UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File No. 1-12655
HomeSide International, Inc.
(Exact name of registrant as specified in its charter)
Delaware 59-3387041
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7301 Baymeadows Way, Jacksonville, FL 32256
(Address of principal executive offices) (Zip Code)
(904) 281-3000
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at
August 14, 1998
Common stock $0.01 par value 1
Class C non-voting common stock $1.00 par value none
<PAGE>
FINANCIAL INFORMATION
ITEM 1. Financial Statements
<TABLE>
<CAPTION>
HOMESIDE INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Share Data)
(Unaudited) Predecessor
June 30, 1998 February 10, 1998
<S> <C> <C>
------------- -----------------
ASSETS
Cash and cash equivalents $ 17,387 $ 32,113
Mortgage loans held for sale, net 1,324,546 1,292,403
Mortgage servicing rights, net 1,988,085 1,781,134
Accounts receivable, net 288,953 227,294
Early pool buyout advances 523,139 374,097
Premises and equipment, net 36,909 41,982
Goodwill 713,399 8,870
Other assets 107,429 125,710
------------------- -------------------
Total Assets $ 4,999,847 $ 3,883,603
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 2,025,400 $ 2,074,956
Accounts payable and accrued liabilities 223,211 143,870
Deferred income taxes 160,888 175,178
Long-term debt 1,339,733 900,466
------------------- -------------------
Total Liabilities $ 3,749,232 $ 3,294,470
------------------- -------------------
Common stock:
Common stock, $.01 par value, 100 shares authorized and 1 share
issued and outstanding after the merger, 119,610,000 shares
authorized and 43,394,861 shares issued and outstanding before the
merger - 434
Class C non-voting common stock, $1.00 par value, 195,000 shares
authorized, and 0 shares issued and outstanding after the merger,
97,138 shares issued and outstanding before the merger - 97
Additional paid-in capital 1,230,618 476,846
Retained earnings 19,997 111,756
------------------- -------------------
Total Stockholder's Equity 1,250,615 589,133
------------------- -------------------
Total Liabilities and Stockholder's Equity $ 4,999,847 $ 3,883,603
=================== ===================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
HOMESIDE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(Dollars in Thousands)
Predecessor Predecessor
For the Three For the Three For the Period From For the Six
Months Ended Months Ended February 11, 1998 Months Ended
June 30, 1998 May 31, 1997 to June 30, 1998 May 31, 1997
----------------- ----------------- ------------------- ---------------
<S> <C> <C> <C> <C>
REVENUES:
Mortgage servicing fees $118,334 $ 99,824 $182,601 $195,695
Amortization of mortgage servicing rights (74,476) (48,206) (111,842) (98,296)
----------------- ----------------- ------------------- ---------------
Net servicing revenue 43,858 51,618 70,759 97,399
Interest income 39,003 19,242 57,293 40,519
Interest expense (29,793) (22,104) (45,246) (48,601)
----------------- ----------------- ------------------- ---------------
Net interest revenue 9,210 (2,862) 12,047 (8,082)
Net mortgage origination revenue 34,341 17,926 48,610 40,395
Other income 8,783 776 9,403 917
----------------- ----------------- ------------------- ---------------
Total Revenues 96,192 67,458 140,819 130,629
EXPENSES:
Salaries and employee benefits 29,381 19,736 44,011 39,405
Occupancy and equipment 5,006 3,806 7,400 7,309
Servicing losses on investor-owned loans
and foreclosure-related expenses 8,387 4,752 10,210 9,733
Goodwill amortization 8,919 164 13,860 316
Other expenses 15,498 9,273 23,694 21,256
----------------- ----------------- ------------------- ---------------
Total Expenses 67,191 37,731 99,175 78,019
Income before income taxes and extraordinary loss 29,001 29,727 41,644 52,610
Income tax expense 14,789 11,594 21,647 20,344
----------------- ----------------- ------------------- ---------------
Income before extraordinary loss 14,212 18,133 19,997 32,266
Extraordinary loss - - - 6,440
----------------- ----------------- ------------------- ---------------
Net income $ 14,212 $ 18,133 $19,997 $25,826
================= ================= =================== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
HOMESIDE INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(Dollars in Thousands)
Predecessor Predecessor
For the Three For the Three For the Period For the Six
Months Ended Months Ended February 11, 1998 Months Ended
June 30, 1998 May 31, 1997 to June 30, 1998 May 31, 1997
------------- ------------- ----------------- -------------
<S> <C> <C> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income $14,212 $18,133 $ 19,997 $25,826
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization of mortgage servicing rights 74,476 48,206 111,842 98,296
Depreciation and amortization 10,340 2,608 15,685 5,363
Servicing losses on investor-owned loans 3,954 3,183 5,147 3,913
Deferred income tax expense 12,080 11,594 18,939 16,044
Origination and purchase of loans held for sale, net of 273,004 (1,115) (85,891) 294,840
repayments
Change in accounts receivable 32,633 (46,235) (23,829) (31,378)
Change in other assets and accounts payable and accrued
liabilities (41,177) (5,915) 82,885 3,167
------------- ------------- ---------------- -------------
Net cash provided by operating activities 379,522 30,459 144,775 416,071
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of premises and equipment, net (6,081) (3,763) (9,963) (5,337)
Acquisition of mortgage servicing rights (137,442) (120,060) (299,701) (251,501)
Net proceeds from (purchases of) risk management contracts 128,930 (29,645) 143,115 (83,151)
Purchases of early pool buyout advances (74,230) - (149,140) -
Acquisition of Banc One Mortgage servicing assets (201,000) - (201,000) -
------------- ------------- ---------------- -------------
Net cash used in investing activities (289,823) (153,468) (516,689) (339,989)
CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES:
Net repayments to banks (433,347) (161,069) (49,556) (353,379)
Issuance of notes payable 350,000 410,000 250,000
250,000
Payment of debt issue costs (2,888) (1,687) (3,096) (3,487)
Repayment of long term debt (122) (151) (160) (70,301)
Proceeds from issuance of common stock - - - 116,677
------------- ------------- ---------------- -------------
Net cash (used in) provided by financing activities (86,357) 87,093 357,188 (60,490)
Net increase (decrease) in cash and cash equivalents 3,342 (35,916) (14,726) 15,592
Cash and cash equivalents at beginning of period 14,045 52,691 32,113 1,183
------------- ------------- ---------------- -------------
Cash and cash equivalents at end of period $17,387 $16,775 $17,387 $16,775
============= ============= ================ =============
Supplemental disclosure of cash flow information:
Interest paid $35,002 $25,932 $48,605 $49,364
Income taxes paid $2,657 $2 $2,657 $2
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
HOMESIDE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included.
On February 10, 1998, National Australia Bank, Ltd. (the "National")
acquired all outstanding shares of the common stock of HomeSide International,
Inc. ("HomeSide" or the "Company"). As consideration, the National paid $27.825
per share for all of the outstanding common stock and $17.7 million cash to
retire all outstanding stock options. The total purchase price was approximately
$1.2 billion. The transaction was accounted for as a purchase. As a result, all
assets and liabilities were recorded at their fair value on February 11, 1998
and the purchase price in excess of the fair value of net assets acquired of
$713.6 million was recorded as goodwill. Following the transaction described
above, the National now owns 100% of the Company's common stock and the Company
has become an indirect wholly-owned subsidiary of the National.
As a result of the merger with the National, HomeSide adopted a fiscal year
end of September 30 to conform to the fiscal year of the National. Accordingly,
comparative financial statements for the same period in the prior year have not
been presented. Instead, a comparison of the period of the prior year that most
closely corresponds to the present period is presented. HomeSide's operating
results are not directly comparable to its historical operating results due, in
part, to different balance sheet valuations (estimated fair value as compared to
historical cost). In addition, because HomeSide's operating results are produced
and managed on a quarterly basis, it is not practicable to furnish a period
prior to February 11, 1998 that corresponds to any period other than the period
reported according to the predecessor company's prior fiscal year periods.
Operating results for the three months ended June 30, 1998, the period from
February 11, 1998 to June 30, 1998 and the predecessor's three and six months
ended May 31, 1997 are not necessarily indicative of the results that may be
expected for the fiscal period ending September 30, 1998. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the annual report which is incorporated by reference in the
Form 10-K for the fiscal year ended February 10, 1998 of HomeSide International,
Inc.
HomeSide, through its indirect, wholly-owned operating subsidiary HomeSide
Lending, Inc. ("HomeSide Lending"), is one of the largest full service
residential mortgage banking companies in the United States, formed through the
acquisition of the mortgage banking operations of BankBoston, N.A., formerly
known as The First National Bank of Boston ("BankBoston") and Barnett Banks,
Inc.("Barnett").
2. MORTGAGE SERVICING RIGHTS
The rollforward of mortgage servicing rights is as follows (in thousands):
Balance, February 10, 1998 $1,781,134
Additions 423,945
Deferred hedge gain (105,152)
Amortization (111,842)
----------------
Balance, June 30, 1998 $1,988,085
================
3. NOTES PAYABLE
HomeSide Lending borrows funds on a demand basis from an independent
syndicate of banks under a $2.5 billion credit facility which, at the request of
HomeSide Lending, may be increased to $3.0 billion. The line of credit is used
to provide funds for HomeSide Lending's business of originating, acquiring and
servicing mortgage loans. The line of credit includes both a warehouse credit
facility, limited to 98% of the fair value of eligible mortgage loans held for
sale, and a servicing-related facility, capped at $950.0 million. On February
14, 2000, the line of credit will terminate. The credit agreement contains
covenants that impose limitations and restrictions on HomeSide Lending,
including the maintenance of certain net worth and ratio requirements. Under
certain circumstances set forth in the credit agreement, borrowings under the
agreement become collateralized by HomeSide Lending's assets. HomeSide Lending
is in compliance with all requirements included in the credit agreement. At June
30, 1998 and February 10, 1998, $0.2 billion and $2.1 billion, respectively,
were outstanding under the credit line. The amount outstanding at June 30, 1998
under the bank line of credit is comprised of a warehouse credit facility of
$0.2 billion. The amount outstanding at February 10, 1998 is made up of a
warehouse credit facility of $1.2 billion and a servicing-related credit
facility of $0.9 billion.
Borrowings under the bank line of credit bear interest at rates per
annum, based on, at HomeSide Lending's option (A) the highest of (i) the lead
bank's prime rate, (ii) the secondary market rate of certificates of deposit
plus 100 basis points and (iii) the federal funds rate in effect from time to
time plus 0.5% or (B) various rates based on federal fund rates. At June 30,
1998, the weighted average interest rate on the amounts borrowed under the bank
credit facility was 5.916%, and the weighted average interest rate during the
period from February 11, 1998 to June 30, 1998 was 5.997%.
On June 23, 1998, HomeSide Lending entered into an unsecured revolving
credit facility with the National pursuant to which it can borrow up to $2.1
billion, subject to any lending limitations imposed by regulatory authorities.
As of June 23, 1998, regulations limited the National's ability to lend funds to
HomeSide Lending, its non-bank affiliate, to approximately $1.8 billion. The
interest rates on these borrowings are equal to 30 day LIBOR. At June 30, 1998,
total borrowings from National Australia Bank were $1.8 billion with a weighted
average interest rate of 5.981%.
4. LONG-TERM DEBT
On May 14, 1996, HomeSide issued $200.0 million of 11.25% notes (the
"Parent Notes") maturing on May 15, 2003, and paying interest semiannually in
arrears on May 15 and November 15 of each year, commencing on November 15, 1996.
The Parent Notes are redeemable at the option of HomeSide, in whole or in part,
at any time on or after May 15, 2001, at certain fixed redemption prices. The
indenture contains covenants that impose limitations and restrictions, including
the maintenance of certain net worth and ratio requirements. In addition, the
Parent Notes are secured by a second priority pledge of the common stock of
HomeSide Lending. HomeSide is in compliance with all net worth and ratio
requirements included in the indenture relating to the Parent Notes. HomeSide
used a portion of the proceeds from its February 5, 1997 offering of common
stock to pre-pay $70.0 million of the Parent Notes at a premium of $7.9 million.
The amount outstanding at June 30, 1998 is $130.0 million. The balance of the
Parent Notes at June 30, 1998, including the fair value adjustment resulting
from the merger with the National, was $153.4 million.
As of June 30, 1998, outstanding medium-term notes issued by HomeSide
Lending under a $1.5 billion shelf registration statement were as follows (in
thousands):
Issue Date Outstanding Balance Coupon Rate Maturity Date
May 20, 1997 $ 250,000 6.875% May 15, 2000
June 30, 1997 200,000 6.875% June 30, 2002
June 30, 1997 40,000 6.820% July 2, 2001
July 1, 1997 15,000 6.860% July 2, 2001
July 31, 1997 200,000 6.750% August 1, 2004
September 15, 1997 45,000 6.770% September 17, 2001
March 19, 1998 60,000 5.6875% March 20, 2000
April 23, 1998 125,000 5.7875% April, 24, 2001
May 22, 1998 225,000 6.200% May 15, 2003
-------------------
Total $ 1,160,000
===================
As of June 30, 1998, $850.0 million of the outstanding, fixed rate
medium-term notes had been effectively converted by interest rate swap
agreements to floating-rate notes. The weighted average borrowing rates on
medium-term borrowings issued for the quarter ended June 30, 1998 and period
from February 11, 1998 to June 30, 1998, including the effect of the interest
rate swap agreements, was 6.07% and 6.02%, respectively. Net proceeds from the
issuances were primarily used to reduce the amounts outstanding under the bank
credit agreement and to fund the Banc One acquisition (see Note 5). The balance
of the medium-term notes at June 30, 1998, including the fair value adjustment
resulting from the merger with the National, was $1.2 billion.
In connection with the acquisition of BancBoston Mortgage Corporation,
HomeSide assumed a mortgage note payable that is due in 2017 and bears interest
at a stated rate of 9.5%. HomeSide's main office building is pledged as
collateral for the mortgage note payable. A purchase accounting premium was
recorded in connection with HomeSide assuming the mortgage note payable. The
balance of the mortgage payable at June 30, 1998, including the fair value
adjustments resulting from the merger with the National, was $24.5 million.
5. ACQUISITIONS
On April 1, 1998, HomeSide Lending entered into an agreement with Banc
One Mortgage Corporation ("Banc One") to acquire the mortgage servicing assets
of Banc One. HomeSide Lending and Banc One have also entered into a Preferred
Partner agreement, whereby Banc One will sell a significant portion of its
residential mortgage loan production to HomeSide Lending over the next five
years. The total purchase consideration for the mortgage servicing assets was
$201.0 million cash. The mortgage servicing rights acquired relate to mortgage
servicing loans of $16.6 billion. The transaction closed on June 5, 1998 and was
accounted for as a purchase. The excess of the aggregate purchase price over the
fair value of net assets acquired was recorded as goodwill and is being
amortized over 20 years.
On April 6, 1998, HomeSide Lending signed an agreement with NationsBank
Corporation ("NationsBank") whereby NationsBank agreed to sell HomeSide Lending
a national wholesale mortgage loan network which was formerly owned by Barnett
Banks, Inc. The transaction closed on May 29, 1998. The excess of the aggregate
purchase price over the fair value of net assets acquired was recorded as
goodwill and is being amortized over 20 years.
6. NEW ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement standardizes the accounting for
derivative instruments and hedging activities by requiring that an entity
recognize those items as assets or liabilities in the statement of financial
position and measure them at fair value. If certain conditions are met, a
derivative instrument may be specifically designated as (a) a hedge of the
exposure to changes in the fair value of a recognized asset or liability, or of
an unrecognized firm commitment, (b) a hedge of the exposure to variability in
the cash flows of a recognized assets, liability or forecasted transaction or
(c) a hedge of the foreign currency exposure of an unrecognized firm commitment,
an available-for-sale security, a forecasted transaction or a net investment in
a foreign operation. This statement is effective for fiscal quarters beginning
after June 15, 1999. Management has not yet determined the impact of this
statement on the presentation of the financial statements of HomeSide.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
HomeSide International, Inc., through its wholly-owned operating
subsidiary HomeSide Lending, Inc., is one of the largest full service
residential mortgage banking companies in the United States, formed through the
acquisition of the mortgage banking operations of BankBoston, N.A., formerly
known as The First National Bank of Boston ("BankBoston"), and Barnett Banks,
Inc. ("Barnett"). HomeSide's strategy emphasizes variable cost mortgage
origination and low cost servicing. Headquartered in Jacksonville, Florida,
HomeSide Lending ranks as the 5th largest originator and the 6th largest
servicer in the United States for calendar year 1997 based on data published by
Inside Mortgage Finance.
HomeSide plans to build its core operations through (i) improved
economies of scale in servicing costs; (ii) increased productivity using
proprietary technology; and (iii) expanded and diversified variable cost
origination channels. In addition, HomeSide intends to pursue additional loan
portfolio acquisitions and strategic origination relationships similar to the
existing BankBoston and Banc One relationships.
On February 10, 1998, National Australia Bank, Ltd. (the "National")
acquired all outstanding shares of the common stock of HomeSide International,
Inc. As consideration, the National paid $27.825 per share for all of the
outstanding common stock and $17.7 million cash to retire all outstanding stock
options. The total purchase price was approximately $1.2 billion. The
transaction was accounted for as a purchase. As a result, all assets and
liabilities were recorded at their fair value on February 11, 1998, and the
purchase price in excess of the fair value of net assets acquired of $713.6
million was recorded as goodwill. Following the transaction described above, the
National owns 100% of the Company's common stock and the Company has become an
indirect wholly-owned subsidiary of the National.
As a result of the merger with the National, HomeSide adopted a fiscal
year end of September 30 to conform to the fiscal year of the National.
Accordingly, comparative financial statements for the same period in the prior
year have not been presented. Instead, a comparison of the period of the prior
year that most closely corresponds to the present period is presented.
HomeSide's operating results are not directly comparable to its historical
operating results due, in part, to different balance sheet valuations (estimated
fair value as compared to historical cost). In addition, because HomeSide's
operating results are produced and managed on a quarterly basis, it is not
practicable to furnish a period prior to February 11, 1998 that corresponds to
any period other than the periods reported according to the predecessor
company's prior fiscal year periods. Therefore, the prior three and six months
ended May 31, 1997 have been presented in accordance with Regulation
15d-10(e)(4).
Operating results for the three months ended June 30, 1998, the period
from February 11, 1998 to June 30, 1998, and the predecessor three and six
months ended May 31, 1997 are not necessarily indicative of the results that may
be expected for the fiscal year ending September 30, 1998. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the annual report which is incorporated by reference in the
Form 10-K for the fiscal year ended February 10, 1998 of HomeSide International,
Inc.
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. This Quarterly Report on Form
10-Q contains forward-looking statements which reflect the Company's current
views with respect to future events and financial performance. These
forward-looking statements are subject to certain risks and uncertainties,
including those identified below, which could cause actual results to differ
materially from historical results or those anticipated. The words "believe,"
"expect," "anticipate," "intend," "estimate" and other expressions which
indicate future events and trends identify forward-looking statements, which
speak only as of their dates. The Company undertakes no obligation to publicly
update or revise any forward-looking statements whether as a result of new
information, future events or otherwise. The following factors could cause
actual results to differ materially from historical results or those
anticipated: (1) the Company's ability to grow which depends on its ability to
obtain additional financing in the future for originating loans, investment in
servicing rights, working capital, capital expenditure and general corporate
purposes, (2) economic downturns may negatively affect the Company's
profitability as the frequency of loan default tends to increase in such
environments and (3) changes in interest rates may affect the volume of loan
originations and acquisitions, the interest rate spread on loans held for sale,
the amount of gain or loss on the sale of loans and the value of the Company's
servicing portfolio. These risks and uncertainties are more fully detailed in
the Company's filings with the Securities and Exchange Commission.
Loan Production Activities
As a multi-channel loan production lender, HomeSide Lending has one of the
industry's largest correspondent lending production operations, a full-service
brokered loan program and a national production center for consumer direct
mortgage lending. By focusing on production channels with a variable cost
structure, HomeSide Lending eliminates the fixed costs associated with
traditional mortgage branch offices. Without the burden of high fixed cost
origination overhead, HomeSide is well positioned to weather a variety of
interest rate environments.
The following information regarding loan production activities for
HomeSide Lending is presented to aid in understanding the results of operations
and financial condition of HomeSide for the three months ended June 30, 1998,
the period from February 11, 1998 to June 30, 1998 and the predecessor company's
three and six months ended May 31, 1997 (in millions):
<TABLE>
<CAPTION>
Predecessor Predecessor
For the Three For the Three For the Period For the Six
Months Ended Months Ended February 11, 1998 Months Ended
June 30, 1998 May 31, 1997 to June 30, 1998 May 31, 1997
------------- ------------ ---------------- ------------
<S> <C> <C> <C> <C>
Correspondent $ 4,264 $ 3,222 $ 6,589 $ 6,243
Co-issue 1,139 1,191 2,627 3,801
Broker 709 389 1,081 689
------------ ----------- ----------- ------------
Total wholesale 6,112 4,802 10,297 10,733
Direct 255 69 352 203
------------ ----------- ----------- ------------
Total production 6,367 4,871 10,649 10,936
Bulk acquisitions 17,143 501 17,145 501
------------ ----------- ----------- ------------
Total production and acquisitions $ 23,510 $ 5,372 $ 27,794 $ 11,437
============ =========== =========== ============
</TABLE>
Total loan production, excluding bulk acquisitions, was $6.4 billion for
the three months ended June 30, 1998 compared to $4.9 billion for the
predecessor three months ended May 31, 1997. Loan production for the period from
February 11, 1998 to June 30, 1998, excluding bulk acquisitions, totaled $10.6
billion while loan production for the predecessor six months ended May 31, 1997,
excluding bulk acquisitions, totaled $10.9 billion. HomeSide Lending's
correspondent lending and broker channels were the primary contributors to
production volume increases on a quarterly and annualized basis. During the
three months ended June 30, 1998, HomeSide Lending completed the addition of
Banc One as a Preferred Partner. As a Preferred Partner, Banc One will sell a
significant portion of the residential mortgage loans it originates to HomeSide
Lending over the next five years. HomeSide Lending also made bulk servicing
acquisitions of $17.1 billion during the three months ended June 30, 1998 and
the period from February 11, 1998 to June 30, 1998 compared to $0.5 billion for
the predecessor three and six months ended May 31, 1997. Bulk acquisitions for
the three months ended June 30, 1998 and the period from February 11, 1998 to
June 30, 1998 included $16.6 billion from Banc One.
HomeSide continues to examine a number of ways to diversify and grow
revenue sources from its existing and new customer base. As part of this effort,
HomeSide Lending has announced an alliance with a subprime mortgage lender,
which allows HomeSide Lending to offer additional mortgage-related products to
the production network. The subprime lending unit began operations in January
1998.
During the three months ended June 30, 1998, HomeSide Lending also
purchased the operations of NationsBank's subsidiary Loan America, a national
broker network. This purchase will contribute to HomeSide Lending's expansion of
its broker network, a production channel that is key to HomeSide Lending's
variable cost origination strategy.
Servicing Portfolio
Management believes that HomeSide Lending is one of the most efficient
mortgage servicers in the industry based on its servicing cost per loan and the
number of loans serviced per employee. The servicing operation makes extensive
use of state-of-the-art technology, process re-engineering and expense
management. With a portfolio size of $116 billion, HomeSide Lending services the
loans of approximately 1.4 million homeowners from across the United States and
is committed to protecting the value of this important asset by a sophisticated
risk management strategy. HomeSide Lending anticipates its low cost of servicing
loans will continue to maximize the bottom-line impact of its growing servicing
portfolio. HomeSide Lending's focus on efficient and low cost processes is
pursued through the selective use of automation as well as the strategic
outsourcing of selected servicing functions and effective control of
delinquencies and foreclosures.
The following information on the dollar amounts of loans serviced is
presented to aid in understanding the results of operations and financial
condition of HomeSide for the three months ended June 30, 1998, the period from
February 11, 1998 to June 30, 1998 and the predecessor company's three and six
months ended May 31, 1997 (in millions):
<TABLE>
<CAPTION>
Predecessor Predecessor
For the Three For the Three For the Period For the Six
Months Ended Months Ended February 11, 1998 Months Ended
June 30, 1998 May 31, 1997 to June 30, 1998 May 31, 1997
------------- ------------ ---------------- ------------
<S> <C> <C> <C> <C>
Balance at beginning of period $ 99,918 $ 90,192 $ 99,956 $ 88,706
Additions 23,510 5,372 27,794 11,437
Scheduled amortization 663 531 983 1,107
Prepayments 6,378 2,144 10,211 3,819
Foreclosures 385 171 514 312
Sales of servicing 201 81 241 2,268(a)
------------ ----------- ----------- -------------
Total reductions 7,627 2,927 11,949 7,506
------------ ----------- ----------- -------------
Balance at end of period $115,801 $ 92,637 $115,801 $ 92,637
============ =========== =========== =============
</TABLE>
(a) Includes $1.9 billion of servicing sold as part of the sale of Honolulu
Mortgage Company.
The number of loans serviced at June 30, 1998 was 1,424,256 compared to
1,124,911 at May 31, 1997. HomeSide Lending's strategy is to build its mortgage
servicing portfolio by concentrating on variable cost loan origination
strategies, and as a result, benefit from improved economies of scale. A key to
HomeSide Lending's future growth is the proprietary servicing software purchased
from Barnett. This system will allow HomeSide Lending to double the number of
loans serviced on a single system. Over half of the servicing portfolio is
serviced on the proprietary system. The transfer of the remaining portfolio is
expected to occur by the end of calendar year 1998.
Results of Operations
For the three months ended June 30, 1998 compared to the predecessor three
months ended May 31, 1997
Summary
HomeSide's net income, excluding goodwill amortization, increased 26% to
$23.1 million for the three months ended June 30, 1998 compared to $18.3 million
for the predecessor three months ended May 31, 1997. Net income after the
goodwill amortization from the acquisition of HomeSide by the National for the
three months ended June 30, 1998 was $14.2 million. Total revenues for the three
months ended June 30, 1998 were $96.2 million compared to $67.5 million for the
predecessor three months ended May 31, 1997. The increases in net income,
excluding goodwill amortization, and revenues for the three months ended June
30, 1998 compared to the predecessor three months ended May 31, 1997 were
primarily attributable to increases in net mortgage origination revenue and net
interest revenue, partially offset by a decrease in net servicing revenue. Net
mortgage origination revenue increased due to loan production volume increases
and increases in gains from secondary marketing activities. Net interest revenue
increased due to increases in net interest earned on mortgage loans held for
sale and escrow deposits and as a result of reduced borrowing costs from
improved credit ratings and the issuance of medium-term notes. Net servicing
revenue decreased primarily due to increased mortgage prepayment speeds and
amortization expense as a result of declining interest rates. Total expenses
increased as a result of increases in production volume, amortization expense of
$8.9 million related to the goodwill associated with the merger with the
National (see Note 1), and expenses associated with the Banc One acquisition
(see Note 5).
Net Servicing Revenue
Net servicing revenue was $43.9 million for the three months ended June
30, 1998 compared to $51.6 million for the predecessor three months ended May
31, 1997. Net servicing revenue is comprised of mortgage servicing fees,
ancillary servicing revenue, and amortization of mortgage servicing rights.
Mortgage servicing fees totaled $118.3 million for the three months ended
June 30, 1998 compared to $99.8 million for the predecessor three months ended
May 31, 1997. The servicing portfolio increased $23.2 billion to $115.8 billion
at June 30, 1998 compared to $92.6 billion at May 31, 1997, a 25% increase. A
significant portion of this portfolio growth was due to the purchase of Banc One
Mortgage's $16.6 billion servicing portfolio during the three months ended June
30, 1998. HomeSide's weighted average interest rate of the mortgage loans in the
servicing portfolio was 7.76% and 7.90% at June 30, 1998 and May 31, 1997,
respectively. The weighted average servicing fee, including ancillary income,
for the servicing portfolio was 0.450% for the three months ended June 30, 1998
compared to 0.436% for the predecessor three months ended May 31, 1997. The
increase in the weighted average servicing fee was due to growth of ancillary
revenues including late fees and other mortgage-related products. Amortization
expense was $74.5 million for the three months ended June 30, 1998 compared to
$48.2 million for the predecessor three months ended May 31, 1997. Amortization
expense increased mainly as a result of a higher average balance of mortgage
servicing rights and a decrease of 79 basis points in average mortgage interest
rates from 8.01% at May 31, 1997 to 7.22% at June 30, 1998.
Net Interest Revenue
Net interest revenue is driven by the level of interest rates, the
direction in which rates are moving and the spread between short and long-term
interest rates. These factors influence the size of the residential mortgage
origination market, HomeSide's loan production volumes and the interest rates
HomeSide earns on loans and pays to its lenders.
Loan refinancing levels are the largest contributor to changes in the size
of the mortgage origination market. To reduce the cost of their home mortgages,
borrowers tend to refinance their loans during periods of declining interest
rates, increasing the size of the origination market and HomeSide's loan
production volumes. Higher loan production volumes result in higher average
balances of loans held for sale and consequently higher levels of interest
income from interest earned on such loans prior to their sale. This higher level
of interest income due to increased volumes is partially offset by the lower
rates earned on the loans.
Overall borrowing costs also fluctuate with changes in interest rates.
Currently, the interest expense HomeSide pays to finance mortgage loans held for
sale and other net assets is generally calculated with reference to short-term
interest rates. In addition, because mortgage loans held for sale earn interest
based on longer term interest rates, the level of net interest revenue is also
influenced by the spread between long-term and short-term interest rates.
Net interest revenue totaled $9.2 million for the three months ended June
30, 1998 compared to ($2.9) million for the predecessor three months ended May
31, 1997. Increases in net interest revenue were due to increases in net
interest earned on mortgage loans held for sale and escrow deposits. The average
balance of mortgage loans held for sale increased 30% to $1.3 billion for the
three months ended June 30, 1998 from $1.0 billion for the predecessor three
months ended May 31, 1997. The average escrow deposits balance increased 67% to
$2.5 billion for the three months ended June 30, 1998 from $1.5 billion for the
predecessor three months ended May 31, 1997. The principal balances of prepaid
mortgage loans are accumulated in escrow accounts before they are remitted to
investors. During periods of declining interest rates, prepayments, escrow
balances and the related earnings increase. Lower funding rates obtained through
improved credit ratings, the issue of medium-term notes and the adoption of an
early pool buyout program also contributed to increases in net interest income.
HomeSide's primary operating subsidiary, HomeSide Lending, Inc. has issued a
total of $1.2 billion of medium-term notes to the public market at an average
borrowing rate of 5.993% at June 30, 1998. The proceeds were used to pay down
existing bank debt, increasing HomeSide's borrowing capacity. An immediate
benefit of this increased borrowing capacity was the initiation of an early pool
buyout program, which involves the purchase of delinquent government loans from
pools early in the foreclosure process, thereby reducing the unreimbursed
interest expense that HomeSide incurs.
Net Mortgage Origination Revenue
Net mortgage origination revenue is comprised of fees earned on the
origination of mortgage loans, gains and losses on the sale of loans, gains and
losses resulting from hedging of secondary marketing activities and fees charged
to review loan documents for purchased loan production.
Net mortgage origination revenue was $34.3 million for the three months
ended June 30, 1998 compared to $17.9 million for the predecessor three months
ended May 31, 1997, a 92% increase. This increase was due to increases in
HomeSide's loan production volumes and an increase in gains from secondary
marketing activities. The declining mortgage interest rates sparked significant
increases in refinancing levels and the origination market. As a result,
HomeSide's loan production volumes increased, primarily through HomeSide's
correspondent lending and broker channels. Secondary marketing gains totaled
$12.4 million for the three months ended June 30, 1998 compared to $2.1 million
for the predecessor three months ended May 31, 1997.
Other Income
Other income for the three months ended June 30, 1998 was $8.8 million
compared to $0.8 million for the predecessor three months ended May 31, 1997.
The increase was due to gains on sales of reinstated loans from the early pool
buyout program.
Salaries and Employee Benefits
Salaries and employee benefits expense was $29.4 million for the three
months ended June 30, 1998 compared to $19.7 million for the predecessor three
months ended May 31, 1997. The average number of full-time equivalent employees
was 2,139 for the three months ended June 30, 1998 compared to 1,647 for the
predecessor three months ended May 31, 1997. The increases in salaries and
employee benefits expense and average number of full-time equivalent employees
are primarily attributable to additional expenses and employees to service the
growing mortgage servicing portfolio, increased prepayment activity and
increased production volume. HomeSide also added servicing employees as a result
of the Banc One acquisition. By the fiscal year end, the servicing operations
acquired from Banc One are expected to be integrated into the existing
Jacksonville and San Antonio servicing sites.
Occupancy and Equipment Expense
Occupancy and equipment expense primarily includes rental expense, repairs
and maintenance costs, certain computer software expenses and depreciation of
HomeSide's premises and equipment. Occupancy and equipment expense for the three
months ended June 30, 1998 was $5.0 million compared to $3.8 million for the
predecessor three months ended May 31, 1997. The increase in expense was mainly
due to the increase in information systems costs required to handle the growing
mortgage servicing portfolio.
Servicing Losses on Investor-Owned Loans and Foreclosure-Related Expenses
Servicing losses on investor-owned loans represent anticipated losses
primarily attributable to servicing FHA and VA loans for investors. These
amounts include actual losses for the final disposition of loans,
non-recoverable foreclosure costs, accrued interest for which payment has been
curtailed and estimates for potential losses based on HomeSide's experience as a
servicer of government loans. The servicing losses on investor-owned loans and
foreclosure-related expenses totaled $8.4 million for the three months ended
June 30, 1998 compared to $4.8 million for the predecessor three months ended
May 31, 1997. The increase was primarily due to an increase in
foreclosure-related expenses.
Included in the balance of accounts payable and accrued liabilities at
June 30, 1998 is a reserve for estimated servicing losses on investor-owned
loans of $21.7 million. The reserve has been established for potential losses
related to the mortgage servicing portfolio. Increases to the reserve are
charged to earnings as servicing losses on investor-owned loans. The reserve is
decreased for actual losses incurred related to the mortgage servicing
portfolio. HomeSide's historical loss experience on VA loans generally has been
consistent with industry experience. Management believes that HomeSide has an
adequate level of reserve based on servicing volume, portfolio composition,
credit quality and historical loss rates, as well as estimated future losses.
The following table sets forth HomeSide's delinquency and foreclosure
experience:
Servicing Portfolio Delinquencies
(percent by loan count)
At Predecessor At
June 30, 1998 May 31, 1997
Servicing Portfolio Delinquencies, excluding
bankruptcies (at end of period)
30 days 3.38% 2.89%
60 days 0.69% 0.63%
90+ days 0.58% 0.46%
--------------- --------------
Total past due 4.65% 3.98%
=============== ==============
Foreclosures pending 0.75% 0.68%
=============== ==============
Servicing losses on investor-owned loans and foreclosure-related
expenses increased at a rate disproportionate to the increase in servicing
portfolio delinquencies as a result of a more mature portfolio at June 30, 1998
compared to the predecessor portfolio at May 31, 1997.
Other Expenses and Goodwill Amortization
Other expenses consist mainly of professional fees, communications
expense, advertising and public relations, data processing expenses and certain
loan origination expenses. The level of other expenses fluctuates in part based
upon the level of HomeSide's mortgage servicing portfolio and loan production
volumes.
Other expenses, excluding goodwill amortization from the acquisition of
HomeSide by National Australia Bank, were $15.5 million for the three months
ended June 30, 1998 compared to $9.3 million for the predecessor three months
ended May 31, 1997. The increase in other expenses was primarily due to expenses
associated with higher production volumes and the growing mortgage servicing
portfolio. Other expenses, including goodwill amortization of $8.9 million and
$0.2 million, respectively, for the three months ended June 30, 1998 and the
predecessor six months ended May 31, 1997 were $24.4 million and $9.5 million,
respectively.
Income Tax Expense
HomeSide's income tax expense was $14.8 million for the three months ended
June 30, 1998 compared to $11.6 million for the predecessor three months ended
May 31, 1997. The effective income tax rates for the three months ended June 30,
1998 and the predecessor three months ended May 31, 1997 were 51% and 39%,
respectively. The increase was due to the tax effects of goodwill as a result of
the merger with the National.
Results of Operations
For the period from February 11, 1998 to June 30, 1998 compared to the
predecessor six months ended May 31, 1997
Summary
HomeSide's net income, excluding goodwill amortization and before
extraordinary loss, increased to $33.9 million for the period from February 11,
1998 to June 30, 1998 compared to $32.6 million for the predecessor six months
ended May 31, 1997. Net income after goodwill amortization from the acquisition
of HomeSide by the National for the period from February 11, 1998 to June 30,
1998 was $20.0 million. Net income for the six months ended May 31, 1997 totaled
$25.8 million after an extraordinary loss on the early extinguishment of debt of
$6.4 million, net of tax. Total revenues for the period from February 11, 1998
to June 30, 1998 were $140.8 million compared $130.6 million for the predecessor
six months ended May 31, 1997. The increases in net income and revenues for the
period from February 11, 1998 to June 30, 1998 compared to the predecessor six
months ended May 31, 1997 were primarily attributable to increases in net
mortgage origination revenue and net interest revenue, partially offset by a
decrease in net servicing revenue. Net mortgage origination revenue increased
due to loan production volume increases and increases in secondary marketing
gains. Net interest revenue increased due to an increase in net interest earned
on mortgage loans held for sale and escrow deposits and as a result of reduced
borrowing costs from improved credit ratings and the issuance of medium-term
notes. Net servicing revenue decreased primarily due to increased mortgage
prepayment speeds and amortization expense as a result of declining interest
rates. Total expenses increased primarily as a result of increases in production
volume and amortization expense of $13.9 million related to the goodwill
associated with the merger with the National (see Note 1), and expenses
associated with the Banc One acquisition (see Note 5).
Net Servicing Revenue
Net servicing revenue was $70.8 million for the period from February 11,
1998 to June 30, 1998 compared to $97.4 million for the predecessor six months
ended May 31, 1997. Net servicing revenue is comprised of mortgage servicing
fees, ancillary servicing revenue, and amortization of mortgage servicing
rights.
