement. Secured Party may at any time apply any amounts in 4 EXHIBIT C-1 ----------- those accounts as a payment of the Obligation, other than mortgage escrow payments that are deposited into escrow accounts in accordance with the applicable Guide or servicing contract. 4.4 CONCERNING DEBTOR. Without first giving Secured Party 30 days notice (or fewer if agreed to in writing by Secured Party) of the intention to do any of the following and performing such acts and executing and delivering to Secured Party such additional documents as Secured Party requests in order to continue or maintain the existence and priority of the Security Interest, Debtor may not (a) use or transact business under any corporate, assumed, or trade name, except as represented in the Loan Agreement, (b) relocate its chief executive offices or principal place of business, or (c) move or surrender possession of its books and records regarding the Collateral. SECTION 5. DEFAULT AND REMEDIES. If a Default exists, then Secured Party may, at its election (but subject to the terms and conditions of the Loan Agreement), exercise any and all Rights available to a secured party under the UCC, in addition to any and all other Rights afforded by the Loan Documents, at law, in equity, or otherwise, including, without limitation (a) requiring Debtor to assemble all or part of the Collateral and make it available to Secured Party at a place to be designated by Secured Party which is reasonably convenient to Debtor and Secured Party, (b) surrendering any policies of insurance on all or part of the Collateral and receiving and applying the unearned premiums as a credit on the Obligation, (c) applying by appropriate judicial proceedings for appointment of a receiver for all or part of the Collateral (and Debtor hereby consents to any such appointment), and (d) applying to the Obligation any cash held by Secured Party or any Lender under the Loan Documents. 5.1 NOTICE. Reasonable notification of the time and place of any public sale of the Collateral, or reasonable notification of the time after which any private sale or other intended disposition of the Collateral is to be made, shall be sent to Debtor and to any other Person entitled to notice under the UCC. If any Collateral threatens to decline speedily in value or is of the type customarily sold on a recognized market, Secured Party may sell or otherwise dispose of the Collateral without notification, advertisement, or other notice of any kind. Notice sent or given not less than five calendar days before the taking of the action to which the notice relates is reasonable notification and notice for the purposes of this section. 5.2 APPLICATION OF PROCEEDS. Secured Party shall apply the proceeds of any sale or other disposition of the Collateral under this SECTION 5 in the order and manner specified in SECTION 3.5 of the Loan Agreement. Any surplus remaining shall be delivered to Debtor or as a court of competent jurisdiction may direct. If the proceeds are insufficient to pay the Obligation in full, Debtor remains liable for any deficiency. SECTION 6. OTHER RIGHTS. 6.1 PERFORMANCE. If Debtor fails to pay when due all Taxes on any of the Collateral, or to preserve the priority of the Security Interest in any of the Collateral, or to keep the Collateral insured as required by this agreement, or otherwise fail to perform any of its obligations under any Loan Documents or Collateral Documents with respect to the Collateral, then Secured Party may, at its option, but without being required to do so, pay such Taxes, prosecute or defend any suits in relation to the Collateral, or insure and keep insured the Collateral in any amount deemed appropriate by Secured Party, or take all other action which Debtor is required, but has failed or refused, to take under the Loan Documents or Collateral Documents. Any sum which may be expended or paid by Secured Party under this section (including, without limitation, court costs and attorneys' fees) shall bear interest from the dates of expenditure or payment at the Default Rate until paid and, together with such interest, shall be payable by Debtor to Secured Party upon demand and is part of the Obligation. 5 EXHIBIT C-1 ----------- 6.2 COLLECTION. (A) ACTIONS. When Secured Party is entitled under SECTION 4.3 above to make collection on any Collateral, it may in its own name or in the name of Debtor (i) compromise or extend the time of payment with respect to any Collateral for such amounts and upon such terms as Secured Party may determine, (ii) demand, collect, receive, receipt for, sue for, compound, and give acquittance for any and all amounts due or to become due with respect to Collateral, (iii) take control of cash and other proceeds of any Collateral, (iv) endorse Debtor's name on any notes, acceptances, checks, drafts, money orders, or other evidences of payment on Collateral that may come into Secured Party's possession, (v) sign Debtor's name on any invoice or bill of lading relating to any Collateral, on any drafts against Obligors or other Persons making payment with respect to Collateral, on assignments and verifications of accounts or other Collateral and on notices to Obligors making payment with respect to Collateral, (vi) send requests for verification of obligations to any Obligor, (vii) do all other acts and things necessary to carry out the intent of this agreement, and (viii) authorize any servicer in respect of any Collateral to any one or more of the foregoing on Secured Party's behalf. (B) OTHER MATTERS. If any Obligor fails or refuses to make payment on any Collateral when due, Secured Party is authorized, in its sole discretion, either in its name or in Debtor's name, to take such action as Secured Party deems appropriate for the collection of any amounts owed with respect to Collateral or upon which a delinquency exists. Regardless of any other provision, however, Secured Party is never liable for its failure to collect, or for its failure to exercise diligence in the collection of, any amounts owed with respect to Collateral and is not under any duty whatever to anyone except Debtor to account for funds that it actually receives. Without limiting the generality of the foregoing, Secured Party has no responsibility for ascertaining any maturities, calls, conversions, exchanges, offers, tenders, or similar matters relating to any Collateral, or for informing Debtor with respect to any of such matters (irrespective of whether Secured Party actually has, or may be deemed to have, knowledge thereof). Secured Party's receipt to any Obligor is a full and complete release, discharge, and acquittance to that Obligor, to the extent of any amount so paid to Secured Party. 6.3 POWER OF ATTORNEY. Debtor irrevocably appoints Secured Party -- acting on behalf of Lenders -- as its attorney-in-fact (with full power of substitution) for, on behalf, and in the name of Debtor to (a) endorse and deliver to any Person any check, instrument, or other document received by Secured Party or any Lender that represents payment in respect of any Collateral, (b) prepare, complete, execute, deliver, and record any assignment of any mortgage, deed of trust, or trust deed securing any Mortgage Loan or Mortgage Security, (c) endorse and deliver or otherwise transfer any promissory note evidencing any Mortgage Loan or Mortgage Security and do every other thing necessary or desirable to effect transfer of all or any Collateral, (d) take all necessary and appropriate action with respect to any Obligation or any Collateral, (e) commence, prosecute, settle, discontinue, defend, or otherwise dispose of any claim relating to any Collateral, and (f) sign that Debtor's name wherever appropriate to effect the performance of this agreement and the Loan Agreement. This section shall be liberally, not restrictively, construed to give the greatest latitude to Secured Party's power as the Debtor's attorney-in- fact to collect, sell, and deliver any Collateral and all other documents relating to it. The powers and authorities conferred on Secured Party in this section (w) are discretionary and not obligatory on the part of Secured Party, (x) may be exercised by Secured Party through any Person who, at the time of the execution of a particular document, is an officer of Secured Party, (y) may not be exercised by Secured Party unless a Default exists, and (z) is granted for a valuable consideration, coupled with an interest, and irrevocable until -- and all Persons dealing with Secured Party, any of its officers acting under this section, or any substitute are fully protected in treating the powers and authorities conferred by this section as existing and continuing in full force and effect until advised by Secured Party that -- all commitments under the Loan Agreement to extend credit under this agreement have been terminated or canceled and the Obligation is fully paid and performed. 6 EXHIBIT C-1 ----------- SECTION 7. MISCELLANEOUS. 7.1 MISCELLANEOUS. Because this agreement is a "Loan Document" referred to in the Loan Agreement, the provisions relating to Loan Documents in SECTIONS 1 AND 11 of the Loan Agreement are incorporated into this agreement by reference the same as if included in this agreement verbatim. 7.2 TERM. This agreement terminates upon full payment and performance of the Obligation. No Obligor is ever obligated to make inquiry of the termination of this agreement but is fully protected in making any payments on the Collateral directly to Secured Party. 7.3 MATTERS NOT RELEVANT. The Security Interest, Debtor's obligations, and Secured Party's and Lenders' Rights under this agreement are not released, diminished, impaired, or adversely affected by any one or more of the following: (a) Secured Party's or any Lender taking or accepting any additional -- or any release, surrender, exchange, subordination, or loss of any other -- guaranty, assurance, or security for any of the Obligation; (b) any full or partial release of any other Person obligated on any of the Obligation; (c) the modification or assignment of -- or waiver of compliance with -- any other Loan Document; (d) any present or future insolvency, bankruptcy, or lack of corporate, partnership, or trust power of any other Person obligated on any of the Obligation; (e) any renewal, extension, or rearrangement of any of the Obligation, or any adjustment, indulgence, forbearance, or compromise granted to any Person obligated on any of the Obligation; (f) any Person's neglect, delay, omission, failure, or refusal to take or prosecute any action in connection with any of the Obligation; (g) any existing or future affect, claim, or defense (other than the defense of full and final payment of the Obligation) of Debtor or any other Person against Secured Party or any Lender; (h) the unenforceability of any of the Obligation against any Person obligated or any of the Obligation because it exceeds the amount permitted by Law, the act of creating it is ultra vires, or the officers, partners, or trustees creating it exceeded their authority or violated their fiduciary duties, or otherwise; (i) any payment of the Obligation is held to constitute a preference under any Debtor Law or for any other reason Secured Party or any Lender is required to refund any payment or make payment to another Person; or (j) any Person's failure to notify Debtor, Secured Party, or any Lender of their acceptance of this agreement or any Person's failure to notify Debtor about the foregoing events or occurrences, and Debtor waives any notice of any kind under any circumstances whatsoever with respect to this agreement or any of the Obligation other than as specifically provided in this agreement. 7.4 WAIVERS. Except to the extent expressly otherwise provided in the Loan Documents, Debtor waives (a) any Right to require Secured Party or any Lender to proceed against any other Person, to exhaust its Rights in the Collateral, or to pursue any other Right which Secured Party or any Lender may have, and (b) all Rights of marshaling in respect of the Collateral. 7.5 FINANCING STATEMENT. Secured Party may, at any time, file this agreement or a carbon, photographic, or other reproduction of this agreement as a financing statement, but Secured Party's failure to do so does not impair the validity or enforceability of this agreement. 7.6 PARTIES. This agreement binds and inures to Debtor, Secured Party, and each Lender, and their respective successors and permitted assigns. Only those Persons may rely or raise any defense about this agreement. (A) ASSIGNMENTS. Debtor may not assign any Rights or obligations under this agreement without first obtaining the written consent of Secured Party and all Lenders. Secured Party's Rights under this agreement may be assigned to any successor agent appointed under the Loan Agreement. Any Lender may assign, pledge, and otherwise transfer all or any of its Rights under this agreement to any participant or transferee permitted by the Loan Agreement. 7 EXHIBIT C-1 ----------- (B) SECURED PARTY. Secured Party is the agent for each Lender. Secured Party may, without the joinder of any Lender, exercise any Rights in favor of any of them under this agreement. The Rights of Secured Party and Lenders vis-a-vis each other may be subject to other agreements between them. Neither Debtor nor its successors or permitted assigns need to inquire about any such agreement or be subject to the terms of it unless they join in it and, therefore, are not entitled to the benefits of any such agreement or entitled to rely upon or raise as a defense the failure of any party to comply with it. 7.7 ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. 7.8 AMENDMENT AND RESTATEMENT. This Amended and Restated Security Agreement amends, restates, and supersedes in its entirety, the Security Agreement executed by the undersigned and delivered in accordance with the Existing Loan Agreement. REMAINDER OF PAGE INTENTIONALLY BLANK SIGNATURE PAGE FOLLOWS 8 EXHIBIT C-1 ----------- EXECUTED as of the date first stated above. MATRIX FINANCIAL SERVICES BANK ONE, TEXAS, N.A., AGENT, as CORPORATION, as Debtor Secured Party By ---------------------------------- By ------------------------------- Thomas J. Osselaer, Executive Vice Mark L. Freeman, Vice President President SIGNATURE PAGE AMENDED AND RESTATED SECURITY AGREEMENT --------------------------------------- THIS DOCUMENT Haynes and Boone, L.L.P. PREPARED BY AND WHEN 901 Main Street, 32nd Floor FILED RETURN TO: Dallas, Texas 75202-3789 Attention: Brett H. Todd EXHIBIT C-2 ----------- FINANCING STATEMENT ------------------- THIS FINANCING STATEMENT IS PRESENTED TO A FILING OFFICER FOR FILING UNDER THE UNIFORM COMMERCIAL CODE. =============================================================================== DEBTOR'S NAME AND MAILING ADDRESS: - ------------------------------------------------------------------------------- SECURED PARTY'S NAME AND MAILING Bank One, Texas, N.A., Agent/*/ ADDRESS: 1717 Main Street - Fourth Floor Dallas, Texas 75201 FED. TAX ID NO. 75-2270994 - -------------------------------------------------------------------------------- FOR FILING OFFICER: ================================================================================ THIS FINANCING STATEMENT COVERS THE FOLLOWING PRESENT AND FUTURE TYPES AND ITEMS OF PROPERTY AND INTERESTS, WHETHER NOW OWNED OR ACQUIRED IN THE FUTURE BY DEBTOR (THE "COLLATERAL"): Terms defined on SCHEDULE 1 attached to this financing statement have the same meanings when used below: (a) In respect of the Mortgage Collateral all present and future: . Mortgage Loans from time to time identified to Secured Party as Collateral. . All Collateral Documents in any way related to any Mortgage Loans identified as Collateral --including, without limitation, all promissory notes evidencing and all mortgages, deeds of trust, or trust deeds securing those Mortgage Loans -- whether deposited with or held by or for Secured Party under this agreement, identified by Debtor as Collateral for a Wet Borrowing, or otherwise. . Private-mortgage insurance (including, without limitation, all commitments to issue any such insurance) covering -- and all commitments issued by FHA to insure or issued by VA to guarantee -- any Mortgage Loans identified as Collateral. . Security of any kind pledged by a mortgagor for any Mortgage Loan identified as Collateral. . Casualty insurance assigned to Debtor in connection with any Mortgage Loan identified as Collateral. _______________________ * Secured Party is serving as Agent under the Loan Agreement, and the security interest evidenced by this financing statement, as amended from time to time, is granted to Secured Party in that capacity on behalf of Lenders. EXHIBIT C-2 ----------- . Mortgage Securities deposited with or held by or for Secured Party under the Loan Documents or registered by book-entry in Secured Party's name under the Loan Documents. . Guaranties related to Mortgage Securities identified as Collateral. . Take-Out Commitments held by Debtor for any Mortgage Loans or Mortgage Securities identified as Collateral, Rights to deliver those Mortgage Loans or Mortgage Securities, as the case may be, to the investors or other purchasers under those Take-Out Commitments, and all proceeds resulting from the sale of any of those Mortgage Loans or Mortgage Securities under those Take-Out Commitments. . Any Collateral otherwise described in this agreement that may from time to time be delivered (a) to an investor under SECTION 4.5 of the Loan Agreement until purchased and paid for by that investor or (b) for correction under SECTION 4.6 of the Loan Agreement. (b) In respect of the Servicing Portfolio, all present and future: . Servicing Rights pertaining in any way to Debtor's Servicing Contracts with FHLMC, FNMA, or GNMA, or any private investor together with all present and future sums paid or payable to Debtor and on account of, or as a result of the performance of, those Servicing Rights, whether as compensation for the performance by Debtor, damages related to any of the foregoing, amounts payable upon cancellation or termination hereof, or otherwise. . Servicing Receivables. (c) The Warehouse Account, Settlement Account, and Servicing Account and all amounts deposited in them or represented by them. (d) In respect of all of the Collateral otherwise described in SECTIONS 2(A), 2(B), and 2(C), all present and future. . Personal property, contract rights, accounts, and general intangibles of any kind whatsoever relating to any Collateral. . All receivables arising due to a P&I Payment, T&I Payment, or a Foreclosure Payment. . All files, surveys, certificates, correspondence, appraisals, tapes, discs, cards, accounting records, and other information and data of Debtor relating to any other Collateral -- including, without limitation, all information, data, tapes, discs, and cards necessary to administer and service any Mortgage Loan identified as Collateral. . Cash and noncash proceeds of any Collateral. The security interest referred to in this financing statement is subject and subordinate in each and every respect (a) to all rights, powers and prerogatives of one or more of the following: the Federal Home Loan Mortgage Corporation ("FREDDIE MAC"), the Federal National Mortgage Association ("FANNIE MAE"), the Government National Mortgage Corporation ("GINNIE MAE"), or such other investors that own mortgage loans, or which guaranty payments on securities based on and backed by pools of mortgage loans, identified on the exhibit(s) or schedule(s) attached to this financial statement (the "INVESTORS"); and (b) to all claims of an Investor arising out of any and all defaults and outstanding obligations of the debtor to the Investor. Such rights, powers and prerogatives of the Investors may include, without limitation, one or more of the following: the right of an Investor to disqualify the debtor from participating in a mortgage selling or servicing program or a securities guaranty program with the Investor; the right to terminate contract rights of the debtor relating to such a mortgage selling or servicing program or securities guaranty program; and the right to transfer and sell all or any portion of such contract rights following the termination of those rights. The Security Interest created by this financial statement is subject and subordinate to all rights, powers, and prerogatives of Fannie Mae under and in connection with (i) the terms and conditions of that certain Acknowledgment Agreement, with respect to the Security Interest, by and between Fannie Mae, Mortgage Financial Service Corporation (the "DEBTOR") and Bank One, Texas, N.A., (ii) the Mortgage Selling and Servicing Contract and all applicable Pool Purchase Contracts between Fannie Mae and the Debtor, and (iii) the Selling Guide, Servicing Guide, and other Guides, as each of such Guides is amended from time to time ((ii) and (iii) collectively, the "FANNIE MAE CONTRACT"), which rights, powers, and prerogatives include, without limitation, the right of Fannie Mae to terminate the Fannie Mae Contract with or without cause and the right to sell, or have transferred, the Servicing Rights as therein provided. d-0 2 EXHIBIT C-2 ----------- DEBTOR: SECURED PARTY: MATRIX FINANCIAL SERVICES CORPORATION BANK ONE, TEXAS, N.A., as Agent for Lenders* By __________________________ By ________________________ Thomas J. Osselaer, Mark L. Freeman, Executive Vice President Vice President d-0 3 EXHIBIT C-2 ---------- SCHEDULE I ---------- DEFINITIONS ATTACHED TO FINANCING STATEMENT FROM MATRIX FINANCIAL SERVICES CORPORATION, AS DEBTOR, TO BANK ONE, TEXAS, N.A., AGENT, AS SECURED PARTY COLLATERAL DOCUMENTS means the documents and other items described on SCHEDULE 4.3 to the Loan Agreement and required to be delivered to Secured Party under SECTION 4.3 of the Loan Agreement. FHA means the Federal Housing Administration within the United States Department of Housing and Urban Development or its successor. FHLMC means the Federal Home Loan Mortgage Corporation or its successor. FNMA means the Federal National Mortgage Association or its successor. FORECLOSURE PAYMENT means the unreimbursed purchase price paid by Debtor to repurchase a defaulted Mortgage Loan out of a Mortgage Pool in accordance with Debtor's obligations under the applicable Servicing Contract. GNMA means the Government National Mortgage Association or its successor. LENDERS means, at any time, the lenders that are party to the Loan Agreement. LOAN AGREEMENT means the Loan Agreement dated as of January 31, 1996, between Debtor, Lenders, and Secured Party as Agent for Lenders, as renewed, extended, amended, or restated. MORTGAGE SECURITY means a security -- in respect of an underlying pool of related Mortgage Loans -- that provides for payment by the issuer to the holder of specified principal installments and a fixed-interest rate on the unpaid balance, with all prepayments being passed through to the holder, whether issued in certificate or book-entry form. MORTGAGE LOAN means a loan that is not a construction or non-residential commercial loan, is evidenced by a valid promissory note, and is secured by a mortgage, deed of trust, or trust deed that grants a perfected first-priority lien on the residential-real property. P&I PAYMENT means an unreimbursed advance or payment by Debtor to effect the timely payment of scheduled principal and interest on Mortgage Securities that are backed by a Mortgage Pool serviced by Debtor in accordance with Debtor's obligations under the applicable Servicing Contract to cover a short- fall between the principal and interest collected from mortgagors in respect of that Mortgage Pool and the principal and interest due on those Mortgage Securities. SERVICING PORTFOLIO means, at any time, the total unpaid principal amount of Mortgage Loans serviced by Debtor for a fee other than any Mortgage Loans serviced by Debtor under a subservicing agreement or a master servicing agreement. SERVICING ACCOUNT means a non-interest bearing deposit account established by Debtor with Agent -- styled and numbered "Matrix Servicing Account," Account No. 1886479342 -- for deposit of P&I Borrowings, T&I Borrowings, Foreclosure Borrowings, FHLMC Borrowings, and payments on the Obligation related to P&I Borrowings, T&I Borrowings, Foreclosure Borrowings and FHLMC Borrowings. SETTLEMENT ACCOUNT means a non-interest bearing deposit account established by Debtor with Agent -- styled and numbered "Matrix Settlement Account," Account No. 1886479318 -- for deposit of payments from investors, the settlement of collections from Mortgage Securities in connection with Mortgage Collateral, and deposit of payments on the Obligation. T&I PAYMENT means an unreimbursed advance or payment by Debtor to cover tax-and insurance-escrow payments not paid when required by a mortgagor under a Mortgage Loan in accordance with Debtor's obligations under the applicable Servicing Contract. TAKE-OUT COMMITMENT means a written and binding commitment or purchase agreement from an investor or other purchaser to purchase Mortgage Securities or Mortgage Loans. VA means the Veteran's Administration or its successor. WAREHOUSE ACCOUNT means a non-interest bearing deposit account established by Debtor with Secured Party -- styled and numbered "Matrix Funding Account," Account No. 1886479326 -- for deposit of borrowings under the Loan Agreement, payments from investors in or the settlement of Collateral, and payments of under the Loan Agreement. d-0 4 EXHIBIT C-2 ----------- WET BORROWING means a borrowing under the Loan Agreement for which all of the Collateral Documents have not been delivered to Lender in accordance with SECTION 4.3 of the Loan Agreement. d-0 5 EXHIBIT C-2 ----------- EXHIBIT C-3 ----------- SHIPPING REQUEST ---------------- AGENT: Bank One, Texas, N.A. DATE:___________, 199__ BORROWER: Matrix Financial Services Corporation SHIPMENT # _____________ SHIPMENT $_____________________ POOL #_________________________ # OF LOANS ____________________ ================================================================================ This request is delivered under the Amended and Restated Loan Agreement (as renewed, extended, or amended the "LOAN AGREEMENT") dated as of January 31, 1997, between Borrower, Agent, and certain Lenders. Terms defined in the Loan Agreement have the same meanings when used -- unless otherwise defined -- in this request. 1. Borrower requests Agent to (a) forward the shiplist and collateral files for the Mortgage Loans identified on it to the following Approved Investor or its custodian or servicer; (b) complete the endorsement of the promissory notes for those Mortgage Loans from Borrower to that Approved Investor or its servicer or custodian as follows: _________________________________; and (c) place them along with the blank assignments furnished to Agent in the appropriate collateral files: _______________________________ _______________________________ _______________________________ _______________________________ Agent should ship the whole files of Collateral Documents in Agent's possession for those Mortgage Loans by either Federal Express or such other courier service as Borrower has designated to Agent as "approved" for that purpose. The courier used must be acting as an independent-contractor bailee solely on behalf of Agent for the benefit of Agent and Lenders, but Agent is not responsible for any delays in shipment caused by any actions or inactions by that courier. Borrower's completed air bill for shipment accompanies this request. 2. On and as of the date of this request, Borrower certifies, represents and warrants to Agent for Lenders that (a) Borrower's representations and warranties in the Loan Documents are true and correct in all material respects except to the extent that (i) a representation or warranty speaks to a specific date or (ii) the facts on which a representation or warranty is based have changed by transactions or conditions contemplated or permitted by the Loan Documents, and (b) no Default, Potential Default, or Borrowing Excess exists. MATRIX FINANCIAL SERVICES CORPORATION, as Borrower By ___________________________ (Name) ___________________________ /1/(Title) ___________________________ _______________________ /1/ Must be a Responsible Officer of -- or a Person designated in writing by a Responsible Officer of -- Borrower. d-0 EXHIBIT C-3 ----------- [LETTERHEAD OF BANK ONE, TEXAS, N.A. APPEARS HERE] EXHIBIT C-4 ----------- BAILEE LETTER FOR INVESTORS --------------------------- _________________________ _________________________ _________________________ The enclosed mortgage notes and other documents ("COLLATERAL"), as more particularly described on the attached schedule, have been assigned and pledged to Bank One, Texas, N.A., as Agent ("AGENT") for itself and certain other Lenders ("LENDERS"), as collateral under the Amended and Restated Loan Agreement (as renewed, extended, amended, or restated, the "LOAN AGREEMENT") dated as of January 31, 1997, between Matrix Financial Services Corporation ("BORROWER"), Agent, and Lenders. The Collateral is being delivered to you for purchase under an existing Take-Out Commitment (as defined in the Loan Agreement). Either payment in full for the Collateral or the Collateral itself must be received by Agent within 45 days after the date of this letter. Until that time, you are deemed to be holding the Collateral in trust, subject to the security interest granted to Agent for Lenders and as Agent's bailee in accordance with the applicable provisions of the Uniform Commercial Code. No property interest in the Collateral is transferred to you until Agent receives the greater of either (a) the agreed purchase price of the Collateral or (b) $___________, which is the full amount of the advances under the Loan Agreement in respect of the Collateral. If you receive conflicting instructions regarding the Collateral from Borrower or Agent, you agree to act in accordance with Agent's instructions. AGENT RESERVES THE RIGHT, AT ANY TIME BEFORE IT RECEIVES FULL PAYMENT, TO NOTIFY YOU AND REQUIRE THAT YOU RETURN THE COLLATERAL TO AGENT. Payment for the Collateral must be made by wire transfer of immediately available funds to: Bank One, Texas, N.A., Agent Account Number 1886479318 ABA Number 111000614 Attn: Gloria Sadler Further Credit - Matrix Settlement Account TEL (214) 290-6082 FAX (214) 290-6069 BY ACCEPTING THE COLLATERAL DELIVERED TO YOU WITH THIS LETTER, YOU CONSENT TO BE AGENT'S BAILEE ON THE TERMS DESCRIBED IN THIS LETTER. If you fail to make full payment to Agent for it within 45 days after the date of this letter, you are instructed to return all of the Collateral to Agent. The preceding provision in no way affects or impairs any claim or cause of action against you in respect of your Take-Out Commitment. This letter binds you and your successors, assigns, trustees, conservators, and receivers and inures to Agent, Lenders, and their respective successors and assigns. Very truly yours, BANK ONE, TEXAS, N.A., as Agent By ___________________________ (Name) ___________________________ (Title) ___________________________ d-0 EXHIBIT C-4 ----------- [LETTERHEAD OF BANK ONE, TEXAS, N.A. APPEARS HERE] EXHIBIT C-5 ----------- BAILEE LETTER FOR POOL CUSTODIAN -------------------------------- _________________________ _________________________ _________________________ The enclosed mortgage notes and other documents (the "COLLATERAL"), as more particularly described on the attached schedule, have been assigned and pledged to Bank One, Texas, N.A., as Agent ("AGENT") for itself and certain other lenders ("LENDERS"), as Collateral under the Amended and Restated Loan Agreement (as renewed, extended, amended, or restated, the "LOAN AGREEMENT") dated as of January 31, 1997, between Matrix Financial Services Corporation ("BORROWER"), Agent, and Lenders. The Collateral is being delivered to you for pooling in connection with the issuance of Mortgage Securities (as defined in the Loan Agreement). Within 45 days after the date of this letter (a) payment in full for the Collateral must be paid to Agent, (b) the Mortgage Securities must be received by Agent if in certificated form or on its behalf in respect of Mortgage Securities in book- entry form, or (c) the Collateral must be returned to and received by Agent. Until that time, you are deemed to be holding the Collateral in trust, subject to the security interest granted to Agent for Lenders as Agent's bailee in accordance with the applicable provisions of the applicable Uniform Commercial Code. No property interest in the Collateral is deemed to be transferred to you until Agent receives either (a) the greater of either (i) the agreed purchase price of the Collateral or (ii) $___________, which is the full amount of the advances under the Loan Agreement in respect of the Collateral or (b) Mortgage Securities have been received by Agent or on its behalf in respect of Mortgage Securities in book-entry form. If you receive conflicting instructions regarding the Collateral from Borrower or Agent, you agree to act in accordance with Agent's instructions. If you deliver any of the enclosures to another party, this letter must accompany those items. AGENT RESERVES THE RIGHT, AT ANY TIME BEFORE THE MORTGAGE SECURITIES HAVE BEEN ISSUED, TO NOTIFY YOU AND REQUIRE THAT YOU RETURN THE COLLATERAL TO AGENT. If applicable above, payment for the Collateral must be made by the purchaser's wire transfer of immediately available funds to: Bank One, Texas, N.A., Agent Account Number 1886479318 ABA Number 111000614 Attn: Gloria Sadler Further Credit - Matrix Settlement Account TEL (214) 290-6082 FAX (214) 290-6069 If applicable above, Mortgage Securities in certificated form must be sent to: Bank One, Texas, N.A., Agent 1900 Pacific Street, 6th Floor Dallas, Texas 75201 Attn: Gloria Sadler, Vice President d-0 EXHIBIT C-5 ----------- BY ACCEPTING THE COLLATERAL DELIVERED TO YOU WITH THIS LETTER, YOU CONSENT TO BE AGENT'S BAILEE ON THE TERMS DESCRIBED IN THIS LETTER. AGENT REQUESTS THAT YOU ACKNOWLEDGE RECEIPT OF THE ENCLOSED COLLATERAL AND THIS LETTER BY SIGNING AND RETURNING TO AGENT THE ENCLOSED COPY OF THIS LETTER, BUT YOUR FAILURE TO DO SO DOES NOT NULLIFY YOUR CONSENT. This letter binds you and your successors, assigns, trustees, conservators, and receivers and inures to Agent, Lenders, and their respective successors and assigns. Very truly yours, BANK ONE, TEXAS, N.A., as Agent By_________________________________ (Name)_____________________________ (Title)____________________________ ACKNOWLEDGED AND AGREED as of _________________________, 199____. [NAME OF POOL CUSTODIAN] By___________________________ (Name)_______________________ (Title)______________________ Member FDIC d-0 2 EXHIBIT C-5 ----------- EXHIBIT C-6 ----------- TRUST RECEIPT AND AGREEMENT --------------------------- AGENT: Bank One, Texas, N.A. DATE:________, 199____ BORROWER: Matrix Financial Services Corporation - -------------------------------------------------------------------------------- This trust receipt and agreement is delivered under the Amended and Restated Loan Agreement (as renewed, extended, or amended the "LOAN AGREEMENT") dated as of January 31, 1997, between Borrower, Agent, and certain Lenders. Terms defined in the Loan Agreement have the same meanings when used -- unless otherwise defined -- in this trust receipt and agreement. In accordance with SECTION 4.6 of the Loan Agreement, Borrower requests delivery by Agent to Borrower of the entire mortgage file of Collateral Documents for the Mortgage Loan and for the corrections described as follows: Mortgage Loan Number: ___________________________________ Original Amount: $___________________________________ Corrections: ___________________________________ ___________________________________ ___________________________________ Borrower agrees that (a) these Collateral Documents are delivered to Borrower solely for the purpose of making these corrections, (b) these Collateral Documents are and continue to be subject to Lender Liens under the Loan Documents, (c) Borrower shall hold these Collateral Documents as bailee and trustee for Agent, and Lenders, and (d) Borrower may not deliver any of these Collateral Documents to a third party unless (i) it is necessary in order to complete the corrections, and (ii) Borrower notifies that third party that the Collateral Documents are and continue to be subject to Lender Liens under the Loan Documents, and obtains from that third party its agreement to hold those Collateral Documents as bailee and trustee for Agent and Lenders until they have been returned to Agent or the amount of the Borrowing Base attributable to the related Mortgage Loan has been fully paid to Agent for Lenders to be applied to the Obligation. On and as of the date of this receipt and agreement, Borrower certifies, represents, and warrants to Agent for Lenders that (a) Borrower's representations and warranties in the Loan Documents are true and correct in all material respects except to the extent that (i) a representation or warranty speaks to a specific date or (ii) the facts on which a representation or warranty is based have changed by transactions or conditions contemplated or permitted by the Loan Documents, (b) no Default, Potential Default, or Borrowing Excess exists, and (c) this shipment will not result in Collateral Documents for Mortgage Loans with more than a total face amount of $1,000,000 being outstanding for correction. d-0 EXHIBIT C-6 ----------- Borrower acknowledges receipt of the Collateral Documents referred to above. MATRIX FINANCIAL SERVICES CORPORATION, as Borrower By______________________________________ (Name)__________________________________ /1/(Title)______________________________ _______________________ /1/ Must be a Responsible Officer -- or a Person designated in writing by a Responsible Officer -- of Borrower. d-0 EXHIBIT C-7 ----------- EXHIBIT C-7 ----------- RELEASE REQUEST --------------- AGENT: Bank One, Texas, N.A. Date: ________________, 199___ BORROWER: Matrix Financial Services Corporation - -------------------------------------------------------------------------------- This request is delivered under the Amended and Restated Loan Agreement (as renewed, extended, or amended the "LOAN AGREEMENT") dated as of January 31, 1997, between Borrower, Agent, and certain Lenders. Terms defined in the Loan Agreement have the same meanings when used -- unless otherwise defined -- in this request. Borrower requests Agent to release the Lender Liens under the Loan Documents in the Collateral described on the attached SCHEDULE 1. On and as of the date of this request, Borrower certifies, represents, and warrants to Agent for Lenders that (a) Borrower's representations and warranties in the Loan Documents are true and correct in all material respects except to the extent that (i) a representation or warranty speaks to a specific date or (ii) the facts on which a representation or warranty is based have changed by transactions or conditions contemplated or permitted by the Loan Documents, and (b) no Default, Potential Default, or Borrowing Excess exists or occurs as a result of the requested release other than any Borrowing Excess that has been eliminated by payment which has been made to Agent. MATRIX FINANCIAL SERVICES CORPORATION, as Borrower By _____________________________ (Name) _____________________________ /1/(Title) _____________________________ ______________________ /1/ Must be a Responsible Officer of -- or a Person designated in writing by a Responsible officer of -- Debtor. d-0 EXHIBIT C-7 ----------- EXHIBIT D-1 ----------- BORROWING REQUEST ----------------- AGENT: Bank One, Texas, N.A. DATE: _________, 199___ BORROWER: Matrix Financial Services Corporation ================================================================================ This request is delivered under the Amended and Restated Loan Agreement (as renewed, extended, and amended, the "LOAN AGREEMENT") dated as of January 31, 1997, between Borrower, Agent, and certain Lenders. Terms defined in the Loan Agreement have the same meanings when used -- unless otherwise defined -- in this request. Borrower requests $____________________ in Borrowings (collectively, the "REQUESTED BORROWING") to be funded on _______________, 199___/1/ (the REQUESTED BORROWING DATE") in the one or more Borrowing-Purpose Categories indicated on the attached schedule, which has been completed as to all other relevant information. Borrower certifies that as of the Requested Borrowing Date -- after giving effect to the Requested Borrowing -- (a) the representations and warranties of Borrower in the Loan Documents are true and correct in all material respects except to the extent that (i) a representation or warranty speaks to a specific date or (ii) the facts on which a representation or warranty is based have changed by transactions or conditions contemplated or permitted by the Loan Documents, (b) no Default or Potential Default exists, (c) the extension of the Requested Borrowing does not cause any Borrowing Excess to exist, (d) Borrower has timely delivered a Collateral-Delivery Notice, if applicable, (e) all Collateral Documents required by the Loan Agreement to be delivered to Agent in connection with the Requested Borrowing have been delivered to Agent, and (f) Borrower has otherwise complied with all conditions of the Loan Documents to permit the Requested Borrowing to be extended. MATRIX FINANCIAL SERVICES CORPORATION, as Borrower By______________________________________ (Name)__________________________________ /2/(Title)______________________________ /1/ Must be no later than (a) the third business Day after request if the Requested Borrowings involves any LIBOR Borrowing or (b) the business Day of request otherwise. /2/ Must be a Responsible Officer of -- or an individual designated to Agent in writing by a Responsible Officer of --Borrower. d-0 EXHIBIT D-1 ----------- SCHEDULE TO BORROWING REQUEST ----------------------------- DATED _______________, 199___; FOR $_____________________ [Complete EACH applicable box or mark N.A.]
