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Investment And Interest Rate Advisory Agreement

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Sectors: Banking
Governing Law: Kansas, View Kansas State Laws
Effective Date: February 03, 1997
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INVESTMENT AND INTEREST RATE RISK ADVISORY AGREEMENT


This Investment and Interest Rate Risk Advisory Agreement, made and entered into as of this 3 day of February, 1997, by and between LOS PADRES SAVINGS BANK, FSB ("Customer") and SMITH BREEDEN ASSOCIATES, INC., a Kansas Corporation ("Smith Breeden" or "Advisor").


WHEREAS, Smith Breeden is engaged in the business of rendering investment advice and has available the personnel, facilities and equipment necessary for carrying on investment advisory and research functions; and


WHEREAS, Customer desires to appoint Smith Breeden and Smith Breeden desires to accept such appointment to render such services to Customer on the terms and conditions hereinafter set forth;


NOW, THEREFORE, in consideration of the mutual promises and the terms and conditions set forth herein, the parties hereto agree as follows:


1. Appointment. Upon and subject to the terms and conditions of this
Agreement, Customer, being duly authorized, hereby appoints Smith
Breeden as investment advisor with respect to the management of certain
assets of Customer (the "Account"). The appointment of Smith Breeden as
investment advisor shall be effective as of the date of this agreement.


2. Authority and Services of Smith Breeden


(a) Smith Breeden will provide Customer with the following services: (i)
consulting services, (ii) investment advice, and (iii) securities
transactions services.


(i). Consulting Services: Smith Breeden will provide consulting
services related to asset/liability management and interest rate risk,
pricing strategies for assets and liabilities, and other areas on a
project basis as mutually agreed to by Smith Breeden and Customer. The
asset/liability management and interest rate risk consulting services
will include a monthly analysis of current market conditions by Smith
Breeden, the risk exposure of Customer's securities portfolio and
balance sheet, the performance of hedging strategies and recent
securities transactions, and analysis of investment transactions.
Consulting services related to asset and liability strategies will
include assistance in developing loan and deposit pricing strategies and
assistance in developing and maintaining computer based worksheets to
implement the strategies. Smith Breeden will provide consulting services
for Customer in other areas, such as acquisition analysis, on a project
basis. Both Smith Breeden and Customer must agree that the projects are
appropriate and Smith Breeden and Customer may negotiate additional fees
for such projects.


(ii). Investment Advice: Smith Breeden will offer investment
advice and recommendations with respect to the Account. As part of its
services, Smith Breeden may recommend the acquisition of investment
securities, including but not limited to, mortgage-backed securities,
Treasury securities and/or corporate bonds, and certain hedging
transactions to reduce the interest rate risk of the Account's
investments. Smith Breeden may also make recommendations regarding the
funding sources for these


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investment securities, as well as of the other assets and liabilities of
the Customer. Smith Breeden may make either oral or written recommendations
with respect to the Account.


(iii). Securities Transactions Services: Pursuant to the limited
power of attorney herein granted to Smith Breeden by the Customer, Smith
Breeden may, as agent and attorney-in-fact with respect to the Account (a)
buy, sell, exchange and otherwise transact in mortgage-backed securities,
other investments, or hedging instruments, and (b) arrange for necessary
placement of orders, execution of transactions, purchases, sales and
conveyances with or through such brokers, dealers, or issuers as Smith
Breeden may select from the Customer's list of approved brokers, dealers
and issuers and establish the price and other such conditions of the
transaction. Customer shall approve all transactions prior to execution.
Brokers, dealers, or issuers selected by Smith Breeden must be from
Customer's list of approved brokers, dealers, and issuers. For each
transaction, Smith Breeden will provide Customer a trade sheet which
documents the rationale for the transaction and the cover prices obtained.
The trade sheet will provide written explanation for selection of any
broker, dealer, or issuer for a transaction that occurs at other than the
most favorable price of the prices obtained, or for which there were no
cover prices.


(b) In connection with and in furtherance of the services to be provided to
Customer by Smith Breeden hereunder, Customer hereby appoints Smith Breeden
as its agent and attorney-in-fact, in its name, place and stead, to effect
the transactions enumerated in paragraphs (a) of this Section 2, subject to
the prior approval and direction of Customer. Further, Customer agrees to
execute a limited power of attorney in substantially the form included as
Appendix A hereto.


3. Duties of Customer.


(a) Customer shall provide, or shall cause the Custodian to provide,
Advisor with all of the information that Advisor may reasonably require
with respect to Customer or the Account including, without limitation,
such periodic reports on the status of the Account as Smith Breeden may
request.