Mortgage servicing fees totaled $182.6 million for the period from
February 11, 1998 to June 30, 1998 compared to $195.7 million for the
predecessor six months ended May 31, 1997. The servicing portfolio increased
$23.2 billion to $115.8 billion at June 30, 1998 compared to $92.6 billion at
May 31, 1997, a 25% increase. A significant portion of this portfolio growth was
due to the purchase of Banc One Mortgage's $16.6 billion servicing portfolio
during the period from February 11, 1998 to June 30, 1998. HomeSide's weighted
average interest rate of the mortgage loans in the servicing portfolio was 7.76%
and 7.90% at June 30, 1998 and May 31, 1997, respectively. The weighted average
servicing fee, including ancillary income, for the servicing portfolio was
0.456% for the period from February 11, 1998 to June 30, 1998 compared to 0.430%
for the predecessor six months ended May 31, 1997. The increase in the weighted
average servicing fee was due to growth of ancillary revenues including late
fees and other mortgage-related products. Amortization expense was $111.8
million for the period from February 11, 1998 to June 30, 1998 compared to $98.3
million for the predecessor six months ended May 31, 1997. Amortization expense
increased mainly as a result of a higher average balance of mortgage servicing
rights and a decrease of 79 basis points in average mortgage interest rates from
8.01% at May 31, 1997 to 7.22% at June 30, 1998.
Net Interest Revenue
Net interest revenue is driven by the level of interest rates, the
direction in which rates are moving and the spread between short and long-term
interest rates. These factors influence the size of the residential mortgage
origination market, HomeSide's loan production volumes and the interest rates
HomeSide earns on loans and pays to its lenders.
Loan refinancing levels are the largest contributor to changes in the size
of the mortgage origination market. To reduce the cost of their home mortgages,
borrowers tend to refinance their loans during periods of declining interest
rates, increasing the size of the origination market and HomeSide's loan
production volumes. Higher loan production volumes result in higher average
balances of loans held for sale and consequently higher levels of interest
income from interest earned on such loans prior to their sale. This higher level
of interest income due to increased volumes is partially offset by the lower
rates earned on the loans.
Overall borrowing costs also fluctuate with changes in interest rates.
Currently, the interest expense HomeSide pays to finance mortgage loans held for
sale and other net assets is generally calculated with reference to short-term
interest rates. In addition, because mortgage loans held for sale earn interest
based on longer term interest rates, the level of net interest revenue is also
influenced by the spread between long-term and short-term interest rates.
Net interest revenue totaled $12.0 million for the period from February
11, 1998 to June 30, 1998 compared to ($8.1) million for the predecessor six
months ended May 31, 1997. Increases in net interest revenue were due to
increases in net interest earned on mortgage loans held for sale and escrow
deposits. The principal balances of prepaid mortgage loans are accumulated in
escrow accounts before they are remitted to investors. During periods of
declining interest rates, prepayments, escrow balances and the related earnings
increase. Lower funding rates obtained through improved credit ratings, the
issue of medium-term notes and the adoption of an early pool buyout program also
contributed to increases in net interest income. HomeSide's primary operating
subsidiary, HomeSide Lending, Inc. has issued a total of $1.2 billion of
medium-term notes to the public market at an average borrowing rate of 5.993% at
June 30, 1998. The proceeds were used to pay down existing bank debt, increasing
HomeSide's borrowing capacity. An immediate benefit of this increased borrowing
capacity was the initiation of an early pool buyout program, which involves the
purchase of delinquent government loans from pools early in the foreclosure
process, thereby reducing the unreimbursed interest expense that HomeSide
incurs.
Net Mortgage Origination Revenue
Net mortgage origination revenue is comprised of fees earned on the
origination of mortgage loans, gains and losses on the sale of loans, gains and
losses resulting from hedging of secondary marketing activities and fees charged
to review loan documents for purchased loan production.
Net mortgage origination revenue was $48.6 million for the period from
February 11, 1998 to June 30, 1998 compared to $40.4 million for the predecessor
six months ended May 31, 1997. The increase was due to increases in HomeSide's
loan production volumes, primarily through its correspondent lending and broker
channels, and an increase in gains from secondary marketing activities.
Other Income
Other income for the period from February 11, 1998 to June 30, 1998 was
$9.4 million compared to $0.9 million for the predecessor six months ended May
31, 1997. The increase was due to gains on sales of reinstated loans from the
early pool buyout program.
Salaries and Employee Benefits
Salaries and employee benefits expense was $44.0 million for the period
from February 11, 1998 to June 30, 1998 compared to $39.4 million for the
predecessor six months ended May 31, 1997. The average number of full-time
equivalent employees was 2,070 for the period from February 11, 1998 to June 30,
1998 compared to 1,668 for the predecessor six months ended May 31, 1997. The
increases in salaries and employee benefits expense and average number of
full-time equivalent employees are primarily attributable to additional expenses
and employees to service the growing mortgage servicing portfolio, increased
prepayment activity and increased production volume. HomeSide also added
servicing employees as a result of the Banc One acquisition. By the fiscal year
end, the servicing operations acquired from Banc One are expected to be
integrated into the existing Jacksonville and San Antonio servicing sites.
Occupancy and Equipment Expense
Occupancy and equipment expense primarily includes rental expense, repairs
and maintenance costs, certain computer software expenses and depreciation of
HomeSide's premises and equipment. Occupancy and equipment expense was $7.4
million for the period from February 11, 1998 to June 30, 1998 compared to $7.3
million for the predecessor six months ended May 31, 1997. The increase in
expense was mainly due to the increase in information systems costs required to
handle the growing mortgage servicing portfolio.
Servicing Losses on Investor-Owned Loans and Foreclosure-Related Expenses
Servicing losses on investor-owned loans represent anticipated losses
primarily attributable to servicing FHA and VA loans for investors. These
amounts include actual losses for the final disposition of loans,
non-recoverable foreclosure costs, accrued interest for which payment has been
curtailed and estimates for potential losses based on HomeSide's experience as a
servicer of government loans. Servicing losses on investor-owned loans and
foreclosure-related expenses totaled $10.2 million for the period from February
11, 1998 to June 30, 1998 compared to $9.7 million for the predecessor six
months ended May 31, 1997. The increase was primarily due to an increase in
foreclosure-related expenses.
Included in the balance of accounts payable and accrued liabilities at
June 30, 1998 is a reserve for estimated servicing losses on investor-owned
loans of $21.7 million. The reserve has been established for potential losses
related to the mortgage servicing portfolio. Increases to the reserve are
charged to earnings as servicing losses on investor-owned loans. The reserve is
decreased for actual losses incurred related to the mortgage servicing
portfolio. HomeSide's historical loss experience on VA loans generally has been
consistent with industry experience. Management believes that HomeSide has an
adequate level of reserve based on servicing volume, portfolio composition,
credit quality and historical loss rates, as well as estimated future losses.
<PAGE>
The following table sets forth HomeSide's delinquency and foreclosure
experience:
Servicing Portfolio Delinquencies
(percent by loan count)
At Predecessor At
June 30, 1998 May 31, 1997
Servicing Portfolio Delinquencies, excluding
bankruptcies (at end of period)
30 days 3.38% 2.89%
60 days 0.69% 0.63%
90+ days 0.58% 0.46%
--------------- ---------------
Total past due 4.65% 3.98%
=============== ===============
Foreclosures pending 0.75% 0.68%
=============== ===============
Servicing losses on investor-owned loans and foreclosure-related
expenses increased at a rate disproportionate to the increase in servicing
portfolio delinquencies as a result of a more mature portfolio at June 30, 1998
compared to the predecessor portfolio at May 31, 1997.
Other Expenses and Goodwill Amortization
Other expenses consist mainly of professional fees, communications
expense, advertising and public relations, data processing expenses and certain
loan origination expenses. The level of other expenses fluctuates in part based
upon the level of HomeSide's mortgage servicing portfolio and loan production
volumes.
Other expenses, excluding goodwill amortization from the acquisition of
HomeSide by National Australia Bank, were $23.7 million for the period from
February 11, 1998 to June 30, 1998 compared to $21.3 million the predecessor six
months ended May 31, 1997. The increase was primarily due to expenses associated
with the growing mortgage servicing portfolio. Other expenses, including
goodwill amortization of $13.9 million and $0.3 million, respectively, for the
period from February 11, 1998 to June 30, 1998 and the predecessor six months
ended May 31, 1997 were $37.6 million and $21.6 million, respectively.
Income Tax Expense
HomeSide's income tax expense was $21.6 million for the period from
February 11, 1998 to June 30, 1998 compared to $20.3 million for the predecessor
six months ended May 31, 1997. The effective income tax rates for the period
from February 11, 1998 to June 30, 1998 and the predecessor six months ended May
31, 1997 were 52% and 39%, respectively. The increase was due to the tax effects
of goodwill as a result of the merger with the National.
Risk Management Activities
HomeSide has a risk management program designed to protect the economic
value of its mortgage servicing portfolio from declines in value due to
increases in estimated loan prepayment speeds, which are primarily influenced by
declines in interest rates. When loans prepay faster than anticipated, the cash
flow HomeSide expects to receive from servicing such loans is reduced. The value
of mortgage servicing rights is based on the present value of the cash flows to
be received over the life of the loan and therefore, the value of the servicing
portfolio declines as prepayments increase.
During the period from February 11, 1998 to June 30, 1998, HomeSide
utilized options on U.S. Treasury bond futures and U.S. Treasury bond futures to
protect a significant portion of the market value of its mortgage servicing
portfolio from a decline in value. The risk management contracts used by
HomeSide have characteristics such that they tend to increase in value as
interest rates decline. Conversely, these risk management contracts tend to
decline in value as interest rates rise. Accordingly, changes in value of these
risk management instruments will tend to move inversely with changes in value of
HomeSide's mortgage servicing rights.
These risk management instruments are designated as hedges on the purchase
date and such designation is at a level at least as specific as the level at
which mortgage servicing rights are evaluated for impairment. The risk
management instruments are marked-to-market with changes in market value
deferred and applied as an adjustment to the basis of the related mortgage
servicing right asset being hedged. As a result, any changes in market value
that are deferred are amortized and evaluated for impairment in the same manner
as the related mortgage servicing rights. The effectiveness of HomeSide's
hedging activity can be measured by the correlation between changes in the value
of the risk management instruments and changes in the value of HomeSide's
mortgage servicing rights. This correlation is assessed on a quarterly basis to
ensure that high correlation is maintained over the term of the hedging program.
If management's ongoing assessment of correlation indicates that high
correlation is not being achieved, the Company will discontinue the application
of hedge accounting and recognize a gain or loss to the extent the hedge results
have not been offset by changes in value of the hedged asset during the hedge
period. During the periods presented, HomeSide has experienced a high measure of
correlation between changes in the value of mortgage servicing rights and the
risk management contracts. However, in periods of rising interest rates, the
increase in values of mortgage servicing rights may outpace the decline in value
of the options included in the hedge position, because the loss on the options
is limited to the premium paid.
During the period from February 11, 1998 to June 30, 1998, deferred gains
and losses on risk management contracts resulted in net deferred hedge gain of
$105.2 million. These gains reduced the carrying value of mortgage servicing
rights. The decrease in the estimated fair value of the mortgage servicing
rights approximated the net gains on risk management contracts for this period.
HomeSide's future cash needs as they relate to its hedging program will be
influenced by such factors as long-term interest rates, loan production levels
and growth in the mortgage servicing portfolio. The fair value of open risk
management contracts at June 30, 1998 was $108.1 million, which was equal to
their carrying amount because they are marked-to-market at each reporting date.
Liquidity and Capital Resources
The Company's principal financing needs are the financing of loan
origination activities and the investment in mortgage servicing rights. To meet
these needs, the Company currently utilizes funding from an independent
syndicate of banks, including a warehouse credit facility and a
servicing-related facility, medium-term notes and cash flow from operations.
HomeSide continues to investigate and pursue alternative and supplementary
methods to finance its growing operations through the public and private capital
markets. These may include methods designed to expand the Company's financial
capacity and reduce its cost of capital. In addition, to facilitate the sale and
distribution of certain mortgage products, HomeSide Mortgage Securities, Inc., a
wholly-owned subsidiary of HomeSide Lending, Inc., may continue to issue
mortgage-backed securities.
Operations
Net cash provided by operations for the three months ended June 30, 1998
and the period from February 11, 1998 to June 30, 1998 were $379.5 million and
$144.8 million, respectively. Net cash provided by operations for the
predecessor three and six months ended May 31, 1997 were $30.5 million and
$416.1 million, respectively. The primary uses of cash in operations were to
fund loan originations and pay corporate expenses. These uses of cash were
offset by cash provided from servicing fee income, loan sales and principal
repayments. Cash flows from loan originations are dependent upon current
economic conditions and the level of long-term interest rates. Decreases in
long-term interest rates generally result in higher loan refinancing activity,
which results in higher cash demands to meet increased loan production levels.
Higher cash demands to meet increased loan production levels are primarily met
through borrowings and loan sales.
Investing
Net cash used in investing activities for the three months ended June 30,
1998 and the period from February 11, 1998 to June 30, 1998 were $289.8 million
and $516.7 million, respectively. Net cash used in investing activities for the
predecessor three and six months ended May 31, 1997 were $153.5 million and
$340.0 million, respectively. Cash used in investing activities was for the
purchase and origination of mortgage servicing rights, the purchase of risk
management contracts and for funding the early pool buyout program. Other assets
increased $42.3 million to $107.4 million at June 30, 1998 from $65.1 million at
May 31, 1997 primarily as a result of a increase in HomeSide's loans held for
investment which include reinstated early pool buyout loans. Early pool buyout
advances totaled $523.1 million at June 30, 1998. Future uses of cash for
investing activities will be dependent on the mortgage origination market and
HomeSide's hedging needs. HomeSide is not able to estimate the timing and amount
of cash uses for future acquisitions of other mortgage banking entities, if such
acquisitions were to occur.
Financing
Net cash used in financing activities for the three months ended June 30,
1998 was $86.4 million. Net cash provided by financing activities for the period
from February 11, 1998 to June 30, 1998 was $357.2 million. Net cash provided by
financing activities for the predecessor three months ended May 31, 1997 was
$87.1 million, and net cash used in financing activities for the predecessor six
months ended May 31, 1997 was $60.5 million. Cash was provided by the issuance
of medium-term notes during the periods and used to repay borrowings from banks
on HomeSide's line of credit and pay debt issue costs. In addition, during the
predecessor six months ended May 31, 1997, HomeSide issued $116.7 million in
common stock and used $70.3 million of proceeds from the issuance to repay
long-term debt.
HomeSide expects that to the extent cash generated from operations is
inadequate to meet its liquidity needs, those needs can be met through financing
from its bank credit facility and other facilities which may be entered into
from time to time, as well as from the issuance of debt securities in the public
markets. Accordingly, HomeSide does not currently anticipate that it will make
sales of servicing rights to any significant degree for the purpose of
generating cash. Nevertheless, in addition to its cash and mortgage loans held
for sale balances, HomeSide's portfolio of mortgage servicing rights provides a
potential source of funds to meet liquidity requirements, especially in periods
of rising interest rates when loan origination volume slows. Repurchase
agreements also provide an alternative to the bank line of credit for mortgages
held for sale. Future cash needs are highly dependent on future loan production
and servicing results, which are influenced by changes in long-term interest
rates.
Year 2000
General. HomeSide uses and is dependent upon a significant number of computer
software programs and operating systems to conduct its business. Such programs
and systems include those developed and maintained by HomeSide, software and
systems purchased from outside vendors and software and systems used by
HomeSide's third party providers. HomeSide recognizes that the Year 2000 issue
is one of the most complex data processing problems faced by businesses
worldwide. As HomeSide approaches the century change, its goal is to maintain
"business as usual."
HomeSide began its Year 2000 efforts in the fall of 1996 with the sponsorship of
its executive management and guidance of legal counsel. The Year 2000 issue has
been identified as a top priority. HomeSide has dedicated resources to assess,
repair and test programs, applications, equipment and facilities. HomeSide has
established a Year 2000 Program Office that is coordinating with each business
unit throughout the company to ensure Year 2000 compliance.
HomeSide's strategy for addressing Year 2000 focuses on four teams, which
together address all aspects of HomeSide's business. The Information Technology
team addresses all of the Mainframe, LAN and client server applications. The End
User Computing (or Business) team addresses the business risks within each of
the operating departments. The Enterprise team addresses the corporate-wide
risks posed by the Year 2000. Finally, the Year 2000 Program Office coordinates
HomeSide's Year 2000 readiness efforts and is responsible for communications,
vendor management, project documentation and reporting.
State of Readiness. HomeSide's approach to Year 2000 compliance includes a
standard set of methods and tools to coordinate and drive the project to
completion. The approach consists of six phases:
1. Assessment - Defining each system and process to determine if there
are date dependencies and how to resolve them.
2. Remediation - Implementing the steps identified in the assessment
phase to repair date errors.
3. Testing - Developing and implementing test scripts to determine if
remediated code is correct.
4. Implementation - Moving all approved changes from testing into
production.
5. Check-Off - Formally acknowledging that each process has been
implemented and is functioning correctly.
6. Clean Management - Employing procedures and practices to prevent the
reintroduction of non-compliant applications, products and processes
into the operating environment, once Year 2000 compliance has been
achieved.
HomeSide's Information Technology and Business Teams have substantially
completed a top to bottom assessment of the company's systems for Year 2000
vulnerability. The assessment has included substantially all hardware and
software systems, embedded systems, buildings and equipment, and business
processes.
The Company has established certain key milestones in its Year 2000 Program.
Those milestones are:
Assessment of substantially all systems and processes by July 31, 1998;
Remediation and internal testing of mission critical applications
substantially completed by December 31, 1998;
End-to-end testing of mission critical systems substantially completed by
March 31, 1999; and
Remediation and testing of all systems through 1999.
The Company has substantially completed its assessment of all systems and
processes. Remediation and testing of mission critical systems is underway.
HomeSide is presently "on time" in complying with the milestones and internal
timetable the Company has established for Year 2000 readiness.
HomeSide has relationships with vendors, customers and other third parties that
rely on software and systems that may not be Year 2000 compliant. With respect
to such third parties, Year 2000 compliance matters will not be within
HomeSide's direct control. There can be no assurance that Year 2000 compliance
failures by such third parties will not have a material adverse effect on
HomeSide's results of operations.
HomeSide is currently reviewing the year 2000 readiness of its mission critical
vendors, customers and service providers. HomeSide has identified a number of
mission critical third parties whose year 2000 failure may reasonably be
expected to have a material adverse impact on the Company's results of
operations. Examples of such third parties include the Company's primary
software vendor, sole provider of tax payment services, and sole provider of
foreclosure services. Catastrophic failure by any of these parties would have a
material adverse effect on the Company. HomeSide is targeting these mission
critical third parties for intensive review and assessment. That review and
assessment is ongoing.
Cost of Year 2000 Efforts. The Company acknowledges that some level of
modification or replacement of hardware and software is necessary in order to
make HomeSide's systems "Year 2000 Compliant." HomeSide presently estimates
these remediation costs to total approximately $15.0 million. HomeSide expects
to expense remediation costs as they are incurred, with the exception of new
hardware and software purchases, which will be capitalized. The Company has not
incurred significant remediation costs prior to June 30, 1998. The source of
funds for Year 2000 remediation is operating income of the Company. The amount
of the Company's information technology budget devoted to Year 2000 efforts is
approximately $10.4 million. The Company is unable to readily determine the cost
of replacement of non-compliant systems that are being replaced in the ordinary
course of business. No significant information technology projects have been
deferred due to Year 2000 efforts.
Year 2000 remediation costs are based on management's best estimates, which were
derived utilizing numerous assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those plans.
Risks. HomeSide's risk management office is actively involved in the company's
Year 2000 Program. The most reasonably likely, worst case Year 2000 scenario,
disregarding the Company's remediation efforts and contingency planning, is a
failure in its loan servicing software and/or systems. Such a failure would
result in material disruption in the Company's operations preventing it from
discharging its contractual obligations to service mortgage loans in an accurate
and timely fashion. The consequences of such disruption could include, among
other things, revocation of the Company's status as an FHA/VA approved
lender/servicer and Fannie Mae/Freddie Mac approved seller/servicer, incorrect
processing and/or reporting of payments to consumers and investors, a material
loss of revenues, and liability to third parties for losses related to servicing
failure.
HomeSide does not presently anticipate any material Year 2000 failures nor does
HomeSide anticipate any material adverse impact to its business, financial
condition, or prospects as a result of the Year 2000. The foregoing description
of a worst case Year 2000 scenario is furnished in response to and in compliance
with the Statement of the Commission Regarding Disclosure of Year 2000 Issues
and Consequences by Public Companies, Investment Advisers, Investment Companies,
and Municipal Securities Issuers, Securities Act Rel. No.33-7448(July 30, 1998).
Contingency Planning. HomeSide's Year 2000 Program is based on the assumption
that 100% impact coverage is neither feasible nor practical. It is possible that
HomeSide or third parties on which HomeSide depends may have unplanned system
difficulties during the transition through 2000, or that third parties may not
successfully manage the change to 2000. Therefore, an integral part of
HomeSide's Year 2000 Program is the development of contingency plans in
anticipation of systems or third party failure. These contingency plans are
being developed for individual applications, systems and business processes. The
Year 2000 Program Enterprise team will review and adjust existing business
continuity planning to incorporate these circumstances, and to seek to ensure
that HomeSide meets its primary objective of "business as usual" before, during
and through 2000.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
HomeSide is a defendant in a number of legal proceedings arising in the
normal course of business. HomeSide, in management's estimation, has recorded
adequate reserves in the financial statements for pending litigation.
Management, after reviewing all actions and proceedings pending against or
involving HomeSide, considers that the aggregate liability or loss, if any,
resulting from the final outcome of these proceedings will not have a material
effect on the financial position of HomeSide.
In recent years, the mortgage banking industry has been subject to class
action lawsuits which allege violations of federal and state laws and
regulations, including the propriety of collecting and paying various fees and
charges. Class action lawsuits may be filed in the future against the mortgage
banking industry.
ITEM 6. Exhibits and Reports on Form 8-K
(a) The following documents are filed as a part of this Report:
Number Description
10.1 Asset Purchase Agreement dated April 1, 1998 between HomeSide
Lending, Inc. and Banc One Corporation and Banc One Mortgage
Corporation
10.2 Operating Agreement dated April 1, 1998 between HomeSide
Lending, Inc. and Banc One Corporation and Banc One Mortgage
Corporation
10.3 Unsecured Revolving Credit Agreement dated June 23, 1998
between HomeSide Lending, Inc. and National Australia Bank
27 Financial Data Schedule
(b) Reports on form 8-K
HomeSide filed a report on Form 8-K, Item 7, dated May 15, 1998,
including Unaudited Consolidated Pro Forma Balance Sheet and Income Statements.
HomeSide filed a report on form 8-K, Item 5, dated May 15, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HomeSide International, Inc.
(Registrant)
Date: August 14, 1998 By:\s\Joe K. Pickett
-----------------
Joe K. Pickett
Chairman of the Board, Chief Executive Officer
and Director (Principal Executive Officer)
Date: August 14, 1998 By:\s\Kevin D. Race
----------------
Kevin D. Race
Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
Exhibit 10.1
ASSET PURCHASE AGREEMENT
Dated April 1, 1998
By and Between
Banc One Corporation
and
Banc One Mortgage Corporation,
as Seller
and
HomeSide Lending, Inc.,
as Purchaser
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS..........................................................2
ARTICLE II PURCHASE AND DELIVERY OF PURCHASED ASSETS; ASSUMPTION OF ASSUMED
LIABILITIES...................................................................16
2.1 Delivery of Purchased Assets; Assumption of Assumed
Liabilities.................................................16
2.2 Purchase Price; Payment.....................................16
2.3 Allocation of Purchase Price................................17
2.4 Proration of Expenses.......................................17
ARTICLE III CLOSING, TRANSFERS AND RELATED ITEMS..............................18
3.1 Closing and Closing Date....................................18
3.2 Interim Servicing...........................................19
3.3 Custodial Files.............................................19
3.4 Assignment and Assumption Documents.........................19
3.5 Investor Consents and Consenting Party Consents.............20
3.6 Notices.....................................................20
3.7 Certain Servicing and Loan Transfer Actions.................21
3.8 Tax Service; Flood Service..................................21
3.9 Interest Rate Adjustments...................................21
3.10 Forwarding of Certain Items.................................22
3.11 Interest on Custodial Accounts..............................22
3.12 IRS Reporting...............................................22
3.13 Further Assistance and Assurances...........................22
3.14 Mortgage Pools..............................................23
3.15 Other Consents..............................................23
ARTICLE IV GENERAL REPRESENTATIONS AND WARRANTIES OF SELLER...................23
4.1 Organization................................................24
4.2 Authority...................................................24
4.3 Non-Contravention...........................................24
4.4 Consents, Approvals and Notices.............................25
4.5 Title to and Sufficiency of Purchased Assets................25
4.6 Existing Options............................................25
4.7 Financial Statements; Records...............................25
4.8 Litigation..................................................26
4.9 Compliance with Laws; Permits and Licenses..................26
4.10 Absence of Certain Changes or Events........................26
<PAGE>
4.11 Taxes.......................................................27
4.12 Ownership and Leases of Property............................27
4.13 Insurance...................................................29
4.14 Intellectual Property.......................................29
4.15 Contracts...................................................30
4.16 Employee Matters............................................31
4.17 No Accrued Liabilities......................................32
4.18 Solvency....................................................32
4.19 Transactions with Affiliates................................32
4.20 Brokers.....................................................32
4.21 No Regulatory Impediment....................................32
4.22 Statements Made.............................................33
ARTICLE V MORTGAGE BANKING AND RELATED REPRESENTATIONS OF SELLER.............33
5.1 Portfolios and Listed Agreements............................33
5.2 Portfolio Information; Related Matters......................33
5.3 Enforceability of Listed Agreements.........................34
5.4 Compliance with Listed Agreements...........................34
5.5 Advances and Accounts Receivable............................35
5.6 No Recourse.................................................35
5.7 Mortgage Loan Representations and Warranties................35
5.8 Mortgage Banking Qualification..............................42
5.9 Mortgage Banking Compliance.................................43
5.10 Inquiries...................................................44
5.11 IRS Reports.................................................44
ARTICLE VI GENERAL REPRESENTATIONS AND WARRANTIES OF PURCHASER................44
6.1 Organization................................................44
6.2 Authority...................................................44
6.3 Non-Contravention...........................................45
6.4 Consents....................................................45
6.5 Brokers.....................................................45
6.6 No Regulatory Impediment....................................46
6.7 Statements Made.............................................46
ARTICLE VII COVENANTS.........................................................46
7.1 Conduct of Business.........................................46
7.2 No Solicitation.............................................48
7.3 Access; Confidentiality.....................................48
7.4 Taking of Necessary Action..................................49
7.5 Name and Marks..............................................50
<PAGE>
7.6 Non-Competition and Related Matters.........................50
7.7 Disclosure..................................................51
7.8 Final Certification and Recertification.....................51
7.9 Further Assurances..........................................51
7.10 Missing Mortgage Loan Documents.............................52
7.11 Releases....................................................52
7.12 Non-Solicitation of Mortgagors..............................52
7.13 Certain Liens...............................................52
7.14 Transitional Agreement......................................52
ARTICLE VIII EMPLOYEE MATTERS.................................................53
8.1 Certain Employee Matters....................................53
ARTICLE IX CONDITIONS TO THE CLOSING..........................................54
9.1 Conditions of Obligation of Each Party......................54
9.2 Additional Conditions to the Obligations of Purchaser.......54
9.3 Additional Conditions to the Obligations of Seller..........56
ARTICLE X TERMINATION, AMENDMENT AND WAIVER...................................56
10.1 Termination.................................................56
10.2 Effect of Termination.......................................57
ARTICLE XI TAX MATTERS........................................................57
11.1 Returns.....................................................57
11.2 Contests....................................................57
11.3 Payment of Taxes............................................58
11.4 Notices.....................................................58
11.5 Cooperation.................................................58
11.6 Transfer Taxes..............................................59
11.7 Information Returns.........................................59
ARTICLE XII INDEMNIFICATION BY SELLER.........................................59
12.1 Indemnification.............................................59
12.2 Indemnification Procedure...................................60
12.3 Repurchase of Mortgage Loans and Servicing..................61
12.4 General.....................................................62
12.5 Allocation of Risk..........................................63
12.6 Materiality Thresholds......................................63
ARTICLE XIII INDEMNIFICATION BY PURCHASER.....................................64
13.1 Indemnification.............................................64
13.2 Indemnification Procedure...................................64
13.3 General.....................................................65
<PAGE>
13.4 Allocation of Risk..........................................66
ARTICLE XIV GENERAL PROVISIONS................................................66
14.1 Notices.....................................................66
14.2 Interpretation..............................................68
14.3 Amendment and Modification; Waiver..........................68
14.4 Entire Agreement............................................68
14.5 Fees and Expenses...........................................68
14.6 Third Party Beneficiaries...................................68
14.7 Certain Remedies............................................68
14.8 Assignment; Binding Effect..................................69
14.9 Governing Law...............................................69
14.10 Counterparts................................................69
<PAGE>
DISCLOSURE SCHEDULE
Section 1(i) - Delinquent Loans
Section 1(ii) - Purchased Fixed and Other Seller Assets
Section 1(iii) - Purchased Accounts Receivables
Section 1(iv) - Purchased Advances
Section 4.4(a) - Consents, Authorizations, Etc.
Section 4.4(b) - Third Party Consents
Section 4.5(a) - Liens
Section 4.7 - Financial Statements
Section 4.8(i) - Litigation
Section 4.8(ii) - Order, Judgments, Injunctions and Decrees
Section 4.9(a) - Applicable Laws
Section 4.9(b) - Permits, Licenses, Etc.
Section 4.11(a) - Taxes
Section 4.11(b) - Unexamined Tax Returns
Section 4.11(c) - Tax Waivers
Section 4.12(b) - Leased Premises Being Assumed; Consents
Section 4.12(f)(i) - Personal Property Leases
Section 4.12(f)(ii) - Consents, Etc. with respect to Personal Property
Leases
Section 4.13 - Insurance
Section 4.14 - Intellectual Property
Section 4.15 - Contract Restrictions
Section 4.16(a) - Employment Investigations
Section 4.16(b) - Employment Litigation
Section 4.16(d) - Compensation and Similar Arrangements
Section 4.19 - Transactions with Affiliates
Section 5.1(a) - Servicing and Subservicing Agreements/Certain
Mortgage Pools (Part A and Part B)
Section 5.1(b) - FHLMC/FNMA/GNMA Mortgage Pools;
Private Investor Loans
Section 5.3(c) - Liens on Servicing Agreements
Section 5.4(a) - Listed Agreement Defaults
Section 5.4(b) - Listed Agreement Breached
Representations and Warranties
Section 5.6 - Recourse Loans
Section 5.7(a) - Repurchase Demands
Section 5.7(c) - Supplemental Payments
Section 5.7(d)(i) - Mechanics and Similar Liens
Section 5.7(d)(ii) - Title Insurance Claims
Section 5.7(e) - Advanced Funds
Section 5.7(g) - Mortgage Insurance
Section 5.7(k) - Damages to Mortgaged Property
<PAGE>
Section 5.7(l) - Mortgage Loan Certifications
Section 5.7(o) - Mortgage Escrow Payment Deficiencies
Section 5.7(r)(i) - Negative Amortization \ Funded Interest Rate
Buydown
Section 5.7(r)(ii) - Convertible Loans
Section 5.7(r)(iii) - Special Characteristic Loans
Section 5.7(r)(iv) - Condominiums and Co-ops
Section 5.7(s) - Soldiers and Sailors Relief Act
Section 5.8 - Agency Approvals, Licenses, Etc.
Section 5.9(a) - Laws and Regulations
Section 5.9(b) - Custodial Account Payments\ Interest on Account
Section 5.10 - Audits and Inquiries
Section 7.1(c)(v) - Class Action Settlements
EXHIBITS
Exhibit A - Seller's Opinion
Exhibit B - Form of Intellectual Property Assignment
Exhibit C - Tape Assumptions
Exhibit D - Sellers' Certificate
Exhibit E - Purchaser's Certificate
Exhibit F - Form of Transitional Agreement
<PAGE>
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated April 1, 1998 (the "Effective Date"),
by and between Banc One Corporation, an Ohio corporation ("BOC"), and Banc One
Mortgage Corporation, a Delaware corporation ("BOMC") (collectively, "Seller")
and HomeSide Lending, Inc., a Florida corporation ("Purchaser").
W I T N E S S E T H :
WHEREAS, Seller is engaged in the business of brokering, originating,
making, acquiring, selling and servicing and subservicing residential mortgage
loans and securities based on and backed by such residential mortgage loans;
WHEREAS, on the terms and subject to the conditions set forth herein,
Seller desires to sell, and Purchaser desires to purchase, certain assets of
Seller that are used in connection with Seller's servicing and subservicing of
residential mortgage loans;
WHEREAS, in connection with the acquisition of the Acquired Business,
Purchaser agrees, on the terms and subject to the conditions set forth herein,
to assume certain liabilities and obligations of Seller;
WHEREAS, simultaneously herewith, Seller (or an Affiliate) and
Purchaser are (either individually or jointly as applicable) entering into (i)
an operating agreement setting forth the specific terms of the origination and
servicing arrangements between Seller and Purchaser (the "Operating Agreement"),
(ii) a correspondent loan purchase agreement pursuant to which Seller shall sell
new secondary market mortgage loans to Purchaser (the "Correspondent Loan
Purchase Agreement"), (iii) a PMSR flow agreement, pursuant to which Seller
shall sell new portfolio servicing rights to Purchaser (the "PMSR Flow
Agreement"), (iv) a servicing agreement providing for the servicing of the
existing portfolio servicing rights and the new portfolio servicing rights (the
"Servicing Agreement"), (v) a marketing agreement which will govern the terms
under which the Seller may solicit certain mortgagors for certain financial
products and services (the "Marketing Agreement") and (vi) a delegated
underwriting agreement pursuant to which Seller will be delegated certain credit
underwriting authority by Purchaser (the "Delegated Underwriting Agreement", and
together with the Operating Agreement, the Correspondent Loan Purchase
Agreement, the PMSR Flow Agreement, the Servicing Agreement, the Delegated
Underwriting Agreement and the Marketing Agreement, the "Preferred Partner
Agreements";
<PAGE>
WHEREAS, prior to Closing, Seller and Purchaser will enter into an
agreement substantially in the form attached hereto as Exhibit F with such
modifications as may be mutually agreeable to Seller and Purchaser (the
"Transitional Agreement"), pursuant to which Seller will continue to provide
internal services or negotiated external services to Purchaser;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
In addition to terms defined elsewhere in this Agreement, the following
terms when used in this Agreement shall have the following meanings:
"Acquired Business" means that portion of the mortgage banking business
engaged in by Seller consisting of servicing and subservicing residential
mortgage loans and securities based on and backed by such residential mortgage
loans, but not Seller's business of originating and making residential mortgage
loans through any retail or broker channel.
"Acquisition Proposal" has the meaning set forth in Section 7.2 hereof.
"Advances" means, with respect to Seller and the Servicing Agreements,
the moneys which have been advanced by Seller on or before the Closing Date from
its funds in connection with its servicing of the Mortgage Loans in accordance
with applicable Regulations (including without limitation principal, interest,
taxes, ground rents, assessments, insurance premiums and other costs, fees and
expenses pertaining to the acquisition of title to and preservation and repair
of the Mortgaged Properties and including Foreclosure Buyout Claims).
"Affiliate" means any entity that, directly or indirectly, through one
or more intermediaries, controls, is controlled by, or is under common control
with, another entity. For purposes of this definition, "control", "controlled
by", and "under common control with" mean the direct or indirect possession of
ordinary voting power to elect a majority of the board of directors or
comparable body of an entity.
"Agency" means FHA, VA, GNMA, FNMA, FHLMC, HUD or State Agency, as
applicable.
"Agreement" means this Asset Purchase Agreement, including the
Disclosure Schedule, the Exhibits and any other attachments hereto.
"Applicable Law" has the meaning set forth in Section 4.3 hereof.
<PAGE>
"Assignment of Mortgage Instruments" means a written instrument that,
when recorded in the appropriate office of the local jurisdiction in which the
related Mortgaged Property is located, will reflect the transfer of the Mortgage
identified therein from the transferor to the transferee named therein.
"Arbitrator" has the meaning set forth in Section 2.4(b) hereof.
"Assumed Liabilities" means the liabilities, commitments and
obligations of Seller accruing on or after the Closing Date pursuant to (a) any
Listed Agreement, (b) any Fixed and Other Seller Asset related to the Acquired
Business, including without limitation the Leases, Personal Property Leases and
other contracts listed on Section 2.1(a)(1) of the Disclosure Schedule, (c) any
Purchased Advance, and (d) any Purchased Accounts Receivable; provided, however,
that Assumed Liabilities expressly does not include any liability, commitment or
obligation (i) related in any way to (A) any Excluded Seller Asset or (B) any
contract or agreement as to which Seller has not obtained any counterparty
consent required for the assignment and assumption thereof except to the extent
Purchaser expressly assumes such contract or agreement or the benefits thereof
as provided in Section 3.5, (ii) resulting from an act or omission, on or before
the Closing Date, on the part of Seller, any Originator, any Prior Servicer or
any other Person in violation of their respective obligations, any Applicable
Law or any applicable Regulation in connection with the items listed in clauses
(a) through (e) or (iii) related to any claim the basis of which is that there
was an act or omission, on or before the Closing Date, on the part of Seller,
any Originator, any Prior Servicer or any other Person in violation of their
respective obligations, any Applicable Law or any applicable Regulation in
connection with the items listed in clauses (a) through (e), regardless of
whether Seller, any Originator, any Prior Servicer or any other Person is
expressly identified in such claim.
"Business Day" means any day which is not a Saturday, Sunday or a day
on which banks in Indiana, Florida or New York are authorized or obligated by
law or executive order to be closed.
"Buydown" means the waiver by Purchaser (or by or with the consent of
Seller during the Interim Period) of a portion of the indebtedness of a Mortgage
Loan, which can take the form of a reduction of the principal, a credit to
escrow or unapplied funds accounts, the forgiveness of accrued interest or any
combination of the foregoing, and which causes the VA to pay off the remaining
amount of the indebtedness owed and acquire the related Mortgaged Property.
"Claim Notice" means a written notice of a claim for indemnification
under Article XII, or Article XIII, as applicable.
"Closing" has the meaning set forth in Section 3.1 hereof.
<PAGE>
"Closing Date" has the meaning set forth in Section 3.1 hereof.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor thereto.
"Confidentiality Agreement" means the letter from Banc One Corporation
to HomeSide Lending, Inc., relating to, among other things, the confidentiality
of certain information provided by or on behalf of Banc One Corporation to
HomeSide Lending, Inc. with respect to Seller.
"Conforming Conventional Loan" means a residential mortgage loan (other
than an FHA Loan, a VA Loan or a loan sold with Recourse) that is sold to, or is
serviced for, FNMA or FHLMC.
"Contract" has the meaning set forth in Section 4.3 hereof.
"Contract Party" means any Person, other than an Investor, who is a
party to a Servicing Agreement.
"Conventional Loan" means a residential mortgage loan, other than an
FHA Loan or VA Loan or any other loan guaranteed or insured by a government
agency.