========================================================================================== BORROWING- AMOUNT/1/ EXTENDED BORROWING-PRICE CATEGORY INTEREST PURPOSE CATEGORY BY PERIOD ENDING/2/ ========================================================================================== Warehouse $ [_] Ratable [_] Base Rate _________, 19__ Borrowing (Dry) [_] Swing [_] Fed-Funds Rate [_] LIBOR (not for Swing) [_] (check and indicate amount if Committed- B/C-Paper Borrowing - $_______________) [_] (check and indicate amount if Uncommitted - -B/C-Paper Borrowing - $_______________) [_] (check and indicate amount if Second-Lien Borrowing - $_______________) [_] (check and indicate amount if Repurchase Borrowing - $_______________) - ------------------------------------------------------------------------------------------
/1/ At least $100,000 for Term-Line Borrowing or $25,000 for each other Borrowing-purpose Category. /2/ Must be a 1, 2, or 3, months or other period acceptable to Agent (and to Determining Lenders if longer than 6 months). d-0 2 EXHIBIT D-1 ----------- - ------------------------------------------------------------------------------------------ Warehouse $ [_] Ratable [_] Base Rate _________, 19__ Borrowing (Wet) [_] Swing [_] Fed-Funds Rate [_] LIBOR (not for Swing) [_] (check and indicate amount if Committed- B/C-Paper Borrowing - $_______________) [_] (check and indicate amount if Uncommitted - -B/C-Paper Borrowing - $_______________) [_] (check and indicate amount if Second-Lien Borrowing - $_______________) [_] (check and indicate amount if Repurchase Borrowing - $_______________) - ------------------------------------------------------------------------------------------ Warehouse $ Ratable [_] Base Rate _________, 19__ Borrowing [_] Fed-Funds Rate (Gestation) [_] LIBOR - ------------------------------------------------------------------------------------------ Working-Capital $ Ratable [_] Base Rate _________, 19__ Borrowing (P&I) [_] Fed-Funds Rate [_] LIBOR - ------------------------------------------------------------------------------------------ Working-Capital $ Ratable [_] Base Rate _________, 19__ Borrowing (T&I) [_] Fed-Funds Rate [_] LIBOR - ------------------------------------------------------------------------------------------ Working-Capital $ Ratable [_] Base Rate _________, 19__ Borrowing [_] Fed-Funds Rate (Foreclosure) [_] LIBOR - ------------------------------------------------------------------------------------------ Term-Line $ Ratable [_] Base Rate _________, 19__ Borrowing [_] Fed-Funds Rate [_] LIBOR ==========================================================================================
d-0 3 EXHIBIT D-1 ----------- EXHIBIT D-2 ----------- COLLATERAL-DELIVERY NOTICE -------------------------- AGENT: Bank One, Texas, N.A. DATE:______, 199____ BORROWER: Matrix Financial Services Corporation ================================================================================ This notice is delivered under the Amended and Restated Loan Agreement (as renewed, extended, and amended the "LOAN AGREEMENT") dated as of January 31, 1997, between Borrower, Agent, and certain Lenders. Terms defined in the Loan Agreement have the same meanings when used -- unless otherwise defined -- in this notice. Under SECTION 4.3 and other applicable provisions of the Loan Agreement, Borrower submits the following Collateral under -- and subject to the Lender Liens created by -- the Loan Documents [check applicable box(es)]: [_] MORTGAGE LOANS FOR DRY BORROWING. Borrower (a) is delivering to Agent the Collateral Documents required by PART A of SCHEDULE 4.3 to the Loan Agreement for the Mortgage Loans described on the attached ANNEX 1 -- which is a data-processing print-out meeting the requirements of PART A.8. on that SCHEDULE 4.3 -- and (b) confirms that those Mortgage Loans and all related Collateral Documents are subject to the Lender Liens created by the Loan Agreement. [_] MORTGAGE LOANS FOR WET BORROWING. Borrower (a) is delivering to Agent the Collateral Documents required by PART B of SCHEDULE 4.3 to the Loan Agreement for the Mortgage Loans described on the attached ANNEX 2 -- which is a data-processing print-out meeting the requirements of PART B.3. on that SCHEDULE 4.3, (b) shall deliver to Agent the Collateral Documents required by PART A of that SCHEDULE 4.3 for -- before the expiration of the Wet Period for the Borrowings made on the basis of -- those Mortgage Loans, and (c) confirms that those Mortgage Loans and all related Collateral Documents are subject to the Lender Liens created by the Loan Agreement. [_] MORTGAGE SECURITIES FOR DRY BORROWING. Borrower (a) is delivering to Agent the Collateral Documents required by PART C of SCHEDULE 4.3 to the Loan Agreement for the Mortgage Securities described on the attached ANNEX 3 (the Mortgage Pools for which consist of Mortgage Loans that were --before issuance of those Mortgage Securities -- Eligible-Mortgage Loans constituting part of the Collateral) and (b) confirms that those Mortgage Securities and all related Collateral Documents are subject to the Lender Liens created by the Loan Agreement. On and as of the date of this notice, Borrower certifies, represents, warrants, and covenants to or with Agent for Lenders that: (a) For each Mortgage Loan described on either ANNEX 1 or 2 to this notice, Borrower (i) holds each of the items required by SECTION 4.3 of the Loan Agreement, (ii) holds those items in trust for Agent on behalf of Lenders, (iii) upon request or instructions from Agent from time d-0 EXHIBIT D-2 ----------- to time and at any time, shall deliver those items to Agent any other Person designated by Agent, and (iv) may not deliver those items --or grant, transfer, or assign any interest in any of them -- to any Person except Agent without first obtaining Agent's written consent. (b) All of the items that Borrower is required to furnish to Agent under the Loan Agreement in connection with this notice accompany it, all of those items are accurate and what they purport to be, and all of the Collateral described in this notice or its schedules conform in all respects to the requirements of the Loan Agreement, including, without limitation, the requirements of eligibility applicable to that Collateral on SCHEDULE 4.1 to the Loan Agreement. (c) The representations and warranties of Borrower in the Loan Documents are true and correct in all material respects except to the extent that (i) a representation or warranty speaks to a specific date or (ii) the facts on which a representation or warranty is based have changed by transactions or conditions contemplated or permitted by the Loan Documents. (d) No Default or Potential Default exists. MATRIX FINANCIAL SERVICES CORPORATION as Borrower By _____________________________ (Name) _____________________________ /1/(Title) _____________________________ ______________________ /1/ Must be a Responsible Officer of -- or an individual designated in writing to Agent by a Responsible Officer of --Borrower. d-0 2 EXHIBIT D-2 ----------- EXHIBIT D-3 ----------- BORROWING-BASE REPORT --------------------- AGENT: Bank One, Texas, N.A. DATE:_______, 199___ BORROWER: Matrix Financial Services Corporation ================================================================================ This report is delivered under the Amended and Restated Loan Agreement (as renewed, extended, and amended, the "LOAN AGREEMENT") dated as of January 31, 1997, between Borrower, Agent, and certain Lenders. Terms defined in the Loan Agreement have the same meanings when used -- unless otherwise defined -- in this report. Agent has calculated the Borrowing Base and its various components as of the date of this report. TABLE 1--WAREHOUSE BORROWINGS -----------------------------
=================================================================================================================================== FACE WAREHOUSE =================================================================================================================================== 1. RECONCILIATION FOR DRY BORROWINGS (EXCLUDING GESTATION BORROWINGS) - ----------------------------------------------------------------------------------------------------------------------------------- (a) Ending Collateral balance (last report) $ $ - ----------------------------------------------------------------------------------------------------------------------------------- (b) Collateral removed (since last report) $ $ - ----------------------------------------------------------------------------------------------------------------------------------- (c) Beginning Collateral balance -- Line 1(a) MINUS Line 1(b) $ $ - ----------------------------------------------------------------------------------------------------------------------------------- (d) Collateral received (since last report) $ $ - ----------------------------------------------------------------------------------------------------------------------------------- (e) New Collateral balance (today) -- Line 1(c) PLUS Line 1(d) $ $ - ----------------------------------------------------------------------------------------------------------------------------------- (f) Ineligibles -- expired 120-day limit (or after applicable limit) $ $ - ----------------------------------------------------------------------------------------------------------------------------------- (g) Ineligibles -- expired Shipping Period $ $ - ----------------------------------------------------------------------------------------------------------------------------------- (h) Ineligibles -- expired Correction Period $ $ - ----------------------------------------------------------------------------------------------------------------------------------- (i) Jumbo Sublimit exclusions $ $ - ----------------------------------------------------------------------------------------------------------------------------------- (j) Other ineligibles $ $ - ----------------------------------------------------------------------------------------------------------------------------------- (k) Total Ineligibles -- TOTAL of Lines 1(f) THROUGH 1(j) $ $ - ----------------------------------------------------------------------------------------------------------------------------------- (l) Total Collateral amount-- Line 1(e) MINUS Line 1(k) $ $ - ----------------------------------------------------------------------------------------------------------------------------------- (m) If Agent or Determining Lenders elect -- Market Value of items in Line 1(l) $ $ - ----------------------------------------------------------------------------------------------------------------------------------- (n) Lesser of EITHER Lines 1(l) OR -- if applicable -- 1(m) $ $ - ----------------------------------------------------------------------------------------------------------------------------------- (o) Portion of Collateral amount attributable to Eligible-Committed-B/C- Paper Loans which have been held for more than 60 calendar days $ $ - ----------------------------------------------------------------------------------------------------------------------------------- (p) Portion of Collateral amount attributable to Eligible-Uncommitted-B/C- Paper Loans $ $ - -----------------------------------------------------------------------------------------------------------------------------------
d-0 EXHIBIT D-3 ----------- - ----------------------------------------------------------------------------------------------------------------------------------- (q) Portion of Collateral amount attributable to Eligible-Second-Lien- Loans which have been held for more than 60 calendar days $ $ - ----------------------------------------------------------------------------------------------------------------------------------- (r) Portion of Collateral amount attributable to Eligible-Repurchased $ $ Loans - ----------------------------------------------------------------------------------------------------------------------------------- (s) Portion of Collateral amount attributable to Eligible-Mortgage $ $ Collateral (other than as listed in Lines (o) through (r) above) - ----------------------------------------------------------------------------------------------------------------------------------- 2. RECONCILIATION FOR WET BORROWINGS - ----------------------------------------------------------------------------------------------------------------------------------- (a) Ending Collateral balance (last report) $ $ - ----------------------------------------------------------------------------------------------------------------------------------- (b) Collateral removed (since last report) $ $ - ----------------------------------------------------------------------------------------------------------------------------------- (c) Beginning Collateral balance -- Line 2(a) MINUS Line 2(b) $ $ - ----------------------------------------------------------------------------------------------------------------------------------- (d) Collateral received (since last report) $ $ - ----------------------------------------------------------------------------------------------------------------------------------- (e) New Collateral Balance $ $ - ----------------------------------------------------------------------------------------------------------------------------------- (f) Ineligibles -- expired Wet Period $ $ - ----------------------------------------------------------------------------------------------------------------------------------- (g) Jumbo Sublimit exclusions $ $ - ----------------------------------------------------------------------------------------------------------------------------------- (h) Other ineligibles $ $ - ----------------------------------------------------------------------------------------------------------------------------------- (i) Total Ineligibles -- TOTAL of Lines 2(f), 2(g), and 2(h) $ $ - ----------------------------------------------------------------------------------------------------------------------------------- (j) Total Wet Collateral $ $ - ----------------------------------------------------------------------------------------------------------------------------------- (k) If Agent or Determining Lender's elect -- Market Value of items in Line 2(j) $ $ - ----------------------------------------------------------------------------------------------------------------------------------- (l) Lesser of EITHER Lines 2(j) OR -- if applicable -- 2(k) $ $ - ----------------------------------------------------------------------------------------------------------------------------------- (m) Portion of Collateral amount attributable to Eligible-Uncommitted-B/C-Paper Loans $ $ - ----------------------------------------------------------------------------------------------------------------------------------- (n) Portion of Collateral amount attributable to Eligible-Repurchased Loans $ $ - ----------------------------------------------------------------------------------------------------------------------------------- (o) Portion of Collateral amount attributable to Eligible-Mortgage Collateral (other than as listed in Lines 2(m) and 2(n) above) $ $ - ----------------------------------------------------------------------------------------------------------------------------------- 3. RECONCILIATION FOR GESTATION BORROWINGS - ----------------------------------------------------------------------------------------------------------------------------------- (a) Ending Collateral balance (last report) $ $ - ----------------------------------------------------------------------------------------------------------------------------------- (b) Collateral removed (since last report) $ $ - ----------------------------------------------------------------------------------------------------------------------------------- (c) Beginning Collateral balance -- Line 3(a) MINUS Line 3(b) $ $ - ----------------------------------------------------------------------------------------------------------------------------------- (d) Collateral received (since last report) $ $ - ----------------------------------------------------------------------------------------------------------------------------------- (e) New Collateral balance (today) -- Line 3(c) PLUS Line 3(d) $ $ - ----------------------------------------------------------------------------------------------------------------------------------- (f) Ineligibles $ $ - ----------------------------------------------------------------------------------------------------------------------------------- (g) Total Collateral amount -- Line 3(e) MINUS Line 3(f) $ $ - ----------------------------------------------------------------------------------------------------------------------------------- (h) Portion of Line 3(g) identified to a security settlement $ $ - ----------------------------------------------------------------------------------------------------------------------------------- (i) Portion of Line 3(g) not identified to a whole-loan settlement $ $ - ----------------------------------------------------------------------------------------------------------------------------------- 4. BORROWING BASE FOR MORTGAGE COLLATERAL - ----------------------------------------------------------------------------------------------------------------------------------- (a) Dry Collateral Value - -----------------------------------------------------------------------------------------------------------------------------------
d-0 2 EXHIBIT D-3 ----------- - ----------------------------------------------------------------------------------------------------------------------------------- (b) 95% of Line 1(o) $ - ----------------------------------------------------------------------------------------------------------------------------------- (c) 97% of Line 1(p) $ - ----------------------------------------------------------------------------------------------------------------------------------- (d) 95% of Line 1(q) $ - ----------------------------------------------------------------------------------------------------------------------------------- (e) 97% of Line 1(r) $ - ----------------------------------------------------------------------------------------------------------------------------------- (f) 98% of Line 1(s) $ - ----------------------------------------------------------------------------------------------------------------------------------- (g) Total Dry Collateral Value - Line 4(b) PLUS Line 4(c) PLUS Line 4(d) $ PLUS Line 4(e) PLUS Line 4(f) - ----------------------------------------------------------------------------------------------------------------------------------- (h) Wet Collateral Value - ----------------------------------------------------------------------------------------------------------------------------------- (i) 97% of Line 2(m) $ - ----------------------------------------------------------------------------------------------------------------------------------- (j) 97% of Line 2(n) $ - ----------------------------------------------------------------------------------------------------------------------------------- (k) 98% of Line 2(o) $ - ----------------------------------------------------------------------------------------------------------------------------------- (l) Total Wet Collateral Value - Line 4(i) PLUS Line 4(j) PLUS Line 4(k) $ - ----------------------------------------------------------------------------------------------------------------------------------- (m) Gestation Collateral Value - ----------------------------------------------------------------------------------------------------------------------------------- (n) 99% of Line 3(h) $ - ----------------------------------------------------------------------------------------------------------------------------------- (o) 98% of Line 3(i) $ - ----------------------------------------------------------------------------------------------------------------------------------- (p) Total Gestation Collateral Value - Line 4(n) PLUS Line 4(o) $ - ----------------------------------------------------------------------------------------------------------------------------------- (q) Borrowing Base - Total of Lines 4(g), 4(l), and 4(p) $ - ----------------------------------------------------------------------------------------------------------------------------------- 5. PRINCIPAL DEBT FOR WAREHOUSE BORROWINGS - ----------------------------------------------------------------------------------------------------------------------------------- (a) Dry Borrowings $ - ----------------------------------------------------------------------------------------------------------------------------------- (b) Wet Borrowings $ - ----------------------------------------------------------------------------------------------------------------------------------- (c) Gestation Borrowings $ - ----------------------------------------------------------------------------------------------------------------------------------- (d) TOTAL of Lines 5(a) THROUGH 5(c) $ - ----------------------------------------------------------------------------------------------------------------------------------- 6. WAREHOUSE COMMITMENTS - ----------------------------------------------------------------------------------------------------------------------------------- (a) Warehouse Commitments $60,000,000 - ----------------------------------------------------------------------------------------------------------------------------------- (b) Wet Sublimit (either $21,000,000 during the first 5 and last 5 Business $ Days of each Calendar Month or $12,000,000 at all other times) - ----------------------------------------------------------------------------------------------------------------------------------- (c) Gestation Sublimit $30,000,000 - -----------------------------------------------------------------------------------------------------------------------------------
d-0 3 EXHIBIT D-3 ----------- - ----------------------------------------------------------------------------------------------------------------------------------- 7. AVAILABILITY - ----------------------------------------------------------------------------------------------------------------------------------- (a) Lesser of EITHER Line 4(l) OR Line 6(b) $ - ----------------------------------------------------------------------------------------------------------------------------------- (b) Maximum Wet Borrowing if positive OR BORROWING EXCESS if negative -- Line 7(a) MINUS Line 5(b) $ - ----------------------------------------------------------------------------------------------------------------------------------- (c) Lesser of either Line 4(p) OR Line 6(c) $ - ----------------------------------------------------------------------------------------------------------------------------------- (d) MAXIMUM GESTATION BORROWING if positive or Borrowing Excess if negative -- Line 7(c) MINUS Line 5(c) $ - ----------------------------------------------------------------------------------------------------------------------------------- (e) Lesser of EITHER Line 4(q) OR Line 6 $ - ----------------------------------------------------------------------------------------------------------------------------------- (f) Maximum Total Warehouse Borrowings if positive OR Borrowing Excess if negative -- Line 7(e) MINUS Line $ 5(d) ====================================================================================================================================
TABLE 2 -- WORKING-CAPITAL BORROWINGS ------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- 1. BORROWING BASE FOR ELIGIBLE-FORECLOSURE RECEIVABLES - ----------------------------------------------------------------------------------------------------------------------------------- (a) Ending Collateral balance (last report) $ - ----------------------------------------------------------------------------------------------------------------------------------- (b) Repayments (since last report) $ - ----------------------------------------------------------------------------------------------------------------------------------- (c) New Eligible-Foreclosure Receivables (since last report) $ - ----------------------------------------------------------------------------------------------------------------------------------- (d) TOTAL of Line 1(a) MINUS Line 1(b) PLUS Line 1(c) $ - ----------------------------------------------------------------------------------------------------------------------------------- (e) 80% of Line 1(d) $ - ----------------------------------------------------------------------------------------------------------------------------------- 2. BORROWING BASE FOR ELIGIBLE-P&I RECEIVABLES - ----------------------------------------------------------------------------------------------------------------------------------- (a) Ending Collateral balance (last report) $ - ----------------------------------------------------------------------------------------------------------------------------------- (b) Repayments (since last report) $ - ----------------------------------------------------------------------------------------------------------------------------------- (c) New Eligible-P&I Receivables (since last report) $ - ----------------------------------------------------------------------------------------------------------------------------------- (d) TOTAL of Line 2(a) MINUS Line 2(b) PLUS Line 2(c) $ - ----------------------------------------------------------------------------------------------------------------------------------- (e) 95% of Line 2(d) $ - ----------------------------------------------------------------------------------------------------------------------------------- 3. BORROWING BASE FOR ELIGIBLE-T&I RECEIVABLES - ----------------------------------------------------------------------------------------------------------------------------------- (a) Ending Collateral balance (last report) $ - ----------------------------------------------------------------------------------------------------------------------------------- (b) Repayments (since last report) $ - ----------------------------------------------------------------------------------------------------------------------------------- (c) New Eligible-T&I Receivables (since last report) $ - ----------------------------------------------------------------------------------------------------------------------------------- (d) TOTAL of Line 3(a) MINUS Line 3(b) PLUS Line 3(c) $ - ----------------------------------------------------------------------------------------------------------------------------------- (e) 80% of Line 3(d) $ - ----------------------------------------------------------------------------------------------------------------------------------- 4. BORROWING BASE FOR RECEIVABLES -- TOTAL of Lines 1(e), 2(e) and 3(e) $ - ----------------------------------------------------------------------------------------------------------------------------------- 5.PRINCIPAL DEBT OF WORKING-CAPITAL BORROWINGS $ - ----------------------------------------------------------------------------------------------------------------------------------- 6.WORKING-CAPITAL COMMITMENT $10,000,000 - -----------------------------------------------------------------------------------------------------------------------------------
d-0 4 EXHIBIT D-3 ----------- - ----------------------------------------------------------------------------------------------------------------------------------- 7.AVAILABILITY - ----------------------------------------------------------------------------------------------------------------------------------- (a) Lesser of EITHER Line 4 OR Line 6 $ - ----------------------------------------------------------------------------------------------------------------------------------- (b) Maximum Total Working-Capital Borrowings if positive OR $ Borrowing Excess if negative -- Line 7(a) MINUS Line 5 ===================================================================================================================================
TABLE 3 -- TERM-LINE BORROWINGS ------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- 1. BORROWING BASE FOR TERM-LINE - ----------------------------------------------------------------------------------------------------------------------------------- (a) Cost of pledged portfolio $ - ----------------------------------------------------------------------------------------------------------------------------------- (b) Appraised Value of pledged portfolio $ - ----------------------------------------------------------------------------------------------------------------------------------- (c) 350% of average serving fee for pledged portfolio $ - ----------------------------------------------------------------------------------------------------------------------------------- (d) Lesser of EITHER Line 1(a), Line 1(b), OR Line 1(c) $ - ----------------------------------------------------------------------------------------------------------------------------------- (e) Borrowing Base for Term-Line - 70% of Line 1(d) $ - ----------------------------------------------------------------------------------------------------------------------------------- 2. PRINCIPAL DEBT OF TERM-LINE BORROWINGS $ - ----------------------------------------------------------------------------------------------------------------------------------- 3. TERM-LINE COMMITMENT $30,000,000 - ----------------------------------------------------------------------------------------------------------------------------------- 4. AVAILABILITY - ----------------------------------------------------------------------------------------------------------------------------------- (a) Lesser of EITHER Line 1(e) OR Line 3 $ - ----------------------------------------------------------------------------------------------------------------------------------- (b) Maximum Total Term-Line Borrowings if positive or $ Borrowing Excess if negative -- Line 4(a) MINUS Line 2 ===================================================================================================================================
BANK ONE, TEXAS, N.A., Agent By ________________________________ (Name) ________________________________ (Title) ________________________________ d-0 5 EXHIBIT D-3 ----------- EXHIBIT D-4 ----------- TAKE-OUT REPORT --------------- AGENT: Bank One, Texas, N.A. DATE: ___________________, 199_ BORROWER: Matrix Financial Services Corporation ================================================================================ This report is delivered under the Amended and Restated Loan Agreement (as renewed, extended, or amended the "LOAN AGREEMENT") dated as of January 31, 1997, between Borrower, Agent, and certain Lenders. Terms defined in the Loan Agreement have the same meanings when used -- unless otherwise defined -- in this report. The following is accurate and complete as of the date of this report in respect of Take-Out Prices -- determined in accordance with the attached SCHEDULE 1 -- and the total weighted-average-Take-Out Price is _____% of par: FOR MORTGAGE LOANS ------------------
=========================================================== MORTGAGE-COLLATERAL GROUP INTEREST RATE TAKE-OUT PRICE =========================================================== ----------------------------------------------------------- (a) % % ----------------------------------------------------------- (b) % % ----------------------------------------------------------- (c) % % ----------------------------------------------------------- (d) % % ----------------------------------------------------------- (e) % % ===========================================================
FOR MORTGAGE SECURITIES -----------------------
=========================================================== MORTGAGE-COLLATERAL GROUP INTEREST RATE TAKE-OUT PRICE =========================================================== (a) % % ----------------------------------------------------------- (b) % % ----------------------------------------------------------- (c) % % ----------------------------------------------------------- (d) % % ----------------------------------------------------------- (e) % % ===========================================================
By _____________________________ (Name)__________________________ /1/(Title)______________________ __________________________ /1/ Must be a Responsible Officer of Borrower. EXHIBIT D-4 ----------- SCHEDULE 1 ---------- TAKE-OUT PRICE DETERMINATION ---------------------------- Complete the following table for each Mortgage-Collateral Group for Mortgage Loans and each Mortgage-Collateral Group for Mortgage Securities, in each case indicating the group letter designation from the report to which this schedule is attached:
============================================================================= (B) PRINCIPAL- (A) INVESTOR BALANCE OF (C) PERCENTAGE OF (D) COMMITMENT TAKE- PAR PRICE/1/ -- COLUMN (B) OUT COMMITMENTS TIMES COLUMN (C) ============================================================================= $ % $ - ----------------------------------------------------------------------------- $ % $ - ----------------------------------------------------------------------------- $ % $ - ----------------------------------------------------------------------------- $ % $ - ----------------------------------------------------------------------------- TOTALS $ $ =============================================================================
The total weighted-average-Take-Out-Price (determined by dividing the total in column (d) above by the total in column (b) above) is _____% of par. ________________ /1/ For each commitment price stated as a yield rather than as a percentage of par, convert the yield to a percentage price by the use of the "Net Yield Tables for GNMA Mortgage-Backed Securities" published by Financial Publishing Company or the "Mortgage Yield Conversion Tables" published by FNMA, as applicable. 2 EXHIBIT D-4 ----------- EXHIBIT D-5 ----------- MANAGEMENT REPORT ----------------- AGENT: Bank One, Texas, N.A. DATE:___________________, 199____ BORROWER: Matrix Financial Services Corporation ================================================================================ This report is delivered under the Amended and Restated Loan Agreement (as renewed, extended, or amended the "LOAN AGREEMENT") dated as of January 31, 1997, between Borrower, Agent, and certain Lenders. Terms defined in the Loan Agreement have the same meaning when used -- unless otherwise defined -- in this report. I certify to Agent for Lenders that on the date of this report: 1. I am the undersigned officer of Borrower and deliver this certificate on its behalf. 2. The attached SCHEDULE 1 is an accurate list of Borrower's Mortgage Loan production for the Calendar Month before the date of this certificate -- describing in reasonable detail the geographic mix of all retail and correspondent production for both the Calendar Month before the date of this certificate and for the year to date, and such other matters as Agent may have reasonably requested. 3. The attached SCHEDULE 2 is an accurate and complete schedule of Borrower's "open commitment and pipeline positions" (as commonly understood in the industry) for Mortgage Loans --describing in reasonable detail (i) with regard to "open commitment" positions, the names of investors, type, original principal amount, rate, price/yield, and expiration date, and (ii) with regard to "open pipeline" positions, the amount of the pipeline, the total locked amount, the percentage of the locked amount that is covered, the types of coverage (mandatory or optional), future contracts, hedged positions, repurchase agreements, the profit or loss, and such other matters as Agent may have reasonably requested. 4. The attached SCHEDULE 3 is an accurate and complete schedule of Borrower's Servicing Portfolio -- describing in reasonable detail the unpaid balance of Mortgage Loans by Investor, the weighted-average interest rate, weighted-average servicing fee, and weighted-average maturity of those Mortgage Loans, the delinquency rates for those Mortgage Loans, investor type, geographic concentration, weighted average coupon, and such other matters as Agent may have reasonably requested. By____________________________________ (Name)________________________________ /1/(Title)____________________________ ___________________________ /1/ Must be a Responsible Officer of Borrower. EXHIBIT D-5 ----------- EXHIBIT D-6 ----------- COMPLIANCE CERTIFICATE ---------------------- AGENT: Bank One, Texas, N.A. DATE:____________________, 19___ BORROWER: Matrix Financial Services Corporation SUBJECT PERIOD: ____________________ ended _______________, 199___ ================================================================================ This certificate is delivered under the Amended and Restated Loan Agreement (as renewed, extended, and amended, the "LOAN AGREEMENT") dated as of January 31, 1997, between Borrower, Agent, and certain Lenders. Terms defined in the Loan Agreement have the same meanings when used -- unless otherwise defined -- in this certificate. The undersigned officer certifies to Agent and Lenders, that on the date of this certificate: 1. The undersigned officer is the officer of Borrower designated below. 2. Borrower's Financial Statements that are attached to this certificate were prepared in accordance with GAAP and present fairly the Companies' consolidated (if applicable) financial condition and results of operations as of - -- and for the fiscal year or portion of the fiscal year ending on -- the last day of the Subject Period. 3. The undersigned officer supervised a review of the Companies' activities during the Subject Period in respect of the following matters and has determined the following: (a) The representations and warranties in the Loan Agreement are true and correct in all material respects, except (i) to the extent that a representation or warranty speaks to a specific date or the facts on which it is based have changed by transactions or conditions contemplated or permitted by the Loan Documents and (ii) for the changes, if any, described on the attached SCHEDULE 1; (b) each Company has complied with all of its obligations under the Loan Documents, other than for the deviations, if any, described on the attached SCHEDULE 1; (c) no Default or Potential Default exists or is imminent, other than those, if any, described on the attached SCHEDULE 1; and (d) the Companies' compliance with the financial covenants in SECTIONS 8 and 9 of the Loan Agreement is accurately calculated on the attached SCHEDULE 1. By (Name)_____________________________ /1/(Title)_________________________ _________________________ /1/ Must be a Responsible Officer of Borrower. EXHIBIT D-6 ----------- SCHEDULE 1 ---------- A. Describe deviations from compliance with obligations, if any -- CLAUSE 3(A) and 3(B) of attached Compliance Certificate -- if none, so state: B. Describe Potential Defaults or Defaults, if any -- CLAUSE 3(C) of the attached Compliance Certificate -- if none, so state: C. Calculate compliance with covenants in SECTIONS 8 and 9 at end of Subject Period (on a consolidated basis, if applicable) -- CLAUSE 3(D) of the attached Compliance Certificate:
============================================================================================================================= COVENANT AT END OF SUBJECT PERIOD ============================================================================================================================ 1. DISTRIBUTIONS--(S)8.4 - ---------------------------------------------------------------------------------------------------------------------------- (a) year-to-date consolidated net income $ - ---------------------------------------------------------------------------------------------------------------------------- (b) 50% of Line 1(a) $ - ---------------------------------------------------------------------------------------------------------------------------- (c) year-to-date non-cash income $ - ---------------------------------------------------------------------------------------------------------------------------- (d) year-to-date cash taxes $ - ---------------------------------------------------------------------------------------------------------------------------- (e) The sum of Line 1(b) MINUS Line 1(c) MINUS Line 1(d) $ - ---------------------------------------------------------------------------------------------------------------------------- (f) Distributions paid during this fiscal year -- MAY NOT EXCEED Line 1(e) $ - ---------------------------------------------------------------------------------------------------------------------------- 2. NET WORTH -- (S)9.1(A) - ---------------------------------------------------------------------------------------------------------------------------- (a) Net Worth $ - ---------------------------------------------------------------------------------------------------------------------------- (b) Initial Minimum $ 10,000,000 - ---------------------------------------------------------------------------------------------------------------------------- (c) 100% of all contributions to any Company's stockholder's equity on or $ after December 31, 1996 - ---------------------------------------------------------------------------------------------------------------------------- (d) 50% of the Companies' cumulative Net Income (without deduction for $ losses) after December 31, 1996 - --------------------------------------------------------------------------------------------------------------------------- (e) Actual Minimum - Line 2(b) PLUS Line 2(c) PLUS Line 2(d) $ - ---------------------------------------------------------------------------------------------------------------------------
2 EXHIBIT D-6 ----------- - --------------------------------------------------------------------------------------------------------------------------- 3. ADJUSTED-NET WORTH -- (S)9.1(B) - --------------------------------------------------------------------------------------------------------------------------- (a) Net Worth $ - --------------------------------------------------------------------------------------------------------------------------- (b) Debt outstanding under Revolving Subordinated Loan Agreement with $ Guarantor - --------------------------------------------------------------------------------------------------------------------------- (c) Adjusted-Net Worth - Line 3(a) PLUS Line 3(b) $ - --------------------------------------------------------------------------------------------------------------------------- (d) Initial Minimum $ 12,000,000 - --------------------------------------------------------------------------------------------------------------------------- (e) 100% of all contributions to any Company's stockholder's equity on or $ after December 31, 1996 - --------------------------------------------------------------------------------------------------------------------------- (f) 50% of the Companies' cumulative Net Income (without deduction for $ losses) after December 31, 1996 - --------------------------------------------------------------------------------------------------------------------------- (g) Actual Minimum - Line 3(d) PLUS Line 3(e) PLUS Line 3(f) $ - --------------------------------------------------------------------------------------------------------------------------- 4. ADJUSTED-TANGIBLE-NET WORTH -- (S)9.1(C) - --------------------------------------------------------------------------------------------------------------------------- (a) 1.25% of Servicing Portfolio $ - --------------------------------------------------------------------------------------------------------------------------- (b) Appraised Value of Servicing Portfolio $ - --------------------------------------------------------------------------------------------------------------------------- (c) Lesser of EITHER Line 4(a) OR Line 4(b) $ - --------------------------------------------------------------------------------------------------------------------------- (d) Purchased servicing, etc. $ - --------------------------------------------------------------------------------------------------------------------------- (e) Treasury stock $ - --------------------------------------------------------------------------------------------------------------------------- (f) Surplus value, etc. $ - --------------------------------------------------------------------------------------------------------------------------- (g) Goodwill, etc. $ - --------------------------------------------------------------------------------------------------------------------------- (h) Patents, etc. $ - --------------------------------------------------------------------------------------------------------------------------- (i) Guaranties $ - --------------------------------------------------------------------------------------------------------------------------- (j) Letters of credit, acceptances, etc. $ - --------------------------------------------------------------------------------------------------------------------------- (k) Other intangible assets $ - --------------------------------------------------------------------------------------------------------------------------- (l) Permitted Debt expressly subordinated to the Obligation $ - --------------------------------------------------------------------------------------------------------------------------- (m) Adjusted-Tangible-Net Worth - Line 3(a) PLUS Line 4(c) MINUS Line 4(d) $ THROUGH Line 4(k) PLUS Line 4(l) - --------------------------------------------------------------------------------------------------------------------------- (n) Initial Minimum $ 10,000,000 - --------------------------------------------------------------------------------------------------------------------------- (o) 100% of all contributions to any Company's stockholder's equity on or $ after December 31, 1996 - --------------------------------------------------------------------------------------------------------------------------- (p) 50% of the Companies' cumulative Net Income (without deduction for $ losses) after December 31, 1996 - --------------------------------------------------------------------------------------------------------------------------- (q) Actual Minimum - Line 4(n) PLUS Line 4(o) PLUS Line 4(p) $ - ---------------------------------------------------------------------------------------------------------------------------
3 EXHIBIT D-6 ----------- - --------------------------------------------------------------------------------------------------------------------------- 5. LEVERAGE RATIO -- (S)9.2 - --------------------------------------------------------------------------------------------------------------------------- (a) Total Debt $ - --------------------------------------------------------------------------------------------------------------------------- (b) Repurchase obligations, obligations under escrow-arbitrage-type facilities, $ and subordinated obligations permitted to be excluded - --------------------------------------------------------------------------------------------------------------------------- (c) Total-Adjusted Debt - Line 5(a) MINUS Line 5(b) $ - --------------------------------------------------------------------------------------------------------------------------- (d) RATIO of Line 5(c) to Line 4(m) to - --------------------------------------------------------------------------------------------------------------------------- (e) MAXIMUM 8.0 to 1.0 - --------------------------------------------------------------------------------------------------------------------------- 6. CASH FLOW -- (S)9.3 - --------------------------------------------------------------------------------------------------------------------------- (a) Net Income for past 4-quarter period $ - --------------------------------------------------------------------------------------------------------------------------- (b) Depreciation $ - --------------------------------------------------------------------------------------------------------------------------- (c) Amortization $ - --------------------------------------------------------------------------------------------------------------------------- (d) Total of Lines 6(a) through 6(c) $ - --------------------------------------------------------------------------------------------------------------------------- (e) Amount of Non-cash revenue $ - --------------------------------------------------------------------------------------------------------------------------- (f) Amount of Distributions paid to Guarantor $ - --------------------------------------------------------------------------------------------------------------------------- (g) Cash Flow - Line 6(d) MINUS Line 6(e) MINUS Line 6(f) $ - --------------------------------------------------------------------------------------------------------------------------- (h) CMLTD $ - --------------------------------------------------------------------------------------------------------------------------- (i) Ratio of Line 6(g) to 6(h) to - --------------------------------------------------------------------------------------------------------------------------- (j) MINIMUM 1.30 to 1.00 - --------------------------------------------------------------------------------------------------------------------------- 7. SERVICING PORTFOLIO -- (S)9.4 - --------------------------------------------------------------------------------------------------------------------------- (a) Servicing Portfolio $ - --------------------------------------------------------------------------------------------------------------------------- (b) MINIMUM (the minimum amount increases to $2,000,000,000 after $1,500,000,000 June 30, 1997 so long as the Vanderford acquisition has occurred) - --------------------------------------------------------------------------------------------------------------------------- 8. SERVICING-PORTFOLIO-COVERAGE RATIO--(S)9.5 - --------------------------------------------------------------------------------------------------------------------------- (a) Principal Debt of Term-Line Borrowings $ - --------------------------------------------------------------------------------------------------------------------------- (b) 1.25% of Servicing Portfolio $ - --------------------------------------------------------------------------------------------------------------------------- (c) 70% of the Appraised Value of the Servicing Portfolio $ - --------------------------------------------------------------------------------------------------------------------------- (d) Lesser of EITHER Line 8(b) or Line 8(c) - must be greater than Line 8(a) $ - --------------------------------------------------------------------------------------------------------------------------- (e) Principal Debt of Working-Capital Borrowings $ - --------------------------------------------------------------------------------------------------------------------------- (f) Total of Lines 8(a) and 8(e) $ - --------------------------------------------------------------------------------------------------------------------------- (g) 1.25% of Servicing Portfolio $ - --------------------------------------------------------------------------------------------------------------------------- (h) 95% of the Appraised Value of Servicing Portfolio $ - --------------------------------------------------------------------------------------------------------------------------- (i) Lesser of EITHER Line 8(g) or Line 8(h) - must be greater than Line 8(f) $ ===========================================================================================================================