(b) Customer shall provide all information required by Smith Breeden to
conduct its analysis. Customer will be solely responsible for collecting
such data, and for delivery to Smith Breeden of such information in the
format required by Smith Breeden. Customer shall be solely responsible for
the accuracy of such information.


(c) Customer shall cause the Custodian to receive and maintain at all
times custody and control of all property in the Account and to consummate
transactions as directed by Advisor by payment or delivery by the Custodian
of all funds, securities, instruments, assets or other properties due from
the Account and to receive all funds, securities, instruments, assets or
other properties due to the Account.


(d) Customer shall inform Smith Breeden in writing of the investment
objectives and restrictions of the Account through its periodically updated
investment policy and of any changes or modifications applicable thereto
and shall give prompt written notice if Customer deems any investments
proposed for the Account to be in violation of such objectives or
restrictions. Unless Customer notifies Smith Breeden in writing of specific
restrictions, the investments recommended for, or on behalf of, the Account
shall be


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deemed not to be restricted under the current or future laws or regulations
of any state or by virtue of the terms of any other contract or instrument
purporting to bind Customer or Smith Breeden.


4. Transaction Procedures. All transactions will be consummated by payment to
or delivery by Customer, or such other party(ies) as Customer may designate
in writing (the "Custodian"), of all cash and/or securities due to or from
the Account. The Customer has sole authority to designate the custodian.
Smith Breeden shall not act as Custodian for the Account but is hereby
authorized to issue such instructions to the Customer as may be appropriate
in connection with the settlement of transactions initiated by Smith
Breeden pursuant to Section 2 hereof. Instructions of Smith Breeden to the
Customer need not be in writing. Smith Breeden will instruct all brokers
and dealers executing orders on behalf of the Account to forward
confirmations to Customer and/or the Custodian. Smith Breeden is not
authorized to direct delivery of securities or payments to itself but may
direct that additional copies of all confirmations of Account transactions
be sent to Smith Breeden. Smith Breeden will not be responsible for any
loss incurred by reason of any act or omission of any broker or dealer or
the Customer and/or Custodian; provided, however, that Smith Breeden will
make reasonable efforts to require that brokers and dealers recommended by
Smith Breeden perform their obligations with respect to the Account. The
physical possession of any and all property in the Account shall at all
times, except when securities are held by seller pending delivery to or in
the hands of a transfer agent, be held, controlled and administered by the
Customer and/or Custodian. Smith Breeden shall have no responsibility with
respect to the collection of income relating to the Account or physical
acquisition or the safekeeping of any property in the Account. All such
duties of collection, physical acquisition or safekeeping shall be the
sole obligation of the Customer and/or Custodian.


5. Review of Transaction Records. Customer or its agent and Customer's
primary federal regulator shall have the right to audit, examine, or review
the records of Smith Breeden that pertain to transactions conducted for the
Customer.


6. Proxies. Advisor will not be required to take any action or render any
advice with respect to the voting of proxies solicited by or with respect
to the issuers of securities in which assets of the Account may be invested
from time to time.


7. Scope of Services of Adviser. Smith Breeden will provide investment
advisory and related services only. Smith Breeden will not provide advice
concerning, and Customer will not rely upon any Smith Breeden statement
relating to, tax advice, regulatory compliance, accounting issues, or the
credit risk involved in any recommended transaction. Customer recognizes
the inherent market fluctuation risks that surround the investment and
reinvestment of monies and the use of hedge instruments. These risks and
the scope of Smith Breeden's services are detailed in the Disclosure
Statement in Appendix C to this agreement and have been previously
acknowledged by the Customer. By signing this agreement, Customer
acknowledges that it understands, and can bear, the risks involved in
implementing hedge and investment transactions as detailed in the
Disclosure Statement. Smith Breeden, or any of its officers, directors or
employees, shall be liable to Customer for acts or omissions arising out of
this agreement only if its conduct, or that of its officers, directors or
employees, was willful or grossly negligent. Nothing herein shall in any
way constitute a waiver or limitation of any rights that Customer may have
under any State or Federal Securities laws. It is agreed that Smith
Breeden, in connection with the


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maintenance of records, does not assume responsibility for the accuracy of
information furnished by Customer or any other party.


8. Limitation on Liability and Indemnification. Subject to the second
paragraph of Section 7 above, Customer shall indemnify Smith Breeden and
save it harmless from all suits, actions, debts, accounts, damages, costs,
losses, expenses, and other proceedings, sustained, brought, prosecuted, or
threatened to be brought or prosecuted in connection with this agreement by
any shareholder of Customer, creditor of Customer, or any other person or
entity that is not a party to this contract.


9. Confidential Relationship. All information and advice furnished by either
party to the other hereunder, including their agents and employees, except
such information that is publicl
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