"Correspondent Loan Purchase Agreement" has the meaning set forth in
the recitals hereto.
"Custodial Account" means all funds held or controlled by Seller with
respect to any Mortgage Loan, including without limitation all principal and
interest funds and any other funds due Investors, buydown funds, funds for the
payment of taxes, assessments, insurance premiums, ground rents and similar
charges, funds from hazard insurance loss drafts and other mortgage escrow and
impound amounts (including interest thereon for the benefit of Mortgagors, if
applicable).
"Custodial File" means, with respect to a Mortgage Loan, all of the
documents that must be maintained on file with a document custodian or trustee
under applicable Regulations.
"Damages" means any and all assessments, judgments, claims,
liabilities, losses, costs, damages or expenses (including without limitation
interest, penalties and reasonable attorneys' fees, expenses and disbursements
in connection with an action, suit or proceeding and the cost of any letter of
credit required by GNMA).
"Delinquent Loans" means any Mortgage Loan with respect to which, as of
the Closing Date:
<PAGE>
(a) three (3) or more Mortgage Loan Payments are past due (for
this purpose, a Mortgage Loan is "past due" if a Mortgage Loan Payment
due on the first day of the month is not paid prior to the first
calendar day of the next month);
(b) the first legal action necessary to be taken to commence
proceedings in Foreclosure, or a sale under power of sale, or other
acquisition of title to the Mortgaged Property based upon a default by
the Mortgagor under the Mortgage Loan Documents, under the laws of the
state wherein the Mortgage Loan is to be enforced, has been taken and
such proceedings are continuing or the relevant portions of the
Mortgage Loan Documents have been delivered to an attorney with
instructions to commence Foreclosure proceedings;
(c) there exists a legal action in Foreclosure of the Mortgage
Loan, or for a deficiency thereunder, with respect to which the sale of
the property in Foreclosure (whether by action, power of sale or
otherwise) has been delayed by reason of the defense of such action by
the Mortgagor, or any other litigation or governmental investigation or
inquiry relating to the Mortgage Loan is pending that could adversely
affect the value of the related Servicing or subject the Servicer to
potential liability or material cost; or
(d) the Mortgagor has sought relief under or has otherwise
been subjected to the federal bankruptcy code (including chapter 7) or
any other similar laws of general application for the relief of
debtors, through the institution of appropriate proceedings, and such
proceedings are continuing and is delinquent by one or more monthly
payments.
A preliminary list of Delinquent Loans, based on the figures available as of
March 25, 1998, is set forth in Section 1(i) of the Disclosure Schedule. A
revised list showing the Delinquent Loans as of the Closing Date shall be
provided by Purchaser to Seller by the 5th Business Day of the calender month
immediately following the Closing Date.
"Delegated Underwriting Agreement" has the meaning set forth in the
recitals hereto
"Disclosure Schedule" means the disclosure schedule delivered by Seller
to Purchaser on the Effective Date.
"Delivery Commitment" means the optional or mandatory commitment of
Seller to sell a Warehouse Loan, Pipeline Loan or an interest in a Warehouse
Loan or a Pipeline Loan to another Person.
"Effective Date" has the meaning set forth in the introductory
paragraph hereof.
<PAGE>
"Employee Benefit Plan" shall mean any pension, retirement,
post-retirement, profit-sharing, deferred compensation, bonus or incentive plan,
practice or arrangement, whether formal or informal, any other employee benefit
program, arrangement, agreement or understanding, any medical, vision, dental or
other health plan and any life insurance or disability insurance plan and
including without limitation any "employee benefit plan," as defined in Section
3(3) of ERISA, maintained by Seller or to which Seller contributes or is a party
or is bound or under which it may have liability or under which employees of
Seller are eligible to participate or derive a benefit.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excluded Seller Assets" means any asset not constituting a Purchased
Asset, including without limitation the Pipeline Loans, the Warehouse Loans, the
Delivery Commitments and the Investment Commitments.
"FHA" means Federal Housing Administration or any successor thereto.
"FHA Loans" means residential mortgage loans which are insured or are
eligible to be insured by FHA.
"FHLMC" means Federal Home Loan Mortgage Corporation or any successor
thereto.
"FHLMC Portfolio" means that portion of the Servicing Portfolio that
relates to (a) Mortgage Loans that back mortgage-backed securities issued by, or
on which the payment of principal and interest is guaranteed by, FHLMC, or with
respect to which FHLMC has issued participation interests, or (b) Mortgage
Loans, or participation interests therein, that are owned by FHLMC, all as set
forth in Section 5.1(b) of the Disclosure Schedule.
"FHLMC Transfer Date" means, with respect to the FHLMC Portfolio, the
date on which, pursuant to the relevant Investor Consent or Master Servicer
Consent, Purchaser becomes the servicer of the related Mortgage Loans, which is
intended to be June 16, 1998 or as soon thereafter as the conditions to closing
are satisfied and the transfer can occur in accordance with applicable
Regulations.
"File Holdback" has the meaning set forth in Section 2.2(b) hereof.
"Financial Statements" has the meaning set forth in Section 4.7 hereof.
<PAGE>
"Fixed and Other Seller Assets" means, with respect to the Acquired
Business, those assets constituting the specific contracts and agreements, real
and personal property (including Leases, Personal Property Leases, furniture,
fixtures, office equipment, telecommunications equipment and computer
equipment), prepaid expenses, Intellectual Property, computer software,
programs, applications and data bases (whether capitalized or noncapitalized),
training materials, procedure manuals and servicing related forms and documents
and other assets, in each case listed in Section 1(ii) of the Disclosure
Schedule, as the Disclosure Schedule may be updated.
"FNMA" means Federal National Mortgage Association or any successor
thereto.
"FNMA Portfolio" means that portion of the Servicing Portfolio that
relates to (a) Mortgage Loans that back mortgage-backed securities issued by, or
on which the payment of principal and interest is guaranteed by, FNMA, or with
respect to which FNMA has issued participation interests, or (b) Mortgage Loans,
or participation interests therein, that are owned by FNMA, as set forth in
Section 5.1(b) of the Disclosure Schedule.
"FNMA Transfer Date" means, with respect to the FNMA Portfolio, the
date on which, pursuant to the relevant Investor Consent or Master Servicer
Consent, Purchaser becomes the servicer of the related Mortgage Loans, which is
intended to be June 30, 1998 or as soon thereafter as the conditions to closing
are satisfied and the transfer can occur in accordance with applicable
Regulations.
"Foreclosure" means the process culminating in the acquisition of title
to a Mortgaged Property in a foreclosure sale or by a deed in lieu of
foreclosure or pursuant to any other comparable procedure allowed under
applicable Regulations.
"Foreclosure Buyout Claims" means reimbursement claims for principal,
interest and/or other amounts paid by Seller to GNMA in accordance with
applicable Regulations for the buyout of an FHA or VA loan subject to
Foreclosure.
"GAAP" means generally accepted accounting principles in the United
States which, unless otherwise indicated, are applied on a consistent basis.
"GNMA" means Government National Mortgage Association or any successor
thereto.
"GNMA Portfolio" means that portion of the Servicing Portfolio that
relates to Mortgage Loans that back mortgage-backed securities on which the
payment of principal and interest is guaranteed by GNMA, as set forth in Section
5.1(b) of the Disclosure Schedule.
"GNMA Transfer Date" means, with respect to the GNMA Portfolio, the
date on which, pursuant to the relevant Investor Consent or Master Servicer
Consent, Purchaser becomes the issuer of record, which is intended to be July 1,
1998 or as soon thereafter as the conditions to closing are satisfied and the
transfer can occur in accordance with applicable Regulations.
<PAGE>
"Governmental Authority" means any Agency or other federal, state or
local governmental commission, board or other regulatory authority or agency of
the United States or Australia.
"Home Equity Loan" means a residential mortgage loan secured by a first
or junior lien on residential real property that was not used for, or to
refinance a loan use for, the acquisition or initial construction of such real
property.
"HUD" means United States Department of Housing and Urban Development
or any successor thereto.
"Indemnified Seller Entities" as the meaning set forth in Section 13.1
hereof.
"Indemnified Purchaser Entities" has the meaning set forth in Section
12.1 hereof.
"Insurer" means, with respect to the Acquired Business, (i) a Person
who insures or guarantees all or any portion of the risk of loss on any Mortgage
Loan, including without limitation any Agency and any provider of private
mortgage insurance, standard hazard insurance, flood insurance, earthquake
insurance or title insurance with respect to any Mortgage Loan or related
Mortgaged Property or (ii) a Person who provides, with respect to a Listed
Agreement or an applicable Regulation, any fidelity bond, direct surety bond,
letter of credit, other credit enhancement instrument or errors and omissions
policy.
"Intellectual Property" has the meaning set forth in Section 4.14(a)
hereof.
"Intellectual Property Assignment" has the meaning set forth in Section
7.5 hereof.
"Interim Period" means the period of time between the Closing Date and
the applicable Transfer Date.
"Investment Commitment" means the optional or mandatory commitment of a
Person to purchase a Warehouse Loan, a Pipeline Loan or an interest in a
Warehouse Loan or a Pipeline Loan owned or to be acquired by Seller.
"Investor" means, with respect to the Servicing Portfolio, FHLMC, FNMA,
GNMA, a State Agency, Seller or an Affiliate thereof, a Private Investor or any
other Person who owns or holds Mortgage Loans, serviced or subserviced by
Seller, pursuant to a Servicing Agreement, as applicable.
<PAGE>
"Investor Consent" means, (i) as to the GNMA Portfolio, receipt of both
a letter from GNMA approving the transfer of all of the Servicing with respect
to the GNMA Portfolio from Seller to Purchaser and an assignment agreement
(Appendix 52 of the GNMA MBS Guide) executed by a duly authorized GNMA official,
(ii) as to the FNMA Portfolio, receipt of a Consent for Transfer of Servicing
Portfolio Agreement Guaranteed Mortgage Backed Securities Pools and MBS
Portfolio Loans (Form 629 and attachments) executed by a duly authorized FNMA
official, (iii) as to the FHLMC Portfolio, receipt of a Consent for Transfer of
Servicing Portfolio Agreement (Form 981, Agreement for Subsequent Transfer of
Servicing) executed by a duly authorized FHLMC official and (iv) as to the
Private Investor Portfolio, receipt of a letter from the applicable Investor.
"IRS" means the Internal Revenue Service of the United States of
America or any successor agency or authority.
"Lease" has the meaning set forth in Section 4.12(b) hereof.
"Leased Premises" has the meaning set forth in Section 4.12(b) hereof.
"Licenses" has the meaning set forth in Section 5.8 hereof.
"Lien" means any mortgage, pledge, lien, charge or other encumbrance.
"Listed Agreement" means, with respect to the Acquired Business, the
Servicing Agreements and Subservicing Agreements listed in Part A of Section
5.1(a) of the Disclosure Schedule, as the Disclosure Schedule may be updated,
but not those listed in Part B thereof..
"Litigation" has the meaning set forth in Section 4.8 hereof.
"Loan Application" means an application for a mortgage loan, to be
secured by a first-lien on a one- to four-family residential property, that has
been taken or is being processed by Seller as of the Closing Date but that is
not a Pipeline Loan and has not, as of the Closing Date, resulted in a Mortgage
Loan.
"Master Servicer Consent" means the consent of any master servicer
under a subservicing contract with Seller constituting part of the Servicing.
"Marketing Agreement" has the meaning set forth in the recitals hereto.
<PAGE>
"Material Adverse Effect" means any effect (other than as a result of
changes in prevailing interest rates, in general economic conditions affecting
the industry or industries in which the Acquired Business operates, or in law or
applicable regulations or the official interpretations thereof or in GAAP) that
is, or could reasonably be expected to be, individually or together with all
other relevant effects, materially adverse to (i) the Purchased Assets, (ii) the
business, operations (including financial results) or condition (financial or
other) of the Acquired Business or (iii) the ability of Seller to perform its
respective obligations under this Agreement.
"Mortgage" means with respect to a Mortgage Loan, a mortgage, deed of
trust or other security instrument creating a lien upon real property and any
other property described therein which secures a Mortgage Note, together with
any assignment, reinstatement, extension, endorsement or modification thereof.
"Mortgage Escrow Payments" means the portion, if any, of the Mortgage
Loan Payment in connection with a Mortgage Loan that, pursuant to the related
Mortgage Loan Documents, must be made by a Mortgagor for deposit in a Custodial
Account for the payment of real estate taxes and assessments, insurance
premiums, ground rents and similar items.
"Mortgage Loan" means a residential mortgage loan (i) that is evidenced
by a Mortgage Note and secured by a Mortgage, (ii) with respect to which Seller
owns the Servicing as of the Closing Date and (iii) which is included in the
Servicing Portfolio.
"Mortgage Loan Documents" means the Custodial File and all other
documents relating to Mortgage Loans required to document and service the
Mortgage Loans by applicable Regulations, whether on hard copy, microfiche or
its equivalent or in electronic format and, to the extent required by applicable
Regulations, credit and closing packages and disclosures.
"Mortgage Loan Payment" means, with respect to a Mortgage Loan, the
amount of each scheduled installment on such Mortgage Loan, whether for
principal, interest, escrow or other purpose, required or permitted to be paid
by the Mortgagor in accordance with the terms of the Mortgage Loan Documents.
"Mortgage Note" means, with respect to a Mortgage Loan, a promissory
note or notes, or other evidence of indebtedness, with respect to such Mortgage
Loan secured by a Mortgage or Mortgages, together with any assignment,
reinstatement, extension, endorsement or modification thereof.
"Mortgage Pool" means a group of residential mortgage loans that have
been pledged, granted or sold to secure or support payments on specific
mortgage-backed securities or specific participation certificates.
"Mortgaged Property" means the improved residential real property that
secures a Mortgage Note and that is subject to a Mortgage.
"Mortgagor" means the obligor(s) on a Mortgage Note.
<PAGE>
"No Bid" means a delinquent Mortgage Loan with respect to which the VA
has notified Purchaser or Seller that the VA intends to exercise its option to
pay the amount guaranteed by the VA (and leave the Mortgaged Property with
Purchaser or Seller).
"Operating Agreement" has the meaning set forth in the recitals hereto.
"Originator" means, with respect to any Mortgage Loan, the entity or
entities that (i) took the relevant Mortgagor's loan application, (ii) processed
the relevant Mortgagor's loan application or (iii) closed and/or funded such
Mortgage Loan.
"Other Materials" has the meaning set forth in Section 3.10.
"Permit" has the meaning set forth in Section 4.9(b) hereof.
"Person" means any individual, partnership, join venture, corporation,
trust, unincorporated organization, government or other entity.
"Personal Property Lease" has the meaning set forth in Section 4.12(f)
hereof.
"Pipeline Loan" means each of those pending mortgage loans to be
secured by a first priority mortgage lien on a one- to four- family residential
property (i) with respect to which Seller has (a) issued a commitment or
otherwise agreed with an applicant to fund, (b) determined to fund, (c)
committed to a specified interest rate or (d) issued a commitment (including
without limitation bulk commitments and assignments of trades) or otherwise
agreed with a correspondent originator or purchaser to purchase (including those
mortgage loans which are pending with a correspondent originator or purchaser
and which otherwise meet Seller's acquisition criteria for such mortgage loans)
and (ii) which has not closed (or been purchased from the correspondent) as of
the Closing Date.
"PMSR Flow Agreement" has the meaning set forth in the recitals hereto.
"Pre-Closing Periods" has the meaning set forth in Section 11.3(a)
hereof.
"Preferred Partner Agreements" has the meaning set forth in the
recitals hereto.
"Prior Servicer" means any party that was a servicer or subservicer of
any Mortgage Loan before Seller or the current Servicer, as applicable, became
the servicer or subservicer of the Mortgage Loan.
"Private Investors" means Investors which are not Agencies.
<PAGE>
"Private Investor Consent" means the consent of any Private Investor to
a transfer of its Servicing to Purchaser.
"Private Investor Consent Holdback" has the meaning set forth in
Section 2.2(b)(ii) hereof.
"Private Investor Portfolio" means that portion of the Servicing
Portfolio that relates to Mortgage Loans owned by Private Investors, as set
forth in Section 5.1(b) of the Disclosure Schedule.
"Private Investor Transfer Date" means, with respect to the Private
Investor Portfolio, the date on which, pursuant to the relevant Private Investor
Consent, Purchaser becomes the servicer of the related Mortgage Loans, which is
intended to be June 30, 1998 or as soon thereafter as the conditions to closing
are satisfied and the transfer can occur in accordance with applicable
Regulations.
"Prospective Employee" has the meaning set forth in Section 8.1(a)
hereof.
"Prospective Employees List" has the meaning set forth in Section
8.1(a) hereof.
"Purchase Price" has the meaning set forth in Section 2.2 hereof.
"Purchase Price Percentage" has the meaning set forth in Section
12.3(b) hereof.
"Purchased Accounts Receivable" means those accrued interest and other
accounts receivable of Seller relating to the Acquired Business or Purchased
Assets as of the Closing Date, as detailed in Section 1(iii) of the Disclosure
Schedule.
"Purchased Advances" means those Advances of Seller as of the Closing
Date, as detailed in Section 1(iv) of the Disclosure Schedule, in each case for
which Seller has a right of reimbursement from Mortgagors, Investors or
otherwise.
"Purchased Assets" means, without duplication, all right, title and
interest in, to and under (a) each Listed Agreement, (b) the Purchased Advances,
(c) the Purchased Accounts Receivable, (d) the Fixed and Other Seller Assets,
and (e) the Mortgage Loan Documents.
"Purchaser" has the meaning set forth in the introductory paragraph
hereof.
"Purchaser Transfer Date Representations and Warranties" means the
representations and warranties of Purchaser set forth in Sections 6.1, 6.2, 6.3
and 6.4 hereof.
<PAGE>
"Rating Agency" means any nationally recognized statistical credit
agency that at the time of any determination thereof has outstanding a rating on
one or more classes of mortgage-backed securities or asset-backed securities at
the request of any issuer of mortgage-backed securities or asset-backed
securities.
"Recourse" means any arrangement pursuant to which Seller bears the
risk of any part of the ultimate credit losses incurred in connection with a
default under or Foreclosure of a Mortgage Loan not owned by Seller. The parties
hereto acknowledge that no Recourse results from or arises under GNMA
Regulations.
"Regulation" means and includes, as of the time of reference, with
respect to the Mortgage Loans and the Servicing under the Servicing Agreements,
all of the following: (i) all contractual obligations of Seller or any
Originator or Prior Servicer with respect to Servicing under any Servicing
Agreement, Mortgage Note, Mortgage and other Mortgage Loan Document, (ii) all
applicable federal, state and local legal and regulatory requirements (including
statutes, rules, regulations and ordinances) binding upon Seller or any
Originator or Prior Servicer, (iii) all other applicable requirements and
guidelines of each governmental agency, board, commission, instrumentality and
other governmental or quasi-governmental body or office having jurisdiction,
including without limitation those of any Investor and any Insurer and (iv) all
other applicable judicial and administrative judgments, orders, stipulations,
awards, writs and injunctions.
"Regulatory Authorization" means any consent, authorization, order or
approval of, filing or registration with, or notice to any applicable
Governmental Authority (or, where legally permissible, any waiver of or
exemption from the foregoing by such Governmental Authority).
"REO" means any residential real property owned by Seller (whether for
its own account or on behalf of an Investor, FHA or VA as a result of a
Foreclosure).
"Seller" has the meaning set forth in the introductory paragraph
hereof.
"Seller Transfer Date Representations and Warranties" means the
representations and warranties of Seller set forth in Sections 4.1, 4.2, 4.3,
4.4, 4.5 and 4.18.
"Seller's Knowledge" means the actual knowledge of the management,
officers and directors of the Seller party making the representation or
warranty, and the knowledge that the management, officers and directors of
Seller reasonably should possess in the prudent conduct of mortgage banking
business, at the time of any determination thereof.
"Servicer" means the Person responsible for performing the servicing or
subservicing functions in connection with a Mortgage Loan in or related to the
Servicing Portfolio.
<PAGE>
"Servicing" means residential mortgage loan servicing and subservicing
rights and obligations including without limitation one or more of the following
functions (or a portion thereof): (i) the administration and collection of
payments for the reduction of principal and/or the application of interest on a
residential mortgage loan; (ii) the collection of payments on account of taxes
and insurance; (iii) the remittance of appropriate portions of collected
payments; (iv) the provision of full escrow administration; (v) the pursuit of
foreclosure and alternate remedies against a related Mortgaged Property; and
(vi) the administration and liquidation of REO, together with the right to
receive the Servicing Compensation and any ancillary fees arising from or
connected to the Mortgage Loans, the benefit of the related Custodial Accounts
and any other related accounts maintained by Seller pursuant to applicable
Regulations and, in each case, all rights, powers and privileges incident to any
of the foregoing, and expressly includes the related Custodial Accounts, the
Mortgage Loan Documents and the right to enter into arrangements with third
parties that generate ancillary fees and benefits with respect to the Mortgage
Loans.
"Servicing Agreement" means an agreement between an Investor and Seller
pursuant to which Seller owns the Servicing and services Mortgage Loans in the
Servicing Portfolio.
"Servicing Compensation" means any servicing fees and any excess
servicing compensation which Seller is entitled to receive pursuant to any
Servicing Agreement.
"Servicing Portfolio" means the Servicing to the Mortgage Loans.
"State Agency" means any state agency or other entity with authority to
regulate the mortgage-related activities of Seller or to determine the
investment or servicing requirements with regard to mortgage loan origination,
purchasing, servicing, master servicing or certificate administration performed
by Seller.
"Subservicing Agreements" means an agreement with a master servicer to
subservice mortgage loans, including without limitation the agreement with CDC
Servicing Inc., dated May 31, 1996.
"Tape Date" means February 28, 1998.
"Tax" means any federal, state, local, or foreign income, gross
receipts, gains, license, payroll, employment, excise, severance, production,
stamp, occupation, premium, windfall profits, environmental (including taxes
under Code Sec. 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, occupancy, personal property, sales, use transfer, registration, value
added, alternative or add-on minimum, estimated, or other tax of any kind
whatsoever, including any interest, penalty, or addition thereto (and any
penalty, fine or similar amounts related to any information return or reporting
obligation notwithstanding that no tax is otherwise payable or such obligations
are properly discharged), whether disputed or not.
<PAGE>
"Tax Returns" means any returns, estimates, extensions, declarations,
reports, claims for refunds, information, returns or statements relating to
Taxes, including any schedule or attachment thereto, and including any amendment
thereof.
"Third Party Consents" means any consent, authorization, approval,
waiver, order, license, certificate or permit or act of or from, or notice to
any Rating Agency, any party to any Contract to which Seller is a party or by
which any of its assets or properties are bound or affected, or any other
Person.
"Transfer Date" means, with respect to the Mortgage Loans, the FNMA
Transfer Date, the GNMA Transfer Date, the Private Investor Transfer Date,
and/or the FHLMC Transfer Date, as the context may permit or require.
"Transfer Instructions" means the Transfer Instructions substantially
in accordance with transfer instructions previously furnished by Purchaser to
Seller in connection with the bulk sale agreement between Seller and Purchaser
dated October 1, 1997, with such changes as Purchaser or Seller may reasonably
require to reflect the transactions contemplated by this Agreement.
"Transfer Taxes" has the meaning set forth in Section 11.6 hereof.
"Transitional Agreement" has the meaning set forth in the recitals
hereto.
"VA" means the United States Department of Veteran Affairs and any
successor thereto.
"VA Loans" means residential mortgage loans which are guaranteed or are
eligible to be guaranteed by VA.
"Warehouse Loan" means a residential mortgage loan evidenced by a
Mortgage Note and secured by a Mortgage that is owned by Seller.
"WARN Act" means the Worker Adjustment and Retraining Notification Act
of 1988, as amended.
<PAGE>
ARTICLE II
PURCHASE AND DELIVERY OF PURCHASED ASSETS;
ASSUMPTION OF ASSUMED LIABILITIES
II.1 Delivery of Purchased Assets; Assumption of Assumed Liabilities.
(a) On the terms and subject to the conditions of this Agreement, Seller shall,
at the Closing on the Closing Date, (i) sell, transfer, assign and deliver to
Purchaser, and cause to be sold, transferred, assigned and delivered to
Purchaser, as applicable, all right, title and interest of Seller in and to all
of the Purchased Assets other than the Servicing Portfolio and (ii) sell,
transfer, assign and deliver to Purchaser all right, title and interest of
Seller (other than actual legal title) in and to the Servicing Portfolio. On the
terms and subject to the conditions of this Agreement, Seller shall, on each
applicable Transfer Date, sell, transfer, assign and deliver to Purchaser actual
legal title in and to the relevant portion(s) of the Servicing Portfolio.
Notwithstanding the transfer of legal title to any Servicing Portfolio after the
Closing Date, as of the day after the Closing Date, except as otherwise provided
herein, Purchaser shall be entitled to all of the economic benefits, and bear
the economic burdens, associated with the Servicing Portfolio.
(bi On the terms and subject to the conditions of this Agreement,
Purchaser shall, at the Closing on the Closing Date, assume all the Assumed
Liabilities. Purchaser assumes no other liability of Seller or any other Person
pursuant to this Agreement other than the Assumed Liabilities.
II.2 Purchase Price; Payment. (a) In consideration for the Purchased
Assets, Purchaser shall assume the Assumed Liabilities and pay a purchase price
equal to $201,000,000.00 (two hundred one million dollars) (the "Purchase
Price").
(bi On the terms and subject to the conditions of this Agreement, and
against delivery of the Purchased Assets as provided in Section 2.1(a),
Purchaser shall pay, or cause to be paid, at the Closing on the Closing Date,
subject to the Private Investor Consent Holdback defined in Section 2.2(b)(ii)
below, an amount equal to 91% of the Purchase Price. All payments under this
Section 2.2 shall be made by wire transfer of immediately available funds, to
such account as Seller shall designate to Purchaser. The remaining nine percent
(9%) of the Purchase Price (the "File Holdback") and the Private Investor
Consent Holdback shall be retained by Purchaser and applied or released as
follows:
<PAGE>
(i0 Purchaser shall release the File Holdback to Seller pro rata based
upon the percentage of Mortgage Loans verified by the Purchaser for which all
File Holdback Documents have been delivered (i.e., released amount is determined
by reference to the number of those Mortgage Loans for which the Seller has
completed its document follow-up obligations over the total number of Mortgage
Loans in the Servicing Portfolio). Within ninety (90) days following the
applicable Transfer Date, the Purchaser will complete an initial verification,
provide a report listing the Mortgage Loans for which all File Holdback
Documents have been delivered and release the appropriate amount of the File
Holdback to the Seller. After the initial verification, the Purchaser shall
provide the Seller with a report no later than the 15th day of each month that
includes the following information: (i) a list of all Mortgage Loans for which
all File Holdback Documents have been delivered, (ii) a list of those Mortgage
loans for which File Holdback Documents are outstanding, with an itemization of
the respective File Holdback Documents yet to be delivered for each such
Mortgage loan, and (iii) the amount of the File Holdback to be released based on
the results of such monthly report, which amount shall be paid to Seller on the
last Business Day of the month; provided, however, that for a period of 180 days
following the applicable Transfer Date, Purchaser's failure to deliver any such
list or omission of one or more items from any such lists shall not affect
Seller's obligation hereunder to provide the documents and records required by
this Agreement. In no event shall more than ninety-nine percent (99%) of the
Purchase Price be paid to the Seller until all Holdback Documents have been
delivered to the Purchaser.
(ii0 With respect to the required Private Investor Consents which
Purchaser has not received as of the Closing Date, Purchaser shall retain, in
addition to the File Holdback, an amount equal to the difference of (A) $4
million, less (B) $4 million multiplied by a fraction, the numerator of which is
the unpaid principal balance of the Mortgage Loans for which Private Investor
Consents have been received as of the Closing Date and the denominator of which
is the unpaid principal balance of the Private Investor Portfolio as of the
Effective Date (the "Private Investor Consent Holdback"). As each required
Private Investor Consent is received, Purchaser shall release or apply the
Private Investor Consent Holdback to Seller pro rata based on the unpaid
principal balance of the Mortgage Loans for which such consent was received
(i.e., released amount is determined by reference to the ratio of the unpaid
principal balance of those Mortgage Loans for which Purchaser has received the
Private Investor Consent since the Closing Date over the unpaid principal
balance of all the Mortgage loans for which a Private Investor Consent was
required but which had not been received as of the Closing Date). Purchaser
shall also be entitled to apply the Private Investor Consent Holdback as
provided in Section 3.5(b) hereof.
II.3 Allocation of Purchase Price. Seller and Purchaser hereby agree to
allocate the Purchase Price and the Assumed Liabilities among the Purchased
Assets in accordance with Section 1060 of the Code and to file, or cause to be
filed, timely any information that may be required pursuant to regulations
promulgated under the Code.
<PAGE>
II.4 Proration of Expenses. (a) Except as otherwise specifically
provided in this Agreement, it is the intention of the parties hereto that
Seller shall operate for its own account the Acquired Business until the
effective time of Closing and that Purchaser shall operate for its own account
the Acquired Business, after the effective time of Closing. Thus, except as
otherwise specifically provided in this Agreement, with respect to the Purchased
Assets and Assumed Liabilities, items of expense, including without limitation
non-owner occupation fees, payments of amounts due under service contracts,
payments of rent, taxes, utilities and other amounts required to be paid by the
tenant under leases, and all personal property taxes applicable to the personal
property to be transferred hereunder, shall be prorated to the effective time of
Closing. On or before the Closing Date, an estimated settlement or settlements
of all such prorated items shall be made, which estimated settlement shall
include reimbursement to Seller for any security deposits theretofore made
pursuant to any lease which is assigned or is to be assigned hereunder, as well
as any security deposits made or to be made by Seller in respect of other
Purchased Assets or Assumed Liabilities, all of which security deposits shall be
held, on and after the Closing Date, for the benefit of Purchaser. Such estimate
shall include all computations made by Seller in determining such amounts, and
all information used by Seller in connection with such computation. If, after
reviewing the computations and such information, Purchaser believes that any
amount set forth therein was calculated incorrectly, Purchaser shall so notify
Seller and Purchaser and Seller shall cooperate in good faith to determine an
agreed upon amount. As soon as practicable after the Closing Date (but not later
than 75 days thereafter, except as provided in Section 2.4(b)), the parties
shall make a final settlement as to the items to be prorated under this Section
2.4.
(bi Any dispute which may arise between Seller and Purchaser as to the
calculation of any part of the proration shall be resolved by negotiations
between Seller and Purchaser. If thirty (30) days after the Closing Date, the
disputed issues have not been resolved, such unresolved issues shall be referred
by the party disputing the item in question to a "Big Six" accounting firm (the
"Arbitrator") that does not represent any of the parties hereto in any material
capacity, which shall act as arbitrator and shall issue its report as to the
disputed issues within sixty (60) days after such dispute is so referred. Each
of the parties hereto shall bear its respective costs and expenses in connection
with such arbitration, except that the fees and expenses of the Arbitrator
hereunder shall be born equally by Seller and Purchaser. This provision for
arbitration shall be specifically enforceable by the parties and the decision of
the Arbitrator in accordance with the provisions hereof shall be final and
binding and there shall be no right of appeal therefrom.
ARTICLE III
CLOSING, TRANSFERS AND RELATED ITEMS
<PAGE>
III.1 Closing and Closing Date. Unless this Agreement shall have been
terminated and the transactions herein abandoned pursuant to Section 10.1,
subject to the provisions of Article X, the closing (the "Closing") of the
purchase and sale of Purchased Assets, the assumption of the Assumed Liabilities
and the payment of the amounts required to be paid pursuant to Section 2.2 shall
take place at the offices of Banc One Mortgage Corporation at 10:00 a.m.,
Indianapolis time, no later than seven (7) Business Days after the satisfaction
or waiver of the conditions set forth in Section 9.2(c), or at such other place
and time and on such other date as the parties may agree in writing. The date on
which the Closing occurs is herein called the "Closing Date". The parties hereby
agree that the effective time of Closing for all purposes shall be 11:59 P.M.
Indianapolis time, on the Closing Date or such other time as shall be agreed to
by the parties.
III.2 Interim Servicing. During the Interim Period, Seller shall
subservice the Mortgage Loans on behalf of Purchaser in accordance with
applicable Regulations and subject to the supervision and direction of
Purchaser. Purchaser shall be entitled to the entire Servicing Compensation and
any related ancillary income derived from the Servicing as and when payable
under the Servicing Agreements. In addition, while the Custodial Accounts will
be held by Seller during the Interim Period, Purchaser shall be entitled to the
economic benefits associated with the Custodial Accounts, the details of which
will be outlined in the Transitional Agreement.
III.3 Custodial Files. Within three (3) Business Days after the
applicable Transfer Dates, Seller shall deliver the Custodial Files with respect
to the Servicing Portfolio to a document custodian selected by Purchaser in
accordance with applicable Regulations.
III.4 Assignment and Assumption Documents. (a) On the Closing Date, (i)
Seller shall deliver to Purchaser such instruments of sale, assignment, transfer
and conveyance, including without limitation the Intellectual Property
Assignment required pursuant to Section 7.5 hereof, and do such other acts as
are reasonably necessary to effectuate the sale, transfer, assignment and
delivery to Purchaser of the right, title and interest of Seller in and to the
Purchased Assets to be sold, transferred, assigned and delivered to Purchaser on
such date pursuant to Section 2.1 and (ii) Purchaser shall deliver to Seller
such instruments of assumption, and do or cause to be done by third parties such
other acts as are reasonably necessary to effectuate the assumption by Purchaser
of the Assumed Liabilities without any increase in cost or expense by Purchaser
or the imposition of any additional burdensome terms or conditions. Within the
time period required by the applicable Investor with respect to each applicable
Transfer Date, (or, if Seller shall not have retained a third party service
provider to prepare Assignments of Mortgage Instruments, on or prior to each
applicable Transfer Date), Seller shall deliver to Purchaser such instruments of
sale, assignment, transfer and conveyance as are required by the applicable
Investor, and deliver such other instruments and do such other acts reasonably
necessary to effectuate the sale, transfer, assignment and delivery to Purchaser
of the actual legal title of Seller in and to the related portion(s) of the
Servicing Portfolio on such Transfer Date pursuant to Section 2.1.
<PAGE>
(bi Without limiting the foregoing, within the time period provided by
the applicable Investor with respect to each applicable Transfer Date (or, if
Seller shall not have retained a third party service provider to prepare
Assignments of Mortgage Instruments, on or prior to each applicable Transfer
Date), Seller shall, at its expense, promptly take each such action as may be
necessary to transfer all of its right, title and interest in and to the
Mortgage Loans including the Servicing but not the ownership of the Mortgage
Note and Mortgage of Mortgage Loans owned by Seller or its Affiliates as
Investors to Purchaser, including (i) endorsing or causing to be endorsed the
related Mortgage Notes to Purchaser without recourse, (ii) preparing or causing
to be prepared Assignments of Mortgage Instruments, assigning the related
Mortgages from Seller to Purchaser and preparing or causing to be prepared all
prior intervening Assignments of Mortgage Instruments as required by applicable
Regulations with respect to Mortgage Loans and (iii) assigning nominal title to
the other related Mortgage Loan Documents to Purchaser. To the extent required
by applicable Regulations with respect to Mortgage Loans, Seller will, at its
expense, record or cause the recordation of the Assignments of Mortgage
Instruments from Seller to Purchaser. In addition, Seller will, at Seller's
expense, prepare and record, or cause the preparation and recordation of,
Assignments of Mortgage Instruments from Purchaser to the applicable Investor to
the extent required by applicable Regulations. Seller shall provide to Purchaser
such recorded Assignments of Mortgage Instruments as soon as practicable.
III.5 Investor Consents and Consenting Party Consents. (a) Subject to
Section 3.5(b), the purchase and sale of the Servicing provided for under this
Agreement are subject to obtaining all applicable Investor Consents; provided,
however, that the Closing only shall be subject to the receipt of applicable
Investor Consents by FNMA, FHLMC and GNMA. Seller shall take such steps as
required by the applicable Investors in order to obtain the applicable Investor
Consents and Purchaser shall cooperate with Seller in connection therewith. In
accordance with applicable Regulations, Seller, at its sole expense, shall
submit to the Investors all materials, and pay such fees as are required by
applicable Regulations in order to obtain the Investor Consents and Master
Servicer Consents in a timely manner with respect to the transfer of the
Servicing from Seller to Purchaser. Seller shall promptly notify Purchaser if
any Investor advises Seller that it does not consent to all or any portion of
the Servicing being transferred to Purchaser. Seller shall bear all costs and
expenses associated with obtaining Investor Consents and Master Servicer
Consents.
(b) If any Private Investor does not provide written consent to the
transfer of the Servicing related to it prior to the applicable Transfer Date,
Purchaser at its discretion, either shall accept the transfer of such Servicing
notwithstanding the lack of consent or shall agree to subservice such Private
Investor Portfolio on such terms as Purchaser and Seller shall mutually agree;
provided, however, that at the Closing, if Purchaser elects to subservice,
Purchaser shall withhold from the Purchase Price the applicable portion of the
Private Investor Consent Holdback to reimburse itself for the costs and expenses
incurred in connection therewith.
<PAGE>
III.6 Notices. By no later than 30 days prior to the anticipated
applicable Transfer Date, Seller and Purchaser shall agree upon an approved form
of joint Mortgagor notification of the transfer of the Servicing function. At
least 16 days prior to the anticipated applicable Transfer Date and otherwise in
accordance with applicable Regulations, Seller shall mail the approved form of
notification to the Mortgagors under the Mortgage Loans of the transfer of the
applicable Servicing and instruct the Mortgagors to deliver all Mortgage Loan
Payments and related payments and all tax and insurance notices to Purchaser on
and after the applicable Transfer Date. Purchaser and Seller shall share equally
the expenses of the preparation and mailing of the joint borrower notices.
Seller shall also, at its own expense, notify or have its tax service provider
notify any applicable taxing authority, the custodian of the Mortgage Loan
Documents, flood service provider, and Insurers, within a reasonable time as
agreed between Seller and Purchaser, that the Servicing is being transferred and
instruct such entities to deliver all tax bills, payments, notices and insurance
statements to Purchaser on and after the applicable Transfer Date.
III.7 Certain Servicing and Loan Transfer Actions. (a) Seller
shall comply with the Transfer Instructions.
(b) No later than five (5) business days after the applicable Transfer
Date, Seller shall remit, or shall cause to be remitted, to the financial
institution(s) designated by Purchaser all funds in the related Custodial
Accounts held or controlled by Seller in accordance with the applicable
Regulations. Seller shall provide Purchaser with an accounting statement of all
the foregoing balances sufficient to enable Purchaser to reconcile the amount of
such payments with the related Mortgage Loans within 90 days of the applicable
Transfer Date. To the extent not deposited in the Custodial Accounts, no later
than the applicable Transfer Date, Seller shall deliver to Purchaser all
insurance loss drafts or checks or similar payments related to the Servicing.