4 EXHIBIT D-6 ----------- EXHIBIT D-7 ----------- COLLATERAL-CONVERSION NOTICE ---------------------------- AGENT: Bank One, Texas, N.A. DATE:_______________, 199____ BORROWER: Matrix Financial Services Corporation - -------------------------------------------------------------------------------- This notice is delivered to Agent under the Amended and Restated Loan Agreement (as renewed, extended, or amended the "LOAN AGREEMENT") dated as of January 31, 1997, between Borrower Agent, and certain Lenders. Terms defined in the Loan Agreement have the same meanings when used -- unless otherwise defined - -- in this notice. Borrower notifies Agent that (a) Agent has issued its initial certification for inclusion of the Eligible-Mortgage Loans described on the attached ANNEX 1 in one or more Mortgage Pools and (b) Borrower is delivering to Agent one or more valid and enforceable Take-Out Commitments that comply with PART B.2. on SCHEDULE 4.1 to the Loan Agreement for those Eligible-Mortgage Loans. On and as of the date of this notice, Borrower certifies, represents, and warrants, to Agent for Lenders that (a) all of the items that Borrower is required to furnish to Agent under the Loan Agreement in connection with this notice accompany it, all of those items are accurate and what they purport to be, and all of the Eligible-Mortgage Loans described on the attached ANNEX 1 comply with all requirements necessary to constitute Eligible-Gestation Collateral, (b) the representations and warranties of Borrower in the Loan Documents are true and correct in all material respects except to the extent that (i) a representation or warranty speaks to a specific date or (ii) the facts on which a representation or warranty is based have changed by transactions or conditions contemplated or permitted by the Loan Documents, and (c) no Default or Potential Default exists. MATRIX FINANCIAL SERVICES CORPORATION as Borrower By____________________________________ (Name)________________________________ /1/(Title)____________________________ ____________________ /1/ Must be a Responsible Officer of -- or an individual designated in writing to Agent by a Responsible Officer of --Borrower. EXHIBIT D-7 ----------- EXHIBIT E --------- OPINION OF COUNSEL ------------------ [LETTERHEAD] January 31, 1997 Bank One, Texas, N.A., as Agent 1717 Main Street, 4th Floor Dallas, TX 75201 Attention: Mark L. Freeman Vice President The Lenders Referred to Below Re: $100,000,000 Loan Extended by Bank One, Texas, N.A. and certain other Lenders to Matrix Financial Services Corporation Ladies and Gentlemen: In connection with that certain Amended and Restated Loan Agreement (the "LOAN AGREEMENT"), dated as of January 31, 1997, between Matrix Financial Services Corporation, an Arizona corporation ("BORROWER"), the lenders named on SCHEDULE 2 thereto (the "LENDERS"), Bank One, Texas, N.A., as Agent for itself and the other Lenders ("AGENT"), we have acted as counsel to Borrower and, in connection with its execution of the Guaranty (as defined and described in the Loan Agreement), Matrix Capital Corporation, a Colorado corporation ("GUARANTOR"). This opinion is furnished to you in satisfaction of a closing condition set forth in SCHEDULE 5 attached to the Loan Agreement. Terms used herein which are defined in the Loan Agreement shall have the meaning set forth in the Loan Agreement unless otherwise defined herein or in the Schedules attached hereto. In connection with the opinions set forth below, we have examined such documents as we have deemed necessary or appropriate for the purposes of this opinion letter, including without limitation, the documents listed on the Schedule of Review Documents attached hereto (the "SCHEDULE") . The documents described in Section 1 of the Schedule are collectively the "LOAN DOCUMENTS," and those described in Section 2 of the Schedule are collectively the "DUE DILIGENCE DOCUMENTS." We have also made such other examinations and inquiries (subject to the description of the specific level of examination and inquiry described below) as we have deemed necessary and/or appropriate, as the basis for the opinions expressed herein. In making such examinations, we have assumed, with your consent, (i) the genuineness of all signatures (other than signatures on behalf of the Borrower or Guarantor) not witnessed and the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as copies or faxes and the authenticity of the originals of such latter documents; (ii) the Loan Documents accurately describe and contain the mutual understanding of the parties and there are no oral or written statements or agreements that modify, amend or vary or purport to modify, amend or vary any of the provisions of the Loan Documents; (iii) the execution and delivery of the Loan Documents by each party other than Borrower and Guarantor, that such execution and delivery is duly authorized, that any person executing the Loan Documents on behalf of each such party is duly authorized and EXHIBIT E --------- that each Loan Document so executed and delivered by each party other than Borrower and Guarantor is such party's valid and binding obligation and is enforceable in accordance with its terms; (iv) the legality of performance by each party other than Borrower and Guarantor of each obligation of each Loan Document so executed and delivered; (v) any court of law (other than an Arizona state court or a Federal court sitting in Arizona) in which any Loan Document is sought to be enforced will apply Texas law unless otherwise expressly provided in such Loan Document, and (vi) the result of the application of the law of Texas will not be contrary to a fundamental policy of the law of Arizona. We have made no examination or investigation to verify the accuracy or completeness of any projection, financial, accounting or statistical information furnished to you or with respect to any other accounting or financial matters and express no opinion with respect thereto. With respect to the opinions rendered in paragraph 9 of this opinion letter, we have assumed with your consent that the following facts are true: (i) The representations contained in SCHEDULE 6.2 of the Loan Agreement regarding the location of the Borrower's chief executive office and other principal offices and the location of the offices where the Borrower keeps its records are accurate and complete. (ii) The Borrower (A) owns the assets to be subject to the Lender Liens, (B) has good and sufficient title to these assets and (C) has "rights in the Collateral" as that phrase is used in Section 9.203 of the Texas Uniform Commercial Code ("TEXAS UCC") and, to the extent applicable, Section 47-9203 of the Arizona Uniform Commercial Code ("ARIZONA UCC"). (iii) Collateral of a type that may be perfected by filing or possession is and continuously remains in possession of the Agent. (iv) Agent has no notice of any security interest in the Collateral in favor of any third person other than as disclosed in the UCC Search Reports obtained by Agent in connection with the closing of the Loan Agreement and as described on SCHEDULE 5 thereto. (v) Agent shall have received each of the Acknowledgment Agreements referred to as Items 16, 17, and 18 listed on SCHEDULE 5 entitled Closing Conditions executed by Borrower and FNMA, FHLMC, and GNMA, respectively. We have assumed, with your consent, that the following facts are true in rendering this opinion: (i) the matters of fact set forth in the representations contained in any Loan Document, and (ii) the matters of fact set forth in the Officer's Certificate. Based on the foregoing, we are of the following opinions: 1. Borrower is duly incorporated, validly existing, and in good standing under the Laws of the State of Arizona. Guarantor is duly incorporated, validly existing, and in good standing under the Laws of the State of Colorado. 2. Borrower is duly qualified to transact business and is in good standing as a foreign corporation in each jurisdiction where the failure to be so qualified and in good standing is a Material-Adverse Event. 2 EXHIBIT E --------- 3. Borrower has no Subsidiaries and Borrower has not used or transacted business under any corporate or trade name in the six-month period preceding the date of the Loan Agreement other than as set forth in SCHEDULE 6.2 of the Loan Agreement. 4. Borrower possesses all requisite corporate power and authority to conduct its business as is now being, or is contemplated by the Loan Agreement to be, conducted. Guarantor possesses all requisite corporate power and authority to conduct its business as is now being, or is contemplated by the Loan Agreement to be, conducted. 5. The execution and delivery by Borrower and Guarantor of each Loan Document to which it is a party and the performance by it of its related obligations (a) are within its corporate power, (b) have been duly authorized by all necessary corporate action on its behalf, (c) except for any action or filing that has been taken or made on or before the date of this opinion, require no action by or filing with any Tribunal, (d) do not violate any provision of its articles of incorporation or bylaws, (e) do not violate any provision of Law applicable to it or any material agreements to which it is a party, and (f) except for Lender Liens, do not result in the creation or imposition of any Lien on any asset of Borrower. 6. Upon execution and delivery by all parties to it, each of the Loan Agreement, the Notes, the Security Agreement and the UCC Financing Statements constitutes a legal and binding obligation of Borrower, enforceable against it in accordance with its terms. Upon execution and delivery by all parties to it, the Guaranty constitutes a legal and binding obligation of Guarantor, enforceable against it in accordance with its terms. 7. Except as disclosed on SCHEDULE 6.9 to the Loan Agreement (a) Borrower is not subject to, or aware of the threat of, any Litigation that is reasonably likely to be determined adversely to it or, if so adversely determined, would be a Material-Adverse Event, and (b) no final nonappealable outstanding or unpaid judgments against Borrower exist. Guarantor is not subject to, or aware of the threat of, any Litigation that is reasonably likely to be determined adversely to it or, if so adversely determined, would be a Material-Adverse Event, and (b) no outstanding or unpaid judgments against Guarantor exist. 8. Neither Borrower nor Guarantor is not subject to regulation under the Investment Company Act of 1940, as amended, or the Public Utility Holding Company Act of 1935, as amended. 9. A first priority security interest is created and perfected pursuant to the Security Agreement upon (a) each mortgage note that is delivered to Agent, (b) each Mortgage Security in certificated form that is delivered to Agent or its bailee, (c) each Mortgage Security in book-entry form when the Lender obtains "control" as provided in Section 9.115 of the Texas UCC, (d) each mortgage note and related Take-Out Commitment for 21-days after the Borrowing Date of each related Wet Borrowing, and (e) all Mortgage Collateral transmitted to any third party acting solely as a bailee for Lenders under a Bailee Letter pursuant to which such bailee received notice of Lender's interest (until Agent receives payment or Mortgage Securities under that Bailee Letter). A security interest is created and perfected pursuant to the Security Agreement in all Servicing Rights and Servicing Receivables identified as Collateral under the Loan Documents when the Financing Statements described in Item 8 of Schedule 5 are filed in the States of Arizona, Texas and Colorado. 10. You have requested that we advise you whether an Arizona court would give effect to the choice of law provision in certain of the Loan Documents in favor of the law of the State of Texas. The Supreme Court of Arizona has consistently ruled that where it is not bound by a previous decision or by legislative enactment, it will follow the rules in the Restatements of the Law, ----------------------- including, without limitation, the Restatements of Conflict of Laws. Smith v. -------------------------------- -------- Normart, 51 Ariz. 134, 75 P.2d 38 (1938); Western Coal & Min. - ------- ------------------- 3 EXHIBIT E --------- Co. v. Hilvert, 63 Ariz. 171, 160 P. 2d 331 (1945); Burr v. Renewal Guaranty - -------------- ------------------------ Corp., 105 Ariz. 549, 468 P.2d 576 (1970); and Taylor v. Security National Bank, - ---- -------------------------------- 20 Ariz. App. 504, 514 P.2d 257 (1973); In re Levine, 145 Ariz. 185, 700 P. 2d 883 (Ariz. App. 1985). Section 187 of the Restatement (Second) Conflict of Laws ----------------------------- provides that the parties to a contract may stipulate their choice of law to govern the contract and that the laws of the state chosen will be applied unless (i) the particular issue is one that the parties could not have resolved by an explicit provision in their agreement directed to that issue and (ii) either: (a) The chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties' choice; or (b) Application of the law of the chosen state would be contrary to a fundamental policy of a state that has a materially greater interest than the chosen state in the determination of the particular issue and that, under the rule of Section 188 of the Restatement (Second) Conflict of Laws, ------------------------------------- would be the state of applicable law in the absence of an effective choice of law by the parties. Based on the facts concerning the negotiation of the Loan Documents and the terms thereof and considering such other matters as we have deemed relevant, we believe that an Arizona court would give effect to the choice of law provisions in the Loan Agreement in favor of the law of the State of Texas. Exceptions and Qualifications of Opinions. - ----------------------------------------- All opinions contained herein with respect to the enforceability of documents and instruments are qualified to the extent that: (a) the availability of equitable remedies, including, without limitation, specific performance and injunctive relief is subject to the discretion of the court before which any proceedings therefor may be brought; (b) the enforceability of certain terms provided in the Loan Documents may be limited by applicable bankruptcy, reorganization, arrangement, insolvency, moratorium or similar laws affecting the enforcement of creditors rights generally as at the time in effect; and (c) certain rights of the Lenders and Agent to indemnity may violate public policy. The foregoing opinions are subject to the following additional exceptions and qualifications: (a) Certain of the waivers, remedies, procedures and other provisions in the Loan Documents may be further limited or rendered unenforceable by applicable law, but such law does not, in our opinion, make the remedies afforded by the Loan Documents inadequate for the practical realization of the benefits intended to be provided thereby. (b) Continuation statements with respect to the security interests perfected by the filing of Financing Statements will be filed within the period specified by applicable law prior to the expiration of the period of duration of the initial filing of the Financing Statements in order to prevent the filing from lapsing under the UCC. The perfection of the security interests by filing will be terminated as to any Collateral acquired by the Borrower more than the period provided by applicable law after the Borrower changes its name, identity or corporate structure so as to make the Financing Statements seriously misleading unless a new 4 EXHIBIT E --------- appropriate financing statement incorporating the necessary changes is properly filed before the expiration of such period. (c) Except as expressly stated in this opinion letter, we neither express nor imply any other opinion including, but not limited to, matters of title, perfection or priority of security interests or federal, state or local tax issues. (d) We have assumed that nothing has occurred and no factual condition exists as of this date which has not been disclosed to us which, if it had been disclosed to us, would cause us to withhold, modify, qualify or otherwise limit any opinion contained herein. The foregoing sentence does not relieve the undersigned of its duty to make the inquiry described herein. (e) This opinion is delivered on the express condition that you do not have actual knowledge that the opinion expressed herein is not accurate in any material respect. (f) The opinions expressed in this letter are based solely upon the law of the States of Arizona and Texas (upon Texas law solely with respect to the opinion stated in paragraph 9 of this opinion letter) and applicable federal law in effect on the date hereof. (g) We assume no obligation to revise or supplement this opinion should such law be changed by legislative action, judicial decision or otherwise. This opinion is addressed solely for your use in connection with the transactions contemplated by the Loan Agreement, and no Person other than the Agent, each Lender, each assignee which hereafter becomes a Lender in accordance with the terms of the Loan Agreement, and the law firm of Haynes and Boone, L.L.P., is entitled to rely on this opinion without our prior written consent. Respectfully submitted, 5 EXHIBIT E --------- Schedule of Review Documents ---------------------------- 1. Loan Documents -------------- (a) Amended and Restated Loan Agreement dated as of January 31, 1997, among Bank One, Texas, N.A., certain other Lenders, and Matrix Financial Services Corporation; (b) Amended and Restated Warehouse Note dated January 31, 1997, executed by Borrower and payable to the order of Bank One, Texas, N.A.; (c) Amended and restated Swing Note dated January 31, 1997, executed by Borrower and payable to the order of Bank One, Texas, N.A.; (d) Amended and Restated Working-Capital Note dated January 31, 1997, executed by Borrower and payable to the order of Bank One, Texas, N.A.; (e) Amended and Restated Term-Line Note dated January 31, 1997, executed by Borrower and payable to the order of Bank One, Texas, N.A.; (f) Amended and Restated Guaranty dated January 31, 1997 executed by Guarantor in favor of Agent and the Lenders; (g) Amended and Restated Security Agreement dated January 31, 1997, executed by Borrower in favor of Bank One, Texas, N.A. as Agent for Lenders; and (h) Financing Statements executed by Borrower in favor of Bank One, Texas, N.A. as Agent for Lenders. 2. Due Diligence Documents ----------------------- (a) Articles of Incorporation and Bylaws of Borrower and Guarantor; (b) Good Standing Certificates for Borrower from the Arizona Corporation Commission and for Guarantor from the Colorado Secretary of State; (c) Officers' Certificate for Borrower; (d) Officers' Certificate for Guarantor; and (e) Opinion Certificate. 6 EXHIBIT E --------- EXHIBIT F-1 ----------- AMENDMENT --------- THIS DOCUMENT is entered into as of _____________, 19__, between MATRIX FINANCIAL SERVICES CORPORATION, an Arizona corporation ("BORROWER"), the Lenders listed on the signature page below, and BANK ONE, TEXAS, N.A., as Agent (in that capacity "AGENT"). Borrower, Lenders, and Agent have entered into the Amended and Restated Loan Agreement (as renewed, extended, amended, or restated, the "LOAN AGREEMENT") dated as of January 31, 1997, providing for loans to Borrower both on a revolving and a term basis. Borrower, Lenders, and Agent have agreed, upon the following terms and conditions, to provide for, among other things, _______________________. Accordingly, for adequate and sufficient consideration, the parties agree as follows: 1. TERMS AND REFERENCES. Unless otherwise stated in this document (a) terms defined in the Loan Agreement have the same meanings when used in this document and (b) all references to "Sections," "Schedules," and "Exhibits" are to the Loan Agreement's sections, schedules, and exhibits. 2. AMENDMENTS. The Loan Agreement is amended as follows: (a) SECTION ____ is amended by deleting the terms "[DEFINED TERM 1]," -------------- "[DEFINED TERM 2]," and "[DEFINED TERM 3]" and by adding or entirely -------------- -------------- amending the following terms: "[DEFINED TERM 4]" means ... -------------- "[DEFINED TERM 5]" means ... -------------- (b) SECTION ____ is entirely amended as follows: [RESTATE AMENDED PROVISION IN ITALICS] ------------------------------------ (c) SECTION ____ is entirely amended as follows: [RESTATE AMENDED PROVISION IN ITALICS] ------------------------------------ (d) EXHIBIT __ is entirely amended in the form of -- and all references in the Credit Agreement to EXHIBIT __ are changed to -- the attached AMENDED EXHIBIT __. 3. CONDITIONS PRECEDENT. Notwithstanding any contrary provision, the foregoing paragraphs in this document are not effective unless and until (a) the representations and warranties in this document are true and correct and (b) each document and other item listed on the attached ANNEX A. 4. RATIFICATIONS. To induce Agent and Lenders to enter into this document, Borrower (a) ratifies and confirms all provisions of the Loan Documents as amended by this document, (b) ratifies and confirms that all guaranties, assurances, and Liens granted, conveyed, or assigned to Agent and Lenders under the Loan Documents (as they may have been renewed, extended, and amended) are not released, reduced, or otherwise adversely affected by this document and continue to guarantee, assure, and secure full payment and performance of the present and future Obligation, and (c) agrees to perform those acts and duly authorize, EXHIBIT F-1 ----------- execute, acknowledge, deliver, file, and record those additional documents, and certificates as Agent or any Lender may request in order to create, perfect, preserve, and protect those guaranties, assurances, and Liens. 5. REPRESENTATIONS. To induce Agent and Lenders to enter into this document, Borrower represents and warrants to Agent and Lenders that as of the date of this document (a) Borrower has all requisite authority and power to execute, deliver, perform its obligations under this document and all other notes and documents delivered under it, which execution, delivery, and performance have been duly authorized by all necessary corporate action, require no action by or filing with any Tribunal, do not violate its corporate charter or bylaws or (except where not a Material-Adverse Event) violate any Law applicable to it or any material agreement to which it or its assets are bound, (b) upon execution and delivery by all parties to it, this document and all other notes and documents delivered under it will constitute Borrower's legal and binding obligations, enforceable against it in accordance with their respective terms except as that enforceability may be limited by Debtor Laws and general principles of equity, (c) all other representations and warranties in the Loan Documents are true and correct in all material respects except to the extent that (i) any of them speak to a different specific date or (ii) the facts on which any of them were based have been changed by transactions contemplated or permitted by the Loan Agreement, and (e) no Material-Adverse Event, Default, or Potential Default exists. 6. EXPENSES. Borrower shall pay all costs, fees, and expenses paid or incurred by Agent incident to this document, including, without limitation, the reasonable fees and expenses of Agent's counsel in connection with the negotiation, preparation, delivery, and execution of this document and any related documents. 7. MISCELLANEOUS. All references in the Loan Documents to the "Loan Agreement" refer to the Loan Agreement as amended by this document. This document is a "Loan Document" referred to in the Loan Agreement; therefore, the provisions relating to Loan Documents in the Loan Agreement are incorporated in this document by reference. Except as specifically amended and modified in this document, the Loan Agreement is unchanged and continues in full force and effect. This document may be executed in any number of counterparts with the same effect as if all signatories had signed the same document. All counterparts must be construed together to constitute one and the same instrument. This document binds and inures to each of the undersigned and their respective successors and permitted assigns, subject to SECTION 12.12. THIS DOCUMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BY THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. REMAINDER OF PAGE INTENTIONALLY BLANK. SIGNATURE PAGE FOLLOWS. 2 EXHIBIT F-1 ----------- EXECUTED on ____________, 19__, but effective as of the date first stated above. MATRIX FINANCIAL SERVICES BANK ONE, TEXAS, N.A., as Agent and a CORPORATION, as Borrower Lender By ___________________________________ By _________________________________ Thomas J. Osselaer, Executive Vice Mark L. Freeman, Vice President President CONSENT AND AGREEMENT --------------------- To induce Agent and Lenders to enter into this document, the undersigned (a) consents and agrees to this document's execution and delivery, (b) ratifies and confirms that all guaranties, assurances, Liens, and subordinations granted, conveyed, or assigned to Agent and Lenders under the Loan Documents (as they may have been renewed, extended, and amended) are not released, diminished, impaired, reduced, or otherwise adversely affected by this document and continue to guarantee, assure, secure, and subordinate other debt to the full payment and performance of all present and future Obligation, (c) agrees to perform those acts and duly authorize, execute, acknowledge, deliver, file, and record those additional guaranties, assignments, security agreements, deeds of trust, mortgages, and other agreements, documents, instruments, and certificates as Agent or any Lender may reasonably deem necessary or appropriate in order to create, perfect, preserve, and protect those guaranties, assurances, Liens, and subordinations, (d) represents and warrants to Agent and Lenders that (i) the value of the consideration received and to be received by the undersigned in respect of those guaranties, assurances, Liens, and subordinations are reasonably worth at least as much as the related liability and obligation, (ii) that liability and obligation may reasonably be expected to directly or indirectly benefit the undersigned, and (iii) the undersigned is --and after giving effect to those guaranties, assurances, Liens, subordinations, and the Loan Documents, in light of all existing facts and circumstances (including, without limitation, collateral for and other obligors in respect of the Obligation and various components of it and various rights of subrogation and contribution), the undersigned will be -- Solvent, and (e) waives notice of acceptance of this consent and agreement, which consent and agreement binds the undersigned and its successors and permitted assigns and inures to Agent, each Lender, and their successors and permitted assigns. MATRIX CAPITAL CORPORATION, as Guarantor By ______________________________ Guy A. Gibson, President 3 EXHIBIT F-1 ----------- EXHIBIT F-2 ----------- ASSIGNMENT AND ASSUMPTION AGREEMENT ----------------------------------- THIS ASSIGNMENT AND ASSUMPTION AGREEMENT is entered into effective as of ___________, 199__, between BANK ONE, TEXAS, N.A. ("ASSIGNOR"), and _______________________ ("ASSIGNEE"). MATRIX FINANCIAL SERVICES CORPORATION, an Arizona corporation ("BORROWER"), certain lenders ("LENDERS"), and BANK ONE, TEXAS, N.A. (in its capacity as Agent for Lenders, "AGENT"), are party to the Amended and Restated Loan Agreement (as renewed, extended, amended, or restated, the "LOAN AGREEMENT") dated as of January 31, 1997, all of the defined terms in which have the same meanings when used -- unless otherwise defined -- in this agreement. This agreement is entered into as required by SECTION 12.14 of the Loan Agreement and is not effective until consented to by Borrower and Agent, which consents may not under the Loan Agreement be unreasonably withheld. ACCORDINGLY, for adequate and sufficient consideration, Assignor and Assignee agree as follows: 1. ASSIGNMENT AND ASSUMPTION. By this agreement, and effective as of ------------------------- __________, 199__, (the "EFFECTIVE DATE"), Assignor sells and assigns to Assignee (without recourse to Assignor) and Assignee purchases and assumes from Assignor an interest in and to all of Assignor's Rights and obligations under the Loan Agreement (except any Rights and obligations pertaining to Assignor's role as Agent, Lender of Swing Borrowings, and custodian) as of the Effective Date, including, without limitation, (a) a ______% interest in Assignor's Combined Commitment, (b) a ____% interest in Assignor's Warehouse Commitment; (c) a ____% interest in Assignor's Working-Capital Commitment, (d) a ____% interest in Assignor's Term-Line Commitment, (e) a corresponding amount of the Principal Debt outstanding under Assignor's existing Warehouse Note, Working- Capital Note, and Term-Line Note, (f) all interest accruing in respect of the interests assigned above (collectively, the "ASSIGNED INTERESTS") after the Effective Date, and (g) all commitment fees accruing in respect of the Assigned Interest after the Effective Date. 2. ASSIGNOR PROVISIONS. Assignor (a) represents and warrants to Assignee ------------------- that as of the Effective Date (i) $_______________ is outstanding (without reduction for any assignments that have not yet become effective) under the Assignor's Warehouse Note, Working-Capital Note, and Term-Line Note, respectively, (ii) Assignor is the legal and beneficial owner of the Assigned Interest, which is free and clear of any adverse claim, and (iii) Assignor has not been notified of an existing Default or Potential Default, and (b) makes no representation or warranty to Assignee and assumes no responsibility to Assignee with respect to (i) any statements, warranties, or representations made in or in connection with any Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency, or value of any Loan Document, or (iii) the financial condition of any Company or the performance or observance by any Company of any of its obligations under any Loan Document. 3. ASSIGNEE PROVISIONS. Assignee (a) represents and warrants to ------------------- Assignor, Borrower, and Agent that Assignee is legally authorized to enter into this agreement and each other Loan Document to which it will become a party, (b) confirms that it has received a copy of the Loan Agreement, copies of the Current Financials, and such other documents and information as it deems appropriate to make its own credit analysis and decision to enter into this agreement, (c) agrees with Assignor, Borrower, and Agent that Assignee shall -- independently and without reliance upon Agent, Assignor, or any other Lender and based on such documents and information as Assignee deems appropriate at the time -- continue to make its own credit decisions in taking or not taking action under the Loan Documents, (d) appoints and authorizes Agent to take such action EXHIBIT F-2 ----------- as agent on its behalf and to exercise such powers under the Loan Documents as are delegated to Agent by the terms of the Loan Documents and all other reasonably-incidental powers, (e) agrees with Assignor, Borrower, and Agent that Assignee shall perform and comply with all provisions of the Loan Documents applicable to Lenders in accordance with their respective terms, and (f) if Assignee is not organized under the Laws of the United States of America or one of its states, it (i) represents and warrants to Assignor, Agent, and Borrower that no Taxes are required to be withheld by Assignor, Agent, or Borrower with respect to any payments to be made to it in respect of the Obligation, and it has furnished to Agent and Borrower two duly completed copies of either U.S. Internal Revenue Service Form 4224, Form 1001, Form W-8, or any other form acceptable to Agent that entitles Assignee to exemption from U.S. federal withholding Tax on all interest payments under the Loan Documents, (ii) covenants to provide Agent and Borrower a new Form 4224, Form 1001, Form W-8, or other form acceptable to Agent upon the expiration or obsolescence of any previously delivered form according to Law, duly executed and completed by it, and to comply from time to time with all Laws with regard to the withholding Tax exemption, and (iii) agrees with Agent and Borrower that, if any of the foregoing is not true or the applicable forms are not provided, then Agent and Borrower (without duplication) may deduct and withhold from interest payments under the Loan Documents any United States federal-income Tax at the full rate applicable under the IRC. 4. LOAN AGREEMENT AND COMMITMENTS. From and after the Effective Date (a) ------------------------------ Assignee shall be a party to the Loan Agreement and (to the extent provided in this agreement) have the Rights and obligations of a Lender under the Loan Documents and (b) Assignor shall (to the extent provided in this agreement) relinquish its Rights and be released from its obligations under the Loan Documents. On the Effective Date, after giving effect to this and certain other assignment and assumption agreements that become effective on the Effective Date, but without giving effect to any other assignments that have not yet become effective, Assignor's and Assignee's Warehouse Commitments, Working- Capital Commitments, Term-Line Commitments, and Combined Commitments will be as follows:
=========================================================================== WAREHOUSE WORKING-CAPITAL TERM-LINE COMBINED LENDER COMMITMENTS COMMITMENTS COMMITMENTS COMMITMENTS =========================================================================== Assignor $ $ $ $ --------------------------------------------------------------------------- Assignee ---------------------------------------------------------------------------
5. NOTES. Assignor and Assignee request Borrower to issue new Notes to ----- Assignor and Assignee in the amounts of their respective commitments under PARAGRAPH 4 above and otherwise issue these Notes in accordance with the Loan Agreement. Upon delivery of those Notes, Assignor shall return to Borrower all Notes previously delivered to Assignor under the Loan Agreement. 6. PAYMENTS AND ADJUSTMENTS. From and after the Effective Date, Agent ------------------------ shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees, and other amounts) to Assignee. Assignor and Assignee shall make all appropriate adjustments in payments for periods before the Effective Date by Agent or with respect to the making of this assignment directly between themselves. Assignor agrees to apply any payments and proceeds with respect to the Obligation ratably with Assignee. 7. CONDITIONS PRECEDENT. PARAGRAPHS 1 through 6 above are not effective -------------------- until (a) counterparts of this agreement are executed by Assignor, Assignee, Agent, and Borrower, and are delivered to Agent and Borrower and (b) pursuant to SECTION 12.14(A)(II), Assignor pays to Agent an administrative transfer fee of 2 EXHIBIT F-2 ----------- $2,500. If Agent is the Assignor, the requirement of SECTION 12.14(A)(II) is waived with regard to this agreement. 8. INCORPORATED PROVISIONS. Although this agreement is not a Loan ----------------------- Document, the provisions of the Loan Agreement applicable to Loan Documents are incorporated into this instrument by reference the same as if this agreement were a Loan Document and those provisions were set forth in this agreement verbatim. 9. COMMUNICATIONS. For purposes of SECTION 12.2 of the Loan Agreement, -------------- Assignee's address and telecopy number -- until changed under that section -- are beside its signature below. 10. AMENDMENTS, ETC. No amendment, waiver, or discharge to or under this --------------- agreement is valid unless in writing that is signed by the party against whom it is sought to be enforced and is otherwise in conformity with the requirements of the Loan Agreement. 11. ENTIRETY. THIS AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN -------- ASSIGNOR AND ASSIGNEE ABOUT ITS SUBJECT MATTER AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF ASSIGNOR AND ASSIGNEE. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN ASSIGNOR AND ASSIGNEE. 12. PARTIES. This agreement binds and benefits Assignor, Assignee, and ------- their respective successors and assigns as permitted under the documents. EXECUTED as of the date first stated above. BANK ONE, TEXAS, N.A., as Assignor _______________________, as Assignee and Agent By ____________________________________ By __________________________________ Mark L. Freeman, Vice President Name ________________________________ Title _______________________________ (Address) __________________________ __________________________ __________________________ Attn:_____________________ (Tel. No.)(___) ___-_____ (Fax No.)(___) ___-_____ 3 EXHIBIT F-2 ----------- As of the Effective Date, Agent (per the above signature) and Borrower consent to this agreement and the transactions contemplated in it. MATRIX FINANCIAL SERVICES CORPORATION, as Borrower By ____________________________________________ Thomas J. Osselaer, Executive Vice President 4 EXHIBIT F-2 ----------- EX-10.33 5 AMENDED AND RESTATED WAREHOUSE NOTE Exhibit 10.33 EXHIBIT A-1 ----------- AMENDED AND RESTATED WAREHOUSE NOTE ----------------------------------- $60,000,000 January 31, 1997 FOR VALUE RECEIVED, MATRIX FINANCIAL SERVICES CORPORATION, an Arizona corporation ("BORROWER"), promises to pay to the order of BANK ONE, TEXAS, N.A. ("LENDER") that portion of the principal amount of $60,000,000 that may from time to time be disbursed and outstanding under this note together with interest. This note is a "Warehouse Note" under the Amended and Restated Loan Agreement (as renewed, extended, amended, or restated, the "LOAN AGREEMENT") dated as of January 31, 1997, between Borrower, Lender, certain other Lenders, and Bank One, Texas, N.A., as Agent for Lenders. All of the defined terms in the Loan Agreement have the same meanings when used -- unless otherwise defined - -- in this note. This note incorporates by reference the principal and interest payment terms in the Loan Agreement for this note, including, without limitation, the final maturity, which is the Warehouse-Actual-Termination Date. Principal and interest are payable to the holder of this note through Agent at either (a) its offices at 1717 Main Street, Dallas, Texas 75201, or (b) at any other address so designated by Agent in written notice to Borrower. This note incorporates by reference all other provisions in the Loan Agreement applicable to this note -- such as provisions for disbursements of principal, applicable-interest rates before and after Default, voluntary and mandatory prepayments, acceleration of maturity, exercise of Rights, payment of attorneys' fees, court costs, and other costs of collection, certain waivers by Borrower and other obligors, assurances and security, choice of Texas and United States federal Law, usury savings, and other matters applicable to Loan Documents under the Loan Agreement. This note is an amendment, restatement, renewal, extension, modification of, consolidation of, and substitution for, the existing Warehouse Notes (as the same may have been amended and replaced to the date hereof, the "FORMER NOTES") which Former Notes were executed and delivered pursuant to the Existing Loan Agreement. MATRIX FINANCIAL SERVICES CORPORATION, as Borrower By ____________________________________________ Thomas J. Osselaer, Executive Vice President EXHIBIT A-1 ----------- EX-10.34 6 AMENDED AND RESTATED SWING NOTE Exhibit 10.34 EXHIBIT A-2 ----------- AMENDED AND RESTATED SWING NOTE ------------------------------- $15,000,000 January 31, 1997 FOR VALUE RECEIVED, MATRIX FINANCIAL SERVICES CORPORATION, an Arizona corporation ("BORROWER"), promises to pay to the order of BANK ONE, TEXAS, N.A. ("LENDER") that portion of the principal amount of $15,000,000 that may from time to time be disbursed and outstanding under this note together with interest. This note is the "Swing Note" under the Amended and Restated Loan Agreement (as renewed, extended, amended, or restated, the "LOAN AGREEMENT") dated as of January 31, 1997, between Borrower, Lender, certain other Lenders, and Bank One, Texas, N.A., as Agent for Lenders. All of the defined terms in the Loan Agreement have the same meanings when used -- unless otherwise defined -- in this note. This note incorporates by reference the principal and interest payment terms in the Loan Agreement for this note, including, without limitation, the final maturity, which is the Warehouse-Actual-Termination Date. Principal and interest are payable to the holder of this note through Agent at either (a) its offices at 1717 Main Street, Dallas, Texas 75201, or (b) at any other address so designated by Agent in written notice to Borrower. This note incorporates by reference all other provisions in the Loan Agreement applicable to this note -- such as provisions for disbursements of principal, applicable-interest rates before and after Default, voluntary and mandatory prepayments, acceleration of maturity, exercise of Rights, payment of attorneys' fees, court costs, and other costs of collection, certain waivers by Borrower and other obligors, assurances and security, choice of Texas and United States federal Law, usury savings, and other matters applicable to Loan Documents under the Loan Agreement. This note is an amendment, restatement, renewal, extension, modification of, and substitution for the existing Swing Note (as the same may have been amended and replaced to the date hereof, the "FORMER NOTE"), which Former Note was executed and delivered pursuant to the Existing Loan Agreement. MATRIX FINANCIAL SERVICES CORPORATION, as Borrower By ____________________________________________ Thomas J. Osselaer, Executive Vice President EXHIBIT A-2 ----------- EX-10.35 7 AMENDED AND RESTATED WORKING-CAPITAL NOTE Exhibit 10.35 EXHIBIT A-3 ----------- AMENDED AND RESTATED WORKING-CAPITAL NOTE ----------------------------------------- $10,000,000 January 31, 1997 FOR VALUE RECEIVED, MATRIX FINANCIAL SERVICES CORPORATION, an Arizona corporation ("BORROWER"), promises to pay to the order of BANK ONE, TEXAS, N.A. ("LENDER") that portion of the principal amount of $10,000,000 that may from time to time be disbursed and outstanding under this note together with interest. This note is a "Working-Capital Note" under the Amended and Restated Loan Agreement (as renewed, extended, amended, or restated, the "LOAN AGREEMENT") dated as of January 31, 1997, between Borrower, Lender, certain other Lenders, and Bank One, Texas, N.A., as Agent for Lenders. All of the defined terms in the Loan Agreement have the same meanings when used -- unless otherwise defined - --in this note. This note incorporates by reference the principal and interest payment terms in the Loan Agreement for this note, including, without limitation, the final maturity, which is the Warehouse-Actual-Termination Date. Principal and interest are payable to the holder of this note through Agent at either (a) its offices at 1717 Main Street, Dallas, Texas 75201, or (b) at any other address so designated by Agent in written notice to Borrower. This note incorporates by reference all other provisions in the Loan Agreement applicable to this note -- such as provisions for disbursements of principal, applicable-interest rates before and after Default, voluntary and mandatory prepayments, acceleration of maturity, exercise of Rights, payment of attorneys' fees, court costs, and other costs of collection, certain waivers by Borrower and other obligors, assurances and security, choice of Texas and United States federal Law, usury savings, and other matters applicable to Loan Documents under the Loan Agreement. This note is an amendment, restatement, renewal, extension, modification of, consolidation of, and substitution for, the existing Receivables Notes (as the same may have been amended and replaced to the date hereof, the "FORMER NOTES"), which Former Notes were executed and delivered pursuant to the Existing Loan Agreement. MATRIX FINANCIAL SERVICES CORPORATION, as Borrower By ____________________________________________ Thomas J. Osselaer, Executive Vice President EXHIBIT A-3 ----------- EX-10.36 8 AMENDED AND RESTATED TERM-LINE NOTE Exhibit 10.36 EXHIBIT A-4 ----------- AMENDED AND RESTATED TERM-LINE NOTE ----------------------------------- $30,000,000 January 31, 1997 FOR VALUE RECEIVED, MATRIX FINANCIAL SERVICES CORPORATION, an Arizona corporation ("BORROWER"), promises to pay to the order of BANK ONE, TEXAS, N.A. ("LENDER"), that portion of the principal amount of $30,000,000 that may from time to time be disbursed and outstanding under this note together with interest. This note is a "Term-Line Note" under the Amended and Restated Loan Agreement (as renewed, extended, amended, or restated, the "LOAN AGREEMENT") dated as of January 31, 1997, between Borrower, Lender, certain other Lenders, and Bank One, Texas, N.A., as Agent for Lenders. All of the defined terms in the Loan Agreement have the same meanings when used -- unless otherwise defined - -- in this note. This note incorporates by reference the principal and interest payment terms in the Loan Agreement for this note, including, without limitation, the final maturity. Principal and interest are payable to the holder of this note through Agent at either (a) its offices at 1717 Main Street, Dallas, Texas 75201, or (b) at any other address so designated by Agent in written notice to Borrower. This note incorporates by reference all other provisions in the Loan Agreement applicable to this note -- such as provisions for disbursements of principal, applicable-interest rates before and after Default, voluntary and mandatory prepayments, acceleration of maturity, exercise of Rights, payment of attorneys' fees, court costs, and other costs of collection, certain waivers by Borrower and other obligors, assurances and security, choice of Texas and United States federal Law, usury savings, and other matters applicable to Loan Documents under the Loan Agreement. This note is an amendment, restatement, renewal, extension, modification of, consolidation of, and substitution for, the existing Term-Line Notes (as the same may have been amended and replaced to the date hereof, the "FORMER NOTES"), which Former Notes were executed and delivered pursuant to the Existing Loan Agreement. MATRIX FINANCIAL SERVICES CORPORATION, as Borrower By ____________________________________________ Thomas J. Osselaer, Executive Vice President EXHIBIT A-4 ----------- EX-10.37 9 AMENDED AND RESTATED GUARANTY Exhibit 10.37 EXHIBIT B --------- AMENDED AND RESTATED GUARANTY ----------------------------- THIS AMENDED AND RESTATED GUARANTY is executed as of January 31, 1997, by MATRIX CAPITAL CORPORATION ("GUARANTOR") for the benefit of BANK ONE, TEXAS, N.A., a national banking association (in its capacity as Agent for the Lenders now or in the future party to the Loan Agreement described below, "AGENT"). MATRIX FINANCIAL SERVICES CORPORATION, an Arizona corporation ("BORROWER"), Agent, and Lenders have executed the Amended and Restated Loan Agreement (as renewed, extended, amended, or restated, the "LOAN AGREEMENT") dated as of January 31, 1997. The execution and delivery of this guaranty are requirements to Agent's and Lenders' execution of the Loan Agreement, are integral to the transactions contemplated by the Loan Documents, and are conditions precedent to Lenders' obligations to extend credit under the Loan Agreement. ACCORDINGLY, for adequate and sufficient consideration, Guarantor agrees with Agent and Lenders as follows: 1. DEFINITIONS. Terms defined in the Loan Agreement have the same meanings when used --unless otherwise defined -- in this guaranty. As used in this guaranty: "AGENT" is defined in the preamble to this guaranty and includes its successor appointed under the Loan Documents and acting as Agent for Lenders under the Loan Documents. "BORROWER" is defined in the recitals to this guaranty and includes, without limitation, Borrower, Borrower as a debtor-in-possession, and any receiver, trustee, liquidator, conservator, custodian, or similar party appointed for Borrower or for all or substantially all of Borrower's assets under any Debtor Law. "LOAN AGREEMENT" is defined in the recitals to this guaranty. "GUARANTEED DEBT" means the Obligation, as defined in the Loan Agreement, and all present and future costs, attorneys' fees, and expenses incurred by Agent or any Lender to enforce Borrower's, Guarantor's, or any other obligor's payment of any of the Obligation, including, without limitation, all present and future amounts that would become due but for the operation of (S)(S) 502 or 506 or any other provision of Title 11 of the United States Code and all present and future accrued and unpaid interest (including, without limitation, all post- petition interest if Borrower voluntarily or involuntarily becomes subject to any Debtor Law). "GUARANTOR" is defined in the preamble to this guaranty. "SUBORDINATED DEBT" means all present and future obligations of Borrower to Guarantor, whether those obligations are (a) direct, indirect, fixed, contingent, liquidated, unliquidated, joint, several, or joint and several, (b) due or to become due to Guarantor, (c) held by or are to be held by Guarantor, (d) created directly or acquired by assignment or otherwise, or (e) evidenced in writing. 2. GUARANTY. Guarantor guarantees to Agent and Lenders the prompt payment of the Guaranteed Debt at -- and at all times after -- maturity (by acceleration or otherwise). This is an absolute, irrevocable, and continuing guaranty, and the circumstance that at any time or from time to time the EXHIBIT B --------- Guaranteed Debt may be paid in full does not affect the obligation of Guarantor with respect to the Guaranteed Debt incurred after that time. This guaranty remains in effect until the Guaranteed Debt is fully paid and performed and all commitments to extend any credit under the Loan Agreement have terminated. Guarantor may not rescind or revoke its obligations with respect to the Guaranteed Debt. 3. REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to Agent that (a) Guarantor has the power and authority to execute, deliver, and perform this guaranty, which execution, delivery, and performance does not violate any Law or agreement by which Guarantor or any of Guarantor's assets is bound, (b) the value of the consideration received and to be received by Guarantor is reasonably worth at least as much as Guarantor's liability under this guaranty, and that liability may reasonably be expected to directly or indirectly benefit Guarantor, (c) this guaranty constitutes a legal and binding obligation of Guarantor, enforceable against Guarantor in accordance with its terms, except as enforceability may be limited by applicable Debtor Laws and general principles of equity, (d) all financial statements and other information about Guarantor's financial condition and cash flow are true and correct in all material respects and fairly present Guarantor's financial condition, cash flows, material liabilities, and (e) Guarantor is Solvent. 4. CUMULATIVE RIGHTS. If Guarantor becomes liable for any indebtedness owing by Borrower to Agent or any Lender, other than under this guaranty, that liability may not be in any manner impaired or affected by this guaranty. The Rights of Agent or Lenders under this guaranty are cumulative of any and all other Rights that Agent or Lenders may ever have against Guarantor. The exercise by Agent or Lenders of any Right under this guaranty or otherwise does not preclude the concurrent or subsequent exercise of any other Right. 5. PAYMENT UPON DEMAND. If a Default exists, Guarantor shall -- on demand and without further notice of dishonor and without any notice having been given to Guarantor previous to that demand of either the acceptance by Agent or Lenders of this guaranty or the creation or incurrence of any Guaranteed Debt -- pay the amount of the Guaranteed Debt then due and payable to Agent and Lenders. It is not necessary for Agent or Lenders, in order to enforce that payment by Guarantor, first or contempo raneously to institute suit or exhaust remedies against Borrower or others liable on that indebtedness or to enforce Rights against any collateral securing that indebtedness. 6. SUBORDINATION. The Subordinated Debt is expressly subordinated to the full and final payment of the Guaranteed Debt. Guarantor agrees not to accept any payment of any Subordinated Debt from Borrower if a Default exists. If Guarantor receives any payment of any Subordinated Debt in violation of the foregoing, Guarantor shall hold that payment in trust for Agent and Lenders and promptly turn it over to Agent, in the form received (with any necessary endorsements), to be applied to the Guaranteed Debt. 7. SUBROGATION AND CONTRIBUTION. Guarantor may not assert, enforce, or otherwise exercise any Right of subrogation to any of the Rights or Liens of Agent or Lenders or any other beneficiary against Borrower or any other obligor on the Guaranteed Debt or any collateral or other security or any Right of recourse, reimbursement, subrogation, contribution, indemnification, or similar Right against Borrower or any other obligor on any Guaranteed Debt or any guarantor of it. Guarantor irrevocably waives all of the foregoing Rights (whether they arise in equity, under contract, by statute, under common Law, or otherwise). Guarantor irrevocably waives the benefit of, and any Right to participate in, any collateral or other security given to Agent or Lenders or any other beneficiary to secure payment of any Guaranteed Debt. 8. NO RELEASE. Guarantor's obligations under this guaranty may not be released, diminished, or affected by the occurrence of any one or more of the following events: (a) any taking or accepting of any other security or assurance for any Guaranteed Debt; (b) any release, surrender, exchange, subordination, impairment, or loss of any collateral securing any Guaranteed Debt; (c) any full or partial release of the 2 EXHIBIT B --------- liability of any other obligor on the Obligation; (d) the modification of, or waiver of compliance with, any terms of any other Loan Document; (e) the insolvency, bankruptcy, or lack of corporate or partnership power of any party at any time liable for any Guaranteed Debt, whether now existing or occurring in the future; (f) any renewal, extension, or rearrangement of any Guaranteed Debt or any adjustment, indulgence, forbearance, or compromise that may be granted or given by Agent or any Lender to any other obligor on the Obligation; (g) any neglect, delay, omission, failure, or refusal of Agent or any Lender to take or prosecute any action in connection with the Guaranteed Debt; (h) any failure of Agent or any Lender to notify Guarantor of any renewal, extension, or assignment of any Guaranteed Debt, or the release of any security or of any other action taken or refrained from being taken by Agent or any Lender against Borrower or any new agreement between Agent, any Lender, and Borrower, it being understood that neither Agent nor any Lender is required to give Guarantor any notice of any kind under any circumstances whatsoever with respect to or in connection with any Guaranteed Debt, other than any notice required to be given to Guarantor elsewhere in this guaranty; (i) the unenforceability of any Guaranteed Debt against any party because it exceeds the amount permitted by Law, the act of creating it is ultra vires, the officers creating it exceeded their authority or violated their fiduciary duties in connection with it, or otherwise; or (j) any payment of the Obligation to Agent or Lenders is held to constitute a preference under any Debtor Law or for any other reason Agent or any Lender is required to refund that payment or make payment to someone else (and in each such instance this guaranty will be reinstated in an amount equal to that payment). 9. WAIVERS. Guarantor waives all Rights by which it might be entitled to require suit on an accrued Right of action in respect of any Guaranteed Debt or require suit against Borrower or others, whether arising under (S) 34.02 of the Texas Business and Commerce Code, as amended (regarding its Right to require Agent or Lenders to sue Borrower on accrued Right of action following its written notice to Agent or Lenders), (S) 17.001 of the Texas Civil Practice and Remedies Code, as amended (allowing suit against it without suit against Borrower, but precluding entry of judgment against it before entry of judgment against Borrower), Rule 31 of the Texas Rules of Civil Procedure, as amended (requiring Agent or Lenders to join Borrower in any suit against it unless judgment has been previously entered against Borrower), or otherwise. 10. LOAN AGREEMENT PROVISIONS. Guarantor acknowledges that certain (a) representations and warranties in the Loan Agreement are applicable to Guarantor and confirms that each such representation and warranty is true and correct, and (b) covenants and other provisions in the Loan Agreement are applicable to Guarantor or are imposed upon Guarantor and agrees to promptly and properly comply with or be bound by each of them. 11. RELIANCE AND DUTY TO REMAIN INFORMED. Guarantor confirms that it has executed and delivered this guaranty after reviewing the terms and conditions of the Loan Documents and such other information as it has deemed appropriate in order to make its own credit analysis and decision to execute and deliver this guaranty. Guarantor confirms that it has made its own independent investigation with respect to Borrower's creditworthiness and is not executing and delivering this guaranty in reliance on any representation or warranty by Agent or any Lender as to that creditworthiness. Guarantor expressly assumes all responsibilities to remain informed of the financial condition of Borrower and any circumstances affecting Borrower's ability to perform under the Loan Documents to which it is a party or any collateral securing any Guaranteed Debt. 12. NO REDUCTION. The Guaranteed Debt may not be reduced, discharged, or released because or by reason of any existing or future offset, claim, or defense (except for the defense of complete and final payment of the Guaranteed Debt) of Borrower or any other party against Agent or Lenders or against payment of the Guaranteed Debt, whether that offset, claim, or defense arises in connection with the Guaranteed Debt or otherwise. Those claims and defenses include, without limitation, failure of consideration, breach of 3 EXHIBIT B --------- warranty, fraud, bankruptcy, incapacity/infancy, statute of limitations, lender liability, accord and satisfaction, usury, forged signatures, mistake, impossibility, frustration of purpose, and unconscionability. 13. BANKRUPTCY OR DEATH. If Guarantor becomes insolvent, fails to pay Guarantor's debts generally as they become due, voluntarily seeks (or consents to or acquiesces in) any benefits of any Debtor Law, or becomes a party to (or is made the subject of) any proceeding under any Debtor Law (other than as a creditor or claimant) that could suspend or otherwise adversely affect the Rights of Agent or any Lender under this guaranty, then, in any such event, the Guaranteed Debt is automatically (as between that Guarantor, Agent, and Lenders), a fully matured, due, and payable obligation of Guarantor to Agent and Lenders (without regard to whether Borrower is then in default under the Loan Agreement or whether any of the Obligation is then due and owing by Borrower), payable in full -- i.e., the estimated amount owing in respect of the contingent claim created under this guaranty -- by Guarantor to Agent and Lenders upon demand. 14. LOAN DOCUMENT. This guaranty is a Loan Document and is subject to the applicable provisions of SECTIONS 1 and 12 of the Loan Agreement, all of which are incorporated into this guaranty by reference the same as if set forth in this guaranty verbatim. 15. COMMUNICATIONS. For purposes of SECTION 12.2 of the Loan Agreement, Guarantor's address and telecopy number are set forth on the signature page to this guaranty. 16. AMENDMENTS, ETC. No amendment, waiver, or discharge to or under this guaranty is valid unless it is in writing and is signed by the party against whom it is sought to be enforced and is otherwise in conformity with the requirements of SECTION 12.10 of the Loan Agreement. 17. ENTIRETY. THIS GUARANTY REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. 18. AGENT AND LENDERS. Agent is the agent for each Lender under the Loan Agreement. All Rights granted to Agent under or in connection with this guaranty are for each Lender's ratable benefit. Agent may, without the joinder of any Lender, exercise any Rights in Agent's or Lenders' favor under or in connection with this guaranty. Agent's and each Lender's Rights and obligations vis-a-vis each other may be subject to one or more separate agreements between those parties. However, Guarantor is not required to inquire about any such agreement and is not subject to any terms of it unless Guarantor specifically joins it. Therefore, neither Guarantor nor its successors or assigns is entitled to any benefits or provisions of any such separate agreement or is entitled to rely upon or raise as a defense any party's failure or refusal to comply with the provisions of it. 19. PARTIES. This guaranty benefits Agent, Lenders, and their respective successors and assigns and binds Guarantor and Guarantor's successors and assigns. Upon appointment of any successor Agent under the Loan Agreement, all of the Rights of Agent under this guaranty automatically vest in that new Agent as successor Agent on behalf of Lenders without any further act, deed, conveyance, or other formality other than that appointment. The Rights of Agent and Lenders under this guaranty may be transferred with any assignment of the Guaranteed Debt. The Loan Agreement contains provisions governing assignments of the Guaranteed Debt and of Rights and obligations under this guaranty. 20. AMENDMENT AND RESTATEMENT. This Amended and Restated Guaranty amends, ------------------------- restates, and supersedes in its entirety, the Guaranty executed by the undersigned and delivered in accordance with the Existing Loan Agreement. 4 EXHIBIT B --------- REMAINDER OF PAGE INTENTIONALLY BLANK SIGNATURE PAGE FOLLOWS 5 EXHIBIT B --------- EXECUTED as of the date first stated in this guaranty. MATRIX CAPITAL CORPORATION, as Guarantor Matrix Capital Corporation 1380 Lawrence Street, Suite 1410 Denver, CO 80204 By: ________________________ Attn: Guy A. Gibson Guy A. Gibson, President Tel (303) 595-9898 Fax (303) 595-9906 Agent executes this guaranty in acknowledgment of PARAGRAPH 17 above. BANK ONE, TEXAS, N.A., as Agent By _______________________________ Mark L. Freeman, Vice President SIGNATURE PAGE AMENDED AND RESTATED GUARANTY ----------------------------- EX-10.38 10 EMPLOYMENT AGREEMENT Exhibit 10.38 EXHIBIT D EMPLOYMENT AGREEMENT -------------------- This Employment Agreement (this "Agreement") is entered into effective as --------- of the 4/th/ day of February, 1997, between Paul Skretny ("Employee"), a -------- resident of Waco, Texas, and The Vintage Group, Inc., a Texas corporation (the "Company"), whose principal executive offices are located in Waco, Texas. ------- WHEREAS, the Company desires to employ Employee, and Employee desires to be employed by the Company, on the terms hereinafter set forth; NOW, THEREFORE, in consideration for the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE 1 DUTIES ------ 1.1 Employment. During the term of this Agreement, the Company agrees to ---------- employ Employee, and Employee accepts such employment, on the terms and conditions set forth in this Agreement. 1.2 Extent of Service. During the term of this Agreement, Employee shall ----------------- devote his full-time business time, energy and skill to the affairs of the Company and its affiliated companies, and Employee shall not be engaged in any other business or consulting activities pursued for gain, profit or other pecuniary advantage, without the prior written consent of the Company. The foregoing shall not prevent Employee from making monetary investments in businesses that do not involve any services on the part of Employee in the operation or affairs of such businesses. 1.3 Duties. Employee's duties hereunder shall include acting as the ------ President and Chief Executive Officer of the Company and its current subsidiaries, including without limitation, Sterling Trust Company and Vintage Financial Services Corporation, or such other duties as may be prescribed from time to time by the Board of Directors of the Company (the "Board"). Although, as the Chief Executive Officer of the Company, Employee will be responsible for the day-to-day operations of the Company, Employee will report directly to the Board and be subject to the control of the Board. Employee shall also perform, for the compensation herein expressed, related services for the Company's other subsidiaries and joint ventures. 1.4 Access to and Use of Proprietary Information. Employee recognizes -------------------------------------------- and the Company agrees that, to assist Employee in the performance of his duties hereunder, Employee will be provided access to and limited use of proprietary and confidential information of the Company. ARTICLE 2 TERM OF EMPLOYMENT ------------------ The term of this Agreement shall commence on the date hereof and continue for three years, unless earlier terminated pursuant to Article 4 hereof. --------- ARTICLE 3 COMPENSATION ------------ 3.1 Annual Base Salary. As compensation for services rendered under ------------------ this Agreement, Employee shall be entitled to receive from the Company an annual base salary (before standard deductions) of $135,500, subject to periodic review and adjustment by the Board. Employee's annual base salary shall be payable at regular intervals (at least semi-monthly) in accordance with the prevailing practice and policy of the Company. 3.2 Performance Bonus. As additional compensation for services rendered ----------------- under this Agreement, Employee shall also be eligible to receive a performance bonus consistent with the bonuses paid to the senior management of Matrix Capital Corporation's subsidiaries, provided that the Board in good faith determines that Employee has met the performance standards consistent with his position. 3.3 Benefits. Employee shall, in addition to the compensation provided -------- for herein, be entitled to the following additional benefits: (a) Medical, Health and Disability Benefits. Employee shall be -------------------------------------- entitled to receive all medical, health and disability benefits that may, from time to time, be provided by the Company to all employees of the Company as a group. (b) Other Benefits. Employee shall also be entitled to receive any -------------- other benefits that may, from time to time, be provided by the Company to all employees of the Company as a group. (c) Vacation. Employee shall be entitled to an annual vacation -------- determined in accordance with the prevailing practice and policy of the Company (initially three weeks per year). (d) Holidays. Employee shall be entitled to holidays in accordance -------- with, the prevailing practice and policy of the Company. 2 rendering of services at the Company's request, provided that such expenses are incurred in accordance with the prevailing practice and policy of the Company and are properly deductible (in whole or in part) by the Company for federal income tax purposes. As a condition to such reimbursement, Employee shall submit an itemized accounting of such expenses in reasonable detail, including receipts where required under federal income tax laws. (f) Options. Matrix Capital Corporation ("Matrix") shall grant on ------- the date hereof Employee options (the "Options") to purchase 25,000 shares of Matrix common stock (the "Common Stock") pursuant to the 1996 Amended and Restated Stock Option Plan (the "Plan") at an exercise price equal to the Fair Market Value (as defined in the Plan) of the Common Stock on the effective date of this Agreement. The Options shall become exercisable in 20% increments on the first, second, third, fourth and fifth anniversary dates of the date of grant of the Options, respectively; provided that if Employee is terminated by the Company during the five years period of vesting, other than for "Cause," such Options shall become immediately exercisable for a period of 30 days. 3.4 Commencement of Compensation. Compensation under this Agreement ---------------------------- shall be payable to Employee commencing upon Employee's commencement of full- time service to the Company. ARTICLE 4 TERMINATION ----------- 4.1 Termination With Notice. This Agreement may be terminated by the ----------------------- Company or Employee, without cause, upon 30 days' prior written notice thereof given by one party to the other party. In the event of termination by the Company pursuant to this Section 4.1, the Company shall pay Employee a lump-sum ----------- equal to 100% of Employee's then-effective base salary (subject to standard deductions) over the remaining term of this Agreement. In the event of termination by Employee pursuant to this Section 4.1, the Company shall pay ----------- Employee pursuant to this Section 4.1, the Company shall pay Employee his ----------- monthly base salary (subject to standard deductions) earned pro rata to the date of such termination. In either event, upon payment of the foregoing, the Company shall have no further obligations to Employee hereunder. 4.2 Termination For Cause. This Agreement may be terminated by the --------------------- Company for "Cause" (hereinafter defined) upon written notice thereof given by the Company to Employee. In the event of termination pursuant to this Section ------- 4.2, the Company shall pay Employee his monthly base salary (subject to standard - --- deductions) earned pro rata to the date of such termination and the Company shall have no further obligations to Employee hereunder. The term "Cause" used in this Section 4.2 means (i) the continued failure by Employee to substantially ----------- perform his reasonably assigned duties, which failure is not remedied by Employee within a reasonable period of time after Employee is given notice of such failure, (ii) a material breach by Employee of any of the terms or conditions of this Agreement or (iii) any intentional dishonest, unethical, 3 fraudulent or felonious act committed or engaged in by Employee in respect of his duties to the Company. 4.3 Termination Upon Death or Disability. In the event that Employee ------------------------------------ dies, this Agreement shall terminate upon Employee's death. Likewise, if Employee becomes "disabled" as determined in accordance with the Company's disability insurance policies and plans, the Company may, upon notice to Employee, terminate this Agreement. In the event of termination pursuant to this Section 4.3, Employee (or his legal representatives) shall be entitled only ----------- to his monthly base salary earned pro rata for services actually rendered prior to the date of such termination; provided, however, Employee shall not be entitled to his monthly base salary for any period with respect to which Employee has received short-term or long-term disability benefits under employee benefit plans maintained from time to time by the Company. 4.4 Survival of Provisions. The covenants and provisions of Articles 5 ---------------------- ---------- and 6 hereof shall survive any termination of this Agreement and continue for --- the periods indicated, regardless of how such termination may be brought about. ARTICLE 5 CONFIDENTIAL INFORMATION ------------------------ 5.1 Confidential Information. Employee agrees to keep confidential all ------------------------ information protected by the Company as trade secrets ("Confidential Information") during the term of this Agreement (including any leaves of absence) and will neither use nor disclose the Confidential Information without written authorization by the Company. The Company and Employee mutually agree that the following types of information shall not be protected by this Agreement: (a) Information already available to the public at the time Employee received it; (b) Information which although disclosed in confidence to Employee is later disseminated by the Company to the public; (c) Information which although received in confidence by Employee is subsequently disseminated to the public by a third party who has not breached any duty to any other party in disseminating such information; (d) Information given by the Company in confidence to Employee which Employee is expressly authorized in writing by the Company to use or disclose thereafter; and (e) Information required by law to be disclosed, provided that Employee will promptly advise the Company of any such required disclosure and cooperate fully with the 4 Company to avoid such disclosure, if legally possible, or to obtain confidential treatment of such Information disclosed. Employee also understands and agrees that he will maintain in confidence all information known to him by reason of his employment. For purposes of this Agreement, a trade secret "...may consist of any formula, pattern, device or compilation of information which is used in one's business, and which gives him or her an opportunity to obtain an advantage over competitors who do not know or use it. It may be a formula for a chemical compound, a process of manufacturing, trading or preserving materials, a pattern for machine or other device, or a list of customers..." as commonly interpreted by the courts of the State of Texas. Upon the termination of this Agreement, regardless of how such termination may be brought about, Employee shall deliver to the Company any and all documents, instruments, notes, papers or other expressions or embodiments of Confidential Information that are in Employee's possession or control. 5.2 Publicity. During the term of this Agreement and thereafter, --------- Employee shall not, directly or indirectly, originate or participate in the origination of any publicity, news release or other public announcements, written or oral, whether to the public, press or otherwise, relating to Employee's employment hereunder or to the Company, without the prior written approval of the Company. 5.3 Fiduciary Relationship. Employee, by virtue of his high position of ---------------------- trust and reliance on him by the Company, understands that Employee enjoys a fiduciary relationship with the Company in carrying out his obligations under this Article 5. Accordingly, Employee agrees to honor his obligations under this --------- Agreement. ARTICLE 6 RESTRICTIVE COVENANTS --------------------- 6.1 Non-Competition. In consideration of the benefits of this --------------- Agreement, including Employee's access to and limited use of proprietary and confidential information of the Company, Employee hereby covenants and agrees that during the term of this Agreement and for a period of one year following termination of this Agreement, regardless of how such termination may be brought about, Employee shall not, directly or indirectly, as proprietor, partner, shareholder, director, officer, employee, consultant, joint venturer, investor or in any other capacity, engage in, or own, manage, operate or control, or participate in the ownership, management, operation or control, of any entity that engages, as its primary business (i) in the self-directed trust business anywhere is the United States or (ii) in any other business activity in Waco, Texas in which the Company participates during Employee's employment with the Company; provided, however, the foregoing shall not prohibit Employee from purchasing and holding as an investment not more than 5% of any class of publicly traded securities of any entity that conducts a business in competition with the business of the Company, so long as Employee does not participate in any way, directly or indirectly, in the management, operation or control of such entity. 5 6.2 Judicial Reformation. Employee acknowledges that, given the nature -------------------- of the Company's business, the covenants contained in Section 6.1 establish ----------- reasonable limitations as to time, geographic area and scope of activity to be restrained and do not impose a greater restraint than is reasonably necessary to protect and preserve the goodwill of the Company's business and to protect its legitimate business interests. If, however, Section 6.1 is determined by any ----------- court competent jurisdiction to be unenforceable by reason of its extending for too long a period of time or over too large a geographic area or by reason of it being too extensive in any other respect or for any other reason, it will be interpreted to extend only over the longest period of time for which it may be enforceable and/or over the largest geographic area as to which it may be enforceable and/or to the maximum extent in all other aspects as to which it may be enforceable, all as determined by such court. 6.3 Customer Lists. Non-Solicitation. In consideration of the benefits -------------------------------- of this Agreement, including Employee's access to and limited use of proprietary and confidential information of the Company, Employees hereby further covenants and agrees that for a period of two years following the termination of this Agreement, regardless of how such termination may be brought about, Employees shall not, directly or indirectly, (a) use or make known to any person or entity the names or addresses of any clients or customers of the Company or any other information pertaining to them, (b) call on, solicit, take away or attempt to call on, solicit or take away any clients or customers of the Company on whom he became acquainted during his employment with the company, nor (c) recruit, hire or attempt to recruit or hire any employees of the Company. ARTICLE 7 MISCELLANEOUS ------------- 7.1 Notices. All notices and other communications hereunder shall be in ------- writing and shall be deemed to have been duly given if delivered personally, mailed by certified mail (return receipt requested) or sent by an overnight delivery service with tracking procedures or by facsimile to the parties at the following addresses or at such other addresses as shall be specified by the parties by like notice: If to Employee, at the address set forth below his name on the signature page hereof; and if to the Company, at 1380 Lawrence Street, Suite 1410, Denver, Colorado 80204, Attention: Board of Directors. 7.2 Equitable Relief. In the event of a breach or a threatened breach ---------------- by Employee of any of the provisions contained in Article 5 or 6 of this --------- - Agreement, Employee acknowledges that the Company will suffer irreparable injury not fully compensable by money damages and, therefore, will not have an adequate remedy available at law. Accordingly, the Company shall be entitled to obtain such injunctive relief or other equitable remedy from any court of competent jurisdiction as may be necessary or appropriate to prevent or curtail any such breach, threatened or actual. The foregoing shall be in addition to and without prejudice to any other rights that the Company may have under this Agreement, at law or in equity, including, without limitation, the right to sue for damages. 6 7.3 Assignment. The rights and obligations of the Company under this ---------- Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of the Company. Employee's rights under this Agreement are not assignable and any attempted assignment the reof shall be null and void. 7.4 Governing Law: Venue. This Agreement shall be subject to and -------------------- governed by the laws of the State of Texas. Non-exclusive venue for any action permitted hereunder shall be proper in Dallas, Dallas County, Texas, and Employee hereby consents to such venue. 7.5 Entire Agreement: Amendments. This Agreement constitutes the ---------------------------- entire agreement between the parties and supersedes all other agreements between the parties that may relate to the subject matter contained in this Agreement. This Agreement may not be amended or modified except by an agreement in writing that refers to this Agreement and is signed by both parties. 7.6 Headings. The headings of sections and subsections of this -------- Agreement are for convenience only and shall not in any way affect the interpretation of any provision of this Agreement or of the Agreement itself. 7.7 Severability. Whenever possible, each provision of this Agreement ------------ shall be interpreted in such manner as to be effective and valid under applicable law. If any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 7.8 Waiver. The waiver by any party of a breach of any provision ------ hereof shall not be deemed to constitute the waiver of any prior or subsequent breach of the same provision or any other provisions hereof. Further, the failure of any party to insist upon strict adherence to any term of this Agreement on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement unless such party expressly waives such provision pursuant to a written instrument which refers to this Agreement and is signed by such party. 7 IN WITNESS WHEREOF, the parties have executed this Employment Agreement as of the day and year first above written. THE VINTAGE GROUP, INC. By: -------------------------- Print Name: ------------------ Title: ----------------------- EMPLOYEE: /s/ ------------------------------ Paul Skretny Address: 7901 Fish Pond Road Waco, Texas 76710 Matrix Capital Corporation acknowledges and agrees to the provisions of Section 3.3(f). MATRIX CAPITAL CORPORATION By: /s/ -------------------------- Name: ------------------------ Title: ----------------------- 8 EX-10.39 11 CREDIT AGREEMENT EXHIBIT 10.39 CREDIT AGREEMENT between MATRIX CAPITAL CORPORATION, as Borrower BANK ONE, TEXAS, N.A., as Agent, and CERTAIN LENDERS, as Lenders $8,000,000 MARCH 12, 1997 Matrix Capital BANK[LOGO]ONE Corporation PREPARED BY HAYNES AND BOONE, L.L.P. ------------------------------------
TABLE OF CONTENTS ----------------- SECTION 1 DEFINITIONS AND REFERENCES............................... 1 1.1 Definitions.............................................. 1 1.2 Time References.......................................... 9 1.3 Other References......................................... 9 1.4 Accounting Principles.................................... 10 SECTION 2 BORROWINGS............................................... 10 2.1 Term Loan................................................ 10 2.2 Revolving Facility....................................... 10 2.3 Borrowing Procedure...................................... 10 2.4 Termination.............................................. 11 SECTION 3 PAYMENT TERMS............................................ 11 3.1 Notes and Payments....................................... 11 3.2 Principal and Interest Payments.......................... 12 3.3 Voluntary Prepayments.................................... 13 3.4 Mandatory Prepayments.................................... 13 3.5 Interest Rates........................................... 13 3.6 Interest Recapture....................................... 13 3.7 Interest Calculations.................................... 14 3.8 Maximum Rate............................................. 14 3.9 Order of Application..................................... 14 3.10 Distributions to Lenders................................. 14 3.11 Sharing of Payments, Etc................................. 15 3.12 Offset................................................... 15 3.13 Capital Adequacy......................................... 15 3.14 Foreign Lenders, Participants, and Purchasers............ 15 SECTION 4 SECURITY................................................. 16 4.1 Guaranty................................................. 16 4.2 Collateral............................................... 16 4.3 Further Assurances....................................... 16 4.4 Release of Collateral.................................... 16 SECTION 5 CONDITIONS PRECEDENT..................................... 16 SECTION 6 REPRESENTATIONS AND WARRANTIES........................... 17 6.1 Purpose and Regulation U................................. 17 6.2 Companies................................................ 17 6.3 Authorization and Contravention.......................... 17 6.4 Binding Effect........................................... 17 6.5 Fiscal Year.............................................. 17 6.6 Current Financials....................................... 18 6.7 Debt..................................................... 18 6.8 Solvency and Capital Requirements........................ 18 6.9 Litigation............................................... 18 6.10 Transactions with Affiliates............................. 18 6.11 Taxes.................................................... 18 6.12 Employee Plans........................................... 18
Credit Agreement ---------------- CREDIT AGREEMENT ---------------- THIS AGREEMENT is entered into as of March 12, 1997, between MATRIX CAPITAL CORPORATION, a Colorado corporation ("BORROWER"), the Lenders described below, and BANK ONE, TEXAS, N.A., as Agent for Lenders. (See SECTION 1.1 for defined terms.) Borrower has requested that Lenders extend credit to Borrower not to exceed a total outstanding principal amount of $8,000,000 (as that amount may be reduced or canceled pursuant to this agreement) to be used by Borrower as provided in SECTION 6.1 and allocated as (A) a term loan of $2,000,000 (the "TERM LOAN") to be funded by Lenders on the Closing Date, and (B) a revolving- credit facility of $6,000,000 (the "REVOLVING FACILITY") to be funded by Lenders from time to time on and after the Closing Date but before the Actual- Termination Date. Lenders are willing to extend the requested credit on the terms and conditions of this agreement. ACCORDINGLY, for adequate and sufficient consideration, Borrower, Lenders, and Agent agree as follows: SECTION 1 DEFINITIONS AND REFERENCES. Unless stated otherwise, the following - --------- -------------------------- provisions apply to each Loan Document, and annexes, exhibits, and schedules to - -- and certificates, reports, and other writings delivered under -- the Loan Documents. 1.1 DEFINITIONS. ----------- "ACTUAL-TERMINATION DATE" means the earlier of either (a) the Stated- Termination Date or (b) the effective date that Lenders' commitments to lend under this agreement are fully canceled or terminated in accordance with the terms of this agreement. "ADJUSTED ASSETS" means, for Matrix Bank and at any time, the sum of (a) its cash, (b) its Cash Equivalents, (c) its loans that are not non-residential commercial loans, are evidenced by valid promissory notes, and are secured by mortgages, deeds of trust, or trust deeds that grant perfected first-priority Liens on residential-real property, plus (d) its securities that, in respect of an underlying pool of related mortgage loans, provide for payment by the issuer to the holder of specified principal installments and a fixed-interest rate on the unpaid balance, with all prepayments being passed through to the holder, whether issued in certificate or book-entry form. "ADJUSTED DEBT" means, for the Companies and at any time, the sum of (a) their consolidated Debt, minus (b) obligations under bank repurchase agreements, obligations under escrow-arbitrage-type facilities, deposits at Matrix Bank, and obligations of Matrix Bank for advances to it by the Federal Home Loan Bank. "AFFILIATE" of a Person means any other individual or entity who directly or indirectly controls, is controlled by, or is under common control with that Person. For purposes of this definition (a) "control," "controlled by," and "under common control with" mean possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of voting Credit Agreement ---------------- securities or other interests, by contract, or otherwise), and (b) the Companies are "Affiliates" of each other. "AGENT" means, at any time, Bank One, Texas, N.A. (or its successor appointed under SECTION 11.6), acting as administrative, collateral, managing, and syndication agent for Lenders under the Loan Documents. "ASSIGNMENT" means an Assignment and Assumption Agreement executed by a selling Lender and a Purchaser under SECTIONS 12.12 and 12.14 and delivered to Agent in substantially the form of EXHIBIT F. "BANKERS BLANKET BOND" means the bond or bonds, and any renewals, extensions, or modifications of them, issued with respect to losses incurred by Matrix Bank, including, without limitation, all bonds represented by Bankers Blanket Bond, Standard Form No. 24, with attached riders, as revised, and Bank Employee Dishonesty Blanket Bond, Standard Form No. 28, Surety Association of America. "BASE RATE" means an annual interest rate equal from day to day to the floating annual interest rate established by Agent from time to time as its base-rate of interest, which may not be the lowest interest rate charged by Agent on loans similar to Borrowings. "BORROWER" is defined in the preamble to this agreement. "BORROWING" means any amount disbursed (a) by any Lender to Borrower under the Loan Documents as an original disbursement of funds, a renewal, extension, or continuation of an amount outstanding, or (b) by Agent or any Lender in accordance with, and to satisfy a Company's obligations under, any Loan Document. "BORROWING BASE" means, at any time, the greater of either (a) contributions by Borrower to Matrix Bank's capital from and after October 31, 1996, or (b) 40% of the book value of Matrix Bank's issued and outstanding common stock subject to Lender Liens. "BORROWING DATE" means, for any Borrowing, the date it is disbursed. "BORROWING EXCESS" means, at any time, the amount by which any of the limitations of SECTION 2.2 are exceeded. "BORROWING REQUEST" means a request executed by a Responsible Officer of Borrower requesting a Borrowing and delivered to Agent in substantially the form of EXHIBIT D-1. "BUSINESS DAY" means any day other than Saturday, Sunday, and any other day that commercial banks are authorized by applicable Laws to be closed in Texas. "CAPITAL LEASE" means any capital lease or sublease that is required by GAAP to be capitalized on a balance sheet. "CASH EQUIVALENTS" means Investments described in SECTIONS 8.3(a) through (e). Credit Agreement ---------------- 2 "CASH FLOW" for the Companies and any period: (a) Means the sum (without duplication) of the following for that period taken as a single accounting period: (i) Cash Distributions to Borrower by Matrix Bank and Matrix Financial; plus (ii) provisions by Matrix Bank for loan losses; plus (iii) for all of the Companies other than Matrix Bank and Matrix Financial, the sum of (A) Net Income, minus (B) extraordinary gains; plus (C) extraordinary losses; plus (D) to the extent included in determining Net Income, income Taxes, Interest Expense, depreciation, and amortization; and (b) Unless otherwise specified, is determined exclusive of the Net Income of any entity (i) before it became a Subsidiary of that Person or transferred substantially all of its assets to that Person or (ii) after it is directly or indirectly disposed of by that Person. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. (S)(S)9601 et seq. "CLASSIFIED ASSETS" means, for Matrix Bank and at any time, all (a) assets of Matrix Bank that are classified as "substandard," "doubtful," or "loss" by FDIC, OTS, or any other Tribunal with regulatory authority over Matrix Bank, (b) assets that are otherwise subject to special credit quality supervision by Matrix Bank or the financial institution through which Matrix Bank claims an interest in the particular asset, (c) Other Real Estate Owned, and (d) Other Impaired Assets. "CLOSING DATE" means the date agreed to by Borrower and Agent for the initial Borrowings under this agreement, which date may not be (a) before the conditions precedent for those initial Borrowings have been satisfied or (b), if at all, later than March 31, 1997. "CMLTD" means, for the Companies and at any time, the current maturities of long-term Debt (exclusive of any Debt of Matrix Financial and guaranties of that Debt by any other Company). "COLLATERAL" is defined in SECTION 4.2. "COMMITMENT" means, at any time and for any Lender, the amounts stated beside that Lender's name on the most-recently amended SCHEDULE 2 for the Revolving Facility (which amount is subject to reduction and cancellation pursuant to this agreement) and for the Term Loan. "COMMITMENT PERCENTAGE" means, for any Lender, the proportion (stated as a percentage) that its Commitment bears to the total Commitments of all Lenders. "COMPANIES" means, at any time, Borrower and each of its Subsidiaries. "COMPLIANCE CERTIFICATE" means a certificate executed by a Responsible Officer of Borrower and delivered to Agent in substantially the form of EXHIBIT D-2. "CURRENT FINANCIALS" means either (a) the Companies' Financials for the year ended December 31, 1995, and for the 11 months ended November 30, 1996, or (b) at any time after the Companies' annual Financials are first delivered under SECTION 7.1, the Companies' annual Financials then most recently delivered to Agent and subsequent quarterly Financials then most recently delivered to Agent. Credit Agreement ---------------- 3 "DEBT" means, for any Person and without duplication (a) all obligations required by GAAP to be classified upon that Person's balance sheet as liabilities, (b) liabilities secured (or for which the holder of the liabilities has an existing Right, contingent or otherwise, to be so secured) by any Lien existing on property owned or acquired by that Person, (c) obligations under Capital Leases, and (d) all guaranties, endorsements, and other contingent obligations with respect to Debt of others or in respect of any Employee Plan. "DEBTOR LAWS" means the Bankruptcy Code of the United States of America and all other applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement, receivership, insolvency, reorganization, suspension of payments, or similar Laws affecting creditors' Rights. "DEFAULT" is defined in SECTION 10.1. "DEFAULT RATE" means, for any day, an annual interest rate equal to the lesser of either (a) the Fed-Funds Rate plus 5% or (b) the Maximum Rate. "DETERMINING LENDERS" means, at any time, any combination of Lenders whose (a) Termination Percentages total at least 66 2/3% at any time on or after the Actual-Termination Date, or (b) Commitment Percentages total at least 66 2/3% at all other times. "DISTRIBUTION" means, at any time and with respect to any shares of any capital stock or other equity securities issued by a Person, (a) the retirement, redemption, purchase, or other acquisition for value of those securities, (b) the declaration or payment of any dividend with respect to those securities, (c) any loan or advance by that Person to, or other investment by that Person in, the holder of any of those securities, and (d) any other payment by that Person with respect to those securities. "EMPLOYEE PLAN" means any employee-pension-benefit plan (a) covered by Title IV of ERISA and established or maintained by Borrower or any ERISA Affiliate (other than a Multiemployer Plan) or (b) established or maintained by Borrower or any ERISA Affiliate, or to which Borrower or any ERISA Affiliate contributes, under the Laws of any foreign country. "ENVIRONMENTAL LAW" means any applicable Law that relates to protection of the environment or to the regulation of any Hazardous Substances, including, without limitation, CERCLA, the Hazardous Materials Transportation Act (49 U.S.C. (S) 1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. (S) 6901 et seq.), the Clean Water Act (33 U.S.C. (S) 1251 et seq.), the Clean Air Act (42 U.S.C. (S) 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. (S) 2601 et seq.), the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. (S) 136 et seq.), the Emergency Planning and Community Right-to- Know Act (42 U.S.C. (S) 11001 et seq.), the Safe Drinking Water Act (42 U.S.C. (S) 201 and (S) 300f et seq.), the Rivers and Harbors Act (33 U.S.C. (S) 401 et seq.), the Oil Pollution Act (33 U.S.C. (S) 2701 et seq.), analogous state and local Laws, and any analogous future enacted or adopted Laws. "ERISA" means the Employee Retirement Income Security Act of 1974. "ERISA AFFILIATE" means any Person that, for purposes of Title IV of ERISA, is a member of Borrower's controlled group or is under common control with Borrower within the meaning of Section 414 of the IRC. Credit Agreement ---------------- 4 "EXCESS DISTRIBUTIONS" means, for Matrix Bank and for any period, the sum of (a) 75% of the cash Distributions paid to Borrower by Matrix Bank during that period, minus (b) Interest Expense and Principal Debt paid on the Term Loan during that period, minus (c) Interest Expense and (if during the term portion of the Revolving Facility) Principal Debt paid on the Revolving Facility during that period, minus (d) the lesser of either (i) Borrower's cash operating expenses during that period or (ii) $1,000,000, and minus (e) the portion of Borrower's consolidated, federal income tax liability for that period allocable to the income contributed by Matrix Bank. "FDIC" means the Federal Deposit Insurance Corporation. "FED-FUNDS RATE" means, for any day, the annual interest rate (rounded upwards, if necessary, to the nearest 0.01%) determined by Agent to be either (a) the weighted average of the rates on overnight-federal-funds transactions with member banks of the Federal Reserve System arranged by federal-funds brokers for that day (or, if not a Business Day on the preceding Business Day) as published by the Federal Reserve Bank of New York (as published by Knight- Ridder, page 73, utilizing the Fed-Effective Rate), or (b) if not so published for any day, the average of the quotations for that day on those transactions received by Agent from three federal-funds brokers of recognized standing it may select. "FINANCIALS" of a Person means balance sheets, profit and loss statements, reconciliations of capital and surplus, and statements of cash flow prepared (a) according to GAAP (subject to year end audit adjustments with respect to interim Financials) and (b) except as stated in SECTION 1.4, in comparative form to prior year-end figures or corresponding periods of the preceding fiscal year or other relevant period, as applicable. "GAAP" means generally accepted accounting principles of the Accounting Principles Board of the American Institute of Certified Public Accountants and the Financial Accounting Standards Board that are applicable from time to time, as from time to time superseded by regulatory accounting principles applicable to Matrix Bank and Sterling Trust Company, consistently applied. "GOVERNMENT SECURITIES" means (to the extent they mature within one year from the date in question) readily marketable (a) direct full faith and credit obligations of the United States of America or obligations guaranteed by the full faith and credit of the United States of America, and (b) obligations of an agency or instrumentality of, or corporation owned, controlled, or sponsored by, the United States of America that are generally considered in the securities industry to be implicit obligations of the United States of America. "GUARANTY" means a Guaranty in substantially the form of EXHIBIT B. "HAZARDOUS SUBSTANCE" means any substance that is designated, defined, classified, or regulated as a hazardous waste, hazardous material, pollutant, contaminant, explosive, corrosive, flammable, infectious, carcinogenic, mutagenic, radioactive, or toxic or hazardous substance under any Environmental Law, including, without limitation, any hazardous substance within the meaning of (S) 101(14) of CERCLA. "HEDGE CONTRACT" means, for any Person, any present or future, whether master or single, agreement, document or instrument providing for (or constituting an agreement to enter into) (a) commodity hedges in the normal course of business in accordance with prior practices of that Person Credit Agreement ---------------- 5 before the date of this agreement for purposes of hedging material purchases, (b) foreign-currency purchases and swaps, (c) interest-rate swaps, and (d) interest-rate-hedging products. "INTEREST EXPENSE" means -- for any Person, for any period, and without duplication -- all interest on Debt, whether paid in cash or accrued as a liability and payable in cash during any subsequent period (including the interest component of Capital Leases), as determined by GAAP, and premium or penalty for repayment, redemption, or repurchase of Debt. "INVESTMENT" means, in respect of any Person, any loan, advance, extension of credit, or capital contribution to that Person, any