Purchaser shall be entitled to the economic benefits associated with the
Custodial Accounts, the details of which will be outlined in the Transitional
Agreement.
(c) No later than the applicable Transfer Date, Seller shall deliver,
or shall cause to be delivered, to Purchaser, or shall otherwise provide to
Purchaser, the related Mortgage Loan Documents, except for the Custodial Files,
in accordance with the applicable Regulations.
III.8 Tax Service; Flood Service. Seller shall assign at its sole cost
and expense to Purchaser, effective as of the applicable Transfer Date, or as
soon after such date as reasonably practicable, life of the loan, transferable
tax service and provide the Buyer with transferrable flood certifications and
"life of loan" notification services for all Mortgage Loans which are required
by FNMA, FHLMC or GNMA to have flood certifications and "life of loan" and flood
notification services, respectively, related to all Mortgage Loans for which the
Servicing is transferred from Seller to Purchaser. Purchaser shall cooperate
with Seller to seek to obtain preferred pricing from its vendors for such tax
service and flood tracking Servicing contracts.
<PAGE>
III.9 Interest Rate Adjustments. For any Mortgage Loan that is an
adjustable rate mortgage loan, or an adjustable rate mortgage loan that may be
converted to a fixed rate loan, in connection with which the interest rate and
payment amount must be adjusted in accordance with applicable Regulations before
the applicable Transfer Date, Seller shall calculate the appropriate rate and
payment adjustments, update the appropriate servicing records and notify the
related Mortgagor in accordance with applicable Regulations. If the interest
rate and payment amount in connection with such a Mortgage Loan must be adjusted
in accordance with applicable Regulations before, on or within 30 days after the
applicable Transfer Date, and the appropriate index value needed to make such
adjustment will not be available before such date, Seller shall provide the
Purchaser with a schedule of such loans at least fifteen (15) Business Days
before the applicable Transfer Date.
III.10 Forwarding of Certain Items. Unless electronically transmitted,
all Mortgage Loan Payments, other funds or payments used to pay bills that
relate to Mortgage Loans received by Seller after the applicable Transfer Date
shall be forwarded by Seller to Purchaser within one (1) Business Day after
receipt by overnight mail. Each Mortgage Payment shall be accompanied by (a) an
endorsement assigning such Mortgage Loan Payment to Purchaser and (b)
information sufficient to permit Purchaser to process such Mortgage Loan
Payment. All penalties and interest due on any Mortgage Loan resulting from
Seller's failure to pay such bill prior to the required date for payment or to
forward such items to Purchaser as provided in this Section 3.10 shall be borne
by Seller. Until 60 days after the applicable Transfer Date, Seller shall
forward to Purchaser all bills, transmittal lists and other information ("Other
Materials") within one (1) Business Day after receipt by overnight mail. Any
Other Materials received after such 60 day period shall be forwarded by Seller
to Purchaser by first class mail.
III.11 Interest on Custodial Accounts. Purchaser shall pay interest on
Custodial Accounts accrued through to and including the applicable Transfer Date
to the extent interest with respect to such accounts is required to be paid
under applicable Regulations for the benefit of Mortgagors under the Mortgage
Loans or any other appropriate party. Purchaser shall either deposit any such
interest earned in the Custodial Accounts or forward such interest to Seller or
its designee within five (5) Business Days after the applicable Transfer Date.
III.12 IRS Reporting. Seller shall timely provide to Purchaser all
information required by Purchaser to prepare and send to Mortgagors and prepare
and file with the Internal Revenue Service all reports, forms, notices and
filings required by the Code, Treasury regulations and other federal law,
regulations or administrative procedures in connection with the Servicing
Portfolio and the Mortgage Loans with respect to events that occurred at any
time during the period commencing on January 1, 1998 and ending on the Closing
Date, and upon receipt of such information by Purchaser, Purchaser shall prepare
and file such reports, forms, notice and filings at its expense. Notwithstanding
the foregoing, Seller shall be responsible for all such reports, forms, notices
and filings that must be made on or before the Closing Date.
<PAGE>
III.13 Further Assistance and Assurances. Seller shall, at any time and
from time to time, promptly, upon the reasonable request of Purchaser, execute,
acknowledge, deliver or perform, all such further acts, deeds, assignments,
transfers, conveyances, and assurances as may be required for the better vesting
and conferring to Purchaser of title in and to the Servicing Portfolio and other
Purchased Assets, to effect the transactions contemplated by this Agreement or
to enable Purchaser to service the Mortgage Loans. In addition, Seller agrees
that, to the extent Seller or Purchaser becomes aware that any right or asset of
Seller that Purchaser was not aware of prior to the Effective Date and that is
(i) primarily used in the Acquired Business, (ii) not included in the Purchased
Assets and continues to be owned by Seller and (iii) reasonably believed by
Purchaser to be needed by it for its conduct of the respective Acquired
Business, Seller shall transfer, convey and assign such asset or right to
Purchaser. In the event that, after the Closing, Seller becomes aware of any
liability or obligation of Seller that is not an Assumed Liability but which
relates to any asset that is a Purchased Asset, then upon notice from Seller to
Purchaser, Seller and Purchaser shall negotiate in good faith with respect to
the assumption of the liability or obligation by Purchaser, the transfer of the
asset back to Seller, or such other mutually agreeable resolution with respect
to the liability or obligation.
III.14 Mortgage Pools. Seller shall take all action necessary to cause
the Mortgage Pools related to the Servicing Portfolio to be fully funded,
reconciled and balanced in accordance with the applicable Regulations as of the
Closing Date and the applicable Transfer Date.
III.15 Other Consents. In addition to obtaining Investor Consents and
Master Servicer Consents, Seller shall take all commercially reasonable action,
at no cost to Purchaser, to obtain such other Third Party Consents as are
necessary to permit the sale, transfer, assignment and conveyance to Purchaser
of the Purchased Assets, none of which consents shall materially and adversely
affect the Purchased Assets or the rights of Purchaser as the assignee thereof
or impose unreasonable burdens on the business or condition (financial or other)
of Purchaser. If any applicable party does not provide written consent to the
transfer of the Purchased Asset related to it prior to the Closing Date,
Purchaser may elect to accept the assignment of such Purchased Assets
notwithstanding the lack of consent.
ARTICLE IV
GENERAL REPRESENTATIONS AND WARRANTIES OF SELLER
<PAGE>
As an inducement to Purchaser to enter into this Agreement and to
consummate the transactions contemplated hereby, Seller, jointly and severally,
makes the representations and warranties set forth below regarding Seller, the
Acquired Business, Purchased Assets and Assumed Liabilities, it being
acknowledged by Seller that each such representation and warranty relates to
material matters upon which Purchaser relied and shall survive the Closing and
the applicable Transfer Date, as applicable, and it being understood that,
unless otherwise expressly provided herein, each such representation and
warranty is made to Purchaser as of the Effective Date and (subject to Section
9.2(a)) the Closing Date, and the Seller Transfer Date Representations and
Warranties are made to Purchaser (subject to Section 9.2(a)) on each applicable
Transfer Date:
IV.1 Organization. Banc One Corporation is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Ohio. Banc One Mortgage Corporation is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Seller
has and at all relevant times has had full corporate power and authority (and,
with respect to the Acquired Business all requisite licenses, permits,
authorizations and approvals) to own, lease and operate all of its respective
properties and assets and to carry on its business as it is now being conducted.
Seller is, and at all relevant times has been, duly qualified or licensed to do
business as a foreign corporation, and in good standing, in each jurisdiction in
which the nature of its business or properties makes or made such qualification,
license and standing necessary, except where failure to be so qualified,
licensed or in good standing is not material.
IV.2 Authority. Seller has full power and authority (corporate and
other) to execute and deliver this Agreement and any documents, agreements and
instruments to be executed and delivered by it pursuant to or in connection with
this Agreement and to perform its obligations and consummate the transactions
contemplated hereunder and thereunder. The execution and delivery by Seller of
this Agreement and any documents, agreements and instruments to be executed and
delivered by it pursuant to or in connection with this Agreement, and the
consummation of the transactions and the performance of the obligations
contemplated hereby and thereby, have been duly and validly authorized by all
necessary corporate action on the part of Seller, and no other corporate
proceedings on the part of Seller are necessary to consummate the transactions
contemplated hereby and thereby. This Agreement has been duly and validly
executed and delivered by Seller and constitutes a valid and legally binding
agreement of Seller enforceable against Seller in accordance with its terms, and
the other documents, agreements and instruments to be executed and delivered by
Seller pursuant to this Agreement will, when executed and delivered, be duly and
validly executed by Seller and constitute valid and legally binding obligations
of Seller enforceable against Seller in accordance with their terms, except in
each case as affected by any bankruptcy, insolvency, fraudulent conveyance,
reorganization and other similar laws relating to or affecting creditors' rights
generally and general equitable principles (whether considered in a proceeding
in equity or at law).
<PAGE>
IV.3 Non-Contravention. The execution and delivery of this Agreement
and any document, agreement or instrument to be executed pursuant to this
Agreement by Seller do not, and the consummation by Seller of the transactions
contemplated hereby and thereby and the performance by Seller of the obligations
which it is obligated to perform hereunder and thereunder will not, (a) violate
any provision of the certificate of incorporation or by-laws or other
organizational documents of Seller, or (b) assuming that all Regulatory
Authorizations listed in Sections 4.4(a) and 5.8 of the Disclosure Schedule and
all Third Party Consents (other than Private Investor Consents) listed in
Sections 4.4(b) and 5.8 of the Disclosure Schedule have been obtained or made,
(i) violate any law, regulation, rule, order, judgment or decree to which Seller
or any of their respective assets and properties are subject (each an
"Applicable Law") or (ii) violate, result in the termination or the acceleration
(or a right of termination or acceleration) of, or conflict with or constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, any mortgage, indenture, lease, franchise, license,
permit, agreement or instrument (each a "Contract") to which Seller is a party
or by which any of its assets or properties are bound or affected. The execution
and delivery of this Agreement will not result in the creation of any Lien on
any of the assets or properties of Seller or the loss of any material license or
other material contractual right with respect thereto that would adversely
impact Seller's ability to perform its obligations under this Agreement or
impact the value of the Servicing Portfolio.
IV.4 Consents, Approvals and Notices. Except (a) as described in
Section 4.4(a) or 5.8 of the Disclosure Schedule, no Regulatory Authorization,
and (b) as described in Section 4.4(b) or 5.8 of the Disclosure Schedule, no
Third Party Consent is required for the execution and delivery of this Agreement
and any document, agreement or instrument required to be executed pursuant to or
in connection with this Agreement by Seller and the consummation by Seller of
the transactions contemplated hereby and thereby, except for such Regulatory
Authorizations or Third Party Consents (other than Private Investor Consents)
which Purchaser is required to obtain or make.
IV.5 Title to and Sufficiency of Purchased Assets. (a) The sale and
delivery to Purchaser of the Purchased Assets pursuant to the provisions of this
Agreement will transfer to Purchaser good and marketable title to the respective
assets (or, as to any leased property, a valid leasehold interest), free and
clear of any Liens (other than Liens listed in Section 4.5(a) of the Disclosure
Schedule or Liens created by the Purchaser). Except for the Liens that are
listed in Section 4.5(a) of the Disclosure Schedule, no Person other than Seller
with respect to the Purchased Assets has any interest in (i) any of the
Purchased Assets (other than Leases, Leased Premises or Personal Property
Leases) transferred to Purchaser hereunder or (ii) Seller's leasehold interest
in any Leases, Leased Premises or Personal Property Leases included in the
Purchased Assets transferred to Purchaser hereunder.
(b) The Purchased Assets constitute all of the assets used by Seller to
conduct the Acquired Business and are sufficient to enable Purchaser to conduct
the Acquired Business at a level of expertise that is no less than that employed
by Seller.
IV.6 Existing Options. There are no outstanding obligations, options,
or other rights of any character providing for the purchase or sale of any
Purchased Assets other than those contemplated by this Agreement.
<PAGE>
IV.7 Financial Statements; Records. Set forth in Section 4.7 of the
Disclosure Schedule are the following financial statements of Banc One Mortgage
Corporation (collectively, the "Financial Statements"): unaudited balance sheets
as of December 31, 1997 and audited balance sheets as of December 31, 1996 and
the related statements of operations, changes in shareholder's equity and cash
flows for the years then ended for Seller. Except as otherwise indicated in
Section 4.7 of the Disclosure Schedule, the Financial Statements were prepared,
and reflect the respective assets and liabilities of Seller, in accordance with
GAAP and fairly present the financial position of Banc One Mortgage Corporation
as of the dates thereof and the results of Banc One Mortgage Corporation's
operations for the periods then ended. Except for liabilities reflected or
reserved against in the Financial Statements, or disclosed or permitted
elsewhere in this Agreement, Banc One Mortgage Corporation has no, and the
Purchased Assets are not subject to any, material liability or material
obligation of any nature which is required by GAAP to be reflected in any
Financial Statement.
IV.8 Litigation. Except as set forth in Section 4.8(i) or 4.16(b) of
the Disclosure Schedule, there is no action, suit, claim or administrative or
other proceeding pending or, to Seller's Knowledge, threatened before any court,
arbitrator or Governmental Authority (each a "Litigation") against Seller or
relating to or involving any of the Purchased Assets or the Acquired Business
which is materially adverse thereto or which challenges the validity or
propriety of the transactions contemplated by this Agreement. Section 4.8(ii) or
5.10 of the Disclosure Schedule lists all orders, judgments, injunctions and
decrees applicable to Seller which relate to the Acquired Business, and Seller
is not in violation of any such order, judgment, injunction or decree. For
purposes of this Section 4.8, "material" shall mean potential liability to
Seller, or with respect to a Purchased Asset, of more than $1 million and
$50,000, respectively.
IV.9 Compliance with Laws; Permits and Licenses. (a) Except as set
forth in Section 4.9(a) or 5.9(a) of the Disclosure Schedule, the Acquired
Business is being conducted in compliance in all material respects with all
Applicable Laws and applicable Regulations.
(b) Except as set forth in Section 4.9(b) or 5.8 of the Disclosure
Schedule, Seller holds and, at all relevant times, has held all permits,
certificates, licenses, approvals and other authorizations of each Governmental
Authority necessary for the operation of the Acquired Business (or, where
legally permissible, any waivers of or exemptions from any of the foregoing by
such Governmental Authority) (the approvals set forth in this Section 4.9(b)
being collectively referred to as "Permits").
IV.10 Absence of Certain Changes or Events. Since December 31, 1997,
there has not been:
(a) any material change by Seller in accounting methods, principles or
practices relating to the Acquired Business, except as required by law or by
changes in GAAP;
<PAGE>
(b) other than in the ordinary course of business consistent with past
practice, any entry by Seller into any material contract, transaction or
commitment relating to the Acquired Business, including any loan, lease,
purchase or sale of assets, borrowing or capital expenditure, or any commitment
therefor, in each case prior to the Effective Date;
(c) any change or development in or affecting the Purchased Assets, the
Acquired Business or the business, operations or financial condition of Seller
that has had, or reasonably could be expected to have a Material Adverse Effect;
(d) any write-off by or in respect of Seller as uncollectible of any
note or account receivable relating to the Acquired Business, except write-offs
in the ordinary course of business consistent with past practice; or
(e) any agreement by Seller to do any of the foregoing.
IV.11 Taxes. (a) Seller has filed or caused to be filed, or will file
or cause to be filed on or prior to the Closing Date, all material Tax Returns
which are required to be filed with respect to the Acquired Business on or prior
to the Closing Date (taking into account any properly granted extensions of time
to file any Tax Return). Except as set forth in Section 4.11(a) of the
Disclosure Schedule, all material Taxes due and payable with respect to the
Acquired Business, with respect to taxable years or other taxable periods ending
on or prior to the Closing Date have been, or on or prior to the Closing Date
will be, paid or adequately disclosed and fully provided for as a continuing
liability of Seller.
(b) Except as set forth in Section 4.11(b) of the Disclosure Schedule,
the Tax Returns referred to in Section 4.11(a) have been examined by the IRS or
the appropriate state, local or foreign taxing authority or the period for
assessment of the Taxes in respect to which such returns were required to be
filed has expired; all deficiencies asserted or assessments made as a result of
such examinations have been paid in full; and no issues relating to such
examinations are currently pending.
(c) Except as set forth in Section 4.11(c) of the Disclosure Schedule,
as of the date hereof no waivers of statutes of limitations as to any United
States federal, state, local, foreign or other tax matters relating to or
affecting the Acquired Business have been given by the Seller and are currently
outstanding.
(d) There are no Liens for taxes upon any of the Purchased Assets nor,
to Seller's Knowledge, is any taxing authority in the process of imposing any
lien for taxes upon any of the Purchased Assets, except for Liens for taxes not
yet due and payable.
IV.12 Ownership and Leases of Property. (a) Seller does not own,
beneficially or of record, any real property used in the Acquired Business.
<PAGE>
(b) The premises described in Section 4.12(b) of the Disclosure
Schedule are the only real estate which is leased for and used in the Acquired
Business; the description thereof includes the location of the property leased,
the square footage under lease, the term thereof and the monthly rent (based on
January 1998 rental payments). The lease to be assumed by Purchaser as set forth
in Section 4.12(b) of the Disclosure Schedule (the "Lease") with respect to 132
East Washington Street, Indianapolis, Indiana (the "Leased Premises") is a valid
and binding obligation of Seller, as lessee thereof, and the lessor, and is in
full force and effect and constitutes (together with all amendments and exhibits
thereto, and all waivers and consents thereunder) the sole agreement between the
lessor thereunder and Seller respecting the Leased Premises. With respect to the
Lease and, where applicable, the Leased Premises: (i) all rents and other
amounts due on such Lease have been paid; (ii) Seller, as lessee, has the right
to occupy, use, possess and control the entire respective Leased Premises as
presently occupied, used, possessed and controlled by Seller, and Seller is in
peaceable possession thereof; (iii) no claim has been asserted against Seller
adverse to its rights in such leasehold estate; (iv) Seller, and to Seller's
Knowledge, the lessor, is not in default thereunder or in breach thereof (nor,
with the giving of notice or the passage of time, would be in default or
breach), and no waiver, indulgence or postponement of the obligations of Seller,
or the obligations of the lessor, thereunder has been granted by the lessor; and
(v) Seller has not entered into any sublease or assignment with respect to its
interests in the Lease. Section 4.12(b) of the Disclosure Schedule sets forth
all consents, approvals, authorizations and waivers that are required in
connection with the assignment of all of Seller's right, title and interest
under the Lease to Purchaser.
(c) There are no parties in possession of any portion of the Leased
Premises other than Seller, whether as tenants at sufferance, trespassers or
otherwise.
(d) There are no facts or circumstances existing or, to Seller's
Knowledge, threatened, including without limitation any damages, assessments,
judgments, claims, losses, expenses or Litigation, which could have a Material
Adverse Effect on the present or future use of the Leased Premises in the manner
or for the purpose for which the Leased Premises presently are used. Neither the
Leased Premises nor any improvements relating thereto violate or (whether since
or, to Seller's Knowledge, before Seller took occupancy thereof) have violated,
and Seller is not aware of any circumstances under which the Leased Premises now
or in the future may violate, in any material respect, any fire, zoning, health,
building, hazardous waste or environmental code ordinance statute regulation or
order of any governmental authority or an agency, body or subdivision thereof.
All necessary permits, approvals and authorizations with respect to the use and
occupancy of the Leased Premises are valid and in effect subject to Purchaser's
performance of the Lease and its compliance with Applicable Law and will
continue as such after the Closing Date.
<PAGE>
(e) There is no Litigation of any nature (whether pending or, to
Seller's Knowledge, threatened) seeking to impose, or to Seller's Knowledge any
circumstances that could result in the imposition of, on the Acquired Business,
or any of the Purchased Assets, any liability relating to the environment,
health, safety or release of hazardous substances under any local, state or
federal statute, regulation or ordinance, including without limitation the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended. To Seller's Knowledge, there is no reasonable basis for any such
Litigation, and Seller is not subject to any agreement, order, judgment or
decree by or with any court, governmental authority or third party imposing any
such environmental liability. To Seller's Knowledge, there are no hazardous or
toxic materials or substances on or affecting any of the Leased Premises.
(f) Section 4.12(f)(i) of the Disclosure Schedule sets forth a
description of each lease of equipment or other personal property to which
Seller is a party as lessee (each a "Personal Property Lease") which is used in
the Acquired Business and includes a description of the property leased, its
location, the term of the lease and the current annual rental, and an indication
of whether Seller uses the personal property. Each Personal Property Lease is a
valid and binding obligation of Seller, as lessee thereof, and the lessor, and
is in full force and effect and constitutes (together with all amendments and
exhibits thereto, and all waivers and consents thereunder) the sole agreement
between the lessor thereunder and Seller with respect thereto. Seller, as
lessee, has the right to use, possess and control the entire respective leased
personal property as presently used, possessed and controlled by Seller. Seller,
and to Seller's Knowledge, the lessor is not in default under any Personal
Property Lease or in breach thereof (nor, with the giving of notice or the
passage of time, would be in default or breach), and no waiver, indulgence or
postponement of the obligations of Seller, or the obligations of the lessor,
thereunder has been granted by the lessor or Seller, respectively. Section
4.12(f)(ii) of the Disclosure Schedule sets forth all consents, approvals,
authorizations and waivers that are required in connection with the assignment
of all of Seller's right, title and interest under the Personal Property Leases
to Purchaser.
IV.13 Insurance. Section 4.13 of the Disclosure Schedule lists all
policies of insurance relating to the Purchased Assets and the Acquired Business
(other than title insurance policies or insurance policies relating exclusively
to mortgage or other loans originated or serviced by Seller) which name Seller
as an insured party thereunder.
IV.14 Intellectual Property. (a) Section 4.14 of the Disclosure
Schedule lists (i) all foreign and domestic patents and patent applications and
(ii) all copyright registrations, trademark registrations, trademark
registration applications, service mark registrations, service mark registration
applications and trade names (exclusive of any such registration, application or
name using the name "Banc One Mortgage Corporation" or "Banc One" or the symbol
in any form), in each case which is owned by Seller and used in the Acquired
Business (collectively the "Intellectual Property"). Section 4.14 of the
Disclosure Schedule also lists (1) all license agreements of patent, trademark
or service mark rights entered into for use in the Acquired Business and (2) all
computer programs, software, applications and databases utilized by Seller in
the Acquired Business (excluding computer software purchased by Seller that is
sold by national computer software retailers to the general public). Purchaser
acknowledges that Seller may use the Inbound Processing SMS workbench for its
ongoing operations after the Closing Date.
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(b) Unless otherwise indicated in Section 4.14 of the Disclosure
Schedule, (i) there are no existing or, to Seller's Knowledge, threatened claims
by any third party based on the use by, or challenging the ownership of, Seller
of any Intellectual Property, or any claims challenging any rights of Seller
under the license agreements or to use the computer programs, software,
applications and databases listed in Section 4.14 of the Disclosure Schedule;
(ii) to Seller's Knowledge (A) none of the methods or services which Seller
uses, offers, sells or provides in the course of conducting the Acquired
Business infringes upon any intellectual property or intellectual property
rights of others, (B) none of the Intellectual Property is being infringed by
others in any material respect and (C) none of the material rights of Seller
under the license agreements or to the use of the computer programs, software,
applications and database listed in Section 4.14 of the Disclosure Schedule is
being violated in any material respect; (iii) Seller owns all right, title and
interest in the Intellectual Property; (iv) Seller has not received any oral or
written claim or demand from any Person pertaining to or challenging the right
of Seller to use any Intellectual Property, or any such claim or demand
challenging the rights of Seller under the license agreements or to the use of
the computer programs, software, applications and databases listed in Section
4.14 of the Disclosure Schedule, and no Litigation has been instituted, is
pending or, to Seller's Knowledge, is threatened which challenges such rights
and (v) Seller has complied with the applicable provisions of all laws of the
states in which it has used the Intellectual Property and computer programs,
software, applications and data bases pertaining to the use of the Intellectual
Property or computer programs, software, applications and data bases, as
applicable, and none of the Intellectual Property has been abandoned or
otherwise has entered the public domain in any state or country in which the
Intellectual Property has been used or in which there is a registration for any
of the Intellectual Property. Within the 12-month period immediately prior to
the Effective Date, Seller has not made use of any intellectual property in
connection with the Acquired Business other than the Intellectual Property,
computer software purchased by Seller that is sold by national computer software
retailers to the general public or the license agreements, computer programs,
software, applications and databases listed in Section 4.14 of the Disclosure
Schedule.
<PAGE>
IV.15 Contracts. Seller has made available to Purchaser a correct and
complete copy of each written contract, agreement, understanding and arrangement
material to the Acquired Business. Each such Contract, agreement, understanding
and arrangement is listed in Section 4.15 of the Disclosure Schedule. With
respect to each such contract, agreement, understanding and arrangement: (i)
each is a valid and binding obligation of Seller and the party or parties with
whom Seller contracted, enforceable in accordance with its terms, subject to
bankruptcy, insolvency and similar laws affecting generally the enforcement of
creditors' rights and the discretion of a court to grant specific performance,
(ii) Seller is not in breach or default thereof and, to Seller's Knowledge, no
event has occurred which would, with notice or the passage of time or both,
constitute a breach or default by Seller, permit termination, modification or
acceleration against Seller thereunder, prevent Seller from performing its
obligations hereunder or result in a Lien upon any of the Purchased Assets,
(iii) neither Seller nor any other party thereto has repudiated or waived any
provision thereof, (iv) all amounts due and payable by Seller through the
Closing Date pursuant thereto have been or will be paid and (v) to Seller's
Knowledge, no other party thereto is in breach or default thereunder and no
event has occurred which, with notice or the passage of time or both, would
constitute a breach or default by such other party, or would permit termination,
modification or acceleration against such other party thereunder. Except as set
forth in Section 4.15 of the Disclosure Schedule, no contract, agreement,
understanding or arrangement assigned to Purchaser hereunder contains any
restrictions or limitations on competition or the cross sale of services or
products.
IV.16 Employee Matters. (a) Employment Investigations. Except as
disclosed in Section 4.8(i), 4.8(ii) or 4.16(a) of the Disclosure Schedule,
Seller has not been, nor to Seller's Knowledge, is it likely to become, the
subject of or involved in any audit, investigation, complaint or proceeding by
the United States Department of Labor, the Office of Federal Contract
Compliance, the Equal Employment Opportunity commission or any similar federal,
state or local body dealing with any employment policies and practices of Seller
affecting the Acquired Business or any Person currently employed in connection
with the Acquired Business or the Purchased Assets.
(b) Employment Related Suits. Except as disclosed in Section 4.8(i),
4.8(ii) or 4.16(b) of the Disclosure Schedule, there is no pending or, to
Seller's Knowledge, threatened or anticipated Litigation against Seller on the
part of any Person currently employed with respect to the Acquired Business or
the Purchased Assets.
(c) Employees. Seller is not a party to or otherwise subject to any
collective bargaining agreement or any other agreement with any labor union with
respect to the Acquired Business. There is no pending or, to Seller's Knowledge,
threatened or anticipated attempt to unionize any Persons who currently are
employed in connection with the Acquired Business. Seller is neither involved in
nor, to Seller's Knowledge, threatened with any collective bargaining or labor
union dispute.
(d) Employment Agreements. All employment, bonus, compensation,
severance, retirement or similar agreements entered into by Seller and any
Person currently employed in connection with the Acquired Business, are listed
in Section 4.16(d) of the Disclosure Schedule. The consummation of the
transactions contemplated hereby, including any subsequent terminations of
employment, shall not result in any payments to any Person employed in
connection with the Acquired Business or the Purchased Assets being subject to
Section 280G of the Code, without regard to whether such payments are considered
to be reasonable compensation.
<PAGE>
(e) No WARN Act Activities. From the date hereof through the Closing
Date, Seller shall not effectuate (i) a "plant closing" (as defined in the WARN
Act) affecting any site of employment or one or more facilities or operating
units within any site of employment or facility of the Seller's business, or
(ii) a "mass layoff" (as defined in the WARN Act) affecting any site of
employment or facility of the Seller's business without giving all notices
required by the WARN Act, or any similar state law or regulation, and Seller
shall assume all liability for any alleged failure to give such notice and
indemnify and hold harmless Purchaser for any and all claims asserted under the
WARN Act or any similar state law or regulation because of a "plant closing" or
a "mass layoff" occurring on or before the Closing Date. For purposes of this
Agreement, the Closing Date is the "effective date" for purposes of the WARN
Act. None of the employees of the Seller has suffered any "Employment Loss" (as
defined in the WARN Act) for a least ninety (90) calendar days before the
Closing Date.
IV.17 No Accrued Liabilities. Except for the Assumed Liabilities, there
are no accrued liabilities of Seller with respect to the Purchased Assets or
circumstances under which such accrued liabilities will arise against Purchaser
as successor to the Purchased Assets with respect to any action or failure to
act by Seller occurring on or prior to the applicable Transfer Date or the
Closing Date.
IV.18 Solvency. Both immediately before the Closing Date and after the
consummation of the transactions contemplated by this Agreement, (a) the sum of
the assets of Seller, at fair valuation, will exceed their respective debts, (b)
the present fair saleable value of the assets of Seller will be greater than the
amount required to pay the liabilities of Seller on its debts as such debts
become absolute and mature and (c) Seller will have sufficient capital with
which to conduct its businesses. The transfer, assignment, and conveyance of the
Purchased Assets by Seller pursuant to this Agreement are not subject to the
bulk transfer provisions or any similar statutory provisions in effect in any
jurisdiction, the laws of which apply to such transfer, assignment and
conveyance.
IV.19 Transactions with Affiliates. Section 4.19 of the Disclosure
Schedule lists all agreements in effect as of the Effective Date with respect to
services provided by any Affiliate of Seller to Seller, or by Seller to any
Affiliate of Seller, with respect to the Acquired Business or a Purchased Asset.
IV.20 Brokers. No broker, investment banker, financial advisor or other
Person, is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of Seller.
IV.21 No Regulatory Impediment. Seller is not aware of any fact
relating to its business, operations, financial condition or legal status that
could reasonably be expected to impair the ability of Purchaser to obtain, on a
timely basis, all consents, approvals, licenses and permits from Governmental
Authorities necessary for the consummation of the transactions contemplated
hereby without the imposition of any condition which would be unreasonably
burdensome to the business or financial condition of the Purchaser or its
Affiliates.
<PAGE>
IV.22 Statements Made. No representation, warranty or written statement
made by Seller in this Agreement, in any Schedule or Exhibit to this Agreement,
or in any written statement or certificate furnished by Seller to Purchaser
pursuant to Article IX, and no information otherwise provided by Seller to
Purchaser in connection with the transactions contemplated hereby, contains or
will contain any misstatement of a material fact or omits or will omit to state
a material fact necessary in order to make the representations, warranties and
statements contained herein and therein not misleading in light of the
circumstances in which the are made.
ARTICLE V
MORTGAGE BANKING AND RELATED
REPRESENTATIONS OF SELLER
As an inducement to Purchaser to enter into this Agreement and to
consummate the transactions contemplated hereby, Seller, jointly and severally
(except where indicated and to be made by Banc One Mortgage Corporation alone),
makes the representations and warranties set forth below regarding Seller, the
Acquired Business and the Purchased Assets, it being acknowledged by Seller that
each such respective representation and warranty relates to material matters
upon which Purchaser relied and, solely for purposes of Articles XII, shall
survive the Closing and each applicable Transfer Date, and it being understood
that, unless otherwise expressly provided herein, each such respective
representation and warranty is made to Purchaser as of the Effective Date and
(subject to Section 9.2(a)) the Closing Date:
V.1 Portfolios and Listed Agreements. (a) Section 5.1(a) of the
Disclosure Schedule contains a list of all Servicing Agreements to which Seller
is a party. Part A thereof shall set forth the Listed Agreements and Part B
thereof shall set forth any other Servicing Agreements to which the Seller is a
party.
(b) Section 5.1(b) of the Disclosure Schedule contains a list of all
GNMA, FNMA and FHLMC Mortgage Pools included in the Servicing Portfolio.
V.2 Portfolio Information; Related Matters. (a) Seller has previously
delivered to Purchaser one or more tapes (magnetic media) which set forth
certain information, as of the Tape Date, with respect to each Mortgage Loan
that is a part of the Servicing Portfolio.
(b) Seller has previously delivered to Purchaser a tape (magnetic
media) which sets forth certain information, including without limitation the
proposed loan amount, interest rate, loan type, and closing date, as of the Tape
Date, with respect to each Mortgage Loan.
<PAGE>
(c) Purchaser has utilized certain assumptions as of the Tape Date with
respect to the information on the Tape to determine the Purchase Price. These
assumptions are described in Exhibit C.
(d) The information furnished by Seller to Purchaser pursuant to
Sections 5.2(a) and 5.2(b) and the assumptions utilized by Purchaser in Section
5.2(c) were true and correct in all material respects as of the dates furnished.
V.3 Enforceability of Listed Agreements. (a) Seller has previously made
available to Purchaser true and complete copies of all Listed Agreements. Each
Listed Agreement and the Regulations applicable thereto set forth all the terms
and conditions of the rights of Seller against and obligations to the Agencies,
Contract Parties, Investors and Insurers and there are no written or oral
agreements that modify, supplement or amend any such Listed Agreement other than
such modifications, supplements or amendments which would not materially affect
the rights of Seller under the related Listed Agreement. Each of the Listed
Agreements is a valid and binding obligation of Seller and the other party
thereto, is in full force and effect, and is enforceable against Seller and the
other party thereto in accordance with its terms, except as such enforceability
may be affected by bankruptcy, insolvency, fraudulent conveyance, reorganization
and other similar laws relating to or affecting creditor's rights generally and
general principles of equity (whether considered in a proceeding equity or at
law.
(b) There is no pending or, to Seller's Knowledge, threatened
cancellation or partial termination of any Listed Agreement.
(c) Except as set forth in Section 5.3(c) of the Disclosure Schedule,
the rights of Seller and all of the rights related to the Servicing, including
the right to receive servicing fees, are owned by or for the account of Seller
free and clear of any Liens. The sale, transfer and assignment by Seller to
Purchaser, of the Listed Agreements, and the instruments required to be executed
by Seller and delivered to Purchaser pursuant to the applicable Regulations,
are, or will be on the Closing Date, valid and enforceable in accordance with
their terms and will effectively vest in Purchaser good and marketable title to
the Listed Agreements free and clear of any and all liens, claims, or
encumbrances, except for those encumbrances required by applicable Investor
rules and regulations.
V.4 Compliance with Listed Agreements. (a) Except as set forth in
Section 5.4(a) of the Disclosure Schedule, there is no material default or
breach by Seller under any Listed Agreement or under Regulations applicable
thereto, and no event has occurred which with the passage of time or the giving
of notice or both would constitute a material default or breach by Seller under
any such Listed Agreement or with Regulations applicable thereto or would permit
termination or modification of any such Listed Agreement by a third party
without the consent of Seller.
<PAGE>
(b) Except as set forth in Section 5.4 (b) of the Disclosure Schedule,
there exists no breach of a representation and warranty by Seller set forth in a
Listed Agreement (each of which was made as of the date specified in such Listed
Agreement) which gives rise to a repurchase remedy against Seller under such
Listed Agreement.
V.5 Advances and Accounts Receivable. Each Purchased Advance and
Purchased Accounts Receivable is a valid and subsisting amount owing to Seller,
is carried on the books of Seller at values determined in accordance with GAAP
and is not subject to any set-off or claim that could be asserted against
Purchaser, and Seller has not received any notice from an Investor, Insurer or
other appropriate party in which the Investor, Insurer or party disputes or
denies a claim by Seller for reimbursement in connection with a Purchased
Advance or Purchased Accounts Receivable.
V.6 No Recourse. Except with respect to those Mortgage Loans listed on
Section 5.6 of the Disclosure Schedule and identified expressly in the magnetic
media referenced in Section 5.2 hereof, none of the Listed Agreements or other
contracts to be assigned by Seller to Purchaser hereunder provide for Recourse
to Seller.
V.7 Mortgage Loan Representations and Warranties. Banc One Mortgage
Corporation makes the representations and warranties set forth below regarding
each Mortgage Loan:
(a) Each Mortgage Loan was originated in accordance with and conforms
in all material respects to applicable Regulations; and each Mortgage Loan in
the Servicing Portfolio was eligible for sale to, insurance by, or pooling to
back securities issued or guaranteed by, the applicable Investor or Insurer upon
such sale, issuance of insurance or pooling. Except as set forth in Section
5.7(a) of the Disclosure Schedule, there exist no facts or circumstances that
would entitle an Investor to demand repurchase of a Mortgage Loan by Seller or
would entitle an Insurer or Investor to demand indemnification from Seller, to
cancel any mortgage insurance held for the benefit of Seller, or to reduce any
mortgage insurance benefits payable to Seller.
<PAGE>
(b) Each Mortgage Note and the related Mortgage is genuine and each is
the legal, valid and binding obligation of the maker thereof, enforceable in
accordance with its terms, subject to bankruptcy, insolvency and similar laws
affecting generally the enforcement of creditors' rights and the discretion of a
court to grant specific performance. All parties to the Mortgage Note and the
Mortgage had legal capacity to execute the Mortgage Note and the Mortgage and
each Mortgage Note and Mortgage has been duly and properly executed by such
parties. The Mortgage Loan is not subject to any right of rescission, setoff,
counterclaim or defense, including the defense of usury, nor will the operation
of any of the terms of the Mortgage Note or the Mortgage, or the exercise of any
right thereunder, render either the Mortgage Note or the Mortgage unenforceable
by Purchaser, in whole or in part, or subject to any right of rescission,
setoff, counterclaim or defense, including the defense of usury, and no such
right of rescission, set-off, counterclaim or defense has been asserted with
respect thereto.
(c) Except for those Mortgage Loans with weather-related completion
escrow accounts, the full original principal amount of each Mortgage Loan (net
of any discounts) has been fully advanced or disbursed to the Mortgagor named
therein, there is no requirement for future advances and any and all
requirements as to completion of any on-site or offsite improvements and as to
disbursements of any escrow funds therefor have been satisfied. All costs, fees
and expenses incurred in making, closing or recording the Mortgage Loan were
paid. Except as disclosed in Section 5.7(c) of the Disclosure Schedule, there is
no obligation on the part of Seller, or of any other party, to make supplemental
payments in addition to those made by the Mortgagor.