investment in that Person, or any purchase or commitment to purchase any equity securities or Debt issued by that Person or substantially all of the assets or a division or other business unit of that Person. "IRC" means the Internal Revenue Code of 1986. "LAWS" means all applicable statutes, laws, treaties, ordinances, rules, regulations, orders, writs, injunctions, decrees, judgments, opinions, and interpretations of any Tribunal. "LENDER LIEN" means any present or future first-priority Lien securing the Obligation and assigned, conveyed, and granted to or created in favor of Agent for the benefit of Lenders under the Loan Documents. "LENDERS" means the financial institutions (including, without limitation, Agent in respect of its share of Borrowings) named on SCHEDULE 2 or on the most- recently-amended SCHEDULE 2, if any, delivered by Agent under this agreement, and, subject to this agreement, their respective successors and permitted assigns (but not any Participant who is not otherwise a party to this agreement). "LIEN" means any lien, mortgage, security interest, pledge, assignment, charge, title retention agreement, or encumbrance of any kind and any other arrangement for a creditor's claim to be satisfied from assets or proceeds prior to the claims of other creditors or the owners. "LITIGATION" means any action by or before any Tribunal. "LOAN DOCUMENTS" means (a) this agreement, certificates and reports delivered under this agreement, and exhibits and schedules to this agreement, (b) all agreements, documents, and instruments in favor of Agent or Lenders (or Agent on behalf of Lenders) ever delivered under this agreement or otherwise delivered in connection with any of the Obligation, and (c) all renewals, extensions, and restatements of, and amendments and supplements to, any of the foregoing. "MATERIAL-ADVERSE EVENT" means any circumstance or event that, individually or collectively, is reasonably expected to result (at any time before the Commitments under this agreement are fully canceled or terminated and the Obligation is fully paid and performed) in any (a) impairment of any Company's ability to perform any of its payment or other material obligations under any Loan Document or (ii) the ability of Agent or any Lender to enforce any of those obligations or any of their respective Rights under the Loan Documents, (b) material and adverse effect on Borrower's individual financial condition or the Companies' consolidated financial condition as represented to Lenders in the Current Financials most recently delivered before the date of this agreement, (c) material and adverse effect on any Collateral, or (d) Default or Potential Default. Credit Agreement ---------------- 6 "MATERIAL AGREEMENT" means, for any Person, any agreement to which that Person is a party, by which that Person is bound, or to which any assets of that Person may be subject, and that is not cancelable by that Person upon less than 30-days notice without liability for further payment other than nominal penalty, and the default under which or cancellation or forfeiture of which would be a Material-Adverse Event. "MATRIX BANK" means Matrix Capital Bank, a federal savings bank formerly named Dona Ana Savings Bank and a wholly owned Subsidiary of Borrower. "MATRIX FINANCIAL" means Matrix Financial Services Corporation, an Arizona corporation and wholly owned Subsidiary of Borrower. "MATRIX FINANCIAL LOAN AGREEMENT" means the Amended and Restated Loan Agreement dated as of January 31, 1997, between Matrix Financial, certain lenders, and Bank One, Texas, N.A., as Agent for Lenders. "MATURITY DATE" means March 12, 2000. "MAXIMUM AMOUNT" and "MAXIMUM RATE" respectively mean, for any day and for any Lender, the maximum non-usurious amount and the maximum non-usurious rate of interest that, under applicable Law, the Lender is permitted to contract for, charge, take, reserve, or receive on its portion of the Obligation. "MULTIEMPLOYER PLAN" means a multiemployer plan as defined in Sections 3(37) or 4001(a)(3) of ERISA or Section 414(f) of the IRC (or any similar type of plan established or regulated under the Laws of any foreign country) to which Borrower or any ERISA Affiliate is making, or has made, or is accruing, or has accrued, an obligation to make contributions. "NET CHARGE OFFS" means, for Matrix Bank and at any time, the sum of its "Gross Charge Offs" minus its "Recoveries," as those items are reflected in its quarterly call reports. "NET INCOME" means, for any period and any Person, the amount that should in accordance with GAAP be reflected on that Person's income statement as net income for that period after deduction of any minority interests. "NET WORTH" means, for any period and any Person, that Person's stockholder's equity as determined under GAAP. "NOTES" means the Revolving Notes and the Term Notes. "OBLIGATION" means all (a) present and future indebtedness, obligations, and liabilities of Borrower to Agent or any Lender and related to any Loan Document, whether principal, interest, fees, costs, attorneys' fees, or otherwise, (b) all present and future indebtedness, obligations, and liabilities of Borrower to Agent or any Lender in respect of any Hedge Contract, (c) amounts that would become due but for operation of 11 U.S.C. (S)(S) 502 and 503 or any other provision of Title 11 of the United States Code, and all renewals, extensions, and modifications of any of the foregoing, and (d) pre- and post- maturity interest on any of the foregoing, including, without limitation, all post-petition interest if any Company voluntarily or involuntarily files for protection under any Debtor Law. Credit Agreement ---------------- 7 "OTHER IMPAIRED ASSETS" means, for Matrix Bank and at any time, assets (excluding Other Real Estate Owned) acquired by Matrix Bank through foreclosure or other realization upon collateral or rearrangement, settlement, or satisfaction of debt. "OTHER REAL ESTATE OWNED" means, for Matrix Bank and at any time, each of its ownership interests (including any option in its favor and any put or similar agreement requiring it to purchase but excluding any Lien constituting a bona fide encumbrance to secure obligations owed to it) in any real property not currently used solely as either a principal banking house, an office, branch, parking facility, remote manned or unmanned teller facility, or real estate acquired for development in the ordinary course of business and that was not acquired through foreclosure or other realization upon collateral or rearrangement, settlement, or satisfaction of debt. "OTS" means the Office of Thrift Supervision. "PARTICIPANT" is defined in SECTION 12.13. "PBGC" means the Pension Benefit Guaranty Corporation. "PERMITTED DEBT" is defined in SECTION 8.1. "PERMITTED LIENS" is defined in SECTION 8.2. "PERMITTED INVESTMENTS" is defined in SECTION 8.3. "PERSON" means any individual, entity, or Tribunal. "POTENTIAL DEFAULT" means any event's occurrence or any circumstance's existence that would (upon any required notice, time lapse, or both) become a Default. "PRINCIPAL DEBT" means, at any time, the outstanding principal balance of all Borrowings. "PURCHASER" is defined in SECTION 12.14. "REFINANCED DEBT" means the Debt described on SCHEDULE 6.7 owed to Banker's Bank of the West, which Debt must be paid in full (and all commitments to extend further Debt canceled) as a condition precedent to, or concurrent with, the initial Borrowing under this agreement. "REPRESENTATIVES" means representatives, officers, directors, employees, attorneys, and agents. "RESPONSIBLE OFFICER" means (a) the chairman, president, chief executive officer, any vice president, or chief financial officer of Borrower to the extent that such officer's name, title, and signature have been certified to Agent by the secretary or an assistant secretary of Borrower or (b) any other officer designated as a "Responsible Officer" in writing to Administrative Agent by any officer in CLAUSE (A) preceding. "REVOLVING FACILITY" is defined in the recitals to this agreement. Credit Agreement ---------------- 8 "REVOLVING NOTE" means one of the promissory notes substantially in the form of EXHIBIT A-2. "RIGHTS" means rights, remedies, powers, privileges, and benefits. "SOLVENT" means, for any Person, that (a) the aggregate fair market value of its assets exceeds its liabilities, (b) it has sufficient cash flow to enable it to pay its Debts as they mature, and (c) it does not have unreasonably small capital to conduct its businesses. "STATED-TERMINATION DATE" means the earlier of either (a) March 12, 1998, or (b) 30 days after the date on which at least 90% of the total Commitments for the Revolving Facility have been funded under SECTION 2.2. "SUBSIDIARY" of any Person means any entity of which at least 50% (in number of votes) of the stock (or equivalent interests) is owned of record or beneficially, directly or indirectly, by that Person. "TAXES" means, for any Person, taxes, assessments, or other governmental charges or levies imposed upon it, its income, or any of its properties, franchises, or assets. "TERM LOAN" is defined in the recitals to this agreement. "TERM NOTE" means one of the promissory notes substantially in the form of EXHIBIT A-1. "TERMINATION PERCENTAGE" means, at any time for any Lender, the proportion (stated as a percentage) that its Principal Debt bears to the total Principal Debt. "TOTAL CAPITAL" means, for Matrix Bank and at any time, the sum of (a) stated par value of its common stock, (b) stated par value of its perpetual preferred stock, if any, (c) its undivided profits, surplus, and retained earnings, (d) its account denominated "loan loss reserve" or "reserve for loan and lease losses," plus (e) its reserve for contingencies. "TOTAL LOANS" means, for Matrix Bank and at any time, the sum of all of its outstanding loans, leases, and advances, net of unearned income. "TRIBUNAL" means any (a) local, state, or federal judicial, executive, or legislative instrumentality, (b) private arbitration board or panel, or (c) central bank. "UCC" means the Uniform Commercial Code as enacted in Texas or other applicable jurisdictions. 1.2 TIME REFERENCES. Unless otherwise specified, in the Loan Documents --------------- (a) time references (e.g., 10:00 a.m.) are to time in Dallas, Texas, and (b) in calculating a period from one date to another, the word "from" means "from and including" and the word "to" or "until" means "to but excluding." 1.3 OTHER REFERENCES. Unless otherwise specified, in the Loan Documents ---------------- (a) where appropriate, the singular includes the plural and vice versa, and words of any gender include each other gender, (b) heading and caption references may not be construed in interpreting provisions, (c) monetary references are to currency of the United States of America, (d) section, paragraph, annex, schedule, exhibit, and similar references are to the particular Loan Document in which they are used, (e) references to Credit Agreement ---------------- 9 "telefax," "telecopy," "facsimile," "fax," or similar terms are to facsimile or telecopy transmissions, (f) references to "including" mean including without limiting the generality of any description preceding that word, (g) the rule of construction that references to general items that follow references to specific items as being limited to the same type or character of those specific items is not applicable in the Loan Documents, (h) references to any Person include that Person's heirs, personal representatives, successors, trustees, receivers, and permitted assigns, (i) references to any Law include every amendment or supplement to it, rule and regulation adopted under it, and successor or replacement for it, and (j) references to any Loan Document or other document include every renewal and extension of it, amendment and supplement to it, and replacement or substitution for it. 1.4 ACCOUNTING PRINCIPLES. Unless otherwise specified, in the Loan --------------------- Documents (a) GAAP in effect on the date of this agreement determines all accounting and financial terms and compliance with all financial covenants, (b) otherwise, all accounting principles applied in a current period must be comparable in all material respects to those applied during the preceding comparable period, and (c) while Borrower has any consolidated Subsidiaries (i) all accounting and financial terms and compliance with reporting covenants must be on a consolidating and consolidated basis, as applicable, and (ii) compliance with financial covenants must be on a consolidated basis. SECTION 2 BORROWINGS. Subject to the provisions in the Loan Documents, each - --------- ---------- Lender severally and not jointly agrees to extend credit to Borrower under the Term Loan and the Revolving Facility in accordance with the following provisions. 2.1 TERM LOAN. Each Lender severally but not jointly agrees to lend to --------- Borrower that Lender's Commitment Percentage of the Term Loan in a single Borrowing on the Closing Date. 2.2 REVOLVING FACILITY. Each Lender severally but not jointly agrees to ------------------ lend to Borrower that Lender's Commitment Percentage of requested Borrowings under the Revolving Facility, which Borrower may borrow, repay, and reborrow under this agreement subject to the following conditions: . Each Borrowing may only occur on a Business Day on or after the Closing Date and before the Actual-Termination Date. . Each Borrowing may only be $500,000 or a greater integral multiple of $100,000. . The Principal Debt of the Revolving Facility may never exceed the lesser of either the total Commitments for the Revolving Facility or the Borrowing Base. . The total Principal Debt owed to any Lender may never exceed that Lender's total Commitments. 2.3 BORROWING PROCEDURE. The following procedures apply to Borrowings: ------------------- (A) BORROWING REQUEST. Borrower may request a Borrowing by making or ----------------- delivering a Borrowing Request to Agent, which is irrevocable and binding on Borrower and must be received by Agent no later than 11:00 a.m. on the Business Day before the requested Borrowing Date. Agent shall promptly on the day received notify each Lender of any Borrowing Request. Credit Agreement ---------------- 10 (B) FUNDING. Each Lender shall remit its Commitment Percentage of ------- each requested Borrowing to Agent's principal office in Dallas, Texas, in funds that are available for immediate use by Agent by 2:00 p.m. on the applicable Borrowing Date. Subject to receipt of those funds, Agent shall (unless to its actual knowledge any of the applicable conditions precedent have not been satisfied by Borrower or waived by the requisite Lenders under SECTION 12.10) make those funds available to Borrower by depositing the funds in Borrower's account with Agent. (C) FUNDING ASSUMED. Absent contrary written notice from a Lender, --------------- Agent may assume that each Lender has made its Commitment Percentage of the requested Borrowing available to Agent on the applicable Borrowing Date, and Agent may, in reliance upon such assumption (but shall not be required to), make available to Borrower a corresponding amount. If a Lender fails to make its Commitment Percentage of any requested Borrowing available to Agent on the applicable Borrowing Date, Agent may recover the applicable amount on demand (i) from that Lender together with interest, commencing on the Borrowing Date and ending on (but excluding) the date Agent recovers the amount from that Lender, at an annual interest rate equal to the Fed- Funds Rate, or (ii) if that Lender fails to pay its amount upon demand, then from Borrower, together with interest, commencing on the Borrowing Date and ending on (but excluding) the date Agent recovers the amount from Borrower, at an annual interest rate equal to the Base Rate No Lender is responsible for the failure of any other Lender to make its Commitment Percentage of any Borrowing available as required by SECTION 2.3(B). However, failure of any Lender to make its Commitment Percentage of any Borrowing so available does not excuse any other Lender from making its Commitment Percentage of any Borrowing so available. 2.4 TERMINATION. Borrower may (upon giving at least ten Business Days ----------- prior written and irrevocable notice to Agent) terminate all or part of the Revolving Facility. Each partial termination must be in an amount of not less than $500,000 or a greater integral multiple of $100,000 and must be ratable in accordance with each Lender's Commitment Percentage. At the time of any termination, Borrower shall pay to Agent, for the account of each Lender, as applicable, any amounts that may then be due under SECTION 3.4, all accrued and unpaid fees under this agreement, and the interest attributable to the amount of that reduction. Any part of the Commitments for the Revolving Facility that are terminated may not be reinstated. SECTION 3 PAYMENT TERMS. - --------- ------------- 3.1 NOTES AND PAYMENTS. ------------------ (A) NOTES. The Principal Debt under the Term Loan is evidenced by the ----- Term Notes, one payable to each Lender in the stated amount of its Commitment for the Term Loan. Principal Debt under the Revolving Facility is evidenced by the Revolving Notes, one payable to each Lender in the stated amount of its Commitment for the Revolving Facility. (B) PAYMENT. Borrower must make each payment and prepayment on the ------- Obligation to Agent's principal office in Dallas, Texas in funds that are (i) immediately available by 1:00 p.m. on the day due (otherwise, but subject to SECTION 3.8, those funds continue to accrue interest as if they were received on the next Business Day and (ii) not (in Agent's or any Lender's good faith judgment) subject to any reasonable grounds for the payment or prepayment lawfully to be required to be rescinded, restored, or returned for any reason (unless Agent or Required Lenders agree to otherwise accept such payment or prepayment). Credit Agreement ---------------- 11 (C) PAYMENT ASSUMED. Unless Agent has received notice from Borrower --------------- prior to the date on which any payment is due under this agreement that Borrower will not make that payment in full, Agent may assume that Borrower has made the full payment due and Agent may, in reliance upon that assumption, cause to be distributed to each Lender on that date the amount then due to each Lender. If and to the extent Borrower does not make the full payment due to Agent, each Lender shall repay to Agent on demand the amount distributed to that Lender by Agent together with interest for each day from the date that Lender received payment from Agent until the date that Lender repays Agent (unless such repayment is made on the same day as such distribution), at an annual interest rate equal to the Fed-Funds Rate. 3.2 PRINCIPAL AND INTEREST PAYMENTS. ------------------------------- (A) TERM LOAN. --------- . The Principal Debt of the Term Loan is payable in 11 consecutive quarterly installments of $71,430 each on the last day of each August, November, February, and May (commencing May 31, 1997), with a final installment in the amount of the unpaid Principal Debt of the Term Loan due on the Maturity Date. . Interest on the Principal Debt of the Term Loan is due and payable as it accrues on each principal payment date described in the preceding sentence. (B) REVOLVING FACILITY. ------------------ . Until the Actual-Termination Date, interest on the Principal Debt of the Revolving Facility is due and payable as it accrues on the 15th day of each calendar month (commencing on the first such date that follows the Closing Date). . Before the Actual-Termination Date, Borrower may prepay and, subject to the terms of the Loan Documents, reborrow the Principal Debt of the Revolving Facility. . If the effective date that Lenders' commitments to lend under this agreement are fully canceled or terminated occurs before the Stated-Termination Date, then the Principal Debt of the Revolving Facility, together with all accrued and unpaid interest on it, is due and payable on the Actual-Termination Date. . If the Stated-Termination Date occurs before the effective date that Lenders' commitments to lend under this agreement are fully canceled or terminated, then (i) the Principal Debt of the Revolving Facility is payable in consecutive quarterly installments, each equal to 1/28th of the Principal Debt of the Revolving Facility on the Stated-Termination Date, on the last day of each February, May, August, and November (commencing on the first of those dates that follows the Stated-Termination Date), with a final installment in the amount of the unpaid Principal Debt of the Revolving Facility due on the Maturity Date, and (ii) interest on the Principal Debt of the Revolving Facility is due and payable as it accrues on each principal payment date described in CLAUSE (I) preceding. 12 3.3 VOLUNTARY PREPAYMENTS. In addition to voluntary prepayments that --------------------- Borrower may make under the Revolving Facility before the Actual-Termination Date, Borrower may prepay, without penalty and in whole or part, the Principal Debt of the Term Loan or the Principal Debt of the Revolving Facility during its term period so long as (a) Borrower gives notice of the prepayment to Agent ten Business Days before the date on which the prepayment is to be made (and Agent will promptly notify Lenders of any such notice), (b) the notice by Borrower specifies the amount to be prepaid, and (c) each voluntary partial prepayment must be equal to the lesser of either the applicable Principal Debt or a principal amount of not less than $500,000 or a greater integral multiple of $100,000, plus accrued interest on the amount prepaid to the date of the prepayment. Those voluntary prepayments shall be applied to installments of Principal Debt of the Term Loan or the term portion of the Revolving Facility, as the case may be, in inverse order of maturity. 3.4 MANDATORY PREPAYMENTS. --------------------- (A) BORROWING EXCESSES. Within five days after any Borrowing Excess ------------------ occurs, Borrower shall make a mandatory prepayment of Principal Debt necessary to eliminate that Borrowing Excess, which shall, if applicable, be applied to installments of Principal Debt of the Term Loan or the term portion of the Revolving Facility, as the case may be, in inverse order of maturity. (B) EXCESS DISTRIBUTIONS. Within 45 days after the last day of each -------------------- fiscal quarter of the Companies, Borrower shall make a mandatory prepayment of Principal Debt equal to the lesser of either (i) Excess Distributions for the preceding fiscal quarter or (ii) the total of the next four installments of Principal Debt due on the Term Loan and, if any, the Revolving Facility. Although such prepayments shall be applied to Principal Debt installments in inverse order of maturity, they shall be applied first to the Term Loan (up to the amount of the next four Principal Debt installments due on the Term Loan) and second to the Revolving Facility. 3.5 INTEREST RATES. The Principal Debt, except as provided in the next -------------- sentence, bears interest at the Base Rate. If lawful, all past-due Principal Debt and past-due interest accruing on any of the foregoing bears interest from the date due (stated or by acceleration) at the Default Rate until paid, regardless whether payment is made before or after entry of a judgment. 3.6 INTEREST RECAPTURE. If the designated interest rate applicable to any ------------------ Borrowing exceeds the Maximum Rate, the interest rate on that Borrowing is limited to the Maximum Rate, but any subsequent reductions in the designated rate shall not reduce the interest rate thereon below the Maximum Rate until the total amount of accrued interest the amount of interest that would have accrued if that designated rate had always been in effect. If at maturity (stated or by acceleration), or at final payment of the Notes, the total interest paid or accrued is less than the interest that would have accrued if the designated rates had always been in effect, then, at that time and to the extent permitted by Law, Borrower shall pay an amount equal to the difference between (a) the lesser of the amount of interest that would have accrued if the designated rates had always been in effect and the amount of interest that would have accrued if the Maximum Rate had always been in effect, and (b) the amount of interest actually paid or accrued on the Notes. Credit Agreement ---------------- 13 3.7 INTEREST CALCULATIONS. Interest will be calculated on the basis of --------------------- actual number of days (including the first day but excluding the last day) elapsed but computed as if each calendar year consisted of 360 days (unless the calculation would result in an interest rate greater than the Maximum Rate, in which event interest shall be calculated on the basis of a year of 365 or 366 days, as the case may be). All interest rate determinations and calculations by Agent are conclusive and binding absent manifest error. 3.8 MAXIMUM RATE. Regardless of any provision contained in any Loan ------------ Document, no Lender is entitled to contract for, charge, take, reserve, receive, or apply, as interest on all or any part of the Obligation, any amount in excess of the Maximum Rate, and, if Lenders ever do so, then any excess shall be treated as a partial prepayment of principal and any remaining excess shall be refunded to Borrower. In determining if the interest paid or payable exceeds the Maximum Rate, Borrower and Lenders shall, to the maximum extent permitted under applicable Law, (a) treat all Borrowings as but a single extension of credit (and Lenders and Borrower agree that is the case and that provision in this agreement for multiple Borrowings is for convenience only), (b) characterize any nonprincipal payment as an expense, fee, or premium rather than as interest, (c) exclude voluntary prepayments and their effects, and (d) amortize, prorate, allocate, and spread the total amount of interest throughout the entire contemplated term of the Obligation. However, if the Obligation is paid in full before the end of its full contemplated term, and if the interest received for its actual period of existence exceeds the Maximum Amount, Lenders shall refund any excess (and Lenders may not, to the extent lawful, be subject to any penalties provided by any Laws for contracting for, charging, taking, reserving, or receiving interest in excess of the Maximum Amount). If the Laws of the State of Texas are applicable for purposes of determining the "Maximum Rate" or the "Maximum Amount," then those terms mean the "indicated rate ceiling" from time to time in effect under Article 5069-1.04, Title 79, Revised Civil Statutes of Texas, as amended. Borrower agrees that Chapter 15, Subtitle 79, Revised Civil Statutes of Texas, 1925, as amended (which regulates certain revolving credit loan accounts and revolving triparty accounts), does not apply to the Obligation. 3.9 ORDER OF APPLICATION. -------------------- (A) NO DEFAULT. If no Default or Potential Default exists, then any ---------- payment shall be applied to the Obligation (except as otherwise specifically provided in the Loan Documents) in the order and manner as Borrower directs. (B) DEFAULT. If a Default or Potential Default exists or if Borrower ------- fails to give direction, any payment (including proceeds from the exercise of any Rights) shall be applied in the following order: (i) To all fees and expenses for which Agent or Lenders have not been paid or reimbursed in accordance with the Loan Documents (and if such payment is less than all unpaid or unreimbursed fees and expenses, then the payment shall be paid against unpaid and unreimbursed fees and expenses in the order of incurrence or due date); (ii) to accrued interest on the Principal Debt; (iii) to the remaining Principal Debt in the order as Determining Lenders may elect; and (iv) to the remaining Obligation in the order and manner Determining Lenders deem appropriate. 3.10 DISTRIBUTIONS TO LENDERS. Unless otherwise specified above, each ------------------------ payment and prepayment shall be distributed to Lenders ratably in accordance with their respective Commitment Percentages or Termination Percentages, as applicable. Credit Agreement ---------------- 14 3.11 SHARING OF PAYMENTS, ETC. If any Lender obtains any payment or ------------------------ prepayment with respect to the Obligation (whether voluntary, involuntary, or otherwise, including, without limitation, as a result of exercising its Rights under SECTION 3.12) that exceeds the part of that payment or prepayment that it is then entitled to receive under the Loan Documents, then that Lender shall purchase from the other Lenders participations that will cause the purchasing Lender to share the excess payment or prepayment ratably with each other Lender. If all or any portion of any excess payment or prepayment is subsequently recovered from the purchasing Lender, then the purchase shall be rescinded and the purchase price restored to the extent of the recovery. Borrower agrees that any Lender purchasing a participation from another Lender under this section may, to the fullest extent permitted by Law, exercise all of its Rights of payment (including the Right of offset) with respect to that participation as fully as if that Lender were the direct creditor of Borrower in the amount of that participation. 3.12 OFFSET. If a Default exists, each Lender is entitled to exercise ------ (for the benefit of all Lenders in accordance with SECTION 3.11) the Rights of offset and banker's Lien against each and every account and other property, or any interest therein, that any Company may now or hereafter have with, or which is now or hereafter in the possession of, that Lender to the extent of the full amount of the Obligation owed (directly or participated) to it. 3.13 CAPITAL ADEQUACY. If any change in any present Laws, any change in ---------------- the interpretation or application of any present Law, or any future Law regarding capital adequacy, or if compliance by any Lender with any request, directive, or requirement imposed in the future by any Tribunal regarding capital adequacy, or if any change in its written policies or in the risk category of this transaction, in any of the foregoing events or circumstances, reduces the rate of return on its capital as a consequence of its obligations under this agreement to a level below that which it otherwise could have achieved (taking into consideration its policies with respect to capital adequacy) by an amount deemed by it to be material (and it may, in determining the amount, utilize reasonable assumptions and allocations of costs and expenses and use any reasonable averaging or attribution method), then (unless the effect is already reflected in the rate of interest then applicable under this agreement) Agent or that Lender (through Agent) shall notify Borrower and deliver to Borrower a certificate setting forth in reasonable detail the calculation of the amount necessary to compensate it (which certificate is conclusive and binding absent manifest error), and Borrower shall pay that amount to Agent or that Lender within five Business Days after demand. The provisions of and undertakings and indemnification in this SECTION 3.13 shall survive the satisfaction and payment of the Obligation and termination of this agreement. 3.14 FOREIGN LENDERS, PARTICIPANTS, AND PURCHASERS. Each Lender, --------------------------------------------- Participant (by accepting a participation interest under this agreement), and Purchaser (by executing an Assignment) that is not organized under the Laws of the United States of America or one of its states (a) represents to Agent and Borrower that (i) no Taxes are required to be withheld by Agent or Borrower with respect to any payments to be made to it in respect of the Obligation and (ii) it has furnished to Agent and Borrower two duly completed copies of either U.S. Internal Revenue Service Form 4224, Form 1001, Form W-8, or any other form acceptable to Agent that entitles it to exemption from U.S. federal withholding Tax on all interest payments under the Loan Documents, and (b) covenants to (i) provide Agent and Borrower a new Form 4224, Form 1001, Form W-8, or other form acceptable to Agent upon the expiration or obsolescence of any previously delivered form according to Law, duly executed and completed by it, and (ii) comply from time to time with all Laws with regard to the withholding Tax exemption. If any of the foregoing is not true or the applicable forms are not provided, then Borrower and Agent (without duplication) may deduct and withhold from interest payments under the Loan Documents United States federal income Tax at the full rate applicable under the IRC. Credit Agreement ---------------- 15 SECTION 4 SECURITY. - --------- -------- 4.1 GUARANTY. Solely as an inducement to Lenders to extend credit under -------- this agreement to Borrower and not in any way as a condition to or inducement to any other extensions of credit by any Lender to any other Company, Borrower shall cause each of its present and future Subsidiaries (other than Matrix Bank and Sterling Trust Company) to unconditionally guarantee the full payment of the Obligation by execution and delivery of a Guaranty. 4.2 COLLATERAL. Borrower shall cause full payment and performance of the ---------- Obligation to be secured by Lender Liens on 100% of the present and future, issued and outstanding common stock of Matrix Bank now or in the future owned by Borrower. The foregoing collateral, together with the additional collateral ever assigned, conveyed, granted, or delivered for any of the Obligation under any Loan Document, if any, and the cash and non-cash proceeds of all of the foregoing, is referred to as the "COLLATERAL." 4.3 FURTHER ASSURANCES. Borrower shall (and shall cause each other ------------------ appropriate Company to) perform the acts, duly authorize, execute, acknowledge, deliver, file, and record any additional writings, and pay all filings fees and costs as Agent or Determining Lenders may reasonably deem appropriate or necessary to perfect and maintain the Lender Liens and preserve and protect the Rights of Agent and Lenders under any Loan Document so long as those additional acts and writings do not increase Borrower's obligations or diminish its Rights provided for in the Loan Documents. 4.4 RELEASE OF COLLATERAL. Upon Borrower's written request and at --------------------- Borrower's cost and expense, Agent shall cause the Lender Liens to be released if (a) no Lender has any commitment to extend credit under any Loan Document, (b) the Obligation has been fully paid and performed, and (c) neither Agent nor any Lender in good faith believes that there are reasonable grounds for any payment or prepayment under any Loan Document lawfully to be required to be rescinded, restored, or returned for any reason. SECTION 5 CONDITIONS PRECEDENT. No Lender is obligated to fund its part of any - --------- -------------------- Borrowing unless Agent has received all of the documents and items described on SCHEDULE 5. In addition, no Lender is obligated to fund its part of any Borrowing unless on the applicable Borrowing Date (and after giving effect to the requested Borrowing): (a) Agent has timely received a Borrowing Request; (b) all of the representations and warranties of Borrower in the Loan Documents are true and correct in all material respects (unless they speak to a specific date or are based on facts which have changed by transactions contemplated or permitted by this agreement); (c) no Default or Potential Default exists; (d) the funding of the Borrowing is permitted by Law and does not cause a Borrowing Excess; and (e) if reasonably requested by Agent, it has received evidence substantiating any of the matters in the Loan Documents that are necessary to enable Borrower to qualify for the Borrowing. Each condition precedent in this agreement (including, without limitation, those on SCHEDULE 5) is material to the transactions contemplated by this agreement, and time is of the essence with respect to each. Subject to first obtaining the approval of all Lenders, Agent or any Lender may fund any Borrowing without all conditions being satisfied. However, to the extent lawful, that funding is not a waiver of the requirement that each condition precedent be satisfied as a prerequisite for any subsequent funding or issuance, unless all Lenders specifically waive an item in writing. Credit Agreement ---------------- 16 SECTION 6 REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to - --------- ------------------------------ Agent and Lenders as follows: 6.1 PURPOSE AND REGULATION U. ------------------------ (A) PURPOSE. Borrower will use the proceeds of the (i) Term Loan to ------- refinance the Refinanced Debt and (ii) Revolving Facility to either make or refinance contributions to capital of Matrix Bank for Matrix Bank's use as working capital for its general corporate purposes. (B) REGULATION U. No Company is engaged principally, or as one of ------------ its important activities, in the business of extending credit for the purpose of purchasing or carrying any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, as amended. No part of the proceeds of any Borrowing will be used, directly or indirectly, for a purpose that violates Regulation U or any other Law. 6.2 COMPANIES. Except as described on SCHEDULE 6.2, Borrower has no --------- Subsidiaries and no Company has used or transacted business under any other corporate or trade name in the six-month period preceding the date of this agreement. Each Company is duly organized, validly existing, and in good standing under the Laws of the jurisdiction in which it is incorporated as stated on SCHEDULE 6.2. Except where failure is not a Material-Adverse Event, each Company (i) is duly qualified to transact business and is in good standing as a foreign corporation or other entity in each jurisdiction where the nature and extent of its business and properties require due qualification and good standing (as described on SCHEDULE 6.2), (ii) possesses all requisite authority, permits, and power to conduct its business as is now being (or is contemplated by this agreement to be) conducted, and (iii) is in compliance with all applicable Laws. Matrix Bank's authorized capital consists of 60,000 shares of common stock, par value $2.50 per share. Borrower owns 100% (45,000 shares) of Matrix Bank's issued and outstanding shares of common stock, all of which are duly authorized, validly issued, fully paid, and nonassessable and not subject to any warrant, option, or other acquisition Right of any Person, subject to any transfer restriction (except restrictions imposed by securities and general corporate Laws), or subject to any Liens (except Lender Liens). 6.3 AUTHORIZATION AND CONTRAVENTION. The execution and delivery by each ------------------------------- Company of each Loan Document to which it is a party and the performance by it of its related obligations (a) are within its corporate power, (b) have been duly authorized by all necessary corporate action, (c) except for any action or filing that has been taken or made on or before the date of this agreement, require no action by or filing with any Tribunal, (d) do not violate any provision of its charter or bylaws, (e) except where not a Material-Adverse Event, do not violate any provision of Law applicable to it or any material agreements to which it is a party, and (f) except for Lender Liens, do not result in the creation or imposition of any Lien on any asset of any Company. 6.4 BINDING EFFECT. Upon execution and delivery by all parties to it, -------------- each Loan Document will constitute a legal and binding obligation of each Company party to it, enforceable against it in accordance with its terms, except as enforceability may be limited by applicable Debtor Laws and general principles of equity. 6.5 FISCAL YEAR. The Companies' fiscal year ends each December 31. ----------- 17 6.6 CURRENT FINANCIALS. The Current Financials were prepared in ------------------ accordance with GAAP and present fairly, in all material respects, the financial condition, results of operations, and cash flows of the Companies as of, and for the portion of the fiscal year ending on their date or dates (subject only to normal year-end adjustments). All material liabilities of the Companies as of the date or dates of the Current Financials are reflected in them or notes to them. Except for transactions directly related to, or specifically contemplated by, the Loan Documents, no subsequent material adverse changes have occurred in the financial condition of the Companies from that shown in the Current Financials, nor has any Company incurred any subsequent material liability. 6.7 DEBT. No Company has any Debt except as described on SCHEDULE 6.7. ---- 6.8 SOLVENCY AND CAPITAL REQUIREMENTS. On the date of each Borrowing, --------------------------------- each Company is, and after giving effect to the requested Borrowing will be, Solvent. Matrix Bank has (and has not received any notice or directive from OTS that it does not have) an amount of capital to satisfy its minimum capital requirements. 6.9 LITIGATION. Except as disclosed on SCHEDULE 6.9 (a) no Company is ---------- subject to, or aware of the threat of, any Litigation that is reasonably likely to be determined adversely to it or, if so adversely determined, would be a Material-Adverse Event, and (b) no outstanding or unpaid judgments against any Company exists. 6.10 TRANSACTIONS WITH AFFILIATES. No Company is a party to a material ---------------------------- transaction with any of its Affiliates except (a) transactions in the ordinary course of business and upon fair and reasonable terms not materially less favorable than it could obtain or could become entitled to in an arm's-length transaction with a Person that was not its Affiliate, and (b) transactions described on SCHEDULE 6.10. 6.11 TAXES. All Tax returns of each Company required to be filed have ----- been filed (or extensions have been granted) before delinquency, except for returns for which the failure to file is not a Material-Adverse Event, and all Taxes imposed upon each Company that are due and payable have been paid before delinquency. 6.12 EMPLOYEE PLANS. Except where occurrence or existence is not a -------------- Material-Adverse Event, (a) no Employee Plan has incurred an "accumulated funding deficiency" (as defined in (S) 302 of ERISA or (S) 412 of the IRC), (b) no Company has incurred liability under ERISA to the PBGC in connection with any Employee Plan, (c) no Company has withdrawn in whole or in part from participation in a Multiemployer Plan, (d) no Company has engaged in any "prohibited transaction" (as defined in (S) 406 of ERISA or (S) 4975 of the IRC), and (e) no "reportable event" (as defined in (S) 4043 of ERISA) has occurred in respect of any Employee Plan, excluding events for which the notice requirement is waived under applicable PBGC regulations. 6.13 PROPERTY AND LIENS. Each Company has good and indefeasible title to ------------------ its real property and marketable title to all its other property reflected on the Current Financials except for property that is obsolete or that has been disposed of in the ordinary course of business or, after the date of this agreement, as otherwise permitted by this agreement. All Collateral is free and clear of any Liens and adverse claims of any nature except as described on SCHEDULE 6.13. Credit Agreement ---------------- 18 6.14 INTELLECTUAL PROPERTY. Subject to the qualification below (a) each --------------------- Company owns all material licenses, patents, patent applications, copyrights, service marks, trademarks, trademark applications, and trade names necessary to continue to conduct its businesses as presently conducted by it and proposed to be conducted by it immediately after the date of this agreement, (b) each Company is conducting its business without infringement or claim of infringement of any license, patent, copyright, service mark, trademark, trade name, trade secret, or other intellectual property right of others, other than any infringements or claims that, if successfully asserted against or determined adversely to that Company, are not a Material-Adverse Event, and (c) no infringement or claim of infringement by others of any material license, patent, copyright, service mark, trademark, trade name, trade secret, or other intellectual property of any Company exists. The Companies have advised Agent and Lenders that the representations and warranties in this SECTION 6.14 are based on information available to them at the time the representations and warranties are made or are reaffirmed in each Borrowing Request based upon the due diligence that is reasonably prudent under the circumstances. Therefore, there may be facts about which no Company is at that time aware that may cause one or more of the representations and warranties in this SECTION 6.14 to be untrue. If so, then (i) that untruth shall constitute a Default under SECTION 10.1(C) to the same extent that it would have otherwise constituted a Default, but (ii) solely for purposes of determining whether any Company has made a false representation to Agent or any Lender for purposes of any alleged criminal violation, then the untrue representation and warranty in this SECTION 6.14 shall be deemed qualified by the existence of those facts so long as the Companies (A) notify Agent and Lenders about those facts promptly after any Company becomes aware of them, and (B) diligently attempt to cause the circumstances to be corrected or remedied so that each affected representation and warranty in this SECTION 6.14 shall thereafter be true and correct in all material respects. 6.15 ENVIRONMENTAL MATTERS. Except where not a Material-Adverse Event, no --------------------- Company (a) knows of any environmental condition or circumstance adversely affecting any Company's properties or operations, (b) has received any report of any Company's violation of any Environmental Law, or (c) knows that any Company is under any obligation to remedy any violation of any Environmental Law. Each Company has taken prudent steps to determine that its properties and operations do not violate any Environmental Law except violations that are not a Material- Adverse Event. 6.16 REGULATIONS. Borrower is duly registered under the Savings and Loan ----------- Holding Company Act. No Company is subject to regulation under the Investment Company Act of 1940, or the Public Utility Holding Company Act of 1935. 6.17 INSURANCE. Each Company maintains with financially sound, --------- responsible, and reputable insurance companies or associations (or, as to workers' compensation or similar insurance, with an insurance fund or by self- insurance authorized by the jurisdictions in which it operates) insurance concerning its properties and businesses against casualties and contingencies and of types and in amounts (and with co-insurance and deductibles) as is customary in the case of similar businesses. 6.18 FULL DISCLOSURE. Each material fact or condition relating to the --------------- Loan Documents or the financial condition, business, or property of the Companies that is a Material-Adverse Event has been disclosed in writing to Agent and Lenders. All information previously furnished by any Company to Agent or any Lender in connection with the Loan Documents was (and all information furnished in the future by any Company to Agent or any Lender will be) true and accurate in all material respects or based on reasonable estimates on the date the information is stated or certified. Credit Agreement ---------------- 19 SECTION 7 AFFIRMATIVE COVENANTS. For so long as any Lender is committed to lend - --------- --------------------- under this agreement and until the Obligation has been fully paid and performed, Borrower covenants and agrees with Agent and Lenders that, without first obtaining Determining Lenders' consent to the contrary: 7.1 REPORTING REQUIREMENTS. Borrower shall cause to be furnished to Agent ---------------------- the following, all in form and detail reasonably satisfactory to Agent: (A) ANNUALLY. Promptly after preparation but no later than 90 days -------- after the last day of each fiscal year of Borrower (i) Financials showing Borrower's consolidated and consolidating financial condition and results of operations as of, and for the year ended on, that last day, (ii) Financials showing Matrix Bank's consolidated and consolidating financial condition and results of operations as of, and for the year ended on, that last day, (iii) solely with respect to the consolidated portion of those Financials, the opinions, without material qualification, of Ernst & Young or of another firm of nationally-recognized independent certified public accountants reasonably acceptable to Determining Lenders, based on audits using generally accepted auditing standards, that the consolidated portion of those Financials were prepared in accordance with GAAP and present fairly, in all material respects, Holdings' and Borrower's respective consolidated financial conditions and results of operations, and (iv) a Compliance Certificate. (B) QUARTERLY. Promptly after preparation but no later than 45 days --------- after the last day of the first three fiscal quarters of Borrower each year (i) Financials showing Borrower's consolidating financial condition and results of operations for that fiscal quarter and for the period from the beginning of the current fiscal year to the last day of that fiscal quarter, (ii) a Compliance Certificate, and (iii) Matrix Bank's most recent call reports or other quarterly and annual reports of condition or income furnished to the FDIC or the OTS. (C) EXAMINATIONS. Promptly but not later than 45 days after receipt ------------ by Matrix Bank and to the extent lawful, copies of all federal regulatory examinations of Matrix Bank, including all calculations of its Risk Based Capital (as described in SECTION 9.5). (D) NOTICES. Notice, promptly after any Company knows or has reason ------- to know, of (i) any notice of intention to cancel or of cancellation of Matrix Bank's Bankers Blanket Bond, (ii) any notice or capital directive from OTS to Matrix Bank indicating that it does not have an amount of capital satisfying its minimum capital requirements or imposing any restrictions on Matrix Bank's ability to declare and pay cash Distributions to Borrower, (iii) the existence and status of any Litigation that, if determined adversely to any Company, would be a Material-Adverse Event, (iv) any change in any material fact or circumstance represented or warranted by any Company in any Loan Document that constitutes a Material- Adverse Event, (v) the receipt by any Company of notice of any violation or alleged violation of ERISA or any Environmental Law or other Law if that violation is a Material-Adverse Event, or (vi) a Default or Potential Default specifying the nature thereof and what action Borrower has taken, is taking, or proposes to take with respect to it. (E) OTHER INFORMATION. Promptly upon reasonable request by Agent or ----------------- Determining Lenders (through Agent), information (not otherwise required to be furnished under the Loan Documents) respecting the business affairs, assets, and liabilities of any Company and opinions, certifications, and documents in addition to those mentioned in this agreement. Credit Agreement ---------------- 20 7.2 USE OF PROCEEDS. Each Company shall use the proceeds of Borrowings --------------- only for the purposes represented in this agreement. 