<PAGE>
(d) Each Mortgage has been duly acknowledged and recorded or sent for
recordation and is a valid and subsisting first lien, and the Mortgaged Property
is free and clear of all encumbrances and liens having priority over the lien of
the Mortgage, except for (i) liens for real estate taxes and special assessments
not yet due and payable, (ii) covenants, conditions and restrictions, rights of
way, easements and other matters of the public record as of the date of
recording, acceptable to mortgage lending institutions generally and (iii) other
matters to which like properties are commonly subject which do not materially
interfere with the benefits of the security intended to be provided by the
Mortgage or the use, enjoyment, value or marketability of the related Mortgaged
Property. Except as set forth in Section 5.7(d)(i) of the Disclosure Schedule,
there are no mechanics, or similar liens or claims which have been filed for
work, labor or material (and no rights are outstanding that under law could give
rise to such lien) affecting the Mortgaged Property which are or may be liens
prior to, or equal or coordinate with, the lien of the Mortgage. Except for any
Mortgage Loan secured by a Mortgaged Property located in Iowa, as to which an
opinion of counsel of the type customarily rendered in such State in lieu of
title insurance has been received, a valid and enforceable title policy, or a
commitment to issue such a policy, has been issued and is in full force and
effect for each such Mortgage Loan in the amount not less than the original
principal amount of such Mortgage Loan, which title policy insures that the
related Mortgage is a valid first lien on the Mortgaged Property therein
described and that the Mortgaged Property is free and clear of all encumbrances
and liens having priority over the lien of the Mortgage, subject to the
exceptions set forth in this Section 5.7(d), and otherwise satisfies applicable
Regulations. The mortgagee, its successors and/or assigns, is the named insured
and the sole insured of such mortgage title insurance policy, proper assignment
of the title policy has been or by the applicable Transfer Date will be made to
Purchaser, and the assignment to Purchaser of such interest in such mortgage
title insurance policy does not require the consent of or notification to the
Insurer, or any required consent has been obtained by Seller at the time of
assignment. Except as set forth in Section 5.7(d)(ii) of the Disclosure
Schedule, no claims have been made under such mortgage title insurance policy,
and none of Seller, the Originator or Prior Servicer, as applicable, has done,
by act or omission, anything that would impair the coverage of such mortgage
title insurance policy. All tax identifications and property descriptions are
legally sufficient. All required assignments of Mortgages have been recorded, or
sent for recording, in the proper jurisdiction such that record title to the
Mortgage Loan is or will be vested in Seller or the appropriate Investor as
required by the applicable Regulations.
(e) Except as set forth in Section 1(i) of the Disclosure Schedule,
there is no default, breach, violation or event of acceleration existing under
any Mortgage Loan, and no event has occurred which, with the passage of time or
with notice and the expiration of any grace or cure period, would constitute a
default, breach, violation or event of acceleration; and Seller has not waived
any default, breach, violation or event of acceleration. Except as approved by
the applicable Investor and except for loss mitigation and error correction
activities taken in accordance with applicable Regulations, neither Seller nor
any Originator or Prior Servicer has (i) agreed to any modification, extension
or forbearance in connection with a Mortgage Note or Mortgage, (ii) released,
satisfied or canceled any Mortgage Note or Mortgage in whole or in part, (iii)
subordinated any Mortgage in whole or in part, or (iv) released any Mortgaged
Property in whole or in part from the lien of any Mortgage, and the written
instrument necessary to effect any of the foregoing has been recorded, if
necessary, and is part of the Mortgage Loan Documents and otherwise satisfies
applicable Regulations. Seller has not advanced its funds to cure a default or
delinquency with respect to any such Mortgage Loans, except for deficiencies in
Mortgage Escrow Payments. Except as set forth on Section 5.7(e) of, or with
respect to buy down arrangements set forth on Section 5.7(r)(i) of the
Disclosure Schedule, Seller has not induced, solicited or knowingly received any
advance of funds by a party other than the Mortgagor on the Mortgage Loan,
directly or indirectly, for the payment of any amount required under the
Mortgage Loan.
(f) All payments received by Seller with respect to any Mortgage Loan
have been remitted and properly accounted for as required by applicable
Regulations. All funds received by Seller in connection with the satisfaction of
Mortgage Loans, including but not limited to foreclosure proceeds and insurance
proceeds from hazard losses, have been deposited in the appropriate principal
and interest account or taxes and insurance account included among the Custodial
Accounts, and all such funds have been applied to reduce the principal balance
of the Mortgage Loans in question, or for reimbursement of repairs to the
Mortgaged Property or as otherwise required by applicable Regulations, or are
and will be in one of the Custodial Accounts on the Closing Date. The unpaid
balances of the Mortgage Loans are as stated in the Mortgage Loan Documents to
be delivered to Purchaser.
<PAGE>
(g) Except as set forth in Section 5.7(g) of the Disclosure Schedule,
each Mortgage Loan which is represented by Seller to have FHA insurance is, or
is eligible without limitation to be, insured pursuant to the National Housing
Act. Each Mortgage Loan which is represented by Seller to be guaranteed by the
VA is, or is eligible in the normal course of business to be, guaranteed under
the provisions of Chapter 37 of Title 38 of the United States Code. If required
by FNMA or FHLMC, each Conforming Conventional Loan is, or prior to the Closing
Date will be, insured as to payment defaults by a policy of primary mortgage
guaranty insurance in the amount required, and by an Insurer approved by FNMA or
FHLMC, and all provisions of such primary mortgage guaranty insurance policy
have been and are being complied with, such policy is in full force and effect
and all premiums due thereunder have been paid. As to each mortgage insurance or
guaranty certificate, each of Seller and, to Seller's Knowledge, any Originator
and Prior Servicer, has complied with applicable provisions of the insurance or
guaranty contract and federal statutes and regulations, all premiums or other
charges due in connection with such insurance or guaranty have been paid, there
has been no act or omission which would or may invalidate any such insurance or
guaranty with respect to Purchaser, and the insurance or guaranty is, or when
issued, will be, in full force and effect with respect to each Mortgage Loan.
There are no defenses, counterclaims, or rights of setoff against Purchaser
affecting the validity or enforceability of any mortgage insurance or guaranty
with respect to a Mortgage Loan.
(h) Seller and, to Seller's Knowledge, each Originator and Prior
Servicer have complied, in all material respects, with applicable Regulations
pertaining to the origination, sale and servicing of the Mortgage Loans,
including without limitation truth-in-lending, real estate settlement
procedures, fair credit reporting, and fair housing, anti-redlining, equal
credit opportunity and every other prohibition against unlawful discrimination
in residential or governing consumer credit, and also including without
limitation the Consumer Credit Reporting Act, Equal Credit Opportunity Act of
1975 and Regulation B, Fair Credit Reporting Act, Truth in Lending Law, in
particular, Regulation Z as amended, the Flood Disaster Protection Act of 1973,
the Real Estate Settlement Procedures Act of 1974, and Regulation X and state
consumer credit codes and laws. To Seller's Knowledge, each Originator and Prior
Servicer was qualified to do business, and had all requisite licenses, permits
and approvals, in the states in which the applicable Mortgaged Properties are
located, except where the failure to possess such qualifications, licenses,
permits and approvals would not materially and adversely affect the
enforceability of the Mortgage Loan Documents by Purchaser, or otherwise have
any material and adverse affect on Purchaser.
(i) All taxes, governmental assessments, insurance premiums, water,
sewer and municipal charges, leasehold payments, ground rents relating to the
Mortgage Loans have been paid to the extent such items are required to be paid
pursuant to applicable Regulations and as herein provided. Each Mortgage Loan
is, or by the Closing Date will be covered by a valid and freely assignable,
life of loan, tax service contract and flood tracking services contract, in full
force and effect, with Trans America Real Estate Tax Service, Trans America Real
Estate Flood Service and/or GeoTrac, respectively, and Seller has provided
Purchaser with a list, to be updated as of the Closing Date, identifying each
such contract.
<PAGE>
(j) All improvements upon the Mortgaged Property are insured against
loss by such fire, hazard and/or extended coverage insurance policies as may be
required by applicable Regulations in an amount that is at least equal to the
outstanding principal balance of the Mortgage Loan or the full replacement value
of the Mortgaged Property, whichever is greater, subject to applicable
Regulations that limit the amount of such insurance that may be required. The
insurance policy is in a form, and is issued by an Insurer, that is acceptable
to the applicable Investor with respect to the Mortgage Loan. If the Mortgaged
Property was at the time of origination in an area identified by the Federal
Emergency Management Agency as having special flood hazards or the applicable
Regulations otherwise require, then the Mortgaged Property is covered by a flood
insurance policy that is in a form, and is issued by an insurer, acceptable to
the applicable Investor, and the policy is in an amount that is at least equal
to (a) the outstanding principal balance of the Mortgage Loan, or (b) the
maximum amount of insurance that is available under the Flood Disaster
Protection Act of 1973, whichever is less; provided, however, that flood
insurance will not be required if the Mortgaged Property is an individual unit
in a condominium if the applicable Investor does not require such insurance with
respect to the unit. The Mortgage for each Mortgage Loan obligates the related
Mortgagor to maintain all hazard insurance required by this Section 5.7(j) and
to pay all premiums and charges in connection therewith, and on the Mortgagor's
failure to do so, authorizes the mortgagee to maintain such insurance at
Mortgagor's cost and expense and to seek reimbursement therefor from the
Mortgagor. If the Mortgaged Property is an individual unit in a condominium
project or an individual unit in a planned unit development, then the common
elements and property of the condominium project or the common areas and
property of the planned unit development are insured against loss by such fire,
hazard, extended coverage and flood insurance policies as are required by the
applicable Investor. Without limiting the foregoing, each required insurance
policy is in a form and amount, and is issued by an Insurer, that is acceptable
to the applicable Investor with respect to the condominium project or planned
unit development. Additionally, if the Mortgaged Property is an individual unit
in a condominium project or an individual unit in a planned unit development,
then general liability, fidelity and all other insurance required by the
applicable Investor is maintained in connection with the condominium project or
planned unit development, and each required insurance policy is in a form and
amount, and is issued by an Insurer, that is acceptable to the applicable
Investor with respect to the condominium project or planned unit development.
With respect to each insurance policy required by this Section 5.7(j), to the
extent required by the applicable Regulations: (A) the policy contains an
endorsement providing that advance written notice will be given in writing to
the mortgagee, its successors and/or assigns in the event the policy is to be
canceled, no later than the time specified in the applicable Regulations; (B)
the mortgagee, its successors and/or assigns, or such other appropriate Persons
specified by applicable Regulations, are named in the mortgage clause or loss
agent clause of the policy, and as a result the payment for any loss will be
made to the mortgagee, its successors and/or assigns, or such other appropriate
Persons, and in the event of loss, the interest of the mortgagee as successor in
interest will not be impaired by an act or neglect of the Mortgagor, any
foreclosure, notice of sale or any change in ownership of the Mortgaged
Property; and (C) Seller has provided the appropriate Insurer with such notice,
or has obtained such consent, as is necessary to designate the appropriate
Persons required by the applicable Regulations as loss payee on each such
insurance policy. In addition, if the provisions specified in clauses (B) and
(C) are not applicable with regard to a particular insurance policy but are
required by the applicable Regulations, Seller has obtained a certificate of
insurance in the form required by the applicable Regulations. All insurance
policies required by this Section 5.7(j) are in full force and effect, and all
premiums with respect to such policies have been paid. Except with the consent
of the applicable Investor and Insurer providing mortgage insurance, to the
extent that such consent was required under the applicable Regulations, no
casualty insurance proceeds for property damage have been used to reduce
Mortgage Loan balances or for any other purpose except to make repairs to the
Mortgaged Property. There are no (i) uninsured casualty losses, (ii) casualty
losses where coinsurance has been claimed (or Seller has any reason to believe
will be claimed) by an Insurer or (iii) casualty losses where the loss,
exclusive of contents, is greater than the recovery, less actual expenses
incurred in such recovery from the Insurer, in each case with respect to any
Mortgaged Property.
(k) To Seller's Knowledge, except as disclosed in Section 5.7(k) of the
Disclosure Schedule, there exists no physical damage to any Mortgaged Property
from fire, flood, windstorm, earthquake, tornado, hurricane or any other similar
casualty, which physical damage would materially and adversely affect the value
or marketability of any Mortgage Loan, the Servicing thereof, the Mortgaged
Property or the eligibility of the Mortgage Loan for insurance benefits by any
Insurer. There is no proceeding pending for the total or partial condemnation
of, or eminent domain with respect to, the Mortgaged Property. All of the
improvements that were included for the purpose of determining the appraised
value of the Mortgaged Property for a Mortgage Loan and lie wholly within the
boundaries and building restriction lines of the Mortgaged Property, and no
improvements on adjoining properties encroach upon the Mortgaged Property,
unless covered by title insurance or waivers. With respect to any Mortgaged
Property, in each case, to Seller's Knowledge, and without having performed any
investigation, the related Mortgagor is not in and has not been in violation of,
no prior owner of such property was in violation of, and the property does not
violate any standards under, applicable statutes, ordinances, rules,
regulations, orders or decisions with regard to pollutants or hazardous or toxic
substances, including without limitation the Comprehensive Environmental
Response, Compensation and Liability Act, Federal Water Pollution Control Act,
Clean Air Act, and Toxic Substances Control Act, as such laws are amended and
supplemented from time to time and any analogous federal, state or local
statutes, rules and regulations.
<PAGE>
(l) Except as disclosed in Section 5.7(l) of the Disclosure Schedule
with respect to pools which have not been finally certified, all Mortgage Pools
have been initially certified, finally certified and/or recertified if required
by and otherwise in accordance with applicable Regulations, and the securities
backed by such Mortgage Pools have been issued on uniform documents, as required
by applicable Regulations without any material deviations therefrom. Subject to
the obligations of Seller pursuant to Section 7.9 hereof, the Mortgage Loan
Documents to be delivered to Purchaser will include all documents necessary
(other than Assignments of Mortgage Instruments that are to be delivered by
Seller after the applicable Transfer Date) in order for Purchaser's document
custodian to finally certify or recertify, as applicable, the Mortgage Pools in
accordance with the applicable Regulations by the applicable deadline. Each
Mortgage Loan included in a Mortgage Pool meets all eligibility requirements of
the Investor for inclusion in such Mortgage Pool. After the reconciliation
required hereunder, each Mortgage Pool will be properly balanced and fully
funded.
(m) With regard to each Mortgage Loan, Seller is transferring to
Purchaser or its designee the Mortgage Loan Documents which contain each of the
documents and instruments specified to be included therein and required to be
maintained under the applicable Regulations; and such document or instrument is
duly executed and in form acceptable to the applicable Investor or Insurer.
(n) In the event the related Mortgage constitutes a deed of trust, a
trustee, duly qualified under applicable law to serve as such, has been properly
designated and currently so serves and is named in the Mortgage and no fees or
expenses are or will become payable by the Purchaser, or the applicable
Investor, or their respective successors and assigns, to the trustee under the
deed of trust, except as expressly provided in the Mortgage Loan Documents for
the performance of duties by the trustee after a default by the Mortgagor.
(o) The origination, sale and servicing practices used by Seller and,
to Seller's Knowledge, any Originator and Prior Servicer with respect to each
Mortgage Loan have been in all material respects in accordance with applicable
Regulations. With respect to Mortgage Escrow Payments, except as disclosed in
Section 5.7(o) of the Disclosure Schedule there exist no deficiencies in
connection therewith for which customary arrangements for repayment thereof have
not been made, and no Mortgage Escrow Payments or payments or other charges or
prepayments due from Mortgagor have been capitalized under any Mortgage or the
related Mortgage Note.
(p) The loan-to-value ratio of each Mortgage Loan did not, at the time
of origination, exceed the maximum amount permitted by the applicable Investor
and Insurer for such Mortgage Loan. To Seller's Knowledge, the appraisal
prepared in connection with each Mortgaged Property provided an accurate
estimate of bona fide market value of the Mortgaged Property at the time of
origination and was prepared by a qualified appraiser with no direct or indirect
interest in the Mortgaged Property, and both the appraisal and the appraiser
satisfied all applicable Regulations.
(q) To Seller's Knowledge, no fraud has occurred on the part of any
Person in connection with any Mortgage Loan, that could materially and adversely
affect Purchaser or the Servicing of such Mortgage Loan or result in Purchaser
incurring losses.
<PAGE>
(r) No Mortgage Loan contains terms or provisions (i) that would result
in negative amortization or, except as set forth in Section 5.7(r)(i) of the
Disclosure Schedule, provide for an interest rate buydown or (ii) except as set
forth in Section 5.7(r)(ii) of the Disclosure Schedule, pursuant to which the
Mortgage Loan will convert, or whereby its Mortgagor is permitted prospectively
to convert the Mortgage Loan, from an adjustable rate mortgage loan to a fixed
rate mortgage loan. All Mortgage Loans are secured by single-family (i.e., one-
to four- family) residential real property, and except as set forth in Section
5.7(r)(iii) of the Disclosure Schedule none of the Mortgage Loans are or will be
(a) insured under section 203k, 235, 245 or 265 of the National Housing Act, (b)
graduated payment loans that are still in the adjustment period of the loan, (c)
reverse mortgage loans or (d) housing authority loans, (e) coinsured, (f) Home
Equity Loans, (g) VA vendee loans, (h) FNMA Timesaver Loans (as defined in
Regulations), (i) bi-weekly payment loans or (j) Texas Veteran Land Board loans
or relate to such loans. Except as disclosed in Section 5.7(r)(iv) of the
Disclosure Schedule, none of the Mortgage Loans are secured by a condominium or
a cooperative unit. With respect to a Mortgage Loan that is secured by a
condominium, planned unit development or cooperative unit, if required by the
applicable Investor, the condominium, planned unit development or cooperative
unit has and had all necessary project acceptances, the Mortgage Loan was
underwritten using all special property appraisal methods, and the loan
otherwise meets and met any and all other special acceptance requirements under
the applicable Regulations. No Mortgage Loan is secured by manufactured housing
that is not affixed to a permanent structure.
(s) Except as set forth in Section 5.7(s) of the Disclosure Schedule,
Seller has not received notice from any Mortgagor or other party with respect to
the Mortgage Loans of a request for relief pursuant to or invoking any of the
provisions of the Soldiers and Sailors Relief Act of 1940 or any similar law
which would have the effect of suspending or reducing the Mortgagor's payment
obligations under a Mortgage Loan or which would prevent such loan from going
into foreclosure.
(t) The related Mortgage Note is not and has not been secured by any
collateral except the lien of the corresponding Mortgage.
(u) Seller and each Originator and Prior Servicers have remitted or
otherwise made available to each Investor (i) all principal and interest
payments received to which the Investor is entitled under the applicable
Servicing Agreements, including without limitation any guaranty fees, and (ii)
all advances of principal and interest payments required by such Servicing
Agreements. In accordance with the applicable Regulations, Seller has prepared
and submitted to each Investor all reports in connection with such payments
required by the applicable Regulations.
<PAGE>
V.8 Mortgage Banking Qualification. Except as set forth in Section
4.4(a), 4.4(b), 4.9(a) or 5.8 of the Disclosure Schedule, Seller (a) to the
extent required for the conduct of the Acquired Business, is approved (i) by FHA
as an approved mortgagee and servicer for FHA Loans, (ii) by VA as an approved
lender and servicer for VA Loans, (iii) by FNMA and FHLMC as an approved
seller/servicer of first lien residential mortgages and (iv) by GNMA as an
authorized issuer and approved servicer of GNMA-guaranteed mortgage-backed
securities, (b) has all other material certifications, authorizations, licenses,
permits and other approvals, including without limitation those required by
State Agencies, that are necessary to conduct the Acquired Business (or, where
legally permissible, any waiver of or exemption from any of the forgoing by such
Agency or State Agency) and (c) is in good standing under all applicable
federal, state and local laws and regulations thereunder (the approvals set
forth in this Section 5.8 being collectively referred to as "Licenses").
V.9 Mortgage Banking Compliance. (a) Except as set forth in Section
4.9(a) or 5.9(a) of the Disclosure Schedule, Seller is in compliance in all
material respects with (i) all applicable Regulations, orders, writs, decrees,
injunctions and other requirements of any court or governmental authorities
applicable to its conduct of the Acquired Business, and (ii) to the extent
applicable with respect to the conduct of the Acquired Business, all Mortgage
Loan Documents relating to each Mortgage Loan.
(b) All Custodial Accounts required to be maintained by Seller have
been established and continuously maintained in all material respects in
accordance with applicable Regulations. Except as to payments which are past due
under the Mortgage Loans, all Custodial Account balances required by the
Mortgage Loans and paid to Seller for the account of the Mortgagors under the
Mortgage Loans have been credited to the appropriate account and have been
retained in and disbursed from the appropriate account in accordance with the
applicable Regulations. Except as set forth in Section 5.9(b) of the Disclosure
Schedule, within the last 12 months prior to the applicable Transfer Date,
Seller has analyzed the payments required to be deposited into the Custodial
Accounts and adjusted the payment thereto in order to eliminate any deficiency
that Seller may have discovered, except with respect to Mortgage Loans
originated within the last 12 months prior to the applicable Transfer Date. With
regard to Mortgage Loans that provide for Mortgage Escrow Payments, Seller and,
to Seller's Knowledge, each Originator and Prior Servicer, in all material
respects, has (i) computed the amount of such payments in accordance with
applicable Regulations, (ii) paid on a timely basis all charges and other items
to be paid out of the Mortgage Escrow Payments, and when required by the
applicable Servicing Agreement has advanced its own funds to pay such charges
and items, and (iii) delivered to the related Mortgagors the statements and
notices required by applicable Regulations in connection with the Custodial
Accounts, including without limitation statements of taxes and other items paid
out of the Mortgage Escrow Payments and notices of adjustments to the amount to
the Mortgage Escrow Payments. Except as disclosed in Section 5.9(b) of the
Disclosure Schedule, Seller is not obligated under the Mortgage Loan Documents
(as opposed to under applicable law) to pay to, or have credited for the benefit
of, a Mortgagor interest with respect to funds in a Custodial Account.
<PAGE>
(c) Seller has not done or failed to do, or has caused to be done or
omitted to be done, any act required of Seller, the effect of which would
operate to invalidate or impair (i) any FHA insurance or commitment of the FHA
to insure, (ii) any VA Guarantee or commitment of the VA to guarantee, (iii) any
title insurance policy, (iv) any hazard insurance policy, (v) any flood
insurance policy, (vi) any fidelity bond, direct surety bond, or errors and
omissions insurance policy required by HUD, GNMA, FNMA, FHA, FHLMC, VA or
private mortgage insurer or (vii) an surety or guaranty agreement.
V.10 Inquiries. Section 4.8(ii) or 5.10 of the Disclosure Schedule
contains a true and correct list of each written audit, investigation report or
complaint in respect of Seller by any Agency, Investor or Insurer received by
Seller since January 1, 1995 which asserted a material failure to comply with
applicable Regulations affecting the Acquired Business or the Purchased Assets
or resulted in (a) a repurchase by Seller of ten or more Mortgage Loans and/or
REOs acquired as a result of a default under a Mortgage Loan from such Agency,
Investor or Insurer in any period equal to or less than one year, (b)
indemnification by Seller in connection with ten or more Mortgage Loans in any
period equal to or less than one year, or (c) rescission of an insurance or
guaranty contract or agreement applicable to ten or more Mortgage Loans. Except
as set forth in Section 4.8(ii) or 5.10 of the Disclosure Schedule and except
for customary ongoing quality control reviews, no such audit, investigation or
complaint is pending.
V.11 IRS Reports. Seller has filed or will file all IRS Forms,
including without limitation Forms 1041 Schedule K-1, 1041, 1099 INT, 1099 MISC,
1099A and 1098, as appropriate, which are required to be filed with respect to
the Servicing for activity that occurs on or before December 31, 1997, and
Seller shall file all IRS Forms with respect to the Servicing that must be filed
on or before the Closing Date.
ARTICLE VI
GENERAL REPRESENTATIONS AND WARRANTIES OF PURCHASER
As an inducement to Seller to enter into this Agreement and to
consummate the transactions contemplated hereby, Purchaser represents and
warrants as follows, it being acknowledged by Purchaser that each such
representation and warranty relates to material matters upon which Seller relied
and, solely for purposes of Article XIII, shall survive the Closing and
applicable Transfer Date, and it being understood that, unless otherwise
expressly provided herein, each such representation and warranty is made to
Seller as of the Effective Date and (subject to Section 9.3(a)) the Closing
Date, and the Purchaser Transfer Date Representations and Warranties are made to
Seller on each applicable Transfer Date:
VI.1 Organization. Purchaser is a corporation duly organized and
validly existing under the laws of the State of Florida.
<PAGE>
VI.2 Authority. Purchaser has full power and authority (corporate and
other) to execute and deliver this Agreement and any documents, agreements and
instruments to be executed and delivered by it pursuant to or in connection with
this Agreement and to perform its obligations and consummate the transactions
contemplated hereunder and thereunder. The execution and delivery by Purchaser
of this Agreement and any documents, agreements and instruments to be executed
and delivered by it pursuant to or in connection with this Agreement, and the
consummation of the transactions and the performance of the obligations
contemplated hereby and thereby, have been duly and validly authorized by all
necessary corporate action on the part of Purchaser, and no other corporate
proceedings on the part of Purchaser are necessary to consummate the
transactions contemplated hereby and thereby. This Agreement has been duly and
validly executed and delivered by Purchaser and constitutes a valid and legally
binding agreement of Purchaser enforceable against Purchaser in accordance with
its terms, and the other documents, agreements and instruments to be delivered
by Purchaser pursuant to this Agreement will, when executed and delivered, be
duly and validly executed by Purchaser and constitute valid and legally binding
obligations of Purchaser enforceable against Purchaser in accordance with their
terms, except as affected by any bankruptcy, insolvency, fraudulent conveyance,
reorganization and other similar laws relating to or affecting creditors' rights
generally and general equitable principles (whether considered in a proceeding
in equity or at law).
VI.3 Non-Contravention. The execution and delivery of this Agreement by
Purchaser does not, and the consummation by Purchaser of the transactions
contemplated hereby and the performance by Purchaser of the obligations which it
is obligated to perform hereunder will not, (i) violate any provision of the
constituent documents of Purchaser or (ii) assuming that all Regulatory
Authorizations and all Third Party Consents have been obtained or made, (A)
violate in any respect any law, regulation, rule, order, judgment or decree to
which Purchaser is subject or (B) violate in any respect, result in the
termination or the acceleration of, or conflict with in any respect or
constitute a default under, any Contract to which Purchaser is a party or by
which any of its property is bound.
VI.4 Consents. Except for (i) such Regulatory Authorizations and Third
Party Consents as shall be sought prior to the Closing Date and (ii) such other
Regulatory Authorizations and Third Party Consents the absence of which would
not enable any person to enjoin the transactions contemplated by this Agreement,
no Regulatory Authorization or Third Party Consent is required for the execution
and delivery of this Agreement, the Preferred Partner Agreements and any
document, agreement or instrument required to be executed by Purchaser pursuant
to or in connection with this Agreement or the Preferred Partner Agreements and
the consummation by Purchaser of the transactions contemplated hereby and
thereby.
VI.5 Brokers. Other than Cohane Rafterty Securities, Inc., whose fee
will be paid by Purchaser, no broker, investment banker, financial advisor or
other Person is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplate by
this Agreement based upon arrangements made by or on behalf of Purchaser or any
of its Affiliates.
<PAGE>
VI.6 No Regulatory Impediment. As of the Effective Date, Purchaser is
not aware of any fact relating to its business, operations, financial condition
or legal status that could reasonably be expected to impair its ability to
obtain, on a timely basis, all Regulatory Authorizations necessary for the
consummation of the transactions contemplated hereby.
VI.7 Statements Made. No representation, warranty or written statement
made by Purchaser in this Agreement or in any written statement or certificate
furnished by Purchaser to Seller pursuant to Article IX contains or will contain
any misstatement of a material fact or omits or will omit to state a material
fact necessary in order to make the representations, warranties and statements
contained herein and therein not misleading in light of the circumstances in
which they are made.
ARTICLE VII
COVENANTS
VII.1 Conduct of Business. During the period from the Effective Date to
the Closing Date Seller, jointly and severally, agrees that:
(a) Except to the extent that Purchaser provides prior written consent
to do otherwise, or except as expressly permitted or required by this Agreement,
Seller shall (i) maintain its corporate existence in good standing, (ii)
maintain the general character of the Acquired Business and conduct the Acquired
Business in a commercially reasonable manner consistent with past practice, as
modified by the Transitional Agreement, (iii) maintain proper business and
accounting records relative to the Acquired Business, (iv) use commercially
reasonable efforts to preserve relationships with customers, suppliers,
Investors and Insurers of the Acquired Business, (v) maintain at least its
standard retention practices and arrangements for employees of the Acquired
Business consistent with past practice, (vi) maintain the Purchased Assets in
good condition and repair, ordinary wear and tear excepted, (vii) maintain
presently existing insurance coverages with respect to the Purchased Assets and
the Acquired Business, and (viii) use commercially reasonable efforts to
preserve the Acquired Business;
(b) No material change shall be made by Seller in accounting methods,
principles or practices relating to the Acquired Business (i) unless required by
law or by changes in GAAP, (ii) unless Purchaser provides prior written consent
to the change, or (iii) except as expressly permitted or required by this
Agreement.
<PAGE>
(c) Seller shall not, without the prior written consent of Purchaser,
or except as expressly permitted or required by this Agreement, (i) enter into
any material contract, transaction or commitment relating to the Acquired
Business, including without limitation any contract, transaction or commitment
(other than related to this Agreement) regarding the sale of any Servicing; (ii)
increase or agree to increase the salary, remuneration or compensation of any
employee listed in Section 4.16(c) of the Disclosure Schedule (except for (A)
any increase(s) with respect to any such employee to whom Purchaser has
indicated that it will not offer employment, (B) annual merit increases on
relevant employment anniversary dates for non-exempt employees, provided such
increases do not exceed 6% on average and are consistent with past practices,
and (C) increases resulting solely from promotions or reassignment of duties);
(iii) enter into, amend or revise any employment compensation, bonus, severance,
retirement or other similar agreement; (iv) directly or indirectly solicit an
employee listed in Section 4.16(c) of the Disclosure Schedule (other than any
such employee whom Purchaser has indicated that it will not offer employment) to
transfer employment to any Affiliate of Seller; (v) renegotiate or change the
terms of any Leases other than in the ordinary course of business consistent
with past practice; (vi) settle any lawsuits or government enforcement actions
related to the Acquired Business or Purchased Assets, other than the lawsuit(s)
listed in Schedule 7.1(c)(v) of the Disclosure Schedule; (vii) sell, transfer,
assign or otherwise dispose of or encumber any of the Purchased Assets in one
transaction or a series of related transactions having a value in excess of
$100,000; (viii) cancel any debt or waive or compromise any claim or right
relating to the Acquired Business in one transaction or a series of related
transactions having a value in excess of $100,000; (ix) make any capital
expenditure or commitment in excess of $100,000 relating to the Acquired
Business; (x) except with respect to endorsements of negotiable instruments in
the ordinary course of its business or with respect to its mortgage banking
business in accordance with past practice, incur, assume or guarantee any
indebtedness for borrowed money which will constitute an Assumed Liability as of
the Closing Date; or (xi) agree to do any of the foregoing.
(d) Except (i) in response to competitive conditions in order to
preserve the value of its franchise, (ii) as required by applicable law or
Investor or Insurer requirements, (iii) with the prior consent of Purchaser or
(iv) as expressly permitted or required by this Agreement, Seller shall not
materially alter or vary its methods or policies of underwriting, pricing,
originating, warehousing, selling or servicing, or buying or selling rights to
service, Mortgage Loans.
(e) Without the prior written consent of Purchaser or except as
expressly permitted or required by this Agreement, Seller shall not terminate
any Servicing Agreement.
(f) Without the prior written consent of Purchaser or except as
expressly permitted or required by this Agreement, Seller shall not enter into
any Servicing Agreement which provides for Recourse against Seller or the
servicer or add any Servicing which provides for such Recourse under any
existing Servicing Agreement.
(g) Seller shall perform all of its obligations under the Preferred
Partner Agreements and any Transitional Agreements.
<PAGE>
Notwithstanding the preceding provisions of this Section 7.1, during the period
from the Effective Date to the Closing Date, as contemplated in the Operating
Agreement, Seller may sell or transfer, or enter into one or more agreements to
sell or transfer, any asset of Seller, except for the Purchased Assets. During
the period from the Effective Date to the Closing Date the officers of Seller
shall confer on a regular basis with Purchaser as to the Acquired Business, and
report periodically on the general status of the ongoing operations thereof.
VII.2 No Solicitation. Seller agrees that, during the period from the
Effective Time to September 30, 1998, neither it nor any of its Affiliates nor
any of their respective officers and directors shall, and Seller shall direct
and use its reasonable best efforts to cause its employees, agents and
representatives (including without limitation any investment banker, attorney or
accountant retained by it or any of its subsidiaries) not to, initiate, solicit
or encourage, directly or indirectly, any inquiries or the making of any
proposal or offer (including without limitation any proposal or offer to
shareholders of Seller) with respect to any direct or indirect purchase of all
or any significant portion of the Acquired Business or the Purchased Assets (any
such proposal or offer being hereinafter referred to as an "Acquisition
Proposal") or engage in any negotiations concerning, or provide any confidential
information or data to, or have any discussions with, any person relating to an
Acquisition Proposal, or otherwise knowingly facilitate any effort to implement
an Acquisition Proposal. Seller will immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any parties
conducted heretofore with respect to any of the foregoing and enforce any
confidentiality agreements to which it or any of its subsidiaries is a party.
Seller will take the necessary steps to inform the appropriate individuals or
entities referred to in the first sentence hereof of the obligations undertaken
in this Section 7.2. Seller will notify (describing the relevant facts)
Purchaser immediately if any such inquiries or proposals are received by, any
such information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with, Seller and will continue to inform
Purchaser of the status of such inquiries, proposals, requests, negotiations and
discussions.
<PAGE>
VII.3 Access; Confidentiality. (a) Seller agrees to permit Purchaser
and its accountants, counsel and other authorized representatives to have,
during the period from the Effective Date to the Closing Date, reasonable access
to the premises, books and records relating to the Acquired Business during
normal business hours. Seller agrees to make available to Purchaser upon
reasonable advance notice and during normal business hours, the employees of
Seller involved in the conduct of the Acquired Business, as Purchaser may
reasonably request, provided that such availability shall not interfere with the
normal operations of Seller. Seller shall furnish Purchaser with such financial
and operational data and other information relating to the Acquired Business as
Purchaser shall from time to time reasonably request, including without
limitation information regarding increases in the compensation of Persons
employed in the Acquired Business that are, or were, implemented in 1998, and
other information regarding the compensation of such Persons (other than
information regarding any transaction award related to the sale of Seller or any
of its Affiliates). Except as otherwise agreed to by Seller, any information
heretofore or hereafter obtained from Seller by Purchaser or its representatives
shall be subject to the terms of the Confidentiality Agreement, and such
information shall be held by Purchaser and its representatives in accordance
with the terms of the Confidentiality Agreement; provided that after the Closing
Date the Confidentiality Agreement shall not apply to any such information
relating solely to the Acquired Business.
(b) Purchaser agrees that following the Closing Date, Seller and its
attorneys, accountants, officers and other representatives shall have reasonable
access, during normal business hours, to the books and records of the Acquired
Business to the extent they relate to a period prior to the Closing Date (and
shall permit such Persons to examine and copy such books and records to the
extent requested by such party), and shall cause the officers and employees of
the Acquired Business to furnish (to Seller or any of its Affiliates, or any
regulator of Seller or any of its Affiliates) all information reasonably
requested by, and otherwise cooperate with (including without limitation,
allowing employees who wish to assist Seller or any of its Affiliates to make
themselves available for trial, depositions and other litigation endeavors;
provided that such assistance does not adversely affect the employee's present
job responsibilities) Seller with respect to the Acquired Business or Purchased
Assets, in connection with regulatory compliance, indemnification claim
verification, pending or threatened litigation, financial reporting and tax
matters (including financial and tax audits and tax contests) and other similar
business purposes. Purchaser shall not destroy or dispose of or permit the
destruction or disposition of any such books and records without the prior
written consent of Seller.
VII.4 Taking of Necessary Action. (a) Each of the parties hereto agrees
to use commercially reasonable effort to take or cause to be taken all action
and promptly to do or cause to be done all things necessary, proper or advisable
to consummate and make effective the transactions contemplated by this
Agreement. Without limiting the foregoing or any other provision of this
Agreement, to the extent that any of the Purchased Assets are owned or leased by
an Affiliate of Seller, Seller shall cause its Affiliates to take all
commercially reasonable action and promptly do or cause to be done all
commercially reasonable things necessary, proper or advisable to transfer the
asset or leasehold interest to Purchaser upon the terms and subject to the
conditions of this Agreement.
(b) Purchaser shall (i) as soon as practicable after the Effective
Date, make such filings with respect to Regulatory Authorizations, Licenses and
Permits as may be required or advisable to be filed by it in connection with the
transactions contemplated hereby and (ii) use its commercially reasonable
efforts to consult with and keep Seller informed as to the status of such
matters.
<PAGE>
(c) Seller shall cooperate with Purchaser in the preparation of all
filings with respect to Regulatory Authorizations, Licenses and Permits
(including requests for additional information from Governmental Authorities)
made by Purchaser in connection with the transactions contemplated by this
Agreement, including providing such information as Purchaser may reasonably
request for inclusion therein.
(d) To the extent that any necessary consents are not obtained with
regard to the assignment of any of the Purchased Assets to Purchaser, at
Purchaser's request, Seller agrees to use commercially reasonable efforts (i) to
provide to Purchaser the benefits of any contract or other agreement or any
license, permit or approval intended to be included in the Purchased Assets,
(ii) to cooperate in any reasonable and lawful arrangement designed to provide
such benefits to Purchaser (through subcontract or other arrangement or by
following procedures for resignation and reappointment of a substitute party
thereto), or (iii) to enforce for the account and at the expense of Purchaser
any rights of Seller arising from any contracts and other agreements and the
licenses, permits and approvals intended to be included among the Purchased
Assets, including the right to elect to terminate or not renew in accordance
with the terms thereof on the advice of Purchaser.
VII.5 Name and Marks. As of the Closing Date, Seller will cease the use
of the designation "Banc One Mortgage Corporation" or "Banc One" in connection
with Purchaser's operation of the Acquired Business and will eliminate the use
of any other designation or symbol indicating affiliation within 90 days after
the Closing Date with Seller or any Affiliate of Seller. Insofar as promotional
materials are concerned, placement on the covers thereof of a prominent legend
negating affiliation with Seller or any Affiliate Seller shall be deemed in
compliance with the requirements of this Section with respect to materials on
hand as of the Closing Date which are used or distributed by Purchaser for a
period of no more than three months following the Closing Date. In connection
with the acquisition of the Intellectual Property of Seller by Purchaser on the
Closing Date, following the Closing Seller shall cease using such Intellectual
Property (except as otherwise may be permitted pursuant to the Transitional
Agreement), and Seller and Purchaser shall execute an assignment in the form of
Exhibit B hereto (the "Intellectual Property Assignment") regarding the transfer
of such Intellectual Property to Purchasers. Notwithstanding the foregoing,
Purchaser may cause Seller to use Seller's name during the Interim Period to
facilitate the performance of Seller's obligations under Section 3.2 hereof.