7.3 BOOKS AND RECORDS. Each Company shall maintain books, records, and ----------------- accounts necessary to prepare Financials in accordance with GAAP. 7.4 INSPECTIONS. Upon reasonable request and to the extent lawful, each ----------- Company shall allow Agent, any Lender, or their respective Representatives to inspect any of its properties, to review reports, files, and other records and to make and take away copies, to conduct tests or investigations, and to discuss any of its affairs, conditions, and finances with its directors, officers, employees, or representatives from time to time during reasonable business hours. 7.5 TAXES. Each Company shall promptly pay before delinquency any and all ----- Taxes other than Taxes of which the failure to pay is not a Material-Adverse Event or which are being contested in good faith by lawful proceedings diligently conducted, against which reserve or other provision required by GAAP has been made, and in respect of which levy and execution of any Lien have been and continue to be stayed. 7.6 EXPENSES. Borrower shall pay (a) all reasonable legal fees and -------- expenses incurred by Agent in connection with the preparation, negotiation, and execution of the Loan Documents, (b) all reasonable legal fees and expenses incurred by Agent in connection with each separate future amendment, consent, waiver, or approval requested or agreed to by Borrower and executed in connection with any Loan Document, (c) all fees, charges, or Taxes for the recording or filing of any Loan Document to create or perfect Lender Liens, (d) all other reasonable out-of-pocket expenses of Agent or any Lender in connection with the preparation, negotiation, execution, or administration of the Loan Documents, including courier expenses, (e) all amounts expended, advanced, or incurred by Agent or any Lender to satisfy any obligation of any Company under any Loan Document, to collect the Obligation, or to enforce the Rights of Agent or any Lender under any Loan Document, including all court costs, attorneys' fees (whether for trial, appeal, other proceedings, or otherwise), fees of auditors and accountants, and investigation expenses reasonably incurred by Agent or any Lender in connection with any such matters, and (f) interest at an annual interest rate equal to the Default Rate on each item specified in CLAUSES (A) through (E) above from 30 days after the date of written demand or request for reimbursement. 7.7 MAINTENANCE OF EXISTENCE, ASSETS, AND BUSINESS. Each Company shall ---------------------------------------------- (a) except as permitted by SECTION 8.5, maintain its corporate existence and good standing in its jurisdiction of incorporation and its authority to transact business in all other states where failure to maintain its authority to transact business is a Material-Adverse Event, and (b) maintain all licenses, permits, and franchises necessary for its business where failure to do so is a Material- Adverse Event. 7.8 INSURANCE. Each Company shall (a) maintain with financially sound and --------- reputable insurers, insurance with respect to its assets and business against such liabilities, casualties, risks, and contingencies and in such types and amounts (including a fidelity bond or bonds in form and with coverage, with a company, and with respect to such individuals or groups of individuals) as is customary in the case of Persons engaged in the same or similar businesses and similarly situated and, if applicable, as satisfy prevailing FDIC and OTS applicable requirements, and (b) upon Agent's request, furnish to Agent from time to time a summary of their insurance coverage, in form and substance satisfactory to Agent, and originals or copies of the applicable policies. Credit Agreement ---------------- 21 7.9 SUBSIDIARIES. Borrower shall give Agent 20 days written notice in ------------ advance of the formation or acquisition of any new direct or indirect Subsidiary of Borrower. Within 20 days after any such new Subsidiary's acquisition or formation, Borrower shall, and shall cause the Companies to, fully comply with the applicable provisions of SECTION 4.1. 7.10 INDEMNIFICATION. IN CONSIDERATION OF THE COMMITMENTS BY AGENT AND --------------- LENDERS UNDER THE LOAN DOCUMENTS, BORROWER SHALL INDEMNIFY AND DEFEND AGENT, EACH LENDER, AND THEIR RESPECTIVE AFFILIATES AND REPRESENTATIVES (COLLECTIVELY, THE "INDEMNIFIED PARTIES") -- AND DEFEND THEM AND HOLD EACH OF THEM HARMLESS -- AGAINST ANY AND ALL OUT-OF-POCKET LOSSES, LIABILITIES, CLAIMS, DAMAGES, DEFICIENCIES, INTEREST, JUDGMENTS, COSTS, OR EXPENSES (INCLUDING REASONABLE ATTORNEYS' FEES) INCURRED BY ANY OF THEM ARISING FROM OR BECAUSE OF (A) ANY INVESTIGATION, LITIGATION, OR OTHER PROCEEDING BROUGHT OR THREATENED IN CONNECTION WITH ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS, INCLUDING, WITHOUT LIMITATION, ANY USE BY ANY COMPANY OF THE PROCEEDS OF BORROWINGS, AND (B) ANY REPRESENTATION MADE BY ANY COMPANY UNDER ANY LOAN DOCUMENT. ALTHOUGH EACH INDEMNIFIED PARTY IS ENTITLED TO INDEMNIFICATION FOR ANY INDEMNIFIED PARTY'S ORDINARY NEGLIGENCE, NO INDEMNIFIED PARTY IS ENTITLED TO INDEMNIFICATION FOR ITS OWN GROSS NEGLIGENCE, WILLFUL MISCONDUCT, OR FRAUD. THIS INDEMNITY SURVIVES THE PAYMENT AND PERFORMANCE OF THE OBLIGATION AND TERMINATION OF THE LOAN DOCUMENTS. SECTION 8 NEGATIVE COVENANTS. For so long as any Lender is committed to lend - --------- ------------------ under this agreement and until the Obligation has been fully paid and performed, Borrower covenants and agrees with Agent and Lenders that, without first obtaining Determining Lenders' consent to the contrary, the Companies designated in the following sections of this SECTION 8 may not directly or indirectly do any of the following or commit (other than a commitment that is not binding on any Company until any prior written consent of Determining Lenders is first obtained) to do any of the following: 8.1 DEBT. Neither Borrower nor Matrix Bank may create, incur, or permit ---- to exist any Debt except the following (collectively, the "PERMITTED DEBT"): (A) EXISTING DEBT. The existing Debt that is described on SCHEDULE ------------- 6.7 (other than Refinanced Debt) and all renewals, extensions, amendments, modifications, and refinancings of (but not any principal increases after the date of this agreement to) any of that Debt. (B) THIS TRANSACTION. The Obligation and Guaranties delivered under ---------------- this agreement. (C) TO BORROWER. Debt of Matrix Bank to Borrower to the extent that ----------- the creation of it constitutes a Permitted Investment. (D) OTHER DEBT. Other Debt incurred by either Borrower or Matrix Bank ---------- that never exceeds $1,000,000 in total-principal amount outstanding for both Borrower and Matrix Bank, together with renewals, extensions, amendments, modifications, and refinancings of that Debt and those obligations subject to the foregoing limitations of this CLAUSE (D). (E) MISCELLANEOUS. Hedging Contracts; trade payables, accrued Taxes, ------------- and other liabilities that do not constitute Debt for borrowed money or Capital Leases; and endorsements of negotiable instruments in the ordinary course of business. Credit Agreement ---------------- 22 8.2 LIENS. Neither Borrower nor Matrix Bank may create, incur, permit to ----- exist, or enter into any arrangement or agreement (except the Loan Documents) that directly or indirectly prohibits any Company from creating or incurring any Lien on any of its assets, or create, incur, permit to exist, or commit to create or incur any Lien on any of its assets except the following (collectively, the "PERMITTED LIENS"): (A) EXISTING LIENS. The existing Liens that are described on SCHEDULE -------------- 6.13 (to the extent that such schedule does not indicate they are to be extinguished as a condition precedent to, or concurrent with, the initial Borrowing under this agreement) and all renewals, extensions, amendments, and modifications of any of them to the extent that the total-principal amount each individually secures never exceeds the total-principal amount secured by it on the date of this agreement. (B) THIS TRANSACTION. Lender Liens. ---------------- (C) OPERATING LEASES. Any interest or title of a lessor in assets ---------------- being leased under an operating lease that does not constitute Debt. (D) HEDGING CONTRACTS. Liens arising under Hedging Contracts that do ----------------- not cover any Collateral. (E) PURCHASE MONEY. Liens that secure any of the Permitted Debt -------------- described in SECTION 8.1(D) (together with any renewal, extension, amendment, or modification of any such Lien) so long as each such Lien never cover any assets except the assets acquired, constructed, or improved with the directly related Permitted Debt. (F) SETOFFS. Subject to any limitations imposed upon them in the Loan ------- Documents, rights of set off or recoupment and banker's Liens. (G) INSURANCE. Pledges or deposits (to the extent that they do that --------- may not cover any Collateral except cash proceeds of Collateral arising in the ordinary course of business) made to secure payment of workers' compensation, unemployment insurance, or other forms of governmental insurance or benefits or to participate in any fund in connection with workers' compensation, unemployment insurance, pensions, or other social security programs. (H) BIDS AND BONDS. Good-faith pledges or deposits (to the extent -------------- that they do not cover any Collateral except cash proceeds of Collateral arising in the ordinary course of business) (i) for 10% or less of the amounts due under (and made to secure) any Company's performance of bids, tenders, contracts (except for the repayment of borrowed money), (ii) in respect of any operating lease, that are for up to but not more than the greater of either 10% of the total rental obligations for the term of the lease or 50% of the total rental obligations payable during the first year of the lease, or (iii) made to secure statutory obligations, surety or appeal bonds, or indemnity, performance, or other similar bonds benefitting any Company in the ordinary course of its business. (I) PROPERTY RESTRICTIONS. Zoning and similar restrictions on the use --------------------- of, and easements, restrictions, covenants, title defects, and similar encumbrances on, real property that Credit Agreement ---------------- 23 do not materially impair the use of the real property and that are not violated by existing or proposed structures or land use. (J) INCHOATE LIENS. If no Lien has been filed in any jurisdiction or -------------- agreed to (i) claims and Liens for Taxes not yet due and payable, (ii) mechanic's Liens and materialman's Liens for services or materials and similar Liens incident to construction and maintenance of real property, in each case for which payment is not yet due and payable, (iii) landlord's Liens for rental not yet due and payable, and (iv) Liens of warehousemen and carriers and similar Liens securing obligations that are not yet due and payable. (K) MISCELLANEOUS. Any of the following to the extent that the ------------- validity or amount is being contested in good faith and by appropriate and lawful proceedings diligently conducted, reserve or other appropriate provision (if any) required by GAAP has been made, levy and execution has not issued or continues to be stayed, they do not individually or collectively detract materially from the value of the property of the Person in question or materially impair the use of that property in the operation of its business, and (other than any such Liens given statutory priority) they are subordinate to the Lender Liens to the extent that they cover any Collateral: (i) Claims and Liens for Taxes; (ii) claims and Liens upon, and defects of title to, real or personal property, including any attachment of personal or real property or other legal process before adjudication of a dispute on the merits; (iii) claims and Liens of mechanics, materialmen, warehousemen, carriers, landlords, or other like Liens; (iv) Liens incident to construction and maintenance of real property; and (v) adverse judgments, attachments, or orders on appeal for the payment of money. 8.3 INVESTMENTS. Borrower may not make any Investments except the ----------- following (collectively, "PERMITTED INVESTMENTS"): (A) GOVERNMENT SECURITIES. Government Securities. --------------------- (B) STATE OBLIGATIONS. Readily marketable direct obligations of any ----------------- state of the United States of America given on the date of such investment a credit rating of at least Aa by Moody's Investors Service, Inc., or AA by Standard & Poor's Corporation, in each case due within one year from the making of the investment. (C) CERTIFICATES OF DEPOSIT, ETC. Certificates of deposit issued by, ----------------------------- bank deposits in, eurocurrency deposits through, bankers' acceptances of, and repurchase agreements covering Government Securities executed by (i) any Lender or (ii) any domestic bank or any domestic branch or office of a foreign bank, in either case having on the date of the investment a short- term certificate of deposit credit rating of at least P-2 by Moody's Investors Service, Inc., or A-2 by Standard & Poor's Corporation, in each case due within one year after the date of the making of the investment. (D) GOVERNMENT REPOS. Repurchase agreements covering Government ---------------- Securities executed by a broker or dealer registered under Section 15(b) of the Securities Exchange Act of 1934 having on the date of the investment capital of at least $100,000,000, due within 30 days after the date of the making of the investment, so long as the maker of the investment receives written confirmation of the transfer to it of record ownership of the Government Securities on the Credit Agreement ---------------- 24 books of a "primary dealer" in the Government Securities as soon as practicable after the making of the investment. (E) COMMERCIAL PAPER. Readily marketable commercial paper of domestic ---------------- corporations doing business in the United States of America or any of its states or of any corporation that is the holding company for a bank described in CLAUSE (C) above and having on the date of the investment a credit rating of at least P-1 by Moody's Investors Service, Inc., or A-1 by Standard & Poor's Corporation, in each case due within 90 days after the date of the making of the investment. (F) PREFERRED STOCK. "Money market preferred stock" issued by a --------------- domestic corporation given on the date of the investment a credit rating of at least Aa by Moody's Investors Services, Inc., and AA by Standard & Poor's Corporation, in each case having an investment period not exceeding 50 days, so long as (i) the amount of all of those investments issued by the same issuer does not exceed $5,000,000 and (ii) the total amount of all of those investments does not exceed $10,000,000. (G) MUTUAL FUNDS. A readily redeemable "money market mutual fund" ------------ sponsored by a bank described in CLAUSE (C) above, or a registered broker or dealer described in CLAUSE (D) above, that has and maintains an investment policy limiting its investments primarily to instruments of the types described in CLAUSES (A) through (F) above and has on the date of those investment total assets of at least $1,000,000,000. (H) OTHER COMPANIES. Investments by Borrower in any other Company in --------------- compliance with SECTION 4.1. (I) DIRECTORS, ETC.. Loans or advances to directors, officers, and --------------- employees of the Borrower that never exceed a total of $1,000,000 in principal-amount outstanding. (J) CUSTOMERS. Indebtedness of its customers created in its ordinary --------- course of business in a manner consistent with its present practices. (K) HEDGE CONTRACTS. Hedge Contracts. --------------- For purposes of this SECTION 8.3, the total amount outstanding of any Investment by any Person in any other Person is to be determined net of repayments and dividends to, and sales of securities of the second Person by, the first Person. 8.4 DISTRIBUTIONS. Borrower may not pay or declare any Distribution ------------- during any fiscal year except (a) dividends payable solely in the form of capital stock, and (b) cash distributions to Borrower's shareholders (i) in an amount not to exceed the sum of (A) 50% of Borrower's net cash income, minus (B) non-cash income and cash Taxes), and (ii) if Default or Potential Default exists or would be created by the Distribution. 8.5 MERGER OR CONSOLIDATION. No Company may merge or consolidate with or ----------------------- into any other Person except that any Company may merge into or be consolidated with any other Company so long as Borrower is the surviving corporation if it is involved. Credit Agreement ---------------- 25 8.6 DISPOSITIONS OF ASSETS. Neither Borrower nor Matrix Bank may sell, ---------------------- assign, lease, transfer, or otherwise dispose of any of its assets (including, without limitation, equity interests in any other Company) except (a) sales and dispositions in the ordinary course of business for a fair and adequate consideration and (b) sales of assets which are obsolete or are no longer in use and which are not significant to the continuation of that Company's business. 8.7 USE OF PROCEEDS. Borrower may not use the proceeds of Borrowings (a) --------------- for any purpose other than as represented in this agreement, (b) for wages of employees, unless a timely payment to or deposit with the United States of America of all amounts of Tax required to be deducted and withheld with respect to such wages is also made, or (c) in violation of the representation in SECTION 6.1. 8.8 TRANSACTIONS WITH AFFILIATES. No Company may directly or indirectly ---------------------------- enter into any transaction with any of its Affiliates other than (a) transactions between Companies that are in compliance with SECTION 4.1 and (b) other transactions in the ordinary course of business or upon fair and reasonable terms not materially less favorable than it could obtain or could become entitled to in an arm's-length transaction with a Person that was not its Affiliate. 8.9 EMPLOYEE PLANS. Except where a Material-Adverse Event would not -------------- result, no Company may directly or indirectly permit any of the events or circumstances described in SECTION 6.12 to exist or occur. 8.10 COMPLIANCE WITH LAWS AND DOCUMENTS. No Company may directly or ---------------------------------- indirectly (a) violate the provisions of any Laws applicable to it or of any Material Agreement to which it is a party if that violation alone or with all other violations is a Material-Adverse Event or (b) violate the provisions of its charter or bylaws or repeal, replace or amend any provision of its charter or bylaws if any such action is a Material-Adverse Event. 8.11 GOVERNMENT REGULATIONS. No Company (other than United Capital ---------------------- Markets, Inc.) may directly or indirectly conduct its business in a way that it becomes regulated under the Investment Company Act of 1940. 8.12 FISCAL YEAR ACCOUNTING. No Company may directly or indirectly change ---------------------- its fiscal year nor use any accounting method other than GAAP. 8.13 NEW BUSINESSES. No Company may directly or indirectly engage in any -------------- business except the businesses in which it or any of its Affiliates is presently engaged and any other reasonably-related business. 8.14 ASSIGNMENT. No Company may directly or indirectly assign or transfer ---------- any of its Rights, duties, or obligations under any of the Loan Documents. SECTION 9 FINANCIAL COVENANTS. For so long as any Lender is committed to lend - --------- ------------------- under this agreement and until the Obligation has been fully paid and performed, Borrower covenants and agrees with Agent and Lenders that, without first obtaining Determining Lenders' consent to the contrary, it may not directly or indirectly permit any of the following to occur or exist, as measured (unless otherwise stated) at the end of each of the Companies' fiscal quarters included below: Credit Agreement ---------------- 26 9.1 NET WORTH. The Companies' Net Worth from and after December 31, 1996, --------- to be less than the sum of (a) $27,500,000 plus (b) 50% of the Companies' cumulative Net Income (without deduction for losses) after December 31, 1996, plus (iii) 100% of the net (i.e., gross proceeds less usual and customary underwriting, placement, and other related costs and expenses) proceeds of the issuance (upon sale, conversion, or otherwise) of any equity securities by Borrower after the date of this agreement. 9.2 ADJUSTED DEBT/NET WORTH. The ratio of the Companies' Adjusted Debt to ----------------------- Net Worth to exceed 4.0 to 1.0. 9.3 CASH FLOW/CMLTD. The ratio of the Companies' Cash Flow to CMLTD to be --------------- less than 1.5 to 1.0 for any four-fiscal-quarter period ending on or after March 31, 1997. 9.4 NET INCOME. Matrix Bank's Net Income to be less than $2,500,000 for ---------- any fiscal year ending on or after December 31, 1997. 9.5 CAPITAL RATIO. Matrix Bank fails to maintain either (a) a "well ------------- capitalized" designation from OTS with respect to its minimum "Risk Based Capital," as defined in 12 C.F.R. (S) 565.4(b)(1), or (b) a "Risk Based Capital Ratio," in 12 C.F.R. (S) 567.2(a)(1) of not less than 10%. 9.6 LEVERAGE RATIO. Matrix Bank fails to maintain either (a) a "well -------------- capitalized" designation from OTS with respect to its "Leverage," as defined in 12 C.F.R. (S) 565.4(b)(1), or (b) a "Leverage Ratio," in 12 C.F.R. (S) 567.2(a)(2)(ii) of not less than 5.0%. 9.7 CLASSIFIED ASSETS/TOTAL CAPITAL. The ratio of Matrix Bank's ------------------------------- Classified Assets to Total Capital (stated as a percentage) to exceed 75%. 9.8 NET CHARGE OFFS/TOTAL LOANS. The ratio of Matrix Bank's Net Charge --------------------------- Offs to Total Loans (stated as a percentage) to exceed 0.50%. 9.9 ADJUSTED ASSETS/TOTAL ASSETS. The ratio of Matrix Bank's Adjusted ---------------------------- Assets to total assets (stated as a percentage) to be less than the greater of either (a) the minimum percentage required by (S) 10(m) of the Home Owners' Loan Act for "QTL" or (b) 60%. SECTION 10 DEFAULTS AND REMEDIES. - ---------- --------------------- 101. DEFAULT. The term "DEFAULT" means the existence or occurrence of any ------- one or more of the following: (A) OBLIGATION. Borrower fails to pay (i) any interest on the ---------- Obligation when due under the Loan Documents and that failure continues for five days or (ii) any other part of the Obligation when due under the Loan Documents. (B) COVENANTS. Any Company fails to punctually and properly perform, --------- observe, and comply with any (i) any covenant, agreement, or condition under SECTIONS 8 or 9 or (ii) any covenant, agreement, or condition contained in any of the Loan Documents -- other than covenants to pay the Obligation and the covenants listed in CLAUSE (I) above -- and that failure Credit Agreement ---------------- 27 continues for a period of 30 calendar days after any Company has, or, with the exercise of reasonable investigation, should have, notice of it. (C) MISREPRESENTATION. Any material statement, warranty, or ----------------- representation by or on behalf of any Company or Guarantor in any Loan Document or other writing authored by any Company or Guarantor and furnished in connection with the Loan Documents, proves to have been incorrect or misleading in any material respect as of the date made or deemed made. (D) DEBTOR LAW. Any Company or Guarantor (i) is not Solvent, (ii) ---------- fails to pay its Debts generally as they become due, (iii) voluntarily seeks, consents to, or acquiesces in the benefit of any Debtor Law, or (iv) becomes a party to or is made the subject of any proceeding provided for by any Debtor Law (other than as a creditor or claimant) that could suspend or otherwise adversely affect the Rights of Agent or any Lender granted in the Loan Documents unless, if the proceeding is involuntary, the applicable petition is dismissed within 60 days after its filing. (E) MATRIX FINANCIAL LOAN AGREEMENT. Either (i) the occurrence of a ------------------------------- Default, as defined in the Matrix Financial Loan Agreement or (ii) 90-days elapse after the commitments to lend under the Matrix Financial Loan Agreement are canceled or terminated in accordance with the terms of that agreement or are not extended beyond their current expiration. (F) OTHER DEBT. Any Company or Guarantor fails to make any payment ---------- due on any Debt or security (with respect to which any Company or Guarantor has redemption, sinking fund, or other purchase obligations) or any event occurs or any condition exists in respect of any Debt or security of any Company or Guarantor, the effect of which is (i) to cause or to permit any holder of that Debt or security or a trustee to cause (whether or not it elects to cause) any of that Debt or security to become due before its stated maturity or its regularly scheduled payment dates, or (ii) to permit a trustee or the holder of any security (other than common stock of any Company or Guarantor) to elect (whether or not it does elect) a majority of the directors on the board of directors of that Company or Guarantor. (G) JUDGMENTS. Any Company or Guarantor fails to pay any money --------- judgment of $50,000 or more against it at least ten days prior to the date on which any of the assets of that Company or Guarantor may be lawfully sold to satisfy that judgment. (H) ATTACHMENTS. The failure to have discharged within a period of 30 ----------- days after the commencement of any attachment, sequestration, or similar proceeding against any of the assets of any Company or Guarantor. (I) UNENFORCEABILITY. Any material provision of any Loan Document for ---------------- any reason ceases to be in full force and effect or is fully or partially declared null and void or unenforceable or the validity or enforceability of any Loan Document is challenged or denied by any Company. (J) CHANGE OF CONTROL. Any (i) material change in the ownership or ----------------- management of Borrower or any Guarantor from that ownership and senior management as it exists on the date of this agreement or (ii) failure to provide advance notice of any change in ownership or management. Credit Agreement ---------------- 28 (K) CAPITAL REQUIREMENTS OR RESTRICTIONS/BANKERS BOND. Matrix Bank ------------------------------------------------- (i) has (or receives notice or a directive from OTS that it has) inadequate capital to satisfy its minimum capital requirements, (ii) receives any notice or capital directive from OTS restricting its ability to pay cash Distributions to Borrower, or (iii) receives notice of intention to cancel or of cancellation of its Bankers Blanket Bond. 10.2 REMEDIES. -------- (A) DEBTOR LAW. Upon the occurrence of a Default under SECTION ---------- 10.1(D), the commitments of Lenders to extend credit under this agreement automatically terminate and the full Obligation is automatically due and payable, without presentment, demand, notice of default, notice of the intent to accelerate, notice of acceleration, or other requirements of any kind, all of which are expressly waived by Borrower. (B) OTHER DEFAULTS. While a Default exists -- other than those -------------- described in CLAUSE (A) above -- Agent may and, upon the direction of Determining Lenders, shall declare the Obligation to be immediately due and payable, whereupon it shall be due and payable, whereupon the commitments of Lenders to extend credit under this agreement are then automatically terminated. (C) OTHER REMEDIES. Following the termination of the commitments of -------------- Lenders to extend credit under this agreement and the acceleration of the Obligation, Agent may (and, at the direction of Determining Lenders, shall) do any one or more of the following: (i) Reduce any claim to judgment; (ii) foreclose upon or otherwise enforce any Lender Liens; and (iii) exercise any other Rights in the Loan Documents, at Law, in equity, or otherwise that Determining Lenders may direct. Should any Default continue that, in Agent's opinion, materially and adversely affects the Collateral or the interests of the Lenders under this agreement, Agent may, in a notice to the Lenders of that Default set forth one or more actions that Agent, in its opinion, believes should be taken. Unless otherwise directed by Determining Lenders (excluding the Lender serving as Agent) within ten days following the date of the notice setting forth the proposed action or actions, Agent may, but shall not be obligated to, take the action or actions set forth in that notice. 10.3 RIGHT OF OFFSET. Borrower hereby grants to Agent and to each Lender --------------- a right of offset, to secure the repayment of the Obligation, upon any and all monies, securities, or other property of Borrower, and the proceeds therefrom now or hereafter held or received by or in transit to Agent or such Lender from or for the account of Borrower, whether for safekeeping, custody, pledge, transmission, collection, or otherwise, and also upon any and all deposits (general or special, time or demand, provisional or final) and credits of Borrower, and any and all claims of Borrower against Agent or such Lender, at any time existing. While a Default exists, Agent and each Lender are authorized at any time and from time to time, without notice to either Company, to offset, appropriate, and apply any and all of those items against the Obligation, subject to SECTION 3.9. 10.4 WAIVERS. Borrower waives any right to require Agent to (a) proceed ------- against any Person, (b) proceed against or exhaust any of the Collateral or pursue its Rights and remedies as against the Collateral in any particular order, or (c) pursue any other remedy in its power. Borrower and each surety, endorser, guarantor, pledgor, and other party ever liable or whose property is ever liable for payment of any of the Obligation jointly and severally waive presentment and demand for payment, protest, notice of intention to accelerate, notice of acceleration, and notice of protest and nonpayment, and agree that their or their property's liability with respect to the Obligation, or any part thereof, shall not be affected by any 29 renewal or extension in the time of payment of the Obligation, by any indulgence, or by any release or change in any security for the payment of the Obligation, and hereby consent to any and all renewals, extensions, indulgences, releases, or changes, regardless of the number thereof. 10.5 PERFORMANCE BY AGENT. Should any covenant, duty, or agreement of any -------------------- Company fail to be performed in accordance with the terms of this agreement or of any document delivered under this agreement, Agent may, at its option, after notice to Borrower, as the case may be, perform, or attempt to perform, such covenant, duty, or agreement on behalf of that Company and shall notify each Lender that it has done so. In such event, Borrower shall jointly and severally, at the request of Agent, promptly pay any amount expended by Agent in such performance or attempted performance to Agent at its principal place of business, together with interest thereon at the Maximum Rate from the date of such expenditure by Agent until paid. Notwithstanding the foregoing, it is expressly understood that Agent does not assume and shall never have, except by express written consent of Agent, any liability or responsibility for the performance of any duties of any Company under this agreement or under any other document delivered under this agreement. 10.6 NO RESPONSIBILITY. Except in the case of fraud, gross negligence, or ----------------- willful misconduct, neither Agent nor any of its officers, directors, employees, or attorneys shall assume -- or ever have any liability or responsibility for -- any diminution in the value of the Collateral or any part of the Collateral. 10.7 NO WAIVER. The acceptance by Agent or any Lender at any time and --------- from time to time of partial payment or performance by any Company of any of their respective obligations under this agreement or under any Loan Document shall not be deemed to be a waiver of any Default then existing. No waiver by Agent or any Lender shall be deemed to be a waiver of any other then existing or subsequent Default. No delay or omission by Agent or any Lender in exercising any right under this agreement or under any other document required to be executed under or in connection with this agreement shall impair such right or be construed as a waiver thereof or any acquiescence therein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof, or the exercise of any other right under this agreement or otherwise. 10.8 CUMULATIVE RIGHTS. All Rights available to Agent and the Lenders ----------------- under this agreement or under any other document delivered under this agreement shall be cumulative of and in addition to all other Rights granted to Agent and the Lenders at Law or in equity, whether or not the Notes be due and payable and whether or not Agent shall have instituted any suit for collection, foreclosure, or other action in connection with this agreement or any other document delivered under this agreement. 10.9 RIGHTS OF INDIVIDUAL LENDERS. No Lender shall have any right by ---------------------------- virtue of, or by availing itself of, any provision of this agreement to institute any actions or proceedings at Law, in equity, or otherwise (excluding any actions in bankruptcy), upon or under or with respect to this agreement, or for the appointment of a receiver, or for any other remedy under this agreement, unless (a) the Determining Lenders previously shall have given to Agent written notice of a Default and the continuance thereof, including a written request upon Agent to institute such action or proceedings in its own name and offering to indemnify Agent against the costs, expenses and liabilities to be incurred therein or thereby, (b) Agent, for ten Business Days after its receipt of such notice, shall have failed to institute any such action or proceeding, and (c) no direction inconsistent with such written request shall have been given to Agent by Determining Lenders. It is understood and intended, and expressly covenanted by the taker and holder of every Note with every other taker and holder and Agent, that no one or more holders of Notes shall have any right in any manner whatever by virtue, or by availing itself, of any provision of Credit Agreement ---------------- 30 this agreement to affect, disturb or prejudice the Rights of any other Lenders, or to obtain or seek to obtain priority over or preference to any other such Lender, or to enforce any right under this agreement, except in the manner herein provided and for the equal, ratable and common benefit of all Lenders. For the protection and enforcement of the provisions of this SECTION 10.9, each and every Lender and Agent shall be entitled to such relief as can be given either at law or in equity. 10.10 NOTICE TO AGENT. Should any Default or Potential Default occur and --------------- be continuing, any Lender having actual knowledge thereof shall notify Agent and Borrower of the existence thereof, but the failure of any Lender to provide that notice shall not prejudice that Lender's Rights under this agreement. 10.11 COSTS. All court costs, reasonable attorneys' fees, other costs of ----- collection, and other sums spent by Agent or any Lender in the exercise of any Right provided in any Loan Document is payable to Agent or that Lender, as the case may be, on demand, is part of the Obligation, and bears interest at the Default Rate from the date paid by Agent or any Lender to the date repaid by Borrower. SECTION 11 AGENT. - ---------- ----- 11.1 AUTHORIZATION AND ACTION. Each Lender hereby appoints Agent as Agent ------------------------ under the Loan Documents and authorizes Agent to take such action on its behalf and to exercise such powers and perform such duties as are expressly delegated to Agent by the terms of the Loan Documents, together with such powers as are reasonably incidental thereto. As to any matter not expressly provided for by this agreement (including, without limitation, enforcement or collection of the Notes), Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of Lenders, and those instructions shall be binding upon all Lenders and all holders of the Notes. However, that Agent shall not be required to take any action that exposes Agent to personal liability or that is contrary to this agreement or applicable Laws. Agent agrees to give to each Lender prompt notice of each notice given to it by Borrower pursuant to the terms of the Loan Documents. 11.2 AGENT'S RELIANCE, ETC. Notwithstanding anything to the contrary in ---------------------- any Loan Document, neither Agent nor any of its Representatives shall be liable for any action taken or omitted to be taken by it or them under or in connection with the Loan Documents, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, Agent: (a) May treat the payee of any Note as the holder thereof; (b) may consult with legal counsel (including counsel for Borrower), independent public accountants and other experts selected by it or Borrower and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (c) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties, or representations made in or in connection with the Loan Documents; (d) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this agreement on the part of Borrower or to inspect the property (including the books and records) of Borrower; (e) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this agreement or any other instrument or document furnished pursuant hereto; and (f) shall incur no liability under or in respect of this agreement by acting upon any notice, consent, certificate or other instrument or writing (which may be by telecopy) believed by it to be genuine and signed or sent by the proper party or parties. Credit Agreement ---------------- 31 11.3 AGENT AND AFFILIATES. With respect to Borrowings made by it, and the -------------------- one or more Notes issued to it, Agent shall have the same rights and powers under this agreement and the other Loan Documents as any other Lender and may exercise the same as though it were not the Agent; and the term "Lender" or "Lenders" shall, unless otherwise expressly indicated, include Agent in its individual capacity. Agent and the Affiliates of Agent may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, Borrower, any of its Affiliates and any Person who may do business with or own securities of Borrower or any of its Affiliates, all as if Agent was not Agent and without any duty to account therefor to Lenders. 11.4 CREDIT DECISION. Each Lender acknowledges that it has, independently --------------- and without reliance upon Agent or any other Lender, and based on the financial statements referred to in SECTIONS 6.6 and 7.1 of this agreement and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter this agreement. Each Lender also acknowledges that it will, independently and without reliance upon Agent or any Lender, and based on such documents and information as it shall deem appropriate at the time, make its own credit decisions in taking or not taking action under this agreement. 11.5 INDEMNIFICATION. LENDERS SHALL INDEMNIFY AGENT (TO THE EXTENT NOT --------------- REIMBURSED BY BORROWER), RATABLY ACCORDING TO THEIR RESPECTIVE COMMITMENT PERCENTAGES, FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, JUDGMENTS, SUITS, COSTS, EXPENSES, OR DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST AGENT IN ANY WAY RELATING TO OR ARISING OUT OF THIS AGREEMENT OR ANY ACTION TAKEN OR OMITTED BY AGENT UNDER THIS AGREEMENT (INCLUDING ANY OF SAME WHICH MAY RESULT FROM THE NEGLIGENCE, BUT NOT GROSS NEGLIGENCE, OF AGENT). HOWEVER, NO LENDER SHALL BE LIABLE FOR ANY PORTION OF THOSE LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES, OR DISBURSEMENTS RESULTING FROM AGENT'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. WITHOUT LIMITATION OF THE FOREGOING, EACH LENDER SHALL REIMBURSE AGENT PROMPTLY UPON DEMAND FOR ITS RATABLE SHARE OF ANY OUT-OF-POCKET EXPENSES (INCLUDING COUNSEL FEES) INCURRED BY AGENT IN CONNECTION WITH THE PREPARATION, EXECUTION, DELIVERY, ADMINISTRATION, MODIFICATION, AMENDMENT, OR ENFORCEMENT (WHETHER THROUGH NEGOTIATIONS, LEGAL PROCEEDINGS, OR OTHERWISE) OF, OR LEGAL ADVICE IN RESPECT OF RIGHTS OR RESPONSIBILITIES UNDER, THIS AGREEMENT, TO THE EXTENT THAT AGENT IS NOT REIMBURSED FOR SUCH EXPENSES BY BORROWER. 11.6 SUCCESSOR AGENT. Agent may resign at any time by giving written --------------- notice thereof to Lenders and Borrower and may be removed at any time with or without cause by 100% of Lenders. Upon any such resignation or removal, 100% of Lenders shall have the right to appoint a successor Agent in the capacity of Agent. If no successor Agent shall have been so appointed by 100% of Lenders, and shall have accepted such appointment, within 30 days after the retiring Agent's giving of notice of resignation or the Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf of Lenders, appoint a successor Agent, which shall be a commercial bank or savings bank organized under the laws of the United States of America or of any state thereof which has a combined capital and surplus of at least $200,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges, and duties of the retiring Agent, and the retiring Agent shall be discharged from any further duties, and obligations under this agreement. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this article shall inure to its benefit as to any actions taken or omitted to be taken by it Credit Agreement ---------------- 32 while it was Agent under this agreement. The appointment of a successor Agent shall not release the retiring Agent from any liability it may have for any actions taken or omitted to be taken by it while it was Agent under this agreement. SECTION 12 MISCELLANEOUS. - ---------- ------------- 12.1 NONBUSINESS DAYS. Any action that is due under any Loan Document on ---------------- a non-Business Day may be delayed until the next Business Day. However, interest accrues on any payment until it is made. 12.2 COMMUNICATIONS. Unless otherwise stated, a communication under any -------------- Loan Document to a party to this agreement must be written to be effective and is deemed given: . For Borrowing Requests, only when actually received by Agent. . Otherwise, if by fax, when transmitted to the appropriate fax number (but, without affecting the date deemed given, the fax must be promptly confirmed by telephone). . Otherwise, if by mail, on the third Business Day after enclosed in a properly addressed, stamped, and sealed envelope deposited in the appropriate official postal service. . Otherwise, when actually delivered. Until changed by written notice to each other party to this agreement, the address and fax number are stated for (a) Borrower and Agent, beside their names on the signature pages below, and (b) each Lender, beside its name on SCHEDULE 2. 12.3 FORM AND NUMBER OF DOCUMENTS. The form, substance, and number of ---------------------------- counterparts of each writing to be furnished under the Loan Documents must be satisfactory to Agent and its counsel. 12.4 EXCEPTIONS TO COVENANTS. An exception to any Loan Document covenant ----------------------- does not permit violation of any other Loan Document covenant. 12.5 SURVIVAL. All Loan Document provisions survive all closings and are -------- not affected by any investigation made by any party. 12.6 GOVERNING LAW. Unless otherwise stated, each Loan Document must be ------------- construed and its performance enforced under the Laws of the State of Texas and the United States of America. 12.7 INVALID PROVISIONS. If any provision of a Loan Document is ------------------ judicially determined to be unenforceable, all other provisions of it remain enforceable. If the provision determined to be unenforceable is a material part of that Loan Document, then, to the extent lawful, it shall be replaced by a judicially-construed provision that is enforceable but otherwise as similar in substance and content to the original provision as the context of it reasonably allows. 12.8 CONFLICTS BETWEEN LOAN DOCUMENTS. The provisions of this agreement -------------------------------- control if in conflict (i.e., the provisions contradict each other as opposed to a Loan Document containing additional provisions not in conflict) with the provisions of any other Loan Document. 33 12.9 DISCHARGE AND CERTAIN REINSTATEMENT. Borrower's obligations under ----------------------------------- the Loan Documents remain in full force and effect until no Lender has any commitment to extend credit under the Loan Documents and the Obligation is fully paid (except for provisions under the Loan Documents which by their terms expressly survive payment of the Obligation and termination of the Loan Documents). If any payment under any Loan Document is ever rescinded or must be restored or returned for any reason, then all Rights and obligations under the Loan Documents in respect of that payment are automatically reinstated as though the payment had not been made when due. 12.10 AMENDMENTS, CONSENTS, CONFLICTS, AND WAIVERS. An amendment of -- or -------------------------------------------- an approval, consent, or waiver by Agent or by one or more Lenders under -- any Loan Document must be in writing and must be: (A) BORROWER, AGENT, AND ALL LENDERS. Executed by Borrower and Agent -------------------------------- and executed or approved in writing by all Lenders if action of all Lenders is specifically provided in any Loan Document or if it purports to (i) except as otherwise stated in this SECTION 12.10, extend the due date or decrease the scheduled amount of any payment under -- or reduce the rate or amount of interest, fees, or other amounts payable to Agent or any Lender under -- any Loan Document, (ii) change the definition of Borrowing Base (or any component of it), Commitment Percentage, Determining Lenders, Maturity Date, Termination Percentage, or Stated-Termination Date, or (iii) partially or fully release any Guaranty or any Collateral except releases of Collateral contemplated in this agreement. (B) BORROWER, AGENT, AND DETERMINING LENDERS. Otherwise (i) for this ---------------------------------------- agreement, executed by Borrower, Agent, and Determining Lenders, or (ii) for other Loan Documents, approved in writing by Determining Lenders and executed by Borrower, Agent, and any other party to that Loan Document. No course of dealing or any failure or delay by Agent, any Lender, or any of their respective Representatives with respect to exercising any Right of Agent or any Lender under the Loan Documents operates as a waiver of that Right. An approval, consent, or waiver is only effective for the specific instance and purpose for which it is given. The Loan Documents may only be supplemented by agreements, documents, and instruments delivered according to their respective express terms. 12.11 MULTIPLE COUNTERPARTS. Any Loan Document may be executed in any --------------------- number of counterparts with the same effect as if all signatories had signed the same document, and all of those counterparts must be construed together to constitute the same document. This agreement is effective when counterparts of it have been executed and delivered to Agent by each Lender, Agent, and Borrower, or, in the case only of those Lenders, when Agent has received faxed or other evidence satisfactory to it that each Lender has executed and is delivering to Agent a counterpart of it. 12.12 PARTIES. This agreement binds and inures to Borrower, each Lender, ------- Agent, and their respective successors and permitted assigns. Only those Persons may rely upon or raise any defense about this agreement. (A) ASSIGNMENT BY COMPANIES. No Company may assign any Rights or ----------------------- obligations under any Loan Document without first obtaining the written consent of Agent and all Lenders. Credit Agreement ---------------- 34 (B) ASSIGNMENT BY LENDER. Any Lender may assign, pledge, and -------------------- otherwise transfer all or any of its Rights and obligations under the Loan Documents either (i) to a Federal Reserve Bank without the consent of any party to this agreement so long as that Lender is not released from its obligations under the Loan Documents, or (ii) otherwise in the ordinary course of its lending business and in accordance with all Laws, and with SECTION 12.13 or 12.14 so long as (A) except for assignments, pledges, and other transfers by a Lender to its Affiliates, the written consent of Borrower and Agent, which may not be unreasonably withheld, must be first obtained, (B) the assignment or transfer (other than a pledge) does not involve a purchase price that directly or indirectly reflects a discount from face value unless that Lender first offered that assignment or transfer to the other Lenders on ratable basis according to their Commitment Percentages, (C) neither Borrower nor Agent are required to incur any cost or expense incident to any assignment, pledge, or other transfer by any Lender, all of which are for the account of the assigning, pledging, or transferring Lender and its assignee, pledgee, or transferee as they may agree, and (D) if the Participant or Purchaser is organized under the Laws of any jurisdiction other than the United States of America or any of its states, it complies with SECTION 3.14. (C) OTHERWISE VOID. Any purported assignment, pledge, or other -------------- transfer in violation of this section is void from beginning and not effective. 12.13 PARTICIPATIONS. Subject to SECTION 12.12(B) and this section and -------------- only if no Default exists, a Lender may at any time sell to one or more Persons (each a "PARTICIPANT") participating interests in its Commitment and its share of the Obligation. (A) ADDITIONAL CONDITIONS. For each participation (i) the selling --------------------- Lender must remain -- and the Participant may not become -- a "Lender" under this agreement, (ii) the selling Lender's obligations under the Loan Documents must remain unchanged, (iii) the selling Lender must remain solely responsible for the performance of those obligations, (iv) the selling Lender must remain the holder of its one or more Notes and its share of the Obligation for all purposes under the Loan Documents, and (v) Borrower and Agent may continue to deal solely and directly with the selling Lender in connection with those Rights and obligations. (B) PARTICIPANT RIGHTS. The selling Lender may obtain for each of its ------------------ Participants the benefits of the Loan Documents related to participations in its share of the Obligation, but Borrower is never obligated to pay any greater amount that would be due to the selling Lender under the Loan Documents calculated as though no participation had been made. Otherwise, Participants have no Rights under the Loan Documents except certain permitted voting Rights described below. (C) PARTICIPATION AGREEMENTS. An agreement for a participating ------------------------ interest (i) may only provide to a Participant voting Rights in respect of any amendment of or approval, consent, or waiver under any Loan Document related to the matters in SECTION 12.10(B) if it also provides for a voting mechanism that a majority of that selling Lender's Commitment Percentage or Termination Percentage, as the case may be (whether directly held by that selling Lender or participated) controls the vote for that selling Lender, and (ii) may not permit a Participant to assign, pledge, or otherwise transfer its participating interest in the Obligation to any Person except any Lender or its Affiliates. Credit Agreement ---------------- 35 12. 14 TRANSFERS. Subject to SECTION 12.12(B) and this section and only --------- if no Default exists, a Lender may at any time sell to one or more financial institutions (each a "PURCHASER") all or part of its Rights and obligations under the Loan Documents. (A) ADDITIONAL CONDITIONS. The sale (i) must be accomplished by the --------------------- selling Lender and Purchaser executing and delivering to Agent and Borrower an Assignment and (ii) may not occur until the selling Lender pays to Agent an administrative-transfer fee of $2,500 (unless waived by Agent). (B) PROCEDURES. Upon satisfaction of the foregoing conditions and as ---------- of the Effective Date in the assignment and assumption agreement, which may not be before delivery of that document to Agent and Borrower, then (i) a Purchaser is for all purposes a Lender party to -- with all the Rights and obligations of a Lender under -- this agreement, with a Commitment as stated in the assumption agreement, (ii) the selling Lender is released from its obligations under the Loan Documents to a corresponding extent, (iii) SCHEDULE 2 is automatically deemed to reflect the name, address, and Commitment of the Purchaser and the reduced Commitment of the selling Lender, and Agent shall deliver to Borrower and Lenders an amended SCHEDULE 2 reflecting those changes, (iv) Borrower shall execute and deliver to each of the selling Lender and the Purchaser a Note, each based upon their respective Commitments following the transfer, (v) upon delivery of the one or more Notes under CLAUSE (IV) above, the selling Lender shall return to the appropriate Company all Notes previously delivered to it under this agreement, and (vi) the Purchaser is subject to all the provisions in the Loan Documents, the same as if it were a Lender that executed this agreement on its original date. 12.15 JURISDICTION; VENUE; SERVICE OF PROCESS; AND JURY TRIAL. EACH ------------------------------------------------------- PARTY, IN EACH CASE FOR ITSELF, ITS SUCCESSORS AND ASSIGNS (AND IN THE CASE OF BORROWER, FOR EACH OF ITS SUBSIDIARIES), (A) IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN TEXAS, AND AGREES AND CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON IT IN ANY LEGAL PROCEEDING ARISING OUT OF OR IN CONNECTION WITH THE LOAN DOCUMENTS AND THE OBLIGATION BY SERVICE OF PROCESS AS PROVIDED BY TEXAS LAW, (B) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY LITIGATION ARISING OUT OF OR IN CONNECTION WITH THE LOAN DOCUMENTS AND THE OBLIGATION BROUGHT IN ANY SUCH COURT, (C) IRREVOCABLY WAIVES ANY CLAIMS THAT ANY LITIGATION BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM, (D) AGREES TO DESIGNATE AND MAINTAIN AN AGENT FOR SERVICE OF PROCESS IN DALLAS, TEXAS, IN CONNECTION WITH ANY SUCH LITIGATION AND TO DELIVER TO AGENT EVIDENCE THEREOF, IF REQUESTED, (E) IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH LITIGATION BY THE MAILING OF COPIES THEREOF BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, POSTAGE PREPAID, AT ITS ADDRESS SET FORTH HEREIN, (F) IRREVOCABLY AGREES THAT ANY LEGAL PROCEEDING AGAINST ANY PARTY ARISING OUT OF OR IN CONNECTION WITH THE LOAN DOCUMENTS OR THE OBLIGATION SHALL BE BROUGHT IN ONE OF THE AFOREMENTIONED COURTS, AND (G) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY. The scope of each of the foregoing waivers is intended to be all-encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including, without limitation, contract claims, tort claims, breach of duty claims, and all other common law and statutory claims. Credit Agreement ---------------- 36 Borrower (for itself and on behalf of each of its Subsidiaries) and each other party to this agreement acknowledge that this waiver is a material inducement to the agreement of each party hereto to enter into a business relationship, that each has already relied on this waiver in entering into this agreement, and each will continue to rely on each of such waivers in related future dealings. Borrower (for itself and on behalf of each of its Subsidiaries) and each other party to this agreement warrant and represent that they have reviewed these waivers with their legal counsel, and that they knowingly and voluntarily agree to each such waiver following consultation with legal Counsel. THE WAIVERS IN THIS SECTION 12.15 ARE IRREVOCABLE, MEANING THAT THEY MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THESE WAIVERS SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, SUPPLEMENTS, AND REPLACEMENTS TO OR OF THIS OR ANY OTHER LOAN DOCUMENT. In the event of Litigation, this agreement may be filed as a written consent to a trial by the court. 12.16 LIMITATION OF LIABILITY. Neither Agent nor any Lender shall be ----------------------- liable to any Company for any amounts representing indirect, special, or consequential damages suffered by any Company, except where such amounts are based substantially on willful misconduct by Agent or any Lender, but then only to the extent any damages resulting from such wilful misconduct are covered by Agent's and the other Lenders' fidelity bond or other insurance. 12.17 ENTIRE AGREEMENT. THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT ---------------- BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER THEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. REMAINDER OF PAGE INTENTIONALLY BLANK. SIGNATURE PAGE FOLLOWS. Credit Agreement ---------------- 37 EXECUTED as of the date first stated in this agreement. (address) MATRIX CAPITAL CORPORATION, as Borrower Borrower Matrix Capital Corporation 1380 Lawrence Street, Suite 1410 By /s/ Guy A. Gibson Denver, CO 80204 -------------------------------------- Attn: Guy A. Gibson, Chief Executive Officer and President Guy A. Gibson, Chief Executive Officer and President Tel (303) 595-9898 Fax (303) 595-9906 (address) BANK ONE, TEXAS, N.A., as Agent and a sole Lender Bank One, Texas, N.A., Agent 1717 Main Street, 4th Floor Dallas, TX 75201 By /s/ Mark L. Freeman Attn: Mark L. Freeman, Vice President ------------------------------- Tel (214) 290-2780 Mark L. Freeman, Vice President Fax (214) 290-2054
38 SCHEDULE 2 ---------- LENDERS AND COMMITMENTS -----------------------
NAME OF LENDER TERM LOAN REVOLVING COMBINED COMMITMENT FACILITY COMMITMENT COMMITMENT ================================================================================ Bank One, Texas, N.A. $2,000,000 $6,000,000 $8,000,000 1717 Main Street, 4th Floor Dallas, TX 75201 Attention: Mark L. Freeman, Vice President Fed Tax ID No. 75-2270994 Tel (214) 290-2780 Fax (214) 290-2275 TOTAL COMMITMENTS $2,000,000 $6,000,000 $8,000,000 ================================================================================
Schedule 2 ---------- SCHEDULE 5 ---------- CLOSING CONDITIONS ------------------ Unless otherwise specified, all dated as of March 12, 1997 (the "CLOSING DATE") or a date (a "CURRENT DATE") within 30 days before the Closing Date. 1. CREDIT AGREEMENT (the "CREDIT AGREEMENT") between MATRIX CAPITAL CORPORATION, a Colorado corporation ("BORROWER"), certain lenders ("LENDERS"), and BANK ONE, TEXAS, N.A., as Agent for Lenders ("AGENT") -- all the terms in which have the same meanings when used in this schedule -- accompanied by: Schedule 2 - Lenders and Commitments Schedule 5 - Closing Conditions Schedule 6.2 - Companies Schedule 6.7 - Existing Debt Schedule 6.9 - Litigation and Judgments Schedule 6.10 - Affiliate Transactions Schedule 6.13 - Existing Liens Exhibit A-1 - Term Note Exhibit A-2 - Revolving Note Exhibit B - Guaranty Exhibit C - Pledge Agreement Exhibit D-1 - Borrowing Request Exhibit D-2 - Compliance Certificate Exhibit E - Opinion of Counsel Exhibit F - Assignment and Assumption Agreement
2. TERM NOTE in the stated principal amount of $2,000,000, executed by Borrower, payable to the order of Bank One, Texas, N.A., as the sole initial Lender, and in substantially the form of EXHIBIT A-1 to the Credit Agreement. 3. REVOLVING NOTE in the stated principal amount of $6,000,000, executed by Borrower, payable to the order of Bank One, Texas, N.A., as the sole initial Lender, and in substantially the form of EXHIBIT A-2 to the Credit Agreement. 4. GUARANTY executed by all of Borrower's Subsidiaries named below as Guarantors ("GUARANTORS"), accepted by Agent, and in substantially the form of EXHIBIT B to the Credit Agreement. Matrix Financial Services Corporation Matrix Funding Corporation United Capital Markets, Inc. United Financial, Inc. United Special Services, Inc. Vintage Delaware Holdings, Inc. Vintage Financial Services Corporation (now named First Matrix Investment Services Corp.) The Vintage Group, Inc. H&B [5.] GUARANTY re-executed by First Matrix Investment Services Corp., as Guarantor, accepted by Agent, and in substantially the form of EXHIBIT B to the Credit Agreement. Schedule 5 ---------- 6. PLEDGE AGREEMENT executed by Borrower as Debtor and Agent as Secured Party, and in substantially the form of EXHIBIT C to the Credit Agreement. J&G [7.] STOCK CERTIFICATE(S) evidencing all of the issued and outstanding common stock of Matrix Capital Bank accompanied by an ASSIGNMENT SEPARATE FROM STOCK CERTIFICATE for each such stock certificate, duly executed in blank by Borrower, and in substantially the form of ANNEX A to the Pledge Agreement referred to above. 8. UCC SEARCH REPORTS for financing statements filed against Borrower as Debtor with the following UCC filing offices:
JURISDICTION SEARCH FILE NUMBER FILE DATE DESCRIPTION DATE - ------------------------------------------------------------------------------------------------ Sec. of State CO 02/11/97 952051252 07/10/95 Accounts, fixtures, equipment, (Bank One, contract rights, inventory, proceeds, Arizona, N.A.) products, etc. - ------------------------------------------------------------------------------------------------ Sec. of State TX 02/26/97 None None None - ------------------------------------------------------------------------------------------------
9. TERMINATIONS OR AMENDMENTS OF FINANCING STATEMENTS reflected in the UCC Search Reports described above that, in the judgment of Agent and its special counsel, conflict with the priority of the Lender Liens contemplated by the Loan Documents, each executed by the appropriate secured party and (if necessary) debtor, and in form acceptable to Agent for filing with the applicable UCC filing offices: NONE 10. CORPORATE CHARTER for BORROWER, certified as of January 17, 1997 by the Colorado Secretary of State. Kloos [11.] OFFICERS' CERTIFICATE for BORROWER, executed by its President and Secretary as to (a) the due incumbency of its officers authorized to execute or attest to the Loan Documents, (b) resolutions duly adopted by its directors approving and authorizing the execution of the Loan Documents, (c) its corporate charter, (d) bylaws, to which must be attached Exhibit A - Resolutions Exhibit B - Bylaws Exhibit C - Charter 12. CORPORATE CHARTER for MATRIX CAPITAL BANK, certified as of March 7, 1997, by the Office of Thrift Supervision. 13. CORPORATE CHARTER for MATRIX FINANCIAL SERVICES CORPORATION, certified as of January 24, 1997, by the Arizona Secretary of State. Kloos [14.] OFFICERS' CERTIFICATE for MATRIX FINANCIAL SERVICES CORPORATION, executed by its President and Secretary as to (a) the due incumbency of its officers authorized to execute or attest to the Loan Documents, (b) resolutions duly adopted by its directors approving and authorizing the execution of the Loan Documents, (c) its corporate charter, (d) bylaws, to which must be attached Schedule 5 ---------- 2 Exhibit A - Resolutions Exhibit B - Bylaws Exhibit C - Charter H&B [15.] CORPORATE CHARTER for MATRIX FUNDING CORPORATION, certified as of a Current Date by the Colorado Secretary of State. Kloos [16.] OFFICERS' CERTIFICATE for MATRIX FUNDING CORPORATION, executed by its President and Secretary as to (a) the due incumbency of its officers authorized to execute or attest to the Loan Documents, (b) resolutions duly adopted by its directors approving and authorizing the execution of the Loan Documents, (c) its corporate charter, (d) bylaws, to which must be attached Exhibit A - Resolutions Exhibit B - Bylaws Exhibit C - Charter 17. CORPORATE CHARTER for STERLING TRUST COMPANY, certified as of February 26, 1997, by the Texas Secretary of State. 18. CORPORATE CHARTER for UNITED CAPITAL MARKETS, INC., certified as of February 21, 1997, by the Colorado Secretary of State. Kloos [19.] OFFICERS' CERTIFICATE for UNITED CAPITAL MARKETS, INC., executed by its President and Secretary as to (a) the due incumbency of its officers authorized to execute or attest to the Loan Documents, (b) resolutions duly adopted by its directors approving and authorizing the execution of the Loan Documents, (c) its corporate charter, (d) bylaws, to which must be attached Exhibit A - Resolutions Exhibit B - Bylaws Exhibit C - Charter 20. CORPORATE CHARTER for UNITED FINANCIAL, INC., certified as of February 21, 1997, by the Colorado Secretary of State. Kloos [21.] OFFICERS' CERTIFICATE for UNITED FINANCIAL, INC., executed by its President and Secretary of Borrower as to (a) the due incumbency of its officers authorized to execute or attest to the Loan Documents, (b) resolutions duly adopted by its directors approving and authorizing the execution of the Loan Documents, (c) its corporate charter, (d) bylaws, to which must be attached Exhibit A - Resolutions Exhibit B - Bylaws Exhibit C - Charter 22. CORPORATE CHARTER for UNITED SPECIAL SERVICES, INC., certified as of February 21, 1997, by the Colorado Secretary of State. Kloos [23.] OFFICERS' CERTIFICATE for UNITED SPECIAL SERVICES, INC., executed by its President and Secretary of Borrower as to (a) the due incumbency of its officers authorized to execute or attest to the Loan Documents, (b) resolutions duly adopted by its directors approving and authorizing the execution of the Loan Documents, (c) its corporate charter, (d) bylaws, to which must be attached Exhibit A - Resolutions Exhibit B - Bylaws Exhibit C - Charter 24. CORPORATE CHARTER for VINTAGE DELAWARE HOLDINGS, INC., certified as of February 28, 1997, by the Delaware Secretary of State. Kloos [25.] OFFICERS' CERTIFICATE for VINTAGE DELAWARE HOLDINGS, INC., executed by its President and Secretary of Borrower as to (a) the due incumbency of its officers authorized to execute or attest to the Loan Documents, (b) resolutions duly adopted by its directors approving and authorizing the execution of the Loan Documents, (c) its corporate charter, (d) bylaws, to which must be attached Exhibit A - Resolutions Exhibit B - Bylaws Exhibit C - Charter 26. CORPORATE CHARTER for FIRST MATRIX INVESTMENT SERVICES CORP., certified as of February 28, 1997, by the Texas Secretary of State. Kloos [27.] OFFICERS' CERTIFICATE for FIRST MATRIX INVESTMENT SERVICES CORP., executed by its President and Secretary of Borrower as to (a) the due incumbency of its officers authorized to execute or attest to the Loan Documents, (b) resolutions duly adopted by its directors approving and authorizing the execution of the Loan Documents, (c) its corporate charter, (d) bylaws, to which must be attached Exhibit A - Resolutions Exhibit B - Bylaws Exhibit C - Charter 28. CORPORATE CHARTER for THE VINTAGE GROUP, INC., certified as of February 28, 1997, by the Texas Secretary of State. Kloos [29.] OFFICERS' CERTIFICATE for THE VINTAGE GROUP, INC., executed by its President and Secretary of Borrower as to (a) the due incumbency of its officers authorized to execute or attest to the Loan Documents, (b) resolutions duly adopted by its directors approving and authorizing the execution of the Loan Documents, (c) its corporate charter, (d) bylaws, to which must be attached Exhibit A - Resolutions Exhibit B - Bylaws Exhibit C - Charter H&B [30.] CERTIFICATES OF QUALIFICATION, GOOD STANDING, AND AUTHORITY for the following Companies, issued as of Current Dates by the appropriate Tribunals for the following jurisdictions:
COMPANY JURISDICTION CERTIFICATE DATE - --------------------------------------------------------------------------------------------------- Matrix Capital Colorado Existence/ Good Standing 01/17/97 Corporation - --------------------------------------------------------------------------------------------------- Matrix Capital Bank OTS Existence/Good Standing 03/03/97 - --------------------------------------------------------------------------------------------------- Matrix Financial Arizona Good Standing 01/24/97 Services Corporation - --------------------------------------------------------------------------------------------------- California Certificate of Foreign Status 01/24/97 -------------------------------------------------------------------------- Colorado Authorization/Good Standing 01/17/97 --------------------------------------------------------------------------
Schedule 5 ----------
COMPANY JURISDICTION CERTIFICATE DATE - --------------------------------------------------------------------------------------------------- Florida Existence/Good Standing 01/24/97 -------------------------------------------------------------------------- Georgia Existence 01/24/97 -------------------------------------------------------------------------- Iowa Authorization 01/27/97 -------------------------------------------------------------------------- Michigan Existence/Good Standing 01/24/97 -------------------------------------------------------------------------- Missouri Existence/Good Standing 01/24/97 -------------------------------------------------------------------------- North Carolina Authorization 01/24/97 -------------------------------------------------------------------------- Ohio Qualification 01/24/97 (Surrendered 07/18/96) -------------------------------------------------------------------------- Texas Existence Forfeited 08/27/96 -------------------------------------------------------------------------- Utah Qualification 01/30/97 (Not Registered in State) -------------------------------------------------------------------------- Matrix Funding Colorado Existence/Good Standing ordered Corporation - --------------------------------------------------------------------------------------------------- Sterling Trust Texas Existence/Good Standing 02/25/97 and 02/28/97 Company - --------------------------------------------------------------------------------------------------- United Capital Markets, Colorado Existence/Good Standing 02/21/97 Inc. - --------------------------------------------------------------------------------------------------- United Financial, Inc. Colorado Existence/Good Standing 02/21/97 - --------------------------------------------------------------------------------------------------- United Special Colorado Existence/Good Standing 02/21/97 Services, Inc. - --------------------------------------------------------------------------------------------------- Vintage Delaware Delaware Existence/Good Standing 02/28/97 Holdings, Inc. - --------------------------------------------------------------------------------------------------- First Matrix Investment Texas Existence/Good Standing 02/28/97 Services Corp. - --------------------------------------------------------------------------------------------------- The Vintage Group, Texas Existence/Good Standing 02/28/97 Inc. - ---------------------------------------------------------------------------------------------------
31. OPINION of Jenkens & Gilchrist, P.C., Dallas, Texas, as counsel to Borrower and Guarantors, addressed to Lender, and addressing the matters described on EXHIBIT E to the Credit Agreement. 32. Any other documents and items as Agent or any Lender may reasonably request. SCHEDULE 6.2 ------------
COMPANIES - ------------------------------------------------------------------------------------------------------------------------------------ NAME JURISDICTION JURISDICTIONS TRADE NAMES USED STILL USING CHIEF OWNERSHIP ORGANIZED QUALIFIED TO IN LAST FOUR TRADE EXECUTIVE BUSINESS MONTHS NAME(S)? Y/N OFFICE - -------------------------- ------------ ------------- ----------------- ------------- ------------- ------------- Matrix Capital Corporation Colorado None None NA 1380 Lawrence Publicly ("BORROWER") Street Traded Suite 1410 Denver, CO 80204 - -------------------------- ------------ ------------- ----------------- ------------- ------------- ------------- Matrix Capital Bank Federal None None N 277 E. Amador 100% - Savings Bank Las Cruces, NM Borrower 88004 - -------------------------- ------------ ------------- ----------------- ------------- ------------- ------------- Matrix Financial Services Arizona California, Matrix Capital Y 201 West 100% - Corporation ("MATRIX Colorado, Florida, Mortgage Corp Coolidge St. Borrower FINANCIAL") Georgia, Maryland, Phoenix, AZ Michigan, 85013 Missouri, North Carolina, Ohio, Pennsylvania, Texas, and Utah - -------------------------- ------------ ------------- ----------------- ------------- ------------- ------------- Matrix Funding Corp. Colorado None None NA 201 West 100% - Matrix Coolidge St. Financial Phoenix, AZ 85013 - -------------------------- ------------ ------------- ----------------- ------------- ------------- ------------- Sterling Trust Company Texas None None NA 7901 Fish Pond 100% - Rd. Vintage Waco, TX 76702 Delaware - -------------------------- ------------ ------------- ----------------- ------------- ------------- ------------- United Capital Markets, Colorado Missouri None 1380 Lawrence 100% - Inc. Street Borrower Suite 1420 Denver, CO 80204 - -------------------------- ------------ ------------- ----------------- ------------- ------------- ------------- United Financial, Inc. Colorado None None NA 1380 Lawrence 100% - Street Borrower Suite 1420 Denver, CO 80204 - -------------------------- ------------ ------------- ----------------- ------------- ------------- ------------- United Special Services, Colorado None None NA 1380 Lawrence 100% - Inc. Street Borrower Suite 1450 Denver, CO 80204 - -------------------------- ------------ ------------- ----------------- ------------- ------------- ------------- Vintage Delaware Holdings, Delaware None None NA 7901 Fish Pond 100% - Inc. Rd. Vintage Group Waco, TX 76702 - -------------------------- ------------ ------------- ----------------- ------------- ------------- -------------
COMPANIES - ------------------------------------------------------------------------------------------------------------------------------------ NAME JURISDICTION JURISDICTIONS TRADE NAMES USED STILL USING CHIEF OWNERSHIP ORGANIZED QUALIFIED TO IN LAST FOUR TRADE EXECUTIVE BUSINESS MONTHS NAME(S)? Y/N OFFICE - -------------------------- ------------ ------------- ----------------- ------------- ------------- ------------- First Matrix Investment Texas None Vintage NA 6001 W. I20 100% - Services Corp. Financial Suite 208 Vintage Group Services Arlington, TX Corporation 76017 - -------------------------- ------------ ------------- ----------------- ------------- ------------- ------------- The Vintage Group, Inc. Texas None None NA 7901 Fish Pond 100% - Rd. Borrower Waco, TX 76702
Scheduel 6.2 SCHEDULE 6.7 ------------ EXISTING DEBT ------------- 1. Balance @ 2/28/97 - $2,002,778 - Debt owed to Banker's Bank of the West due in annual principal installments of $286,101, plus interest through 2003, collateralized by common stock of Matrix Capital Bank, interest at prime plus 1.0%. (the "REFINANCED DEBT"). 2. Balance @ 2/28/97 - $2,910,000 - Senior subordinated notes, interest at 14.0% payable semiannually, unsecured and maturing July 2002, with mandatory redemptions of $727,500 on each of July, 1999, 2000, and 2001. 3. Balance @ 2/28/97 - $930,538 - Debt owed to Bank One, Arizona, secured by a first lien deed of trust on real estate, unpaid principal balance plus interest due June 1998, interest at prime plus 1.0%. 4. Balance @ 2/28/97 - $520,866 - Debt owed to Cortrust Bank due in 28 consecutive installments, secured by mortgage servicing rights, interest ranging from prime plus 2.5% to fixed at 10.0%. 5. Guaranty by Borrower of Debt arising under the Amended and Restated Loan Agreement dated as of January 31, 1997, between Matrix Financial Services Corporation, certain lenders, and Bank One, Texas, N.A., as Agent for those lenders, providing for a secured revolving credit facility of up to $100,000,000. Schedule 6.7 ------------ SCHEDULE 6.9 ------------ LITIGATION AND JUDGMENTS ------------------------ 1. Matrix Financial is a defendant in two lawsuits, Limper v. Matrix Financial Services Corporation (Court of Common Pleas, Ottawa County, Ohio, January 29, 1996), and Mogavero v. Matrix Financial Services Corporation (United States District Court for the District of Massachusetts, June 17, 1996), which purport to cover a nationwide class of plaintiffs and involve similar facts and legal claims. In both cases, the plaintiffs allege that Matrix Financial breached the terms of plaintiffs' promissory notes and mortgages by imposing certain fax and payoff statement fees at the time the plaintiffs prepaid their loans. The plaintiffs claim that such fees constitute unauthorized charges in violation of the terms of the notes, and demand restitution and attorneys' fees. In addition, the plaintiffs in the Mogavero action seek treble damages for Matrix Financial's alleged violation of 18 U.S.C. (S) 1964. Matrix Financial has entered into an agreement, which is subject to court approval, to settle the Limper action and the Mogavero action. The settlement agreement provides for the administration of the settlement of both actions in the Limper action and the dismissal of the Mogavero action. Accordingly, a settlement order of dismissal was entered in the Mogavero action on November 13, 1996. The Court in the Limper action granted preliminary approval of the settlement in January 1997. Accordingly, as provided by the settlement agreement, Matrix established a settlement fund of $640,000. The costs of notice and class administration, attorneys' fees, and recovery to class members are all to come from the settlement fund. Notice to class members was mailed in January 1997, and published in February 1997. The final approval hearing for the settlement is scheduled for April 10, 1997. 2. The Companies are involved from time to time in routine Litigation incidental to their businesses. However, other than described above, the Companies believe that they are not party to any pending Litigation that, if decided adversely to any of them, would be a Material-Adverse Event. Schedule 6.9 ------------ SCHEDULE 6.10 ------------- AFFILIATE TRANSACTIONS ---------------------- 1. In October, 1995, Borrower loaned Matrix Diversified, an affiliate of Borrower, $750,000. The loan accrues at an interest rate of 13% and is secured by a second lien on the assets of Matrix Diversified. Principal and interest is due and payable in one lump sum on October 31, 2000. 2. Borrower leases approximately 7,400 square feet of office space to a subsidiary of Matrix Diversified at a base rental rate of approximately $8,500 per month. The lease expires September 1997, but Borrower anticipates that the lease will be renewed for successive one-year terms at a market rate. 3. Borrower has a loan to Mr. Spencer, Vice Chairman of its Board, in the amount of approximately $80,000. The loan accrues at an interest rate of prime and is unsecured. The entire principal and interest is due in one lump sum and is payable December 31, 1997. Borrower, at its option, may extend the note in annual increments. Schedule 6.10 ------------ SCHEDULE 6.13 ------------- EXISTING LIENS -------------- 1. Pledge of the Capital Stock of Matrix Capital Bank to secure the Refinanced Debt, which pledge will be released upon payment of the Refinanced Debt pursuant to the Credit Agreement. 2. Mortgage Lien upon the commercial office building at 201 W. Coolidge, Suite 100, Phoenix, Arizona 85013, and related Financing Statement No. 952051252 filed on July 10, 1995, with the Colorado Secretary of State in respect of the Debt described as ITEM 3 on SCHEDULE 6.7. 3. Lien on servicing rights of Matrix Financial Services Corporation securing the Debt described as Item 4 on SCHEDULE 6.7. Schedule 6.13 ------------- EXHIBIT C --------- PLEDGE AGREEMENT ---------------- THIS AGREEMENT is entered into as of March 12, 1997, between MATRIX CAPITAL CORPORATION, a Colorado corporation ("DEBTOR"), certain Lenders, and BANK ONE, TEXAS, N.A., as Agent (in that capacity, "SECURED PARTY") for Lenders. Debtor, Lenders, and Agent have entered into the Credit Agreement (as renewed, extended, amended, or restated, the "CREDIT AGREEMENT") dated as of March 12, 1997. As a continuing inducement to the Lenders to extend credit to Debtor under the Credit Agreement, and as a condition precedent to that credit, Debtor is executing and delivering this agreement for the benefit of Lenders and Secured Party. ACCORDINGLY, for adequate and sufficient consideration, Debtor and Secured Party agree as follows: SECTION 1. DEFINITIONS AND REFERENCES. Unless stated otherwise, (a) terms - --------- -------------------------- defined in the Credit Agreement or the UCC have the same meanings when used in this agreement, and (b) to the extent permitted by Law, if in conflict (i) the definition of a term in the Credit Agreement controls over the definition of that term in the UCC, and (ii) the definition of a term in Article 9 of the UCC controls over the definition of that term elsewhere in the UCC. "COLLATERAL" is defined in SECTION 2.2 of this agreement. "DEBTOR" is defined in the preamble to this agreement and includes, without limitation, Debtor, Debtor as a debtor-in-possession, and any receiver, trustee, liquidator, conservator, custodian, or similar party appointed for Debtor or for substantially all of Debtor's assets under any Debtor Law. "OBLIGOR" means any Person obligated with respect to any Collateral (whether as an account debtor, obligor on an instrument, issuer of securities, or otherwise). "PLEDGED SECURITIES" is defined in SECTION 2.2 of this agreement. "SECURED PARTY" is defined in the preamble to this agreement and includes its successor appointed and acting as Agent for Lenders under the Loan Documents. "SECURITY INTEREST" means the security interest granted and the pledge and assignment made under SECTION 2.1 of this agreement, which is a Lender Lien under the Credit Agreement. SECTION 2. SECURITY INTEREST AND COLLATERAL. - --------- -------------------------------- 2.1 SECURITY INTEREST. To secure the full payment and performance of the ----------------- Obligation, Debtor grants to Secured Party for Lenders a security interest in the Collateral and pledges and assigns the Collateral to the Secured Party, all upon and subject to the terms and conditions of this agreement. The grant of the Security Interest does not subject the Secured Party or any Lender to the terms of any Collateral or in any way transfer, modify, or otherwise affect any of Debtor's obligations with respect to any Collateral or the Lender Liens under the Credit Agreement. Exhibit C --------- 59 2.2 COLLATERAL. As used in this agreement, the term "COLLATERAL" means ---------- the present and future items and types of property described below, whether now owned or acquired in the future by Debtor. This description of Collateral does not permit any action prohibited by any Loan Document. All present and future shares of capital stock or other ownership interest issued by Matrix Capital Bank, a federal savings bank (the "PLEDGED SECURITIES"), together with all present and future increases, profits, combinations, reclassifications, dividends, and substitutes and replacements for any of the foregoing and all present and future cash and noncash proceeds of any of the foregoing, including, without limitation, all cash, accounts, general intangibles, documents, instruments, chattel paper, goods, and any other property received upon the sale or disposition of any of the foregoing. SECTION 3. REPRESENTATIONS AND WARRANTIES. By entering into this agreement, - --------- ------------------------------ and by each subsequent delivery of additional Collateral under this agreement, Debtor reaffirms the representations and warranties contained in the Credit Agreement. Debtor further represents and warrants to Secured Party for Lenders as follows: 3.1 BINDING OBLIGATION. This agreement creates a legal, valid, and ------------------ binding Lender Lien in and to the Collateral in favor of Secured Party and is enforceable against Debtor, except as enforcement may be limited by applicable Debtor Laws and general principles of equity. The taking by Secured Party of physical possession in Texas of the stock certificates or other instruments representing the Pledged Securities will perfect the Security Interest in that Collateral. Once perfected, the Security Interest will constitute a first- priority Lender Lien on the Collateral, subject only to Permitted Liens. The creation of the Security Interest does not require the consent of any Person that has not been obtained. 3.2 SECURITIES. All Pledged Securities are duly authorized, validly ---------- issued, fully paid, and non-assessable, and the transfer of them is not subject to any restrictions other than restrictions imposed by applicable corporate and securities Laws. 3.3 ADDITIONAL COLLATERAL. The foregoing representations and warranties --------------------- will be true and correct in all respects with respect to any additional Collateral or additional specific descriptions of certain Collateral delivered to Secured Party in the future by Debtor. The failure of any of these representations or warranties to be accurate and complete does not impair the Security Interest in any Collateral. SECTION 4. COVENANTS. Until all commitments by Secured Party and Lenders to - --------- --------- extend credit under the Credit Agreement have been canceled or terminated and the Obligation is fully paid and performed, Debtor covenants and agrees with Secured Party for Lenders as follows: 4.1 OTHER NOTICES AND ACTIONS. Debtor shall promptly notify Secured Party ------------------------- of (a) any change in any material fact or circumstance represented or warranted by Debtor with respect to any of the Collateral, and (b) any claim, action, or proceeding challenging the Security Interest or affecting title to all or any material portion of the Collateral or the Security Interest (and, at Secured Party's request, Debtor shall appear in and defend any such action or proceeding at Debtor's expense). Exhibit C --------- 2 4.2 COLLATERAL IN TRUST. While a Default or Potential Default exists, ------------------- Debtor shall upon request of Secured Party (unless prevented by operation of applicable Law from making that request, in which event Debtor shall) (a) hold in trust (and not commingle with its other assets) for Secured Party all of its Collateral that is chattel paper, instruments, or documents of title at any time received by it, (b) promptly deliver that Collateral to Secured Party unless Secured Party at its option gives Debtor written permission to retain any of it, and (c) cause each chattel paper, instrument, or document of title so retained to be marked to state that it is assigned to Secured Party and each instrument to be endorsed to the order of Secured Party (but failure to be so marked or endorsed may not impair the Security Interest in any such Collateral). 4.3 IMPAIRMENT OF COLLATERAL. Debtor may not do or permit any act that is ------------------------ reasonably likely to adversely impair the value of any Collateral. SECTION 5. DEFAULT AND REMEDIES. If a Default exists, then Secured Party may, - --------- -------------------- at its election (but subject to the terms and conditions of the Credit Agreement), exercise any and all Rights available to a secured party under the UCC, in addition to any and all other Rights afforded by the Loan Documents, at Law, in equity, or otherwise, including, without limitation (a) requiring Debtor to assemble all or part of the Collateral and make it available to Secured Party at a place to be designated by Secured Party which is reasonably convenient to Debtor and Secured Party, (b) surrendering any policies of insurance on all or part of the Collateral and receiving and applying the unearned premiums as a credit on the Obligation, (c) applying by appropriate judicial proceedings for appointment of a receiver for all or part of the Collateral (and Debtor hereby consents to any such appointment), and (d) applying to the Obligation any cash held by Secured Party or any Lender under the Loan Documents. 5.1 NOTICE. Reasonable notification of the time and place of any public ------ sale of the Collateral, or reasonable notification of the time after which any private sale or other intended disposition of the Collateral is to be made, shall be sent to Debtor and to any other Person entitled to notice under the UCC. If any Collateral threatens to decline speedily in value or is of the type customarily sold on a recognized market, Secured Party may sell or otherwise dispose of the Collateral without notification, advertisement, or other notice of any kind. Notice sent or given not less than five calendar days before the taking of the action to which the notice relates is reasonable notification and notice for the purposes of this section. 5.2 SALES OF SECURITIES. In connection with the sale of any Collateral ------------------- that is securities, Secured Party is authorized, but not obligated, to limit prospective purchasers to the extent deemed necessary or desirable by Secured Party to render that sale exempt from the registration and similar requirements under applicable corporate and securities Laws, and no sale so made in good faith by Secured Party may be deemed not to be "commercially reasonable" because so made. 5.3 OTHER SALES. Secured Party's sale of less than all Collateral does ----------- not exhaust Secured Party's Rights under this agreement and Secured Party is specifically empowered to make successive sales until all Collateral is sold. If the proceeds of a sale of less than all Collateral is less than the Secured Obligation, then this agreement and the Security Interest remain in full force and effect as to the unsold portion of the Collateral just as though no sale had been made. In the event any sale under this agreement is not completed or is, in Secured Party's opinion, defective, that sale does not exhaust Secured Party's Rights under this agreement, and Secured Party is entitled to cause a subsequent sale or sales to be made. All statements of fact or other recitals made in any bill of sale or assignment or other instrument evidencing any foreclosure sale under this agreement -- whether about nonpayment of the Secured Exhibit C --------- 3 Obligation, the occurrence of any Default, Secured Party's having declared all of the Obligation to be due and payable, notice of time, place, and terms of sale and the properties to be sold having been duly given, or any other act or thing having been duly done by Secured Party -- shall be taken as prima facie evidence of the truth of the facts so stated and recited. Secured Party may appoint or delegate any one or more Persons as agent to perform any act or acts necessary or incident to any sale held by Secured Party, including the sending of notices and the conduct of sale, but such acts must be done in the name and on behalf of Secured Party. 5.4 OBLIGORS. While a Default exists, Secured Party may notify or require -------- each Obligor to make payment directly to Secured Party, and Secured Party may take control of the proceeds paid to Secured Party. Until Secured Party elects to exercise these Rights, Debtor is authorized to collect and enforce the Collateral and to retain and expend all payments made on Collateral. While Secured Party is entitled to and elects to exercise these Rights, Secured Party has the Right in its own name or in the name of Debtor to (a) compromise or extend time of payment with respect to Collateral for such amounts and upon such terms as Secured Party may reasonably determine, (b) demand, collect, receive, receipt for, sue for, compound, and give acquittance for any and all amounts due or to become due with respect to Collateral, (c) take control of cash and other proceeds of any Collateral, (d) endorse the applicable Pledgor's name on any notes, acceptances, checks, drafts, money orders, or other evidences of payment on Collateral that may come into Secured Party's possession, (e) sign Debtor's name on any invoice or bill of lading relating to any Collateral, on any drafts against Obligors or other Persons making payment with respect to Collateral, on assignments and verifications of accounts or other Collateral, and on notices to Obligors making payment with respect to Collateral, (f) send requests for verification of obligations to any Obligor, and (gi) do all other acts and things reasonably necessary to carry out the intent of this agreement. If any Obligor fails to make payment on any Collateral when due while a Default exists, Secured Party is authorized, in its sole discretion, either in its own name or in Debtor's name, to take such action as Secured Party reasonably shall deem appropriate for the collection of any amounts owed with respect to Collateral or upon which a delinquency exists. However, Secured Party is neither (A) liable for its failure to collect, or for its failure to exercise diligence in the collection of, any amounts owed with respect to Collateral (except for its own fraud, gross negligence, willful misconduct, or violation of any applicable law), nor (B) under any duty whatsoever to anyone except Debtor and Lenders to account for funds that it shall actually receive under this agreement. A receipt given by Secured Party to any Obligor is a full and complete release, discharge, and acquittance to that Obligor, to the extent of any amount so paid to Secured Party. While a Default exists, Secured Party may apply or set off amounts paid and the deposits against any liability of Debtor to Secured Party. Regarding the existence of Default for purposes of this agreement, Debtor agrees that the Obligors on any Collateral may rely upon written certification from Secured Party that a Default exists. 5.5 POWER-OF-ATTORNEY. Secured Party is deemed to be irrevocably ----------------- appointed as Debtor's agent and attorney-in-fact with the Right to enforce all of Debtor's Rights under or in connection with the Collateral effective and operable at all times while a Default exists. All reasonable costs, expenses, and liabilities incurred and all payments made by Secured Party as Debtor's agent and attorney-in-fact (including, without limitation, reasonable attorney's fees and expenses) are considered a loan by Secured Party to Debtor that is repayable on demand, accrues interest at the Default Rate until paid, and is part of the Obligation. 5.6 APPLICATION OF PROCEEDS. Secured Party shall apply the proceeds of ----------------------- any sale or other disposition of the Collateral under this SECTION 5 in the order and manner specified in SECTION 3.9 of the Credit Agreement. Any surplus remaining shall be delivered to Debtor or as a court of competent Exhibit C --------- 4 jurisdiction may direct. If the proceeds are insufficient to pay the Obligation in full, Debtor remains liable for any deficiency. SECTION 6. OTHER RIGHTS. - --------- ----------- 6.1 PERFORMANCE. If Debtor fails to preserve the priority of the Security ----------- Interest in any of the Collateral or otherwise fail to perform any of its obligations under any Loan Documents with respect to the Collateral, then Secured Party may, at its option, but without being required to do so, prosecute or defend any suits in relation to the Collateral or take all other action which Debtor is required, but has failed or refused, to take under the Loan Documents. Any sum which may be expended or paid by Secured Party under this section (including, without limitation, court costs and attorneys' fees) shall bear interest from the dates of expenditure or payment at the Default Rate until paid and, together with such interest, shall be payable by Debtor to Secured Party upon demand and is part of the Obligation. 6.2 RECORD OWNERSHIP OF SECURITIES. While a Default exists, Secured Party ------------------------------ may have any Collateral that is securities and that is in the possession of Secured Party, or its nominee or nominees, registered in its name or in the name of its nominee or nominees as pledgee. 6.3 VOTING OF SECURITIES. As long as no Default exists, Debtor may -------------------- exercise all voting Rights pertaining to any Collateral that is securities. While a Default exists, the Right to vote any Collateral that is securities is vested exclusively in Secured Party. Accordingly, Debtor irrevocably constitutes and appoints Secured Party as Debtor's proxy and attorney-in-fact -- effective only after notice to Debtor and while a Default exists but with full power of substitution -- to vote and to act with respect to any Collateral that is securities standing in the name of Debtor or with respect to which Debtor is entitled to vote and act. That proxy is coupled with an interest, is irrevocable, and continues until the Obligation are fully paid and performed. 6.4 CERTAIN PROCEEDS. The provisions of this SECTION 6.4 are applicable ---------------- only while a Default exists. Notwithstanding any contrary provision, all dividends or distributions of property in respect of, and all proceeds of, any Collateral that is securities -- whether those dividends, distributions, or proceeds result from a subdivision, combination, or reclassification of the outstanding capital stock of any issuer or as a result of any merger, consolidation, acquisition, or other exchange of assets to which any issuer may be a party, or otherwise -- are part of the Collateral, shall, if received by Debtor, be held in trust for Secured Party's benefit, and shall immediately be delivered to Secured Party (accompanied by proper instruments of assignment or stock or bond powers executed by Debtor in accordance with Secured Party's instructions) to be held subject to the terms of this agreement. Any cash proceeds of any Collateral that come into Secured Party's possession (including, without limitation, insurance proceeds) may, at Secured Party's option, be applied in whole or in part to the Obligation (to the extent then due), be fully or partially released to or under the written instructions of Debtor for any general or specific purpose, or be fully or partially retained by Secured Party as additional Collateral. Any cash Collateral in Secured Party's possession may be invested by Secured Party in certificates of deposit issued by Secured Party, any Lender, or any other state or national bank having combined capital and surplus greater than $100,000,000 or in securities issued or guaranteed by the United States of America or any of its agencies. Secured Party is never obligated to make any investment and never has any liability to Debtor or any Lender for any loss that may result from any investment or non-investment. All interest and other amounts earned from any investment may be dealt with by Secured Party in the same manner as other cash Collateral. Exhibit C --------- 5 SECTION 7. MISCELLANEOUS. - --------- ------------- 7.1 MISCELLANEOUS. Because this agreement is a "Loan Document" referred ------------- to in the Credit Agreement, the provisions relating to Loan Documents in SECTIONS 1 and 12 of the Credit Agreement are incorporated into this agreement by reference the same as if included in this agreement verbatim. 7.2 TERM. This agreement terminates upon full payment and performance of ---- the Obligation. No Obligor is ever obligated to make inquiry of the termination of this agreement but is fully protected in making any payments on the Collateral directly to Secured Party. 7.3 MATTERS NOT RELEVANT. The Security Interest, Debtor's obligations, -------------------- and Secured Party's and Lenders' Rights under this agreement are not released, diminished, impaired, or adversely affected by any one or more of the following: (a) Secured Party's or any Lender taking or accepting any additional --or any release, surrender, exchange, subordination, or loss of any other -- guaranty, assurance, or security for any of the Obligation; (b) any full or partial release of any other Person obligated on any of the Obligation; (c) the modification or assignment of -- or waiver of compliance with -- any other Loan Document; (d) any present or future insolvency, bankruptcy, or lack of corporate, partnership, or trust power of any other Person obligated on any of the Obligation; (e) any renewal, extension, or rearrangement of any of the Obligation, or any adjustment, indulgence, forbearance, or compromise granted to any Person obligated on any of the Obligation; (f) any Person's neglect, delay, omission, failure, or refusal to take or prosecute any action in connection with any of the Obligation; (g) any existing or future affect, claim, or defense (other than credits toward outstanding amounts in respect of application of proceeds of Collateral under this agreement and except for the defense of full and final payment of the Obligation) of Debtor or any other Person against Secured Party or any Lender; (h) the unenforceability of any of the Obligation against any Person obligated or any of the Obligation because it exceeds the amount permitted by Law, the act of creating it is ultra vires, or the officers, partners, or trustees creating it exceeded their authority or violated their fiduciary duties, or otherwise; (i) any payment of the Obligation is held to constitute a preference under any Debtor Law or for any other reason Secured Party or any Lender is required to refund any payment or make payment to another Person; or (j) any Person's failure to notify Debtor, Secured Party, or any Lender of their acceptance of this agreement or any Person's failure to notify Debtor about the foregoing events or occurrences, and Debtor waives any notice of any kind under any circumstances whatsoever with respect to this agreement or any of the Obligation other than as specifically provided in this agreement. 7.4 WAIVERS. Except to the extent expressly otherwise provided in the ------- Loan Documents, Debtor waives (a) any Right to require Secured Party or any Lender to proceed against any other Person, to exhaust its Rights in the Collateral, or to pursue any other Right which Secured Party or any Lender may have, and (b) all Rights of marshaling in respect of the Collateral. 7.5 FINANCING STATEMENT. Secured Party may, at any time, file this ------------------- agreement or a carbon, photographic, or other reproduction of this agreement as a financing statement, but Secured Party's failure to do so does not impair the validity or enforceability of this agreement. 7.6 PARTIES. This agreement binds and inures to Debtor, Secured Party, ------- and each Lender, and their respective successors and permitted assigns. Only those Persons may rely or raise any defense about this agreement. Exhibit C --------- 6 7.6.1 ASSIGNMENTS. Debtor may not assign any Rights or obligations ----------- under this agreement without first obtaining the written consent of Secured Party and all Lenders. Secured Party's Rights under this agreement may be assigned to any successor agent appointed under the Credit Agreement. Any Lender may assign, pledge, and otherwise transfer all or any of its Rights under this agreement to any participant or transferee permitted by the Credit Agreement. 7.6.2 SECURED PARTY. Secured Party is the agent for each Lender. ------------- Secured Party may, without the joinder of any Lender, exercise any Rights in favor of any of them under this agreement. The Rights of Secured Party and Lenders vis-a-vis each other may be subject to other agreements between them. Neither Debtor nor its successors or permitted assigns need to inquire about any such agreement or be subject to the terms of it unless they join in it and, therefore, are not entitled to the benefits of any such agreement or entitled to rely upon or raise as a defense the failure of any party to comply with it. 7.7 ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS ---------------- REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER THEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. REMAINDER OF PAGE INTENTIONALLY BLANK. SIGNATURE PAGE FOLLOWS. Exhibit C 7 EXECUTED as of the date first stated above. MATRIX CAPITAL SERVICES BANK ONE, TEXAS, N.A., AGENT, as CORPORATION, as Debtor Secured Party By By ------------------------------------- ------------------------------- Guy A. Gibson, Chief Executive Office Mark L. Freeman, Vice President and President