VII.6 Non-Competition and Related Matters. (a) Seller shall comply with
the restrictive covenants set forth in the Operating Agreement notwithstanding
any termination of such agreement, which restrictive covenants are incorporated
herein by reference.
<PAGE>
(b) Neither Seller nor any of its Affiliates will, on its own behalf or
in conjunction with or on behalf of any other Person, (i) between the Effective
Date and Closing Date, directly or indirectly solicit for employment or hire any
Seller employee before the delivery of the Prospective Employees List by
Purchaser to Seller or, after the delivery of the Prospective Employees List,
directly or indirectly solicit for employment or hire any Prospective Employee,
or (ii) for a period of two (2) years after the Effective Date, directly or
indirectly solicit for employment any Prospective Employee who becomes an
employee of the Purchaser in connection with the transactions contemplated
hereby while such employee remains employed by Purchaser or any of its
Affiliates; provided, however, that the foregoing shall in no way limit Seller
or any of its Affiliates with respect to the advertisement to the general public
of employment opportunities not targeted to such employees.
(c) Neither Seller nor any of its Affiliates shall at any time after
the Closing Date make use of, disclose or divulge to any Person any information
of a proprietary, secret or confidential nature relating to the Acquired
Business, except such information may be disclosed (i) where necessary, to any
Person in connection with the obtaining of the consents contemplated or required
by the terms of this Agreement, (ii) if required by court order, decree or any
applicable law (provided the Person with respect to which confidential
information is being disclosed has been given sufficient notice thereof so as to
be in a position to seek an appropriate protective order), (iii) during the
course of or in connection with any litigation or claims with respect to
obligations or liabilities relating to the Acquired Business as conducted prior
to Closing, including any governmental investigation, arbitration or other
proceeding in connection therewith, (iv) if required in connection with any
regulatory, governmental or related investigation, inquiry or proceeding or any
regulatory compliance requirements imposed upon Seller or any of its Affiliates
or (v) to credit rating agencies.
VII.7 Disclosure. Except as contemplated by the terms of this Agreement
or as may otherwise be required by law, neither Seller nor Purchaser, nor any of
their respective Affiliates, will disclose to any Person not a party hereto
(other than Affiliates, who shall be bound by this provision) the terms of this
Agreement. Seller and Purchaser agree to consult with each other prior to
issuing any press release relating to the transactions contemplated by this
Agreement.
VII.8 Final Certification and Recertification. (a) Seller shall use
commercially reasonable efforts to obtain the final certification or
recertification, as applicable, of any Mortgage Pool related to the Servicing
Portfolio with respect to which the deadline for final document certification or
document recertification is a date that occurs on or before the Closing Date.
Seller shall provide and pay the cost of any letter of credit required by GNMA
attributable to the final certification or recertification of the Servicing.
(b) Purchaser shall obtain such documents and shall take or cause to be
taken such steps as are necessary to enable it, through the exercise of
commercially reasonable efforts after the Closing Date, to obtain by the
appropriate deadline the final certification or recertification, as applicable,
of any Mortgage Pool related to the Servicing Portfolio with respect to which
the deadline for final certification or recertification is after the Closing
Date, including the recertification of Mortgage Pools in connection with the
transfer of Servicing to Purchaser hereunder.
<PAGE>
VII.9 Further Assurances. Each party hereto shall cooperate with the
others, and execute and deliver, or use commercially reasonable efforts to cause
to be executed and delivered, all such other instruments, including instruments
of conveyance, assignment and transfer, and to make all filings with and to
obtain all Regulatory Authorizations and Third Party Consents, and take all such
other actions as such party may reasonably be requested to take by the other
parties hereto from time to time, consistent with the terms of this Agreement,
in order to effectuate the provisions and purposes of this Agreement and the
transactions contemplated hereby. Following the Closing Date, Seller agrees to
take such additional actions as may be necessary to fully vest in Purchaser the
full use and enjoyment of the Purchased Assets, including execution of any
additional documents evidencing transfer of title and obtaining any requisite
consent from any Affiliate of Seller to the assignment to Purchaser of any
agreement required to be listed on Section 2.1(a)(1) and 4.15 of the Disclosure
Schedule. Each party agrees that if it receives any payment or amount after the
Closing Date to which another party is entitled, the recipient shall promptly
transfer such payment or amount to the party so entitled.
VII.10 Missing Mortgage Loan Documents. Seller agrees, at its own
expense, to use commercially reasonable efforts before and after the Closing
Date to obtain any Mortgage Loan Documents that are missing and must be obtained
pursuant to applicable Regulations.
VII.11 Releases. After the Closing, Purchaser shall complete the
process of preparing, recording and providing to borrowers Lien releases with
respect to Mortgage Loans serviced or subserviced by Seller prior to and
paid-off as of the Closing Date. At Seller's option, Purchaser shall either
provide such releases to Seller for execution or execute the same pursuant to a
power-of-attorney provided by Seller or, with respect to subserviced loans, the
servicer to Purchaser. To the extent the process of completing the release
process has been contracted to third parties and the contracts with those third
parties have been assigned to and assumed by Purchaser pursuant to this
Agreement, Purchaser shall monitor the activities of such third parties in this
regard. Purchaser shall in any event use its best efforts to ensure that the
release process is properly completed in a timely manner. In the event there
remain funds held in escrow with respect to any such Mortgage Loan, Purchaser
shall ensure that Seller has been reimbursed for advances made by it in
connection with such Loan to the extent of such remaining escrow funds and, if
there remain funds held in escrow after Seller is fully reimbursed for related
advances, Purchaser shall return such funds to the borrower.
VII.12 Non-Solicitation of Mortgagors. The restrictions on Seller's
right to solicit the Mortgagors in the Servicing Portfolio are set forth in the
Marketing Agreement.
VII.13 Certain Liens. With respect to the Liens identified in Section
4.5(a) of the Disclosure Schedule, on or before the Closing Date Seller shall
take such actions as are necessary to cause the relate Purchased Assets to be
free and clear of such Liens.
<PAGE>
VII.14 Transitional Agreement. Prior to the Closing Date, Seller and
Purchaser each agree to negotiate in good faith the terms of, and to enter into,
the Transitional Agreement substantially in the form attached hereto as Exhibit
F, with such modifications as may be mutually agreeable to Seller and Purchaser.
ARTICLE VIII
EMPLOYEE MATTERS
VIII.1 Certain Employee Matters. (a) Purchaser has delivered to Seller
a list (the "Prospective Employee List") containing the names of all persons who
are actively employed by Seller in connection with the Acquired Business to whom
Purchaser intends to offer employment (each a "Prospective Employee" and,
collectively, the "Prospective Employees"). Seller shall use commercially
reasonable efforts to assist Purchaser in obtaining the employment of the
Prospective Employees.
(b) Effective on such date as mutually agreed between Purchaser and
Seller , each Prospective Employee who accepts an offer of employment by
Purchaser and thereafter commences such employment shall become an employee of
Purchaser.
(c) Seller shall, from January 1, 1998 to the Closing Date, accrue
bonuses and commissions of Seller's employees consistent with past practices.
(d) Seller shall be solely responsible for and shall pay and fund in
full to all of its employees and contractors all compensation, incentive
payments, bonuses, retirement annuities, deferred compensation, profit sharing
benefits, stock incentives and any accrued sick pay, vacation pay and severance
pay accrued through to and including the Closing Date for which Seller is
obligated under any Contract or Employee Benefit Plan, or under any personnel or
employee manual or policy or under any law or regulation, and Seller shall
satisfy all other obligations to such employees accrued through to and including
the Closing Date, including without limitation all required withholding tax
liabilities and tax deposits. Except as expressly provided herein, no such
responsibility or obligation shall constitute an Assumed Purchaser Liability in
any way whatsoever. Seller agrees not to accelerate or change the terms of any
employee loan as a result of the change of employer for so long as such
employees are employed by Purchaser. Seller shall be solely responsible for
satisfying any obligations resulting from the consummation of the transactions
contemplated by this Agreement under Section 4980B(f) of the Code with respect
to continuation of group medical coverage with respect to its respective
employees.
<PAGE>
(e) Except as may otherwise be provided in the Transitional Agreement,
Purchaser is not assuming, nor shall it have any responsibility whatsoever for
the continuation of, or any liabilities under or in connection with, any
Employee Benefit Plan or any employment contract, collective bargaining
agreement, severance or retirement arrangement. Purchaser is not, and shall not
be deemed to be, a successor employer to Seller with respect to any Employee
Benefit Plan; and no plan adopted or maintained by Purchaser after the Closing
is or shall be deemed to be a "successor plan," as such term is defined in
Section 4021(a) of ERISA, of any Employee Benefit Plan. No assets held under any
Employee Benefit Plan shall be transferred to Purchaser or to any plan adopted
or maintained by Purchaser. Except as specifically set forth herein, Purchaser
shall not be obligated to assume or continue any term or condition of employment
currently or previously promised or maintained by Seller with regard to its
current, former or retired employees or contractors, and shall not be
responsible for any debt, payment, obligation, claim, liability or agreement
which relates to or arises from Seller's employment (or termination of
employment) of, or contract (or termination of contract) with its current,
former or retired employees, regardless of whether such employees are offered
employment by Purchaser.
(f) Neither Purchaser nor Seller intend this Agreement to create any
rights or interests, except as between Purchaser and Seller, and no present,
former or future employee or contractor of Purchaser or Seller shall be treated
as a third party beneficiary in or under this Agreement
ARTICLE IX
CONDITIONS TO THE CLOSING
IX.1 Conditions of Obligation of Each Party. The respective obligations
of Purchaser and Seller hereunder are subject to the satisfaction, at or prior
to the Closing Date and each applicable Transfer Date, of the following
conditions:
(a) No Injunction. There shall be no (i) injunction, restraining order
or decree of any nature of any court or Governmental Authority of competent
jurisdiction in effect that restrains or prohibits the purchase of the Acquired
Business or the Purchased Assets or the assumption of the Assumed Liabilities,
or (ii) pending action, suit or proceeding brought by any Governmental Authority
which seeks to restrain or prohibit the purchase of the Acquired Business or the
Purchased Assets or the assumption of the Assumed Liabilities.
IX.2 Additional Conditions to the Obligations of Purchaser. The
obligation of Purchaser to consummate the transactions contemplated by this
Agreement is subject to the satisfaction at or prior to the Closing Date and
each applicable Transfer Date, of each of the following additional conditions:
(a) Representations and Warranties. The representations and warranties
of Seller contained in Articles IV and V of this Agreement of this Agreement
shall be true and correct in all material respects as of the Closing Date as
though made at and as of the Closing Date, except to the extent that any
representation and warranty is made as of a specific date prior to the Closing
Date, in which case such representation an warranty shall be true and correct in
all material respects as of such date.
<PAGE>
(b) Performance of Covenants. Seller shall have performed in all
material respects all obligations and agreements, and complied in all material
respects with all covenants and conditions, contained in this Agreement to be
performed or complied with by it prior to or at the Closing Date or the
applicable Transfer Date.
(c) Regulatory Authorizations. Each Regulatory Authorization, License,
Permit or Third Party Consent (i) listed in Section 4.4(a), 4.4(b), 4.9(a) or
5.8 of the Disclosure Schedule or (ii) that, in the opinion of counsel for
Purchaser, are necessary or appropriate for the consummation of the transactions
contemplated by this Agreement, shall have been obtained without the imposition
of any condition that would have a Material Adverse Effect or be unreasonably
burdensome to the business or condition (financial or otherwise) of Purchaser or
any of its Affiliates, and any applicable waiting period in respect thereof
shall have expired or been terminated as of the Closing Date or the applicable
Transfer Date, as applicable.
(d) Legal Requirements. All other requirements prescribed by law which
are necessary to the consummation of the transactions contemplated by this
Agreement shall have been satisfied. No statute, rule, regulation, order,
injunction or decree shall have been enacted, entered, promulgated, interpreted,
applied or enforced by any governmental authority which prohibits, restricts or
makes illegal consummation of the transactions contemplated by this Agreement or
that would be unreasonably burdensome to the business or condition (financial or
otherwise) of Purchaser.
(e) Certificates. Purchaser shall have received separate certificates
of Seller dated the Closing Date and each applicable Transfer Date, executed on
behalf of Seller, respectively, substantially in the form attached hereto as
Exhibit D.
(f) Seller Assignments. Seller shall have executed and delivered to
Purchaser an assignment (including the Intellectual Property Assignment attached
hereto as Exhibit B) or other appropriate transfer document with respect to the
Purchased Assets and all required consents to such assignment or other transfer
shall have been obtained. The assignments and other transfer documents shall be
in a form reasonably acceptable to Purchaser.
(g) Material Adverse Effect. No acts or circumstances constituting a
Material Adverse Effect shall have occurred from the Effective Date through and
including the Closing Date.
(h) Opinions. Purchaser shall have received a legal opinion from
counsel to Seller dated the Closing Date, addressed to Purchaser, substantially
in the form attached hereto as Exhibit A.
<PAGE>
(i) Transitional Agreement. Purchaser and Seller shall have entered
into the Transitional Agreement substantially in the form attached hereto as
Exhibit F, with such modifications as may be mutually agreeable to Seller and
Purchaser.
(j) Leased Premises. Purchaser shall have received an unconditional
assignment of the Lease without any amendment or increase in costs or expenses
thereunder and without the imposition on Purchaser of any new burdensome terms
or conditions (other than as contemplated in the Lease as of the date hereof).
IX.3 Additional Conditions to the Obligations of Seller. The obligation
of Seller to consummate the transaction contemplated by this Agreement is
subject to the satisfaction at or prior to the Closing Date and each applicable
Transfer Date, as applicable, of each of the following additional conditions:
(a) Representations and Warranties. The representations and warranties
of Purchaser contained in Article VI of this Agreement shall be true and correct
in all material respects as of the Closing Date as though made at and as of the
Closing Date, and the Purchaser Transfer Date Representations and Warranties
shall be true and correct in all material respects as of the applicable Transfer
Date as though made at and as of such date.
(b) Performance of Covenants. Purchaser shall have performed in all
material respects all obligations and agreements, and complied in all material
respect with all covenants and conditions, contained in this Agreement to be
performed or complied with by it prior to or at the Closing Date or the
applicable Transfer Date.
(c) Certificate. Seller shall have received a certificate of Purchaser,
dated as of the Closing Date, executed on behalf of Purchaser, substantially in
the form attached hereto as Exhibit E.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
X.1 Termination. This Agreement may be terminated and the transactions
contemplated hereby abandoned at any time prior to the Closing Date:
(a) by mutual written consent of Seller and Purchaser;
<PAGE>
(b) by Seller on the one hand, or Purchaser, on the other hand, upon
written notice given to the other in the event of a material breach or material
default in the performance by such other party of any representation, warranty,
covenant or agreement contained in this Agreement which has not been, or cannot
be, cured within 30 days after written notice thereof, describing such breach or
default in reasonable detail, is given by the terminating party to the breaching
or defaulting party;
(c) by Seller or Purchaser, upon written notice to the other in the
event that a Governmental Authority (including any court of competent
jurisdiction) the consent of which is necessary for the consummation of the
transactions contemplated hereby shall have issued an order, decree or ruling or
taken any other official action enjoining or otherwise prohibiting the
transactions contemplated by this Agreement or denying approval of any
application or notice for approval to consummate such transactions, and such
order, decree, ruling or other action shall have become final and
non-appealable; or
(d) by Seller, on the one hand, or Purchaser, on the other hand, upon
written notice given to the other in the event that the Closing shall not have
taken place on or before September 30, 1998, provided that the failure of the
Closing to occur on or before such date is not the result of a breach of any
covenant, agreement, representation or warranty hereunder by the party seeking
such termination.
X.2 Effect of Termination. In the event of the termination of this
Agreement as provided above, this Agreement (other than this Section 10.2) shall
become void and of no further force and effect and, other than in the event of a
termination pursuant to Section 10.1(b) as a result of a willful breach or
default by the non-terminating party, there shall be no duties, liabilities or
obligations of any kind or nature whatsoever on the part of any party hereto to
the other parties based either upon this Agreement or the transactions
contemplated hereby, except that the obligations of the parties referred to in
Section 12.5 shall continue to apply following any such termination of this
Agreement. In the event of the termination of this Agreement pursuant to Section
10.1(b) as a result of a willful breach or default by the non-terminating party,
the terminating party shall be indemnified by the non-terminating party and
shall have the right to sue the non-terminating party for any and all Damages
sustained or incurred as a result of such termination.
ARTICLE XI
TAX MATTERS
XI.1 Returns. Except as may be otherwise provided in Section 3.12,
Seller shall have the exclusive obligation and authority to file or cause to be
filed all Tax Returns that are required to be filed by or with respect to Seller
and the Purchased Assets for all taxable years or other taxable periods, or
portions thereof, ending on or prior to the Closing Date.
<PAGE>
XI.2 Contests. Seller and its duly appointed representatives shall have
the exclusive authority to control any audit or examination by any taxing
authority, initiate any claim for refund, amend any Tax Return and contest,
resolve and defend against any assessment for additional Taxes, notice of Tax
deficiency or other adjustment of Taxes of or relating to any liability of the
Purchased Assets for Taxes reflected on any Tax Returns described in Section
11.1; provided that Seller shall notify Purchaser of any action taken by it
under this Section 11.2. Seller shall be entitled to any Tax refund relating to
the Purchased Assets to the extent such Tax refund relates to any taxable year
or other taxable period or portion thereof ending on or prior to the Closing
Date.
XI.3 Payment of Taxes. (a) Seller agrees to indemnify and hold harmless
Purchaser against all Taxes of or with respect to the Purchased Assets for all
taxable years or other taxable periods ending on or prior to the Closing Date
and, with respect to any taxable year or other taxable period that begins before
and ends after the Closing Date, the portion of such taxable year or other
taxable period ended on the Closing Date ("Pre-Closing Periods").
(b) Purchaser agrees to indemnify and hold harmless Seller against all
Taxes of or with respect to the Purchased Assets for all taxable years or other
taxable periods beginning after the Closing Date and, with respect to any
taxable year or other taxable period that begins before and ends after the
Closing Date, the portion of such taxable year or other taxable period beginning
after the Closing Date ("Post-Closing Periods").
XI.4 Notices. Purchaser shall promptly forward to Seller all written
notifications and other communications from any taxing authority received by
Purchaser relating to any Tax audit or other proceeding relating to the Tax
liability of or with respect to the Purchased Assets which, if successful, would
result in a payment by Seller under Section 11.3. The failure of Purchaser to
give Seller such written notice shall excuse Seller from its obligations under
Section 11.3 with respect to any increased Tax liability directly or indirectly
attributable to any such written notification or other communication but only to
the extent that such failure on the part of Purchaser (a) results in a Tax
liability greater than the Tax liability owing by Seller had such failure not
occurred or (b) otherwise adversely affects the ability of Seller to defend the
action. In addition, Purchaser shall promptly forward to Seller all written
notifications and other communications from any taxing authority received by
Purchaser or any of its respective Affiliates relating to any tax audit or other
proceeding relating to the tax liability of Seller.
<PAGE>
XI.5 Cooperation. Purchaser shall provide Seller and its designees with
such assistance as may reasonably be requested by Seller or any such designee in
connection with the preparation of any Tax Return, audit or judicial or
administrative proceeding or determination relating to liability for Taxes of or
with respect to the Purchased Assets, including without limitation access to the
books and records (as they relate to the Purchased Assets), and the assistance
of the officers and employees of Purchaser and its respective Affiliates.
Purchaser and Seller acknowledge that any and all information obtained in
connection with the preparation of any Tax Return, audit or judicial or
administrative proceeding or determination pursuant to this Section 11.5 is of a
confidential nature and that all such information shall be used only for the
purposes set forth in the immediately preceding sentence.
XI.6 Transfer Taxes. All stamp, transfer, excise, documentary, sales,
use, registration and other such taxes and fees (including any penalties and
interest) incurred in connection with this Agreement and the transactions
contemplated hereby (collectively, the "Transfer Taxes") shall be paid by
Seller, and Seller shall, at its own expense, properly file on a timely basis
all necessary tax returns and other documentation with respect to, any Transfer
Tax and provide to Purchaser evidence of filing and payment of all Transfer
Taxes.
XI.7 Information Returns. Notwithstanding anything to the contrary in
this Agreement, Seller shall indemnify Purchaser for the amount of any Tax paid
by Purchaser with respect to information returns filed by Purchaser within 24
months after the Closing Date where such Tax arises out of actions taken by
Purchaser or out of the failure by Purchaser to take an action due to reliance
upon the representations and warranties in Section 4.11 with respect to
information returns or because Seller, prior to the Closing Date, did not
receive a properly completed Form W-8, W-9 or similar form from a customer which
it had been required to obtain (absent complying with any applicable back-up
withholding requirements) or because Seller was not properly withholding on
payments to the customer.
ARTICLE XII
INDEMNIFICATION BY SELLER
XII.1 Indemnification. In addition to and not in limitation of the
indemnities provided in Article XI (which Article sets forth the exclusive
remedy of Purchaser and Seller in respect of the matters covered thereby), the
repurchase obligations of Seller set forth in Section 12.3 below and other
remedies that may be available at law or in equity, from and after the Closing
Date, subject to the other provisions of this Article XII, Seller, jointly and
severally, agrees to indemnify Purchaser and its Affiliates and each of their
respective current, former and future officers, directors, agents and employees
(collectively, the "Indemnified Purchaser Entities") and to hold each of them
harmless from and against, and agrees to assume liability for, any and all
Damages suffered, paid or incurred by any Indemnified Purchaser Entity resulting
from:
(a) any breach of any of the representations and warranties
made by either Seller to Purchaser in this Agreement;
(b) any breach by either Seller of any covenant, obligation or
agreement of either Seller contained in this Agreement;
<PAGE>
(c) any obligation, debt, commitment or liability of either Seller that
is not an Assumed Liability;
(d) No Bids in excess of $100,000 in the aggregate, including without
limitation those resulting in Buydowns where, within two (2) years after the
Closing Date, the VA elects a No Bid and notifies Purchaser of such election, or
Purchaser effects a Buydown; provided that Purchaser, when commercially
reasonable, has mitigated its relevant damage by utilization of a Buydown;
(e) damages on Delinquent Loans; provided, however, that the amount of
damages indemnifiable under this Section 12.1(e) shall not exceed $2,000 for
each Delinquent Loan that is insured by FHA or guaranteed by VA (plus the No Bid
protection specified in Section 12.1(d) above) or $500 for each other Delinquent
Loan and provided further that this Section 12.1(e) shall not affect in any way
Purchaser's right to indemnification under any other provision of this Section
12.1;
(f) damages attributable to any Recourse feature of the Servicing
Portfolio that was not listed in Section 5.6 of the Disclosure Schedule; and
(g) damages on any Mortgage Loan listed in Section 5.10, and any costs
or expenses incurred in servicing such Mortgage Loans which, in Seller's good
faith determination, exceed costs and expenses customarily incurred in servicing
Mortgage Loans; provided that this Section 12.1(g) shall not affect in any way
Purchaser's right to indemnification under any other provision of this Section
12.1.
XII.2 Indemnification Procedure. (a) If an Indemnified Purchaser Entity
believes that a claim, demand or other circumstance exists that has given or may
reasonably be expected to give rise to a right of indemnification under this
Article XII (whether or not the amount of Damages relating thereto is then
quantifiable), such Indemnified Purchaser Entity shall promptly assert its claim
for indemnification by giving a Claim Notice to Seller. Each Claim Notice shall
describe the claim in reasonable detail. The failure to so notify Seller shall
not relieve Seller of any obligation to indemnify any Indemnified Purchaser
Entity unless such failure materially prejudices the rights or increases the
liability of Seller with respect to the claim to which the Claim Notice relates
and then Seller's obligation to indemnify shall be reduced only by the amount
that it actually has been damaged thereby.
<PAGE>
(b) If any claim or demand by an Indemnified Purchaser Entity under
this Article XII relates to an action or claim filed or made against an
Indemnified Purchaser Entity by a third party, Seller may elect at any time to
negotiate a settlement or a compromise of such action or claim or to defend such
action or claim, in each case at its sole cost and expense (subject to the last
sentence of this Section 12.2(b)) and with its own counsel, provided that such
counsel is reasonably satisfactory to the Indemnified Purchaser Entity in the
exercise of its reasonable discretion. If, within 30 days of receipt from an
Indemnified Purchaser Entity of any Claim Notice with respect to a third-party
action or claim, Seller (i) advises such Indemnified Purchaser Entity in writing
that Seller will not elect to defend, settle or compromise such action or claim
or (ii) fails to make such an election in writing, such Indemnified Purchaser
Entity may (subject to Seller's continuing right of election in the preceding
sentence), at its option, defend, settle or otherwise compromise or pay such
action or claim. Unless and until Seller makes an election in accordance with
this Section 12.2(b), all of the Indemnified Purchaser Entity's reasonable costs
and expenses arising out of the defense, settlement or compromise of any such
action or claim shall be Damages subject to indemnification hereunder to the
extent provided herein. Each Indemnified Purchaser Entity shall make available
to Seller all information reasonably available to such Indemnified Purchaser
Entity relating to such action or claim. In addition, the parties hereto shall
render to each other such assistance as may reasonably be requested in order to
ensure the proper and adequate defense of any such action or claim. The party in
charge of the defense shall keep the other party fully apprised at all times as
to the status of the defense or any settlement negotiations with respect
thereto. If Seller elects to defend any such action or claim, then the
Indemnified Purchaser Entity shall be entitled to participate in such defense
with the counsel of its choice, which shall be reasonably acceptable to Seller,
at such Indemnified Purchaser Entity's sole cost and expense. Notwithstanding
anything contained herein to the contrary, if the Indemnified Purchaser Entity
reasonably believes that the assumption of the defense or prosecution of all or
a portion of such action or claim is necessary to assure that its right or
ability to enforce any portion of the Mortgage Loans or Servicing or its other
mortgage loans or servicing rights or to assure that its method of doing
business or its authority and approvals to service or originate loans are not
materially impaired, then, upon notice from Purchaser, Seller shall permit such
assumption by Purchaser, and such assumption, by itself, shall not affect any
Indemnified Purchaser Entity's right to indemnification hereunder. Neither
Seller nor the Indemnified Purchaser Entity shall be entitled to settle,
compromise or otherwise dispose of any action or claim of more than $50,000
without the written consent of the other, which consent shall not be
unreasonably withheld or delayed.
<PAGE>
XII.3 Repurchase of Mortgage Loans and Servicing. (a) In the event that
(i) an Investor requests repurchase of a Mortgage Loan as a result of any act,
error or omission of Seller, any Originator or any Prior Servicer, or any
employee, agent or representative acting on their behalf, or as a result of any
other fact or circumstance pertaining to the period prior to the Closing Date,
(ii) there exists a basis to demand indemnification under Section 12.1 that
materially and adversely affects the value or marketability of the related
Mortgage Loan or Servicing or (iii) any of the Servicing proves to have a
Recourse feature not expressly identified in the magnetic media furnished to
Purchaser by Seller and described in Section 5.2 hereof, Purchaser shall provide
Seller with a written notice (a "Claim Notice") identifying the basis for the
repurchase request or indemnification demand. If Seller fails to cure the same
within thirty calendar days (or such lesser time as may be required by an
Investor, Insurer or third party claimant) from the date Purchaser provides the
Claim Notice to Seller, upon Purchaser's demand, in addition to any other rights
and remedies that Purchaser may have hereunder, at law or in equity (but subject
to any limitations of the applicable Investor), Seller, jointly and severally,
shall repurchase from Purchaser or the applicable Investor (as applicable): (A)
the Servicing pertaining to the applicable Mortgage Loan; (b) such Mortgage
Loan; and/or (C) the related REO.
(b) The purchase price for any Servicing, Mortgage Loan or REO
repurchase pursuant hereto shall be the sum of (1) if the repurchase occurs
within five (5) years of the Closing Date and involves Servicing, the
outstanding unpaid principal balance of the Mortgage Loan as of the date of
repurchase, multiplied by 1.25% (the "Purchase Price Percentage"); (2) if the
repurchase also involves the related Mortgage Loan or REO, the outstanding
principal balance of the Mortgage Loan and all accrued and unpaid interest
thereon as of the date of repurchase or, in the case of REO, at the time of the
completion of the Foreclosure of the Mortgage Loan; (3) the amount of any
outstanding Advances related to the applicable Mortgage Loan and the related
Servicing; and (4) any unreimbursed Damages incurred by Purchaser through the
date of repurchase in connection with the applicable Mortgage Loan.
(c) When Seller is required to make a repurchase under Section 12.2(a),
such repurchase shall be accomplished by wire transfer within five (5) Business
Days following Seller's receipt of the Claim Notice from Purchaser pursuant
hereto (or such lesser time as may be required by an Investor). Upon completion
of such repurchase by Seller, Purchaser shall forward to Seller all servicing
records and all documents in Purchaser's possession relating to the subject of
such repurchase.
XII.4 General. (a) Each Indemnified Purchaser Entity shall be obligated
in connection with any claim for indemnification under this Article XII to use
all commercially reasonable efforts to obtain any insurance proceeds available
to such Indemnified Purchaser Entity with regard to the applicable claims under
insurance policies issued with respect to a particular Mortgage Loan or pool of
Mortgage Loans. The amount which Seller is or may be required to pay to any
Indemnified Purchaser Entity pursuant to this Article XII shall be reduced
(retroactively, if necessary) by any insurance proceeds received under any such
insurance policies or other amounts actually recovered (net of any direct
collection costs, including without limitation costs incurred in pursuing such
insurance proceeds) by or on behalf of such Indemnified Purchaser Entity in
reduction of the related Damages. If an Indemnified Purchaser Entity shall have
received the entire payment required by this Agreement in respect of Damages and
shall subsequently receive insurance proceeds under any such insurance policies
or other amounts in respect of such Damages, then such Indemnified Purchaser
Entity shall promptly repay to Seller a sum equal to the amount of such
insurance proceeds or other amounts actually received (net of any direct
collection costs). The provisions of this Section 12.4 shall not obligate an
Indemnified Purchaser Entity to attempt to obtain insurance proceeds under any
general corporate insurance policy or other insurance policy not issued with
respect to a particular Mortgage Loan or pool of Mortgage Loans.
<PAGE>
(b) In addition to the requirements of Section 12.4 (a) each
Indemnified Purchaser Entity shall be obligated in connection with any claim for
indemnification under this Article XII to use all commercially reasonable
efforts to mitigate Damages upon and after becoming aware of any event which
could reasonably be expected to give rise to such Damages, including without
limitation with respect to brokers, Correspondents and Originators, the
commercially reasonable utilization by Purchaser of any repurchase rights, or
other indemnity arrangement held by or available to it; provided, however, that
Purchaser shall not be required to file suit against any third party as a
condition to indemnification by Seller hereunder.
(c) Subject to the rights of insurers of an Indemnified Purchaser
Entity, Seller shall be subrogated to any right of action which the Indemnified
Purchaser Entity may have against any other Person, other than another
Indemnified Purchaser Entity, with respect to any matter giving rise to a claim
for indemnification hereunder.
XII.5 Allocation of Risk. For purposes of indemnification under this
Article XII, the representations and warranties of Seller contained in this
Agreement shall (except with respect to Section 4.5(a), the reference to Section
4.14 of the Disclosure Schedule contained in Section 4.14(b), the reference to
Section 4.15 of the Disclosure Schedule contained in Section 4.15 and the
reference to Section 5.6 of the Disclosure Schedule contained in Section 5.6) be
deemed to have been made without (a) any exception to such representations or
warranties set forth in the Disclosure Schedule or (b) any limitation or
qualification as to materiality or knowledge with respect to such
representations and warranties, in each case that are set forth in any such
representation or warranty or in the Disclosure Schedule, it being the intention
of the parties hereto that Purchaser and each Indemnified Purchaser Entity shall
be indemnified and held harmless from and against any and all Damages resulting
from the failure of any such representation or warranty to be true, correct and
complete in any respect or the failure by Seller to duly and punctually perform
any covenant, agreement or undertaking of Seller contained in this Agreement or
in any agreement entered into by the parties pursuant to this Agreement.
XII.6 Materiality Thresholds. Any claim for indemnification by
Purchaser which arises under Section 12.1(a), (b) or (c) shall not be permitted
unless such claim (i) is an individual claim in excess of $500, or (ii) relates
to or arises out of any class action (including individual claims of less than
$500), or (iii) forms the basis of an indemnity or repurchase demand by any
Investor, or (iv) forms the basis of any enforcement, reimbursement, penalty or
related action by a Governmental Authority. In addition, Purchaser shall not be
entitled to any indemnification from Seller under this Article XII until such
time as its claims under this Article XII shall equal in the aggregate at least
$10,000.
<PAGE>
ARTICLE XIII
INDEMNIFICATION BY PURCHASER
XIII.1 Indemnification. In addition to and not in limitation of the
indemnities provided in Article XI (which Article sets forth the exclusive
remedy of Purchaser and Seller in respect of the matters covered thereby), from
and after the applicable Transfer Date with respect to matters related to the
Servicing Portfolio or the Closing Date with respect to all other matters,
subject to the other provisions of this Article XIII, Purchaser agrees to
indemnify Seller and each of its current, former and future officers, directors,
agents and employees (collectively, the "Indemnified Seller Entities") and to
hold each of them harmless from and against, and agrees to assume liability for,
any and all Damages, suffered, paid or incurred by any Indemnified Seller Entity
resulting from:
(a) any claims, liabilities or obligations of such Indemnified Seller
Entity (other than with respect to the matters covered by Article XI) that
constitute an Assumed Liability;
(b) any breach of any of the representations and warranties made
by Purchaser to Seller in this Agreement;
(c) any breach by Purchaser of any covenant, obligation or agreement of
Purchaser contained in this Agreement; or
(d) any failure of Purchaser to administer the Purchased Assets and
Acquired Business after the Closing Date in accordance with the Regulations.
XIII.2 Indemnification Procedure. (a) If an Indemnified Seller Entity
believes that a claim, demand or other circumstance exists that has given or may
reasonably be expected to give rise to a right of indemnification under this
Article (whether or not the amount of Damages relating thereto is then
quantifiable), such Indemnified Seller Entity shall promptly assert its claim
for indemnification by giving a Claim Notice to Purchaser. Each Claim Notice
shall describe the claim in reasonable detail. The failure to so notify
Purchaser shall not relieve Purchaser of any obligation to indemnify any
Indemnified Seller Entity unless such failure materially prejudices the rights
or increases the liability of Purchaser with respect to the claim to which the
Claim Notice related and then Purchaser's obligation to indemnify shall be
reduced only by the amount that it actually has been damaged thereby.
<PAGE>
(b) If any claim or demand by an Indemnified Seller Entity under this
Article XIII relates to an action or claim filed or made against such
Indemnified Seller Entity by a third party, Purchaser may elect at any time to
negotiate a settlement or compromise of any such action or claim or to defend
any such action or claim, in each case at its sole cost and expense (subject to
the last sentence of this Section 13.2 (b)) and with its own counsel; provided
that such counsel is satisfactory to the Indemnified Seller Entity in the
exercise of its reasonable discretion. If, within 30 days of receipt from an
Indemnified Seller Entity of any Claim Notice with respect to a third party
action or claim, Purchaser (i) advises such Indemnified Seller Entity that
Purchaser will not elect to defend, settle or compromise such action or claim,
or (ii) fails to make such an election in writing, such Indemnified Seller
Entity may (subject to Purchaser's continuing right of election in the preceding
sentence), at its option, defend, settle or otherwise compromise or pay such
action or claim. Unless and until Purchaser makes an election in accordance with
this Section 13.2(b), all of such Indemnified Seller Entity's reasonable costs
and expenses arising out of the defense, settlement or compromise of any such
action or claim shall be Damages subject to indemnification hereunder to the
extent provided herein. Each Indemnified Seller Entity shall make available to
Purchaser all information reasonably available to it relating to such action or
claim. In addition, the parties shall render to each other such assistance as
may reasonably be requested in order to ensure the proper and adequate defense
of any such action or claim. The party in charge of the defense shall keep the
other party fully apprised at all times as to the status of the defense or any
settlement negotiations with respect thereto. If Purchaser elects to defend any
such action or claim, then the Indemnified Seller Entity shall be entitled to
participate in such defense with counsel of its choice, which shall be
reasonably acceptable to Purchaser, at such Indemnified Seller Entity's sole
cost and expense. Neither Purchaser nor the Indemnified Seller Entity shall be
entitled to settle, compromise or otherwise dispose of any action or claim of
more than $50,000 without the written consent of the other, which consent shall
not be unreasonably withheld or delayed.
XIII.3 General. (a) Each Indemnified Seller Entity shall be obligated
in connection with any claim for indemnification under this Article XIII to use
all commercially reasonable efforts to obtain any insurance proceeds available
to such Indemnified Seller Entity with regard to the applicable claims under
insurance policies issued with respect to a particular Mortgage Loan or pool of
Mortgage Loans. The amount which Purchaser is or may be required to pay to any
Indemnified Seller Entity pursuant to this Article XIII shall be reduced
(retroactively, if necessary) by any insurance proceed received under any such
insurance policies or other amounts actually recovered (net of any direct
collection costs, including without limitation costs incurred in pursuing such
insurance proceeds) by or on behalf of such Indemnified Seller Entity in
reduction of the related Damages. If an Indemnified Seller Entity shall have
received the entire payment required by this Agreement in respect of Damages and
shall subsequently receive insurance proceeds under any such insurance policies
or other amounts in respect of such Damages, then such Indemnified Seller Entity
shall promptly repay to Purchaser a sum equal to the amount of such insurance
proceeds or other amounts actually received (net of any direct collection
costs). The provisions of this Section 13.3 shall not obligate an Indemnified
Seller Entity to attempt to obtain insurance proceeds under any general
corporate insurance policy or other insurance policy not issued with respect to
a particular Mortgage Loan or pool of Mortgage Loans.
<PAGE>
(b) In addition to the requirements of Section 13.3(a), each
Indemnified Seller Entity shall be obligated in connection with any claim for
indemnification under this Article XIII to use all commercially reasonable
efforts to mitigate Damages upon and after becoming aware of any event which
could reasonably be expected to give rise to such Damages.
(c) Subject to the rights of insurers of an Indemnified Seller Entity,
Purchaser shall be subrogated to any right of action which the Indemnified
Seller Entity may have against any other Person, other than another Indemnified
Seller Entity, with respect to any matter giving rise to a claim for
indemnification hereunder.
XIII.4 Allocation of Risk. For purposes of indemnification under this
Article XIII, the representations and warranties of Purchaser contained in this
Agreement shall (except with respect to Section 6.6) be deemed to have been made
without any limitation or qualification as to materiality or knowledge with
respect to such representations and warranties, in each case that are set forth
in any such representation or warranty, it being the intention of the parties
hereto that Seller and each Indemnified Seller Entity shall be indemnified and
held harmless from and against any and all Damages resulting from the failure of
any such representation or warranty to be true, correct and complete in any
respect or the failure by Purchaser to duly and punctually perform any covenant,
agreement or undertaking of Purchaser contained in this Agreement or in any
agreement entered into by the parties pursuant to this Agreement.
ARTICLE XIV
GENERAL PROVISIONS
XIV.1 Notices. All notices and other communications required or
permitted to be given hereunder shall be in writing and shall be deemed given if
delivered personally, transmitted by facsimile (and telephonically confirmed),
mailed by registered or certified mail with postage prepaid and return receipt
requested, or sent by commercial overnight courier, courier fees prepaid, to the
parties at the following addresses:
(a) if to Purchaser, to it at:
HomeSide Lending, Inc.
7301 Baymeadows Way
Jacksonville, Florida 32256
Attention: Hugh R. Harris, President and C.O.O.
Facsimile: 904-281-3062
<PAGE>
with copies to:
HomeSide Lending, Inc.
7301 Baymeadows Way
Jacksonville, Florida 32256
Attention: Robert J. Jacobs, General Counsel
Facsimile: 904-281-3062
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attention: David M. Huggin
Facsimile: 212-558-3588
(b) if to Seller, to it at:
Banc One Mortgage Corporation
111 Monument Circle
Indianapolis, Indiana 46204
Attention: Donald K. Erling, President
Facsimile: 317-321-8468
with copies to:
Banc One Corporation
100 East Broad Street
Columbus, Ohio 43271
Attention: Steve Bennett, General Counsel
Facsimile: 614-248-2010
Banc One Corporation
100 East Broad Street
Columbus, Ohio 43271
Attention: Chairman
or to such other Person or address as either party shall specify by notice in
writing to the other party in accordance with this Section 14.1. All such
notices or other communications shall be deemed to have been received on the
date of the personal delivery or facsimile transmission (with telephone
confirmation) or on the third Business Day after the mailing or dispatch
thereof; provided that notice of change of address shall be effective only upon
receipt.
<PAGE>
XIV.2 Interpretation. The table of contents of and headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement.
XIV.3 Amendment and Modification; Waiver. (a) This Agreement and the
Disclosure Schedules hereto may not be amended except by an instrument or
instruments in writing signed and delivered on behalf of each of the parties
hereto.
(b) At any time prior to the Closing Date, any party hereto which is
entitled to the benefits hereof may, by an instrument in writing, (i) extend the
time for the performance of any of the obligations or other acts of the other
party, (ii) waive any inaccuracy in the representations and warranties of the
other party contained herein or in any schedule hereto or in any document
delivered pursuant hereto and (iii) waive compliance with any of the agreements
of the other party or conditions contained herein. Any agreement on the part of
a party hereto to any such extension or waiver shall be valid if set forth in an
instrument in writing signed and delivered on behalf of such party.
XIV.4 Entire Agreement. This Agreement (including the Disclosure
Schedules, Exhibits and any agreement executed by (a) Seller and (b) Purchaser
or any Affiliate of Purchaser on the Effective Date), the Preferred Partner
Agreements and the Confidentiality Agreement constitute the entire agreement and
supersede all other prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof.
XIV.5 Fees and Expenses. Except as otherwise expressly provided herein,
Seller shall be responsible for all transfer and recording fees, costs with
respect to delivery of the custodial and other loan files and mortgage servicing
records relating to the Mortgage Loans and other related costs incurred by
Seller in its performance of its obligations under this Agreement, together with
fees of Seller's document custodian, attorneys and accountants. Purchaser shall
pay all data processing costs incurred by Purchaser in connection with this
Agreement, and other related costs of Purchaser in its performance of its
obligations under this Agreement, together with fees of Purchaser's attorneys
and accountants.
XIV.6 Third Party Beneficiaries. Nothing in this Agreement, express or
implied, is intended to confer upon any Person (including without limitation
employees of Seller or Investors) other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
<PAGE>
XIV.7 Certain Remedies. (a) It is recognized that damages in the event
of a breach by Seller of Sections 7.6 or 7.12 would be difficult, if not
impossible, to ascertain, and it is therefore agreed that the Purchaser has the
right to an injunction or other equitable relief in any court of competent
jurisdiction, enjoining any such breach. The existence of this right shall not
preclude any other rights and remedies at law or in equity which the Purchaser
may have. The parties agree that the restrictions and agreements contained
herein are reasonable, are the product of arm's-length negotiation and are
necessary for the Purchaser to protect the goodwill and other interests which
they are purchasing under this Agreement; provided, however, in the event that
any part of Section 7.6 or 7.12 shall be found to be unenforceable, but would be
valid and enforceable if another part of such Section were deleted or otherwise
modified, then such restrictions in Section 7.6 or 7.12 shall apply with such
deletions and modifications as shall be necessary to make them valid and
enforceable.
(b) It is recognized that damages in the event of breach by Purchaser
or its Affiliates of Section 7.6 or 7.12 would be difficult, if not impossible,
to ascertain, and it is therefore agreed that Seller has the right to an
injunction or other equitable relief in any court of competent jurisdiction,
enjoining an such breach. The existence of this right shall not preclude any
other rights and remedies at law or in equity which Seller may have. The parties
agree that the restrictions and agreements contained herein are reasonable, are
the product of arms-length negotiation and are necessary for Seller to protect
the goodwill and other interests which they are retaining under this Agreement;
provided, however, in the event that any part of Section 7.6 or 7.12 shall be
found to be unenforceable, but would be valid and enforceable if another part of
such Section were deleted or otherwise modified, then such restrictions in
Sections 7.6 or 7.12 shall apply with such deletions and modifications as shall
be necessary to make them valid and enforceable.
XIV.8 Assignment; Binding Effect. This Agreement shall not be assigned
by either Seller or (until payment of the Purchase Price) Purchaser hereto
without the prior written consent of the other parties; provided, however, this
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective successors and permitted assigns.
XIV.9 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Florida without regard to conflicts
of laws principles thereof.
XIV.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
<PAGE>
NY12531: 223709.12
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on their behalf by their respective officers hereunto duly authorized
all on the Effective Date.
Seller:
BANC ONE CORPORATION
By: /s/ William P. Boardman
Name: William P. Boardman
Title: Senior Executive Vice President
BANC ONE MORTGAGE CORPORATION
By: /s/ Brad L. Connor
Name: Brad L. Connor
Title: Executive Vice President
Purchaser:
HOMESIDE LENDING, INC.
By: /s/ Hugh R. Harris
Name: Hugh R. Harris
Title: President
<PAGE>
Exhibit A
HomeSide Lending, Inc.
7301 Baymeadows Way
Jacksonville, FL 32256
Ladies and Gentlemen:
I have acted as counsel to Banc One Mortgage Corporation (the
"Company") and Banc One Corporation ("Banc One") (collectively, the "Seller")
and to each of Banc One's direct or indirect subsidiary banks listed on Schedule
1 attached hereto (the "Affiliate Banks") with respect to certain matters in
connection with the sale by the Seller of certain assets pursuant to that
certain Asset Purchase Agreement by and between Seller and HomeSide Lending,
Inc. (the "Purchaser"), dated as of April 1, 1998, (the "Purchase Agreement")
and other Ancillary Agreements, as defined below. This opinion is provided to
and at the request of the Purchaser pursuant to Section 9.2(h) of the Purchase
Agreement. Capitalized terms not otherwise herein have the meanings set forth in
the Purchase Agreement.
In connection with rendering this opinion letter, we have examined,
among other things, originals, certified copies or copies otherwise identified
to our satisfaction as being true copies of the following:
A. The Purchase Agreement;
B. The Operating Agreement by and between Banc One and the Purchaser
dated as of April 1, 1998;
C. The Correspondent Loan Purchase Agreement by and between the
Company and the Purchaser dated as of April 1, 1998;
D. The Delegated Underwriting Agreement by and between the Company
and the Purchaser dated as of April 1, 1998;
E. The PMSR Flow Agreement by and between the Company and the Purchaser
dated as of April 1, 1998;
<PAGE>
F. The Marketing Agreement by and between Banc One and the Purchaser
dated as of April 1, 1998;
G. The Transitional Agreement by and among Banc One, the Company and the
Purchaser dated as of [__________], 1998;
H. The Servicing Agreement by and between the Affiliate Banks and the
Purchaser dated as of April 1, 1998 (the Operating Agreement, the
Correspondent Loan Purchase Agreement, the Delegated Underwriting
Agreement, the PMSR Flow Agreement, the Marketing Agreement, the
Servicing Agreement, and the Transitional Agreement and collectively
referred to hereinafter as the "Ancillary Agreements")
I. The Company's articles of incorporation and bylaws, Banc One's
articles of incorporation and code of regulations, and each Affiliate
Banks' articles of association or articles of incorporation, as the
case may be, and bylaws, in each case as amended to date; and
J. Resolutions adopted by the board of directors of the Company, Banc One
and the Affiliate Banks with specific reference to actions relating to
the transaction covered by this opinion (the "Board Resolutions").
In rendering this opinion we have made the following assumptions:
1. All documents submitted to or reviewed by us are accurate
and complete and if not originals are true and correct copies of the originals;
the signatures on each of such documents by the parties thereto are genuine;
each individual who signed such documents had the legal capacity to do so; all
persons who signed such documents on behalf of a corporation were duly
authorized to do so, provided that this last assumption does not apply to the
persons signing on behalf of the Seller or the Affiliate Banks, as applicable,
with respect to the Purchase Agreement and Ancillary Agreements, and we have
assumed that there are no amendments, modifications or supplements to any
document submitted to or reviewed by us;
2. The Purchaser has the corporate power and authority to
execute and deliver the Purchase Agreement and Ancillary Agreements, as
applicable, and to perform its obligations thereunder;
3. The execution of the Purchase Agreement and Ancillary
Agreements by Purchaser has been duly authorized or ratified by all requisite
corporate action, and the Purchase Agreement and Ancillary Agreements have been
duly executed and delivered by Purchaser;
<PAGE>
4. The Purchase Agreement and Ancillary Agreements constitute
binding obligations of Purchaser enforceable against Purchaser in accordance
with their respective terms;
Based on and subject to the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized and validly
existing under the laws of the state of Delaware. Banc One is a national bank
holding company duly organized and validly existing under the laws of the State
of Ohio. The Affiliate Banks are each a national banking association duly
organized and validly existing under the laws of the United States, or a state
banking institution duly organized and validly existing under the laws of the
jurisdiction of its organization, as applicable. The Company possesses all
governmental qualifications, permits, licenses, approvals and registrations that
are necessary to enable the Company to conduct its mortgage banking business.
2. Each of the Company, Banc One and the Affiliate Banks has
the corporate power and authority to execute and deliver the Purchase Agreement
and Ancillary Agreements, as applicable, and to perform their respective
obligations thereunder;
3. The execution of the Purchase Agreement and Ancillary
Agreements by the Company, Banc One and the Affiliate Banks has been duly
authorized or ratified by all requisite corporate action, and the Purchase
Agreement and Ancillary Agreements have been duly executed and delivered by the
Company, Banc One and the Affiliate Banks.
4. The Purchase Agreement and Ancillary Agreements constitute
a legal, valid, and binding obligation of the Company, Banc One and the
Affiliate Banks, as applicable, enforceable against the Company Banc One and the
Affiliate Banks, as applicable, according to their respective terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
fraudulent conveyance and other debtor relief laws of general applicability, the
effect of general principles of equity, whether applied by a court of law or
equity.
5. Either (i) no consent, approval, authorization or order of
any court or government agency or body is required for the execution, delivery
and performance by the Company, Banc One and the Affiliate Banks, as applicable,
of or compliance by the Company, Banc One and the Affiliate Banks, as
applicable, with the Purchase Agreement and Ancillary Agreements or the sale and
delivery of the Purchased Assets or the consummation of the transactions
contemplated by the Purchase Agreement and Ancillary Agreements; or (ii) any
required consent, approval, authorization or order has been obtained by the
Company, Banc One and the Affiliate Banks.
<PAGE>
6. Neither the consummation of the transactions contemplated
by, nor the fulfillment of the terms of, the Purchase Agreement and Ancillary
Agreements (a) result in a breach of or constitutes a default under the terms of
any indenture or other agreement or instrument to which the Company, Banc One or
the Affiliate Banks is a party or by which either of them is bound or to which
either of them is subject, or (b) violate (i) any statute or regulation
promulgated thereunder relating to the purchase and sale of Purchased Assets as
contemplated by the Purchase Agreement and Ancillary Agreements or (ii) any
order, rule, writ, injunction or decree of any court, governmental authority or
regulatory body to which the Company, Banc One or the Affiliate Banks is subject
or by which either of them or their properties is or are bound.
7. There is no action, suit, proceeding or investigation
pending or threatened against the Company, Banc One or the Affiliate Banks
which, in my judgment, either in any one instance or in the aggregate, may
result in any material adverse change in the business, operations, financial
condition, properties or assets of the Company, Banc One or the Affiliate Banks
or in any material impairment of the right or ability of the Company, Banc One
or the Affiliate Banks to carry on its business substantially as now conducted
or in any material liability on the part of the Company, Banc One or the
Affiliate Banks or which would draw into question the validity of the Purchase
Agreement and Ancillary Agreements or of any action taken or to be taken in
connection with the transactions contemplated thereby, or which would be likely
to impair materially the ability of the Company, Banc One or the Affiliate Banks
to perform under the terms of the Purchase Agreement and Ancillary Agreements.
Very truly yours,
------------------------------
<PAGE>
Schedule 1
Banc One Affiliate Banks
1. Bank One, Arizona, NA
2. Bank One, Colorado, NA
3. Bank One, Illinois, NA
4. Bank One, Indiana, NA
5. Bank One, Kentucky, NA
6. Bank One, Louisiana, NA
7. Bank One, NA
8. Bank One, Oklahoma, NA
9. Bank One, Texas, NA
10. Bank One, Utah, NA
11. Bank One, West Virginia, NA
12. Bank One, Wheeling-- Steubenville, NA
13. Bank One, Wisconsin (a Wisconsin State bank)
<PAGE>
Exhibit D
BANC ONE CORPORATION
BANC ONE MORTGAGE CORPORATION
OFFICERS' CERTIFICATE
__________, [President], and __________, [Chief Financial Officer], of
Banc One Corporation, and __________, [President] and ___________, [Chief
Financial Officer], of Banc One Mortgage Corporation (together, "Sellers"),
pursuant to Section 9.2(e) of the Asset Purchase Agreement, dated as of April 1,
1998 (the "Agreement"), between Sellers and HomeSide Lending, Inc., hereby
certify as follows:
(a) The representations and warranties of Sellers contained in
Article IV and Article V of the Agreement are true and correct in all
material respects as of the date hereof as though made at and as of the
date hereof (except to the extent that any such representation or
warranty is made as of a specific date prior to the date hereof, in
which case such representation or warranty was true and correct in all
material respects as of such date).
(b) Sellers have performed in all material respects all
obligations and agreements, and have complied in all material respects
with all covenants and conditions contained in the Agreement to be
performed or complied with by them prior to or at the date hereof.
<PAGE>
IN WITNESS WHEREOF, we have hereunto signed our names as of this ____ day of
__________, 1998.
BANC ONE CORPORATION
By: ____________________
Name:
Title: [President]
By: ____________________
Name:
Title: [Chief Financial
Officer]
BANC ONE MORTGAGE CORPORATION
By: ____________________
Name:
Title: [President]
By: ____________________
Name:
Title: [Chief Financial
Officer]
<PAGE>
Exhibit E
HOMESIDE LENDING, INC.
OFFICERS' CERTIFICATE
__________, [President], and __________, [Chief Financial Officer], of
HomeSide Lending, Inc. ("Purchaser"), pursuant to Section 9.2(e) of the Asset
Purchase Agreement, dated as of April 1, 1998 (the "Agreement"), among Banc One
Corporation, Banc One Mortgage Corporation and Purchaser, hereby certify as
follows:
(a) The representations and warranties of Purchaser contained
in Article VI of the Agreement are true and correct in all material
respects as of the date hereof as though made at and as of the date
hereof.
(b) Purchaser has performed in all material respects all
obligations and agreements, and has complied in all material respects
with all covenants and conditions contained in the Agreement to be
performed or complied with by it prior to or at the date hereof.
<PAGE>
IN WITNESS WHEREOF, we have hereunto signed our names as of this ____
day of __________, 1998.
HOMESIDE LENDING, INC.
By: ____________________
Name:
Title: [President]
By: ____________________
Name:
Title: [Chief Financial
Officer]
Exhibit 10.2
OPERATING AGREEMENT
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Banc One Corporation 100 East Broad Street, Columbus, Ohio 43271 0251
Bank One Mortgage Corporation, 111 Monument Circle, Indianapolis, IN 46204
Type Of Business Entity: Bank Holding Company
Date of Agreement: April 1, 1998 Contact Person:
Phone No:
Fax No:
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<PAGE>
This Operating Agreement (the "Operating Agreement") is entered into and
effective as of the date shown above by and among Banc One Corporation ("Banc
One"), Banc One Mortgage Corporation (the "Affiliate Mortgage Company") and
HomeSide Lending, Inc. ("HomeSide Lending")
RECITALS.
1. Banc One and HomeSide Lending have entered into the Asset Purchase Agreement.
2. The Asset Purchase Agreement contemplates, subject to the terms herein,
origination and servicing arrangements between Banc One and HomeSide Lending on
and after the Effective Date.
3. Banc One and HomeSide Lending desire to set forth the specific terms and
conditions of such arrangements.
IN CONSIDERATION of the mutual promises made in this Operating Agreement and
other good and valuable consideration, the receipt and sufficiency of which are
acknowledged, Banc One and HomeSide Lending agree as follows:
<PAGE>
ARTICLE 1.
DEFINITIONS.
As used in this Operating Agreement, the following capitalized terms shall have
the meanings given to them below:
"Acquired Affiliate" means an Affiliate acquired by Banc One after the Closing
Date which is engaged in any production or servicing mortgage banking activity.
"Affiliate" means an entity that, directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with,
another entity. For purposes of this definition, "control", "controlled by", and
"under common control with" means the direct or indirect possession of ordinary
voting power to elect a majority of the board of directors or comparable body of
an entity.
"Affiliate Mortgage Company" means Banc One Mortgage Corporation or any
Affiliate which succeeds to or otherwise continues its mortgage banking
activities of the type which are the subject matter of the ancillary agreements.
"Agency" means the Federal National Mortgage Association, Federal Home Loan
Mortgage Corporation and/or Government National Mortgage Association, as the
context may require.
"Ancillary Agreements" means this Operating Agreement and the attached
Correspondent Agreement, Delegated Underwriting Agreement, the PMSR Flow
Agreement and the Servicing Agreement.
"Asset Purchase Agreement" means the Asset Purchase Agreement entered into by
and between Banc One Corporation, Affiliate Mortgage Company, and HomeSide
Lending as of April 1, 1998, as may be amended from time to time.
"Average SRP" shall have the meaning given to it in Section 4.3.1 below.
"Banc One" means: (a) the entity defined as "Banc One" above, (b) any of its
Affiliate banks, and (c) its Affiliate Mortgage Company, as applicable within
the context used.
"Correspondent Agreement" means the Correspondent Loan Purchase Agreement
entered into by and between HomeSide Lending, and the Affiliate Mortgage Company
as of the Effective Date ,and which shall govern the terms under which the
Affiliate Mortgage Company shall originate and fund, and HomeSide shall acquire
the New Secondary Market Mortgage Loans and related Servicing Rights. The
Correspondent Agreement is attached to this Operating Agreement as Exhibit A.
"Closing Date" means the date on which Banc One sells and transfers beneficial
title to HomeSide Lending certain of the servicing assets of Affiliate Mortgage
Company pursuant to the Asset Purchase Agreement.
"Delegated Underwriting Agreement" means the Correspondent Lender Delegated
Underwriting Agreement entered into by and between HomeSide Lending and the
Affiliate Mortgage Company as of the Effective Date and which shall govern the
terms under which the Affiliate Mortgage Company shall underwrite certain New
Secondary Market Mortgage Loans. The Delegated Underwriting Agreement is
attached to this Operating Agreement as Exhibit G.
"Effective Date" means the date on which the Asset Purchase Agreement is signed.
"Excluded Affiliate" means an Acquired Affiliate that (a)
(i) is a depository institution or an Affiliate thereof that is acquired by
Banc One after the Closing Date, and
(ii) engages in, either directly or through its own pre-existing Affiliate,
the business of originating and/or servicing Mortgage Loans, and
(b) as of the time it becomes an Acquired Affiliate
(i) generated retail Mortgage Loan production (exclusive of wholesale
production) of $2 Billion or more in the preceding 12 months, or
(ii) services a Mortgage Loan portfolio of $15 Billion or more.
"Existing Agreements" has the meaning set forth in Section 3.6 herein.
"Existing Mortgage Loans" means all Mortgage Loans serviced by Banc One on or
before the Closing Date.
"Existing Portfolio Mortgage Loans" means Mortgage Loans owned by Banc One and
serviced by Banc One on or before the Closing Date.
"Existing Portfolio Servicing Rights" means the Servicing Rights to the Existing
Portfolio Mortgage Loans.
"Existing Servicing Rights" means the Servicing Rights to the Existing Mortgage
Loans.
"FHA" means the Federal Housing Administration or any successor to the FHA.
"Home Equity Loan" shall mean a residential mortgage loan, whether closed end or
open end, secured by a first or junior lien on residential real property that
was not used for, or to refinance a loan used for, the acquisition or initial
construction of such real property.
"HomeSide, Inc." means HomeSide, Inc., a business corporation organized under
the laws of the state of Delaware and with its principal place of business at
7301 Baymeadows Way, Jacksonville, FL 32256.
"HomeSide Lending" means HomeSide Lending, Inc., a business corporation
organized under the laws of the state of Florida and with its principal place of
business at 7301 Baymeadows Way, Jacksonville, Florida 32256.
"Marketing Agreement" means the Marketing Agreement to be entered into by and
between HomeSide, Inc. and Banc One as of the Effective Date and which shall
govern the terms under which HomeSide Lending's mortgagors may be solicited for
certain products and services.
"Mortgage Loan" means a first lien mortgage or deed of trust on a residential
1 to 4 family dwelling.
Mortgage Loan shall not include an open-end Home Equity Loan.
"New Mortgage Loan" means a New Portfolio Mortgage Loan and/or New Secondary
Market Mortgage Loan.
"New Portfolio Mortgage Loan" means each Mortgage Loan which Banc One: (a) shall
originate on or after the Closing Date and retain the ownership subject to the
New Servicing Rights, or (b) has originated prior to the Closing Date but not
closed or funded, and intends to retain the ownership subject to the New
Servicing Rights.
"New Portfolio Servicing Rights" means the Servicing Rights to the New Portfolio
Mortgage Loans.
"New Secondary Market Conforming Mortgage Loan" means each New Secondary Market
Mortgage Loan, other than a New Secondary Market Unique Mortgage Loan, that is
eligible for sale to an Agency.
"New Secondary Market Mortgage Loan" means each Mortgage Loan, other than a New
Portfolio Mortgage Loan, which Banc One: (a) will originate on or after the
Closing Date, or (b) has originated prior to the Closing Date but not closed or
funded.
"New Secondary Market Nonconforming Mortgage Loan" means each New Secondary
Market Mortgage Loan, other than a New Secondary Market Unique Mortgage Loan,
that is (a) not a New Secondary Market Conforming Mortgage Loan, and (b)
satisfies HomeSide's underwriting and product requirements in effect from time
to time.
"New Secondary Market Servicing Rights" means the Servicing Rights to the New
Secondary Market Mortgage Loans.
"New Secondary Market Unique Mortgage Loan" means each New Secondary Market
Mortgage Loan that (a) is a unique product developed by HomeSide Lending, (b) is
provided to Banc One, and (c) satisfies HomeSide Lending's underwriting and
product requirements.
"New Servicing Rights" means the Servicing Rights to the New Mortgage Loans.
"Operating Agreement" has the meaning set forth in the recitals above. The
Exhibits to this Operating Agreement shall not be considered to be part of this
Operating Agreement.
"Pipeline Mortgage Loan" means a Mortgage Loan that has not closed or been
purchased from a correspondent or broker originator and with respect to which
Banc One has (a) issued a commitment or otherwise agreed with applicant to fund,
(b) determined to fund, (c) committed to a specific interest rate, or (d) issued
a commitment or otherwise agreed with a correspondent originator to purchase.
"PMSR Flow Agreement" means the agreement to be entered into by and among
HomeSide Lending and Banc One as of the Effective Date and which shall govern
the terms under which Banc One will sell the New Portfolio Servicing Rights to
HomeSide. The PMSR Flow Agreement is attached to this Operating Agreement as
Exhibit B.
"Portfolio Mortgage Loans" means the Existing Portfolio Mortgage Loans and the
New Portfolio Mortgage Loans.
"Previously Committed Loan" means a Mortgage Loan that is the subject of a
commitment entered into by Banc One prior to the Closing Date pursuant to which
such loan shall be sold to a third party.
"REO" means any residential real property owned by Banc One whether for its own
account or on behalf of any Agency, FHA, VA or other investor as a result of a
foreclosure.
"Servicing Agreement" means the agreement to be entered into by and between
HomeSide Lending and Banc One as of the Effective Date and which shall govern
the terms under which HomeSide will service the Portfolio Mortgage Loans. The
Servicing Agreement is attached to this Operating Agreement as Exhibit C.
"Servicing Rights" means the rights and obligations to service a Mortgage Loan,
including, but not limited to, one or more of the following functions or a
portion thereof: (a) administering and collecting payments for the reduction of
principal and/or the application of interest on a Mortgage Loan, (b) collecting
tax and insurance payments, (c) remitting appropriate portions of collected
payments, (d) administering escrow account funds, (e) pursuing foreclosures and
alternate remedies against the property securing a Mortgage Loan, (f)
administering and liquidating REO properties, (g) receiving servicing
compensation and any ancillary fees and income arising from or relating to the
servicing of a Mortgage Loan, and (h) receiving the rights and privileges
relating to the above including, but not limited to, the related escrow accounts
and the right to enter into arrangements with third parties that generate
ancillary fees and benefits relating to the serviced Existing Mortgage Loans and
New Mortgage Loans.
"Subprime Mortgage Loan" means a Mortgage Loan that, as of the date it is made,
is not then eligible or, based upon the standards of eligibility in effect as of
the Effective Date, would not have been eligible as of the Effective Date for
sale to, , securitization with or insurance or guaranty by an Agency, FHA or VA
by virtue of, among other reasons, the failure of the borrower to satisfy the
applicable underwriting criteria.
"VA" means the Department of Veterans Affairs, or any successor to the VA.
"Warehouse Mortgage Loan" means a Mortgage Loan that is owned by Banc One.
<PAGE>
ARTICLE 2.
EXISTING SERVICING ARRANGEMENTS.
2.1 TERMINATION OF EXISTING SERVICING AGREEMENTS BETWEEN BANC ONE AFFILIATES.
Banc One Corporation shall cause any servicing agreements between any of Banc
One's Affiliates relating to the Existing Mortgage Loans to terminate as of the
Closing Date.
2.2. TRANSFER OF EXISTING SERVICING RIGHTS TO HOMESIDE LENDING.
Banc One acknowledges that, as of the Closing Date, HomeSide Lending shall own
all right, title and interest in the Existing Servicing Rights, subject to the
terms of (a) the Servicing Agreement with respect to the Existing Portfolio
Mortgage Loans, and (b) the applicable investor servicing agreements with
respect to the remaining Existing Mortgage Loans.
<PAGE>
ARTICLE 3.
ORIGINATION AND SERVICING OF NEW MORTGAGE LOANS.
3.1. NEW SECONDARY MARKET MORTGAGE LOANS SHALL BE SOLD TO HOMESIDE.
During the term hereof and subject to Sections 3.6, 4.8 and 4.9 below, Banc
One shall sell to HomeSide Lending all right, title and interest in:
(a) all New Secondary Market Conforming Mortgage Loans and related Servicing
Rights;
(b) all New Secondary Market Unique Mortgage Loans and related Servicing Rights;
and
(c) no less than 50% of the principal balance of all New Secondary Market
Nonconforming Mortgage Loans and related Servicing Rights.
3.2. AGREEMENTS GOVERNING SALE OF NEW SECONDARY MARKET MORTGAGE LOANS.
Each New Secondary Market Mortgage Loan and related Servicing Rights shall be
sold to HomeSide Lending under the terms of this Operating Agreement, the
Correspondent Agreement, and the Delegated Underwriting Agreement.
3.3. NEW PORTFOLIO SERVICING RIGHTS SHALL BE SOLD TO HOMESIDE.
Banc One shall sell and grant to HomeSide Lending all right, title and interest
in all New Portfolio Servicing Rights in accordance with the terms of this
Operating Agreement and the PMSR Flow Agreement.
3.4. SERVICING OF NEW PORTFOLIO MORTGAGE LOANS.
Each New Portfolio Mortgage Loan shall be serviced by HomeSide Lending under the
terms of this Operating Agreement and the Servicing Agreement.
3.5. NO WHOLESALE PRODUCTION.
During the term of this Operating Agreement, Banc One shall not originate or
purchase any New Mortgage Loan through or from a mortgage broker, correspondent
lender or other lender, without HomeSide Lending's prior written consent. If
HomeSide Lending grants such consent, Banc One shall offer to sell each such New
Mortgage Loan and related Servicing Rights to HomeSide Lending.
3.6. THIRD PARTY DELIVERY OBLIGATIONS.
Subsequent to the Effective Date, Banc One shall not enter into any agreement
with a third party which obligates Banc One to deliver any New Mortgage Loan
and/or the related Servicing Rights during the term of this Operating Agreement
if such delivery would be contrary to its obligations under this Article 3. Banc
One represents and warrants that the attached Exhibit H contains a complete list
of existing agreements with third parties which obligate Banc One to deliver any
New Mortgage Loan and/or the related Servicing Rights during the term of this
Operating Agreement (the "Existing Agreements"). At no cost or liability to
HomeSide Lending, Banc One shall resolve its delivery obligations under the
Existing Agreements in a fashion which is acceptable to HomeSide Lending and
which does not materially diminish Banc One's delivery obligations pursuant to
this Article 3; provided further, that Banc One shall not either deliver
Mortgage Loans under the Existing Agreements in excess of the minimum amount
expressly required to be delivered or amend such Existing Agreements without the
prior written consent of HomeSide Lending.
3.7. EXCLUDED LOANS.
Notwithstanding any provision to the contrary contained in this Operating
Agreement, it is the intent of this Agreement that on and after the Closing
Date, Banc One shall not be obligated to sell to HomeSide Lending any (a)
Subprime Mortgage Loan or related Servicing Rights, (b) Home Equity Loans or
related Servicing Rights, (c) open-end real estate secured loan or related
servicing rights or (d) home improvement or construction loan or related
servicing rights; provided, however, that Banc One represents and warrants that
as of the Effective Date, substantially all of the New Mortgage Loans are
originated by the Affiliate Mortgage Company.
<PAGE>
ARTICLE 4.
PRODUCTS, PRICING, CUSTOMER SERVICE AND RELATED ISSUES.
4.1. PRODUCTS.
HomeSide Lending covenants as follows:
(a) Subject to investor availability, HomeSide Lending shall continue to offer
all secondary market and portfolio Mortgage Loan products currently offered by
HomeSide Lending immediately prior to the Closing Date.
(b) HomeSide Lending may, in its reasonable discretion, add new Mortgage Loan
products that Banc One can demonstrate are being offered by a significant
competitor, including major national competitors. Such new product offerings
shall be subject to (i) investor availability, (ii) HomeSide's reasonable
profitability concerns, and (iii) the resources reasonably available to
HomeSide.
(c) HomeSide Lending shall work with the Affiliate Mortgage Company to create
Mortgage Loan products: (i) that may be new to Banc One's Mortgage Loan
production market and Banc One believes offers significant opportunity to Banc
One or HomeSide Lending, or (ii) for which Banc One believes there may be
significant demand. Such new product offerings shall be subject to (x) investor
availability, (y) HomeSide's reasonable profitability concerns, and (z) the
resources reasonably available to HomeSide.
(d) HomeSide Lending shall formalize a product development committee and
process. The Affiliate Mortgage Company's production and operations
representatives shall participate in the activities of such product development
committee and process.
(e) HomeSide Lending shall not discontinue Mortgage Loan products without giving
reasonable advance notice to the Affiliate Mortgage Company. The product
development committee shall determine the Mortgage Loan products to be offered,
subject to investor availability.
(f) Subject to Section 3.1(c) above, if (i) HomeSide Lending does not offer a
Mortgage Loan product (including a New Secondary Market Nonconforming Mortgage
Loan) that Banc One desires to sell within a reasonable time after Banc One's
request, Banc One may sell such Mortgage Loan product to another lender on a
servicing-released basis; or (ii) HomeSide Lending requires a minimum amount of
production in order to offer a new Mortgage Loan product and Banc One cannot
satisfy such minimum production amount, Banc One may sell such Mortgage Loan
product to another lender on a servicing-released basis.
4.2. MORTGAGE LOAN PRICING
(a) Banc One will receive the higher of either: (i) the most favorable HomeSide
Lending pricing offered to correspondents, or (ii) HomeSide Lending's pricing as
determined by the screen price/dealer price each morning on a business day for
HomeSide Lending, based on the delivery month for the appropriate Mortgage Loan
interest rate lock term. For example, a Mortgage Loan which has an interest rate
locked on March 1st for 70 days closed and back will be priced for June
delivery. If such Mortgage Loan is delivered to HomeSide Lending on the 70th day
of the lock-in period, the applicable date would be May 10th . HomeSide
Lending's cutoff date for May pools is approximately May 1st, therefore
requiring such Mortgage Loan to be delivered in a June pool. The cutoff date for
June pools is approximately June 1st. On average, HomeSide Lending's 70-day
locks are rolled on the 20th day of each month.
(b) HomeSide Lending shall delegate to the Affiliate Mortgage Company the
renegotiation and application of the repricing grids in an effort to avoid
departmental duplication and maintain the highest customer service levels.
HomeSide Lending may change such repricing grids from time to time upon
reasonable prior notice to the Affiliate Mortgage Company.
(c) HomeSide Lending shall not apply its daily volume cap policy to Banc One.
(d) HomeSide Lending shall administer its intra-day, daily, and emergency
pricing in the manner set forth in HomeSide Lending's secondary marketing buy
price policy, as may be amended from time to time. A copy of the current
secondary marketing buy price policy is set forth in Exhibit D, as amended by
the Addendum to such policy, which Addendum is also included within Exhibit D.
4.3. SERVICING RELEASED PREMIUMS.
4.3.1. Banc One Receives Most Favorable Correspondent Servicing Released
Premiums.
(a) Subject to subparagraph (c) below, HomeSide Lending shall pay to Banc One
HomeSide Lending's most favorable correspondent lender servicing released
premiums.
(b) Every two months, HomeSide Lending shall calculate an average servicing
released premium for each New Secondary Market Conforming Mortgage Loan within a
wholesale peer group (the "Average SRP") in the following manner:
(i) The wholesale peer group shall include HomeSide Lending and nine (9)
additional wholesalers with the highest wholesale Mortgage Loan
production, as measured semi-annually by SMR Research. If the SMR report
is no longer available, HomeSide Lending shall use a comparable report.
(ii)The Average SRP for each New Secondary Market Conforming Mortgage Loan
shall exclude the peer group's highest and lowest servicing released
premium.
(iii)Servicing released premiums shall be measured on a comparable basis
taking into consideration such factors as Mortgage Loan product types,
Mortgage Loan amounts, fees, volume incentives and other data necessary
and appropriate to accurately compare competitor pricing
(c) The servicing released premiums paid to Banc One for each New Secondary
Market Conforming Mortgage Loan shall be no more than 5 (five) basis points
below the most recent Average SRP for the comparable New Secondary Market
Conforming Mortgage Loan previously calculated by HomeSide Lending. The
servicing released premiums paid to Banc One for each New Secondary Market
Nonconforming Mortgage Loan shall be no more than 10 (ten) basis points below
the most recent Average SRP for the comparable New Secondary Market
Nonconforming Mortgage Loan previously calculated by HomeSide Lending.
4.4. CUSTOMER SERVICE LEVELS.
(a) HomeSide Lending shall maintain a dedicated customer service liaison
department within its correspondent lending division to respond specifically to
Banc One issues and concerns.
(b) HomeSide Lending shall establish an advisory/monitoring committee, including
Banc One representatives, which shall meet as needed to address operational
issues, customer service issues for both servicing and secondary marketing, and
other internal and external customer concerns.
4.5. BANC ONE FUNCTIONS.
After the Closing Date, Banc One shall:
(a) Originate the New Mortgage Loans.
(b) Process the New Mortgage Loans.
(c) Perform all underwriting functions for which HomeSide Lending has delegated
authority from HomeSide Lending's investors, subject to the Delegated
Underwriting Agreement.
(d) Close and fund all New Mortgage Loans.
(e) Perform such post closing functions in the manner set forth in the
Correspondent Agreement.
(f) Obtain all FHA insurance for all FHA New Mortgage Loans and VA guarantees
for all VA New Mortgage Loans.
(g) Perform all completion control functions including, but not limited to,
following-up with missing/incorrect Mortgage Loan documents and with New
Mortgage Loans containing other problems.
(h) Perform all compliance review functions for all New Mortgage Loans.
(i) Perform quality control functions for all New Portfolio Mortgage Loans and
New Mortgage Loans insured by the FHA or guaranteed by the VA.
(j) Perform up-front quality control for all New Secondary Market Mortgage Loans
in the manner required by the applicable secondary market investor.
(k) Distribute interest rate information relating to the New Mortgage Loans to
Banc One's Mortgage Loan origination channels.
(l) Perform lock-in reconciliations for all New Mortgage Loans.
(m) Cause Banc One's secondary marketing liaison group to interface with
production and HomeSide Lending.
(n) Perform funding reconciliations for all New Mortgage Loans.
(o) Perform New Mortgage Loan document follow-up functions in the manner set
forth in HomeSide Lending's preferred seller manual.