The undersigned agrees that to the extent that any of the stock certificates evidencing any of the capital stock that is included in the Collateral bear any restrictive legend in respect of the transfer of those certificates, then, in each case, the undersigned waives the requirements of those restrictive legends in respect of the pledge of those shares of capital stock to Secured Party. MATRIX CAPITAL BANK By -------------------------------- Name: --------------------------- Title: -------------------------- Exhibit C --------- Signature Page to Pledge Agreement ANNEX A ------- ASSIGNMENT SEPARATE FROM STOCK CERTIFICATE ------------------------------------------ FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers unto - -------------------------------------------------------------------------------- (PLEASE PRINT OR TYPE NAME AND ADDRESS OF ASSIGNEE) - -------------------------------------------------------------------------------- --------------------------------------- INSERT SOCIAL SECURITY - ---------------------------------------- OR OTHER IDENTIFICATION NUMBER OF ASSIGNEE --------------------------------------- - -------------------------------------- (_____________________) shares of the ______________________________________________________ Capital Stock of MATRIX CAPITAL BANK standing in _________________________ name on the books of that bank as represented by Certificate No.(s) ------------------------------------------------------------------------- that accompany(ies) this assignment, and hereby irrevocably constitutes and appoints ___________________________ attorney to transfer that stock on the books of that bank with full power of substitution in the premises. EXECUTED as of March 12, 1997. MATRIX CAPITAL CORPORATION By ------------------------------------------ Guy A. Gibson, Chief Executive Officer and President Exhibit C --------- EXHIBIT D-1 ----------- BORROWING REQUEST ----------------- AGENT: Bank One, Texas, N.A. DATE: ____________________, 199___ BORROWER: Matrix Capital Corporation ================================================================================ This request is delivered under the Credit Agreement (as renewed, extended, and amended, the "CREDIT AGREEMENT") dated as of March 12, 1997, between Borrower, Agent, and certain Lenders. Terms defined in the Credit Agreement have the same meanings when used, unless otherwise defined, in this request. Borrower requests a $_____________/1/ Borrowing (the "REQUESTED BORROWING") under the Revolving Facility to be funded on _______________, 199___ (the "REQUESTED BORROWING DATE")./2/ Borrower certifies to Agent and Lenders that (a) the proceeds of the Requested Borrowing shall be promptly paid to Matrix Bank as a contribution to its capital or are to refinance contributions to the capital of Matrix Bank already made by Borrower and for none of which Borrower has requested any other Borrowing, and (b) after giving effect to the Requested Borrowing, the Principal Debt of the Revolving Facility will not exceed the least of (i) the Commitments for the Revolving Facility, (which are $6,000,000), (ii) contributions to Matrix Bank's Capital made by Borrower since October 31, 1996 (which total $_____________), and (iii) 40% of the book value of Matrix Bank's issued and outstanding capital stock subject to Lender Liens (which is 40% x $_____________ = $_____________). Borrower certifies that on the date of this request and on the Requested Borrowing Date (after giving effect to the Requested Borrowing) (a) the representations and warranties of Borrower in the Loan Documents are true and correct in all material respects except to the extent that (i) a representation or warranty speaks to a specific date or (ii) the facts on which a representation or warranty is based have changed by transactions or conditions contemplated or permitted by the Loan Documents, (b) no Default or Potential Default exists, and (c) the extension of the Requested Borrowing does not cause any Borrowing Excess to exist. MATRIX CAPITAL CORPORATION, as Borrower By -------------------------------------------- Name: --------------------------------------- /3/Title: --------------------------------------- - -------------------- /1/ Must be $500,000 or a greater integral multiple of $100,000. /2/ Must be at least the Business Day after date of request. /3/ Must be a Responsible Officer of Borrower. Exhibit D-1 ----------- EXHIBIT D-2 ----------- COMPLIANCE CERTIFICATE ---------------------- AGENT: Bank One, Texas, N.A. DATE:_____________, 19___ BORROWER: Matrix Capital Corporation SUBJECT PERIOD: ____________________ ended _______________, 199___ ================================================================================ This certificate is delivered under the Credit Agreement (as renewed, extended, and amended, the "CREDIT AGREEMENT") dated as of March 12, 1997, between Borrower, Agent, and certain Lenders. Terms defined in the Credit Agreement have the same meanings when used, unless otherwise defined, in this certificate. The undersigned officer certifies to Agent and Lenders, that on the date of this certificate: 1. The undersigned officer is the officer of Borrower designated below. 2. _________________________ (Borrower's or Matrix Bank's) Financial Statements that are attached to this certificate were prepared in accordance with GAAP and present fairly _________________________ (Borrower's or Matrix Bank's) ____________________ (consolidated, consolidating, or both) financial condition and results of operations as of (and for the fiscal year or portion of the fiscal year ending on) the last day of the Subject Period. 3. The proceeds of all Borrowings have been promptly paid to Matrix Bank as a contribution to its capital or have refinanced contributions to the capital of Matrix Bank already made by Borrower and for none of which Borrower has requested any other Borrowing. The Principal Debt of the Revolving Facility does not exceed the least of (a) the Commitments for the Revolving Facility (which are $6,000,000), (b) contributions to Matrix Bank's capital made by Borrower since October 31, 1996 (which total $_____________), and (c) 40% of the book value of Matrix Bank's issued and outstanding capital stock subject to Lender Liens (which is 40% x $_____________ = $_____________). 4. The undersigned officer supervised a review of the Companies' activities during the Subject Period in respect of the following matters and has determined the following: (a) The representations and warranties in the Credit Agreement are true and correct in all material respects, except (i) to the extent that a representation or warranty speaks to a specific date or the facts on which it is based have changed by transactions or conditions contemplated or permitted by the Loan Documents and (ii) for the changes, if any, described on the attached SCHEDULE 1; (b) each Company has complied with all of its obligations under the Loan Documents, other than for the deviations, if any, described on the attached SCHEDULE 1; (c) no Default or Potential Default exists or is imminent, other than those, if any, described on the attached SCHEDULE 1; and (d) the Companies' compliance with certain financial covenants in SECTIONS 8 and 9 of the Credit Agreement is accurately calculated on the attached SCHEDULE 1. By --------------------------------- Name: --------------------------- /1/Title: -------------------------- - -------------------- /1/ Must be a Responsible Officer of Borrower. Exhibit D-2 SCHEDULE 1 ---------- A. Describe deviations from compliance with obligations, if any -- CLAUSE 4(A) and 4(B) of attached Compliance Certificate -- if none, so state: B. Describe Potential Defaults or Defaults, if any -- CLAUSE 4(C) of the attached Compliance Certificate -- if none, so state: C. Calculate compliance with certain covenants in SECTIONS 8 and 9 at end of Subject Period (on a consolidated basis, if applicable) -- CLAUSE 4(D) of the attached Compliance Certificate. The following table is a short-hand reflection of that compliance and must be completed fully in accordance with the express language of the Credit Agreement:
COVENANT AT END OF SUBJECT PERIOD ---------------------------------------------------------------------------- ------------------------ 1. DISTRIBUTIONS--(S)8.4 (a) Year-to-date consolidated net income $ -------- (b) 50% of Line 1(a) $ -------- (c) Year-to-date non-cash income $ -------- (d) Year-to-date cash taxes $ -------- (e) Sum of Line 1(b) MINUS Line 1(c) MINUS Line 1(d) $ ------- (f) Distributions paid during this fiscal year -- MAY NOT EXCEED Line 1(e) $ ------- 2. NET WORTH -- (S)9.1 (a) Initial minimum $27,500,000 (b) 50% of the Companies' cumulative Net Income (without deduction for $ losses) after December 31, 1996 -------- (c) 100% of net proceeds of issuance of Borrower's securities after date of $ Credit Agreement --------
Exhibit D-2 2
COVENANT AT END OF SUBJECT PERIOD ---------------------------------------------------------------------------- ------------------------ (d) SUM of Lines 2(a) through 2(c) $ ------- (e) Actual Net Worth -- MAY NOT BE LESS THAN Line 2(d) $ ------- 3. ADJUSTED DEBT/NET WORTH -- (S)9.2 (a) Debt of Companies $ -------- (b) Bank repurchase obligations $ -------- (c) Escrow-arbitrage-type-facility obligations $ -------- (d) Deposits at Matrix Bank $ -------- (e) Matrix Bank loan obligations to FHLB $ -------- (f) Adjusted Debt -- SUM of Line 3(a) MINUS Lines 3(b) THROUGH 3(e) $ ------- (g) RATIO of Line 3(f) TO Line 2(e) -- MAY NOT EXCEED 4.0 to 1.0 _____ to 1.0 4. CASH FLOW/CMLTD -- (S)9.3 (calculated for each 4-fiscal-quarter period ending on or after 3/31/97) (a) Cash Distributions by Matrix Bank and Matrix Financial to Borrower $ -------- (b) Provision by Matrix Bank for loan losses $ -------- (c) For all Companies except Matrix Bank and Matrix Financial: (i) Net income $ -------- (ii) Extraordinary gains $ -------- (iii) Extraordinary losses $ -------- (iv) Income Taxes $ -------- (v) Interest Expense $ -------- (vi) Depreciation $ -------- (vii) Amortization $ -------- (viii) SUM of Lines 4(c)(i), (iii), (iv), (v), (vi), and (vii) MINUS Line 4(c)(ii) $ -------- (d) Cash Flow -- SUM of Lines 4(a), 4(b), PLUS 4(c)(viii) $ ------- (e) Current maturities of long-term Debt of all Companies except Matrix $ Financial ------- (f) RATIO of Line 4(d) to Line 4(e) -- MAY NOT BE LESS THAN 1.5 to 1.0 _____ to 1.0
Exhibit D-2 3 5. NET INCOME -- (S)9.4 (calculated only for Matrix Bank for each fiscal year ended $ on and after 12/31/97): Actual net income (less deduction for minority interests) -- MAY NOT BE LESS THAN $2,500,000 ------- 6. CAPITAL RATIO -- (S)9.5 (only for Matrix Bank) (a) Maintains "well capitalized" designation by OTS for its "Risk Base Capital" -- insert Yes or No ------- (b) "Risk Base Capital Ratio" -- MAY NOT BE LESS THAN 10% % ------- 7. SERVICING PORTFOLIO -- (S)9.4 (a) Maintains "well capitalized" designation by OTS for its "Leverage" --insert Yes or No ------- (b) "Leverage Ratio" -- MAY NOT BE LESS THAN 5.0% % ------- 8. CLASSIFIED ASSETS/TOTAL CAPITAL -- (S)9.7 (only for Matrix Bank) (a) Classified Assets (i) Assets classified as "substantial," "doubtful," or "loss" by regulators $ -------- (ii) Assets subject to other credit quality supervision $ -------- (iii) Other Real Estate owned $ -------- (iv) Other Impaired Assets $ -------- (v) SUM of Lines 8(a)(i) THROUGH 8(a)(iv) $ ------- (b) Total Capital (i) Stated par value of common stock $ -------- (ii) Stated par value of perpetual preferred stock $ -------- (iii) Undivided profits, surplus, or retained earnings $ -------- (iv) "Loan Loss reserve" account $ -------- (v) Continuous reserve $ -------- (vi) SUM of Lines 8(b)(i) THROUGH 8(b)(vi) $ ------- (c) RATIO of Line 8(a)(v) TO Line 8(b)(vii) (stated as percentage) -- MAY NOT $ EXCEED 75% ------- 9. NET CHARGE OFFS/TOTAL LOANS -- (S)9.8 (only for Matrix Bank) (a) Net Charge Offs $ ------- (b) Total loans $ ------- (c) RATIO of Line 9(a) TO Line 9(b) -- (stated as a percentage) -- MAY NOT % EXCEED 0.50% ------- 10. ADJUSTED ASSETS/TOTAL ASSETS -- (S)9.9 (a) Adjusted Assets (i) Cash $ -------- (ii) Cash Equivalents $ -------- (iii) Loans that are not non-residential commercial loans $ -------- (iv) Mortgage-backed Securities $ -------- (v) SUM of Lines 9(a)(i) THROUGH 9(a)(iv) $ ------- (b) Total Assets $ ------- (c) RATIO of Line 9(a)(v) TO Line 9(b) (stated as a percentage) -- MUST NOT BE % LESS than greater of (1) minimum required under HOLA for "OTL" or (2) 60% -------
4 EXHIBIT E --------- OPINION OF COUNSEL ------------------ Matters to which Jenkens & Gilchrist, P.C., of Dallas, Texas, counsel to the Companies, are to opine as of the Closing Date: 1. Each Company is a corporation or bank duly organized, validly existing, and in good standing under the laws of the jurisdiction of its organization and is duly qualified and in good standing as a foreign corporation in each jurisdiction where qualification or licensing is required by the nature of its business or the character and location of its property, business, or customers and in which the failure to have such license, authorization, consent, approval, or qualification, as the case may be, in the aggregate, could have a material adverse effect on the ability of any Company to perform its obligations under the Loan Documents. 2. Each Company possesses all requisite corporate power and authority to conduct its business as is now being conducted and as proposed under the Loan Documents to be conducted and to own and operate its assets as now owned and operated and as proposed to be owned and operated under the Loan Documents. 3. The execution and delivery by each Company of each Loan Document to which it is a party and the performance by it of its obligations under those Loan Documents (a) are within its corporate power, (b) have been duly authorized by all necessary corporate action, (c) require no action by or filing with any governmental authority (except any action or filing that has been taken or made on or before the date of this opinion), (d) do not violate any provision of its charter or bylaws, and (e) do not violate any provision of law applicable to it or any material agreement to which it is a party. 4. Each Loan Document constitutes a legal and binding obligation of each Company party to it, enforceable against that Company in accordance with that Loan Document's terms. 5. To the best of our knowledge, no Company is subject to, nor under the threat of, any Litigation that is reasonably likely to be determined adversely to any Company. There exist no outstanding and unpaid judgments against any Company. 6. Borrower is duly registered under the Savings and Loan Holding Company Act, as amended. No Company is subject to regulation under the Investment Company Act of 1940 or the Public Utility Holding Company Act of 1935, as they may be amended. 7. The Pledge Agreement creates valid security interests (the "SECURITY INTERESTS") in the pledged securities described in it that have been issued by Matrix Bank (the "COLLATERAL"). The Security Interests in the Collateral will be properly perfected by Agent's possession of the Collateral. Exhibit E --------- EXHIBIT F --------- ASSIGNMENT AND ASSUMPTION AGREEMENT ----------------------------------- THIS ASSIGNMENT AND ASSUMPTION AGREEMENT is entered into effective as of ___________, 199_, between _________________________ ("ASSIGNOR"), and ____________________ ("ASSIGNEE"). MATRIX CAPITAL CORPORATION, a Colorado corporation ("BORROWER"), certain lenders ("LENDERS"), and BANK ONE, TEXAS, N.A. (in its capacity as Agent for Lenders, "AGENT"), are party to the Credit Agreement (as renewed, extended, amended, or restated, the "CREDIT AGREEMENT") dated as of March 12, 1997, all of the defined terms in which have the same meanings when used -- unless otherwise defined -- in this agreement. This agreement is entered into as required by SECTION 12.14 of the Credit Agreement and is not effective until consented to by Borrower and Agent, which consents may not under the Credit Agreement be unreasonably withheld. ACCORDINGLY, for adequate and sufficient consideration, Assignor and Assignee agree as follows: (A) ASSIGNMENT AND ASSUMPTION. By this agreement, and effective as of ------------------------- __________, 199__, (the "EFFECTIVE DATE"), Assignor sells and assigns to Assignee (without recourse to Assignor) and Assignee purchases and assumes from Assignor an interest in and to all of Assignor's Rights and obligations under the Credit Agreement (except any Rights and obligations pertaining to Assignor's role as Agent if applicable) as of the Effective Date, including, without limitation, a ______% interest in Assignor's total Commitment, a corresponding amount of the Principal Debt outstanding under Assignor's existing Notes, all interest accruing in respect of the interests assigned above (collectively, the "ASSIGNED INTERESTS") after the Effective Date, and all commitment fees accruing in respect of the Assigned Interest after the Effective Date. (B) ASSIGNOR PROVISIONS. Assignor (a) represents and warrants to Assignee ------------------- that as of the Effective Date (i) $_____________ and $_____________ are outstanding (without reduction for any assignments that have not yet become effective) respectively under the Assignor's Term Note and Revolving Note, (ii) Assignor is the legal and beneficial owner of the Assigned Interest, which is free and clear of any adverse claim, and (iii) Assignor has not been notified of an existing Default or Potential Default, and (b) makes no representation or warranty to Assignee and assumes no responsibility to Assignee with respect to (i) any statements, warranties, or representations made in or in connection with any Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency, or value of any Loan Document, or (iii) the financial condition of any Company or the performance or observance by any Company of any of its obligations under any Loan Document. (C) ASSIGNEE PROVISIONS. Assignee (a) represents and warrants to Assignor, ------------------- Borrower, and Agent that Assignee is legally authorized to enter into this agreement and each other Loan Document to which it will become a party, (b) confirms that it has received a copy of the Credit Agreement, copies of the Current Financials, and such other documents and information as it deems appropriate to make its own credit analysis and decision to enter into this agreement, (c) agrees with Assignor, Borrower, and Agent that Assignee shall -- independently and without reliance upon Agent, Assignor, or any other Lender and based on such documents and information as Assignee deems appropriate at the time -- continue to make its own credit decisions in taking or not taking action under the Loan Documents, (d) appoints and authorizes Agent to take such action as agent on its behalf and to exercise such powers under the Loan Documents as are delegated to Agent by the terms of the Loan Documents and all other reasonably-incidental powers, (e) agrees with Assignor, Borrower, and Agent that Assignee shall perform and comply with all provisions of the Loan Documents applicable to Lenders in accordance with their respective terms, and (f) if Assignee is not organized under the Laws of the United States of America or one of its states, it (i) represents and warrants to Assignor, Agent, and Borrower that no Taxes are required to be withheld by Assignor, Agent, or Borrower with respect to any payments to be made to it in respect of the Obligation, and it has furnished to Agent and Borrower two duly completed copies of either U.S. Internal Revenue Service Form 4224, Form 1001, Form W-8, or any other form acceptable to Agent that entitles Assignee to exemption from U.S. federal withholding Tax on all interest payments under the Loan Documents, (ii) covenants to provide Agent and Borrower a new Form 4224, Form 1001, Form W-8, or other form acceptable to Agent upon the expiration or obsolescence of any previously delivered form according to Law, duly executed and completed by it, and to comply from time to time with all Laws with regard to the withholding Tax exemption, and (iii) agrees with Agent and Borrower that, if any of the foregoing is not true or the applicable forms are not provided, then Agent and Borrower (without duplication) may deduct and withhold from interest payments under the Loan Documents any United States federal-income Tax at the full rate applicable under the IRC. (D) CREDIT AGREEMENT AND COMMITMENTS. From and after the Effective Date -------------------------------- (a) Assignee shall be a party to the Credit Agreement and (to the extent provided in this agreement) have the Rights and obligations of a Lender under the Loan Documents and (b) Assignor shall (to the extent provided in this agreement) relinquish its Rights and be released from its obligations under the Loan Documents. On the Effective Date, after giving effect to this and certain other assignment and assumption agreements that become effective on the Effective Date, but without giving effect to any other assignments that have not yet become effective, Assignor's and Assignee's Commitments will be as follows:
LENDER TERM LOAN REVOLVING FACILITY COMBINED COMMITMENTS ======= ============ ================== ============ Assignor $ $ $ --------------------------------------------- Assignee =======================================================
(E) NOTES. Assignor and Assignee request Borrower to issue new Notes to ----- Assignor and Assignee in the amounts of their respective commitments under PARAGRAPH 4 above and otherwise issue these Notes in accordance with the Credit Agreement. Upon delivery of those Notes, Assignor shall return to Borrower all Notes previously delivered to Assignor under the Credit Agreement. (F) PAYMENTS AND ADJUSTMENTS. From and after the Effective Date, Agent ------------------------ shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees, and other amounts) to Assignee. Assignor and Assignee shall make all appropriate adjustments in payments for periods before the Effective Date by Agent or with respect to the making of this assignment directly between themselves. Assignor agrees to apply any payments and proceeds with respect to the Obligation ratably with Assignee. 2 (G) CONDITIONS PRECEDENT. PARAGRAPHS 1 through 6 above are not effective -------------------- until (a) counterparts of this agreement are executed by Assignor, Assignee, Agent, and Borrower, and are delivered to Agent and Borrower and (b) pursuant to SECTION 12.14(A)(II), Assignor pays to Agent an administrative transfer fee of $2,500. If Agent is the Assignor, the requirement of SECTION 12.14(A)(II) is waived with regard to this agreement. (H) INCORPORATED PROVISIONS. Although this agreement is not a Loan ----------------------- Document, the provisions of the Credit Agreement applicable to Loan Documents are incorporated into this instrument by reference the same as if this agreement were a Loan Document and those provisions were set forth in this agreement verbatim. (I) COMMUNICATIONS. For purposes of SECTION 12.2 of the Credit Agreement, -------------- Assignee's address and telecopy number -- until changed under that section -- are beside its signature below. (J) AMENDMENTS, ETC. No amendment, waiver, or discharge to or under this --------------- agreement is valid unless in writing that is signed by the party against whom it is sought to be enforced and is otherwise in conformity with the requirements of the Credit Agreement. (K) ENTIRETY. THIS AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN -------- ASSIGNOR AND ASSIGNEE ABOUT ITS SUBJECT MATTER AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF ASSIGNOR AND ASSIGNEE. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN ASSIGNOR AND ASSIGNEE. (L) PARTIES. This agreement binds and benefits Assignor, Assignee, and ------- their respective successors and assigns as permitted under the documents. EXECUTED as of the date first stated above. _________________________, as Assignor ____________________________, as Assignee By By Name: Name Title: Title (Address) ------------------------------- ------------------------------- ------------------------------- Attn: ------------------------------- ------------------------------- ------------------------------- (Tel. No.)(___) ___-_____ (Fax No.)(___) ___-_____
Exhibit F --------- 3 As of the Effective Date, Agent and Borrower consent to this agreement and the transactions con templated in it. BANK ONE, TEXAS, N.A., as Agent MATRIX CAPITAL CORPORATION, as Borrower By ------------------------------- Mark L. Freeman, Vice President By ----------------------------------- Name: -------------------------------- Title: --------------------------------
Exhibit F 4 EX-10.40 12 TERM NOTE Exhibit 10.40 EXHIBIT A-1 ----------- TERM NOTE --------- $_______________ March 12, 1997 FOR VALUE RECEIVED, MATRIX CAPITAL CORPORATION, a Colorado corporation ("BORROWER"), promises to pay to the order of ________________________________ ("LENDER") $____________, together with interest. This note is a "Term Note" under the Credit Agreement (as renewed, extended, amended, or restated, the "CREDIT AGREEMENT") dated as of March 12, 1997, between Borrower, Lender, certain other Lenders, and Bank One, Texas, N.A., as Agent for Lenders. All of the defined terms in the Credit Agreement have the same meanings when used, unless otherwise defined, in this note. This note incorporates by reference the principal and interest payment terms in the Credit Agreement for this note, including, without limitation, the final maturity, which is the Maturity Date. Principal and interest are payable to the holder of this note through Agent at either (a) its offices at 1717 Main Street, Dallas, Texas 75201, or (b) at any other address so designated by Agent in written notice to Borrower. This note incorporates by reference all other provisions in the Credit Agreement applicable to this note, such as provisions for disbursements of principal, applicable-interest rates before and after Default, voluntary and mandatory prepayments, acceleration of maturity, exercise of Rights, payment of attorneys' fees, court costs, and other costs of collection, certain waivers by Borrower and other obligors, assurances and security, choice of Texas and United States federal Law, usury savings, and other matters applicable to Loan Documents under the Credit Agreement. MATRIX CAPITAL CORPORATION, as Borrower By ---------------------------------------------- Guy A. Gibson, Chief Executive Officer and President Exhibit A-1 ----------- 51 EX-10.41 13 REVOLVING NOTE Exhibit 10.41 EXHIBIT A-2 ----------- REVOLVING NOTE -------------- $_______________ March 12, 1997 FOR VALUE RECEIVED, MATRIX CAPITAL CORPORATION, a Colorado corporation ("BORROWER"), promises to pay to the order of _________________________________ ("LENDER") that portion of the principal amount of $_______________ that may from time to time be disbursed and outstanding under this note together with interest. This note is a "Revolving Note" under the Credit Agreement (as renewed, extended, amended, or restated, the "CREDIT AGREEMENT") dated as of March 12, 1997, between Borrower, Lender, certain other Lenders, and Bank One, Texas, N.A., as Agent for Lenders. All of the defined terms in the Credit Agreement have the same meanings when used, unless otherwise defined, in this note. This note incorporates by reference the principal and interest payment terms in the Credit Agreement for this note, including, without limitation, the final maturity, which is the Maturity Date. Principal and interest are payable to the holder of this note through Agent at either (a) its offices at 1717 Main Street, Dallas, Texas 75201, or (b) at any other address so designated by Agent in written notice to Borrower. This note incorporates by reference all other provisions in the Credit Agreement applicable to this note, such as provisions for disbursements of principal, applicable-interest rates before and after Default, voluntary and mandatory prepayments, acceleration of maturity, exercise of Rights, payment of attorneys' fees, court costs, and other costs of collection, certain waivers by Borrower and other obligors, assurances and security, choice of Texas and United States federal Law, usury savings, and other matters applicable to Loan Documents under the Credit Agreement. MATRIX CAPITAL CORPORATION, as Borrower By ---------------------------------------------- Guy A. Gibson, Chief Executive Officer and President Exhibit A-2 ----------- 52 EX-10.42 14 GUARANTY Exhibit 10.42 EXHIBIT B --------- GUARANTY -------- THIS GUARANTY is executed as of March 12, 1997, by the undersigned (each a "GUARANTOR") for the benefit of BANK ONE, TEXAS, N.A., a national banking association (in its capacity as Agent for the Lenders now or in the future party to the Credit Agreement described below, "AGENT"). MATRIX CAPITAL CORPORATION, a Colorado corporation ("BORROWER"), Agent, and Lenders have executed the Credit Agreement (as renewed, extended, amended, or restated, the "CREDIT AGREEMENT") dated as of March 12, 1997. The execution and delivery of this guaranty are requirements to Agent's and Lenders' execution of the Credit Agreement, are integral to the transactions contemplated by the Loan Documents, and are conditions precedent to Lenders' obligations to extend credit under the Credit Agreement. The execution and delivery of this guaranty in no way constitute a condition to or inducement to any Lender to extend any other credit to any Guarantor. ACCORDINGLY, for adequate and sufficient consideration, each Guarantor agrees with Agent and Lenders as follows: 1. DEFINITIONS. Terms defined in the Credit Agreement have the same ----------- meanings when used, unless otherwise defined, in this guaranty. As used in this guaranty: "AGENT" is defined in the preamble to this guaranty and includes its successor appointed under the Loan Documents and acting as Agent for Lenders under the Loan Documents. "BORROWER" is defined in the recitals to this guaranty and includes, without limitation, Borrower, Borrower as a debtor-in-possession, and any receiver, trustee, liquidator, conservator, custodian, or similar party appointed for Borrower or for all or substantially all of Borrower's assets under any Debtor Law. "CREDIT AGREEMENT" is defined in the recitals to this guaranty. "GUARANTEED DEBT" means the Obligation, as defined in the Credit Agreement, and all present and future costs, attorneys' fees, and expenses incurred by Agent or any Lender to enforce Borrower's, Guarantor's, or any other obligor's payment of any of the Obligation, including, without limitation, all present and future amounts that would become due but for the operation of (S)(S) 502 or 506 or any other provision of Title 11 of the United States Code and all present and future accrued and unpaid interest (including, without limitation, all post- petition interest if Borrower voluntarily or involuntarily becomes subject to any Debtor Law). "GUARANTOR" is defined in the preamble to this guaranty. "SUBORDINATED DEBT" means all present and future obligations of Borrower to any Guarantor, whether those obligations are (a) direct, indirect, fixed, contingent, liquidated, unliquidated, joint, several, or joint and several, (b) due or to become due to any Guarantor, (c) held by or are to be held by any Guarantor, (d) created directly or acquired by assignment or otherwise, or (e) evidenced in writing. Exhibit B --------- 53 2. GUARANTY. Any Guarantor jointly and severally guarantees to Agent and -------- Lenders the prompt payment of the Guaranteed Debt at (and at all times after) maturity (by acceleration or otherwise). This is an absolute, irrevocable, and continuing guaranty, and the circumstance that at any time or from time to time the Guaranteed Debt may be paid in full does not affect the obligation of any Guarantor with respect to the Guaranteed Debt incurred after that time. This guaranty remains in effect until the Guaranteed Debt is fully paid and performed and all commitments to extend any credit under the Credit Agreement have terminated. No Guarantor may rescind or revoke its obligations with respect to the Guaranteed Debt. 3. REPRESENTATIONS AND WARRANTIES. Each Guarantor jointly and severally ------------------------------ represents and warrants to Agent that (a) each Guarantor has the power and authority to execute, deliver, and perform this guaranty, which any execution, delivery, and performance does not violate any Law or agreement by which any Guarantor or any of any Guarantor's assets is bound, (b) the value of the consideration received and to be received by each Guarantor is reasonably worth at least as much as that Guarantor's liability under this guaranty, and that liability may reasonably be expected to directly or indirectly benefit that Guarantor, (c) this guaranty constitutes a legal and binding obligation of each Guarantor, enforceable against that Guarantor in accordance with its terms, except as enforceability may be limited by applicable Debtor Laws and general principles of equity, (d) all financial statements and other information about each Guarantor's financial condition and cash flow are true and correct in all material respects and fairly present that Guarantor's financial condition, cash flows, material liabilities, and (e) each Guarantor is Solvent. 4. CUMULATIVE RIGHTS. If any Guarantor becomes liable for any ----------------- indebtedness owing by Borrower to Agent or any Lender, other than under this guaranty, that liability may not be in any manner impaired or affected by this guaranty. The Rights of Agent or Lenders under this guaranty are cumulative of any and all other Rights that Agent or Lenders may ever have against each Guarantor. The exercise by Agent or Lenders of any Right under this guaranty or otherwise does not preclude the concurrent or subsequent exercise of any other Right. 5. PAYMENT UPON DEMAND. If a Default exists, each Guarantor shall (on ------------------- demand and without further notice of dishonor and without any notice having been given to any Guarantor previous to that demand of either the acceptance by Agent or Lenders of this guaranty or the creation or incurrence of any Guaranteed Debt) pay the amount of the Guaranteed Debt then due and payable to Agent and Lenders. It is not necessary for Agent or Lenders, in order to enforce that payment by any Guarantor, first or contemporaneously to institute suit or exhaust remedies against Borrower or others liable on that indebtedness or to enforce Rights against any collateral securing that indebtedness. 6. SUBORDINATION. The Subordinated Debt is expressly subordinated to the ------------- full and final payment of the Guaranteed Debt. Each Guarantor agrees not to accept any payment of any Subordinated Debt from Borrower if a Default exists. If any Guarantor receives any payment of any Subordinated Debt in violation of the foregoing, that Guarantor shall hold that payment in trust for Agent and Lenders and promptly turn it over to Agent, in the form received (with any necessary endorsements), to be applied to the Guaranteed Debt. 7. SUBROGATION AND CONTRIBUTION. Until the Guaranteed Debt has been paid ---------------------------- and performed in full (a) no Guarantor may assert, enforce, or otherwise exercise any Right of subrogation to any of the Rights or Liens of Agent or Lenders or any other beneficiary against Borrower or any other obligor on the Guaranteed Debt or any collateral or other security or any Right of recourse, reimbursement, Exhibit B --------- 2 subrogation, contribution, indemnification, or similar Right against Borrower or any other obligor on any Guaranteed Debt or any guarantor of it, and (b) each Guarantor irrevocably waives the benefit of, and any Right to participate in, any collateral or other security given to Agent or Lenders or any other beneficiary to secure payment of any Guaranteed Debt. 8. NO RELEASE. No Guarantor's obligations under this guaranty may be ---------- released, diminished, or affected by the occurrence of any one or more of the following events: (a) any taking or accepting of any other security or assurance for any Guaranteed Debt; (b) any release, surrender, exchange, subordination, impairment, or loss of any collateral securing any Guaranteed Debt; (c) any full or partial release of the liability of any other obligor on the Obligation; (d) the modification of, or waiver of compliance with, any terms of any other Loan Document; (e) the insolvency, bankruptcy, or lack of corporate or partnership power of any party at any time liable for any Guaranteed Debt, whether now existing or occurring in the future; (f) any renewal, extension, or rearrangement of any Guaranteed Debt or any adjustment, indulgence, forbearance, or compromise that may be granted or given by Agent or any Lender to any other obligor on the Obligation; (g) any neglect, delay, omission, failure, or refusal of Agent or any Lender to take or prosecute any action in connection with the Guaranteed Debt; (h) any failure of Agent or any Lender to notify any Guarantor of any renewal, extension, or assignment of any Guaranteed Debt, or the release of any security or of any other action taken or refrained from being taken by Agent or any Lender against Borrower or any new agreement between Agent, any Lender, and Borrower, it being understood that neither Agent nor any Lender is required to give any Guarantor any notice of any kind under any circumstances whatsoever with respect to or in connection with any Guaranteed Debt, other than any notice required to be given to any Guarantor elsewhere in this guaranty; (i) the unenforceability of any Guaranteed Debt against any party because it exceeds the amount permitted by Law, the act of creating it is ultra vires, the officers creating it exceeded their authority or violated their fiduciary duties in connection with it, or otherwise; or (j) any payment of the Obligation to Agent or Lenders is held to constitute a preference under any Debtor Law or for any other reason Agent or any Lender is required to refund that payment or make payment to someone else (and in each such instance this guaranty will be reinstated in an amount equal to that payment). 9. WAIVERS. Each Guarantor waives all Rights by which it might be ------- entitled to require suit on an accrued Right of action in respect of any Guaranteed Debt or require suit against Borrower or others, whether arising under (S) 34.02 of the Texas Business and Commerce Code, as amended (regarding its Right to require Agent or Lenders to sue Borrower on accrued Right of action following its written notice to Agent or Lenders), (S) 17.001 of the Texas Civil Practice and Remedies Code, as amended (allowing suit against it without suit against Borrower, but precluding entry of judgment against it before entry of judgment against Borrower), Rule 31 of the Texas Rules of Civil Procedure, as amended (requiring Agent or Lenders to join Borrower in any suit against it unless judgment has been previously entered against Borrower), or otherwise. 10. CREDIT AGREEMENT PROVISIONS. Each Guarantor acknowledges that certain --------------------------- (a) representations and warranties in the Credit Agreement are applicable to it and confirms that each such representation and warranty is true and correct, and (b) covenants and other provisions in the Credit Agreement are applicable to it or are imposed upon it and agrees to promptly and properly comply with or be bound by each of them. 11. RELIANCE AND DUTY TO REMAIN INFORMED. Each Guarantor confirms that it ------------------------------------ has executed and delivered this guaranty after reviewing the terms and conditions of the Loan Documents and such Exhibit B --------- 3 other information as it has deemed appropriate in order to make its own credit analysis and decision to execute and deliver this guaranty. Each Guarantor confirms that it has made its own independent investigation with respect to Borrower's creditworthiness and is not executing and delivering this guaranty in reliance on any representation or warranty by Agent or any Lender as to that creditworthiness. Each Guarantor expressly assumes all responsibilities to remain informed of the financial condition of Borrower and any circumstances affecting Borrower's ability to perform under the Loan Documents to which it is a party or any collateral securing any Guaranteed Debt. 12. NO REDUCTION. The Guaranteed Debt may not be reduced, discharged, or ------------ released because or by reason of any existing or future offset, claim, or defense (other than credits toward outstanding amounts in respect of payments under this guaranty and except for the defense of complete and final payment of the Guaranteed Debt) of Borrower or any other party against Agent or Lenders or against payment of the Guaranteed Debt, whether that offset, claim, or defense arises in connection with the Guaranteed Debt or otherwise. Those claims and defenses include, without limitation, failure of consideration, breach of warranty, fraud, bankruptcy, incapacity/infancy, statute of limitations, lender liability, accord and satisfaction, usury, forged signatures, mistake, impossibility, frustration of purpose, and unconscionability. 13. BANKRUPTCY. If any Guarantor becomes insolvent, fails to pay ---------- Guarantor's debts generally as they become due, voluntarily seeks (or consents to or acquiesces in) any benefits of any Debtor Law, or becomes a party to (or is made the subject of) any proceeding under any Debtor Law (other than as a creditor or claimant) that could suspend or otherwise adversely affect the Rights of Agent or any Lender under this guaranty, then, in any such event, the Guaranteed Debt is automatically (as between that Guarantor, Agent, and Lenders), a fully matured, due, and payable obligation of that Guarantor to Agent and Lenders (without regard to whether Borrower is then in default under the Credit Agreement or whether any of the Obligation is then due and owing by Borrower), payable in full (i.e., the estimated amount owing in respect of the contingent claim created under this guaranty) by Guarantor to Agent and Lenders upon demand. 14. LOAN DOCUMENT. This guaranty is a Loan Document and is subject to the ------------- applicable provisions of SECTIONS 1 and 12 of the Credit Agreement, all of which are incorporated into this guaranty by reference the same as if set forth in this guaranty verbatim. 15. COMMUNICATIONS. For purposes of SECTION 12.2 of the Credit Agreement, -------------- each Guarantor's address and telecopy number are set forth on the signature page to this guaranty. 16. AMENDMENTS, ETC. No amendment, waiver, or discharge to or under this ---------------- guaranty is valid unless it is in writing and is signed by the party against whom it is sought to be enforced and is otherwise in conformity with the requirements of SECTION 12.10 of the Credit Agreement. 17. ENTIRETY. THIS GUARANTY REPRESENTS THE FINAL AGREEMENT BETWEEN THE -------- PARTIES ABOUT THE SUBJECT MATTER OF THIS GUARANTY AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. 18. AGENT AND LENDERS. Agent is the agent for each Lender under the ----------------- Credit Agreement. All Rights granted to Agent under or in connection with this guaranty are for each Lender's ratable Exhibit B --------- 4 benefit. Agent may, without the joinder of any Lender, exercise any Rights in Agent's or Lenders' favor under or in connection with this guaranty. Agent's and each Lender's Rights and obligations vis-a-vis each other may be subject to one or more separate agreements between those parties. However, no Guarantor is required to inquire about any such agreement and is not subject to any terms of it unless that Guarantor specifically joins it. Therefore, neither any Guarantor nor its successors or assigns is entitled to any benefits or provisions of any such separate agreement or is entitled to rely upon or raise as a defense any party's failure or refusal to comply with the provisions of it. 19. PARTIES. This guaranty benefits Agent, Lenders, and their respective ------- successors and assigns and binds each Guarantor and each Guarantor's successors and assigns. Upon appointment of any successor Agent under the Credit Agreement, all of the Rights of Agent under this guaranty automatically vest in that new Agent as successor Agent on behalf of Lenders without any further act, deed, conveyance, or other formality other than that appointment. The Rights of Agent and Lenders under this guaranty may be transferred with any assignment of the Guaranteed Debt. The Credit Agreement contains provisions governing assignments of the Guaranteed Debt and of Rights and obligations under this guaranty. REMAINDER OF PAGE INTENTIONALLY BLANK. SIGNATURE PAGE FOLLOWS. Exhibit B --------- 5 EXECUTED as of the date first stated in this guaranty. --------------------------------- as Guarantor (address) ------------------- ------------------- By ----------------------------- ------------------- Tel Name: --------------- ---------------------- Fax Title: --------------- ---------------------- Agent executes this guaranty in acknowledgment of PARAGRAPH 17 above. BANK ONE, TEXAS, N.A., as Agent By _______________________________ Mark L. Freeman, Vice President Signature Page to Guaranty Exhibit B --------- 58 EX-11 15 COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 MATRIX CAPITAL CORPORATION Computation of Earnings Per Share (Dollars in thousands, except per share data)
YEAR ENDED DECEMBER 31, --------------------------------------- 1994 1995 1996 --------- ----------- --------- Net income................................ $ 2,646 3,561 $ 3,273 --------- ----------- --------- Earnings available to common shareholders..................... 2,646 3,561 3,273 --------- ----------- --------- Weighted average common shares outstanding before common equivalents...................... 3,750,001 3,888,939 4,255,196 Common equivalent stock options and warrants.................... -- 38,690 42,252 --------- ----------- --------- Weighted average outstanding common and equivalent shares............ 3,750,001 3,927,629 4,297,448 --------- ----------- --------- Earnings per common and equivalent share.................... $ 0.71 $ 0.91 $ 0.76 --------- ----------- ---------
EX-21 16 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 MATRIX CAPITAL CORPORATION Subsidiaries of the Registrant 1. Matrix Financial Services Corporation - Incorporated in Arizona 2. United Financial, Inc. - Incorporated in Colorado 3. Matrix Capital Bank - Organized pursuant to a Federal savings and loan charter 4. United Special Services, Inc. - Incorporated in Colorado 5. United Capital Markets, Inc. - Incorporated in Colorado 6. The Vintage Group Inc. - Incorporated in Texas 7. Vintage Delaware Holdings, Inc. - Incorporated in Delaware, wholly owned subsidiary of The Vintage Group Inc. 8. Sterling Trust Company - Incorporated in Texas, wholly owned subsidiary of Vintage Delaware Holdings, Inc. 9. First Matrix Investment Services Corp. - Incorporated in Texas, wholly owned subsidiary of Vintage Delaware Holdings, Inc. 10. Matrix Funding Corp. - Incorporated in Colorado, wholly owned subsidiary of Matrix Financial Services Corporation EX-27 17 FINANCIAL DATA SCHEDULE
9 1,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 2,319 9,499 0 0 0 0 0 213,400 1,039 272,863 128,060 82,754 20,320 10,927 0 0 1 30,801 272,863 16,084 408 0 16,492 3,760 10,490 6,002 143 0 22,951 5,379 3,273 0 0 3,273 .76 .76 3.43 3,903 0 0 0 943 63 16 1,039 0 0 1,039
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