4.6. HOMESIDE LENDING FUNCTIONS.
After the Closing Date, HomeSide Lending shall, in connection with the New
Secondary Market Mortgage Loans being delivered to HomeSide Lending by Banc One:
(a) Perform secondary marketing functions for the New Secondary Market Mortgage
Loans.
(b) Perform pipeline management and hedging functions for the New Secondary
Market Mortgage Loans.
(c) Perform shipping functions for all New Secondary Market Mortgage Loans.
(d) Perform post closing quality control functions for the New Secondary Market
Mortgage Loans, with the exception of services provided by Banc One under
Section 4.5 above, in the manner described in the Correspondent Agreement.
(e) Perform post closing quality control functions for the New Secondary Market
Mortgage Loans in the manner required by the applicable secondary market
investor.
(f) Perform record retention and retrieval functions for the New Secondary
Market Mortgage Loans.
(g) Perform legal review and payment functions for the New Secondary Market
Mortgage Loans under the terms of the Correspondent Agreement and Delegated
Underwriting Agreement.
4.7. FEES.
Banc One shall pay to HomeSide Lending the fees set forth in the Servicing
Agreement, Correspondent Agreement, and the Exhibits thereto.
4.8. WAREHOUSE MANAGEMENT.
As of the Effective Date the following shall apply to the Warehouse Mortgage
Loans closed prior to the Closing Date but not delivered to an investor:
4.8.1. Mortgage Loans Locked With Other Entities. The following shall apply to
such Warehouse Mortgage Loans that are Previously Committed Loans:
(a) HomeSide Lending shall not purchase any Previously Committed Loan to be sold
by Banc One on a servicing-released basis and shall not purchase the related
Servicing Rights.
(b) HomeSide Lending:
(i) shall not purchase the Previously Committed Loans to be sold by Banc One
on a servicing retained basis, and (ii) shall purchase the related Servicing
Rights.
Banc One shall cause:
(x) HomeSide Lending to be designated as the servicer of such Previously
Committed Loans; and
(y) such Servicing Rights to be assigned and delivered to HomeSide Lending.
4.8.2. Mortgage Loans to Be Included in Agency Securities. Subject to Section
3.6 above, HomeSide Lending:
(i) shall purchase the Servicing Rights relating to conforming Warehouse
Mortgage Loans that will be exchanged for mortgage backed securities or
participation certificates that have been committed for sale to a third
party; and
(ii) shall not purchase the Warehouse Mortgage Loan assets.
Banc One shall cause:
(x) HomeSide to be designated as the concurrent servicer of such Warehouse
Mortgage Loans; and
(y) such Servicing Rights to be assigned and delivered to HomeSide Lending
under the terms of the Correspondent Agreement.
Banc One shall be solely responsible for issuing and settling the related
mortgage backed securities. Any proceeds resulting from the settlement of such
mortgage backed securities shall be the sole property of Banc One.
4.8.3. Mortgage Loans Locked With HomeSide Lending. Banc One shall, in the
ordinary course of Banc One's business, deliver to HomeSide Lending all New
Secondary Market Mortgage Loans locked in with HomeSide Lending prior to the
Closing Date under the terms of the Correspondent Agreement.
4.8.4. Eligible Secondary Market Mortgage Loans Not Locked With Any Entity. Banc
One shall obtain a commitment from HomeSide Lending for New Secondary Market
Mortgage Loans that (i) do not have a rate lock commitment from any entity or
have not been committed for sale to any entity pursuant to an Existing
Agreement, (ii) do not have related mortgage backed securities or participation
certificates that have been committed for sale to a third party, and (iii)
satisfy HomeSide Lending's current Mortgage Loan product offerings and
guidelines. Banc One shall sell and deliver each such Secondary Market Mortgage
Loan to HomeSide Lending under the terms of the Correspondent Agreement.
4.8.5. Mortgage Loans Ineligible For Secondary Market Sale. HomeSide Lending
shall not purchase from Banc One any Warehouse Mortgage Loan that:
(a) as of the Closing Date, is not eligible for sale to the secondary market for
any reason, including, but not limited to, documentation deficiencies,
underwriting deficiencies, poor credit quality, delinquency status and fraud; or
(b) is closed one hundred and twenty (120) or more days prior to the Closing
Date.
Banc One may keep each such Warehouse Mortgage Loan as a retained asset, or sell
at its discretion.
4.8.6. Register Loans With HomeSide On Effective Date. On and after the
Effective Date, Banc One shall register and/or lock in Warehouse Mortgage Loans
with HomeSide Lending.
4.9. PIPELINE MANAGEMENT.
As of the Effective Date, the following shall apply to Banc One's Pipeline
Mortgage Loans that have not closed prior to the Closing Date:
4.9.1. New Portfolio Servicing Rights. Banc One shall sell and deliver the New
Portfolio Servicing Rights to HomeSide Lending under the terms of the PMSR Flow
Agreement.
4.9.2. New Secondary Market Mortgage Loans. New Secondary Market Mortgage Loans
rate locked with HomeSide Lending shall be delivered to HomeSide Lending under
the terms of the Correspondent Agreement.
4.9.3. Mortgage Loans Locked In With Another Entity. The following shall apply
to Pipeline Mortgage Loans that are Previously Committed Loans prior to the
Closing Date:
(a) HomeSide Lending shall not purchase any Previously Committed Loan to be sold
by Banc One on a servicing-released basis.
(b) HomeSide Lending shall purchase the Servicing Rights relating to the
Previously Committed Loans to be sold by Banc One on a servicing retained basis,
but shall not purchase such Previously Committed Loans. Banc One shall cause:
(x) HomeSide Lending to be designated as the servicer of such Previously
Committed Loans, and (y) such Servicing Rights to be assigned and delivered to
HomeSide Lending under the terms of the Correspondent Agreement.
4.9.4. Mortgage Loans That Are Not Rate Locked. HomeSide Lending shall not be
obligated to purchase any New Secondary Market Mortgage Loan that is not rate
locked with any entity prior to the Closing Date unless such New Secondary
Market Mortgage Loan (i) is rate locked with HomeSide Lending, and (ii)
satisfies HomeSide Lending's current Mortgage Loan product offerings and
guidelines.
4.9.5. Lock In Loans with HomeSide on Effective Date. On and after the Effective
Date, Banc One shall lock in Pipeline Mortgage Loans with HomeSide Lending.
4.10. REPURCHASE AND INDEMNIFICATION OBLIGATIONS.
4.10.1. Liability Under the Asset Purchase Agreement. Banc One shall be liable
for indemnification and repurchase obligations relating to the Existing Mortgage
Loans under the terms of the Asset Purchase Agreement.
4.10.2. Liability Under the Correspondent Agreement. Banc One shall be liable
for indemnification and repurchase obligations relating to the New Secondary
Market Mortgage Loans it sells to HomeSide Lending under the terms of the
Correspondent Agreement and Delegated Underwriting Agreement.
4.11. REPORTING.
HomeSide Lending shall furnish Banc One each month with the following management
reports, together with other reports usual and customary for HomeSide Lending
correspondents.
(a) Pipeline Report. All registered New Secondary Market Mortgage Loans, whether
floating rate or locked-in rate, together with all required information,
including, but not limited to, the rate lock expiration dates and prices.
(b) Problem Loan Report: All New Secondary Market Mortgage Loans received by
HomeSide Lending with exceptions that are tracked by HomeSide Lending's legal
review system.
(c) Document Tracking Report. Information determining whether follow-up mortgage
documents have been received by HomeSide Lending, including, but not limited to,
recorded security instruments and title policies.
(d) Quality Control Report. Monthly/ Quarterly quality control reports on a
sample of New Secondary Market Mortgage Loans for production by bank/branch with
an overall summary indicating trends, fraud and certain other matters mutually
agreed upon by the parties.
(e) New Loan Tracking Report. A report identifying at what stage in HomeSide
Lending's process a New Secondary Market Mortgage Loan may be identified (e.g.
identifying whether a New Secondary Market Mortgage Loan has been reviewed or
set-up on HomeSide Lending's servicing system).
4.12. TECHNOLOGY.
4.12.1 Banc One Computer Feeds. HomeSide Lending and Banc One will use their
best efforts to develop computer feeds (both ways) as quickly as possible to
prevent degradation of service relating to Banc One's pricing and HomeSide
Lending's funding time.
4.12.2 Automated Interfaces. HomeSide Lending shall provide automated interfaces
and reporting with Banc One and overall support consistent with the service
levels currently provided including, but not limited to, the following items:
(i) General Ledger feed and balancing reports (ii) monthly report of interest
accruals (iii) monthly report of non-accrual loans (iv) monthly accrual of net
deferred fees (v) call report schedule RC-C, RC-N and RI and (vi) monthly basic
loan data file. The parties shall mutually agree upon reasonable fees to be paid
by Banc One to HomeSide Lending for developing the capacity for automated
interface, based upon the actual hours worked by HomeSide Lending. If any such
interface is not functional as of the Effective Date, HomeSide Lending and the
Affiliate Mortgage Company shall in good faith cooperate with each other to
provide the reports and support described above on manual basis.
4.12.3 Banc One Retains Indianapolis Applications Support Group. Banc One shall
retain the Indianapolis applications support group and supported applications,
including but not limited to, LoanXchange.
4.12.4 Leverage Existing Technologies. Banc One and HomeSide Lending shall work
together to leverage existing technology relating to Mortgage Loan production
functions.
4.13. OPERATIONS.
4.13.1. Additional Operating Plan. At a time mutually acceptable to the parties,
HomeSide Lending shall provide Banc One with an operating plan reflecting the
terms described in Exhibit E to this Operating Agreement.
4.13.2. Correspondent Operations Manual. HomeSide Lending has provided Banc One
with a copy of HomeSide Lending's Correspondent Operations Manual, attached as
Exhibit F, which shall govern the operational issues between HomeSide Lending
and Banc One contained in the Correspondent Operations Manual.
4.14. SALE OF SERVICING RIGHTS.
HomeSide Lending may not sell Servicing Rights to the Portfolio Mortgage Loans
except in compliance with the provisions of this Section 4.14.
(a) HomeSide Lending shall not sell the Servicing Rights relating to the
Portfolio Mortgage Loans to any other party unless HomeSide Lending shall have
first offered to sell such Servicing Rights to Banc One at fair market value and
in connection with such offer shall have offered to subservice on commercially
reasonable terms.
(b) No lender which takes a security interest in the assets of HomeSide Lending
and no transferees of such a lender shall be bound by the provisions of this
Section 4.14.
4.15. NATURE OF RELATIONSHIP.
Both parties recognize the importance of maintaining their competitive
advantages in their businesses and understand that the success of each is
inextricably bound in the other. Beyond the responsibilities explicitly outlined
in this Operating Agreement, both parties agree to work together to attempt to
create synergies and develop innovations that can result in sustainable
competitive advantages for both. HomeSide Lending shall cooperate in good faith
with Banc One to respond promptly to any reasonable request made by Banc One
with respect to the enhancement of the services, products and systems offered by
HomeSide Lending consistent with HomeSide Lending's access to capital.
<PAGE>
ARTICLE 5.
MISCELLANEOUS.
5.1. AFFILIATES EXECUTE AGREEMENTS.
5.1.1 Affiliates in General.
With the exception of an Acquired Affiliate, Banc One shall cause any of its
current or future Affiliates to execute agreements identical to the Ancillary
Agreements, in the event such Affiliate desires to engage in any mortgage
banking activity of a type which is the subject matter of such Ancillary
Agreements.
5.1.2. Acquired Affiliates.
On and after the Effective Date and subject to Section 5.1.4 below, Banc One
shall cause any Acquired Affiliate to execute agreements identical to the
Ancillary Agreements on the following conditions:
(a) With regard to Servicing Rights owned by any such Acquired Affiliate, Banc
One shall within 120 days of acquisition provide to HomeSide Lending an
independent valuation of the Servicing Rights at Banc One's cost. The
independent valuation shall be performed by an independent appraiser jointly
selected by Banc One and HomeSide Lending. HomeSide Lending shall then have 120
days thereafter to consider the valuation, including access to customary data
necessary to confirm the valuation. If HomeSide Lending does not agree in
writing to purchase the Servicing Rights at Banc One's valuation price by the
end of the aforesaid 120 days pursuant to a purchase agreement which shall be
reasonably acceptable to Banc One and HomeSide Lending, Banc One shall be
entitled to sell such Servicing Rights to any party in its sole discretion at a
price not less than that set forth in the independent evaluation unless pursuant
to a good faith, bona fide closed bid competitive auction in which HomeSide
Lending may participate.
(b) If the Acquired Affiliate is in the business of originating Mortgage Loans,
and HomeSide Lending elects to have such Acquired Affiliate execute Ancillary
Agreements for the purchase of Mortgage Loans and/or Servicing Rights from such
production, Banc One shall be entitled to a reasonable period of time (not to
exceed 120 days) to coordinate the transition of any origination activities into
deliveries under the Operating Agreement. HomeSide Lending agrees to reasonably
cooperate with Banc One in this transition.
(c) Banc One shall not be required to cause any Acquired Affiliate to execute
any Ancillary Agreement if such execution would constitute a material default
under any agreement that was entered into in good faith prior to the time that
Banc One entered into discussions for a transaction pursuant to which such
Acquired Affiliate became an Acquired Affiliate or that was entered into without
the intent or purpose, in whole or in part, of avoiding an obligation to enter
into any Ancillary Agreement.
5.1.3 Acquired Mortgage Banking Assets.
In the event Banc One acquires Servicing Rights in bulk pertaining to Mortgage
Loans (which are not excluded loans discussed in Section 3.7) after the Closing
Date, not in the context of an Acquired Affiliate or Excluded Affiliate
acquisition, Banc One shall offer to sell to HomeSide Lending the related
Servicing Rights in a fashion similar to that outlined in Section 5.1.2(a).
5.1.4. Excluded Affiliates. Banc One covenants that, so long as it does not
(a) merge, consolidate or otherwise combine any Excluded Affiliate with the
Affiliate Mortgage Company; or
(b) divert any Mortgage Loan production or origination from the Affiliate
Mortgage Company to any Excluded Affiliate;
then an Excluded Affiliate will not be required to sell any Mortgage Loans or
related Servicing Rights to HomeSide Lending, execute any agreement under
Section 5.1.2 above, or be bound by any other terms or conditions of this
Agreement.
Provided further, that in the event Banc One does merge, consolidate or
otherwise combine any Excluded Affiliate with the Affiliate Mortgage Company,
Banc One covenants that it shall thereafter for the balance of the term hereof
cause to be delivered to HomeSide Lending New Mortgage Loans and New Servicing
Rights in a percentage amount not less than the pro rata percentage set forth
below:
Where:
X = the dollar volume of retail originations of the Affiliate Mortgage Company
for the preceding 12 months prior to the merger, consolidation or combination;
Y = the dollar volume of retail originations of the Excluded Affiliate for the
preceding 12 months prior to such merger, consolidation or combination;
Then:
The minimum annual delivery for the balance of the term hereof shall be equal
to:
[X / (X+Y) ] x Annual combined dollar volume of annual retail originations for
the Affiliate Mortgage Company and the Excluded Affiliate together.
Furthermore, in the event Banc One does merge, consolidate or otherwise combine
any Excluded Affiliate with the Affiliate Mortgage Company, Banc One Shall cause
the Excluded Affiliate to execute any agreements required under Section 5.1.2.
5.2. CONTROLLING AGREEMENTS.
To the extent that the terms of the Marketing Agreement or the Asset Purchase
Agreement, on the one hand, are inconsistent with the terms of this Operating
Agreement on the other hand, the terms of the Marketing Agreement or the Asset
Purchase Agreement, as the case may be, shall control.
To the extent that the terms of this Operating Agreement are inconsistent with
the terms of the other Ancillary Agreements, the terms of this Operating
Agreement shall control.
5.3. SUCCESSORS.
This Operating Agreement shall inure to the benefit of and be binding upon the
parties to this Operating Agreement.
5.4. ASSIGNMENT AND DELEGATION.
No party may assign this Operating Agreement or delegate any of its functions
hereunder to any other party without the prior written consent of HomeSide
Lending or the applicable Banc One Affiliate; provided (i) such consent shall
not be unreasonably withheld, (ii) there shall be no material defaults under
the Ancillary Agreements, (iii) all Ancillary Agreements shall be assigned
together, as necessary and/or appropriate and (iv) the assignor shall remain
liable for the performance of the assignee. Notwithstanding the foregoing,
either party may assign and/or delegate, in whole or in part, any of its rights
under this Operating Agreement to any of its Affiliates without the prior
written consent of HomeSide Lending or Banc One.
5.5. FORCE MAJEURE.
Each party shall be excused for delays or errors hereunder to the extent that
such delays or errors are directly or indirectly caused by or results from an
occurrence commonly known as force majeure, including without limitation, any
act of God, governmental action, natural disaster, armed hostilities, floods,
power or technological failure or failure of essential equipment, strikes or
labor disturbances or any other circumstances beyond the reasonable control of
such party; provided, however, that each party represents and warrants that its
business resumption plan in the event of a force majeure is in compliance with
Agency guidelines and provided further that any party's failure to comply with
any Year 2000 compliance issue shall not be deemed to be an act of God. In the
event that a party's performance hereunder is affected by an event of force
majeure such party shall promptly notify the other party of the same, giving
reasonable full particulars thereof, and insofar as known, the probable extent
to which it will be unable to perform, or will be delayed in performing, its
obligations hereunder and shall use its best efforts to remove such force
majeure as quickly as possible.
5.6. TERM.
The term of this Operating Agreement shall be five (5) years from the Effective
Date.
This Operating Agreement may be extended for two (2) years if the extension
negotiations are completed at least six (6) months prior to the original
expiration date. After any such two (2) year extension, this Operating Agreement
is cancelable upon one hundred eighty (180) days' prior written notice which may
be given as early as one hundred eighty (180) days before the extended
expiration date.
The expiration of this Operating Agreement shall not cause the Servicing
Agreement or HomeSide Lending's right to service the Existing Mortgage Loans or
the New Mortgage Loans serviced (at the date of such expiration) under the
Servicing Agreement to terminate or otherwise expire.
5.7. TERMINATION.
This Operating Agreement may be terminated for any one of the following reasons:
5.7.1. HomeSide Lending's Financial Impairment. Banc One may terminate this
Operating Agreement immediately if HomeSide Lending becomes bankrupt or has its
status as an approved seller/servicer/mortgagee rescinded by an Agency.
5.7.2. HomeSide Lending's Failure to Perform. Banc One may terminate this
Operating Agreement immediately if:
(a) HomeSide Lending fails to satisfy specific written standards established by
the advisory/monitoring committee established under Section 4.4(b), as agreed
upon by the executive management of Banc One and HomeSide Lending, and HomeSide
Lending fails to cure such failure within one hundred twenty (120) days after
receiving formal written notice of such failure; or
(b) HomeSide Lending sells more than 35% (by number of Mortgage Loans) of the
Existing Servicing Rights. The following sales of Existing Servicing Rights
shall not be counted when calculating the sale percentage: (i) sales of Existing
Servicing Rights which HomeSide Lending considers to be substandard or costly to
service; (ii) sales of Existing Servicing Rights which are required to be sold
by a state or local housing authority which sales are not due to HomeSide
Lending's failure to properly service; and (iii) sales of Existing Servicing
Rights if Banc One's marketing rights pursuant to the Marketing Agreement are
expressly preserved.
5.7.3. Banc One's Failure to Perform. HomeSide Lending may, but shall not be
required to, terminate this Operating Agreement immediately if Banc One fails to
deliver at least one billion dollars ($1,000,000,000) of Servicing Rights during
each full calendar year of the Operating Agreement and interest rates on average
are less than twelve percent (12%) during such year, unless origination levels
increase to one billion dollars ($1,000,000,000) on an annualized basis after a
ninety (90)-day cure period following formal written notice of intent to
terminate.
5.7.4. Termination of Servicing Agreement. Notwithstanding the foregoing, Banc
One may terminate HomeSide Lending's right to service the Existing Portfolio
Mortgage Loans or the New Portfolio Mortgage Loans under the HomeSide Lending
Servicing Agreement only if:
(a) HomeSide Lending files for protection under any bankruptcy or similar law.
(b) The FHA suspends any of HomeSide Lending's approvals as an FHA approved
mortgagee; provided, however, that HomeSide Lending may cure any such suspension
within ninety (90) days after the business day on which HomeSide Lending
receives written notice of any such suspension.
(c) HomeSide Lending commits a material breach of its obligations under the
Servicing Agreement; provided, however, that Banc One must first give HomeSide
Lending written notice that Banc One has discovered such a material breach.
HomeSide Lending may cure any such breach within one hundred and twenty (120)
days after the business day on which HomeSide Lending receives such written
notice.
HomeSide Lending may terminate the Servicing Agreement for any reason upon one
hundred eighty (180) days' prior written notice, but only after termination of
this Operating Agreement.
Subject to the rights of any secured party relating to HomeSide Lending's line
of credit, which rights HomeSide Lending and Banc One acknowledge, HomeSide
Lending shall, upon notice that the Servicing Agreement is being terminated: (a)
sell to Banc One the Servicing Rights to the Existing Portfolio Mortgage Loans
and New Portfolio Mortgage Loans for the then current fair market value of such
Servicing Rights as determined by an independent appraiser mutually acceptable
to the HomeSide Lending and Banc One, or (b) if Banc One declines to purchase
such Servicing Rights, then HomeSide Lending shall negotiate the sale and
transfer of such Servicing Rights to a third party servicer selected by HomeSide
Lending and approved by Banc One which approval shall not be unreasonably
withheld. The "fair market value" of the Servicing Rights shall be determined by
an independent appraiser mutually acceptable to HomeSide Lending and Banc One
with respect to the Servicing Rights sold pursuant to this Section 5.7.4.
HomeSide Lending shall be entitled to the related purchase price, less any costs
or expenses incurred by Banc One in relation to such transfer.
5.7.5. Effect of Termination. Termination of this Operating Agreement or any of
the other Ancillary Agreements shall not affect any of the parties' covenants,
obligations or representations relating to actions or inactions before the
termination date. Without limiting the above, the parties' rights and
obligations relating to any indemnification or repurchase shall survive the
termination of this Operating Agreement or the other Ancillary Agreements in
accordance with the terms thereof.
5.8. NOTICES.
All notices, requests, demands and all other notices and other communications
required or permitted to be given under this Operating Agreement shall be in
writing and shall be deemed given if delivered personally, transmitted by
facsimile (and telephonically confirmed), mailed by registered or certified mail
with postage prepaid and return receipt requested, or sent by commercial
overnight courier, courier fees prepaid, to the parties at the following
addresses:
If to HomeSide Lending to:
Hugh R. Harris
President
HomeSide Lending, Inc.
7301 Baymeadows Way
Jacksonville, FL 32256
With a copy to:
Robert J. Jacobs
General Counsel
HomeSide Lending, Inc.
7301 Baymeadows Way
Jacksonville, FL 32256
If to Banc One, to:
Donald K. Erling
President and CEO
Banc One Mortgage Corporation
IN1-0144
Bank One Center/Tower
111 Monument Circle 14th Floor
Indianapolis, IN 46277-0114
With a copy to:
Steven A. Bennett
Senior Vice President and General Counsel
Banc One Corporation
100 East Broad Street
Columbus, Ohio 43271-0158
or to such other address as HomeSide Lending or Banc One shall have specified in
writing to the other.
5.9. AMENDMENT.
No amendment or modification to this Operating Agreement shall be valid unless
executed in writing by HomeSide Lending and Banc One.
5.10. WAIVER.
No waiver of any right or obligation under this Operating Agreement by any party
on any occasion shall be deemed to operate as a waiver on any subsequent
occasion.
5.11. PROVISIONS SEVERABLE.
If any provision of this Operating Agreement shall be held to be void or
unenforceable by any court of competent jurisdiction or any governmental
regulatory agency, such provision shall be considered by all parties to be
severed from this Operating Agreement. All remaining provisions of this
Operating Agreement shall be considered by the parties to remain in full force
and effect.
5.12. GOVERNING LAW.
This Operating Agreement is entered into in the state of Florida. Its
construction and rights, remedies and obligations arising by, under, through, or
on account of it shall be governed by the laws of the State of Florida excluding
its conflict of laws rules and shall be deemed performable in the State of
Florida.
5.13. NO AGENCY OR JOINT VENTURE CREATED.
This Operating Agreement shall not be deemed to constitute HomeSide Lending and
Banc One as partners or joint venturers, nor shall HomeSide Lending or Banc One
be deemed to constitute the other as its agent.
5.14. SECTION HEADINGS.
Section headings are intended only to assist in the organization of this
Operating Agreement and do not in any way limit or otherwise define the rights
and liabilities of the parties.
5.15. ENTIRE AGREEMENT.
This Operating Agreement constitutes the entire agreement among the parties and
supersede all other prior communications and understandings, written or oral,
among the parties with respect to the subject matter of this Operating
Agreement. There are no contemporaneous oral agreements.
5.16. COUNTERPARTS.
This Operating Agreement may be executed in multiple counterparts each of which
shall be deemed an original. Regardless of the number of counterparts, the total
shall constitute only one agreement.
5.17. PLURALS AND GENDER.
In construing the words of this Operating Agreement, plural constructions shall
include the singular, and singular constructions shall include plural. No
significance shall be attached to whether a pronoun is masculine, feminine, or
neuter.
5.18. INVESTOR ACKNOWLEDGMENT AGREEMENTS.
Upon HomeSide Lending's request, Banc One and its Affiliates shall execute one
or more investor acknowledgment agreements in which Banc One acknowledges the
security interest and certain other related rights in the Existing Portfolio
Servicing Rights and New Portfolio Servicing Rights held by creditors of
HomeSide Lending and/or HomeSide, Inc. Each such investor acknowledgment
agreement shall be in such form as shall be satisfactory to such creditors.
IN WITNESS WHEREOF, HomeSide Lending and Banc One, as of the day first set forth
above, have caused this instrument to be signed on their behalf by their duly
authorized officers.
HOMESIDE LENDING, INC.
By:/s/ Hugh R. Harris
------------------
Hugh R. Harris
- --------------
(Print Name)
Title: President
---------
<PAGE>
BANC ONE CORPORATION
By: /s/ William P. Boardman
---------------------
William P. Boardman
- -------------------
(Print Name)
Title:Senior Executive Vice President
-------------------------------
BANC ONE MORTGAGE CORPORATION
By: Brad L. Connor
--------------
Brad L. Connor
- --------------
(Print Name)
Title: Executive Vice President
------------------------
<PAGE>
EXHIBIT A
Correspondent Loan Purchase Agreement
<PAGE>
EXHIBIT B
PMSR Flow Agreement
<PAGE>
EXHIBIT C
Servicing Agreement
<PAGE>
EXHIBIT D
Secondary Marketing Buy Price Policy
<PAGE>
EXHIBIT E
Operating Plan
<PAGE>
EXHIBIT F
Correspondent Operations Manual
<PAGE>
EXHIBIT G
Correspondent Lender Delegated Underwriting Agreement
Exhibit 10.3
UNSECURED REVOLVING CREDIT AGREEMENT
This Unsecured Revolving Credit Agreement, dated as of June
23, 1998 (this "Agreement"), is entered into by and between HOMESIDE LENDING,
INC., a Florida corporation (the "Borrower"), and NATIONAL AUSTRALIA BANK
LIMITED A.C.N.004044937, an Australian corporation (the "Lender").
The parties hereto hereby agree as follows:
1. Defined Terms. As used in this Agreement, the following terms shall have
the meanings specified below.
"Business Day" means a day other than a Saturday, Sunday or other day
on which commercial banks in New York City are authorized or required by
law to close.
"GAAP" means generally accepted accounting principles in the United
States of America in effect from time to time.
"Maturity Date" means June 22, 1999 or such earlier date as the Loans
may be due and payable -------------- pursuant to Section 4.
"Obligations" means the unpaid principal and interest on the Loans and
the Note and all other obligations and liabilities of the Borrower to the
Lender (including, without limitation, interest accruing at the then
applicable rate provided in the Note after the maturity of the Loans and
interest accruing at the then applicable rate provided in the Note after
the filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding, relating to the Borrower,
whether or not a claim for post-filing or post-petition interest is allowed
in such proceeding), whether direct or indirect, absolute or contingent,
due or to become due, or now existing or hereafter incurred, which may
arise under, out of, or in connection with, this Agreement, the Loans, the
Note, or any other document made, delivered or given in connection
therewith, in each case whether on account of principal, interest, fees,
indemnities, costs, expenses or otherwise (including, without limitation,
all fees and disbursements of counsel to the Lender that are required to be
paid by the Borrower pursuant to the terms of this agreement.
"Regulatory Limitation" means any lending limit or other limitation
imposed by regulatory bodies having jurisdiction over the Lender or
Borrower, including without limitation, the Reserve Bank of Australia,
which would limit or prohibit the extension of the credit contemplated
hereby.
2. Amount and Terms of Loans. Subject to the Regulatory Limitation, and the
terms and conditions hereof and so long as no Event of Default (as defined
herein) has occurred and is continuing, the Lender agrees to make revolving
credit loans (the "Loans") to the Borrower from time to time during the period
from the date on which all of the conditions set forth in Section 6 hereof have
been satisfied through but not including the Maturity Date (as defined in the
Note) in an aggregate principal amount not to exceed $2,100,000,000 outstanding
at any time. The Loans shall be evidenced by a promissory note (the "Note") of
the Borrower, substantially in the form of Exhibit A, to be executed and
delivered to the Lender on or before the date of funding the first Loan (the
"Initial Loan Date"). The Borrower hereby unconditionally promises to pay to the
Lender on the Maturity Date the then unpaid principal amount of the Loans
outstanding, together with any accrued and unpaid interest. The Borrower hereby
further agrees to pay interest on the unpaid principal amount of the Loans from
time to time outstanding from the Initial Loan Date until payment in full
thereof at the rates, and on the dates, set forth in the Note. The Loans may be
borrowed on any Business Day upon notice to the Lender prior to 3:00 p.m. New
York City time on the date of such borrowing (which notice shall be accompanied
by such information as shall be reasonably requested by the Lender) and may be
prepaid at any time without premium or penalty.
3. Covenants. The Borrower agrees that, so long as any amount is owing to
the Lender hereunder or under the Note, the Borrower shall:
(a) Furnish to the Lender within 90 days after the end of each fiscal
year of the Borrower a copy of the Borrower's year end consolidated balance
sheet, the related consolidated statements of income and retained earnings,
and statements of cash flows. Such financial statements shall be complete
and correct in all material respects and shall be prepared in reasonable
detail and in accordance with GAAP.
(b) Preserve, renew and keep in full force and effect its corporate
existence and take all reasonable action to maintain all rights and
privileges necessary in the normal conduct of its business.
(c) Keep proper books of record and account in which full, true and
correct entries in conformity with GAAP shall be made of all dealings and
transactions relating to the Borrower's business.
(d) Maintain at all times its status as a FNMA and FHLMC approved
Seller/Servicer, a GNMA approved Issuer/Servicer, a HUD Direct Endorsement
Lender, a VA approved Lender and an FHA approved Lender in good standing.
4. Events of Default; Remedies. If (a) the Borrower shall fail to pay any
principal of the Loans when due in accordance with the terms hereof and of the
Note, or (b) the Borrower shall fail to pay any interest on the Loans, or any
other amount payable hereunder or under the Note, within five days after any
such interest or other amount becomes due in accordance with the terms thereof
or hereof, or (c) any representation or warranty made by the Borrower herein or
in any document delivered by the Borrower in connection herewith or which is
contained in any certificate, document, or financial or other statement
furnished by it at any time under or in connection with this Agreement or any
such other document shall prove to have been incorrect in any material respect
on or as of the date made or deemed made, and the facts or circumstances in
respect of which such representation or warranty was incorrect have not changed
to make such representation or warranty correct within 30 days after it was
made, then, and in any such event described in clause (a), (b), or (c) above,
(i) the Lender may by notice to the Borrower declare the commitment of the
Lender to make Loans hereunder to be terminated and the Loans (with accrued
interest thereon) and all other amounts owing under this Agreement and the Note
to be due and payable forthwith, whereupon the same shall immediately become due
and payable. The Borrower hereby waives presentment, demand, protest or any
notice (to the maximum extent permitted by applicable law) of any kind in
connection with this Agreement.
5. Payment of Expenses. The Borrower agrees (a) to pay or reimburse the
Lender for all its out-of-pocket costs and expenses incurred in connection with
the development, preparation and execution of, and any amendment, supplement or
modifications to this Agreement and the Note and any other documents prepared in
connection herewith or therewith, and the consummation and administration of the
transactions contemplated hereby and thereby, including, without limitation, the
reasonable fees and disbursements of counsel to the Lender, (b) to pay,
indemnify, and hold the Lender harmless from, any and all recording and filing
fees and any and all liabilities with respect to, or resulting from any delay in
paying, stamp, excise and other taxes, if any, which may be payable or
determined to be payable in connection with the execution and delivery of, or
consummation or administration of any of the transactions contemplated by, or
any amendment, supplement or modification of, or any waiver or consent under or
in respect of, this Agreement, the Note and any such other documents, and (c) to
pay, indemnify, and hold the Lender harmless from and against any and all other
liabilities, obligations, losses, damages, penalties, actions judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever with respect
to the execution, delivery, enforcement, performance and administration of this
Agreement, the Note and any such other documents (all the foregoing in this
clause (c), collectively, the "Indemnified Liabilities"), provided that the
Borrower shall have no obligation hereunder to the Lender with respect to
Indemnified Liabilities arising from the gross negligence or willful misconduct
of the Lender.
6. Representations and Warranties. On and as of the date hereof, the
Borrower represents and warrants to the Lender that:
(a) The Borrower (i) is duly organized, validly existing and in good
standing under the laws of the State of Florida, (ii) has the corporate power
and authority, and the legal right, to own and operate its property, to lease
the property it operates as lessee and to conduct the business in which it is
currently engages, and (iii) is duly qualified and in good standing under the
laws of each jurisdiction where its conduct of its business requires such
qualification, except to the extent that the failure to be so qualified or in
good standing could not, in the aggregate, reasonably be expected to have a
material adverse effect.
(b) The Borrower has the corporate power and authority, and the legal
right, to make, deliver and perform its obligations under this Agreement and has
taken all necessary corporate action to authorize the borrowings under the terms
and conditions of this Agreement and the Note and to authorize the execution,
delivery and performance of this Agreement. No consent or authorization of,
filing with, notice to or other act by or in respect of any governmental
authority or any other person is required in connection with the borrowings
hereunder or with the execution, delivery, performance, validity or
enforceability of this Agreement. This Agreement constitutes a legal, valid and
binding obligation of the Borrower enforceable against the Borrower in
accordance with its terms, subject to the effects of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
relating to or affecting creditors rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.
(c) Insofar as the Borrower's capacity to carry out any obligation under
this Agreement is concerned, the Borrower is not in violation of any provision
of any charter, certificate of incorporation, by-law, mortgage, indenture,
indebtedness, agreement, instrument, judgment, decree, order, statue, rule or
regulation, and there is no such provision that adversely affects the Borrower's
capacity to carry out such obligations. The Borrower's execution of, and
performance pursuant to, this Agreement, including the borrowings hereunder and
the use of any proceeds thereof, shall not result in any such violation.
Each request by the Borrower that a Loan be made hereunder, and each borrowing
thereof, shall constitute a representation and warranty by the Borrower on the
date thereof that all such representations and warranties set forth in the
preceding sentence are true and correct in all material respects as if made on
such date
7. Conditions to Effectiveness. This Agreement shall be considered
effective as of the date on which the Lender receives (i) the Note, duly
executed and delivered by a duly authorized officer of the Borrower, (ii) such
opinions of counsel to the Borrower as the Lender shall request and certified
copies of the resolutions of the Board of Directors of the Borrower authorizing
this Agreement and the borrowings and security interests contemplated hereby,
and (iii) the opinion of a nationally recognized investment banking firm issued
in conformity with the requirements of Section 1013 of that certain Indenture
governing the 11 1/4% Series B Senior Secured Second Priority Notes of HomeSide
International, Inc., the indirect parent of the Borrower.
8. Counterparts. This agreement may be executed by one or more of the
parties hereto in any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
9. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
10. Notices. All notices, requests and demands to or upon the respective
parties hereto to be effective shall be in writing (including by facsimile
transmission) and, unless otherwise expressly provided herein, shall be deemed
to have been duly given or made (a) in the case of delivery by hand, when
delivered, (b) in the case of delivery by mail, three days after being deposited
in the mails, postage prepaid, or (c) in the case of delivery by facsimile
transmission, when sent and receipt has been confirmed, addressed as follows in
the case of the Borrower, and the Lender or to such other address as may be
hereafter notified by the respective parties hereto:
The Borrower: HomeSide Lending, Inc.
7301 Baymeadows Way
Jacksonville, FL 32256
Attention: Debra F. Watkins
Senior Vice President
Fax: 904-281-7766
with a copy to: HomeSide Lending, Inc.
7301 Baymeadows Way
Jacksonville, FL 32256
Attention: G. Alan Howard
First Vice President & Senior Counsel
Fax: 904-281-3062
The Lender: National Australia Bank Limited
200 Park Avenue, 34th Floor
New York, NY 10166
Attention: Michael G. McHugh
Fax: 212-983-1969
provided that any notice, request or demand to or upon the Lender shall not be
effective until received.
11. Submission To Jurisdiction Waivers. The Borrower hereby irrevocably and
unconditionally (a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the Note, or for recognition and
enforcement of any judgment in respect thereof, to the non-exclusive general
jurisdiction of the Courts of the State of New York, the courts of the United
States of America for the Southern District of New York, and appellate courts
from any thereof (b) consents that any such action or proceeding may be brought
in such courts and waives any objection that it may now or hereafter have to the
venue of any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same, (c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail (or
any substantially similar form of mail), postage prepaid, to the Borrower at its
address set forth in section 10 of this Agreement or at such other address of
which the Lender shall have been notified pursuant thereto, (d) agrees that
nothing herein shall affect the right to effect service of process in any other
manner permitted by law or shall limit the right to sue in any other
jurisdiction, and (e) waives, to the maximum extent not prohibited by law, any
right it may have to claim or recover in any legal action or proceeding referred
to in this subsection any special, exemplary, punitive or consequential damages.
12. WAIVERS OF JURY TRIAL. THE BORROWER AND THE LENDER HEREBY IRREVOCABLY
AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM
THEREIN.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective duly authorized officers as of the
date first above written.
HOMESIDE LENDING, INC.
By: /s/James L. Krakau
James L. Krakau
First Vice President
NATIONAL AUSTRALIA BANK LIMITED A.C.N.004044937
By: /s/ R. Adams Perry, III
R. Adams Perry, III
Corporate Banking and Finance
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<PERIOD-START> APR-01-1998
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